Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Limited Q2 FY 2020 earnings conference call hosted by JM Financial Limited. As a reminder, all participant lines will be in the 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. Parni Babji from JM Financial Limited. Thank you, and over to you.
Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss the second quarter FY 2020 results. To discuss the same, we have on the call Mr. Sreenivasan, CFO, Bajaj Finserv. Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance. Mr. Milind Chaudhari, 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. Sreenivasan to take us through the financial highlights, post which we can open the floor for a Q&A session? Over to you, sir.
Good morning, everybody. It's our pleasure to have you for discussing the results of Bajaj Finserv Limited, the consolidated results for the quarter ended 30th September 2019 and the half year ended on the same date. Before we begin, let me wish all of you a very happy Diwali. I wish everyone to have a year of health, prosperity and happiness. 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, Bajaj Allianz Life Insurance companies, Bajaj Finance, which is another major subsidiary of ours that 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 company except to state that 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 a assurance or indication of any future performance exactly. As you may be aware, as required by regulation, BFL has adopted the Indian accounting standards from FY 2019. This quarter, our results consolidated as well as standalone results have been published in compliance with Indian accounting standards and the previous year figures are comparable. The insurance companies 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. I will move on to give you an update on the performance. As you are aware, the market conditions continue to be tight. The GDP growth for Q1 came in much lower than expected. Auto sales are falling and liquidity conditions continue to be tight, although the better-rated companies are able to raise money. Under these circumstances, we believe we have performed extremely well with significant increases in consolidated revenue and profit after tax. Coming to the three companies, BFL, Bajaj, and BALIC, all three have reported strong growth in revenues and premiums. BFL continued its stellar performance. It has recorded highest ever quarterly consolidated profit once again, boosted by strong growth and solid operating performance.
BFL's profit growth was also aided by the lower corporate tax rate. Despite higher claim ratios, including losses from the floods in Kerala and Maharashtra affecting the underwriting results for the quarter, Bajaj's profit after tax has recorded strong growth, aided by a higher profit on sale of investments and a lower corporate tax rate. BALIC too recorded growth in profit after tax. It was also aided by profit on sale of investments and some realignment of provision for impairment consequent to partial recovery against previously impaired investments. During the quarter, BALIC has signed a corporate agency agreement with Axis Bank Limited as their third life insurance partner. Our overall consolidated total income was up 47% year-over-year for the quarter. The consolidated profit after tax for the quarter was up 71% at INR 1,204 crore as against INR 404 crore.
Bajaj Finance consolidated profit after tax was up 53% at INR 1,506 crore versus INR 923 crore. The general insurance profit after tax was up 62% at INR 294 crore versus INR 182 crore. The life insurance shareholders' profit after tax was INR 207 crore versus INR 152 crore, an increase of 57%. In the previous call, people had requested for an update on the investments. We have provided in the investor presentation, which has been uploaded on the website on Wednesday, a summary of the downgraded investments. This means investments which have been downgraded by certain credit rating agencies since Q2 of FY 2019. This will also include securities which still have a high investment grade rating because the qualifying criteria is that it should have been downgraded after purchase. Further actions are taken to strengthen the investment management are being initiated as follows in the quarter.
We have strengthened the internal credit appraisal to include proprietary appraisal models as well, in addition to credit ratings. Regular monitoring and interaction with fixed income investors in the corporate bond segment. We have redefined the fixed income universe with fewer qualifying securities in respect of new investments. We have redefined exposure limits for each segment of fund holders, funds and shareholder funds separately. We have increased the frequency of review of asset allocation exposures and internal as well as external ratings.
We have a special weekly monitoring team across the group to set up to review all our investments we have been downgraded since purchase. With these short comments, I would just like to add that we have uploaded these opening remarks on our website as well, so many of you may have gone through those. For those who haven't, you have access to that. I will now open the floor for questions and answers. Thank you.
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. A reminder, you may press star and one to ask questions. The first question is from the line of Hitesh Mulani from Edelweiss Securities. Please go ahead.
Yeah. Sir, thank you for taking my question. I just have one question on the general insurance business. What is the quantum of advanced premium from long-term motor policies for us as of September?
Milind, would you like to take it or Tapan?
Yeah. I have the exact figure. It is around INR 600 crores, to be precise, INR 575 crores, which is by way of advanced premium.
Okay. Sir, we have seen good traction here, right? From March to June, I think it moved from 300 to 400, and now I think it has sort of increased a little bit more. Any positive trends that you're seeing on more people opting for longer term OD as well, something like that?
I think I would like to mention here that compared to last year, we have seen some changes as far as the overall trends in people opting for either five by five or one by five, and then three by three or one by three. Okay. We are seeing a lower % of people who are opting for a complete five by five or three by three in both cars as well as two-wheelers.
Sir, just one split of motor third party on cars, CVs and two-wheelers.
Hello? Hello?
Yeah. You hear, sir.
Yeah. Can you repeat the question, please?
Yes, sir. My question is on the motor third party piece, what is the split between cars, two-wheelers and CVs? Some indicative numbers there.
Okay. I think as far as the overall breakup is concerned, around 60% is coming from motor TP, while around 40% is coming from motor OD. Okay. Out of the overall TP component as such, more is coming from the CV portion. Almost, I would say 60% is coming through the CV portion, and the rest is coming from four-wheelers and two-wheelers.
Sir, on the OD piece, is the mix similar? Because I think the motor-
I think we're getting too granular into the operational numbers. I think broadly, you can ask the question in budget.
Okay. Sir, thank you. That's it from my side.
Thank you.
Thank you very much. Next question is from the line of Ravi Srivastava from Bay Capital. Please go ahead.
Hi, sir. Congratulations on the great set of numbers. My question was also on BAGIC. Why are we pushing so much on the crop side? Last time when we spoke, you spoke about maintaining your market share in crop, but this quarter and maybe in the last, we have gone overboard and have written a lot more. What's the thinking there? Why are we taking so much exposure in crop?
Okay. If you look at crop that we do has always been close to our market share. When you maybe stating that we have gone overboard, in a quarter it looks overboard because when in the entire year if you look at the total crop, this year is around INR 28,000 crores. In INR 28,000 crores, if you write about INR 2,000, it is close to our market share of 8% or 9%. Where have we gone overboard?
No. I was saying that this is the largest quarter.
It will come in one quarter, no? Crop is not like a retail business comes every month. Crop is spread over the year. Let's say we write in this quarter, but the entire year, this is how it will get built up. No?
Right.
Total portfolio of crop, this is the %. It is equivalent to more or less close to our market share, not overboard.
The other thing I just wanted to get heads around is that when we are writing crop insurance of such a significant size, we are also writing combined ratios which are over 100%. Higher claim ratios, sorry. Claim ratios of over 100%. Why are we taking that exposure? How do we make money out of it? I just like to understand that segment.
Yeah. If you look at crop business, the way you should look at it is, pick up the crop business for, let's say, 10 years' time. That should be pick up the total crop by segment wise business for 10 years' time. In what a significant number of years you make money, some years you lose money. If you look at our performance also in the past, let's say four or five years, we have made good money in about three, four years. Some years you lose some money. That is the nature of this business.
