Ladies and gentlemen, good day and welcome to the Bajaj Finserv Q4 FY20 Results Conference Call hosted by JM Financial Services. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. Now on the conference, over to Ms. Bunny Babjee [Bachi] from JM Financial. Thank you and over to you, ma'am.
Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss the fourth quarter and full year FY 2020 results. To discuss the same, we have on the call Mr. S. Sreenivasan, CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance; Mr. Ramandeep Singh, CFO, Bajaj Allianz General Insurance; Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance; and Mr. Bharat Kalsi, CFO, Bajaj Allianz Life Insurance. May I request Mr. S. Sreenivasan to take us through the financial highlights, post which we can open the floor for Q&A session. Over to you, sir.
Thank you, Bunny Babjee. Good morning, everybody. In these difficult times, I would like to welcome everyone to our next edition of our conference call, where we'll be discussing the results of Bajaj Finserv Limited for Q4 and FY 2019-20. We have already put up our investor presentation on the website yesterday, and we have also issued the press release after our board meeting yesterday. I would also like to welcome my colleagues, Tapan, Tarun, Raman, and Bharat. For your information, Ramandeep used to be the CFO of Bajaj Allianz Life till the last call, but now as part of our internal succession planning, he has moved into the general insurance company as the CFO, in place of Milind Chaudhary, who is retiring at the end of this month. Bharat Kalsi joining us for the first time as CFO of Bajaj Allianz Life.
In this call, we will largely be concentrating on the consolidated results as well as the results of our insurance operations through Bajaj Allianz General Insurance and Bajaj Allianz Life Insurance companies. Bajaj Finance, which is another major subsidiary of ours, has already had its conference call. However, if there are any high-level questions, we would be glad to take that as well. We will not be taking any questions on the status of Allianz's stake in our insurance companies. The status has remained the same as at the end of the previous quarter, and there is no change. Any statements that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance results. A few remarks on Ind AS. As required by regulation, BFL has adopted Indian Accounting Standards from FY 2019.
Insurance companies, however, are not covered under Ind AS. They have prepared Ind AS financials only for the purpose of consolidation. For Bajaj and BALIC, the standalone numbers reported below are based on the non-Ind AS accounting standards or Indian GAAP, as we may call it, as applicable to the insurance companies. These are in compliance with the IRDA's financial statement regulations. To give you an update on the performance. Even without the terrible effects of COVID-19 pandemic, India GDP growth had showed clear signs of slowing down. To fight COVID-19 impact, RBI has unveiled significant measures of repo rate reduction. Even today they have just an hour ago reduced the repo rate to 4%. The CRR has also been reduced. Targeted long-term repo operations, TLTRO, was offered in March 2020.
Even as economic conditions remain difficult, all our three businesses have performed well since February 2020. However, as you may be aware, the nationwide lockdown imposed from 25th March 2020 and the moratorium on loan installments for customers of banks and NBFCs announced by RBI impacted the performance for the month of March 2020. The lockdown has since continued. It was first extended up to May 3rd and now, at least in Maharashtra and many parts of the country, It is still continuing in different forms. As new car sales came to a standstill and since IRDA had provided customers time till 15th May 2020 to pay the renewal premiums for policies expiring after 24th March 2020, the growth of general insurance industry was affected in March and subsequently April as well.
The life insurance industry also recorded a steep fall in new business in the month of March as a substantial amount of business seasonally for the life industry is written in the last few days of March. Despite these challenges, the company has been able to record its highest-ever annual consolidated total income and profit after tax. Before I cover the highlights for this quarter, I would like to discuss about Bajaj Finserv's response to COVID-19 following the Q4 and FY2020 results and the probable future impacts for our insurance subsidiaries. As I mentioned earlier, Bajaj Finance has already had its call and you have had an extensive preview of the management on the various actions they have been taking from their side. Facing COVID-19 and the lockdown, the company and its subsidiaries took immediate steps to handle this force majeure situation.
Some of the initiatives were activating business continuity plans, ensuring employee safety, operating work from home, setting up virtual private networks and IT infrastructure, continuing business digitally, and reaching out to customers to meet their servicing requirements. In fact, Bajaj, BALIC, and BFL business continuity plans were tested by the lockdown, and I must say that all three companies came out very well and bringing in changes as required at a rapid pace. Every employee was contacted to ensure his or her safety and well-being during these tough times. A health support hotline was created for employees with a doctor on call. In addition, various end-to-end digital sales trainings were provided virtually even before the lockdown through our e-modules and video-based learning solutions such as Skill City for Bajaj.
While ensuring the safety and upskilling of our employees, we have made sure we support our customers and partners in every possible way. We continuously engaged with partners and provided virtual product training. We have mapped each of our distribution partners' capabilities and supported the partners who needed extra support. We integrated new processes and priority to ensure a smooth transition. At the customer end, we already had the digital access in place to digitally service their needs. We reached out to customers to reduce their panic and engaged with them to help them understand how to meet their servicing needs. To give you a bit more flavor onto this, Bajaj issued over 1.4 million policies, settled over 700,000 claims and serviced over 270,000 customer footprints between 24th March 2020 and 30th April 2020 when there was a complete lockdown.
Bajaj onboarded 10,000-plus agents digitally through the Sarathi app and even launched two innovative products in this period: pay-as-you-consume motor products and Bajaj GoFi Kopay health product. Bajaj issued approximately 24,000 policies between 24th March 2020 and 30th April 2020. Of the 24,000 policies, around 15,000 policies were issued in April 2020, with term policies contributing to 21% of the total policies. In addition, Bajaj digitally onboarded around 8,000 point-of-sales persons through the iRecruit app from 1st April 2020 till 20th May 2020, with about 2,500 of them being onboarded in April 2020. In addition, Bajaj has been agile and introduced new functionalities both on the customer and partner end, such as signature on customer declaration form, replace with OTP, co-browsing enablement for online buying journey, et cetera. The situation is still evolving and difficult to hazard a guess on how this pandemic will evolve.
The company and its subsidiaries will be focusing on profitability over growth, seeking to conserve cash, borrowing long-term, strengthening collections, reducing overheads, and preserving capital adequacy. The spread of COVID-19 resulted in a sudden and steep fall in the value of shares traded in the stock exchanges. In Q4 FY2020, the Nifty 50 Index and the BSE 200 Index both lost 29%. Under Ind AS, the insurance subsidiaries are chosen to hold the equity security at fair value through profit and loss account, and therefore, the insurance companies had an unrealized mark-to-market pre-tax loss of INR 768 crores in the consolidated financials. Additionally, BFL had made a contingency pre-tax provision of INR 900 crores in the form of a provision on account of the impact of COVID-19.
The estimate adjustment and contingency provision together considered as COVID-19 impact after adjusting for tax and the company's interest in those subsidiaries have impacted consolidated profit after tax for Q4 and FY2020 by INR 807 crores. Now coming to the outlook for our insurance subsidiaries, I must again qualify this by saying that these are just estimates based on facts available at this time. As things pan out, it may turn out a bit different from what I'm telling you now. However, these are the broad trends that we are observing, and I would like to share with you some insights. Given the uncertainty, it's tough to gauge the extent of the impact COVID-19 will have on the industry. Still, this is what we think the future will be. The outlook for our general insurance business in the coming year is likely to be mixed.
Sales of new motor vehicles and investment in assets, which are key drivers of general insurance, are likely to be subdued. Motor insurance, travel insurance, and credit insurance are likely to be impacted in terms of growth. Demand for health insurance should pick up as the need for protection is heightened. Property business is expected to benefit from the price hike. Post the PSU bank mergers, I must compliment the Bajaj team for this. Bajaj has retained all the large bank insurance relationships and gained access to over 10,000 bank branches to the already large distribution network. On the claims front, we expect the motor claims will be on the lower side while the restrictions are in place. Post the lockdown, we expect some impact will be felt due to diesel cars lying unused, higher repair costs with dealers increasing rates.
