Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Limited Q1 FY 2020 Results Conference call hosted by JM Financial Securities 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 Mr. Karan Singh from JM Financial. Thank you, and over to you, sir.
Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss first quarter FY 2020 results. To discuss the results we have on the call, Mr. S. Sreenivasan, CFO, Bajaj Finserv, Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance, Mr. Tarun Chugh, CEO, Bajaj Life Insurance, Mr. Milind Choudhari, CFO, Bajaj General Insurance, and Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz Life. May I request the management to take us through the financial highlights, subsequent to which we can open the floor for Q&A session. Over to you, sir.
Thank you. I am Sreeni here. Welcome everyone to the conference call. We will be discussing the results of Bajaj Finserv Limited for Q1 of FY 2019-2020. As always, it's a pleasure to have all of you here attending this call. In this call, we will largely be concentrating on the consolidated results as well as the results of our insurance operations through Bajaj Allianz General Insurance and Bajaj Allianz Life Insurance companies. Bajaj Finance, it is another major subsidiary of ours that's already had its conference call. However, if there are any high-level questions, we would be glad to take that as well. We'll not be taking any questions on the status of Allianz stake in our insurance companies, except to state that the status has remained the same as at the end of the previous quarter. There is no change.
Any statements that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result. As required the regulation, we had adopted Indian Accounting Standards for FY 2019. This year in the first quarter, our consolidated results are as per Ind AS, and the comparable numbers are also as per Ind AS. The insurance companies are not covered under Ind AS. The standalone numbers of the insurance companies are as per the Indian GAAP. To give you an update on the performance. During this quarter, the tight liquidity conditions witnessed in the aftermath of the default by IL&FS last year did not show any signs of abatement. Companies with stronger balance sheets were favored by lending banks and investors.
Towards the end of this quarter actually, we saw a default by Dewan Housing Finance on a part of its commercial paper obligations. It is in this difficult environment that we have seen BFL deliver excellent results. While both BAGIC and BALIC have recorded strong growth in premiums, their profits were adversely affected by a provision that we decided to take for impairment of their holdings of DHFL's fixed income securities. To give you a highlight, our consolidated total income was up 40%. Our profit after tax was up just 2.4% at INR 845 crore. However, if you were to exclude the impairment provision on DHFL, the consolidated profit after tax would have been higher by 16%. Now, to give you an update on the provision we made for our holdings in DHFL.
Last year, both BAGIC and BALIC had provided for 100% of their exposure to IL&FS, as was reported in the financial statement as well as in the investor calls. As disclosed in the public disclosures of the insurance companies in March 2019, we had exposures to DHFL, which defaulted towards the end of the quarter. Before they defaulted, we collected about INR 350 crore approximately between the two insurance companies on the commercial papers which were due in the earlier part of June. The companies now have, apart from the INR 50 crore of defaulted CP, NCDs falling due in quarter two in FY 2020 and in FY 2021. As a measure of abundant caution, we have decided to make provisions to the extent of 60% of the balance holding as of 30th June.
This resulted in a pre-tax provision of INR 126 crore in BALIC, which is the impact on the shareholder's account, and INR 76 crore in BAGIC. Now let me go to the results of our operating subsidiaries. Bajaj Finance has had another excellent quarter. Total income higher by 47%, AUM by 41%, and profit after tax by 43%. The risk parameters are holding well with net NPA at 0.64%. BAGIC was able to grow its premium by 17% as against the 11.7% recorded by the industry, excluding specialized companies. Ex-crop, BAGIC recorded a growth of 13% in GWP. BAGIC recorded strong growth in fire up 58%, liability by 18%, and retail health by 26%. Overall, motor premium grew by 13.4%, which we consider is very good given the low volume of auto sales from new cars and two-wheelers.
Of this growth, the third-party premiums recorded 21.5% growth and the OD premiums witnessed a modest 4.5%. As a part of the company's plan to optimize profitability as we mentioned in the concalls of Q4 of last year, group health, which was loss-making. We have tightened the underwriting and pricing guidelines. The growth is a modest 4.5%, and there is a degrowth in the government health scheme business as well. The profit of BAGIC, INR 200 crore, was affected by several factors. One is INR 98 crore of underwriting losses from crop insurance, mainly due to crop claims of Rabi season of FY 2018-2019, which was determined in this quarter. There was Cyclone Fani, which resulted in losses of INR 30 crore after reinsurance. The business is on a good wicket.
We have seen an uptick in motor OD loss ratios, 63.5% as against 55.8% in PY, which has impacted the underwriting profit by about INR 30 crores as well. Going forward, it is our endeavor to continue to focus on profitability. We will do what Bajaj generally is good at doing, which means reviewing every relationship and moderating our business where required in terms of loss-making businesses. Coming to BALIC, we had an excellent quarter on the business front, 17% growth in individual rated premium, 41% in total NB, 29% in renewals, and 35% overall. More importantly, product mix delivered with 22% PAR, 17% Non-PAR, and 61% unit in the individual rated premium. However, profit after tax was affected by the provision for DHFL, as mentioned above.
However, one good news is that excluding the impairment provision, the profit of BALIC would have been higher than the previous year, which for the last few years we have not been able to record. Since IRDA has come out with draft expanded public disclosures, including the reserve triangles for non-life insurers, we have chosen to publish the reserve triangle as of 31st March 2019 in our investor presentation, which was uploaded on our website yesterday evening. We hope you have had a chance to look at it, and we do hope you find it useful. Let me 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 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 a question. The first question is from the line of Bharat Shah from ASK. Please go ahead.
Hi, Sreeni. One broad question. While Bajaj continues to do a very good job of risk control and underwriting prudent insurance business. Despite the bancassurance part of the life insurance not very strongly in favor of BALIC, the overall life insurance performance still continues to be pretty robust. My concern is that a lot of gains are getting frittered away by the investment side of the business. Ultimately, investment income and the investment returns is a key for both the business initiatives, given the fact that float is a key element bottom line.
