Ladies and gentlemen, good day and welcome to the Bajaj Finserv Q4 FY 2019 earnings 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Bunty Shah from JM Financial Securities Limited. Thank you, and over to you, Ms. Shah.
Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss the fourth quarter FY 2019 results. To discuss the same, we have on the call Mr. S. Sreenivasan, CFO, Bajaj Finserv, Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance, Mr. Milind Chaudhary, 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 call for Q&A session. Over to you, sir.
As usual, it's our pleasure to have all of you for the conference call. In this conference call, we will be discussing the results of Q4 of FY 2019 for Bajaj Finserv, and for the full year ended 31st March 2019. As usual, Bajaj Finance has already had its call yesterday. As usual, we would be concentrating more on the insurance operations of Bajaj Allianz General Insurance and Bajaj Allianz Life Insurance, which are the other major contributors to the consolidated results. However, if there are any high-level questions on Bajaj Finance, we'd be glad to take that as well. The status of Allianz in our insurance companies remains the same as at the end of the previous quarter, and there is no change there. Any statement that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of future performance.
Coming to the financial results for the year ended 31st March 2019. This is the first year we have reported the full year results on Ind AS. Bajaj Finserv and Bajaj Finance, including its subsidiary, Bajaj Housing Finance Limited, are under Ind AS. The insurance company's standalone results are not under Ind AS because it is not yet applicable to them. However, for the purpose of consolidation, they do give us Ind AS compliant figures. Therefore, the consolidated numbers are compliant with Indian accounting standards, and the previous year figures are also comparable. Coming to the highlights of the quarter, they are already in the press release, and we have put up our investor presentation on our website as well, which I hope all of you would have seen. It has been a very good quarter for us. 32% growth in profit, 44% growth in revenue.
Bajaj Finance profits are up 57%. The GI business profit is down INR 83 crores as against INR 187 crores in Q4 of last year. Life insurance profit after tax is also down INR 112 versus INR 171. In terms of Bajaj Finance, the total income is up 52% in Q4. The profit after tax up 57%, the AUM is up 41%, and the net NPA, as per the extant RBI prudential norms and provision as per Expected Credit Loss, which is required under Ind AS, is 63 basis points, 0.63%. Coming to BAGIC, it has been a very good quarter for us in terms of growth.
Our overall growth during the quarter is 23% in GWP. Even if you exclude the crop business, which we did a bit of during the rabi season, our GWP has grown by 17%, doing well above the market. The underwriting result was a loss of INR 146 crores, the first time we are reporting underwriting result in a few quarters, and you may be wondering why. It is primarily due to three reasons. One is the provisioning for crop insurance in rabi season. Secondly, investments in technology. Over the next couple of years, we will be investing deeply in technology, A, to revamp our core insurance module and also to support our data warehouse and analytics teams. Thirdly, in terms of bancassurance , you may be aware that we have a considerable number of bancassurance tie-ups.
Very large banks, many of them are tied up with us. We have signed up with Citibank recently as well as Central Bank, apart from HDFC Bank, Canara Bank, PNB, to name a few. Altogether, we have about 60 bank assurance corporate agents in our portfolio. But because of this, these require upfront investments, both in terms of technology and manpower. We're hoping that over the next 2-3 years, they will be drivers of growth as well as profitability. For the full year, the impact of Kerala floods finally has turned out to be INR 50 crores, which is reflected in the FY 2019 results. Overall, we are quite satisfied with the performance of BAGIC, and we are looking forward to a very strong performance in the next year.
In terms of Bajaj Allianz Life Insurance Company, we have seen all the levers of business which we were driving in the transformation program we started a few years ago, working in favor of the company. The product mix has become very sustainable. We have now a 60/40 product mix for the year, 60% unit and 40% traditional. What is interesting is that when in the second half of this year, the growth of the bank-sponsored insurance companies had been only 10%. It means that those who are heavily dependent on ULIP did have some problem with growth because the market conditions are not conducive for further investment in ULIPs over the last few months. However, our balanced product mix did help us in driving substantial growth.
Our rated individual business premium, which is our primary tracking metric, was up 45% in Q4, which is one of the highest growth rates in the market. Our renewal premium continues to grow. We grew it 15% in the quarter, and overall GWP again was higher by 23%. The profit after tax for the quarter was down at INR 112 crore versus INR 171 crore. Primary reason being the business strain due to strong growth, but it was also affected by additional provision of INR 40 crore against expected losses from impairment of investments. In terms of investment in IL&FS, both companies are provided 100% of their exposure. The life company is about INR 126 crore on the shareholders account, and Bajaj is about INR 49 crore. Coming to new business value, which we have put up in our presentation on the website.
We have seen very good growth in our margins and new business value. Our new business value is up from INR 222 crore to INR 347 crore, is an increase of almost 50%. Our margins before overruns have gone up from 12.5% to 15.6%. Even after overruns, we have a positive margin of 7%, the first time in a few years that we are reporting a positive net margin. Our EV has shown reasonably good growth and stands at a shade under INR 13,000 crore now. I will now open the floor for questions and answers.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, may please press star 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Dhaval Gada from DSP Mutual Fund. Please go ahead.
Yeah. Hi, sir. Just a few questions. Firstly, could you break down the combined ratio for the full year in Bajaj from 92.3% to 96% ex the flood losses, how much came from loss ratio amongst major segments? How much is related to the OpEx increase that you talked about, the investment in tech, et cetera, how much was contributed to that? The second question was on the guidance on combined ratio. How do you see a combined ratio moving into FY 2020, given the pricing environment in motor TP and other segments, what is your thought process on combined ratio? I have question on BALIC, but I will just wait for the replies on Bajaj questions.
Okay. I will let Tapan take this question. Tapan?
Yeah. If you look at the combined ratio breakup, predominantly for the loss ratios, other than the increase in ADI which is towards the fourth quarter, for the year our loss ratio was comparable and a bit lower also in some segments, and group limit was higher. Overall it was equivalent or a bit lower than what it was last year. The basic increase in combined ratio is for two reasons. One, like Srini mentioned, our investment in technology and our investment in manpower. Look at our overall expense ratio is higher compared to the peers which should have been there in the recent times because our investment is there. That is the breakup of the combined ratio. For the next year, if you look at there has been no TP increase. You rightly mentioned about the increase of loss ratios there.
It will happen because the inflation in third party is there and the TP is not there. The regulator has mentioned as of now. We are hopeful that maybe mid-year they may give some rise, but let us see how it comes out. Minus that, I think if I look at the market, the correction will not happen. The interesting part is if you look at the market combined ratio, last year it was 113, and the last result that we had of the market already crossed 120%. Market combined ratio is doing over 7% now in this year, which is there. The prices other than fire which has hardened a bit, that is due to GIC. The rest in terms of motor, as you rightly said, the TP now increase would lead to some deterioration in the loss ratio.
Overall, I don't see major shifts happen next year either in increase of profitability or deterioration of loss ratio for the industry as a whole.