On health claims, as of now, we are not expecting COVID-related health claims to be exceptionally high in relation to Bajaj size, given the low level of penetration of health insurance and Bajaj's own market share, which is below its overall market share. As you may recall, we had deliberately slowed down our exposure to group health over the last 12 months. Our overall exposure to this is actually lower than what it was maybe more than a year ago. This will evolve over the next few months. Similarly, we expect lower non-COVID claims during the lockdown as people postpone corrective surgeries and avoid hospital visits for smaller ailments. Post the lockdown, there could be a rise in claims due to postponed operations taking place and hospitals seeking to cover their losses. Otherwise, we expect lower claims during the lockdown.
Despite the uncertainty with respect to COVID-19, Bajaj will continue to drive its expense reduction initiatives and focus on digitization of operational processes both on the customer and partner ends, and endeavor to transform to the new generation Bajaj in a low-touch and contactless environment. Overall, Bajaj robust solvency, large premium in relation to its premium, proven underwriting, stable management team, and strong brand position it quite strongly among the peers and should help it withstand the crisis and take advantage of opportunities once the crisis has passed. Coming to Bajaj, during this period of national and state lockdowns, where businesses are not functioning, coupled with volatile capital markets, retail customers are cautious, and they are seeking to conserve cash. They don't seem to be comfortable making long-term commitments. This will initially have an impact on new business subject to containment of the pandemic.
In addition, retail term sales, though growing well, could have done more but for the compulsory medicals for our flagship new product, Smart Protect Goal. We have been conservative in our approach to underwriting in the Smart Protect Goal because it is by far the most competitive in the market. We will soon be launching a revised SPG product with a higher non-medical limit, more number of locations, and smart underwriting using AI. There has been an increase in demand for guaranteed savings and protection products, and it is hoped that this demand will continue even after the pandemic. Bajaj's move towards a balanced product mix which started a couple of years ago is expected to help Bajaj stand in good stead.
In fact, if you recall, we have been saying in the previous conference calls that one of the reasons we wanted to diversify product mix was to de-risk our exposure to the market, which comes in the form of unit-linked business. Bajaj will be focusing on renewal premiums, analyzing new types of partnerships, controlling costs, reaching out to prospective customers digitally, and enhancing digitization of operational processes. Overall, an excellent contingency margin, a well-balanced product mix, a robust multi-channel distribution covering proprietary and partnership business models with extensive geographical reach and strong brands should help Bajaj overcome the effects of the pandemic and emerge as a strong player. Coming to the performance for FY 2020, Bajaj Finserv has recorded its sixth successive highest annual profit after tax on a consolidated base.
Bajaj Finance Limited continued its outstanding growth story and has again recorded its highest annual total income and profit after tax. Bajaj recorded growth well above the market growth and recorded its highest annual profit after tax. Bajaj recorded growth well above market growth in individual business and strong growth in new business value, further moving ahead in its transformation that started a few years ago. Consolidated total income INR 13,294 crores versus INR 12,995 crores. Consolidated profit after tax, INR 194 crores versus INR 839 crores. If we exclude the COVID-19 impact, which I mentioned earlier, the consolidated profit after tax would have been INR 1,001 crores as against INR 839 crores last year, which is a reasonable growth.
Bajaj Finance consolidated profit after tax for the quarter INR 948 crores versus INR 1,176 crores, which is after dropping the special contingency provision for INR 900 crores for COVID that made a special aggregated provision with respect of two large accounts of INR 390 crores and further strengthened the expected credit loss provisions, which is required under Ind AS. As you are aware, the Ind AS rules do not apply to banks, but they apply to NBFCs. General insurance profit after tax INR 304 crores was INR 83 crores, which is more than 3.5x The last year. It has been a very good quarter for Bajaj. Life insurance for shareholder profit after tax INR 38 crores versus INR 112 crores. I must mention here that life insurance is usually measured in terms of new business. Consolidated total income INR 54,351 crores versus INR 42,626 for the whole year.
Profit after tax INR 3,369 crores versus INR 3,219 crores the previous year. The consolidated profit after tax excluding COVID impact would have been INR 4,176 crores versus INR 3,219 crores last year. Similarly, Bajaj Finance consolidated profit after tax INR 3,264 crores versus INR 2,995 crores. General insurance profit after tax INR 999 crores versus INR 780 crores, and life insurance profit after tax INR 450 crores versus INR 502 crores. Bajaj Finance Limited total income increased by 36%, and after considering the contingency provision of COVID, the profit was INR 948 crores.
Excluding this contingency provision, the profit would have increased by 38%. AUM as of 31st March 2020 was INR 1,47,123 crores versus INR 1,15,828 crores as of 31st March 2019, which is an increase of 27%. Which includes INR 22,705 crores of its housing finance subsidiary, Bajaj Housing Finance Limited, which recorded a growth of 86% over AUM as of 31st March 2019.
Gross NPA, net NPA, ECL Stage 3 recognized as per extant RBI prudential norms and provision as per ECL method prescribed in Ind AS as of 31st March 2020 stood at 1.61% and 0.65% respectively. This excludes standard asset provisioning which was Stage 1 and 2 and contingency provisions for COVID. After the credit rating of 8,500 in November 2019, the capital adequacy ratio of BFL standalone as of 31st March 2020, including Tier 2 capital stood at 25%. The Tier 1 capital is 21.27%. Therefore, BFL is very well capitalized to meet the contingency as we move forward to the next year. Bajaj had an exceptionally good quarter. Gross premium stood at INR 2,655 crores versus INR 2,402 crores. Bajaj wrote crop insurance of INR 241 crores only in this quarter, as opposed to INR 851 crores in Q4 of FY 2019.
As we have mentioned before, crop insurance is seasonal. We take different calls in Kharif and Rabi. In the FY 2019, we wrote less of Kharif, more of Rabi. This time more of Kharif and less of Rabi. Gross premium from core business excluding crop for Q4 FY 2020 was INR 2,414 crores versus INR 2,551 crores. The combined ratio improved to 93.8% in Q4 FY 2020 versus 103.9% in Q4 FY 2019. This is a remarkable achievement given the current circumstances. Underwriting profit, which is a very rare term in the general insurance industry in India, was INR 159 crores for Q4 FY 2020 versus a loss of INR 146 crores in Q4 FY 2019. The higher underwriting profit was mainly due to lower claim ratio. During Q4 FY2020, Bajaj has recognized provision for impairment in respect of some corporate bonds for a further INR 53 crores.
The total provision for impairment for FY2020 was INR 129 crore, including provisions made in the previous quarters. At this stage, we do not believe there will be a very significant residual impact of impairments going forward. Profit after tax for Q4 FY2020 increased significantly to INR 304 crore, as I mentioned earlier. Solvency ratio is very strong, 254% as against 150% required in regulation, and the AUM represented by cash and investments stood at INR 18,746 crore versus INR 17,237 crore as at 31st March 2019. Coming to Bajaj, after recording almost 25% individual weighted new business premium growth in February, Bajaj ended the year with a growth of 10.6% as against the private sector growth of 4.8%.
Group protection business grew by 20% in Q4 FY2020 and 29% in FY2020. NB premium for Q4 FY2020 was INR 1,519 crore versus INR 1,818 crore in Q4 FY2019.
Taken individual new business premium was INR 606 crores in Q4 FY2020 versus INR 689 crores in Q4 FY2019. Renewal premium further increased by 9% in the quarter, and this is now seven quarters where our renewal premiums are continuing to show strong growth. Shareholder's profit after tax was at INR 112 crores versus INR 112 crores in Q4 of FY2019. During Q4, the company has recognized provision for impairment in respect of some corporate bonds by a further INR 224 crores, out of which only INR 47 crores impacted the Shareholder's profit after tax. The provision for impairment for FY2020 was INR 390 crores, of which INR 125 crores impacted the Shareholder's profit after tax. As in the case of Bajaj, we believe much of the impairment is behind us as we look forward to the coming years.
