Ladies and gentlemen, good day and welcome to the Bajaj Finserv Q3 FY 2020 Earnings Conference Call hosted by JM Financial Institutional Securities Limited. 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. I now hand the conference over to Ms. Bani Bagchi from JM Financial. Thank you, and over to you.
Thank you. Good morning, everybody, welcome to Bajaj Finserv's earnings call to discuss the third quarter FY 2020 results. To discuss the same, we have on the call Mr. S. Sreenivasan, CFO, Bajaj Finserv Limited, Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance, Mr. Milind Choudhari, CFO, Bajaj Allianz General Insurance, Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance, and Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz Life Insurance. May I request Mr. S. Sreenivasan to take us through the financial highlights, after which we can open the floor for Q&A session. Over to you, sir.
Good morning, everybody. It's again our pleasure to welcome you all to the conference call to discuss the results of Bajaj Finserv Limited for Q3 and nine months ended of FY 2019, 2020. In this call, we'll 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 and which is listed, has already had its conference call. However, if there are any high-level questions, we'll 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 statement that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result. As required by regulation, BFS has adopted Indian accounting standards from FY 2019, that is, last year. The insurance companies, however, are not covered under Ind AS. They have prepared Ind AS financials only for the purpose of consolidation.
Accordingly, for Bajaj and BALIC, the standalone numbers reported below are based on non-Ind AS accounting standards as applicable to insurance companies. The standalone numbers of Bajaj and BALIC given in the investor presentation, which was uploaded in our website yesterday, is also on the Indian GAAP basis. The consolidated results of BFS will reflect the Ind AS adjusted numbers of Bajaj and BALIC. Let me now take you through to the key highlights of the quarter.
All the three companies, BFL, Bajaj, and BALIC, have recorded strong growth in premiums. BFL has continued its stellar performance. It has recorded highest-ever quarterly consolidated profit again, boosted by strong growth and solid operating performance. BFL's growth was also aided by the lower corporate tax rate. Both BFL and Bajaj have already opted for the lower tax rate of 25.17%, including surcharge for this financial year.
BFL recorded year-on-year growth of 35% in consolidated AUM, 41% in consolidated total income, and 52% in consolidated profit after tax. Given the general slowdown in the economy, we believe this growth is quite exceptional and is once again a testimony to the strong momentum that BFL is keeping not only in top line but in bottom line as well. The GNPA and NNPA as per Expected Credit Loss method prescribed under Ind AS were 1.71% and 0.70% respectively.
Excluding the provisions for IL&Fs made in the previous quarter, the GNPA and NNPA would have been 1.45% and 0.59% respectively. Bajaj Housing Finance Limited, BHFL, closed the quarter with an AUM of INR 35,035 crore, which is 115% year-over-year growth, and a profit after tax of INR 131 crore. Last year was INR 37 crore. BHFL recorded an annualized ROA of 2.1% for Q3 FY 2020, which is an encouraging sign for us.
Higher claim ratios, including losses in crop business from Maharashtra and Madhya Pradesh, affected the underwriting results for the quarter of Bajaj. Bajaj combined ratio for Q3 was 103.6%, which increased as a result of higher claim ratios, primarily in the higher claim ratio of 72.6% for the quarter as against 64.3% in the Q3 of FY 2019. The claim ratio increases were largely noticed in motor, OD, and crop insurance segments.
Bajaj profit after tax decreased due to the higher underwriting losses, and they were partly offset by higher capital gains of INR 58 crore and a lower tax rate as well. BALIC recorded excellent growth in new rated individual premium, renewal premium, and gross premium. BALIC also recorded growth in profit after tax, which was also helped by a higher profit on sale of investments and a lower tax expense.
BALIC's AUM crossed INR 60,000 crore during the quarter. Before we open up for Q&A, I would like to inform you that from 1st February 2020, Mr. Bharat Kalsi, who has been with us for the last few months, will be taking over as the CFO of BALIC. Ramandeep, the CFO of BALIC, will be moving to Bajaj, from where he will take over from Milind Choudhari, who will retire in April. This is part of our group succession plan.
Before I pass it on for Q&A, I would like to highlight one more point. Over the last few quarters, we have explained in great detail our approach to crop insurance business and various segments of business. We would very much appreciate if we focus on the results for the quarter.
We have the team from Bajaj and BALIC, led by Tapan and Tarun, with us in the call, and they will be assisting us in giving us appropriate replies to your questions. Finally, to come down to the consolidated results. The consolidated total income was up 31% at INR 14,561 crore. The consolidated profit after tax was up 32% at INR 1,126 crore. Bajaj Finance consolidated profit after tax was up 52% at INR 1,614 crore.
General Insurance profit after tax was INR 191 crore for the quarter, Life Insurance shareholders profit after tax was INR 143 crore, which is an increase of 28%. For the nine months, the total income is up 39% at INR 41,057 crore. The consolidated profit after tax is INR 3,175 crore, which is 33% higher than last year.
Bajaj Finance consolidated profit after tax was higher by 53% at INR 4,316 crore. The General Insurance profit after tax INR 695 crore, which is flat compared to the previous year figure of INR 697 crore. The Life Insurance shareholders of profit after tax at INR 412 crore is higher by 6% over the previous year. I now open the floor for questions and answers.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question you may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Hitesh Gulati from Haitong Securities. Please go ahead.
Yes, sir. Thank you for taking my question, sir. Sir, I just wanted to know the advance premium number from long-term motor third-party policies in our general insurance business.
Okay. Milind, Raman?
It's INR 183 crores.
Okay. Sir, just also wanted to understand, sir, that in motor own damage, the claim ratios are moving slightly upwards because of competition, but motor third party, we are able to maintain claim ratios. Are we likely confident that this is the trend in motor third party, that claim ratios are going to be stable? Or do we see any impact coming here as well?