To add to what Tapan said, if you see motor TP, I think we have a fairly good loss ratio as compared to the majority of the players in the market. Our ability to withstand the pricing pressure due to the IRDA not increasing the prices for this year is relatively better than the market. We think we are well poised, and lot of the investments in manpower will help us, especially in the bancassurance channel. As I have said before, the bancassurance channel is a growth engine because we have so many tie-ups and we are starting with practically zero base next year. The growth rate, we are very hopeful will be very high. As a proportion of our total mix, bancassurance will grow higher. It is about 12% now. We expect that will go up. Thirdly, bancassurance gives us considerable amount of non-motor business.
Almost 75% of the business from bancassurance is small property, health and other personal lines of business. It can be a growth cum profitability engine, and it's a very powerful engine. We are very hopeful about bancassurance helping us continue to deliver superior combined ratios as we move forward.
Sure. Just lastly, on the crop business, what is your thought process? Second, how much is the pricing improved or deteriorated if you look at premium per acre just versus 2018, last year versus this year. Just some thoughts around that.
Raman?
If you look at crop insurance, this year in the first half, we did not write much because we saw a deterioration in the price which was there. In the second half in rabi it was more stable, and that's why we wrote, but unfortunately, rabi had a bad year. Past three years was good. When you look at crop business, you should never see it in a yearly basis. It has to be seen in a four or five-year cycle basis. There are cycles which is good, the cycle is bad, but over in the four or five-year cycle, it has been reasonably good for the industry. That's why when you put it together, you can see that. Like fallout the kharif was very good, the rabi deteriorated, which is there.
On crop, I think we always try to position ourselves on the price that it reaches, right? We neither go overweight nor we go under it. It is more or less comparable to our overall market share for the industry, and that is where it is. This time the crop for which we wrote is a bit less than our market share, but that was a conscious call that we take. These are big lines of business, crop or look at health. We always try to like for all our other principles of business that we do, we try to underwrite from a perspective that it is good for the company, and we try to serve the farmers and others on a very proactive basis. We will continue with this strategy of ours.
Overall pricing is better or worse this year?
If you look at from last year perspective, it has gone down a bit. That is more also because the year before that was good. As I said, the crop insurance has to be looked at a cycle of three to four years. When you have a good year, the price does come down the next year. When you have a bad year, price goes up the next year. That is how it gets done.
Understood. Just lastly on BALIC, if you could just give some more details on the protection business between individual group credit protect and group term GTL. I have a follow-up on profitability. How do you see, given that we have come to positive territory on VMB post-cost, what is the thought process on margins over the next two, three years, based on product mix, persistency, et cetera?
I'll broadly take that question. We are very positive on the profitability of the life business because the renewal book is building up quite strongly, and some of the new business strain that we invested in the last couple of years should help us improve the margins as we go forward. There is a fine tactical play on the product mix. It is not just about ULIP versus par versus non-par, but also within non-par, whether risk versus protection. That is something we tactically look at every quarter, every year. Having said that, I will let Tarun and Raman handle the question on what is the exact proportion of the protection and the other questions that you asked.
Yeah. Tarun here. It's a pinpointed question, on group risk, let me just tell you that we've had a far significant growth this last year. Last quarter, 32%, for the year, 48% growth. Overall, as per our percentage of business in group protection, we were 7% of our A and B. In terms of the retail protection, we've spent whole of the last couple of years to sort out our claim handling and mortality ratios, which are now looking quite strong. Now we feel confident that we should start entering into the retail life as well. Lots of things normally are required in terms of systems we put in place, which are now in place. We will therefore increase our presence in the retail risk as we go ahead in the coming year.
We did, I would say, dabble a little bit with health risk and we've had a fine start there. There is, of course, a lot more to be done on the retail risk side. In terms of the NBM, as Srini said, we've turned into positive territory after a few years now. At 7% approximately. This we just see in the positive trajectory given the product mix now and the bigger impact on the profitability at this juncture not just comes in from the product mix, also the channel mix, where about three years back agency used to be as high as 92%, now we see a significant growth in non-agency channels. Our agency continues to grow.
We're still at 69% now, the rest of the channels have grown by a healthy upwards of 80% for our institutional business, which is bancassurance and the proprietary sales, which is really a calling-based direct sales business, offline business. These two growth engines have plugged in. These are far lower cost than agency.
Sir, thanks. Just if you could share the number absolute premium from protection and just break it down into individual and group, that would be very useful.
Suman, can you do that?
Individual, we hardly do any business, on group side, we've done about INR 1,450 crores in the year.
This is new business?
Yeah. New business.
Okay, largely credit protected?
Yeah, largely credit protected.
GTL as well. GTL as well, right?
A big proportion is credit protected.
Just really, just one request. MAF has a very good disclosure in their presentation. If you could add on the general insurance side as well, loss ratios across segments, since the public disclosures come little late, that would be very useful.
We are considering that. We'll probably do it next year. The IRDAI has already come out with some white paper on additional disclosures including reserving triangles. There is some elements there which are not consistent. We will wait for the final guideline to come, and we think we will be able to start doing that sometime next year.
Great. Thanks, Sreenivasan. All the best. Thank you.
Yeah. Thank you.
Thank you. The next question is from the line of Devansh Negotia from Securities Investments Management. Please go ahead.
Yeah, thanks for the opportunity. My question was mainly related to general insurance fees. Our equity exposure of the investment that we do, what would that be currently?
On general insurance?
Yeah, on general insurance. That would be-
Milind, how much will that be? About 5%?
6%.
6% of our portfolio. We are gradually increasing equity exposure because in general insurance, as you know, we are focusing more on cash flow generation, investing that prudently. Over time, we want to gradually increase exposure because it's like a permanent part of our portfolio. It is not something that we can keep changing dramatically.
We'll gradually keep increasing it. As we build more solvency, we'll keep increasing it.
Sir, via regulation, there are what, around 40%-50% of the investments you can make in equity and a normal-
No, 25% for GI business.
Okay.
Within that, see, it causes more volatility in your P&L.
If you see the components of PBT-
I will divide it into recurring and non-recurring.
The recurring profits are your underwriting profit.
Within that, how much is coming from reinsurance commission and how much is coming from core retention.
The regular interest and dividend income, which is recurring.
The third is your profit on sale of assets. Because we don't mark to market, you can play around like the public sector companies have been doing for years.
Okay.
If you see the proportion of the recurring sources, which is underwriting profit-
and the investment income, we would be among the highest contributor to the PBT.
That's been one of the cornerstones of Bajaj's sustainability over the number of years in terms of profitability.
We continue to maintain that. Even the dependence on reinsurance commission as PBT for us is lower than many of our peers.
What would be the current strategy? Of course, we will increase, but any timeline, like up to what exposure we are very comfortable with?
At the initial stage, we are looking at 10%. However, in the immediate future, I cannot say because there are a lot of uncertainties in the market. This is a call the investment team will take as to how and when they want to increase the exposure, and we will do that gradually.
Sir, next question was related to our motor insurance piece. What would be the segment mix within CV, PV and two-wheelers?
Milind, can you take that?
Yeah. Okay. I think in terms of the overall mix.
Yeah
of the total motor business as such.
Exactly.
