Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Q3 FY 2019 earnings conference call. 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 telephone. Please note that this conference is being recorded. I would now like to 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 the third quarter FY 2019 results. To discuss the results we have on the call Mr. S. Sreenivasan, who's CFO of Bajaj Finserv, Mr. Tapan Singhel, who's MD and CEO of Bajaj Allianz General Insurance, Mr. Milind Chaudhary, CFO, Bajaj Allianz General Insurance, and Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz Life Insurance. 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.
Good morning, everybody. It's our pleasure to host you again for our conference call for Q3 of FY 2019, for the quarter and period ended 31st December 2018. Welcome, everyone. We have already uploaded our opening statement on our website yesterday. Those of you who have not had a chance to read it, I will just go through it shortly. In this call, we will largely be concentrating on the consolidated results as well as results of our insurance operations through Bajaj Allianz General and Bajaj Allianz Life Insurance companies. Bajaj Finance, which is another major subsidiary of ours, has already had its conference call. If there are any high-level questions, we'd be glad to take that as well.
We will 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, and there's no change there. Any statements that may look like forward-looking statements are just estimates and do not constitute any assurance or indication of any future performance. As you are aware, this year, from quarter one of this year, we have moved into Indian Accounting Standards for our consolidated results. Bajaj Finance is also on Ind AS. The insurance company's standalone results are on Indian GAAP, the IRDAI's preparation of financial statement regulations. For the purpose of consolidation, they do make available to us Ind AS-compliant financial statements with the reconciliations. We do have a provision against exposure to ILFS. In the case of BFL, the exposure is secure.
The total amount is approximately INR 240 crore. It is a loan against property. The property is complete. It is already leased out. However, because the matter is sub judice, the escrow account, we're not allowed to withdraw from that. The account went into an NPA bucket, and we have a cumulative provision of 23% on the total outstanding, including interest outstanding. Last quarter, we had provided 10%, we have increased it to 20% plus the additional interest. In the case of BAGIC and BALIC, BAGIC had a total exposure of approximately INR 49 crore. They have provided INR 37 crore till now. 75% of our exposure is provided. This is on the commercial paper, which is unsecured on the holding company. Last quarter, we had provided 25%. We have increased it to 75% this quarter.
Similarly, in the case of BALIC, we have INR 126 crore exposure to the non-unit-linked portfolio, which is largely non-par and shareholder funds. Again, we have raised the provisions from 25% to 75%. During Q3, this has resulted in a pre-tax provision of INR 25 crore in BAGIC and INR 66 crore in BALIC. Overall, we started this quarter on the aftermath of the events that unfolded after the ILFS default. Thereafter, there were tight liquidity conditions. Interest rates were very volatile. The 10-year G-Sec rate went up to almost 8%. It has come down, and liquidity conditions remain tight. In this circumstance, I think it is remarkable that Bajaj Finance has produced its highest-ever quarterly consolidated profit. The AUM grew by 41%, the profit after tax has grown by 54%. Our consolidated profit has grown by 16%.
Bajaj General Insurance profits are lower than last year, for a variety of reasons. One of them is the provision we had to make for ILFS impact on the investment income. We do have higher expenses. As you are aware, we have won a large number of bank insurance relationships over the last two years, including some very big ones. This required some extra investment in manpower. The business has started coming in. We hope over the next few quarters, business will continue to grow. There are a couple of segments where we have found the loss ratios were higher than what we anticipated, although overall loss ratios are under control. This was on group health, particularly. We will be tweaking our portfolio as we go forward to address this. To summarize, 39% growth in consolidated total income, 16% growth in consolidated PAT.
We believe the quarter has been quite good for us. There is also one more aspect that this quarter our growth in GI business has been very strong. We have grown 35%, which is significantly higher than the market growth rate. Even excluding crop, our growth rate is 33%, against approximately 16% growth rate for the market. This quarter, our earned premium to return premium ratio is actually lower than the same quarter of last year. Over the next six to nine months, that will get adjusted. In the life business, again, individual rated premium continues to grow. As you recall, last year around this time, we had announced that we wanted more stability in our product mix, therefore, we will be pushing for a greater proportion of traditional individual products in our business mix.