Crop business is not like a retail motor business, in which you would know the margins as it progresses on a quarter to quarter basis. In the business of crop, if you enter into crop, there are years in which you'll make a good profit, there are years in which you will not make good profit. If you look at a 10-year period, there are more years in which you make profit compared to years in which you don't make profit. That is why the crop business is safe.
Right. Tapan, just again asking you, are you doing good with this? It seems like, some years where you make profit or some years which you don't, it seems like it's sort of a coin toss in a way. Why do we want?
It's not a coin toss. You see, it is given largely by reinsurers. If you look at, let's say GIC is a major reinsurer here. Actually, when you write businesses like this, you have to have good reinsurance support.
Okay.
What happens is you even out the losses. Let us say what companies do is they take an excess of loss cover. Let's say a loss exceeds, let's say 120%, 130%, even the companies don't bear the loss. It goes to a reinsurer again. Okay. They have a quota share, in which let us say now, if a company has a loss, certain amount of loss is taken by reinsurer also.
Okay.
Across the world, when you write businesses like this, if you look at a P&C company and if you read about it, let us say in U.S., you have those hurricanes coming in, you have cyclones coming in. There are years in which there are huge cyclones, in which the property loss goes up. There are years in which there are no cyclones, there's no property loss.
Right.
Nature of P&C business is when you are a big company, you're exposed to catastrophic losses. You'll be exposed to different kind of losses. Otherwise, why would you take a cover? Let us say, if you don't have even out monsoon every year, why do you take a cover? Even the economic policy of the government also considers the monsoons. There are good monsoons, there are bad monsoons.
Right.
If you look at it, that's the nature of P&C business. It is not a business in which you can predict every quarter how it goes. That's why reinsurers are playing into play. That's why we do large segments. Does it answer your question? Does it give you a clarity on how to look at this?
Yep. Some understanding. Just that, sorry to harp on this again, is that my only thing is that so when they speak to reinsurers, they are sort of also firming up their rates on this.
Yes.
On the other side, here the major payment comes from government, so sometimes it may have paid on time, sometimes they delay the payment.
Good. Ask as much question you want on crop because I think it should be very clear to you. I'm very happy you're asking questions. Let's look at the crop business and government delaying payment. Now, as the nature of the contract awarded by government, it says that till you receive premium, you don't pay claims.
Okay.
Okay. Now, actually, the government delays the premium, the claim does not get paid for that, no? It is not that you are paying claims and you're not receiving money.
Yeah.
The contractual nature of crop insurance defined by government is such that till the government pays money, you don't pay claims.
How do you generate float then?
No. See, float is not to be generated on businesses like crop. Float is generated typically, look at, let's look at float of the Indian insurance business. Most float is generated by the motor third-party business, which is where.
Right
because of the nature of claim settlement. It takes years to settle a claim because of the way it is constructed today. If you look at the coming Motor Vehicle Act, in which they're saying six months you will claims, most of the flows from GI business will disappear. Float generation or creation happens only in businesses like motor third party.
Yeah.
Yeah, long-term businesses. A float will not get generated in P&C. A float will not get generated, let's say, in a crop. Fundamentally to understand float also, you have to look at long-term businesses to get that. Crop is not the place where you generate float.
Basically here, what we are thinking is that there is a good chance that in some years we'll have 120%, and there is a very good chance that some years we'll have 80% claim ratio.
Yeah. That is why you have reinsurers.
Reinsurers.
Reinsurers are hardening the rate does not mean that they are not covering. Most companies would have good reinsurers cover, which would be at a quota share of a good or 80%-85% of it. They stock less cover over on top of it. Fundamentally, the vagaries of nature can be controlled by this thing, and that is the nature of P&C business. This for most business in, let's say, property also. If you look at all the floods happening, the property losses would have moved up for the industry. There are years in which you'll have floods, there are years in which you'll have no floods. There are years in which the property loss ratio will be lower, there are years in which property loss ratio will be higher. It's not only for crop.
If you look at the car loss ratios also, automobile loss ratios. The places where you have floods, automobile loss ratios have moved up. The places you don't have floods, automobile loss ratios down. This impact is there for all lines of businesses. When you study it more at a minute level, you'll find that it moves up and down depending how the nature moves back. That is why people insure. If you have 100% guarantee of no losses throughout, why would you insure?
Got it. That is very useful, sir. Thank you.
Thank you. Thank you very much for the question.
Yeah. One more question on the life side. This is regarding the recent news and not on the quarter, is that there was a trade that was done on BALIC on the Indiabulls with Deutsche. What really happened there?
I can take that question. We are not commenting on any individual security or any individual investments. We have given an update as of 30th September of all our investments.
I think that they have dragged us into court, so that's the only reason I'm asking.
No. As of this date, we have no further information to communicate on that.
Got it. Okay. All right. Thank you.
Thank you very much. Next question is from the line of Praveen Kothari from Munich Investment Corporation. Please go ahead.
Hi. Thanks for the opportunity, sir. Sir, as a investor, long-term investor, I wanted to understand in this falling interest rate scenario, within insurance company, general and life, typically these also make money on float and long-term trade is also a very sustainable good Which is sustainable and regular. In this scenario, how normally insurance company behaves, what is your thought process for GenNext this year during last three, five years, interest rate has also fallen. How it affects our overall earning? Basically, if you can little bit in a simple language you can explain.
I will do that. Our investment income comes from two sources.
Yes.
One is how much of AUM you have, how much float you generate, which you add to the AUM.
Yes.
Three, what yield you get on those investments.
Right.
Clearly, as interest rates are cyclical, so there are times when interest rates will be low. There are times when it could be higher as well.
As we position ourselves, if you have seen this quarter, we have taken profits on sale of investment. As interest rates go lower, the bonds do tend to give higher yield.
There are also regulatory restriction on where you can invest in terms of the type of asset classes. There's a minimum amount to be invested in government, in housing, in infrastructure, and a certain amount is allowed to be invested outside of all these.
Given all these constraints, it will be our endeavor to work on both fronts. Firstly, to have a business which generates float. Historically, in Bajaj, we now hold approximately INR 19,000 crore of float, and we have invested only INR 280 crore as share capital and we have a net worth of about INR 5,700 crore.
Clearly, we have almost INR 13,000 crore of float we have generated the business. The float continues to grow, and we will continue to focus on growing the denominator. Clearly, our insurance business is full of risks. There are risks related to underwriting. There are risks related to reinsurance. Therefore, we consciously monitor the sources of profit, what is sustainable, what is recurring, and there will always be opportunities for you to take one-time gains. That mix is something we track rigorously, and historically we have been there. Our investment leverage, which we have mentioned in our investor presentation, is 3.2x. That means for every INR 100 of net worth, we still continue to hold INR 320 of investment float.
Obviously, if it is a bit lower, the investment income will be lower, but we have other levers. We have our underwriting business, we have our product mix, we have our expense management and all these put together, we hope we will continue to deliver a superior ROE. Is there any-.
Thank you very much, sir. Yeah. Thanks a lot. Thank you.