Okay. Around 8% comes from two-wheeler.
Okay.
Around 45% from four-wheelers.
Okay.
31% from commercial vehicles.
Okay.
The remaining, around five, six% comes from the other lines of business within motor like the agricultural tractors and other things.
Okay. In our motor insurance piece, generally through some channel check that we figured out that commercial vehicle as a piece has more loss ratio-
Yeah
as compared to other segments. If that
I'll take that
is the right interpretation or
Okay. I'll take that. See, to broadly generalize and say that, no, this has more loss ratio than the other, maybe yes. If you break it up, it's not the case. You have a lot of good profit pools in commercial vehicles also.
Which gives actually substantially better returns than a private car would, thanks to.
I think it's a very vast segment. If you look at commercial vehicle, the reflection that we have in our books is mostly reflection of how the market would be, in terms of two-wheeler, four-wheeler, commercial vehicle in terms of overall own damage premium.
Two-wheeler will be a bit underweight because of our brand license conflict. Two-wheeler penetration within Honda and others is much lower.
Right.
Commercial and private cars will be a bit overweight, and that's how we balance our entire motor portfolio for our business in line with the market.
In all segments, we are profitable. Generally can make a statement here, but specifically it will be different.
Okay. Because when we look at our peers, they have more exposure to passenger vehicles, two-wheelers, which seems like a more lesser loss ratios. I was just trying to understand that where are we bringing the difference on the table?
How it happens is, any business where you see the loss ratio would be low. Let me give you example in passenger cars. If you go back eight, nine years back, the high-end passenger cars were the most profitable.
Okay.
Today it is among the worst.
Okay.
These are not very stable kind of environments, in which you can say that this will always be like this. It keeps on shifting. The market which sees profit in that area will move in, and that is where profits are dwindling. In GI, it happens very fast. Unlike other industry, in GI, the profit will diminish very fast and other profit pools get created. That is where we have a good insurance company to able to figure out what are the profit pools getting created, where to write what business and where is it deteriorating. It happens. In passenger cars also, if you do a study, just take out the loss ratios of high-end vehicles, even just five, six years back and see today. You will see a massive deterioration in that. I think it just keeps moving.
Mm-hmm. Sir, one disclosure related question that I had. Do we plan to disclose reserving triangle in our-
I already answered that question. We would be looking at it sometime in FY 2020. If not the first quarter, by second quarter, we will do that.
Okay. That is it from my side. Thank you.
Yeah.
Thank you. The next question is on the line of Nidhesh Jain from Investec . Please go ahead.
Thanks for the opportunity, sir. Conversations are always strong for the company. Just on general insurance, where I think there is a weakness if you compare the performance of the company over last three, four years. This is probably the first time we have seen combined ratio going up. You mentioned that there is a one-off element of crop insurance and also the investment. This investment that we have done in this year, do we expect similar sort of quantum over next year, next couple of years?
First, let me answer the part on combined ratio.
Yeah.
I'll leave it to you for the investment part of it.
Yeah.
If you're on a combined ratio basis, you have to plot the duration and the rise of combined ratio industry. As a company, we benchmark ourselves with industry. As I mentioned earlier in my talk, combined ratio industry last year was 113, which is gone over 120 this time. This year, about 8% deterioration of combined ratio industry. Look at Bajaj's upward movement is much lower than industry deterioration, which means, in fact, Bajaj has now outperformed industry by bigger margin than it had done last year. I think these are relative terms. When you look at it in this perspective, that gives you a proper perspective of how the performance of the company has been.
On a very standalone basis, if you look, it has gone up, but on a relative basis, actually the difference of combined ratio this year of Bajaj combined ratio industry is better, in terms of what the limit was last year. The market also plays a force and for a significant large market player like us, and market dependence is there. The good part is we're again able to outbeat the market in terms of how the combined ratio as well. Shimi, on investment. Nitesh, in terms of answers on the investments, there are two large pieces of expenses that we have invested in. One is manpower, because we have a large number of Bancassurance of different models. Some are branch banking based, some are telecalling based, some are centralized. It does require and there's a lot of technology integration that the banks require as well.
Additionally, as I mentioned before, we are investing in our core systems in terms of technology. Technology investment in our core systems will continue for the next two to three years. It is not something we will cut back on. In terms of manpower, as the volumes build up in Bancassurance, we expect the expense ratio, manpower cost to GWP and NWP to start coming down from FY 2020 for the next two years. Overall, to answer, our target combined ratio has never been very low. It is always, as we have guided before, we'll be very happy to have a combined ratio below 100%. Maybe 97%, 98% is what we think is sustainable in this market. In a quarter-on-quarter basis, you will always have blips. You will have catastrophes sometimes, you'll have bad monsoons, you could have crop.
Some segment or the other could have occasional quarter losses. This is not a one quarter business. This is a long-term business, and we're not really worried. We think Bajaj is on a very sound footing, and very good results for the quarter as well.
Strong set of performance that the company has delivered. Going into FY 2020, we have event of Odisha cyclone, we have motor and TP. Do you think next year also you can deliver a combined ratio of less than 100%?
We are not saying now, we don't predict what the combined ratio will be. There will always be events like the Odisha or catastrophes. We do not think Odisha cyclone will have such a significant impact as of now. We are still waiting for information because a lot of Bancassurance, this thing does get reported, but as of now, we're not expecting a very big impact. Having said that, in terms of TP, I already mentioned our TP loss ratios were among the best in the market. We have much better ability to withstand the pricing decision by the IRDAI. Tapan.
If you look at the two things. Forward-looking statements has more relevance. If you look at the past track record that we have, I mean, consistently over years, we have tried to keep our underlying philosophy, saying we've tried to look at market demand, customer experience, invest in technology, invest in innovation. We continue doing that. Like Shimi mentioned, one-off state may happen. Odisha has happened. There would be some loss which we'll be reporting, but we have a good match that we will have also. Some would be on the net. That is fine. That's part of business. Last year you had Kerala floods. Before that you had Chennai floods. This will keep on happening.
For a company which our distribution is spread across the country in terms of geography, in terms of presence across the market, if a particular state does get hit, definitely we have the capability to withstand that.
Sure. If you can just give two data points on general insurance. One is the segment-wise loss ratio in motor OD, motor TP, how it has moved from FY 2018 to FY 2019 and what is the advanced premium that you have received on the long-term motor third party premium? Yes. Okay. Hello.
Yeah.
Yeah. Okay. Advanced premium, as far as this long-term plan is concerned, is currently around and which is majorly coming from private car as well as two wheelers. Both three-wheeler and five-wheeler. What is the number, sir? Hello.
I think the line is a bit patchy.
Yeah. What is the quantum of advanced premium?
300 crores.
300 crores. Sir, segment-wide loss ratio, motor TP, motor OD.
Sir, motor TP overall if we see, the loss ratio is lower than the last year. It's only around 65%, and motor OD is around 60%.
Thank you, sir. Life insurance, if you can just share the reason of negative operating variance this year of INR 172 crores. What is contributing to that? What is the other variance of INR 261 crores.