New business value, which disclose once a year, and which measures the true profitability of life insurance business increased by 47% to INR 227 crore versus INR 154 crore in FY 2019. As mentioned here, this new business value is after absorbing all the overruns. The new business margin on APE for FY2020 after covering expense overruns was 9.9% as against 6.9% in the FY=2019. As you may recall, Bajaj was having negative margins till a couple of years ago, and now we have almost reached a double-digit positive margin. There are two annual disclosures that you'll find in our investor presentation that was uploaded on our website yesterday: the new business value and EV value of Bajaj, along with the waterfall of the nominated member value and also the reserving priorities for Bajaj. You may note from that the reserving of Bajaj continues to be reasonably conservative.
Overall, all three companies are well-capitalized, sufficiently liquid, and have the diverse product and channel offerings that are critical at this stage. All three companies have very strong rural presence and most of the green and orange zones, where most of the green and orange zones are. Bajaj has traditionally been strong in lower tier towns, while Bajaj has expanded its footprint in rural areas through its virtual offices over the last few years. BFL's rural vertical remains one of its fastest growing segments. A few comments on the April 2020 preliminary premium numbers, which was already published by the Life and GI councils earlier this month. Bajaj has reported a -10% decline in gross premium as compared to -9.7% for the industry if you exclude the crop and government business. The core business is in line with the market.
Strong growth was recorded in property, liability, engineering, marine, and retail health lines, while motor travel as expected were in the negative territory. Group health decreased as planned due to high loss ratios. Given COVID-19 circumstances, Bajaj April performance was better than expected. Bajaj individual weighted new business premium actually saw de- growth in the month of April as compared to -40% for private players and -38% for public. Agency 54% share was the main contributor to new business for individual weighted new business. Banks are less affected due to banks' focus on their core operations and because the number of the bank branches were not operational. We are slowly witnessing momentum in bank insurance business in the month of May. Total policies issued by Bajaj in April increased by 4% as compared to a de- growth of 31% for private players.
Finally, the mix for Bajaj has a high proportion of non-par business, 36%, versus 15% in April last year. With these comments, I now open the floor for question and answers. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are restricted to use handsets when asking a question. Ladies and gentlemen, we will wait for a moment while the question queue is ending. The first question is from the line of Anuj Sangal from VP Capital. Please go ahead.
Hello sir. Thank you for taking my question. I have two questions on the life insurance part of the business. My first question would be if you could explain the EV walkthrough that you have given as to why there is
So much of negative operating variance and operating assumption changes, even though we have seen increased persistency across the cohorts. My second question on life insurance business would be that recently there have been some articles which are saying that reinsurers are tightening the rules as to people who have been exposed to COVID or maybe are going to travel abroad, they won't be given life insurance contracts easily. Any comment around that? Is there a negative impact that you see due to that?
Before I hand it over to Bharat to take you on the Embedded Value, and the second question will be handled by Bharat and Tarun. I think as of now, nobody's traveling abroad. I think the second comment which was reported through the press, I don't think is really that important in this case. Bharat, would you like to take the EV walk?
Thank you, Sreeni. Thanks for the question. If you look at the overall investment variance, there are two, three subsections to that, though there is a number of INR 515 crores but there are three subsections to that. There is a one-off cases in this year. We have provided some, as it is mentioned in the deck also, we have tightened our impairment on few of our corporate bonds. That is one number which is coming in as more like a one-off around INR 122 crore. That is one number. The second is, there is obviously some bit of an impact of equity market, which is given the volatility of the equity market gain. We have some gains coming from the debt portfolio given yield has come down. Those are also sitting in the investment variance.
The biggest change which is happening in this case is that because of the yield curve movement, if you look at around forward yield curve now, the yield has come down from, say, a one-year yield has come down from 6.5% to 5.5%. When you look at a one-year forward risk curve, that has given us almost an impact of 265. This is like a timing as of now because the yield curve is there and hence it is what we have to account for. If tomorrow yield curve comes back to a level of earlier, then this will revert. These are all variance which we will see consistent and across everywhere, given the market volatility and the yield curve movements. Those are the three broader variance.
On the second point, if I might come in. For us, term is anyways a new segment that we've got into in this financial year. We did kind of wet our feet a little bit in the last quarter, but we did launch only term only in the last quarter last year. For us, anything is an upside and that's the good part. The reinsurers have gotten wary of people who travelers abroad or NRIs as a segment as well. For us, that is a very small segment, the NRI segment anyways today. What we've done as a precaution that the reinsurers also asked us to do is basically get a COVID questionnaire filled if there is an existing exposure to COVID. We are covering ourselves at least from that part of the cover. Does that answer your question?
Just some clarification in the EV walkthrough part. I wanted to know why there's that kind of operating variance in negative. I got the investment good part, but I did not understand the operating negative variance.
I'll cover that also. There are, I would say three subsections to the number which you have shown is a INR 94 crore. The first section is as part of our usual exercise, we always update our best estimate experience on both on the mortality and the persistency. Obviously mortality means morbidity and all. This time also we have updated to based on our actual experience. Within that, we have got some benefit in terms of our mortality experience, which is around INR 31 crore. Then we have also updated our lapse assumptions, which is a negative of around INR 13 crore. These are small number changes which happens in the usual as a year-end exercise, that has given us a positive of around INR 18 crore in terms of mortality and persistency.
What has happened is that within our MFI business, we have registered an extra claim on the group side of the business, and that is what really has impacted this operating variance of around INR 113 crore and hence the net impact of INR 94 crore.
All right, sir. Just one final question on the general insurance part. You all mentioned that you all forecast some kind of growth coming from the health business. Apart from health business, is there any other area where you might want to venture into and you might see some green shoots coming in the coming year into habit changes?
Okay. It's an interesting question, but let's look at April data to understand. This is actually a funny part of our business. If you look in April, the GI industry has a negative growth in retail health. We have a 9%-10% growth as a story. Though lot of queries getting raised, if I look at sales and I felt April, that was very keen to look at the sales for April, I felt it should really be going up through the roof, which has not happened. Obviously queries are happening. People are raising concern about how this is going to move and how this is moving up. There would be an uptick in health. To think that an uptick in health for industry would be really huge, I don't think that would be happening.
That is a personal prediction looking at how April has moved. Having said that, again, we are trying to create awareness because if you look at the Indian market, health insurance still has COVID cover. You just about the life question where international market is very wary. I was actually telling my people that why are the servers not crashing because people should be buying health insurance. Unfortunately, I don't see that happening as far as the trend is concerned. There is an uptick, there is a movement, but not to a huge extent right now. It may move up. If it moves up, we are fine because we have a presence all across the different channels and geographies, and that is reflected in the month of April also. If you look at industry, it is a -3% retail health growth and we are +9%.
If it happens, we'll obviously be benefiting from that. That is one point. The second point is if you look at the growth in business, property like Sreeni mentioned, because of some rate correction in some segments, it has some positive upside there. Motor has had a sharp decline at nearly half of what it normally would be given. Going forward, looking at the Chinese experience of Wuhan, we expect at least smaller segment and two-wheelers to start moving up in terms of sales. That would come in later during the year because I think whatever circumstances, maybe people will start resuming their normal lifestyle. Those things would start happening. If you personally ask me what should go up, but let's see if it does or does not, cyber insurance should go up because that's a huge risk.
You see cyberattacks have moved up by about 1,000%, 2,000% across, if you look at cyber things happening. That should go up. That liability should go up. If you look at liability cases in U.S. which is happening because of COVID and the way directors and officers are reacting to it, is also moving up. That should move up. These are assumptions that we feel should move up, but let's see how the market reacts and how does it behave. I hope I answered your question.
Yes, definitely. Thank you for that and all the best for the future.
Thank you.
Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Hello, sir. Thanks for the opportunity. Actually, on the Bajaj, if I look at the claim strength, there is a small strengthening in the earlier years, and there is a significant release of reserves in the near years. I think there is almost INR 500 crores of reserve releases in this particular financial year. How do you see this sharp increase, sharp release in the near-term years, whether it is sustainable, because that has an influence on our this year profitability, and how do you see this INR 500 crores of reserve release for this particular financial year profitability?