Right.
Earlier we saw gains being frittered away by investment into IL&FS.
Yes.
Now some INR 325 crore of Dewan Housing.
Yes.
Therefore, this kind of investment losses can undermine otherwise a very strong business performance.
Thank you, Bharat.
Would like to understand better as to the investment policies.
Right.
whether that side of the business is really kicking in as it should be doing.
Right. Thank you, Bharat. Let me first say that in hindsight, we should not have invested in IL&FS or Dewan Housing. Having said that, I think one of the reasons why this investment was made, I believe a number of insurance companies have exposures to these two, because under the IRDA guidelines, you have to invest 15% of your corpus in housing and infrastructure debt. Unfortunately, because of the lack of available names and overdependence on credit ratings, the investment was made. Having said that, we have taken a full stock of the investment philosophy of both the groups, and by the end of this quarter, we would have redefined the entire investment philosophy for both the groups. In BALIC, it's a little bit more complex.
We have the participating funds, 90% of which units go back to policyholders. Therefore, our objective will be to see what is the maximum return we can give over and above the guarantees. In terms of non-participating business, which is savings, it is a guaranteed interest business. Therefore, we have to manage the spread very carefully, we can't afford any more such write-offs. Thirdly, on the unit link business, it is market business. There we have to perform in line with at least being the first quartile of all insurance companies, if not mutual funds. Then we have a large shareholder surplus, which we need to now make it work a bit harder. There's no doubt.
I think if you ask me, to be very frank, both IL&FS and DHFL have been eye-openers for us. We have deeply engaged with the management of both companies. We are in the process of completely redefining the investment philosophy. Other than that, I cannot say because what is already invested remains there. Some of what we feel is stressed exposures, we would be winding down if we get an opportunity. Unfortunately, in both these cases, we did not get an opportunity after the IL&FS scandal broke out. I think there was hardly any paper traded in DHFL, although we tried our best. Nobody was willing to buy. Going forward, we are redefining the entire way we look at things, including putting in place internal ratings as to whether we should invest or not.
Right. Now, that's useful, Sreenivasan. I just make a broad comment.
Yes.
Growth is a vital part, as well as the risk control.
Yes.
Especially, we've seen in case of Bajaj Finance over a long period of time.
Right
that both sides of the coin have been always in a very careful manner with a great deal of agility managed.
Right.
That growth has not been compromised as well as risk control has remained very granular and tight, and with good deal of agility all the time.
Yes.
In terms of the business risk on the insurance side of both life and the general, the business part of the risk management will seem to be very prudent and strong.
Yes.
It is the risk management on the investment side which gives the concerns and worry. Unfortunately, that happens to be the predominant part of the value addition, especially in the general side of the insurance. Given that underwriting profits may be marginal overall, the investment returns are the key. Therefore, that is a source of significant concern that whether there is a tight review and whether the philosophy and the methods are strongly in place to ensure that the overall returns are not derailed by investment performance.
Right. I agree with you, Bharat. That is why we said we are putting in place a completely detailed review mechanism, and going forward, we'll be reviewing investments much the same way as we do our underwriting portfolios. Particularly in the case of BAGIC, I think our business model, which stood us apart in the market, was to underwrite prudently, retain well, generate cash flows, and invest them prudently. Unfortunately, the last part has taken a bit of a beating over the last year, and that has been, as I told you earlier, an eye-opener for us, and we will set it right within the next 8, 10 weeks. By the second quarter, you should see that we have in place adequate mechanisms.
I hope there are no more, hopefully, shockers lying around on the investment portfolio.
If you look at our L-35 and I think an L-37, I think, 2 public disclosures. We are required to disclose any downgrade of any investment security every quarter. Some of these have not been downgrading as per the regulation, as for the credit rating agencies. There are some other names which are being talked about in the market, but to the extent they have been downgraded, we have disclosed that in our public disclosures. That is available. We do have some exposures to Yes Bank. We think as a bank, RBI would take appropriate action to safeguard the interest of the depositors. We do not consider that as exceptionally risky. We do have a couple of other names in that list, which we are watching very carefully, and at the earliest chance, we will exit those investments if we do get a chance.
Okay, Sreenivasan. One last suggestion.
Yeah.
If we see Bajaj Finance output after the quarterly result, it is very detailed and absolutely completely illuminating in terms of the profile and the character of the business along different lines that it is run, and it becomes almost a self-explanatory document.
Sure.
I would suggest that both for BALIC and BAGIC, if relatively more sort of evaluated details are provided, that will make it much more engaging and informative in terms of that output itself.
Sure. We'll take that input, and we'll discuss with the management, see how we can improve it. There are a lot of public disclosures required for insurance companies, we thought we would not duplicate some of the stuff, but I think we will look into whether we can improve the presentation.
Thank you, Sreenivasan.
Thank you.
Thank you. The next question is from the line of Hitesh Gulati from Haitong Securities Limited. Please go ahead.
Thank you for taking my question. Sir, I have a couple of questions. Firstly, sir, what is the quantum of advanced premium from long-term motor policies on our balance sheet as of the end of quarter?
Milind?
Yeah. We have around INR 463 crores of advanced premium. End of March, we had around INR 319 or so. Now that has improved in this quarter. INR 463 crores is the advanced premium.
Okay. Sir, I'm assuming most of this is again, TP only and OD traction in long-term policies is relatively lower.
Yeah, the traction is relatively lower. What I find is that as compared to the whole of last year, means since the long-term policies were introduced, the offtake for long term, particularly means three by three in private cars, has improved a bit, while the offtake in terms of five by five in two-wheelers are slightly gone down.
Sir, can you just, for the sake of everyone, I believe, walk us through the reserving triangle first page that you've given. You've given a couple of pages. I think it's page 31 of the presentation. Just what is exactly being conveyed there? You could just walk us through that.