Just a second. I'll just open that. Yeah, the other variance includes the provision we made for IL&FS and the dividend that we paid. Okay. Last year, we paid INR 105 crores of dividend, and we had the IL&FS exposure of INR 126 crores. That comes as other variance because it affects the NAV.
Operational variance, why it is negative despite we seeing a persistent improvement?
It's marginal negative.
Yeah.
It's very marginal. I don't think in the context of the NBV it's a very big amount. It's not a material amount.
Sure. That's it from my side, sir. Thank you.
Thank you. The next question is from the line of Avinash Singh from SBICAP Securities. Please go ahead.
Hi. A couple of questions. The first one, crop. Can you tell that what the sort of for FY 2019, what the final number of loss ratio in crop, including the reinsurance cost? How has been the reinsurance arrangement because, I mean, INR 115 crore kind of a loss in a Rabi season looks a bit on the higher side. Some more color on the reinsurance arrangement in the crop you had this season. That's the question number 1. Second question again related to GI only. Particularly if we look for the growth out, growth and profitability going into the FY 2020. Now, of course, motor TP, as you are saying, hope it's temporary freeze on the rates, but at least it's there.
There is still no sign of benign competition on the OD side. Crop you have sort of an intention not to be very aggressive. I mean, we can expect a sort of a lower than market growth for you in the crop side. Additionally, what you said about property fire line that, okay, that GIC circular has impact, but at the same time, we are also hearing that now clients have come back to the same old era where they are again negotiating hard for the discount on the group health side. I mean, in all this sort of external environment. On the macro side, your vehicle sales, new vehicle sales are again not great. How do you see that growth and profitability going in this year? I mean, yeah, because there are so many factor working against. Yeah.
Always factors have been working against in GI. This is only business where we have seen significant depreciation in prices over the last 10 years or so. It's not something new for the market. Only the type of challenges that you face keep changing year on year. Tapan, would you like to take those questions? There are many questions he has asked.
No, that's okay.
The reinsurance arrangement on crop. Third is property pricing.
Yeah.
Four is auto sales being lower.
If you look at reinsurance of crop for us in this year was with GIC, led by GIC, because I think for nearly all players minus a couple of it, GIC led the reinsurance program this time, which was there. That is why we had a good quotation, a stop-loss arrangement. Having said that, if you look at the overall crop business for the entire year, it has not made losses for us. I think we still have some profit from that. The second point is on terms of the market getting tougher. Like Srini mentioned, I think this is normal for us. A tough market is not something that is something new or we are afraid of it. The sales of cars would dip, the TP freeze would happen.
As I said earlier in my speech, I think the beauty of the insurance is it is widespread. It has lot of components. On a general basis, these statements are right. On a specific basis, smart companies, which are very customer obsessed, focused, and have a lot of innovations happening, are still able to find out areas where they can do good. That was always the endeavor, and I think we have some real good talents with us, and that's what we shall continue doing. The point remains is the market, as you rightly said, massive correction, either as I said in terms of profitability, in terms of huge losses or in terms of the market transforming will not happen. Market is tested further, and we have seen impact of it the last year results.
If you look at the PAC results which happened this time, solvency for a couple of, you know, few has also got hit. I think the companies would be a bit wary of really trying to push things a bit too much beyond what it already is. As Srini mentioned, for us, it is something similar. A bit of drop in passenger car will happen, but as a company which has been there for 18 years, I think we have substantial book of existing customers. We have substantial book of players, and Srini mentioned we also got a lot of banks tied up for us this year, lot of good names, which is there. Opportunity for business is always there. Market would be tough, that you are right, no denying that.
As a company, I think we have not seen easy market for so many years, so it's perfectly fine with us.
Overall, our strategy is to grow market share in the segments which we prefer. That segment, the way we define it, is a much more granular and detailed than what the lines of business are. In each segment, based on analytics, we try to find more and more finer segments where we would like to grow our market share. That has been our strategy till now and will continue.
Yeah. Okay. Thanks, Srini. One follow-up question for you. Do we have our group entity exposures to the stress group, the Dewan Housing, ADAG, and Essel Group?
As of now, we have fully provided for IL&FS. The others, we are evaluating on a group basis for each BAGIC and Bajaj separately. We will see as things evolve. We only provide against where there is a known default. We can't provide based on market rumors.
No. Can you disclose the extent of exposure to these companies?
I don't have that data with me now. We would have individual funds on par, non-par funds, and the insurance companies some exposure, that we would disclose it if required in a later stage.
Okay. Thank you.
Thank you. The next question is on the line of Hitesh Gulati from Haitong Securities. Please go ahead.
Okay, sir. Thank you for taking my question. Sir, just to clarify, sir, the motor mix that you said, so you said about 40% on CV. Is this number moved up substantially from last year what it was in FY 2018?
Hello?
Yes, sir. Can you hear me?
Yes. The business mix in terms of commercial vehicles has improved as compared to last year. This has multiple compensating impacts, as I would say, since the auto sales had gone slow in this financial year. If we look at it in an absolute manner, we actually increased our number of policies by almost around 22%, and we have improved our penetration in most of the OEM programs. In spite of that, I think the commercial vehicle segment offered better opportunities, and I think as everyone knows, it has a longer impact in terms of availability of float and the recurring investment income which it will generate. Also, sir, to add to what Milind said. More than half our motor overall business from two-wheelers, private cars and commercial vehicles, 56% is from TP and 44% is from OD for the current year.
Last year it was only 48% from TP. Our loss ratios on TP are very good at 65% overall, and the OD loss ratios are about 60%. Overall motor loss ratios haven't changed. There is a lot of adjustment between lines that happens, and we are building float quite handsomely in our motor business.
Sir, actually, can we get the number what this was, CV proportion in FY 2018?
I gave you 48. The CV proportion?
Yes, sir. In motors. For example, you said 41 in FY 2019, what was that in FY 2018?
Just a minute.
As far as the commercial vehicles are concerned.
It was 33%.
It has moved to 38.
Yeah.
33 has moved to 38, sir. Is that right?
Yes.
Okay. Sir, this mix that you're giving is for the overall motor piece. Can we assume similar mix for motor OD and motor TP? Because in TP, having a claim ratio of 65 looks very good, sir. Is that the same assumption we should make that TP also has a similar CV mix?
See, I think that is something you will have to make an assumption, because as we mentioned before, it's a very dynamic business. If you ask me next year what it will be, it depends on not only the volume but also the pricing and how we see the market quarter-on-quarter.
Okay. Okay, sir. That's it from my side.
Thank you. The next question is on the line of Tanish Jain from Adi Industries. Please go ahead.
Yes, sir. Hi, sir. Sir, my question is on Bajaj. Sir, if you see in the company has reportedly strong growth mainly in IB growth rate of 45% and above, and this is mainly controlled by the growth in company IB side, sir. Do you think that, sir, this growth momentum will continue?
That is a difficult question. We always would like the growth momentum to continue. This year has not been that easy a year because unit market was quite subdued.
Right.
In the IB, I think last few years ago, we have made a conscious effort to grow our individual rated premium at a faster rate than our group premium, which anyway we were doing quite well. Tarun?