Let me put this. See, the general insurance business, as you know, our third party claim ratios have always been fairly good. Last year, we did give out our reserving triangles as well for the benefit of the investing community. General insurance, as far as claim ratios go, we cannot take any quarter as a trend, and we have to look at a long-term trend.
We have been having a fairly reasonably good performance for motor third party over the last two to three years. Going forward, we will have to wait and see how things evolve. Yes, in the past, we have been getting price increases, but each year, the rate of increase has been lower than the previous year. Of course, the overall industry performance will also determine how rate increases will happen going forward. The new Motor Vehicles Act has come into force.
It is too early to say what the impact of the new Motor Vehicles Act will be. There is an expectation that the time for reporting claims will shorten. In the initial stage, the part of the float, which remains with us from the time of loss till the time of reporting may reduce. At the same time, the settlement of the cases still has to go through the MACT and other courts.
Therefore, the settlement periods, the court periods, as of now, there's no indication that they are going to come down. Faster reporting could also mean that there will be fewer frauds and instigated claims, which normally happen after the first year. Therefore, these are trends that we will be watching carefully and we will be evaluating. Raman, would you like to add anything to that?
No, Sreen, you summed it up very well.
All right.
Thank you, sir. That's it from my side.
Thank you. The next question is from the line of H.R. Gala from Finvest Advisors. Please go ahead.
Yeah. Hello, the Finvest team. Hello.
Yeah.
Yeah. Hello to the Finserv team. I think congratulations for a really good set of numbers. Bajaj Finance really pleasantly surprised us yesterday.
Yes.
Talking about, sir, our life in general, you said that the taxation has been lower. We have adopted this 25.17% in insurance company also?
Well, as far as Bajaj is concerned, it is applicable because Bajaj has adopted 25.17%, and that was announced last quarter itself.
Okay.
As far as life is concerned, they're not covered by the new tax change because they are under a different tax regime.
Okay.
Where the effective tax rate is at 14.42%.
Okay, Bajaj, they have already adopted.
Bajaj has adopted, yes.
Okay. Now, sir, as far as the crop is concerned, which has been mainly the reason for underwriting loss, how do you see fourth quarter panning out?
See, crop is a business we do. It is a short-term business. There is a kharif season and a rabi season. Each year, depending on the reinsurance terms, depending on the way we assess the market and the performance of the past years and the general feel of the market, we will decide whether to quote or not and which clusters to quote. That has already happened. Obviously, in this business, as we have always been saying, that once in three, four years, you will have a really bad year. This year has been exceptionally bad because we had rains even in October and November.
Right.
Even after the harvest, there were losses. Therefore, this is the kind of loss this business will take. However, if we look at the last three, four years, this has been a reasonably good business for us.
Okay.
That is where we stand. Going forward, we will continue to do the business. We cannot say how much we will do.
Okay.
That depends on our assessment of the market. We may or may not participate. Last year, we did not participate in Kharif, we participated in Rabi. This year, we have done in Kharif, we will be participating in a modest way in Rabi.
Okay.
Next year is a different story altogether. There are multiple factors here which determine whether you participate or not.
Okay.
This is not a recurring retail business. Does that answer your question?
Yeah.
Request for the coordinator, Tapan sir got dropped. If you could reconnect him.
Sure, sir. Connecting him.
He said it may get dropped in between.
Okay, I understand. Third question is regarding the impairment of some of the troubled bonds, et cetera, which we had. We still have to provide INR 115 crores in BALIC?
Of?
Of the non-performing.
As far as now, if we take company by company, we first had last year the IL&FS, which we provided 100% in both the companies. There is nothing to be provided for in those cases, because we are holding unsecured paper there.
Okay.
As far as DHFL is concerned, we provided 60% of our holding in Q1. We believe that we are waiting for further information. It has been referred to the IBC and we have to see what further action comes out of that. As of now, we are comfortable with this provision.
Okay. These were the only two accounts.
These are the only two ones which are not performing. All the others are performing assets. What we have shown as stressed assets are only those assets where we have enough public disclosures. We have since last July 2019, we have indicated that they have been downgraded since we bought it.
Okay.
It doesn't mean that they are non-performing. They're all performing assets.
Okay.
As of now, they're paying interest, and we have no reason to believe they will not pay in future as of now.
Yeah. The last question on BALIC. We don't report the VNB margin, last year we had 6.9%. What is your expectation? Will it remain in that range or because of the Axis Bank that we have added, there could be some lot of upfront cost?
Next year we will review with the company whether we need to disclose it at least half year.
That's a call we will take early next year.
Yeah.
As of now, I can only say that the trend is positive. We are very hopeful because in the life business what happens is the last quarter is very critical in terms of top line.
Yes.
Therefore, a substantial proportion of your expense overruns actually come down in Q4 because the expenses don't go up in the last quarter.
That's right.
That is a big swing, which is why we have chosen to report it only once a year. Tarun, would you like to add anything to it?
I think broadly you addressed. Let me just add one more point to that, is that we are actively monitoring our product mix and channel mix. That too contributes to NBV and orientation is to keep only just growing our NBV margins and more important to me actually is the absolute NBV.
Okay. Also, as far as the product mix, as you rightly said, is very important. Now we see from the trend that now ULIP is contributing relatively lesser %. Our focus will be more on non-par, par protection. How are things going to move from here on?
See, it's a balanced approach.
Yeah.
From higher ULIP, we are now down to way lower ULIPs.
Yeah.
As a company last quarter three, we had 61% ULIP, we are down to 52% ULIP.
Yes.
We believe ULIP as a product is particularly for the affluent and the HNI in larger cities, has good acceptance. Yes, there is a significant move to non-par, par, and we were not in the term business. We've now launched our term plan. Last time in my call we starting launching that. Now the risk product's also coming on board.
Okay. As a result of change in product mix, you see the positive trend in VNB margin should happen because their profit margin are probably relatively better as compared to in ULIP. Is that correct?