Let me take that before I hand it over to Raman. When I look at the overall reserving in terms of what it was last year and what it is now, we are actually better off. Even the near year, if you see, we have 10%, 12% and 8% surplus reserves as of now. When we look at the past trend, this seems to indicate that we are in a fairly good situation there. Regarding the specific questions on the INR 500 crores, Raman, would you like to take it?
Sreeni, nothing is specific which has changed this year. Like you rightly said, if you look at the trend every year, there have been a release of 5%-8%, and I presume that that is expected to continue. There's no reason why there should be a deviation.
Let me give you an example.
Let me add to it.
What we do in Bajaj, is that as soon as a claim is reported, we have a very robust what we call auto reserving system. We would not have any information, we immediately put in the auto reserve depending on the line of business and depending on the type of claim. As the data evolves, the reserve is continuously updated. In any year, because we are a large company, we have a large number of claim settlement. A majority of almost all of this claim settlement, my understanding is that has come out because we have settled those claims and whatever reserves are there against the claims will actually be absorbed. Simultaneously, the actuary would calculate the IBNR based on the current trends, that will be the ultimate accepted loss ratio, which is what is reflected in the trial balance.
Thank you, Nidhesh. This is Tapan here. I think if you look at the question you asked, this is a natural behavior of GI industries. The actuaries have specific tools and wherever they see a trend in which they feel that the reserving should be strengthened, they strengthen it. Like Sreeni mentioned, where claims get settled, reserves get released. Released reserve is a good sign because that means that the company is adequately reserved. That happens every year, like Raman mentioned. This is not something that is unique. If you look at the past years also, you will see reserve release. If you see that there would be strengthening happening where the actuary feels it is low. Strengthening that you see is mostly because of there was a TP pool way back much earlier, if you remember. This is history now.
That TP pool had given an ULR, which is ultimate loss ratio the pool had given way back, and that is where the companies had reserved themselves, but that ULR fell short. Prudent companies have strengthened that. Where they feel that is going short, they have strengthened the reserves because if they see the trend is not moving up, they have strengthened it. Overall, if you see there a reserve release happening for a company and as a whole, it is a good sign. If you look at Bajaj, 7%-8% is normally where the reserve release keeps on happening when you settle claims. That shows that we are adequately reserved over time. Does it answer your question?
Yeah.
One more point here. If you look at, we have generated about INR 1,500 crores of net AGM surplus. That itself is an indicator for statutory requirements and all that. That itself is an indicator that our cash flow is significantly higher than our profit after tax.
Yes.
Over the last time.
Coming to Bajaj, we have seen quite sharp growth in non-par segment. For month of April also, you highlighted that 30% of business has come from non-par. Given the declining interest rate environment and probably the interest rate environment may remain subdued for some time, how do you see that non-par strategy going forward and how are you hedging these products?
What are the level of guarantees that you are offering? Yeah. It's a very good question, and it's something we are always keeping a very hawk eye on this. What we typically do in our approach is that before the year starts, we usually hedge our future business based on our plans for almost 9 to 10 months of business yet expected. In terms of holding bonds, we've been taking some calls pragmatically. We've been doing a lot of partly paid bond hedging. We've got a significant portfolio build on that. These are fairly high credit rating and strong groups that we've built. There is no letting off on credit risk on this portfolio. Basically, even if we today, hypothetically, did not bring down our guarantees on the other side for the next 8 to 9 months and continue doing business, we are well under control.
Having said that, we will be going ahead and taking a call on this dynamically, and we review it every quarter. We will bring down for sure, but I won't be able to say when. Like I said, even if we did not bring it down for the next eight to nine months, we are absolutely comfortably hedged for a portfolio of business we've not yet written. Little bit on non-par, although non-par was 30%, there was also term business which is part of non-par. In terms of NOPs, that is really going up. There's a good amount of tailwinds on term plans, both offline and online. I can see my agency business has also picked up quite well. That is also bringing in the non-par portfolio. Right. Got it, sir. Can you just share the details of assumption change ramps?
What is theirs? I'll let that question be answered by Bharat, and maybe I'll come back for any additionals.
These are the assumption changes.
Yeah.
These are the smaller impact. It's a second order impact in terms of the mortality and lapse, which I said earlier. It's a small number of INR 24 crore, which has come both from the mortality and lapse. When you change it, all your future risks unwind and all this, it has to change. It's a smaller number as part of assumption changes. Nothing significant there other than the usual mortality lapse assumption for this.
Okay, sir. Thank you, sir. That's it from my side. Thank you.
Thank you. The next question is from the line of Ashu Sharma from [audio distortion] . Please go ahead.
Hi. Thanks for the opportunity, sir. Just two questions. First one on the bad debt on the outlook for combined ratio. I think the Q4 trend was positive. Even if I look at number of visits to the crop. Any sense in terms of any outlook you can give on how we see combined ratios? I think secondly, on the similar thing that given that we see that investing yields would be under pressure, will it be paramount for industry to sort of a focus on underwriting profit? Second would be on balance in terms of the outlook for VNB margin, sir.
First let's talk about the combined ratio. If you look at what Q4 looks good even without crop also, like it's about 97% combined ratio. The fundamental difference is if you look at times when we have floods and times we didn't have floods. If you take out the flood impact, our combined ratio would be, again, we're making good underwriting profit. If Q4, we didn't have any major flood even. That is how this moves in the kind of business that we are in. In fact, last call also I mentioned that I see it improving as time progresses. If you look for this year, obviously I can't make any forward-looking statement, but if I look at the current trend, because of lockdown, two things have happened. Hospital occupancy is about 30%. This has two meanings.
Either hospitals were [audio distortion] to the tune of 70%, or people are holding back their treatment. If they're holding back their treatment, it's actually more worrying because if they come back, then the claim size should actually move up. If you're treated early, it is still easier to treat and the cost is lower. One of the feelings can be that if I look at the claims for health as the lockdown eases out or people they are not able to postpone their surgeries or treatment, that may start moving up. That has to be seen along with the impact of how COVID starts moving up. Right now, COVID has not moved up to an extent that we find it alarming or significant, looking at the trend, you never know how it moves up.
That can have an impact on the combined ratio going forward. The second, if I look at motor business. In the lockdown period, yes, the motor OD and motor CP would be lower. As it's opening up, the pent-up, the previous losses would start coming in and people start using more private vehicles and commercial vehicles start putting in more hours on the road because they have to catch up for the lost time. That may lead to high increase in frequency going forward. There would be some benefit in loss ratios when lockdown is on. There would be a spike up more than the normal when lockdown is off. The play of these two will decide how the combined ratio comes out as the year progresses. That would be there. Does it answer your question?
Yes, sir. I guess on trying to balance the decline in investment yields, will it be now even more important for peers in the industry to focus on underwriting profits? Can you give some perspective on that?
If you look at Bajaj, we have always been an underwriting company. I've a lot of times mentioned this, and in fact, if you go back to maybe a couple of years, you'll hear one of my statements saying that in the European market, in the past also, companies did not focus on underwriting when sharp fall happened in investment returns, so those companies had a tough time. In the Indian market also, this should happen now, as you see, and rightly as you're pointing out, investment yields are going. Company like us who have been focusing on underwriting over years, and the disciplined culture is there, I think for us it will not be such a huge issue because I think investment income has always been on top of what we try to achieve on business results.
If I can just add to what Tapan said. As I said earlier, our objective has always been profit over growth when times are tough. Across all our businesses, Bajaj is no exception. Historically, it has shown over the last 20 years that we have always been an underwriting-focused company. In the market, different players have different objectives. There are small players who are still trying to get to scale. They will be hungry for capital. Availability of capital will drive how much they want to gain market share. In terms of larger companies which are using cash flow underwriting, the PSUs are very good examples of that, there are some private companies as well. They would have a fall in investment income. There will be no equity gains to be taken, possibly for some time.
The conference is now being recorded.