I'm glad to report that by the end of this quarter, we have achieved 61% unit and 39% traditional, compared to 72% unit and 28% traditional. Overall, in Q3, we have seen a subdued performance on the higher ticket unit market. People are cautious because of the range-bound equity markets. All market-linked products are temporarily subdued. We do hope that Q4 and a couple of quarters from now, things will improve. However, uncertainty will continue till the elections are behind us, so for the next two quarters. Renewal premium growth has been strong in life at 20%. Overall GWP was also higher at 22%. I will now open the floor for questions and answers.
Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use answer while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Pratap Chadiwala from Veda Capital. Please go ahead.
Yes. I have two questions, both for General Insurance. One is, with the regulations.
Mr. Pratap Chadiwala, I'm so sorry to interrupt, but sir, we are unable to hear you that well.
Can you speak a bit louder?
Hello. Am I audible now?
Yeah.
Sure. Thank you.
Yeah. What I was asking on General Insurance business is that if you look at the regulation pertaining to three-year and five-year TP, my understanding is that the agency will have a slightly tough time because at the start of the policy when the new vehicle is sold, I think OEMs will have a better say. Traditionally we are very strong with agency. How does this impact our business? That is first question.
Yeah.
Secondly, if you can just highlight with respect to the retail part of motor as well as health. We have done quite well on the group side in the health but what is the outlook on retail and on the retail side, both on motor and health, because the growth looks slightly lower on this side.
Okay. Before I pass it on to Tapan, I'll take your the first question. Yes, you are right because of the three-year and five-year mandated third-party policies, it does move more business to the OEM because at the point of sale, insurance is always sold along with the motor vehicle. However, in Bajaj, we have always been very strong in the OEM segment. Apart from the OEM, we also have a large number of dealers who are motor insurance service providers. Our agency business continues to grow quite well, not only in motor but in other lines. That broadly answers your first question. Now I'll hand over to Tapan to add to this.
Thank you, Sreeni. If you look at in the new car policies, we're talking of three plus three plus three, which means that you're talking of OD three years and TP three years. The penetration is just 2% for that kind of policies. Typically, we see most policies are right now, even from the OEM perspective, having a three-year TP but one year OD. Which means that still it is open to agents and others. To your point, and as Sreeni mentioned, we also see a trend moving towards OEM for these vehicles in times to come. As Sreeni mentioned, our strength on the OEM, on the private car is very strong. If you look at 97% of the vehicles which are sold in India, through the different OEMs, we would have a tie-up with them along with other partners also.
That is where we are. I think if the business is shifting there also, we are strongly positioned in that space too. That would be something which should be there. In the two-wheelers, obviously the penetration is much higher. It's 21% of the five plus five, which is there. In two-wheeler space, I think, if I look at renewal ratio also earlier, when it was a one-year policy, it used to be 25% in the next second year. In a way, I think the problem of the two-wheeler issue is of under insurance or no insurance would to some extent get solved by this. That's a positive sign.
Coming to the point of retail health, if you look at in the GI space, if you exclude the standalone health insurance companies , the growth of Bajaj in the retail health would be better than the GI growth of retail health overall. Which gives the comfort that it is not there. Yes, the Standalone health company 's growth is much better, and it is also our mission to see that we can push that to the next level. Standalone health company have their own advantage because of the regulatory help or arbitrage that they have, that they can appoint anybody as agents and the process for appointing agents for them is much easier. They have their advantage, and that is why to do a fair comparison, you have to look at GI company's growth rate in retail health vis-à-vis Bajaj.
I think that would be a fair comparison. Having said that, as I mentioned, we're working on seeing that how do we reach to a higher growth rate compared to a standalone health company also.
The retail is still going strong. If you look at our agency, number of agents growth has been compared to last year, close to 64% growth in number of agents that we had. We are focusing on retail, we are focusing on agency, and we are growing our agents also to take it to the next level. I hope it answers your question.
Just to add to what Tapan said, we just checked the numbers. For Q3, the market growth rate for GI companies in retail health is 0%, and we have grown 13%.