I always be careful talking of the future. Yes, the focus is to try to get it up.
Yeah. On a sustained basis, you're right, it should be. Like we discussed earlier, we have made some investments in terms of manpower for Axis. Like Tarun rightly said, we'll have to wait and watch how Q4 plays out for us and g ive some guidance.
Okay. How is the Axis progressing?
As Raman said, we have system integration. Starting up with a new partner usually takes some time.
Yeah.
That is quite progressive in the way we are working. There are system integrations we're trying to do, frictionless processes, and of course, there's hiring that is underway.
Okay.
That is currently going on.
Okay. Thank you very much. Wish you all the best.
Just a request, Tapan needs to be reconnected. Yes, sir. He's connected back.
Sorry about that.
Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity, sir. Sir, firstly, in general insurance, especially in motor OD segment, we have been seeing consistent increase in loss ratio, and that is true for peers as well as industry also, I believe. Do you expect that trend to reverse next year, or we should expect sustained higher loss ratio in motor OD?
Tapan? It's Tapan who can answer this.
Tarun can actually answer this.
Can you say that? Talking about motor OD and what is our expectation next year with the discounting and the loss ratio trend increase.
It's a fair question. See, there are two components to the increase in motor OD loss ratio this year. A flood also has an impact on the motor only ratio because a lot of losses happen when car goes into water more than what is supposed to be going into. The second is, the discounting in motor had increased when IC was implemented.
As the discount increases, then obviously the premium that you realize per vehicle goes down. When the premium goes down, the ratio goes higher as a component of it. If I look at it, the ratio may change if next year is lower than what it is today. Discounting, I think, has more or less reached a peak. I don't see it going forward any more in the next year. If a reduction happens next year, it will predominantly be because the floods are less than what it was this year. Does it answer your question?
Sure. On pricing, you are not seeing any positive relief? Pricing continues to remain.
Yeah. If you look at it now, overall also, the motor combined ratio for the industry also, there has been a couple of percentage point shifts which have happened. Pricing increase may happen if the TP price increase does not come the way industry expects it. There would be a price increase happening in the motor part of it. Predominantly, it's not a very significant price increase in the lowering of discount, if I say so, next year compared to what it is. It's my personal view.
Sure. Secondly, in the general insurance business, we have seen expense ratio also going up despite decent growth coming from crop insurance, where the operating expense ratio not be material. What is the reason for that?
If you look at the expense ratio moving up predominantly, if I look at, let's say our company, we are doing a massive transformation on the IT space. We are investing a lot in that. We also have gotten new relationships. We invested in manpower for some new relationships. Those obviously taper down as the year progresses and the coming year comes through.
From a pure industry perspective, if you look at the growth of the industry is now coming down. If you look at the month of December, the growth of the industry was a low single-digit number. The general industry normally follows the economic growth of the country with a lag about eight, nine months to the economic growth of the country.
As the slowdown is there, it starts reflecting into the insurance growth also, which is the reflections coming through right now. When the industry growth starts coming down, obviously the industry expense ratio will start moving up because the ratio again of premium to the expense ratio. Does it answer your question?
Yes. Thank you, sir. On life insurance, in this quarter specifically, we have seen strong growth in institutional channel, new business, institutional business. Does it include Axis Bank or?
No, not yet.
Okay. Okay, sir. Thank you, sir. That's it from my side.
Thank you. The next question is from the line of Avinash Singh from SBICAP Securities Limited. Please go ahead. Avinash Singh, your line is in talk mode.
Hello. Yeah. Hi. Two questions on Bajaj. First one, looking at the health line. That the claims ratio has been somewhere in the range of 85%-90%. Given the sort of a low float and all those things, and adding the OpEx and commissions, probably the, of course, overall underwriting loss will be meaningful. Are you comfortable with this kind of fund? Do you see this to be this range bound, or do you expect or taking certain initiative to improve this?
What would be just sort of your comfort zone as far as the claims ratio in the health segment is concerned? That's the question number one. Second question is more from the sort of industry dynamics perspective. Given the recent decisions that the regulator has taken in the context of how distribution is being done by the large OEM related driven brokers. Do you see that can bring meaningful change to the industry distribution dynamics, or it is just going to be very slow and not very impactful decisions?
Avinash, can I take the second question first, then I'll transfer to Tapan. See, there has been a regulatory order against some motor insurance service providers who are organized as brokers. However, this is a legal matter. Those companies, we believe, will go to the Securities Appellate Tribunal, and we'll have to wait and see what the order is like. There are many multiple issues which are raised in that order, and it is for appropriate legal forum to comment on the appropriateness of that.
Till such time, we are not taking any call on that. We will wait and see what happens. These things take time. In fact, today only I was reading about a very old order on a life company where it has been referred back to the regulator to review the amount of disgorgement that that company was asked to do. These things will take time. On the second question, the health piece, Tapan, would you like to.
Yeah, sorry. I missed the question, Sreenivasan. Could you just repeat the question?
The question he was saying is that the health loss ratios are about 84%, 85%. He wants to know whether we are comfortable with that loss ratio. Do we see that going which way going forward?
Okay. If you look at the health loss ratio, predominantly, we had an extended monsoon this time. If you predominantly look at the entire industry health loss ratio for retail, you will find the major two reasons are fevers of unknown reasons, dengue and chikungunya, which actually picked up on the past three, four months, and this year it was extended. The pace in which the loss ratio moved up was higher compared to what it was last year. If you again see the health port.
I think the line has dropped.
Mr. Tapan got disconnected. Calling him back.
Yeah. Just see if you can connect him again, or we'll move forward and then take this question later.
Mr. Tapan.
Hello. Sorry. I think telecom is in a pretty bad shape. It keeps on dropping. Coming to the point. If you look at the health loss ratio movement, which happened, it is because of this reason. Going forward, on the retail health basis, the loss ratio, I believe, would be constantly around 73%-75% is where it would be, and that is how it would stabilize. The movement up is because of the extreme monsoon, which has been there, and I think next year it will come down from where it is today.