That's a pretty good question. We've
As Sreenivasan also responded, we've put together a focus strategy around institutional business, and we've grown by 86% last year. Can't make a forward-looking statement, but I can tell you that the IB side will, of course, remain a focus area and therefore grow more. Similarly, we also have another proprietary sales channel, which has also grown a healthy 82%, if I remember. There also, the growth rate shall be good, but I cannot make any forward-looking statement on percentages. You will see a non-agency business grow faster than agency. Broadly, I can say that.
Okay, got it.
The second question is mentioned in due to some weak investment scenario in last month, that the company focus on that many balanced mix side, and company focus less on the ULIP side. In the coming time, due to changes in the political scenario and all, if there is a change in investment scenario mainly which has become positive, maybe possibly company is going to focus more on the ULIP side in that investment scenario?
Okay. I don't know. Sound wasn't very clear. Is your question among the product mix and the ULIP and non-ULIP direction? Is that the question?
Yeah. Correct.
Okay. See, as stated earlier on the call, we've always been intending to move towards a balanced mix, and last year we've made some significant movements. Of course, we have a broad plan towards achieving it. The underlying business scenario is that we have a city-based strategy. Given the presence that Bajaj has got a strength over the rest of the industry, we are present in about upwards of 400 cities.
Okay.
Which most life insurance companies are not. In fact, we are in some cities where LIC is also not present.
Okay.
As we have a city-based strategy, unlike other life insurance companies, we are not so dependent on the metros which are more ULIP-focused.
Okay.
We are able to therefore run on a portfolio level a good mix, and our focus shall be to grow both metros and non-metros. As a result, the product mix shall be balanced, and it's not that we want to push customers in a certain direction, but I do expect that in the non-metros the mix of traditional will be higher and metros like Bombay and Delhi, the big ones at least, where people are more financially literate and do benchmark our products to wealth products as well. Therefore the investment direction shall be more around ULIPs. Also lastly, we shall remain like that. Whether it's agency and other channels as well, the balance mix is going to be propping up from every channel and city. There will be tactical calls that we will take quarter-on-quarter.
For example, we'll have to see how the markets fare in the next three months. Because this is expected to be a little bit of a different situation versus what we've seen in the past. As the election results come out, the direction the market will get clear. Then tactically we will work around product mix for the quarter. Directionally, we shall remain balanced in both traditional and non-Par, Par and ULIPs.
Okay, sir. Thank you very much.
Thank you. The next question is on the line of Aneeb Ran Sartaj from Principal Mutual Fund. Please go ahead.
Hi, sir. My questions have been answered. Thank you.
Thank you. The next question is on the line of Rasheed Janjanwala from IIFL. Please go ahead.
Yes. Thanks for the opportunity. First, wanted to understand even your strategy in group health. It has grown at almost 86% year-over-year. How have the loss ratios moved as a result in FY 2019 versus 2018? What is the nature of corporates that you're addressing?
Tapan?
Okay. Yeah. If you look at the group health this year, at the initial stage, pricing was hard earned, and then it softened a bit again. Like somebody asked the question, this year expectation will soften more. Last year when the pricing was happening, we entered the group health space, and we've given most of it is like some big corporate from the IT consulting side and some small segment also, and the loss has deteriorated, which is a right statement. Group health also has a couple of play which happen. Group health gives you access to lot of number of customers, and these customers, because of the large numbers, enable you to negotiate with hospitals better pricing compared to what they're normally offering to retail customers, which has an overall impact on the retail customer perspective also.
Group health typically would never have a loss ratio which is very low. You always hover between 90%-100%, because your loss ratio for group health is substantially lower. Why would a CFO of a company get a group health done? The law of large numbers also apply to that. Insurance company look at group health for 2 reasons. One, it gives them mass, it gives them volume in which they can negotiate with the hospitals for better rates, which impact their retail portfolio also. Two, it also gives a lot of data in terms of figuring out what is happening on the space of health and how it moves. It serves a purpose, and I think at times companies write, at times it comes up. Last year, we had written group health insurance and for a specific reason.
This year, we again see the prices remains soft, will not be that aggressive as it was last year.
Okay. On crop, what has been the loss ratio this year versus last year? Have you won any tenders as yet for the kharif season?
Hey, we have won quite a few tenders for the kharif season. Overall loss ratio, I think I request Milind because I'm traveling, I don't have the figures right now. Milind, can you give overall loss ratio?
Yeah. I think overall loss ratio for the current year has been around 121%. I think which as compared to around 70% last year. That is what has taken an impact, particularly in rabi. Rabi loss ratio has been around 150+, particularly in two states of Maharashtra and Andhra Pradesh. I think that has resulted in deterioration in Q4 results particularly.
Okay. We didn't have an excess loss cover over 110 in that case.
Yeah. No, we had excessive loss cover, but we set our benchmark higher than that. Maintained a short-term excess loss cover.
Understood. Fair enough. The other thing is on motor. We have seen clearly pretty strong growth in TP for you, but market share on OD has marginally declined on a full year basis. How are you strategizing around it, considering that with the long-term TPs, and we'll probably see some movement towards people also adopting long-term ODs if the pricing is right. How do you see that, the strategizing around it? Also, as a result of this, do you expect loss ratios structurally to be higher but compensated by probably higher float and investment leverage?
First and foremost, when you look at OD deterioration, you look at premium. I think Milind mentioned earlier, NOP growth for us has been strong. The deterioration in OD premium is simply because there were more discounts in OD this year compared to last year. That is precisely why. That is one reason I told you earlier, we keep on looking at where the profit pool is shrinking, where it's moving and keep on shifting our portfolio on that basis. Overall, if you look at NOP growth, you'll actually see a good growth in the motor business. The number of vehicles that we retained is over 20%. Look at premium, it is lower. We lost our market share in the OD premium space. Which I think is fine for us.
We have been in segments which we picked up on that basis where we felt the profit pool was shrinking, we did not enter aggressively. That is why it keeps moving. You heard our TP loss ratio has been much better than the market. I think we did it very consciously this year. In times to come, yes, float generation would be a big issue in terms of the money you get. You'd also see float generation wither with the inflation of the claim which is happening. I think you have to see the rates return on the float and inflation on claims is happening. How do you balance it off? As mentioned earlier, three or four years from now, how it will play out would not be something that we look at very strongly.
We look at how the next year is going to look at, how it's going to play out, how the regulator is looking at it. We've continued locking in TP for three years now or five years now on the same premium. That is something which is there. It'll be a very interesting play which would happen in the motor business in times to come.
Add to what Tapan said, the OD component of two-wheelers particularly is very small. The total OD premium for us will not be more than 1.5% of our total GWP. The TP component is much higher for two-wheelers. Therefore, two-wheelers, because of the five-year rule and because of the higher penetration under the five-year TP, we think will remain a float business.
Understood. Lastly on life, we have seen a substantial jump in our solvency ratio, which used to be 590% odd. It's now 804%.