In the first page, in the page 31, I think. We have given for the last 10 years. We have clubbed the period up to 31st March 2009. We have given for every year. We provide on the basis of ultimate net loss costs after reinsurance, that is expected to be paid when all the claims have been settled for that accident year. Predominantly, third-party insurance is where it takes a very long time for the triangles to evolve. From that net ultimate loss cost, we deduct what has already been paid and what is outstanding as at the end of the period to arrive at what is called the IBNR provision. If you look at the first column for the period prior to, or I'll take the second one, 31st March 2010.
31st March 2010, we had provided INR 11,525 million as the net loss cost expected from that accident year. Out of which, INR 4,158 was outstanding as at the end of that period. Over the period, that loss cost keeps getting adjusted as we get claim experience. As of now, nine years later, that INR 11,525 has become INR 10,496. The triangle is showing what is paid cumulatively at the end of first year, second year, third year, against that provision of INR 11,525.
Coming to the next page, we are showing the same net loss cost, and we are showing what is the revised net loss cost. This includes not only what was paid, which was shown in the previous triangle, but also any change in the outstanding claims, readjustment of the net loss cost. Again, if I take the period 31st March 2010, the column, we estimated INR 11,525.
Nine years later, that estimate of the net loss cost is INR 11,006. Which means as of today, 31st March 2019, we have INR 519 million of favorable development. Means out of INR 11,525, only INR 11,006 has so far crystallized. These estimates as of 31st March 2019 are based on the available information as on which has been updated for all developments which have happened between then and 31st March 2019. Hence 5% of my INR 11,525 is still available for me as this develops. Like that for each of the accident year cohorts, we have updated and given those numbers. I hope that clarifies your question.
Yes, sir. Basically what you're saying is 10,496 for year 10 has already been paid out 2006.
Yes.
That's what the table says.
In page 31, yes.
Yes. Okay, sir. Thank you, sir. That's it from my side.
Yeah.
Very much. Thank you. The next question is from the line of HR Gala from Finvest Advisors. Please go ahead.
Yes, I want clarification. On Bajaj Finance, I could not get a chance to ask the questions. My question was that Bajaj Finance has always been saying that they have worked a very robust system of big data analytics, et cetera. During these last few quarters, the way in which the slowdown has slipped in, do our analyst data and the point-of-sale people who are present at the place where the loans are disbursed, do they get any feedback as to what is actually happening at the ground level, why people are spending less? What has happened is that people did buy a lot of air conditioners because of the extended summer, but they did not buy TVs to watch the World Cup. Like that, in some of the items, spending has been there, some of them it has been less.
What is happening is that just because now we have got a very stable government which people have voted, even then now why confidence level is not returning and people are resuming to the normal taking goods on the cash basis.
Let me clarify this. First of all, consumer discretionary spending as evidenced by auto sales for some months now, and recently some other discretionary spending which they don't have to spend, which they can delay, that has come off in certain sectors. Having said that, in Bajaj Finance, we have a very robust system. No disbursement happens at the stores where we operate. The entire credit rule engines are driven from the system, from analytics. It is very closely and tightly reviewed across every bucket. If you see the type of portfolio performance that we disclose in the investment presentation, it is very detailed, and it also indicates that we have that much more information. Every month, we have risk decks, which go up to maybe 800, 900 individual slides, which are reviewed thoroughly by the management team, and a segment of that is even reviewed at our level.
Therefore, the question of us not knowing does not arise. Given the situation, why confidence is dropping, that we don't know. That is, we can sit and argue it's a macro event. There is the banking sector first went through an NPA issue, then it was followed by HFCs not getting adequate funding after IL&FS. There is a credit event in the market, both IL&FS and DHFL. Therefore, the capacity to lend in the market has shrunk. Within the NBFC sector, bankers and lenders are preferring the better quality names, including Bajaj Finance, we are not facing any difficulty in raising money.
In such a situation where cash flows in the economy are down, one would normally expect demand for money to increase, which is in a way correct, but as a prudent NBFC, it is our responsibility to see that we lend it to the type of people who we think will repay. 65% of the loans that we give are to our existing customers, where we know the credit record, and therefore, there is no issue there. In the remaining 34% is something where you have to acquire the business, and within three, four months you know where they stand, and then you keep pruning that business to make it better. It is not our intention not to grow. We will continue to grow. However, we will continue. This is the time when the risk button needs to act with greater force.
Therefore, that is what we will be doing. I think over the BSL con call as well as in the TV interviews, it has been very well clarified by the BSL management that we will be tightening some of the underwriting norms so that the borderline cases and the gray areas do not enter into our system.
Okay.
That does not necessarily mean that we will de-grow because we are not consumer durable financiers now. We do digital finance. We were originally an auto finance company. From that, we have moved on to now 19, 20 businesses. Geographically, we are spread into thousands of 1,800 odd locations. Our rural sector is doing well. We do everything from gold loans, SME funding, LAP, everything we are doing. So we believe that our diversified model will help us withstand this much better than anyone else, and we are hoping that the macro situation will improve soon.
Okay, that helps a lot. Now, coming to BALIC, sir, how much has been the new business margin? Because that is one important statistic we don't get in your presentation.
No. We do not publish margins every quarter because in life business, the business is highly skewed towards the last quarter. Therefore, things like your expense overruns and all have a very volatile pattern across the year. We publish it as of 31st March. All I can tell you now is that we are on track to deliver growth in NBV and margins as we stand today.
Okay. Sir, last year in FY 2019, we had about six point odd % as our new business margin.
Yes.
Do you think that will grow year-over-year?
Let me give a flavor.
Yeah.
If you look at the new business value, there are two aspects to it.
Yes, sir.
The new business value before overruns actually increased by more than 50%.
Correct.
Therefore, the margins before overruns had actually increased to about 16.5% or so, which is about 4%, 5% higher than what we used to report three, four years ago.
Correct.