Whichever banks in the private sector were up for tie-ups, we got all of them. The channel mix is shifting. The third channel is the online channel. In the ULIP space, we were the leaders because online, I believe ULIP, if it can be a low cost, it's really an online which you need to get or sell it, and that has gone quite well. That we have presence in the online space, we are now moving that space into the term business. That is helping in a significant fashion. The focus will also be on the fourth lever, which is on cost, to control our cost, because what we see ahead is not necessarily clarity. There is no clarity on what is going to happen going forward.
Sreeni did make a statement that people would rather keep cash in their pockets than commit to a very long-term product as of now. We have to see how it goes. We had an encouraging April versus the rest of the sector, but I'd say it's only versus the rest of the sector. Surely, there's a lot to be seen, and the year is just about starting. Longish answer to a short question, but it is more important to understand that the company is now basically looking at new business premium and new business margins as any other company is, and we are strongly in that part.
That's helpful. Thank you. All the best. Thank you.
Thank you.
Thank you. The next question is on the line of Anirban Sarkar from Principal Asset Management. Please go ahead. Anirban, your line is in talk mode. Please go ahead.
Sorry.
Yes, sir.
Yeah. Hi. Thanks for the opportunity. Sir, I have two questions, one for your general insurance business and the other for the life insurance. For the general insurance, if you could throw some light on what the impact of the change in motor TP liability calculation is on the business overall. That would be great. For the life insurance, I'm sorry if you have already mentioned this, but what is the persistency assumption for your VNB calculation? Those are my two questions.
Yes, sir. Before that, I'll just say, are you referring to the new some kind of draft which says that the way the obligation would be based on-?
Yes.
motor TP?
Yes, sir. That one.
Draft, we are still not sure to go ahead. Having said that, we have seen so many things. We have seen the motor pool, we have seen the declined pool, we have seen the abandonment of both. Regulated is something which is across the industry, and Bajaj has always been on top of how to interpret it and how to adjust the business according to the opportunity available. Tapan?
Yeah, I think more than that, the question should be that if you see this year, there's been no increase in TP rates.
Yeah.
I think that has a direct impact on the business. If you look at it, normally you get a 7%-8% increase, and this year the increase has not happened in TP rates, and that is why in the previous question, combination was being discussed. You would have those inflations happening, but again, because of the lockdown and less use of vehicles, those months, I think that is where the payoff will happen. That has a more impact, I think, on the profit. We'll see how it comes through. It's too early to comment on that.
Anirban.
Yeah, go ahead.
Yeah, that is the question. Any other question that you have?
Yeah, the other question. Okay, there is a follow-up to this. Do you disclose the breakup of your motor premium by vehicle, like car, CV and two-wheeler? Is the information available anywhere?
No, I don't think so. It's overall available, but then it is too much into getting the business details of how do we run into business. If you look at GI disclosures and the information available, it is exceptionally good from IRDA's side or the Council side. I think a lot of information gets available.
Sure, sir. Thank you. My other question was on the life insurance business. What's your persistency assumption for the VNB calculation?
Yeah. see, the persistency assumption actually varies with the product
There's no one standard persistency product assumptions. We are talking about a pretty varied segment of products, and it's really part of the actuarial calculation and something we don't really declare. If you're asking me, if the question really is that are we feeling confident that we'll meet our assumptions? Yes, we are. We actively look at assumptions, true-izing the assumption with the market forces.
Have you changed these assumptions in the latest numbers? Last year's what?
Typically every year we revisit. This is our December experience, revisit all our persistency assumptions. We have this time gone, as Tarun rightly said, we have gone literally in more detail in terms of going to the product level assumption as well as at a channel level persistency assumption across the cohort. All that has been considered, at least for the March numbers. Going forward, it is as of now on the same basis, but going forward as we declare our results, we'll update based on our recent experience.
Got it. Thank you. Thank you, sir.
Thank you. The next question is from the line of Hitesh Gulati from Kotak Securities. Please go ahead.
Yes, sir. Thank you for giving me an opportunity, and congratulations on a very good set of numbers. A couple of questions from my side is what will be the advance premium numbers in the general insurance business? Sir, also, the ratio of NEP to NWP looks very close to one this time, sir. Any specific reason for that? I have one more question after you answer this on the life insurance piece.
Excuse me, can you repeat the question, please?
Sir, the advance premium number for the general insurance business.
Raman, do you have the number?
Yeah, just giving, Sreeni. There are two parts to it. One is on the motor, it's about INR 760 crores. There are other lines of business also, that's another INR 260 crores. In all, about a little over INR 1,000 crores.
Sir, thank you, sir. Sir, the ratio of NEP to NWP looks close to one this time, sir. Any specific reason? The mix on the year-on-year hasn't changed. Just trying to understand that.
That is actually also 1 by 355. As the business goes up and down according to the business mix, it is a normal formula only. There is no particular reason for that. I think we have de-grown group health. In group health, you will find that more of earned premium of previous year. In certain lines we have grown, there it will be less. The function of how the NEP moves depends on how the business mix in terms of the reinsured business versus the retained business will move. Very difficult to give an overall comment on the company's NEP to NWP ratio.
Yes, sir. Sir, general insurance companies follow 1 by 365, that's right. The health insurance are following 50/50. That comment is right.
Yes.
Okay. Just one last question, sir. New business strain on the life insurance piece. I just want to understand which are the segments which causes the highest strain for us, because protection is something we added only in Q4 this year, but we do a lot of ULIP and non-par also. Just some qualitative comments on that.
Bharat. Bharat, you wanted.
Sorry, I just missed the question completely. Sorry.
Where the new business strain is likely to come from which product lines?
New business, we are no different than typically the business strain will come from the ULIP line business as well as the non-par business. Within non-par, sometimes as Tarun mentioned that we are pushing towards the protection business and within the protection there are few variants. If you are on a limited pay, then it can have some strain in terms of initial years, but if it is a regular pay, it will not be there. It is more like a balancing of something between non-par and UL only. Par is generally not a new business strain line of business.
Thank you, sir. That's it from my side.
Thank you. The next question is from the line of H.R. [Kana] from Finlex Advisors. Please go ahead.
Yeah. Hello. Yeah. This time we don't find the breakup of life insurance business according to the channels. Can you provide that, sir? Hello.
Hello.
Yeah. The breakup of the new business premium, INR 5,179 crore in FY2020. According to the channels, that breakup is not there.
I think we have given in our mix, overall channel mix, right?
No, it's not given. I think there is no slide in your presentation that how much has come from the bancassurance, how much from individual agents, corporate agent, direct selling, brokers, online. I think this is the classification which you used to give in last year.
You're right. I think we give that channel wise. Let me just check which slide number it is. I'll give you that. I can give you that. It is no point looking at the new business premium based on channel mix. It's better to look at the individual rated new business premium.
Okay.
Yeah. Which is around 56% was agency last year.
The-
Which is last year means FY2020?
FY2020.
Agency was 56.
This is down from 70% the year prior.
Okay.
The online business was around 11%, which is up from 9%.
Okay.
The institutional business, which basically is bancassurance brokers, was up from 11% to 21%.
11%-20%. Okay.
Proprietary sales was static at 11%, the year prior it was 10%.
Okay. Fine. Another question is, at the group level, is there any thinking of converting Bajaj Finance into banks?
No. This is something we keep deliberating. As of now, we have no specific plans to do so.
No specific plan. Okay. Thank you very much, sir.
Thank you. The next question is on the line with Dolat Shah from ASK Investment. Please go ahead.
It is Bharat Shah, not Dolat Shah.
Two questions. Essentially, if you look at the core of any insurance business, it revolves around three principal ideas: underwriting skills and the profits, investment management and the returns, and the third aspect will be the growth. My first question, if I have to take a combination of underwriting profits and investment returns. On underwriting, we have done fantastic job all through. We never consistently has been well ahead of the industry curve. We have remained very prudent and just to chase both, we have not sacrificed the quality of underwriting that we have done. Full marks there. I do have concern about the investment performance, both in BAGIC and.