Overall, we look about the market, right? Even if the standalone is doing well, it is the same pie where everybody will have to s ee.
There are two issues there. A, standalone companies are growing well, as Tapan mentioned rightly, because they have a couple of distribution advantages. Having said that, we are not aware of any standalone company making really good profits. There are sustainable levels they have to make somewhere because they don't get any float benefit out of retail health, which is a very small and short-tail business. Having said that, we have always focused on that, and we will be looking at the standalone companies as well as we go forward. Compared to many other banker type of players, we do almost entirely our portfolio is indemnity-based products, which is more long-term, which is renewable, and which is higher ticket.
Thank you.
Thank you.
Next question is from the line of Hitesh Gulati from Haitong Securities. Please go ahead.
Yes, this is Hitesh from Haitong. Thank you for taking my question. My first question is, because we have grown so fast in this quarter, will there be an impact of not being able to defer the acquisition cost in Q3, and what would that range be? Secondly, sir, my second question is, what would be the group health claims ratio? Because you spoke about that being slightly moving upwards. That's my two questions.
The first question, this is a very normal thing that when you grow, in that, till the premium gets earned, you will have the impact of acquisition as well as direct expenses. That is something if you continue to grow, we will continue to have that strain. The question is whether we are building our unearned premium reserve healthily and whether, as the business pans out, you will make profit. In our down cycle, we will generally recover a lot of the profits. In terms of group health, for Q3, our loss ratios have been 102% and last year, again, it was 104%. Overall, for the nine months, it is at 100.4%, compared to 96.5% last year.
Sir, can we quantify the impact of acquisition costs on this quarter?
We cannot defer because it is not required under the law. Roughly, if you wish, you could take the proportion of net earned premium to net written premium, and that same proportion of acquisition cost would be deferred.
Okay. Thank you, sir. That's it from my side.
Thank you. Next question is from the line of Utsav Kokirkar from Investec Capital. Please go ahead.
Thanks for the opportunity, sir. My question is with respect to the life insurance business. As you mentioned in your initial commentary that there is a slowdown in the high-ticket ULIP, that is largely because of the market scenario. Just want to understand, is BALIC gaining market share in high-ticket ULIP because the largest player is losing market share over there. Just want to understand the dynamics of that high-ticket ULIP.
Raman.
Yeah. See, the data at that level may not be available, but what we are focusing on is high-ticket ULIPs largely come from the affluent category of customers. In the last two, three years, our focus has been that because we were known to be a mass market company in the past, and our focus was to move to the mass affluent and above category. Just to indicate to you how we are migrating in this category, in FY 2017, about 37% of our business came from this category of mass affluent and above. That has moved up to almost 50% now. Maybe in an indicative way, it answers your question that we may be eating into the pie of others in that segment.
Just to add to what Raman said, we had launched for the first time this Goal Assure product, which has a return of mortality premium if you hold to maturity. That has been a big success, and for some time, there were no comparable products in the market that helped us gain market share. We are also gaining market share on the online space, both on a B2C as well as the ULIP side of web aggregators. Growth rate has been very strong. The way we are playing it is by customer segment, by channel, and certain channels we are being able to leverage the power of that channel better, and that is why we think we are getting growth.
At the same time, on the other end, we are also looking at sustainable product mix by selling more of traditional business mainly through our agency channel and some parts of our institutional business. This, we think, will provide us the balance and the risk, as well as the ability to control expense overruns and thereby report a higher VNB and margins as we go forward. This clearly is a thinking process, and I think this was outlined last year again, and I'm repeating it now. We will continue this journey. We are very optimistic about the life business over the next three years because all the levers are functioning, and we continue to push those levers. We hope the results will be as we expect.
Sure. Sir, my second question is with respect to Bajaj. In this quarter, we have increased sharp share of group health, and our loss ratio is also higher in that segment. Just want to understand, by next year, what is our key focus segments and which are the segments we see further improvement in loss ratios?