Clearly our strategy for product mix and all. The second aspect is the overruns. Over time, we have been reducing it, which is why we entered positive territory in FY 2019.
Correct.
Going forward, I would request Tarun to give a flavor and Raman.
Yeah.
Yeah, I think This is Tarun here.
Yeah.
Yeah.
Pretty much giving you the direction that we are on. Let me just add a little bit more.
Yeah.
largely, the NBV starts propping up, particularly in the second, third, and the fourth quarter, mostly the fourth quarter.
Yes, our trajectory is positive.
Yeah.
Coming to the mix of various elements that do help. First, the product mix itself. Now, versus last year, our PAR, Non-PAR mix has gotten more diversified and has only just improved in such a way that the NBV is going to get better.
We did not have much of Non-PAR till last year first quarter. Adding Non-PAR, as you're aware, has a better NBV. That should help us more. The other big fact that moves the needle in NBV is the mix of channels. Agency usually is the costliest channel in India. Versus last year already we have a change in our mix now. Agency, which till about three years back was as high as 90 odd%, and the rest is only 8%.
Yeah.
Now a lot different. Our non-agency channels are upwards of 40% now in our mix, in which we have our institutional business, which is growing quite fast.
Yeah.
The proprietary sales force, which is the upselling channel where we're not dependent on any payout of any commissions.
It has also grown quite healthy. This is a channel we set up last year.
Okay.
That is really getting the channel mix also towards the lower cost and more variable channels if I may put it.
Okay. That helps a lot. Sir, the question in BALIC will be that we have got huge results of more than INR 8,000 crore. How do you plan to utilize this?
As of now, we have started paying a modest dividend. It is not our intention to take significant amount out at this stage. Because the company is in a growth path, and because of the product mix, the more proportion of guaranteed business, we think we could use some of it to support the business. Secondly, we are now working out, obviously, this investment thing, as Bharat said earlier.
Yeah.
We are doing a complete review. We want that money to work a bit harder for the company and for us, because taking the money out, unless we have a need for it, actually has no meaning because it only ends up in paying an additional tax.
Correct.
In terms of DDT. Again, we'll do the same thing out here. We’re only IC, so we can only invest in group companies.
Correct.
We are doing that every year. As of now, it seems the better option for us is to keep it in the life company itself.
Okay. Sir, any M&A plan?
No. As of now, no.
No plan. Okay. Sir, last question from my side. These stress assets, either DHFL or any other group, how much is still outstanding, which we are yet to collect and we have not provided? Can you give that number?
I refer you to our public disclosures on 31st March, I think all the assets are given there.
No, as on 30th June.
30th June will be as soon as the public disclosures come, it will come up.
Okay. There, the details will be available.
The latest provision will be available. Obviously, DHFL, we have collected a lot of money.
Okay.
Therefore, the amount will be less than what it was on 31st March.
Okay. Sir, thank you very much. Wish you all the best.
Thank you. The next question is from the line of Haresh Kapoor from IIFL Asset Management Limited. Please go ahead.
Haresh Kapoor. My first question is on BAGIC. We've obviously had some one-off this quarter and some one-off last year. In terms of the overall combined ratio and the loss ratios, obviously it's kind of in stark. Could you just help me understand by the end of this year, how do you see the combined ratio? For the last few years, we've always been in the early 90s or the mid-90s. This quarter obviously elevated, but do we still expect to close around mid-90s in terms of combined ratio, or what is the overall outlook for this year?
Has Tapan joined us?
Yeah, I'm there, Srini.
Yeah.
Okay. If you look at it, I think our endeavor always has been that we write good business and we make underwriting profit. Even this time you look at, we have some underwriting profit as such. What will it be is not very clear from my side, but we shall continue our endeavor of going over the market and having underwriting profit is what we keep on continuously working on. If you continuously work on that, I think the result should reflect that, and that is what I can say that.
Any particular range will be helpful, sir.
Range is also we want to grow 100. That is our ambition as a company. We continue striving for that.
My second question is in terms of the DHFL bonds where we have provided for 60% right now, and it's kind of indicated that some of these instruments will be getting expired by 2020 or 2021. What is going to be the thought in terms of recognition of the above 40%? Are you going to provide in Q2 or are you kind of comfortable under 60% level? How are you thinking about this one?
I mean, lot of insurance companies have exposure to DHFL because as per the regulation, you have to put 15% in infra and housing, and therefore this is one of the investments people had picked up because it was rated AAA at that time. Having said that, we have taken a fairly bold stand in providing 60% of our holding. At this stage, we think that is sufficient. There is a lot of news flow coming. There is an inter-creditor agreement to be signed by the banks. We're waiting for the resolution plan. Depending on that, we will take appropriate action. If in the meantime, we get an opportunity to recover what we have done, we will obviously not overlook that possibility. At this stage, we believe 60% is adequate.
As developments happen, because a lot of this is media news, there is rumors, and then some news comes today, and then after two days, you find the completely opposite news. We have to wait and see.
Okay. Just in terms of BALIC, just few questions on that side. One is, the mix has changed obviously this quarter. We expect the savings fees to move up second half of the year, but broadly, if you could indicate anything in terms of the mix, likely mix for this year and any other targets, et cetera. Second, on BALIC side, if you could talk about the 13-month persistency has obviously come out. Last year too, you kind of had a J curve kind of thing that you started at 73, ended at 79. What is the reason for persistency being lower in Q1, and do you expect the same recovery in by the end of this year, or what is the reason?
Let me just give a very brief comment to your first question as to the product mix. As of now, we are very comfortable with the product mix that we have. Clearly, one piece which is missing in our this thing is the individual risk product. We do have a product in the market, but the way the rates have moved in the last few years. Even what you filed two years ago seems to be outpriced in the market. That is something the management is looking at. Now I'll hand it over to Tarun to handle the question on the product mix as well as the persistency. Both Tarun and Raman can handle.