There are consistently poor quality investments which are made, and quarter- after- quarter, year- after- year, some write-offs of the others keep happening and diluting the overall quality of the returns, both for the unit holders as well as for the shareholders. I can't help feeling, but investment management, which should be core of any insurance activity, apart from, of course, the underwriting and growth, which I'll take up later. Investment management function seems to be a secondary or less paid attention to function. That is the impression I get. I would welcome comments.
Okay. I will take that question. You know, Bharat, last year we made a provision for IL&FS. We are not only company who gave exposure to IL&FS, across the industry quite a few people had that. On our hindsight, we can say we could have invested or not invested, I'm not getting into that. This year, we had already announced in the first quarter the additional requirement potentially from DHFL, in the Yes Bank also we have investment. However, in Yes Bank, after SBI took over, RBI decided to cancel the AT-1 bonds. Right? We are still going to honor the remaining part of the NCDs and other things as what the new management affords. However, none of these investments are new. These impairments have always been there. We have already disclosed it end of last year and the first quarter of this year.
As we got more detail, we have made extra provisions. Now most of the provisions are behind us. We are 100% provided for IL&FS, we are 100% provided for Yes Bank, we are 75% provided for DHFL. In addition, we have provided for a couple of performing investments as well, which means that the companies are not defaulting. They are continuing to pay interest, but based on our assessment of the impact of COVID and potential transfer, we have made that. Subsequently, we have completely revamped our investment portfolio, our investment strategy. Between Bajaj and Allianz and the company, we have sat together, we have redrafted the entire approach to investments, particularly on the credit side. Because when you manage investments, it is very easy to say that I put a lot of money in equity. If the market fell 30%, I lost 20%.
That is also not a good story for life insurance or general insurance, because insurance is a business of protection. It is not about beating the index or doing better than something else which did very badly. In the process, we have completely revamped the whole thing. We now go in with a defined lane, which I think I mentioned in the last quarter as well. We have a specific list of approved credits which we go through. We have strengthened our credit team. We do not use only credit ratings now, we also use our internal models. We have also, across the group, a strict investment forum where we have, depending on the testing, either a weekly or a fortnightly call, where we look at all common investments across the group as well, and then take a call on what is to be done.
To the credit of the team, after this event happened, they have also got rid of quite a few investments at reasonably good prices, much before some of them became more impaired. We should give credit to the team that there are a couple of investments we actually got out of in the year of reasonably good amounts. The residual balance now is not there. The team has been strengthened. The policies have been strengthened and we'll be going forward. As you mentioned, in general insurance, the investments cannot be a driver of the profit. It is the float generation that is important. On the float, you have to invest it conservatively because on the insurance side, our balance sheet is full of risks. People come to us because they have risks.
If you want to take investment risk and underwriting risk, then the two may not, in some years it will do pretty bad result. It could even affect your solvency. In the life side, the core business is very long-term. There are 90-term rules.
IRDA guidelines as well, where you have to invest a minimum amount. The amount of flexibility you have is not that much. In terms of unit link, our performance is in line with most of the competition. We are among the top quartile performance over all our funds. One of our funds, pure stock funds, compares well with most mutual funds in the industry as well. The non-par is a guaranteed product. We do not take any investment risk there, either on the credit side or on the equity side. It is about managing the guarantees. As Tarun said earlier, we are fully protected for our expected business for at least one year. As we go forward, we look at more hedging options. IRDA's new product guidelines now allow us to also reset the interest rates when there is a big decline.
Therefore, we have never been very aggressive in offering very high interest rates or taking high exposure on our product suites, which some companies have done in the last year. As interest rates have fallen, we have appropriately adjusted our interest rates once already, and we'll be doing so again as and when things are required. Yes, if you ask me one year ago, your comment was valid. If you ask me today, I think we are a lot more confident company about our ability to manage investments and take it forward.
If you look at the return, it's been 10.9% for the year. Which I would say would be comparable or better than most of our peers in the market that would be there.
We are not as much on the quantum of return in terms of the quality of return. If we keep getting drawn like a magnet to some of the bad exposures like IL&FS and [audio distortion], EA4, BHS and et cetera, I think it is the predictability and sustainability which comes into the question. While quantum of return in a particular period may be good or bad, that may be happenstance, accident or chance, but it is sustainability, solidity, predictability, and focus on investment management in a conservative way because as Sreeni correctly pointed out, insurance itself is a risk activity. Therefore, the investment activity which is to aid to that must counter that risk and should be able to create a predictable earnings. Otherwise, the whole thesis of insurance business gets diluted.
If I have to go by Sreeni's comments, I assume investment function is now a core function and not one of the functions in the activity.
I think during the year, we now have a very strong internal committee on investments. They meet every month. Apart from the investment team, we also have other professionals, including the CEO and the CFO, who get involved in assessing the market, where the direction should be, looking at the performance, and what kind of calls need to be taken. We are looking at a very long-term, continuously managed program. Just because, for example, the equity market rises, there's always a tendency now let us increase our equity exposure. That's not the way we will manage our investment. We will look at the market and gradually increase it because it's not something we keep dipping into every year.
The asset test is that we never have so far required investment returns to cover up for our underwriting failures, which I think is the biggest risk for an insurance company, especially a GI company. Having said that, yes, when you have an investment which is not performing, I think that is normal in any investment portfolio. How quickly you react and how you recognize the problem early and what action you take is very important. I must admit that last year your question was very valid. We realized that we were not quick enough in reacting to some investments. Going forward, we are very confident that this will not happen again.
Yeah. Thank you. The second part is on that growth issue. Again, my comment here is probably less on BAGIC, but it is on BALIC. As I mentioned earlier, we have been very, very prudent in our underwriting risk, and that reflects very clearly over a long period into our combined ratio on the BAGIC side. Full marks to the firm for that. The growth issue equally is important because the growth issue will be a function of the kind of a brand, kind of distribution network, and kind of innovation of a healthy variety, which will create the right kind of product suites. The BALIC side growth has chronically been an issue, mainly led by our weakness on the banking distribution side. Some part of it we have addressed. Do we think we have a likely healthy balance of underwriting and growth in BAGIC?
We are kind of reaching a healthy balance between underwriting performance as well as growth in BALIC as well.
You're asking basically about balancing whether we have the right mix of growth and profitability. Is that?
No. My question is in BALIC, while our underwriting, I would assume will have the same character and the prudence as we have displayed in BAGIC side. In BAGIC, both growth and underwriting have remained healthy. In BALIC, as far as growth is concerned, we have some legacy distribution weaknesses, especially on the data side, also probably on the product innovation in terms of the products.
Do we think going forward we will have a hint between.
Bharat, I got your question.
Yes.
I think the value, if you see, yes, between 2012 and 2015, we did go through a very poor performance because we had no bancassurance. We were predominantly 90% of our individual rated premium was coming from our agency channel. The agency channel was becoming a high-cost channel to drive growth. Therefore, profitability was getting affected. We had overruns, and therefore, we had negative margins. In last three years, I think there has been a significant transformation. We have transformed every quality of business. Our persistency, while it may not be among the top three, is very close, within touching distance of the top three or four companies. In terms of margins, we are now at double-digit margins after overruns. Pre-overrun, we are between about 17, 18% margin, which we think is sustainable.
In terms of product innovation, the RoAC, variety of products, we have been at the forefront. What we have not done and what which can actually bust a life company is offering excessive guarantees. We did see in the market products which are offering 6.5% guaranteed return for 20, 25 years. One year down the line, when I look at those kinds of products, I think those companies will have to review what they offer in future. Obviously, a small amount of business which does not hurt your balance sheet much to maintain growth is there. If you look at the last two years, our growth has been significantly better than the market. Even this year, if you look at April as well, the market is down 30%, we are still at 1% growth.
Overall, I think the transformation of Bajaj, which I have been talking about for the last three, four years is we have the confidence that it is firmly on track. There is work to be done, and we will continue working on the same levers of business, both growth and profitability. Our focus is not on margins. Our focus is on new business value, which is a function of both growth and the margins that you get. We will continue on that track. Tarun?