Before I pass it on to Tapan, I will just briefly say it's such a dynamic business that what is good for you today may not be good for you tomorrow. Therefore, we are continuously evaluating our product mix, our channel mix, introducing new products, looking at low ticket, high ticket, and across the lines. As we gain experience, we continue to tweak our portfolio. We would expect that next year, some of the loss-making lines or where we feel the market conditions have changed, we would slow down on those and we'll try to push more aggressively on those lines which currently are profitable. Tapan?
Yeah. No, thank you, Sreeni. I think you summed it up beautifully. If you look at group health, it constitutes a major chunk of the health portfolio even today, overall for the industry. The group health loss ratios are typically hovering around 100 or over 100. I think if compared to last year for industry group health loss ratio, it has reduced from what it was. Group health predominantly would be at a loss ratio close to 95 to 100. Because if you look at a company, if the group health loss ratio is 60, 30%, they would do in-source insurance. Why would they give to insurance company? Group health typically gives you scale to negotiate with hospitals. It gives you scale to experiment. It gives you scale to understand the other portfolio.
When you look at a corporate overall, they give you, let's say, fire, marine, group health. That is a combination of portfolio in which you would get profit lines of business, and you may also get a loss-making business overall as a basket. It has lot of other dynamics at play when you look at a group health portfolio as it comes through. Having said that, as Sreeni mentioned, I think we keep a very constant watch in terms of that no portfolio should start bleeding for us overall. It does not give us strategic advantage, and we keep on tweaking on that basis. This year, overall industry group health loss ratio has reduced, and that's why you saw a bit of growth. In the private companies overall, group health, you'll see a growth for all private companies in the industry.
In next year, again, the loss will deteriorate. You would see a decrease in the group health portfolio going forward. As Sreeni mentioned, our business is very dynamic, and it moves very fast. Depending on how the market is moving and where do we see an opportunity, we move in and move out as it progresses. I hope it answers your question.
Sure, sir. Thank you.
Thank you. Next question is from the line of Krish Sannbag, individual investor. Please go ahead.
Yeah. Sir, my question is on the reinsurance business. We are hearing reports that Allianz wants to enter the insurance business. Is it with you, or they are going separately with some other player?
See, Allianz has always been present in the Indian reinsurance market by providing support through reinsurance treaties as well as facultative support on a case-to-case basis for not only us, but for other companies as well. Now, because the regulation has come where foreign reinsurers are allowed to set up branches and they get an order of preference which is superior to cross-border reinsurance, which is done from outside India, they have decided to set up a branch in India that will be 100% owned by Allianz. It will not conflict with our business because we are not in the reinsurance business. We are in the insurance business. Through this branch, we will also seek support of Allianz, where we feel they offer good terms. Tapan.
I think Sreeni summed it again as beautifully as it can be. If you look at reinsurer and direct insurance are different businesses as Sreeni mentioned. All direct insurers have strong reinsurance backing. Like for us, we have Allianz, we have Munich Re, Swiss Re, we have Berkshire, who back us up strongly on that basis. Because of the regulatory requirements, now reinsurers who set up a branch here get order of preference. That is how regulations have been defined. If you look at most of the big players have set up their unit here. Be it Munich Re, be it Swiss Re, now Allianz has also set up their unit here. I think in Berkshire Group company, they have Gen Re, which has set up their unit here. They are all owned 100% by their own staff. There is no conflict with direct insurers.
It's just a natural flow of the regulations for them to set up their business here. That's what Allianz has also done.
They are allowed 100% ownership.
Yeah, in a reinsurance plan, that is how regulations are. If you look at not only Allianz, see Munich Re, which again, if you look at it, is there in the Indian market with Apollo. Or if you look at Gen Re or Swiss Re, they all set it up 100% basis. That's how the regulations allowed it. These guys are already doing reinsurance in Indian market. But now because of order of preference, the reinsurer have to offer to a company which has a branch locally first before it goes outside. It is advantageous for them to set up a branch. They set up branch here, which is very natural. There's no conflict with it. It's something which is already happening, but now they have to have a physical branch where new regulations just come in.
Okay, thanks for that. My second question is, sir, can you share the embedded value of the life insurance business as of 31st December?