Yeah. On the product mix, we're quite comfortable as Sreeni just put across to you. We have a very clear city-based strategy, where based on the kind of customer segment we are in the city, we go out and put a product mix based on the kind of customers that are there. HNIs and mass affluent who are able to take a higher call on markets and can participate more in the growth story, typically are the ones who buy ULIPs. That's where our focus is not just on top cities, but also, as you know, we are a little blessed in terms of our spread. We have 620 branches and more than 470 cities. That is where we are able to manage this with the right selling approach that we've got.
Broadly and strategically, our product mix shall remain balanced and with a fair, this year onwards, a fair mix of Non-PAR. It is Non-PAR saving currently. It will move to Non-PAR protection in the second half. We are expecting an approval, and as soon as we have a product that we want, that will be there. Our existing product is seeing fair rates have come down, so that is a little of a blip there. Plus, the good thing is our entire mortality risk and all of those are looking quite strong. We are in a lot better place now to sell risk products. Your second question was on persistency. Yes, I am myself not happy with the 73 having come down to 72. Although I must say it's a blip which is incidental at this point.
We expect this to prop back up, and we are focused very heavily on persistency. Just to give you a little bit more information, our March persistency last March, which was reported at 79%, up from 77% the year before. That bucket is at about 80.5% now. What you see usually is the 13th month. What really goes ahead, we have a little lopsided aging. Usually, our 15, 16 month onwards starts looking a lot better. I would wait before I pass any judgment on the 73% having come down to 72%. Our persistency buckets otherwise have improved on whether it's 25th, 37, 49, 61. All of this is looking a lot healthier, and we shall very clearly endeavor to be in the top five, six in the persistency buckets in the industry.
Just then that reason, what is the reason? You've said, I understand it looking better over a larger time frame, 15, 16 months, et cetera.
Correct.
What could be the reason that it's made such an impact?
I think it's a 1% drop from 73 to 72. You're talking about that?
Yeah. No, I'm largely looking at even the year-end numbers.
Oh, okay.
trying to understand if there is a consistency trend, because if you look at other players, they do report consistency in terms of even the quarterly numbers as such for the 13-month persistency cohorts. Just trying to understand.
Fair. No, I get that. Like I was answering, we have a little more lopsided on the way the 15th to 16th, 17th month comes. This is a cultural change that we're bringing in. Usually, if you have better auto-pay pickup, where it usually happens with a very high banca focus because in the bank itself, you can just hook up the auto-pay. There is no paperwork that is required to take signatures and all of that. It's a lot more easier with banca companies. Their 13th month by itself is usually higher while our 15 month, 17 month gets a lot better. The way to look at it, not just from a metrics perspective, this 13 month is just an indicator. Ultimately, the second premium, because that's coming in a month. I think that's what the way I would look at it.
Our second premium will be healthy. It's just that our 13th-month bucket may be lower than the banca company, but our second premium will be healthy. You'll find it coming right back in the 14, 15, 16 months.
Okay. Thank you. That's it from me.
Thank you. The next question is from the line of Nidhesh Jain from Investec Bank. Please go ahead.
Thanks for the opportunity, sir. The first question is on life insurance, sir. There is a fair bit of increase in Non-participating guaranteed products. If you can give some color on what is the level of guarantees, tenure of these products, premium payment terms, and how are we hedging this interest rate risk given sharp reduction in interest rates in the economy?
Yeah. See, the Non-PAR largely is a pause and a product that we launched. It varies between five and a half to a little over 6%, depending on the age, provided they hold it to maturity. This is largely sold through certain segments of agency as well as through the IB business. It is a high margin product, but the margin is volatile because it is dependent on interest rates. As of now, our book size is not big enough. We just launched the product last year. We are able to completely hedge it through partly paid bonds of very high quality bonds with companies like HDFC and others. We have, which are at a fixed coupon. The money is called over maybe five, seven years, and the maturity is up to 15 years. Tarun, would you like to add to that?
I think you've answered it perfectly, Sreeni. It's fully hedged on not just a triple-A set of papers, but name checks very clearly in place. This is our learning from whatever we've seen in IL&FS and DHFL. We were very careful about where we're buying. The other way is this is the cost product, which is a very low-ticket product. That kind of keeps a check on the amount we sell. The maximum premium on this product is only 1 lakh, unlike others that are in the market. This is not a long duration one. Our average duration, as Sreeni said, will be in the range of 5-7 years, but usually, the maximum outstanding guarantee would be around 10-12 years, and that is perfectly hedged.
Sure. Just to confirm, the prepayment term is on an average is five, seven years.
Yes. If you look at the duration, if you do it on a duration basis, yes.
Okay. Secondly, in general insurance, if we can share the segment-wide loss ratio, that would be very helpful. If not, at least the commentary on X of crop and X of this one-off cyclone event, what is the combined ratio movement YOY?
Nitin, would you like to take that?
Yeah. Regarding the claim ratio?
Yeah. Loss ratio, segment-wise.
I think as far as segment-wise loss ratios are concerned, we find some increase in the four-wheeler portfolio specifically, and that is contributed also because of some increase in the discounting. That is one area where the loss ratios have increased. We have also seen some increase in our retail health loss ratios, which we are seeing now tapering down, which is getting witnessed in July. I think we witnessed some additional claims, particularly during the onset of monsoon and other things. We have seen some increase in retail health too. These are the two segments, I think, where we have seen some increase in loss ratios.
Sure.
We also have an impact of the Odisha cyclone, which is Fani. The net impact on our books is around INR 30 crores.
Especially on the own damage side, we have seen the loss ratio for the, I think, entire industry inching up. Do you think incrementally it will worsen or players have started taking corrective actions on pricing now?
I have seen some action from the other companies also in this regard. We have also seen some action being taken even from the OEM side as far as this issue is concerned. We have seen some, I would say, freezing up in terms of the discounting levels, what will be offered by OEMs. I think there is some semblance in the market coming up. We don't expect it to rise very high.