Given your mix of the retail and group, of course, expenses will be different. What will be sort of your comfort zone, where you think that, okay, your ROEs on your capital backing, that will be respectable? Is it like on a portfolio versus 80%? Where is the comfort zone?
No, as I said, between 73%-75%.
On an overall portfolio or just for retail?
No, no. Overall also. If you're just talking of pure group will always be at 95%+ .
Yeah.
You see, this year we have reduced our group exposure and are pushing retail higher. Overall, if you have a health loss ratio between 73% and 75%, you get the requisite ROE.
Avinash, just to add to what Tapan said, while we reduce group, we have already contracts in place, so the claims will continue to come. That is the nature of the business. It normally takes about nine months to 12 months before you see the result of any action that you take. Having said that, we started this initiative on group health, I think, Bajaj, Tapan, and the team have started this almost a year ago, and now we will start seeing hopefully better results. The mix between group and individual is a very complex thing, which keeps changing every time the way the market behaves. Sometimes this is profitable, sometimes that is profitable. We'll have to wait and see how it comes out as we go along.
Just a quick follow-up. Your health insurance business sold on banker platform, does that come under group umbrella or individual? In classification. Behaviorally, it will be retail, but how do you classify if you are selling a certain health product offered on a banker platform?
Hello?
I think Sreen has dropped for a while. Sir, can I take the call, please?
Hello.
Sir, you may go ahead.
Hello. Milind, are you there?
Yeah. I'm there.
Can you just repeat your question?
No, no. I think just to clarify on that, these products which are sold through banks, they come in the group platform or a group classification.
Okay. Yeah. Behaviorally, it will be more of a retail product. Okay. Very clear.
Yeah.
Yeah. Thanks.
Thank you. The next question is from the line of Achal Henry from BNK Securities. Please go ahead. Mr. Henry, your line is in talk mode. Mr. Henry, if you have muted yourself from the answer, kindly unmute yourself, please. As there is no reply from the current participant, we move to the next question from the line of Bindu Rajamani from HSBC. Please go ahead.
Hello. Thanks for taking my question. I have two questions. One is, what is the mix in terms of two-wheeler passenger cars and CVs for your motor portfolio? The second one is that, now reinsurers are signaling that there's going to be some price hike in fire. How do you see the fire portfolio sort of developing?
Yeah. In terms of the business mix as such, overall around for the nine months, two-wheeler is around 15%, four-wheeler is 46%, commercial vehicles is 38%, I think remaining 2% comes from some miscellaneous classes, which is motor others, extended warranty. Hello.
Mr. Rajamani.
Did I answer the first question?
Mr. Rajamani, if you can hear us, please do reply.
Thanks for answering that question. The second question was on fire. Reinsurers are signaling that there's going to be some kind of price hike in the fire portfolio. How do you visualize how that portfolio is going to develop for you specifically?
This is Tapan here. Let me answer this question. If you look at the fire and the statement that we made of reinsurance, there's no reinsuring signaling anything on this. What GIC has said, which is the Indian national reinsurer, that based on the loss ratio of the industry, their minimum price, what they would accept in the treaty would be fixed.
The loss ratios are being taken from IIB, which is a central repository of the data of insurance companies in terms of ratios. Let us say one occupancy has a high loss ratio. The loss of that occupancy is the minimum which GIC will accept in the treaty. The occupancies which have lower loss ratio, their prices will go down, the occupancies which have higher loss ratio, the prices will go up.
The statement that overall there's a price increase is not a right statement. The price increase and decrease will happen on the portfolio performance. It's most of our underwriting consideration which GIC has taken.
Yeah.
It is not something which every reinsurer is taking on that basis, but obviously they would look for how the portfolios are developing. Some lines of business movement will happen now. For some it will go down. The ones which have performed well, their premium will decrease. This is how, this is what the average there would be some increase in what we see, but it's not something which you would see a huge significant increase happening on that basis. They're just pegging the underwriting compared to the loss ratios. That's what they're doing.
Understood. Yeah. Thanks so much. Thanks for answering those questions.
Yes. Thank you.
Thank you. The next question is from the line of Ravi Mehta from Deep Financial. Please go ahead.
Yeah. Hi. I have a broad question on BAGIC strategy. Are we opting for growth over underwriting profits or this year is an aberration?
Okay. If you look at our growth, it has not increased over time. We keep on looking at opportunities to grow, and we also remain an underwriting company. That has been our clear strategy, and that is what it is. If you see this year, the thing which hit us the most, the series of floods which happened. Since at BAGIC, even in the fire portfolios, we are predominantly a retail player.
We also have some commercial which is there. Because we have a big retail book in the fire portfolio also, and since we also have a big book in the private car and health also because of this rains and extreme monsoon also had an effect. You see a loss ratio movement which is happening in all these three lines of business because extended flood and series of flood which happened.
When you are a player which has a good retention because you want to be underwriting company, when you have series of losses happening, it hits you more compared to the market which is there, and that is why you see an increase in our combined ratio.
Our strategy is very clear. We want to be able to remain a good underwriting company because our belief is good underwriting company able to serve customer. Does it answer your question?
Sure. Just to ask you further that, any thoughts on bringing down underwriting profits for growth? Is there a thought going around?
No. Why should we change our philosophy? We have sustained this philosophy so many years, we'll continue the way it is.
Okay. probably a 95%.
I don't think. Sorry?
Probably a 95%-96% kind of a combined ratio is something what you always target.
This is a forward-looking statement that you'd be asking me. All I'm saying is that we have believed in strong underwriting. We don't change our philosophy there. This year we had series of floods which has happened, which has obviously affected our results. In the business valuation business, you see this volatility all across.