Thank you very much. Next question is from the line of Madhu Karulada from HDFC Securities. Please go ahead.
Hi, sir. Thank you for taking my question. Again, on the agri business, can you explain a little bit about how you're hedging that business? You mentioned that you have an excess of loss cover and you'll have some knockouts. What can be the maximum kind of loss in this business if you can give some color on that?
Before I pass it on to Tapan. If you see in the last four years, majority of the large catastrophic losses have not come from agri insurance. They have come from J&K flood, they have come from Kerala flood, they have come from cyclones like Hudhud and Fani, they have come from floods in Chennai, Bombay. Therefore, insurance is about managing the catastrophic risk. We have multiple layers of excess of loss cover for different lines of business. Agri business is a unique business because it is short term. It is for one season. The claims too get determined quite fast. Weather is one of the important factors which determines claim ratio because it is yield-based insurance. It need not be because of weather. The farmers are not required to prove why the yield was lower.
However, given that, we have a separate program for agricultural insurance, which has a quota share. It does not have loss limits. We have a retention which Milind can confirm the number. In addition to that, we have brought some excess of loss cover at 130% loss ratio. Milind, can you confirm that?
Yeah, 20% is retention.
20% retention and 130 is our stop loss limit.
Yes, correct.
We pay a premium, obviously that gets charged to our crop yield.
Understood. On the motor business, what are the early trends on the new Motor Vehicle Act? How is our TP renewal looking like? Are people coming up and renewing or buying TP only policies? It's been a year since we sold One Plus Three and One Plus Five policy. How is the renewal of the OD only portion on those policies?
Milind, would you like to take it or Tapan?
Tapan here.
Okay.
Continue.
Yeah. If you look at when the fines became steep initially, I think the premium for motor two-wheeler went up, TP, significantly for industry. The point here, if you look at the most uninsured vehicle on the road, is two-wheeler. About 70% of two-wheelers are uninsured. While four-wheelers are about 20% uninsured, and commercial vehicles about 30% uninsured. This is founded by the IIB data and the IRDAI data by matching it together. That is how the numbers come through. Obviously, when the fines were announced, there was steep increase in the two-wheeler insurance premiums, specifically the third party part of it which happened. I think slowly the state governments diluted the stand on that, and then there was a dip. Still higher compared to what it was. For 15-20 days, it moved up in the last month or so.
There's a fine tune also. My personal feeling has been, which I have said in a lot of forums, is that if speed fines are good, there's a huge change of driving behavior on the road, and most of the road accidents happen because of irrational or speed driving or not causing jumping red lights. It was good for the citizens. I think quite a few forums also took it up, and they mentioned that. Fair enough, I think as it goes forward, I think I would be seeing a significant increase in two-wheelers premium increase in the third party car. That would definitely happen. Four-wheeler, I think it is less ammunition, so it might not be much.
On the renewal of pure OD, it is much lower compared to it has been full because though the regulator allowed it in the terms of mentioning you can take an OD cover separately, and they have allowed that in the regulations now. We have to mention the TP of the previous commission is there. I would say it's too early to give this comment. I think when you have the next quarter renewal, you can give a more conclusive numbers because insurance also have a play of a month or so happening. It's very early to say that how will it play out.
Right. Also, your health line, we're seeing a very steep growth in retail health. What are we doing different now or what's the philosophy there?
If you look at retail health growth, it has always been on more or less the number that you see today. It's a bit over, a bit down below this. As we build up distribution, the retail health will keep on growing. In retail distribution, there are two or three major lines of products which get sold. One is motors, second is retail, third would be smaller SMEs and mid package. If you see because of our growth in distribution, there's a natural increase in the business also.
All right. Sir, finally, any comments on the pricing of TP because given the Motor Vehicle Act should result in lower claims over a period of time. How do we see pricing to move? Do you think IRDA will make?
Right now, most of TP is governed by IRDA. It is their call, but at a personal level, I'll always ask for free pricing. I always believe the market should determine the price. That's my personal level, but that is something that IRDA has to decide. I think this question has been there for many years now. I think the first time we raised it, especially I raised it about four to five years back, if I remember, when I asked for free pricing of TP and everything is free price. It took four to five years till we don't have any conclusion. I cannot give a future date in which it can happen. My personal feeling is when we are a free market, I think the price should be free for all lines of business.
That's my personal feeling, which I have mentioned in a lot of places.
All right. I'll join back with you.
Yes, thank you.
Thank you very much. Next question is on the line of Ajax Henry from BNK Securities. Please go ahead.
Hello, sir. Thank you for the opportunity. My question is with respect to the life insurance, particularly on the Axis Bank tie-up. What proportion of business comes through banca for us now, and what is our outlook on this new relationship we have with Axis Bank?
Raman, Tarun, would you like to take that?
Yeah. Maybe I'll just step in on that. See our third party and bancassurance business till last year first half was just about 18%. This year it has gone up to 33%.
Okay.
This is without Axis because Axis has not started yet.
What is the outlook there like? On the banca, we'll be targeting something close to 40, 45% with Axis coming in.
I don't think I can make a forward-looking statement on that as to how much we will be targeting, but I think it's a healthy increase in individual premium. This year we've had a good run, a good start with Bandhan.
Okay.
We are now working with Axis and working out various pilots with them and putting together a business plan with them. Hopefully should be good products in the coming years.
If I can just add to what Tarun says. If you look at the last four, five years, we have done a lot of work on individual distribution channels. We have rebuilt our agency. We have seen a lot of traction there. We have seen improvement in ticket size, in persistency. We have also started building our proprietary sales force channels, and we have reorganized our institutional business. We had a very skewed exposure to the RRBs and MFIs. By getting some new relationships such as Bandhan Bank and IPPB and IPPB has already started, but we have a lot of SFBs. We have started rebuilding the banca channel. One of the drawbacks we had in our distribution, one of the gaps I should say, was the fact that we didn't have a very large pan-India commercial bank other than Bandhan, which is a new age bank.
Axis will help us fill that gap. As we walk this path with them, we will figure out, see how much of their pie we can get. It's a fairly large size they have. We are their third partner. We think we have a fair shot at bringing a good quality individual related premium business through Axis, which will be hopefully positive for us for growth as well as our NBV.
Do you have a different exposure on the retail term side as of now because you don't have a bank or partner yet, or you can have it anyway?
Actually, we've spent the last few years to make our claim processes because we are quite strong in the group term side, and that's given us a lot of experience on handling term claims, handling term processes. I said this in the last call itself, we will be launching our retail term plan this quarter, which should help us take that up. The way I would do it is I would take it up gradually as one always hears, particularly investor calls, a lot of positives on retail term plan, and it is good. If you do not have strong control mechanisms and supportive analytics, it can also backfire. This is why we are starting off this quarter now with the retail term.
Perfect, sir. Thank you. Thank you very much for your time.
Thank you. Next question is from the line of Mayur Parkeria from Wealth Managers (India) Private Limited. Please go ahead.
Good morning. Thank you for taking my questions. Hello.
Yeah. Go ahead.