I think it's very appropriately answered by Sreeni. Your point is valid, Bharat, and I really appreciate the way you look at things here. I can see there's a deep insight of insurance there. See, the point is if you look at the large companies which you track, they are solely and wholly almost, if I might say so, except maybe either side one, two here and there, largely led by bancassurance, and the growth is particularly led by that. Also, they're owned by banks and/or if nothing at least 60%, 70% of their business comes from a bank, one bank, usually the promoter bank. We, of course, do not have that legacy. Now, you can either take legacy as a problem or you can take it as a benefit. The way we've been taking it is more as a benefit.
As we're building and you're right, we are almost rebuilding this business in the last three to four years, and it does take some time. It doesn't just get switch on, switch off. Therefore, we are being very careful that no one single distribution will decide our fate. No one customer segment will decide our fate. No one product segment will decide our fate. Therefore, we will be de-risking from all aspects. That having said, last three years, and you're right, we structurally shifted our distribution significantly to get banks. The focus has, of course, been more on private sector banks. Public sector, there's been mergers, and we did have ties with Dena Bank and Syndicate Bank which moved into Bank of Baroda and Canara Bank respectively, and we lost those distributions.
We saw more certainty coming in from the private sector banks, and we've got Axis, RBL Bank, and KVB, like I said, and we do have a smaller segment of banks, which we basically almost are building up which are the four SFB and there is the India Post Payments Bank as well. What this will help us with is to straddle various segments of customers, various product segments, and not any one single bank we expect to hold more than a certain percentage of our business, which is therefore going to be de-risked. As you see a few, and I won't name any, players in the market. If one bank sneezes, their life insurance company lands up catching cold. We're very clear about that as we are building it up.
You'll see more and more news around this because we are very clearly focused on developing a more rounded business. The benefits of bank as it's an underlying undercurrent in your statement is that it is more variable than fixed cost because you're relying on a partner distributor and you don't need to develop the entire distribution yourself. What we are doing, therefore, is trying to, of course, get more banks. At the same time, if you systematically look at the variable bit, we're also ensuring that the agency business, we're trying to make into a more low fixed cost, high variable, and that is something that we will keep focusing on as well. That is where the benefits will come. The growth story started off quite well last year until February we were double the growth rate of the sector.
In March also, we did not fall as much. April has been comfortable. It's a little difficult to talk of growth at this point for this coming year. Having said that, if the markets were to degrow, of course, my broad brush statement would be that we would be in a better place. If the markets will grow, we'll be growing faster, far faster than the rest of the sector. Will it be a very large growth for the GDP, for the industry this year? Unlikely. Very unlikely as you know. Therefore, cannot much talk about growth. What we are using is we are trying to only just focusing on getting other parts of our matrices right. We talked about Bajaj's good underwriting. I can tell you last four years we've been spending BAGIC as well in trying to get good underwriting.
We did not launch our term plan for first two years because I was not confident of the underwriting. Last one year it has been beautiful, the way the underwriting has been happening. That has given us the confidence to get into the term market. Now we have plunged into that and we are getting more and more share. I can tell you already, in terms of number of policies, we are among the top five in terms of term business. That is a trend that is going forward. All your points are noted, You can pretty well be sure that we are making it a more rounded ball than a ball with edges.
Thank you so much. I'm delighted with both the answers, and I feel far more reassured as I've always been about the business of Bajaj Finserv. I also appreciate your comment about some of the people rushing into the guaranteed products, but many of the actions will have cost and repercussions later and not at the time when the action is undertaken. Therefore, your prudence to remain on the right side of that guaranteed kind of probable issue in a right way is something I deeply appreciate. Thank you for both the answers, and all the very best.
Thank you. Hello. Hello.
Is there a problem on this?
Any problem with the line?
We are there, Sreeni.
I'm also here, but I'm hearing a beep.
Okay. Let's wait for some time.
Somebody else from there.
Can the operator please help?
Sandeep, your line isn't talking. You can go ahead, please.
Sure. Thanks for the opportunity. A couple of questions on the general insurance business. Basically, just wanted to understand this practice scale, new CRM, which we have been mentioned in the presentation, how it will help in our business, with respect to the renewal business and also anything which could improve our loss ratio. I also wanted to understand, it's completely a new thing which we have tracked or we have acquired it from somewhere.
Okay. Thank you for your question. I think CRM is a normal process that is there. What we had done was we had individual CRMs there. Now we have put it centrally together, obviously the flow and the customer view gets better. You can see the history of the customer, how it's moving, what are the issues, what products it has. It is just how should I say, enhancement of our capabilities in terms of looking at the customer. The customer experience should get better, and in terms of how we look at cross-sell and upsell will get better. In terms of everything will get better. Our hope is that this will lead to a better customer experience.
Is it predominantly towards better business or it's nothing to do only with better business?
Actually, we individually had CRM for different departments. We're just trying to put it all together and have a consistent flow.
Let me just add to what Tapan said. Both Bajaj and BAGIC are undergoing significant technology transformations. The pace of that will further accelerate after this lockdown and the number of customer acceptance of digital business. There are a number of digital properties that we have in both the companies we have built over the last few years. We do not advertise that so much because lot of them are behind the scenes helping the customer or Caringly Yours app for BAGIC is really state of the art. In BAGIC, we have apps for the agents. The entire office on their fingertip is available for both the companies. This CRM is the latest version of software which will put together all the properties that we have and which sit on top of the core systems. Both the companies, we are also enhancing the core systems.
In the process of changing the core systems, we are doing significant amount of re-engineering to make all the processes seamless as well. This is a journey we have undertaken. We started about a year and a half ago, and it will last another couple of years. We're hoping that with this it will put both the companies on a technology pedestal
Which is very strong. The other area we have made deep investments in the last two years is in analytics. Clearly, BALIC had a bit of a drawback because there is no requirement of even basic KYC to take an insurance policy. Over time, we have built that database, and with more retention of customers, we have increased the number of people overall in the data. BALIC also has significantly improved the quality of data. I must say that the growth in renewal premium that we are seeing in both the companies is largely coming out of the focus on using these analytics and the data-driven approach to business.
Okay, got it. Just another question, two questions. One on Bajaj, just wanted to understand your investment book mix. Any significant NBFC exposure and average duration of the bonds. That is on Bajaj. Second on Bajaj, given we had a little adverse experience in group life or credit life, whether we have re-changed our pricing in credit life in this year. Second, just wanted to maybe BAGIC thing that VNB margin is based on effective tax rate or statutory tax rate.
In Bajaj, our duration is 3.1. We have some NBFC exposure, the exposure is much more nominal now. Same with BALIC on the non-par and the shareholder funds. As I said earlier, we have cleaned up a lot of the investments. We have made provisions, we have sold out some of the investments much before things got worse. I think we are on a reasonably good wicket there. Going forward, yes, there is an external market risk. Today, even there are companies we thought were first class, also could become bad. That is the market risk that we have to take, we have to have only provision that we're making in that only. That's about it. The second question, I'll let Tarun handle.
Yeah. You asked two questions. One was on the credit side, the other I didn't get on the credit insurance. The other one was on?
Other one just to understand the VNB margin for we have reported closer to 10%. Is it based on effective tax rate or is it based on statutory tax rate?
Okay. The second one I'll let Bharat answer. I'll just close the first one quickly with you. See, credit life is actually a very lovely product. The genesis of bancassurance from France is actually entirely based on the credit life kind of products long time back and therefore works quite well. Dynamically, what we've been doing last couple of years is that we've been pricing our credit life quite close to mortality experiences. The challenge usually is that they're very difficult to get lead indicators. You can always get lag indicators. What we've done last year is that we've taken that bull by the horns and doing a lot more dynamic pricing and ensuring that we've now got systems online with all our MFI and bank partners and the mortgage book.