Unlike other businesses, GI business has high volatility in terms of events. If you look at this year, let's say the Australian fire or the cyclone in Japan. You have these cycles in the GI business, it's a normal cycle. I don't think that in these cycles start thinking about how the philosophy of BAGIC changes.
Sure. Okay. Yeah. Thanks. That helps.
Thank you. The next question is from the line of Rishi Jhunjhunwala from IIFL. Please go ahead.
Yeah. Thanks for the opportunity. Just one thing on the provisioning made on the investments in BAGIC. That number seems to have gone down. Has there been any reversal?
No, nothing. No reversal.
Actually in 2Q PPT we had said impairment provided for was INR 1,231 million, whereas now we have said INR 742 million.
Three. Correct. I think the INR 123 crores is the total portfolio. On which 60% provision is made.
Okay. Because the disclosure last time we did said impairment provided for INR 1,231. That's you're mentioning about the portfolio.
Yeah.
Okay. You're saying 60% has been provided now?
Yes. We are maintaining the same.
Understood. Second is, just wanted to get some understanding on the crop in terms of split of the loss ratio. How much is attributed to the excess loss cover versus actual experience on losses?
Hello?
Yeah.
Can you repeat your question?
Yeah. Our year-to-date crop loss ratio is 110%. Just wanted to understand the split between the loss provided for and the excess loss cover cost.
Basically whatever the losses are there, they are currently within the threshold only because our excess of loss treaty will trigger only after 130%.
Okay. There would be cost associated with taking that treaty. I'm just trying to understand, is it 10%, 15% .
That cost keeps varying because it has different variables. I will not be able to tell you exactly what is the cost aspect because it keeps changing based on the impact of other catastrophes also. Whatever cover we would have taken is a cover over and above the overall crop also, which is an entity-level catastrophe cover.
Understood. In motor, basically you mentioned two-wheeler breakdown is about 15%. Just wanted to understand from a slightly longer term perspective, where do we want to take it to considering that clearly if we really look at the regulatory changes that have happened, there is more focus around two-wheeler compliance or at least from a long-term TP perspective and all that. What percentage of OEMs are we already tied and is there restriction in terms of how much more we can go there?
Let me take this question, Tapan. If you look at it, I think the way we plan the business is wherever we have a good opportunity in terms of a good portfolio and our service network is good, we do that business. Two-wheeler, as you are aware, there were 17 million two-wheelers on the road are still uninsured.
Right.
The impact of the changes was visible for a couple of months, and then again, it went back to the normal state. If because of the new act and people awareness goes up and people insurance goes up, obviously we will take our reasonable share of market in that business. In the OEM tie, we keep on looking at good portfolios and keep on trying that. That's a regular business model which is there. Does it answer your question?
Yeah. Just if you can give some sense in terms of how many of the OEMs we are tied up in terms of percentage?
We have three or four OEMs tied right now.
Fair enough. One last thing, any update you can provide on the Axis Bank in terms of how the ramp-up has happened? Have you started getting business and what's the plan from a 12-24-month perspective?
Rupesh will take this question.
Yeah. It's a deal with Axis. I don't think we can get into too much details about their own plans and what we intend to do in details. What I would broadly do say is that it's a stepwise process and a structured methodology. We've started hiring people and as you would have seen since December, we've been upon that task. There are some segments which are opening up. Pilots are already on the month of January. Some business will maybe start coming in Q4. Will it be very significant? Not really, but it will be there. Then I think the effect will start really showing up in the Q1 or Q2 next year.
Great. Sorry, I am going back to the first question. In your disclosures, you have mentioned BAGIC, the total non-performing assets are INR 123 crores, out of which INR 74 crores have been provided, which I guess is 60%. This number last time in 2Q was INR 172 crores and INR 123 crores. Am I reading it wrongly?
I think there must be some error because I think we are continuing with the same provision. IL&FS has been provided last year itself. Including IL&FS, it will be INR 123.
Oh, okay. All right. Maybe I'll take it offline. Thank you.
Thank you. The next question is from the line of Madhukar Ladha from HDFC Securities. Please go ahead.
Hi. Just following up on the previous question. I had the similar question and in addition to that, in quarter three, there is an increase in downgraded investments from INR 560 crores to INR 713 crores QOQ. What is this on account of? What exposure is this?
Have we added anything, Raman, Milind?
Hello.
Milind, Raman, has anything been added to the downgraded list in this quarter?
No, I don't think we've added anything. No, that's not in BALIC, it's in BAGIC actually.
Is it?
Yeah. Maybe we added Yes Bank. We'll have to check that. I think it'll be in the public disclosures anyway.
Yeah.
Right.
Okay. In BALIC correspondingly, there's been a decline in the total stressed exposure on a quarter-on-quarter basis.
Some of them we have sold during the quarter.
I also noticed that on a quarter-over-quarter basis, our commission and expense ratios are going up. What is this primarily on account of?
Sorry, this is about Bajaj or BALIC? Bajaj. I'm sorry, Bajaj.
Yeah. See, commission expenses are directly in proportion to what kind of premium we are procuring and the kind of competition which is going in the market. Commission rates actually will keep fluctuating depending on the market situations. I think the expenses part Tapan has already mentioned earlier, that the kind of investments we have been making at the beginning of the year and some of the investments which are getting tapered. I think you will see an improvement towards the end of the year in terms of the overall expense ratio.
I understand the expenses because we are obviously widening our distribution reach with additional partners. Is there anything specifically happening in the market which suggests that we're paying higher commissions for certain segments of businesses?
That I will not be able to indicate on the call.
Okay.
Which segments we are paying higher commissions?
There are certain places where competitive intensity is.
Of course. I think our strength lies in terms of segmentation and underwriting. In order to attract the right segments, we need to pay higher in some places and lower in some places.
All right, sir. On BALIC, can you disclose what would be the sort of strategy with Axis Bank and how much can we scale up with them? Are there any targets? I'm sure you'll have some targets. Can you talk a little bit about that for the next one, two years? What sort of numbers can we achieve from there?