Yeah. Just on the retail side, on the banc side, Insti and other channels are contributing quite well on the growth side. Can you just add some color. Is it because of this Bandhan tie-ups and other which you just mentioned?
Before I pass it on to Tarun, I think broadly that a statement, I think one of the major pillars of our transformation, which we started three, four years ago, was to change the focus of our institutional business from an overweight group business perspective to individual rated premiums. Many of our existing tie-ups, which were doing only group also, we have managed to start individual business. We have started individual business with Bajaj Finance, we have started with Bandhan. Even with our RRBs, we have actually started doing business and predominantly doing individual business now. This, we believe, will add to our NBV and create a sustainable model. That is playing out in some way. Bandhan is obviously contributing to that. Tarun.
Sreenivasan put the one strong pillar right there. Just to add to that, last year, same time, we used to have 73% business coming from agency, 18% coming from institutional clients on the retail side, and about 9% coming from the proprietary sales force. This has incidentally moved quite well. While agency has been quite steady, but has come down in market share because banca and third-party business has really picked up well. Agency is now under 60%, institutional business is 33% now. The strategy has worked. We are not just trying to do only retail through RRBs. Currently, we do have a tie-up with Syndicate Bank. Of course, we have to see what happens with Syndicate post the merger. We have Bandhan Bank. We are the biggest players in terms of number of partners in the SFB model.
In the payment banks, we have India Post Payments Bank, and that should start throwing up some numbers from next quarter, hopefully. There's a lot of work on tech integration happening there. Now with Axis, as Sunil put it, we do have a large commercial bank which has a pan-India presence and the right kind of customer segments to focus on.
While the premium growth is looking impressive, will it also mean that since our presence on the life insurance has been on the retail side a little late in that terms to say so, will it also mean that it will be a while before we see profitability coming on this and the new business strain will be much larger here for a lot of time?
It's a very good question. If you look at the agency channel, it is fundamentally a higher cost channel anyways.
Okay.
There's a lot of fixed costs that goes in there. We have the largest branch presence among the big companies, and we have sometimes presence in areas where even LIC doesn't have a presence. That has been our forte. That has therefore also had a cost associated. When you tie up with bank assurance, your variable costs may go up. You do, of course, make investments in tech and there is analytics, a lot of work happening on their product development, which has to be done. Net net, ultimately, the NBV will only benefit. That has only been positive for us because overall it is a less fixed cost channel.
Okay. Sir, while at a conceptual level, this is right, but has the improved operational performance started flowing on the VNB and EV?
We are publishing our EV once a year. We are seeing that margins are moving. Last year, for the first time, we have also, after a few years, reported positive margins after overruns. Our overruns partly because of growth and partly because of operational efficiencies. We have been able to control our overruns. As we go forward, we hope to continue this trajectory. I can't give you a number what will happen in the future, because a lot of it is also dependent on volume and the external market conditions. Having said that, when you get something large like the Axis Bank tie-up, there will be some new business strain on the reported PAT. If your measure is NPV, clearly we will do business which we believe is NPV positive and this will help us cover the overruns.
Temporarily, there could be some impact on the reported statutory profit, but the quality of the business and the long-term sustainability of the business is what drives us.
Sir, given the base business which we have now that is turning a little positive, we should build in this year from the last year where we left little marginal profits, right?
We're already doing that. If you see our growth has been in the first half and in the last quarter, much higher than the market. We have brought in product mix change, which we believe is a differentiator for us. Now our traditional to unit mix is higher. As Tarun pointed out, we did not have a competitive enough individual term life product. That will soon be launched as soon as the approvals and the internal processes are through. Once we have that, we will start improving the share of protection on our business mix, hopefully. We think this fine act of balancing the product mix will deliver to us what we want. On the channel side, we have now a fairly deep and broad distribution network. We'll continue to build on that.
Okay. Sir, last question from my side is, on the investment side on both BAGIC and BALIC, I mean, it's impairment which you wrote back, but if you can give some color on, is there any exceptional or should one look at as to more exceptional non-recurring or the more lumpy number, anything which we have booked on this side?
See, there is obviously because the yields are lower, there is an element of capital gains. Over a cycle, capital gains are part of your yield. That is why you invest. You can't make all the money on interest income alone. We have reported something higher this quarter than last year. Apart from that, we have that reversal on one provision we made in Q1 because we received part of the money. We still continue to hold 100% provision on our exposure to IL&FS and 60% on the Dewan Housing and Finance Corporation on our outstanding amount. We believe we are reasonably conservative in both, as and we know that there are many other companies who have invested from their public disclosures, and we are reasonably satisfied with the level of provisioning we have.
We have given the details of all other term-related investments in terms of what is performing and not performing, and you can see that our provisioning coverage ratio is fairly high.
Okay. Thank you, sir.
Thank you very much. Next question is from the line of Avinash Singh from SBICAP Securities. Please go ahead.
Yeah, hi. Two questions. One is for BAGIC and BALIC. On BAGIC, again on crop. You rightly said that, okay, crop business you have to look towards a single cycle and also in terms of clear diversified. If you can just help me understand currently from Kharif season, in which assets you are there. On that, do you see, particularly the post 30th September still, the old season rain-related losses? Are your current reserve or current claims ratio for the quarter taking into account of this sort of unforeseen hit, or you see the chances of this claims ratio going up?
On pricing side, if I look the material data from last kharif 2018 to kharif 2019, we have seen kind of a BALIC premium to some ratio going up and kind of indicating some 7%, 8% price hike this year. What has been your pricing experience? These were the questions for BAGIC. On BALIC, again, continuing on your new tie up with Axis, and considering it's a pretty big tie-up and definitely plugging the hole that you had in your business model, having a large retail bank as a distribution partner. It will also entail accelerated investment for some time. How do you see actual post overrun margins for FY 2020 and going forward? Directionally, if not exact numbers, I mean, is it going to sort of bring further compression on margins this year and then accelerating from next year?
You see that, okay, gradual improvement in margin continuing. These are my two questions. Thank you.
I'll rather take the BALIC question first. As I mentioned before, with such a large tie-up like this, it is our intention to drive the right kind of product mix combined with volume, it should be NPV positive excluding the overrun. Yes, over the next 12 months, we will have to make significant investments because the volumes are not going to come overnight. Therefore, there'll be a bit of strain. You will also understand that we are sitting on almost 800% solvency. Therefore, we have the capacity to invest that money in a relationship we believe is long-term, sustainable, and margin positive. Obviously, you cannot say no to such a relationship, all such relationships always come at a cost, there is a cost of integration, there's a cost of manpower, some of these costs are up-fronted. The business will come in due course.
Now I will give it first to Tarun on that question, and then later on to Tapan for the crop.
I think, Sreenivasan, you've addressed it, you've caught this as well. Very clearly we are intending to get our product mix right from day one with Axis. Profitability is surely something which is top of our agenda. Having said that, there will be investment and productivities, both will be something we'll have to work on because we would start making investments in tech. We've already started, and this will continue. Even trainings, architecture, getting that right, and putting in the process mechanisms in terms of people with Axis, all that will of course have an impact, particularly in the staff. The way I'm looking at NBV, actually, we have to become a meaningful size first. I'm looking at margin, 1.9 margins, I have to make these investments upfront. I would rather first look at being a meaningful size.