No, we don't. We will publish it in March.
Okay. Sir, the other question is, I asked this question earlier also. Do you have any target for growth rates in the embedded value? I see that it is subpar compared to your competitors in the life insurance business.
See, typically, if you see embedded value, we are talking about the operating return on embedded value, excluding the investment variance. Investment variance can be positive or negative each year. Typically, you see the ones which are bank-sponsored and which are captive banks. They tend to have maybe 12%, 13% or higher return. Typically, the non-bank sponsored ones will tend to have a slightly lower one, maybe 8%-9%. They have some cost advantages being captive in the group and doing more of retail products and long-term products through their own captive bank. We are closing in on that. We did have an issue of overruns, which was much higher than what it is today. That had dragged down our return on EV, year-on-year, we are seeing improvement in our ability to handle the overruns.
Our product mix change also should be favorable for our margins, net of overruns, we hope this will add to the embedded value. To repeat what I said earlier, we are focusing on the levers of quality business, pushing the right levers, we expect the results to come. If they don't come, we will do course correction as and when it happens. As of now, things seem to be working very well in our favor.
Thanks. My question was, have you a target that you should be in the top two or three?
We don't have a target for EV as such, because EV is actually. You cannot drive business saying that this will result in so much EV. You can only drive business for products which will give you higher margin, balance your product mix, which then has to be married to what the customer wants and what the distributor is willing to sell. It's a very complex thing. We can put anything on paper, actually the market may behave differently. It is something you have to continuously evaluate, rebalance, and course correct, which is what we do all the time. That is how we have arrived at a more sustainable product mix now.
I understand that. Just to take this point forward, what is happening is even after selling whatever products that we are selling-
Yes
We see that the cumulative value as captured in the embedded value is not getting reflected there. You may sell a lot of premium, if it is not captured in embedded value, do you think that's the right way going forward?
I think we did have several bad years when we had some degrowth, especially in our individual rated premium. In a business of this scale, when you do not have growth, then your operating leverage acts against you. Last three years or so, we have been growing well, we would still like to see our top. Topline growth will drive Embedded Value. To answer your question more succinctly, if we claw back some market share over the next two-three years, we should see an increase in Embedded Value because we are selling products which are much better margin on an overall balanced basis.
Okay. Thank you very much.
Sorry, just to add to what Sreeni said, I think the issue has been in the last few years, we have seen a significant amount of degrowth, then we got into this journey of transformation. If you see, we've started seeing the green shoots from that. Our individual rated new business growth was about 40% for the last two years. For nine months, again, it's pretty high at 15%. Our product mix last two years has been largely concentrated on ULIP, which obviously we couldn't have afforded with the kind of expense structures we have, that's where we are now diversifying that. You've seen a significant improvement in that. Our protection business has taken off significantly. Group protection growth this year has been at about 60%. Our renewals were very stressed. Our persistency levels used to be the worst in the industry.
Our renewal growth this year is at 23%. Persistency is inching up to at peer levels. I think all of the parameters are now looking positive. Once you start seeing the benefits of that flowing to the P&L and obviously then to the EVs, when you will see this stabilize. At this stage, we are still in that journey of transformation, we're still trying to improve a lot of these quality parameters. Maybe few more quarters and you'll start seeing the results.
Thank you very much.
Thank you. Next question is from the line of Vinod Rajamani from HSBC. Please go ahead.
Thank you for taking my question. I just had one question on general insurance. Could we see a softening of OD rates because insurers will try to lock in customers for longer periods on these multi-year policies? Also, just related to that, what kind of investment leverage would be there on post these new multi-year policies?
I will let Tapan handle the first question. Investment leverage will be mainly coming only from third party.
Yeah.
What we look at is, that is not the purpose we do business. Third party is a statutory business. We have a quota of third party business, and when you do OD business, it is attached to the OD as well. The dynamics of both will play when third party you make profit, OD prices will be under pressure. Secondly, younger and smaller companies will always try to be very aggressive in the motor business because that is the one which is easiest to scale up as compared to other business, which requires a lot more capability building at the back end. We are not particularly looking at it, but we have always been focused and among the top companies doing motor business. Our investment leverage has always been about three and a half to four times. We haven't taken borrowing as yet.