Just lastly, on the expense ratio in general insurance, it is slightly on the higher side if you look at the last seven, eight quarters' data. Is there any one-off there or any comments on that?
Last quarter of last year we met.
Hello?
Hello. Can you hear me?
Yeah.
Last quarter of last year, we had said that expense ratios had load up because we have signed up a large number of bancassurance ties. This includes public sector banks, private sector banks, big ones like HDFC Bank, and now even Citibank has started kicking off from this year. These require a lot of manpower before it reaches a certain scale. In the initial part, you will not find productivity as high as a mature bancassurance relationship. That investment has already been made. We're already seeing good traction. I think the first quarter we have seen a 35% uptick in our bancassurance business. Over the next three to four years, we think bancassurance, not only will it grow as a proportion of our total channel mix, but we think it can become a growth as well as profitability engine. It gives us high-quality non-motor business.
There are so many bancassurance relationships. Some of them we are starting from scratch, therefore the base effect itself should give us good growth. Apart from that, the downside is only that bancassurance typically is the most visible when you have a catastrophe. Bancassurance tends to have, barring some very large losses which may come from corporates, a lot of the mid-size losses usually happen through funding by banks, and therefore you find that in catastrophes, you will have the bancassurance arm getting hit. Net-net, I would say over the next three to five years, we think that should power this company back to higher profitability and growth. Tapan?
You're right, Sreeni. If you look at the way to structure the investment, not less than what Tarun has said and Tapan has said, the investment basically returns as time progresses. Year by year.
Sure, sir. That's it from my side. Thank you.
Thank you. The next question is from the line of Ashish Sharma from Enam Asset Management. Please go ahead.
Hi, thanks for the opportunity, sir. Just on the basic, in your motor, what will be the mix between cars, two-wheeler, and CV? In two-wheeler, do we do only Bajaj? Just one clarification on that. Second would be on how do you see the behavior with this new norm kicking in where IRDA has sort of unbundled even the OD component. Technically now the customer can have three different policies. How do you think the behavior will pan out once those norms come into effect from September 2019?
Yes.
Vilas?
As far as the mix in terms of the total motor business is concerned, around 11%-12% is coming from two-wheelers and around 48% coming from four-wheelers. Remaining around 40% comes from the commercial vehicles and other miscellaneous types of vehicles. What we have seen is that as compared to last year, there is a slight increase in terms of the contribution or the mix from two-wheeler business. The motor four-wheeler business is slightly lower as compared to last year, down from 52%-48% now. Rest of the segments, particularly commercial vehicles, I think they continue to grow in the same manner as for the last years. In terms of mix, I think the four-wheeler portfolio dominates the entire motor business, and movements in the four-wheeler business also affect the overall performance favorably or unfavorably.
Sure. In terms of, is this two-wheeler entirely Bajaj?
It's not entirely Bajaj as such. Basically, we have a tie-up with Bajaj. I think as far as other OEMs are concerned, we do not have direct tie-ups. There is some, I would say, insurances happening through the DSAs and the financiers and other things, and also through the multi-line agency.
Okay, sir. Again, on that unbundling of the OD component, how do you see that? Do we see that customers preferring an integrated plan or does the unbundling create further competition and further pricing power?
Abha, would you like to take that?
Yeah. If you look at unbundling, it had to come. Last year when the regulator allowed three-year add-on policies and five-year policies, they also allowed one-year OD with three-year policy.
Yes, sir.
Which meant that in the second year, you had to have a separate OD, otherwise how would you have a cover? Unbundling is something which is a direct fallout of the previous decision.
Okay.
If you look at unbundling, it just means that if you want to buy an OD cover, you can buy from one. The company will give you the TP cover, or you can buy from any other company of your choice. Also means that now the ratio, which earlier was like OD to TP, we see in a motor, will now probably also be OD to OD and TP to TP also will start coming into play in times to come from a pure observation perspective. Broadly, it will not have a much impact in terms of how the pricing and how things are moving. Those people will be given, and my thinking is most customers would actually take OD from the place where they have TP. Most customers would. That is fine, too.
Not a big impact as such, now I'll be thinking. The only problem can be that some people may not take an OD policy, so percentage of people taking OD might decrease a bit, but that will be very marginal, not a very big issue.
Okay, sir. Perfect. Lastly, if I can, in terms of Bajaj Finserv Direct, what's the roadmap as to? Some color on that would be helpful, sir. That will be all, sir.
Sreeni, that's.
We will be making a proper announcement later in the year. It is an internal initiative. It will be a digital company. It will focus on selling products across the group. Beyond that, at this stage, we have nothing more to say. There is a lot of research and R&D work going on, lot of background work going on in setting up that. We will make a proper announcement once we are ready to launch that company's products.
This will be launched this year?
We are hoping to.
Okay, sir. Okay, perfect. Thank you, and all the best, sir.
Thank you. The next question is from the line of Anirban Sarkar from Principal Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. Most of my questions have been answered. Just one question I have on the net earned premium being higher than the net written premium in this quarter. Am I right in understanding that this would be because during the last quarter, in the comparable quarter last year, there would be a large chunk of premiums that were not earned and that came into this quarter? What segment would they be if that is the case?
Vilas?
Yes. Actually, the change which has happened is in the current quarter. It has nothing to do with the last year's same quarter. We entered into a long-term dwellings where we had increasing concentrations in certain areas. Where we entered into a new reinsurance arrangement, and we had to cede the long-term dwelling premium to the reinsurers. That is why the net return premium in this quarter is lower because the sessions have been disproportionate in terms of what has been written in the GWP, because the long-term premium was sitting on our books. This has been ceded to the reinsurers. That's why the ratio is a little skewed, and it also has an impact in terms of the ratios which are derived in terms of the net return premium. For example, I would like to mention about the combined ratio, which is currently at 103.
That is because the expenses and the commissions, the denominator which is being used is the net return premium. If you look at the complete net earned premium-based combined ratio, it is still less than 100.