I've already made the statement that ultimately this is variable cost, so it's lower cost than agency in any case. That works well for the company. Also, as the number of policies increase, I can defray the cost over a larger base of customers. We normally ride between three and a half lakh policies, and that should go up. That should help us get more availabilities. Yes, a lot of this will happen in due course, and it's not that it'll start popping up in terms of a significant NBV margin increase. On a scale basis, I can sense that the NBV, because we're riding only in net NBV positive products, will tend to go up with Axis.
Thank you. Quickly, if I can just follow up on like first one. You are looking at Axis Bank that has got 4,000 plus branches, almost 80% or maybe more branches having potential to give you renewal business. What kind of manpower addition you will be doing just to manage over the next 12-24 months to manage this Axis channel? Also persistency somehow we have been improving over years, but we are still not below the top peers. How do you see, again, this improving further or we are hitting sort of a ceiling?
Yeah, I know. I think that's a very good point you've raised, Avinash Singh . On the first one, let me just say that at this point it's difficult to say how many people we'll put because we are currently starting off pilots. At this point in time, there's one going on in Mumbai already. These pilots will tell us how many people we're going to be putting and where we're going to be putting to support. Having said that, Axis itself has a very large base, one of the largest bases of SPs. These are the Specified Persons who themselves sell insurance and understand insurance very well. That's one of the largest in the country. That should help. Axis itself is, if I would just account for Axis' top line, it would be the top six life insurance player already.
That makes us more keen to therefore make the investment. Whatever is required to be done from our side will be done. On your question of persistency, again, it's a very insightful point you've raised. There is one thing that you need to understand a little bit about Bancassurance. The fact is that we've not had bank insurance as a big channel with us. The fact is that we have been largely, we're now moving to mass affluent. That movement is underway. Those things don't improve overnight. If I take both these factors, the one big impact persistency, 13th month particularly. If I take just 13 months, and I do not take second premium, the 13th month is where people were paying on the 12th and the 13th month itself. Contactability has to be very strong. You have to have multiple addresses sometimes, communication addresses.
Usually if you have a bank insurance partner, it's a lot easier to get. The payment modes can be direct debits. In our case, it's a little bit more hard work we have to do to reach out to the customer to pay the second premium. As a result, what happens is when you just look at a hardcore 13th month persistency, we will be a tad below the top quartile. If you start looking at the 15th month and the 17th month, and therefore the second premium, so if I look at the last year second premium, we're already close to 80%. The money doesn't come on the 13th month because of the contactability being low. Therefore, it tends to drag on during the 14th, 15th, 17th months. By the 17th month, we start hitting the cusp, which is closer to 81, 82%.
I think at this point in time, given our product mix, 81, 82 is a good one to go with. As we get more bank insurance partners coming in and payment mechanisms, of course, India is doing quite well as payment banks coming in as well. This should help us increase our 13th month itself. After the persistency, we do will move substantially because there our India Post Payments Bank into mass market works to me a lot better because.
There is a set debit mechanism that one can put. The last mile is pretty strong. We are very mindful whenever we are tying up with any relationship that the persistency doesn't suffer. Initially, RRB used to be a big part of it. Now RRB as a percentage has dropped a lot. That is also now helping us grow. You'll see this directionally will only be in the top quartile among life insurance companies.
The line for the participant got disconnected. We move to the next participant. The next question is from the line of Dhaval Gada from DSP Mutual Fund . Please go ahead.
Hi, S. Sreenivasan. A few questions. Firstly, for Tapan, four questions. Could you please remind on the philosophy that we've adopted on the motor business? Do we look at OD profitability and TP profitability separately, or we look at customer profitability? In relation to that question is, could you comment a little bit about motor OD pricing environment and the outlook that you see at this point for maybe the next nine, 12 months on that? That's the first question. The second I had was on retail health business. What are your thoughts, how do you see the ramp-up of this business over the last 12, 18 months? I think it's a little slower than what we anticipated, but just wanted to hear your thoughts on that. The third question I had was on the VSO bit.
I think the ramp-up has been quite substantial over the last three years. Now it accounts for 10% of premium. Just wanted to understand quantitative benefits of having this channel, and how does the dynamics change if this number were to go to 15%, 20%? That was the third question.
Okay. Let me start.
Yeah.
Sorry. Were you saying something, Srini?
No, I'm just asking you to respond.
Okay. Let me start first with the motor. I think motor, health and the VSO, three are the sub-questions that you have. First on motor. Once you look at motor in the P&C business, one should look at individual profitability overall for any business. Trying to subsidize from the other does not play out in the long run, it should be there. In that also there are a lot of subsections. Some subsection which TP actually plays out good. Some section which TP is bad and OD plays out well. To make a general comment on how it is done will not be appropriate because motor is a very broad classification. You have so many sub-classification motor and each has a different play altogether, how it has done.
To come into the philosophy, we would like to look at profitability on an individual basis, OD separately and TP separately, and depending on how it plays out. There will be some places in which if you have a good margin on TP, there will be some subsidy happening. That is one of a small segment of the business. Overall, the philosophy, we like to look at it separately. Does it answer your question on motor?
Yeah. Just your thoughts on pricing, since you look at it separately in most sub-segments, the environment and how do you see that changing over the next one year or so?
If you look at the pricing, for that you should look at how the industry is behaving and that would give you an answer on the pricing part. I think well-run companies would be a very small segment of the overall industry. That's why the combined ratio industry has been close to only 20% for quite a long period of time. It has touched 15%, 20% for all of your time, which means that overall industry pricing is not up to the level where it should be.
Right.
It is not been good. That's why most players have a combined ratio which is way above 100. That shows the pricing is not at the right place as it should be. That's a fact. There are companies which are well-run also, and if you look at the combined ratios are very close to 100. They would be doing pricing, which would be appropriate, and they would be segmenting, which would be appropriate, and that is why the combined ratio is the one. Overall, the market pricing is not where it should be.
Do you think it'll remain around these levels for the next foreseeable future?
If you look at historically, this is the longest run any country has had. Free pricing happened in the year 2007. This is 1912 years. The market pricing is not corrected. Even let's say if you look at an example like Korea and all, in seven years' time, they corrected the pricing. In fact, it was much better than when the free pricing started. In India, it has not happened. That is why you see the stress on most companies in the general insurance business because this has been for a very long time. Very difficult to predict as to when it would get done. I think the question is that if we can have more companies which are well-run in terms of they're getting the pricing very close to where it should be, it will be a very welcome move.
I can't predict other companies' behaviors as it moves. There is going to be a stress.
Tapan, can I just add a point? You see, motor insurance is the most visible and the one which any new company will start attracting. There are times in the market when there is excessive or what I would call irrationality in the market. It all depends on the availability of capital. If that capital tap gets shut out for the smaller competitors, you would find that prices will harden because they would find it difficult to continuously report losses on a segment by cutting prices. Eventually our company is one of the most solvent. We have sufficient networks and capital. Smaller companies will find it difficult to get into lines like corporate, which requires a significant reinsurance support.