The bulk of the credit life hits that usually has been coming in the market is in the MFI business. There we've been letting go of all the partners we used to have. We've been market leaders in that. What we've done is now we are just down to about the key seven, eight players who are a lot better placed in tech and risk systems, so that portfolio has only been getting better. What we've also done is, as we have gone this year, we have already repriced our reserving and passed that cost down to our partners. We should be a lot better placed. Having said that, this is, like I said, it doesn't have too many lead indicators. It's largely lag indicators.
What we've also done is a lot more analytics happening on the MFI defaults and also on MFI kind of ratings that we have. At the same time, there's a lot of analysis around the kind of products that are sold, which usually could be joint life or single life products. We're also quite mindful of the exposures we are taking to various states, depending upon the dynamics we are seeing in every state. We write about INR 2.5 crore of number of lives overall in our credit life business. You see a lot more dynamic pricing there.
Okay.
Bharat, can you answer the second one?
Yeah. With respect to the tax rate, we don't use ETR today. We use around 14.56% as our tax rate. Obviously, given the change in the DDT, if we were to take an 80M deduction, this will be an upside only. For timing, we don't take that.
Can we quantify that margin? How much upside we can see from 10%, maybe just to understand how we are on effective tax rate?
We haven't done the detailed working in terms of the margin as yet. When I looked at the ETR, the ETR given, if we consider our current dividend rate, the effective tax rate for this year would have been 13.9 instead of what we have used as 14.56. This both will have an impact on both on EV as well as on the VNB. That we haven't quantified because we don't shift to ETR as of now.
Got it. That's it from my side.
Thank you. The next question is from the line of Akshay Toshniwal from Trend Invest. Please go ahead.
Hi, sir. This is Harshit here from Trend Invest. Two questions. One on the protection. Our initial strategy was to price the product lower than the peers, but we need to focus on 100% underwriting. I think you mentioned about new product launch where the underwriting norms will be a bit easier and cover limit will be lower. If you can throw some light that do we also plan to shift a bit in the strategy to rely some bit on telemedical and focus and improve in that part? That's the first part. The second part is your outlook of crop insurance. Both from the perspective of now the three-year policy, how do you think the market is going to grow? Given our past experience of the previous, how do you see this working? Thank you.
Was the first question to the life company?
The first question was in the life insurance. Yeah.
Your question largely was that on the term and how are we going ahead and underwriting and whether using telemedical, is that the question?
Yes. You also mentioned about the new product launch where the underwriting standard will be a bit easier, if I heard it correctly.
Yeah. Okay. Yes, Sreeni had mentioned about that. We entered the term market in January and basically testing waters after a long time. We initially therefore got to very tight risk controls. Basically it meant that any policy we sold had to undergo a medical. We were also at the same time using a very low-cost term cover. We were the least price in the market. That helped us a lot to develop distribution, develop brand and also get people interested more in our term offerings. Having said that, the COVID part has hit us. As a result, we are now refiling our term plan where we are looking at non-medical rates, introducing non-medicals as well. In the next one month, we should be having that launch.
Of course, therefore the way we are looking at the easing the underwriting is more on the way the medical underwriting is done. What I personally believe is that telemedical and more so even video MEs can be sometimes more effective if done properly. We are developing a strong capability around that. We already have started it actually. To top it all, we are also now intending to use learnings from underwriters and do some artificial intelligence benefits where we can use data from one underwriter to the other and be able to standardize some of these things. We are in a better place to handle bogies in these situations. Lastly, yes, while underwriting is going to get stronger in the way we assess, it is going to get lenient in the way medicals are done.
Okay. We are currently priced around 40, 60 plus, 30%-50% lower than the major players. Does the medical underwriting justifies that kind of a price decline? All I want to understand that are we compromising on the margin or is it just the underwriting strength which gets captured in the lower pricing?
Okay. That's a very good question. See, it's actually the better quality of life. What's happening is because while medical is one part of it, the other part is financial underwriting. Today, a lot of life insurance companies take people, they take customers with very low income. Even if you have an INR 2 lakh annual income, you will be able to get an INR 50 lakh cover or an INR 1 crore cover. We are very clear that we are tighter on the financial underwriting.
What we have seen with the aggregator who has a lot information from other players and even otherwise from our agency channel is that the number of graduates and the better lives that we are getting is far higher proportion versus what we used to get in the past and versus what other people are getting as well. There are a few aspects other than medical underwriting that play there. In terms of I don't know the margins of other players, so I can't comment on that. Because the quality of life itself is so good, I don't see there will be an issue around VNB.
If you want a parallel, if you look at our GI business also the philosophy is the same. It is about the ability to select good business underwriting. Underwriting is not about price. Price will be market determined. Therefore, at a given price, if you select better, you can still make money.
Okay.
That's it. Basic principle.
Got it. From the general insurance side, the crop insurance aspect, it has been a volatile business. We had a good Rabi season in Q4 specifically, but we had not so good Kharif season. In general, how should one look at that business, and how do you look at that business specifically? With the three-year+ rather than a seasonal contract, how do you think that's going to impact?
Okay. Yeah, I'll take the question. If you look at our crop business, over the years, you'll not find a single year in which we lost money. Even this year also combined ratio is below 100. All businesses in GI business are volatile. If you look at automobile business, one in five cars has an accident. If you look at health business, one in 10 persons gets admitted. We are in the business of risk, I don't think that I can say that we would be so sure that no claims will happen at any point in time. Crop is a significant part of the business for the industry. If you look at about 18%-20% of industry business is crop. As a leading player in industry, I think we are into all lines of businesses. Crop is also one line of business.
It is not something that we're dependent on a business. If you look at, we are into motor, we are into health, we are into crop, we are into liability, we are into fire, we are into engineering. You'll see that most lines of businesses, we would be close to our market share. If you look at the BAGIC market share, if it is at close to 7%, you'll find most line of business are at 7% or a bit lower, a bit higher, depending on how we play that. Crop is also like that. You'll find crop that also we're neither overweight or underweight. It will be close to what our market share is. That is our philosophy. We try to write all lines of businesses, and we try and to understand and do it well.
Past track record says that we have always made money in crop also. Going forward also, we shall look at opportunities. It is a question of right pricing. It is not a question of what is good or bad in GI business. Volatility in GI business or claims is always there. We had five plus last year. That also is volatile. If we get afraid of volatility of business and we move out of all lines of businesses to be secure, I don't think that is a business model. In the GI business, risk is there, volatility is there. Good underwriters know how to spread the risk and how to underwrite the business. If it's not good pricing, then we don't write. That is the philosophy which has been there for all lines of business and for crop also remains the same.
The only limited thing I would say is that don't look at crop as a top-line business. It's a business which we select every year, depending on available terms of pricing as well as reinsurance capacity and various other factors.
I understand.
Depending on that, it is quite season by season. The good thing is it is short-term business. What you do in July, you know by October, September where you stand. We can take quick calls on that. So far as far as I'm concerned, it has been profitable, and if the company wants to continue that. If it's not profitable-
I see.
there's no business you can say that, "It's bad forever and it's good forever." That's never been our approach.
I understand. Maybe last one, just see if you can touch upon three-year revision.
That is fine. If a three-year contract comes in, the pricing is done on that basis, in the market, that is how it works out. The players would decide what is the right pricing for a three-year contract, they look into it, that is where the data would be there from their perspective.
Pricing is decided annually. Is there any clause of annual revision or it's fixed three-year pricing?
No, it's a three-year pricing. That's how tenders get done, tenders can be decided on that basis. There would be an exit clause with penalty. That is what the government is looking. Those will get refined as the tender keeps on coming.
They've ordered a reinsurance for three years as well.
Got it. Thanks a lot. All the best for the conference.
Thank you. As there are no further questions, I would now like to hand the conference over to Ms. Bani [Bachi] for closing comments.
For now, I would like to thank Mr. Sreenivasan and the management team of the Insurance Businesses and all the participants for joining us on the call today. Thank you and have a good day. Goodbye.
Thank you, JM. Thank you all.
Thank you.
Thank you.
On behalf of JM Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your lines.
Thank you. Thank you.