Other than that, if you look at the pure cash flow generation this year, our AUM is INR 16,300 crore. We started the year at little over INR 14,000. Hopefully we will end the year by adding another close to INR 1,000 crore. We have always been generating AUM through appropriate product mix. Tapan.
The softening of rates has happened. Your point out there is right, but will it further soften? I don't think so. I think the initial impact of softening, whatever had to happen for rates on OD
It has already taken place this year. I don't see further softening in the years to come. I think people are realizing that softening is not really giving them the value that it should be. My hope is that the market will not soften further in the next year. Yes, this year's softening has already happened in the motor space.
To what extent would you say, in terms of OD range?
15%, 20% in the new vehicles.
Thank you.
Thank you. Next question is from the line of Sanket Kothari from Spark Capital. Please go ahead.
Thanks for the opportunity. A couple of questions. Wanted to know, can you quantify how much this advance premium from the longer-term motor plans, TP plans have contributed to our investment income, investments, basically AUM? The second question is basically wanted to know your view on two-wheeler business, because the float created from these long-term policies is significantly higher in two-wheelers compared to the cars. Wanted to understand, because the investment income could be a big kicker for the profitability, whether you incrementally will be starting focusing more on two-wheelers because it could be a significant ROE driver. Basically on the similar metric which you have mentioned that 97% of car exposures, means we have exposure to car OEMs, whatever the cars are sold in India. What would be that similar number for two-wheelers for us?
Tapan, Milind?
What I would like to add here is that the overall advance premium what we got as on 31st of December, where the risk is going to commence later on in the coming years is around INR 150 crore. Out of this INR 150 crore, almost INR 83 crore is coming from private cars and INR 65 crore coming from two-wheelers. As Tapan mentioned rightly that almost around 98% of the four-wheeler premium is coming through a one-year OD and a three-year TP. Whereas the 3/3 or a three-year OD and a three-year TP is a very minuscule percent of around 1.6%. The position is a little different in two-wheelers. Around 20%, 21% premium is coming through long term, means OD as well as TP bundled for five years, and around 80% or 79% is coming through premium, which is one-year OD and remaining five-year TP.
I think this combination is going to generate this advance premium and advantage in terms of flow. Definitely we'll be working because we have good penetration in terms of the four-wheeler OEMs and the market. As far as the two-wheeler market is concerned, we are already trying to reach our, I would say, penetration and reach through various channels, particularly there is considering the huge amount of under-insurance in the two-wheeler sector. It's not necessarily limited only to the new two-wheelers asset. Here I would request further comments from Tapan.
Yeah. Thank you, Milind. If I look at the two-wheeler growth, it is about 27% right now in our business, which shows that yes, our focus would be there definitely. In the new OEMs, our tie-up is with Bajaj and Vespa. We are trying for a couple of more which is there. In the agency channel and our direct channel, I think two-wheeler growth is very good. Like Milind said, because we see a opportunity of under-insurance or no insurance in the renewal, we see a opportunity to see if we can tap that market, that'll be good for us. That is where we are focusing more.
Just to add to that, I think I'll be a little bit cautious on this float benefit. In the near term, yes, it looks good because the last few years we have had good increases on third-party premiums, which has brought down third-party loss ratios. However, incrementally, the rate of increase granted has been coming down. As we go forward, this float is required to also meet inflation in third-party claims over the longer term. Therefore, unless you earn a return which is higher than the inflation in the claims as we go forward, this float is required for that.
Second question there would be, do I want to share my investment income also with the policyholder in the form of higher discounts on OD or on higher acquisition cost? That play can go either way because it becomes casual underwriting, effectively. Somewhere one will have to draw the line. We constantly monitor this and we try to keep the balance intact.
Great. Thanks for answering the questions. Thank you.
Thank you. Next question is from the line of Ritesh Jain from Investec Capital. Please go ahead.