Reinsurance again is a function of capital. Therefore, we believe in times like this, people who hold their prudence do the right balance between growth and profitability and focus on various segments. As Tapan mentioned, within the motor segment, there are profit pools, there are loss pools, and they keep changing depending on the pricing. As long as you have a dynamic system of monitoring it, we think we should be ahead of the pack. Overall, we have disclosed our loss ratios. If you see, they're pretty good. Even after all this price correction in motor OD, it is still about 64%-65%. In TP also, we have a significantly good loss ratio. We will try to be better than the market, significantly better than the market if we can, and then we will see how it goes. At some point it has to correct.
Yeah.
Whether it will correct in one year or three years, it would be difficult to say. Tapan, add anything else.
Yeah. Thank you. The next question you had was on health.
Retail.
Retail. You were saying that the growth is not up to a level where it should be. Let's look at the retail health history to understand how this moves. If you look at, I think the first health policy, if I remember right, was issued in the year 1986. From there till about 2005, 2006, there was hardly any shift in the retail health portfolio overall if you look for the industry. 2006, five or six years ago, it was picking up, and I think the advent of standalone health companies also gave it a good boost along with the healthcare expenditure which is happening now in the country. It has also moved up significantly now to get treated in a good hospital is really costing some good money.
In combination of this awareness level, disposable income, standard health companies gave a boost to retail health segment as such. It did pick up very well. Now government intervention has come also in terms of what you see as the National Health Scheme, which has come in now covering quite a bit of the population, relaxation of rates, hospitals. I think the health portfolio is moving in a scenario where you have this early good growth. Now the interest of all stakeholders is very high, and I think rationalization also moving up. It will even out at some time and then keep on moving as it progresses. If you look at the way it is moving, I would say it's in the right direction. There's nothing in which you can tell a trend that it is not going lower or much higher.
The initial spurt of growth has happened because that is where the market really opened up to the health insurance. As we see in the government intervention, if you look at hospitals which have come up and the private channel companies also. All that gave a good boost, awareness level of the public at large. Health would continue, in my view, for the next at least minimum, 10, 15 years. There would be always a double-digit growth happening. I think the government also would have a lot of keenness in terms of looking at health for overall public at large.
Do you think it can see 20% plus compounded growth for this 10, 15-year period in overall?
No, not 20. Double digits. It will come down. It will not be 20 as such. It comes down to highest like 16%, 17%, 18%. That is where it will come in, roughly.
Sure. Yeah. The third was on VSO.
If you look at VSO as such, it is just a distribution mechanism in tier 2, tier 3 towns. If you look at VSO typically for us, it does agency, it does motor dealer. It's like a small office set up, which we actually set up and we were the pioneers in this. We were the first to set this up. Now I think a lot of our competitors are doing it, which is a good sign because it increases penetration for the country and it's good for the customer at large. The idea was that how can you set up offices at low cost without setting up physical offices and set up distribution using technology and the network connectivity is there, and how we service the customer at the doorstep. That was the VSO concept, and we did set it up pretty well.
We spread all across tier 2, tier 3 cities, and we have people. They're doing all lines of businesses and they're looking at all channels of businesses. It's like any normal office. The growth from that segment is a good growth to have. You're increasing penetration and you're moving to smaller locations. As time progresses, as you see more business opportunities, we'll keep on expanding and looking at more expansion disclose. I didn't quite get your question. Why on VSO? VSO is just like a good segment to penetrate insurance in areas which are not very penetrated area.
No. Question was actually what is the quantitative benefit of this channel? Let's say today it is 10%. If it goes to 15%, 20%, is there a cost benefit or a sort of regular recurring? What's the economic benefit that one gives?
Okay. If you look at it, VSO typically is like an office. As you open offices all across. In VSO, you don't have a physical office. That's the only difference. I think there's no other difference. It is just like any other office that you know. Exactly. As you just keep on opening office depending on where the opportunity. If you look at India also, let's say we take India of 20 years back. The accumulation of wealth in the urban tier 1, tier 2 was much more compared to tier 3, 4 or lower below. Today, if you look at the purchasing behavior, you look at accumulation of wealth also, it is getting distributed across. That is how I think VSO is a very good move from companies to get into places which they were not present earlier.
Okay. Basically, VSO is only a way to expand the footprint. The product they sell are the same. They will sell motor, they will sell health, they will sell property, personal lines more because the type of people who live in these locations are from rural backgrounds. Otherwise, it is only an expansion of footprint and diversification of geographical risk.
Understood. Just one more question for Tarun this time. Just on product innovation, I just want to understand what is the sort of experience on return of mortality charges product that we had launched last year and sort of the size of that product. The second question I had was on the proprietary sales force that we sort of have built. I think one of the objective was to upsell to the customer base database that we have within the group. Just any metric around where we have sort of reached in that journey. Those are the two questions. Thanks.
I'm really happy with the quality of questions, honestly. See the RoMC, this segment has been the lead segment for the online unit link plans, particularly. If you just go back in history and look at the online unit link plans, there was a competitive wars we had three years back, four or five years back introduced low charges or zero charges, that is on fund management charges as a means of getting innovation. That's when the sector grew. If I remember the numbers, about 20-22% on the online space. Since we've brought in the RoMC concept, we find that customers are finding it a lot easier to buy products online. Because they get confirmed that mortality charges are very difficult to understand. Something that they find difficult to understand is going to be returned back to them.
There is life insurance particularly gets this stigma that we have a lot of, what should I say, non-transparent charges. This increases the level of transparency. Since then, the online space has gone up by a CAGR of 40% for the sector. It could be higher than that, but if I remember the numbers broadly, it's upwards of 40% CAGR for the last two and a half years since we've got. That market has now become more like a INR 1,200 crore, INR 1,300 crore market for the sector. This is near zero. It's one of the fastest growing segments. RoMC, what I find is now suddenly three, four other companies have also come up with RoMC products. What we've done is we've, since then, widened our product space.
We've come up with a product, Lifelong Goals, which is a product segment for the pensioners as well. As you realize that somebody above 40, 45 would start worrying about underwriting charges, and underwriting charges otherwise below that age are meaningfully small. It's a wide unit-linked market was losing that customer segment to the mutual fund space. Now, what we've done is as we introduce this product online, we return mortality charges to pensioners every 10 years. If you've got a 10-year policy, every 10 years we return your mortality charge. That feature is also a unique one. We focus on early retirement as a space which has been able to open that space for us. I think more and more insurers weighing in and money getting put into this space should help us take the pensioner space also into consideration.
These are really long-term contracts. The pensioner contracts are, right now we're talking a 30, 40-year contract including amortization. That really works very well for us. The persistence in those RoMC contracts are going to be better as well. Overall, we're quite happy with that strategy. It's going quite well. On the business, it is already contributing upwards of 10% of our business. I think that's the metric to look at. Conversion ratios are good. Pilots yet on how we can use the group data that we have. These are currently underway, and usually these pilots require a lot of profiling, analytics, understanding of what to pitch where, because it's not that we sell a lot of policies. Unlike a general insurance company, we sell just policies in INR lakhs.