It's because that for a couple of years, IRDA had allowed us to classify some part of your excess capital as funds not required to meet solvency margins. That was not technically counted for solvency ratio, although the money was still lying in the company as shareholder funds. Last year, we took a call to merge it back because we did not find any advantage, because most of the prudential norms of IRDA apply to this fund as well. We didn't find any additional advantage by keeping it separate. We merged it, so the reported solvency will actually go up, although technically the amount of funds is always available with us. Raman, am I right?
Yeah, absolutely right.
As a result of this excess capital, we have introduced dividend from last year, but are you looking at increasing it? I think this year we just maintained the same rate.
Yeah, we have maintained because this year the profitability patch is a little bit lower. This is a matter we will review. We have a dividend policy, which we will keep reviewing every year. This is a joint venture decision between the two partners. We take a decision as we come. As of now, this is what we will maintain.
Great. Thank you so much.
Thank you. The next question is on the line of Sumeet Kariwala from Morgan Stanley. Please go ahead.
Yeah. Hi. Thanks for the opportunity. I had two questions. One is on the operational variance. I know the amount is very low, it's only INR 17 crores. Just had this question as to what's driving the negative part, because if I look at persistency, that has improved quite well. Growth this year has been very good. So that was my first question. What's driving the negative stuff over there? Second question is ticket size improvement, which has been very good over the last couple of years. Even this year, when you've reduced the unit mix, the ticket size has done really well. So what's driving that? Those are the two questions.
Yeah. I'll take the first one, Raman, here. I think the small operational variance is the impact of actualization. What we disclose there is nothing but actualization till year-end, so this will always remain a small number. Essentially, it's the impact of cancellations which happened during the year. That's a very small number in any case. The other question, I think Tarun will take up on the average ticket size.
What's been happening is that as we've been relooking at our focus areas on customer segments, and there's a lot of data crunching that happens at the back end. We've consciously now balanced out from being a mass market player to a mass affluent and HNI player as well. What's been happening in the smaller cities, we've been skimming the top now as well, while we were usually drenched in the mass market there. In the metros, of course, we are present in all segments, but largely on a ticket size basis, it tends to deliver a higher average ticket. As a result, the face of our agency, I mean, the kind of advisors we've been hiring has, if I say, in terms of the quality of customers, has gotten a lot better.
These agents are the ones who moved up to mass affluent and above customer segments. We've been hiring these kind of agents more. As a result, in ULIP, the ticket size has moved up from INR 76,000 to INR 86,000.
In traditional, there's been a far larger shift in terms of our ticket size from INR 23,000 to INR 36,000. What we were seeing was that when we used to write lower ticket traditional, the early mortality was higher. We basically, on a focused manner, moved up to a higher ticket in traditional. Overall, agency traditional has also moved up from INR 44,000 to INR 58,000. As a result, which is a rare thing you'll see with us, most life insurance companies are non-agency ticket sizes are currently low, while agency ticket sizes are high. Having said that, I think it's already kind of near peak, and we don't expect too much of a ticket size movement in the agency now.
Got it. The numbers look very good, actually. If I on slide 27, if I look at your average ticket size in the agency channel is now INR 75,000. Is that correct?
Yes. Because of that ULIP and traditional average.
Got it. Last question is on assumption change. That's quite a positive number. Anything which is driving that?
Largely the change coming from improved lapses. Our persistency, as you see, has been improving year-on-year across all buckets, and this is essentially the impact of that.
Got it. I'm a bit confused as to why is that not reflecting in operating variance still.
We actually, it's a classification issue. If you look at both the buckets together, that is essentially the operating variance, yeah.
You do assumptions again at the start of the year, is it?
We do it at the, not really the start, but in quarter one.
Okay. I get that. Yeah. Because then it's reflecting on our assumption change, obviously.
Right.
Okay, this is very helpful. Thanks a lot. Thanks, Raman.
Thank you. The next question is from the line of Sachin Mittal from DBS Bank . Please go ahead.
Hello. Hello?
Yeah, go on.
Okay. I have a question on bulk. Particularly, what do you think will be the back book growth, if it's going to change in the coming years? How it is going to change the cash proficiency? One question. The second question is, what is the decision? How do you decide on a contribution which it gave to the policyholder from the shareholders? There will be the expected change in that. The guidelines or the direction of surplus transfer to shareholders account from policyholders in the coming years to come.
Sachin, your voice wasn't very clear. Can I just broadly summarize your question? One is, you're talking about the back book.
Yes.
How is it going to grow? The second question is, and correct me if I'm wrong, is around policyholder fund-
Surplus.
Surplus. Is that-
Particularly for the par business. Whenever you made a short term in the policies, in the surpluses. In that case, the shareholders' profit is transferred to the policyholders to make up the particular, the further guaranteed products. How it's going to change and how the firm is going to decide on that. What is the direction of the surplus transfer from the policyholder to the shareholders in the coming years? I'll let Raman take the second and the third, and I'll take the first after that.
Just correct me if I've not got your question right. In terms of contribution, there are two parts to it. One is if there is a deficit in any line of business that needs to be funded by the shareholders.
Yes.
There are some lines of business where you will see an invest, and that's why you see a contribution from some of the LOBs. There is indeed a contribution. Now, to answer your question, which just correct me if I'm wrong, is what is the trend expected going forward? Currently, we have some deficits in some lines of business because we are running overruns with some of these lines of business. Do we actually look at it from this perspective and try to have a scenario break even at the LOB level? I don't think we'd go at that level, but we look at more at a channel level than at the LOB level.
If a channel is selling combined product mix of ULIP and traditional, if the net result is healthy positive, then we do not get into micromanaging at that level. That's why you might have some LOBs which might still run in a overrun situation, and that's where the contribution will be there. Having said that, for us, the surplus has been lower largely on two counts. One is that the realized gain on the investment portfolio were lower compared to last year. The second one was the strain which is coming from the new business which we are writing. That's why you see that the policyholder surplus is depressed. As you know, the more business you write, until you have a big mass of in-force book which is created, you might still see the strain in the coming periods also.
As far as there is a healthy growth in the numbers, I don't think we should worry about the surplus being depressed. Having said that, I think moving on from here, you will see that maybe for the next few quarters that amount is depressed, but then it will turn around because your in-force book will become bigger, and hence your surplus will start getting reflected through the policyholder's revenue account. I hope I've answered your question.
The priority mix is going probably to be non-par and unit. That's what. Most of the peers in the industry, they are releasing their stake, particularly in the par business, because they have guarantee products, and it does not go well with the profitability for the firm itself. Here the priority is the par as well, which actually raises a particular question that how would this guarantee profit will be transferred to what extent?
You see, you have to understand the par business in a little bit different way. In a par business, you normally give a low guarantee. You give a possible policyholder's reasonable expectation in terms of bonuses. The expectation of policyholders is built on either 8% or 4% investment income scenario that's committed. Typically, most par products in terms of the normal guarantee plus the bonuses come to maybe 3%, 4%, 4.5% of IRR. Within today's interest rate scenario and what we have seen in India for a growth market like India, gives you reasonable spread. Additional profits would be added by the policyholders who lapse, but the only condition being that the shareholder gets only 10% of the distributed profits. The key here is how much money you make, how much you distribute, and how you build your estate or FFA, as they call it, Fund for Future Appropriations.