Broadly before I pass it on to Tarun, I'll take that question. See, roughly we look at the total business of Axis Bank, that is about the total individual related premium of BALIC from all channels. By individual retail business, we already do a lot of group business with Axis Bank anyway, which is a group protection business.
Therefore, even if we get a reasonable share of that, I don't want to put a number there, which Tarun will explain. It is still a significant growth for us. As we build the relationship, it will continue to grow. As of now, we have not put any numbers. We are still discussing with Axis Bank, and we are integrating the systems and putting together the whole platform. Tarun.
Yeah, I think Sreeni has directionally said what is correct. I know there's a lot of excitement around Axis, externally and internally, from our side as well. It's a long-term relationship that we are getting into. We do want to take a lot of that share as well. There is a process towards improving that share. I can assure you it will be a significant part of our PICS business. When the discussions do move, then at appropriate times, we will keep giving you the guidance. There is still some more time before momentum builds up there.
At least on the journey which we started on the group side, a lot of momentum has indeed picked up. For nine months we ended up doing about INR 170 crores of business. At least that side it's picked up. Like Tarun said, on retail we will come back maybe after a quarter or two.
Understood, sir. All right. Thank you for taking my questions. Yeah.
Thank you. The next question is from the line of H.R. Gala from Finvest Advisors. Please go ahead.
I just wanted to know this Chinese virus, can it become a big problem for the insurance companies in India?
See, good question. I think in the past we have had cases like this. We had SARS, we had H1N1, we had bird flu and things like that. So far we have not seen a pandemic in India which resulted in a lot of claims.
Okay.
It largely depends on the cost of treatment, how long they will get treatment, and whether in fact it breaks out in India in a big way or not.
Okay.
The positive side of that is today people seem to be better equipped. We have started screening from day one in all the airports and thousands of people have already been screened, which is a positive sign.
Okay.
The negative sign is because it is from China, nobody really knows what it is.
Yeah, exactly.
Therefore, we'll have to wait and see. The market penetrations are a lot higher. In terms of what it was, say five, six years ago when we had H1N1. The chances that more people will claim if it happens is also there.
Okay.
These are things that we'll have to wait and see how it turns out.
Okay, fine. Thank you.
Thank you. The next question is from the line of Sanket Gore from Spark Capital. Please go ahead.
Yeah, thanks for the opportunity. Just wanted to understand what would our combined ratio look if we exclude the flood-related losses, or the loss ratio how it would look. Our 103 combined ratio is including the flood events. Excluding it, what would the likely number be for us? Is it comparable to last year?
I would presume it will be closer between 101 and 102.
Oh, okay. Perfect. Just two questions on life. When I go and check Policybazaar, the protection pricing what we are offering is now the lowest among the industry. Just wanted to understand because most of the life insurers in the call have said that the reinsurance rates are hardening in the individual protection business. Whether this pricing, what we are offering in the protection business is sustainable, or we will revisit if the rates harden in future?
Yeah, I think it's a very good question. I really appreciate that you've been watching the sector very closely. Yes, the prices will harden, and yes, we will increase prices at the appropriate time. We will. It will be a pass-through the way we are looking at it. There is no change from our side in the quarter.
This is a strategy that we follow, which is to break the clutter. It's a profitable business at this pricing itself. What we've done is, we've taken a lot of mitigants in place, so none of our policies incidentally, can be issued on a non-medical basis. With 100% medical, we are getting very good quality lives. The percentage of-- in fact, from Policybazaar we have this data, of lives which are upwards of INR 10 lakhs of annual income, is a significant proportion of this quality.
It's very good quality that's coming in. Because they're all medically pressed, so the underwriting is also so much more comfortable. The reinsurers have taken this call because of the not so good experience that they've had from a lot of other people who had a lot of non-medicals, which is why we took that call.
Strategically, I think it's really worked well for us. We're seeing a good amount of momentum in our agency business, and now Policybazaar is also now that the systems are ready, moving on with this. This will remain a key product in our portfolio. You should expect a price increase from us also. This quarter, there's not going to be any.
Thanks for it. Internally, do we have any target of individual protection to be contributing to our individual rated premium in, say, next two or three years down the line? What is appropriate mix we are looking at? Which channel will drive the growth? Yeah.
Yes. What happens is that, currently because of this pricing, we've been restricted in terms of how many cities we can sell it in. We are currently only selling it in 150 locations. As a result, the proportion is going to be not very high. It is only going to go up slowly. I think in the last or the call prior to that, I had explained that we were getting our claim payout processes right, and they're now looking very strong and good.
Quite satisfied with the way we've moved on our claim handling capabilities. You'll see that claim settlement ratio has already moved up to upwards of 98.5% or around. That's very good. First that had to improve, and then we had to move on. This is going to be a constant feature in our portfolio, and will grow up gradually because it's a strategic call. I'd rather have good quality than have any bandwidth.
On the distribution, will it be more Policybazaar driven business model for us? Will we be focusing, say, on the agency and also on the incremental Axis Bank part what we are getting into?
Every channel will sell. Agency at this point incidentally is selling much more than Policybazaar. That's been a good movement for us. Of course, what it does is it hits our average premium in agency because this average premium is a good premium, but it's under 30,000.
While our average premium is well above 55,000, 60,000 for agency. This is a good quality customer. Bottom line is pretty good. Policybazaar has just about started selling in the last two weeks because it takes a little bit more time. The other channels are also going to be selling. Axis Bank, of course, will also sell.
Okay. Will you mind to quantify the monthly run rate of the business, how we have seen for last two and a half months since we have started doing it?
No, I don't think I will be able to do that.
Okay. Lastly, on the group protection business, I just wanted to know the INR 1,250 crores of business. What we did it for nine months. Can we get that breakdown into channels like Vaas, Bandhan Bank and others, also within the products, consumer durables, MFIs and mortgages?