Therefore, even if I was able to do this 10,000 policies through the group, I'm kind of happy because these are very high-ticket size usually. That is underway. The channel is underway. We've expanded the number of cities we are present in, and this is only going to increase as we go.
Understood. Sorry, one data point that I needed was on the group protection premium of about INR 427 crores that we have. The split between the GPI and Credit Protect. Related question is on BAF share now that we have versus maybe what we had last year. Thanks.
We don't have data.
Sorry, I'll tell you the H1 numbers. We have INR 826 crores of group credit protection all in put together, of which about INR 450 crores is from the MFI space. The balance is from banks and NBFCs. Of this about INR 170 odd crores is from Bajaj Finance.
What was this last year?
All the segments are growing at about 33%-35% growth rate.
It's an equal amount of growth in all the segments. Whether it's MFI or banks and NBFCs, they all are growing at a similar pace.
Sure. Thanks for all this, thanks.
Thank you very much. Next question is from the line of Utsav Agarwal from Investec Capital. Please go ahead.
Thanks for the opportunity, sir. Sir, as you mentioned at the start of the call, under agency, the share of fixed is high, and under bank, the share of variable is high. I just want to understand what is the incremental investments needed in both these channels, number 1. Number 2, if, say, for example, Syndicate Bank moves out due to a merger or any other reason, what will be the impact on the persistency and the cost because of any particular channel?
Yeah, very good question. Let me take the second one first, and then I will come back to the first one. See, we last year had a similar situation where Dena Bank merged into Bank of Baroda, and at that time, the decision taken because Bank of Baroda has its own possibility to just work with one partner. Here there are two banks merging with Canara, so Syndicate is one of them. We are, of course, being cautious in terms of then therefore the amount of investments we are making in this channel. Syndicate will do a set of numbers which will be not very significant. History shows that the moment the merger goes through people get so busy in their internal bits in the politics of the banks that this momentum gets lost. We've been a little cautious in making investments in Syndicate Bank.
We will, of course, await to hear more about what Canara's plan is going to be. Does that open a channel for us or not? Sometimes, therefore we are hedging our bets. Having more experience with Dena now we are little bit better placed. Dena we did make continuous investments, and it's only till end of March we really got to know what the Bank of Baroda decision was. Here, having gone through this, we are a little better placed in our decision. In terms of investments to be made in Axis, I think this question has come in earlier as well, my answer doesn't change really because we are doing a lot of pilots still. Some initiated, some yet to be initiated. It's a very interesting space for us now to get in because it gives us that footprint.
Now what is that going to be is a little early to say. Needless to say that we keep a hawk's eye on the NBV, having turned NBV positive last year. We are ensuring that all channels remain and get to NBV positive. As far as that is concerned we separately are going to ensure that Axis is going to remain NBV positive. Of course, there could be a hit on PAT. S. Sreenivasan already mentioned that for the future. I think the metric to look at for life insurance is more NBV linked, and that we will only grow in scale.
Sir, how would the persistency impact if any channel like Syndicate or any other channel moves out?
Not much really. Not much. Again, it's good that you're monitoring all this, it's almost like helping us. We have people who are monitoring for us externally. Having said that, they're not going to be significant. The decision for Dena Bank also happened last year, and we started the channel only in September, October. Similarly, same thing for Syndicate Bank. These are not very large nor that our size is very huge. Of course, given the fact that they are bancassurance channels, communication address is in place and so it becomes a little bit easier to contact the customer. With Dena Bank, we had assured them, and similarly with Syndicate Bank, no matter what happens later, we have assured them that we will continue reaching out and servicing these customers. The banks have been quite supportive on this.
Overall, given the fact that we've got experience of working on non-contactable databases, this is what has been our strength for a long time because, like I said, we didn't have banks. These are only better placed because contactabilities or KYCs with updated stuff is a lot easily available.
Sure. Sir, just couple of questions on the general insurance side. If you look at the loss ratios under the fire segment, that has been a little volatile. There has been price increase recently in the fire and other corporate segments. How do you see the loss ratios move up for the full year? Second question is with respect to the growth. As you mentioned at the start, crop is business. On a full year basis, how do you see the full year growth and which all segments you expect to drive it because motor already, the sales are weaker. Just want to understand these two pieces.
I will just take that question initially saying that we never predict loss ratios in the GI business. We are in the business of insuring other people's risk, so we never know, especially catastrophe and property and things like that, you never know.
Obviously, there are seasons. There's a monsoon season in Pune where we are. The monsoon has not stopped since July, it's still raining like mad. We are in the end of October now. That is something we'd like to see how it goes. Only thing is we have underwriting history. We have a track record of underwriting. We have a strong underwriting team. We have reinsurance arrangements in place. We have capital to support the business, and we are generating flow from a variety of businesses. Does that answer your question?
Sure. How was the guidance for growth this year?
Okay. We can't predict growth. New auto sales are down. There is heavy competition for existing auto sales. We have seen traction in certain segments like two-wheelers. Our retail health is growing at 20%. Property premiums, there has been some correction early on. That's only in case of large risks. Our bank assurance, we have a large number of relationships. They have all started producing results. We have strong growth from that channel. Obviously, bank assurance that also brings you more exposure to midsize catastrophe type of widespread losses. In the long run, it is a profit and growth engine. It is actually a combination of multiple levers. There is an external market. There is a certain amount of asset creation happening in the market, which currently is quite low. There are also new businesses which we are tracking. We are building multiple channels.
It's a combination of all that. We are very hopeful that we'll continue to deliver our above-industry growth for the next year.
Sure. Thank you, sir.
Thank you very much. Next question is from the line of Nishant Chitale from Kotak Securities Limited. Please go ahead. Nishant, your line is on talk mode. Please go ahead with your question.
Hello.
Go ahead.
Hi, this is Nishant. Just one clarification. Most of the questions are done from my side. You've given the breakup of your investment book. This is on September 30th. Any material change that we should be thinking about in terms of addition of any more stressed loans or anything that you would have sold off between then and now?
As of now, there is nothing that we would think. We're not calling it stressed assets. We are call performing and non-performing assets. On the non-performing asset, DHFL, as you know, there is a resolution plan which is yet to be signed. If that resolution plan goes ahead, we think our provision is more than adequate. IL&FS, [VIP], do not know because we are holding unsecured paper. The rest of them for us is business as usual. We are not adding to any more stressed assets. As I've mentioned in my opening remarks that we have a shorter list of approved fixed income investments that we will be going with. We have increased our credit appraisal internally. We also have an internal stress forum where we discuss any stress in the market it will be, mainly for information for people to take appropriate decisions.
Sure. Anything that you would have sold from this?
That would have happened in the normal course of business. I do not have the data as of now.
No problem. Okay. Thank you very much.
Thank you very much. Next question is from the line of Adarsh from Nomura. Please go ahead. Adarsh Parasrampuria, your line is on talk mode. Please go ahead. If you do not want to, move on to the next participant. The next question is from the line of Avinash Singh from SBICAP Securities. Please go ahead.