Our Fund for Future Appropriations has been growing over the years. Once the Fund for Future Appropriation reaches 8%-9%, based on the current solvency margin norms, your par business becomes completely capital free. Whatever it adds, and whatever bonuses you can give will be free of capital and infinite ROE. Therefore, the par business is a long-term business. It does make sense to do a lot of par business because India's largest segment of customers who save money is still the par segment. Most of LIC's customers are par customers. They are people looking for protection. They're not people looking to make market returns from equities. They want protection, but in case nothing happens to them, they want their money back with some IRR, which is at least comparable to a savings bank account.
There are people who buy par products also for tax savings under 80C. For them, the actual returns could be higher because you don't get that in all other types of investments. This is roughly the mixture of par, and having par in the mix is very important to acquire customers and to be in a market which is the largest segment of the market.
See, Sachin, your first question on maturities and the back book will keep increasing. Just to tell you that this is the first year since 2013 that we've had a net premium accretion as positive, because we had bulked up maturities till the last year. Our surrenders have come down significantly because we've been focusing on how to retain customers and how to let them stay invested for the longer term. Our surrenders came down by 44%. That has helped us get a net AUM accretion of 8.9%, that's about INR 5,800 crores of additional AUM that's been built in the business. Here on, we expect that the back book is going to get stronger and therefore helping the FFA build up in the entire shareholder surplus as well.
This is the payoff of the focus on quality that we particularly had in the last few years.
That's very helpful, sir. Thank you. Regarding the surplus transfer from the policyholders and to the shareholders, how do you see that in the coming years? The surrender value has increased, the benefits paid increased accordingly. As such, we will actually transfer it more toward the EPS growth or the ROE growth for the firm, or it will be transferred to the bonus distributions at the par and such it is dividend payments to the shareholders. How do you going to see this policy?
I don't think I've got your question clearly. In the PAR business, very clear. You can either keep an FFA or you can distribute as bonuses. If you distribute as bonuses, the shareholder gets one-ninth of what you give to the policyholder. That is 10% of the total distribution. It depends on total surplus generated each year. There is a policyholder reasonable expectation for each product, which we have given in the past. You could, in an occasional year, give a one-off bonus, but being very clear that this is a one-off thing. Overall, that will continue. Our objective will be to generate and distribute to the PAR policyholders, and within that, we'll get our 10%. In the meantime, we will also keep aside, keep building our FFA till it reaches maybe 10, 12% of our total AUM.
Sir, my question was on whether the transfer of the dividends and the bonus will be the focus or the firm will focus particularly on increasing the ROE percentage. That was my question. Sorry.
No, ROE is mainly lower only because there is a significant solvency margin surplus capital sitting in the shareholder funds. That is something, as we mentioned before, our dividend policy, as of now, we are continuing to maintain what we have. Over time, we'll keep evaluating what the surplus is and take a call as it comes.
That is very helpful, sir. Thanks for that.
Thank you. The next question is on the line of Vinod Rajamani from HSBC. Please go ahead.
Yeah, thank you for taking my question. I just wanted to know on the motor side, what kind of price erosion have you seen in terms of motor own damage this year? That was question number one. On group health, this year you've grown your group health portfolio. I just wanted to know how the outlook you think for that segment is likely to be.
I think that's already covered in an earlier question by Tapan on group health.
Yeah.
Motor price, it is close to 15%, 20%. That is the discounting which has increased in the private car segment.
In the 15%-20%. Okay. Thanks so much.
Thank you.
Thank you. The next question is from the line of Abhishek Surana from Deutsche Bank. Please go ahead.
Yeah. Hi. Thanks for taking my question. This is Abhishek Surana here. Sir, just one question on life and one on general. As I see that the individual non-par mix has actually increased very sharply this quarter to around 16%, while it used to be anywhere around 5%-7%. Just a bit curious on this, is it more of a tactical in nature, or are we actually seeing a reasonable growth opportunity here? The reason I ask is that a few other life insurance companies have now started to focus on non-par savings segment a lot, given the need for longevity solutions rather than only mortality solution. Are we also following the same line of thinking? Within this, if you can just give some more thoughts and color on the margin and the kind of customers you are able to get in this segment.
Sure. No, that's a very good question. See, we have, since last year, moved to a par, non-par and non-par saving and a ULIP mix. As we progress, we will also have a fair mix of non-par risk as well. Having said this, the strategy last year has been to check out the POS products, the amount of sale products, which today are simplistic in nature and largely non-par. The reason why we've done that is. If you look at the overall industry, the number of advisors that we've been added to the industry have actually been negative or near stable. The net number of advisors aren't happening significantly to the life insurance sector. We've also been in the range of about 70,000 advisors every year.
We are very clear that we would therefore try to test out simpler products which can be sold by a set of population which is willing to get into the distribution of life insurance products. That is a strategy which has worked quite well in the second half for us. As we got an approval for our POS plan, the POS saving plan, we found that there is a segment we can therefore pursue. It has been encouraging. It's already picked up by our agency channel very well. Not only that, even in the institutional business, the PaSS saving plan is relatively a lot easier to explain to customers, has clear offerings in terms of cash flows and gives a lot more customer, I'd say, increased customer trust. In the case of PaSS, future bonuses, of course, cannot be predicted.
In the case of non-PaSS you do know your cash flows which are there in the saving plan. This has added another segment for us towards in the lower mass affluent space. We intend to go out further in this strategy, and I think what IRDA has allowed in the PaSS product and the PaSS channels is unique. We shall extract more out of this on a city-by-city basis. Last year was more like a testing phase where we, as I said, launched in the second half and we tested it with a few of our partners and a few agents. We've got a specific PaSS channel within the agency where we try to onboard part-time agents, get them to get used to simple life insurance products and then graduate them into a proper agency license.
In the institutional business side, as you're aware, we have a tie-up with India Post Payments Bank. As we move towards working with them, we would be testing whether India Post Payments Bank as it starts selling through the Dak retailers, is it able to sell simple products like PaSS? There is a person who has a very good relationship but may not be financially very literate there. This support, of course, can pitch a simple cash flow-based product. This shall remain a strategy. We've also been talking to the regulator to see if more products can come into the PaSS basket. Therefore, add a segment of distribution which is largely been untested in the life insurance side. We remain bullish on this.
Given our large presence, I talked about this earlier in the call, more than 400 cities where hardly any life insurance company is also present in some of our locations. We shall be using that advantage because this is where we can add more distribution without necessarily making it more cumbersome for somebody to go through a sale process and licensing process.
Great. Yeah. Thanks for that detailed explanation, sir. Just a few follow-on on this. These would be mostly immediate annuity plan kind of products or deferred annuity?
No, these are neither immediate annuity nor deferred annuity. These are cash flow-based products. Basically the pitch is around a certain IRR on the cash flows.
Okay. How do we manage the interest? I believe that the interest rate risk will be with the company as far as the shareholders. How do we intend to manage that risk?