Raman will answer that.
I have it partner-wise. We don't have it at the consumer segment level. I'll just give you the partner-wise. Like we've discussed in the past, out of INR 1,250 crore, it's largely divided into parts. One is the MFI piece and then there is the other, which is the other credit protection. Of INR 1,250 crore, about INR 700 crore is credit protection through MFI, and the balance is through banks and NBFCs. Of which, like I mentioned earlier, Axis is about INR 170 crore.
Bajaj Finance would be?
Bajaj Finance is another INR 250 crore.
Okay, fine. Thanks.
Thank you. The next question is from the line of Adarsh Parasrampuria from Nomura. Please go ahead.
Just before that, I wanted to reconfirm what Sreeni mentioned about downgrade of investments in BAGIC. It is on account of Yes Bank only. INR 75 crores exposure which is there.
Okay, sir, I just had a repeat question on the protection rates the reinsurers are expecting to hike. You did mention about the experience on wherever policies don't have medical. Can you just confirm whether it's mostly related to that or there are more factors?
When we discussed with a few insurers, it seems that in general, as the penetration is expanding, including, say, online platforms, the profile of customers that is in general coming is because the penetration expands, you are having different experiences. Different set of profiles are entering the protection space. If you can just talk through what is, apart from what you mentioned, medical, what is leading to them to hike the reinsurance rates?
Yeah. No, very good question. See, it's early days for us to be able to claim the right to knowledge on this. Let me not for a minute even imagine that I can give you a perfect answer. Let me just take it up based on my experience. Otherwise, see, the moment you see the customer face-to-face, and the moment you are doing the proper due diligence, which is through medicals usually, then at least you're able to get the anti-selection out of the entire portfolio.
Why did I answer the earlier question from Spark that we want to do this gradually is exactly a reason. Some people, for whatever reasons, are going for numbers, and it's a strategy that works for them. Once you've got, let's say, 200,000, 300,000 or even 100,000 lives, then maybe from an insurer perspective, because we insure most of the risk, you can start relaxing lots of these issues.
Like, BALIC is starting slow, and our number of lives covered will, of course, is increasing quite nicely. I'm quite happy with this. Having said that, we'll still be in a few thousand, maybe under 10,000 by the end of, or near about that number by the end of this quarter. There is a long way to go for anybody to relax.
You have to basically tailor-make from an insurer perspective, how do you want to approach this entire segment? From a reinsurer perspective, life is very different because it's all a case of whether they've been able to price, whether they play on large volumes, whether they've been able to price correctly partner-wise based on the experiences they see.
Then they get tied down to that price, and that's where the problem emerges. Yeah, lately, given the fact that term is getting to be the flavor of the month, there is an issue, and I think reinsurers correctly, therefore, are increasing the pricing. Nobody wants to lose business here, so they're very clearly doing it in a calibrated form and doing it correctly. I see this only happening.
If you do realize and just go back in history, we've reduced pricing and term where we started selling in some significant numbers online and otherwise only around 2009, 2010. In the last 10 years, prices have come off crazily, almost by 60%, 70%, the prices have come off.
We did go one way. Now there has to be some recalibration that's required. Overall pricing still will be quite comfortable for the customer. This is a process of experiential learning and then maybe correcting because the data wasn't there earlier. Only LIC would possibly have that data. They don't share that data.
As long as we stick to medicals, as long as we stick to proper due diligence, which is the process that we are using, pricing can be controlled. The moment you start doing for volumes, then of course, there's going to be a balancing act that people will have to play. You already heard a few other CEOs talk about pricing increasing. I think it's imminent. We too will be doing that, just to be safe. I think reinsurers are doing the right things there.
I know it's too early, but do you sense that some of these hikes in cost on reinsurance may not be fully passed? Because everybody wants to do protection, people may be willing to lower the threshold on margins that one operates at in the protection space.
God bless whoever will be wanting to do that. We are not going to do that. We are very clear. We will pass on the price hike. See, here you are taking a life on for not a year, which is like in the case of credit life. Here you're taking on the life for 10s and 20s of years. There are various people are trying to outdo each other in terms of aggression or product structures.
One has to be very careful in the way one handles this. I would only recommend that it should be appropriately be passed on to the customer. Like I said, it's already down by 70% odd the time it started 10 years back. Having said that, life insurance companies will have to, of course, take their own calls.
Margins on these products are good. If it becomes a dog-eat-dog market, it doesn't help. What I've seen is that if you go for margins and volume, in any case, even the reinsurance rate for some companies will go against their wishes worse than what reinsurance will price for other companies. It is a balancing act we'll have to play.
Actually, if I can add to what Tarun said, is when you look at our product mix and within that, the guaranteed ones and the term are the two major risks where you could end up taking a significant amount of risk. It is not something like a non-life that comes up for renewal every year, so you can decide that, okay, I tried something, it did not work, so I can move on. In life, you are stuck for a long period. If you see the experience of countries in the West, largely, these two are the ones which have really been the significant risk for life companies.
We don't see that kind of issues maybe with the unit link product, or even the par products, which although there is a guarantee, I think the way the par product is structured, with a 90-10 structure, I think it is not that significant. On the non-par guarantees and the non-par risk, what we want to create is what, to add to what Tarun said, is sustainability. We don't want to do something this year because that's the flavor of the year, and then next year we find that something has gone wrong, and so we have to roll back, which is not good to build a very long-term business like a life business.
Perfect. Thanks, Tarun. Thanks, Sreeni.
Thank you. The next question is from the line of Bindu Rajamani from HSBC. Please go ahead.
Sorry to kind of berate on this, on this term plan, how much of it is medical underwriting? How much of it is there no medical underwriting? Also, what is the combined ratio some indication of the combined ratio on term that you currently have facing.
We don't work on a combined ratio, I'll answer that one first.
Yeah.