Yeah. Hi. Continuing, I got disconnected. My question on crop, particularly. What kind of a price increase your portfolio has seen from Kharif 2018 to Kharif 2019? Secondly, with regards to this late season rain that you just mentioned, do you see a sort of upside risk to what you have built into your crop claim ratio reserve? These are the two questions. Thank you.
Okay. First and foremost, if you look at overall, as the IT mentioned, the price increase has happened for crop. That's what I tried to say earlier on also. See, the way GI business operates is, as the loss ratio moves, the price correction keeps on happening. That, I think as you listen the call, quite a few have mentioned there is a correction in the fire price, there's a correction in the crop price. Which is a fact. As the price correction happens, it happens for us also because we are part of the larger segment. It is not that we would be very differently off from the market is there. Secondly, if you look at the crop cover, mostly is yield based. Yield based means that if the crop comes up, it is good.
You've also read somewhere that quite a few times it was mentioned that the monsoon has been good for the crop at a lot of places which is there. A delayed rain necessarily need not mean into a loss of yield. A flood compared to a drought is better for crops. That is how it is. Until the flood is so significant that it completely destroys the crop. You have to see how the pattern moves on going forward. We still have to wait for results because it's on the crop cutting that you decide on that basis. To give you a flavor of it, I think a drought is worse, a flood is better in the crop business.
Yeah. Just follow up. How geographically you were distributed in this Kharif 2019-
If you look at the crop business
To think that you can do just a small business in crop does not play off because.
Definitely
It is gambling. If you just pick up one state and do a small segment of crop business, then gambling, because then they say, "Either good or bad." To do crop like any other business in GI, you have to be widespread. We are also widespread. We have a presence in the North, we have presence in Central, a bit in the South. That is how we have spread our risks. I think like all business, we do that, and that is why you have to have certain scale to do crop business. You just can't pick up one state and think that you can do this.
Okay. How has been the experience in this season as far as the government subsidy is concerned, particularly a state? Have you received subsidy from all the state governments for the current 2019-20 year?
I think I answered this question earlier. I think the way the crop business is constructed is that till we receive the premium, we don't pay claims. That's how the product construct is from the government itself. I think that is not Sorry?
That's how I think on the back end. That's okay.
Yeah. When it comes, we pay the claim. I think that is something how it is constructed.
Okay. Thanks. Thank you.
Thank you very much. The next question is from the line of Dhaval Gada from DSP Mutual Fund. Please go ahead.
Yeah. Sorry, Tapan, I missed one question. I just want to understand the experience and the traction that you're seeing on the small ticket insurance products that you had innovated and come out, and so what is the traction and experience like? The second was on fintech partnerships again, just what's the sort of experience out there? Thanks.
Yeah. Again, a very interesting question. I can broadly give you how it will move as an industry leader in this. If you look at it, I think the fintechs or the small ticket sizes or sachet-based product, as you call it, are a new combination coming in, which has built up speed in the past one year or so. Because the distribution of fintech or e-commerce would be like this. I think I answered previously also. To look at traditional businesses getting distributed on platforms like e-commerce or fintech would not happen because they would be more complex in nature. You have simple sachet-based product, it gets sold. Let us say if I look at something like Indian Railways. Now we are doing lot of business with IRCTC. There we again have a very simple product getting sold.
You look at, let's say, the mobile insurance over e-commerce platforms, that we have a large segment of business, which also gets sold through the e-commerce on a sachet-based product, and simple cover, and easy to pay claims. My personal feeling is that in times to come, this would become a good chunk of business. Right now, it is at a very early stage. Speaking of people are seeing the value in these products, people are seeing the value in this partnership.
Any number that you have in mind? I mean, five years from now, what kind of absolute size that this channel or this product-
I cannot give you exact numbers right now. This channel will pick up and will create a new segment for itself. See, the point what I'm trying to say here is that to think that our traditional lines of business will get sold on these lines significantly, I don't think that is going to happen. This segment is going to create its own product for itself. It will create its own niche customer and service parameters. This is the nature of business. See, the e-commerce business is something which is sold over a platform. It's something which is sold over the net. You don't have distribution networks or physical office or across. Obviously, a distribution like this will create different products and different customer segment, and this will also build up well because customers are showing traction for these products.
They are showing, and they're getting claims and they're getting serviced well. In fact, in the NPS score of one of the e-commerce partners, the NPS score is over 90%. Customer is really super delighted with services that we're getting offered such kind of platform. As this starts moving, as customers start seeing value on it, the traction should happen good, is what I feel.
Okay. Sounds good. Thanks. All the best.
Thank you.
Thank you very much. Anyone who wishes to ask question, you may press star and one. The next question is from the line of Mayur Parkeria from Wealth Managers (India) Private Limited. Please go ahead.
Sir, thank you for taking my question again. Just one understanding on the crop side. You said we have 130% loss. How does this work? We have written INR 1,700 crores worth of premium. Is it like to say that the maximum loss would be around INR 2,300? Does it work like that?
There is a quota share agreement. We retain about 20%. 80% is reserved under the quota share, and this INR 130 will apply on the net retained share .
Okay. 130 will be applied on the 80% of the.
On 20%.
Oh, yeah. Okay.
That means.
Yeah, that's correct.
Okay. Okay, fine, sir. That is just what I wanted to understand.
Thank you. Next question is from the line of Prateek Poddar from Nippon India Mutual Fund. Please go ahead.
Sir, just one question on Axis Bank. Could you just talk about when do we move from pilot stage to commercial stage? What is the timeline for the movement, and what are your market share aspirations?
As of now, we have just signed a proper agency agreement. Typically, in any large relationship like this, there is a period of 120 to 180 days of discussion on business plans on the way forward. They already have existing partners. We will be discussing all these issues as to what it is. There is a large element of deploying manpower as well as technology, which will also come out of this business plan. At this stage, we would not. Obviously, it should increase our market share because the absolute size of Axis premium is very significant. Even if we get, as a third partner, a reasonable share out of that, it should improve our market share. That is all we can say at this stage.
Any timelines for the maturity? Generally, it's such a big relationship for you and such a significant one. What's the timeline generally? Should we look at three years, four years, when-
Typically, a proper agency agreement under regulation is for three years, but renewable. Obviously, you don't get a relationship like this and make investments upfront with the hope that with the expiry in three years they'll go away. You invest in the relationship for longer term. We've had relationships in the past in Bajaj, for example, for the last 19 years, where some of them have very recently or till now, maybe not even had looked at second partners. The way you nurture and handle it is what it is, and we think we have enough firepower and management bandwidth to be able to continue to meet the expectations of our partners.
Thank you so much, sir, and all the best.
Thank you.
Thank you very much.
I think time is it to stop now.
As there are no further questions, I will now hand the conference over to Ms. Parni Babji for closing comments. Ms. Parni Babji, your line is on talk mode. Please go ahead.
On behalf of JM Financial, I would like to thank Mr. Sreenivasan and the senior management team and all the participants joining us on the call today. Thank you.
Thank you.
Thank you very much.
Happy Diwali, everybody.
On behalf of JM Financial Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.