Ritesh Jain sir, on the float that we have got on this long-term policy, INR 150 crore, it is the outstanding float as of December 18th? This number looks slightly on the lower side versus your peers who have generated the quantum is quite high for them.
Yeah, that is the outstanding amount which is there as on 31st December.
Sir, what is the quantum of money that we have received for compulsory personal accident and how is the penetration there, whether it is long-term or one-year policy that we are sourcing?
I think compulsory personal accident has gone through In terms of first it was mandatory, then there were some relaxations which came in. Again, there were some clarifications issued by IRDA that where the vehicle owner doesn't have a driving license or where there is already a PA cover. Those kind of so many amendments, I would say, carve-outs are coming out, and there has not been a stable policy as far as compulsory PA has been concerned in the last quarter. I think the real impact of compulsory personal accident, we are yet to see. I think as the things are going with new vehicles, definitely the compulsory personal accident is getting filed. But the initial rates which were filed, which was a kind of a standard rate at INR 750, which was initially drawn.
I think that has gone down, then each company has to file its own actuarially required rates. I think at this point of time, it will be difficult to comment the impact on the CPA, as I think these CPA regimes, categories of the customers also get to know more clarity about it. I think the real picture will emerge.
Thank you, sir. Sir, what will be the view on crop insurance now because the entire private sector seems to become quite cautious on the crop insurance. What is our stand on the crop insurance going forward? Probably the pricing may become slightly more attractive going forward.
Tapan.
As we mentioned earlier, I think we keep a watch on the market and depending on at our comfort level, we participate into all businesses. Crop also, I think, we have watched and we have to look at reinsurance financing for this year, how the prices look at it. It's a tender-based, at a price which we are comfortable with underwriting, we quote for that. That's our view. For any business, we don't have a view that we'll be very aggressive. Pick up the business at the price we are comfortable with has been our philosophy right from the beginning, and for crop it remains the same.
Sir, lastly, on the Mass Health, we understand that Bajaj has won a bid in Mass Health in some of the states where the pricing was also very competitive. How are we looking at that scheme from a strategy perspective?
If you look at the states that we have won the tender, as of now, I think the loss ratios look decent. If you look at the tender in which we participated as leader, that has been at the price that we got, it looks decent. It is not that we undercut the price for getting business where we participated as a leader in the tender. As I said that for any business, now if you look at the entire GI business, you pick up group health, you pick up government health, or you pick up crop, they contribute a substantial amount of the entire market in terms of the business that is generated from them.
For any large company, I think they'll have to continuously work on that in terms of getting the business model right, in terms of looking at how to participate, in terms of pricing which is right, and that's what we keep on doing. If you see, most of the time we get the pricing right in terms of where we participate in the tenders.
Thank you. Just one question on life insurance. If you can share some more detail on the texture on protection, what is the share of retail protection, what is the share of credit life and death protection?
I'll hand it on to Raman, before that, I'll just add, we do predominantly a protection business through group protection. We have started selling retail protection mainly through our B2C and aggregator channels. Raman, can you give more flavor on that?
Like Sreeni said, retail currently is a very small proportion for us. It's less than 1% of our individual business. That's primarily because we don't have a competitive product in place. In the next quarter, hopefully we should have one in place. That's a area we are completely out of currently, that's something which we are focusing on, and you will see us come back over there. However, on the group risk part, which is credit protection and similar products, there we've been growing at a very healthy pace. For the nine-month period, we've done about INR 1,000 crore of premium there, which is a growth rate of about 58% compared to the same period last year.
This growth is primarily driven by credit life or?
Yeah.
Correct.
Okay. Thank you, sir. That's it from my side.
Thank you. Next question is from the line of Abhishek Saraf from Deutsche Bank. Please go ahead.
Yeah, sir. Most of my questions have been answered. Just a few things on the-
Can you speak a bit louder, please?
Yeah. Thanks for the opportunity. Sir, just wanted to understand in your view on the post overrun, when do you think it will be turning? I presume that it is currently running at a negative VNB margin, right?