All right. Fair enough. Thank you, sir.
Yeah.
Thank you. The next question is from the line of Mayur Parkeria from Wealth Managers. Please go ahead.
Good afternoon, sir. Just two small questions. One is, on a consolidated basis, apart from the insurance and finance company, there was a loss of INR 10 crores where others are there. What is that?
No, that is our internal expenses for setting up our Bajaj Finserv Direct.
Okay.
We have many of these new initiatives. We call it incubation expenses. We are studying various things happening in the market that we will be spending this money going forward.
Okay. In BALIC, you have transferred money from the shareholders' account to the policyholders' account, INR 30 crores. For which pool that would be?
It'll be Non-PAR, I think. Raman?
It's largely Non-PAR because of the strain we are getting suddenly because we have never sold so much of Non-PAR, and because of that, we are getting the strain. Also the impairment part was sitting in policyholders' funds, and that's what also appears here.
Actually, it is P&L neutral for shareholders because you transfer it back, and then the profit goes up in policyholder fund, and again, you transfer it back to shareholders.
Sir, the last part I didn't get. Can you please explain?
No, it is an income in the policyholder account and an expense in the shareholder account.
Right.
If the net account is positive, then that will again get transferred back to shareholders on the Non-PAR side. At the PAR side, it would not happen.
Yeah, this figure must be net of it, right?
Raman?
Yeah, sorry. No. Sreeni, what you said is not actually true. That holds true only for the EOM funding we do.
Yeah.
Otherwise, this is largely coming from the new business strain, which is coming from the Non-PAR.
Okay. There is a loss on the Non-PAR account, which is what it is.
How do we see this going ahead?
Yeah.
Yeah. Raman, how do we see this going ahead? Will it continue for some more time?
Till the time we have huge growth appearing in any segment, for example, in Non-PAR, we believe that this trend will continue for some few quarters because this product has just picked up. This trend will continue for the next few quarters until the raw scale is achieved in this line of business.
Okay. Just a little bit more on this. Are we trying to cap this, or will we have a policy where we cap this loss, or is it based on the business growth, which we'll first want to achieve a decent scale and then look at this?
I'll take that question. I think we do have a very rigorous planning mechanism. We do a three-year plan and a one-year plan. Always when there is an opportunity in the market, the question is how much do you want to burn in terms of new business strain because it is a very profitable product. That is a call we take looking at the entire business mix and all parameters of P&L. Clearly, given the high solvency surplus and the excess capital sitting in the life company, we can afford to invest a little bit more. Our focus is to grow the new business value. Therefore P&L may be having a new business strain when we have a growth opportunity and we want to cap it.
Oh, okay.
It's an annual number we just take. We'll have to see what the growth is. Based on that, we will take.
Okay. Just a very small bookkeeping question. If you see the individual-rated new business and group new business, the total does not add up to the breakup. There's a small difference of only INR 14 crores, INR 15 crores, INR 18 crores every quarter, but just was wondering if it's consistent there. If you can just see into that.
Sorry, your question is individual rated, does it add up to what?
Individual rated plus group new business does not add up to the total new business.
It will not because rated business has 10% for single premium.
Yeah. No, I'm saying
Which we write, it is the impact of that.
68 plus 332 is INR 1,000 crores, but in total, we say it is INR 1,104 crores.
Because one is on rated basis. Individual rated means where you have single premium, you've rated it at 10%.
If you gross it up, it will be that small component because we write a very small amount of business premium.
Okay. It's a small component.
Yeah. It will be available in the public disclosure in the revenue account and the premium schedule as to what is the first year premium, what is the single premium, and what is the real premium.
Regulatory disclosures for Q1 are uploaded?
Not yet.
Okay. Thank you, sir.
Sure.
Thank you. The next question is from the line of Sanket Agarwal from Spark Capital. Please go ahead.
Yeah. Thanks for the opportunity. Just on crop insurance, just wanted to understand that we had a loss of INR 98 crore, which you mentioned in initial comments with respect to FY 2018 and FY 2019 crop we have underwritten. It is like the ultimate loss has been crystallized, or we still can see that loss to come up in subsequent quarters with respect to the products which we have written in FY 2018 and FY 2019 on crop?
Milind?
I think whatever we have written this quarter, it was only a spillover of last rabi season, which was a little loss making, particularly the Maharashtra and Karnataka states. This will not be carried forward going forward.
I know, because we said that in the quarter we provided for FY 2018 also. All the losses with respect to FY 2019 also have been crystallized in that sense?
No, I think what actually happens, you look at in front of crop business, there are two parts to it. One is kharif, and one is rabi. Now, the rabi as it finalizes, now it's over. Now the kharif season will start. For now, whatever losses comes, we provide for that, and then it gets done. We also put an actuarial understanding of that, and a bit of deviation from that can happen. Last year our rabi was bad, and that's why this quarter the results looks a bit bad. We removed the crop losses. As Milind also mentioned, including the crop losses also, our combined ratio on the earned basis is lower than 100. It is because of, even we remove the crop, it's much better. Having said that, business is business. You don't have to really dissect to say what has come up.
We had a bad Rabi and it reflected here in this quarter. Next quarter, we will take out that will not be there.
Okay. Just wanted to understand, just if you can repeat your loss corridors for the crop insurance. Maybe you have said it in the previous quarter's con call. Can you give further tell how the loss corridors for our crop work? Second question is, what is our crop strategy going ahead? How much is kharif and which states will be contributing kharif in the current year, and what will be our stance on rabi for the year?
See, first and foremost, our strategy on crop has always been that our market share of the total business, let's say about 7% or so would be there. Our crop business is always close to that, a bit less, a bit more. We are never trying to be very overweight on crop or underweight. Crop is a significant amount of business. It is about plus INR 20,000 crores kind of business is there, which means that as a large player, you have to have some play into the crop business, which we do, and we keep it within the limit of our market share. Our strategy on crop has been clear from day one, and we have delivered very good on that. When you do businesses like crop, there will be bad seasons. You could predict everything to be right because the volumes are large.