It's a different approach that we have because typically it's not a one-year product. With a one-year product, you can work on combined ratios.
No, that's right. Just an indication because if you think of it's almost like a non-life product. It's a long-term product, just in terms of just comparing it just on a standalone annual basis, what would be the combined if you were to do it?
It's still, let me state again, it is not comparable.
Okay.
There is nothing like combined ratio possible in this. If I was writing a single premium for a one year, you can do that because the risk is carried forward for 20, 30 years.
Yeah.
You can't. I mean, it will be based on some assumptions.
By the time you've completed it will become 50 years by then.
Yeah. I mean, assumptions basically will result in an VNB, and the VNB on these products is very good, is the best in all our portfolio. The other is, of course it hits on first year, if you want a blunt answer, it's a higher strain product because you are.
Yes.
The PAT takes a hit.
Yes.
The more we grow, and first also if the underwriting is not right, the more will be the strain on the current hit on PAT.
Yes.
That's something we'll have to be careful because we'll have a lot of growth engines, including Axis, and we'll have Term. That does typically hit on PAT. Of course, the VNB is very good, and that results in PAT in subsequent years.
Let me add to what Tarun said. The focus of BALIC now is the most important metric for us is VNB, not even the VNB margin. Because you have multiple products, some products are inherently having higher margins, some have lower margins, and there is always a gray area on how to create single premium in this.
As your VNB reflects both your volume and your margin, and the breadth of business that you have in terms of the profit maximizers, the scale builders, the ones which are like in between. We try to balance that in a manner such that we get a desired amount of VNB growth. We have been growing our gross VNB quite strongly over the last two, three years, obviously over a smaller base.
We are very hopeful that over the next three to four years, we will continue to see good traction on VNB, combined with the higher volume leading to lower overruns and better cost control. We think our net of overrun margin, we should see a fairly significant move. Of course, this is forward-looking and there are so many assumptions or expectations built into this, but I am just giving you a directional move w hat the company is seeking to achieve over the next three years is a significant improvement in VNB.
Your first question on medical to non-medical, so just to kind of give you comfort, we are currently not writing any business less than INR 50 lakhs cover. Because usually, if you look at statistics, the whole number of deaths come in INR 25 lakhs and around and below.
Yeah.
Sometimes the pricing becomes too tight to be able to handle this in a portfolio. The other piece is we are 100% medical today. If we have to offer this kind of a price, we are 100% financial underwritten and medical underwritten. Like I had answered earlier, this is a long-term sustainable business we want, and the more better our experience to start with, the better will be the belief from the reinsurer to give us good rates, and that we can give that benefit to the customer.
The other way around, very high volumes means bad experiences, and therefore higher rates from the reinsurer, and that is something we don't want to do. That becomes in too many practical calls in the entire process. We are going around point in time. I'd even venture out and say that among all the insurance, I think we'll possibly have the best quality lives coming to us, despite the low rate.
Yeah. Thanks for that. Thank you.
Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity again, sir. Sir, can you explain how the reinsurance work in protection? When we get a reinsurance coverage, it is covered for the entire life of the policy or it is just a one-year cover?
No, it's entire life. That's why the reinsurers are getting worried and increasing prices.
Okay.
It adds to the product. Basically, you tie up for the length of the product.
On the policies which are already underwritten, there should not be any significant risk in terms of profitability. The forward policies that we will write, if there is a reinsurance price increase and if someone is not able to pass it on, there will be an impact on profitability.
Yeah. It's only that way. The only thing is, of course, if the experience is that, mortality, this is a direct hit. That is where the due diligence comes in. There is some retention on our books and then the rest, of course, is ceded to the reinsurer. Whatever is on our books, that of course hits us.
As you can see in the case of other life insurance companies, the reinsurers are facing pressure and therefore a problem, and therefore they are increasing pricing because maybe the feeling that's happened to them is not good. The reinsurer is losing money. Life insurance, yes, the money loss on even bad mortality usually is restricted because the retention is low on our books.
Is there any pressure to retain more also from the reinsurers or?
No. It all depends, actually. See, reinsurers, if you ask me, if you look at 3,000 feet, reinsurers hardly underwrite anything significant on life. Their business is general. As a portfolio, from a reinsurer perspective, they're just about getting started in getting some of the books created. They'd rather increase the price and keep same retention, that's how the actuarial model usually works. There is no pressure as such. Pressure is only to increase pricing, not retention.
Just to add to that, I think the key here is the selection, the type of customer segmentation you do, the kind of data you use. Unfortunately, life being a product where the higher tickets normally go to the more affluent segments, and they tend to be of the older age. The choice becomes a little bit more complex.
However, once we are starting this product with full medicals, we will learn that quite well. That's why we said gradually. As we gain more experience, our long-term goal may be to retain more and reduce the dependence on reinsurer except where we feel the risk is too high for us to take on any individual case.
That is the direction over two, three, four years we may seek to do. As of now, we've not decided, but it's just that directionally, this way we are looking at the business. We should cut rates and get business today for something which is 20 years tough.
Yeah. I think that's a very good point Sreeni's raised. The moment we get to a number of 100,000, 1 lakh lives or more lives, maybe I don't need to see too much as well. We do have a large capital, we could use a little bit of that.
You are parallel with Bajaj, where over the last 15, 16 years, you see how our retentions have moved up over time as we gain underwriting knowledge on segments. Some segments were very new to start with liability, for example. Today, we've written a lot more in liability than we used to do before. This is a process of learning, and it's a very long-term business. We have to build it carefully and sustainably, and that's what our companies are doing now.
Sure, sir. That's it from my side.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Ms. Bani Bagchi for closing comments.
On behalf of JM Financial, I would like to thank Mr. Sreenivasan, the senior management team of the insurance businesses and all participants for joining us on the call today. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, on behalf of JM Financial, that concludes this conference. Thank you for joining us and you may now disconnect.