I will answer that question. As of now, it's a very small proportion of our AUM. As it builds to a certain level, we have put in a threshold, we will start looking at hedging it.
Okay. Sir, what could be the threshold?
A very small threshold as of now. It's a very small percentage.
Okay.
Once it becomes-
In any case, what we've done is we've got it comfortably hedged as of now in terms of
Yeah
the current cash flows. Yeah.
Yeah.
Fair. Fair enough. Sir, one question on the general insurance side on the motor business aspect. Just wanted to have some sense on what is the kind of retention of motor insurance policies of the existing book. Basically you see a lot of migration of churn happening in terms of as insurance policies for the year mature. The customers tend to switch between different insurers. For us, what has generally been the experience in terms of the transfer out as well as transfer in? Just some color or your thoughts on that.
If you look at the motor business, 60%+ NOP of retention would be there for the good company. We would also be over 60%. The churn is of two reasons. One, some of them sell the vehicle to somebody else, and there will be some churn happening which should happen. The churn which happens more or less again gets evened out because if I look at my rollover business, it also has a reasonably good growth compared to the new business.
Okay.
Predominantly why does the churn happen and what are the renewal ratio differences for lines of business study that for two-wheeler, the renewal ratio for industry is around 26%, which means quite a few two-wheelers don't even insure their vehicle. That is why you have the long-term policies come into play because I think uninsured TP would be an issue. For commercial vehicle, about 40% vehicles don't insure. That is why again that's also a bigger issue which has been discussed with IRDA. Private car only about 80% vehicles are insured, 20% are not insured. If you see a retention ratio on NOP basis which is over 60% or 65%, 66%, and you see that about 80% are the ones which have insurance and 20% are dropping out as it is.
You could also see that there will be some who is selling the cars to somewhere else, and that is where it hovers around for the industry and for the good players which would be there. I hope that answers your question.
Yeah.
Thank you.
Yeah. Thanks a lot, sir.
Thank you. The next question is from the line of Nidhesh Jain from Investec . Please go ahead.
Sir, just one question on motor TP. If I look at the loss ratio on motor TP 65%.
If I look at other players, they are hovering around at around 100%. What differently we are doing there if you can just throw some light, because there is a very sharp difference between your motor TP loss ratio versus industry and.
The other question, why it is so high for them?
Motor TP, it is a core matter, and we have very strong TP team. Historically, it is not just about private cars, two-wheelers, and commercial vehicles. There are multiple segments, geographies, customer segments within that, and we have always been strong in that. We can't answer for why others are high.
Okay. That's a comment.
Thank you. The next question is on the line of Dhaval Gada from DSP Mutual Fund. Please go ahead.
Yeah. Thanks. Just a couple of questions. First is, Srini, about 18 months back, we had this initiative at the group level to sort of mine the group customer base. Just wanted to get an update, where are we on that front and just performance on that? If you could share the cross-sell ratio for the insurance businesses, both general and life. That's the first question. Second is, could you share the reserve releases from prior years in FY 2019 for the general insurance business?
Dhaval, it was not a data mining exercise. We had just collated and created a system by which companies can put in data, enrich the data. Each company would then be given the data back. We don't have a system of sharing data across companies at all. That is not allowed by regulation either. Each of the companies have got much more enriched data, which already is happening in many ways. Each company has got cross-sell and up-sell initiatives. That I will let Tapan and Tarun take it.
If you look at the general insurance business, typically, I think as I mentioned a lot of talks, this is typically a push product in which automobile is one which customers look for. Best health or personal accident or home insurance is a continuous interaction with customers where we offer them 0. Our cross-sell ratio has definitely moved up, but not significantly. We moved up by some extent, but continuous effort is there because we strongly believe that somebody has to crack this because overall we look at GI business as a whole, the cross-sell ratios are much, much lower than, let's say, a banking portion and typically it's the customer's behavior in terms of how he looks at this product. A lot of conversation, a lot of discussion has to happen. It's one of our focus areas.
The numbers have moved up, it's not so significant, which I would not tell right now, effort that's gone.
From the life side, what we've done is talk to the proprietary sales force. This is a channel which basically works on the principle that Srini has discussed with you. These are data scrum deals. They work on enriching the existing data that we have on customers, work on then profile-based pitches and also service calling based on which we figure out what right time and when to call a customer with what kind of an offering. This for us is of course small, but last year has moved up to about 10% of our entire business. As I explained, this has been one of those healthy growth channels for us. We did about INR 180 crores of new business, retail-weighted new business out of this channel.
We shall remain focused on enriching the data and getting more out of this in terms of how we can pitch through personas.
Sure. Just on general insurance, would the cross-sell be more than 1.5 at this point?
No.
Okay.
It will be less than that.
Less than. Okay.
Yeah. That is one of the big initiatives we'll have over the next three, four years. We have set up a separate analytics team for both life and non-life, it's our intention because we see that as a big profit pool.
Sure. The second was on reserve releases from prior years in FY 2019 for the general insurance business.
Milind, is there any significant reserve releases last year overall? Milind? Milind got cut off.
Hello.
Yeah. The question is whether there are any reserve releases last year net on the P&L.
No, they have been more or less in line with earlier years only, so no significant releases as such.
1%-2% of combined ratio, that's the broad range.
No, it won't be that much, I think. Will it be that much, Milind?
No, it won't be that much.
It'll be in.
Okay. Thanks. Sure.
Srini.
Sir, just lastly. Yeah.
Yeah. Srini, just one thing, see I've got at one o'clock I have a meeting after that. I have four, five meetings.
Sure.
Sorry.
Sorry, just last thing, on this health insurance business. At the health business, we had done some restructuring in the GI company to sort of increase the focus. Just some update around growth in the individual business and what is our broad mix today and some color around where retail health could be.
Last year, if you see in the market, we have grown about 15%. About three standalone companies have grown faster than that, about 28%, 29%. Two of the large competitors and the composite insurers have actually de-grown their health insurance business. One thing we were not doing is the benefit-based bundled business, which the bank-owned companies were doing. We have kept away from that for various reasons, including potential concerns about creating a compliant structure for that. We predominantly sell more than 90% of our products on indemnity based. A majority of our businesses come from agency and banca. Our growth overall in retail health was 15% last year.
We have also become the largest payer in claims among the composite insurers in the private sector, which we believe based on our study of U.S. companies, building that payment capacity is very essential to have control on the pricing going forward vis-à-vis the hospitals and the network partners.
What is the broad mix today between government, corporate, and individual?
Government, we have done only this is the first year we had done.
Around 15%, Srini, this year.
Government, right?
Yeah.
Government is 15%.
Government is 550.
Yeah.
Correct.
Okay. Perfect. Thank you so much.
Thank you. Ladies and gentlemen, that was the last question for today. I would like to hand the conference over to Ms. Anjali Pandey for closing comments.
On behalf of JM Financial, I would like to thank Mr. Srinivasan and the senior management team of the insurance businesses and all the participants for joining us on the call today. Thank you everyone.
Thank you everybody.
Thank you.
Thank you.
Thank you, guys.
Thank you. On behalf of JM Financial Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.