If you look at our kharif, we have again diversified our selection of business. It's spread all across the country. We do that so that if typically one of, say, in a particular location it goes bad, we still are protected from that perspective. The monsoon report, I think it keeps on fluctuating. Earlier it will be good, then it will be a bit up. Now again, they're saying it's going to be good in some places that it is there. Hopefully things should come out well.
Okay. Can you just give us the loss corridor details of crop insurance? At what rate the stop loss works for us, sorry?
You're asking our reinsurance detail, is it?
Yeah. Reinsurance details. Yeah.
Yeah. I think the stop loss would be working over at 130 or so. Milind, correct me if I'm wrong.
Yeah.
Yeah.
It come backs to us at what level after 180, 200?
These are too many technical details. I think that is all we can confirm now.
Okay. One more question on Bajaj Life. Just wanted to understand group protection business, what we have written, what is the contribution of Bajaj Finance and non-Bajaj Finance. Just wanted to understand whether Bajaj Finance has also started selling savings products for us, because one of the other competitor has said that Bajaj Finance is got into selling savings products for them.
See, Bajaj Finance has started last year itself selling savings products for us. Group business, not only Bajaj Finance, we do group business with a lot of other partners as well. Yes, Sanket.
Okay.
If you can share the mix between Bajaj Finance-
We can't have partner-wise details in a thing that would not be fair.
Okay. No issues. Thank you.
Thank you. The next question is from the line of Neeraj Toshniwal from Emkay Global Financial Services Limited. Please go ahead.
Hello, sir. Taking off from the last questions of Bajaj Finance selling savings product for the Bajaj, anything we are doing for the BAGIC side of it also in terms of channel from the Bajaj Finance? Hello?
Can you repeat the question, please?
How much contribution is coming from Bajaj Finance from the BAGIC channel for BAGIC?
We cannot provide that kind of information. We are one of their major partners and one of their largest partners on the insurance distribution side for BAGIC and BALIC.
Okay. What is the roadmap ahead, if at all we want to upskill that business from Bajaj Finance?
Bajaj Finance has taken the route of going for multiple partners, keeping in mind the different types of verticals they do and the need to provide choice to the customer. Our objective will be to grow the business that we're already doing with them. It's a plan that every year the company and Bajaj Finance, like any other partner, they will sit and work out what needs to be done.
Are we paying market benchmark rates then? Because I think HDFC is the bigger partner for them. Just wanted to understand that context. If we take the pie, how it goes.
Everything is at arm's length. You can't really do business with any partner which is not at arm's length.
Okay, got your point. On the second question is on the IRDA TP rate increase, what would be our portfolio rate increase? We are CV heavy portfolio, I think it was a little lower on this side and this year. What would be the blended rate increase for us?
We have Milind.
Yeah. I think the overall rate increase is coming around 7%, 6%-7%.
6% to 7%, okay. In terms of strategy, like what we have already discussed in the call, like unbundling of the E-motor OD or increase of discount already, which is hampering your four-wheeler loss ratio or let's say for the TP loss ratio is also inched up. What is our strategy going ahead, and how we are actually targeting to contain the combined ratio below 100, apart from the ex-crop, if we talk about just which is not in our hand, but definitely if we can have some color. Also on the fire, which I think after GIC has increased the rates, a lot of interest has started coming into that. Any strategy and color will be very helpful.
Anything you want to tell?
Okay. I think the strategy for us is always very clear. I think in the market, we want to be servicing our customers well, and we want to underwrite the risk at the price that we feel we are comfortable with. Be it fire, be it motor. If you look at the GIC rate increase in fire, it is an average increase based on the IIB loss ratio which is there, and GIC as a reinsurer has a right to underwrite what comes in, and that is why GIC says you can't take rates lower than the average rate of losses which is there with the IIB. I think they were right in their says and et cetera. We again pick up what would be good for our company perspective and we write that business.
Strategy has always remained the same for our company, that we will be customer obsessed. Two, we will pick up business at the price that we are comfortable with. Three, customers who come to our fold, we will service them very well, and we shall keep on looking for market opportunities where we feel that growth can happen. That is what we are doing. Like say for businesses like crop, which are large-scale businesses, we understand that there is volatility in that business. On a scale of five years, it looks like good business. That is why, again, there we pick up the tender where we feel we are comfortable with the way it has to go. The strategy will always remain what strategy in the past.
Okay. On the target towards combined ratio, any color on that?
We want to be and have been a good underwriting company, and we shall continue that. We are not letting that go. As somebody rightly said in the call earlier, that entire industry's combined ratio has deteriorated. If you look at the combined ratio deterioration from last year to this year, it's about 8%-9% the combined industry has fallen. Compared to that, I think we have still done reasonably well. If you have not seen our crop losses which come up, we should still have been a pretty decent result. As Milind said that MPM ratio or combined ratio is still below 100. We continue being a good underwriting company. That is what we want to.
Okay. The last question, how has been our experience in terms of Ayushman Bharat scheme and any initial comments on that, and the claims have been?
We have always supported the government in all the initiatives that they have taken, especially for the insurance sector. We are also part of Ayushman Bharat. We have two states with us. It's too early to comment on how the schemes will move. Yes, we want to be a part to government schemes, benefits the citizens at large.
Okay. Thank you. Thank you so much, sir.
Thank you very much. Ladies and gentlemen, due to time constraint, that was the last question for today. I will now hand the conference over to Mr. Karan Singh from JM Financial for closing comments.
On behalf of JM Financial, I would like to thank Mr. S. Sreenivasan and the senior management team of Bajaj Finserv and all the participants for joining us on the call today. Thank you and bye.
Thank you. Thank you, everybody.
Thank you.
Thank you very much. On behalf of JM Financial Securities Limited, this concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.
Thank you.