We will announce it by end of the year because the business is very seasonal and the operating leverage changes quarter on quarter. If nothing really unforeseen doesn't happen, we expect to close the year with a positive margin net of overruns, which will be the first time we are doing that in the last four or five years. We think this is a significant milestone in our turnaround strategy because we have been pushing all the levers. Our renewal premium this year has again grown at 20%. Persistency is moving up. All in all, our product mix has become more diverse. All in all the levers which are required to improve the margins and controlled overruns are in place.
Clearly, with further growth, we should again get more operating leverage, and that should further add momentum to this growth in margins. We think we are quite optimistic over the next three years. By the end of this year, we hope to be able to deliver positive net margins after overruns.
Okay.
Just a word of caution there, though we are moving into the positive territory, but you also have to understand, we are making a significant amount of investments in the new channels we are entering into. Just to mention, we've done five new bank tie-ups, including Dena Bank, Jana, Ujjivan SFB, Bandhan Bank. We will have to make some investments in terms of manpower in these shops to get into the market share there. Next one or two quarters could be a little subdued because of that, because of the investment we are making. Like Sreeni said, I think we're moving rightly in the positive territory, and you should continue to see that trend going forward.
Okay. Sir. Nice to hear that. Sir, one last question on the Credit Life part. You said that around INR 1,000 crore you did in the nine months. Which are the key banca partners that you are seeing this growth coming from, or is it well dispersed? Just some color on Credit Life, how the key drivers behind that.
There are two parts to this. One is the Credit Life, which we do with banks and NBFCs, where the largest one is Bajaj Finance itself. Then there are multiple banks after that. The second part, which is about half the proportion, is from the MFI space, where again, it's well distributed with various large entities like Bandhan Bank, Ujjivan, Jana SFB, SKS Microfinance now, Bharat Financial Inclusion. It's a well-diversified portfolio as of now, if you ask me.
Right. Is it fair to now assume that going forward, the share of means banca has definitely been one of your historically least contributing segment. Going forward, is it fair to assume that this will be rising further? If you can give some guidance on what share you are looking from banca as such.
Yeah, I would take that question. What we have been trying to do last couple of years was to improve our individual rated premium from bancassurance.
Right.
At the same time, keeping the group protection which is the ones which goes with the asset book of the banks.
Right.
I think so far the strategy has worked quite well. Our individual rated premiums are growing. In a few smaller partnerships, especially in the RRB MFI space, it was a big change actually, because they are not used to selling anything other than own book bundling of credit protection products. We have made that move, and for the last two years, we have had significant growth on a smaller base. Even this quarter, a lot of our growth has come actually from our institutional business on the individual rated premium side. Our endeavor will be to continue this momentum going forward to have the balance of both group and individual. If you ask me in three years' time, I would expect the share of group to actually come down from where we are today, and individual to go up.
Fair enough, sir. Sir, share of banca, if you can-
Banca, it depends. As of now, we have now Bandhan Bank, India Post, Dena Bank. We also have a clutch of SFBs as Raman pointed out, Ujjivan, Jana, ESAF. We continue to seek tie-ups. They are a bit slow in coming. We still haven't got a big bank yet, but we continue to be in discussion with a number of partners. Hopefully over the next couple of years, we may get a couple of banca partners that can change the equation quite dramatically. I think we have the team in place. We have a unique setup for integrating partners into our system. Our IT systems have been upgraded to handle banca. We are in a good position now. Now we have also some names to show to potential partners, so hopefully that will help us get more partners.
Sure, sir. All the best.
To add to that, Sreeni, our focus, like Sreeni mentioned, has been that we move away from concentration on one product portfolio or one line of business or one channel. Agency used to be the sole provider of retail business for us for about last few years. From having a concentration of above 90% about two years back, we are down to 70% in this year, and this will only improve going forward.
Fair enough, sir. All the best for your new tie-ups. Thank you.
Thank you. Next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.
Hi. Two questions. One is, what is the percentage of claim inflation in third party that you have seen in last couple of years?
Milind, do you have the data? The claim size for third party.
I don't have the updated one right now.
Okay.
If I remember right, it was around 5.8 or so for last year. It varies between 7.8 - 5.8. It's just what I remember. I don't have it open right now, but this is as per my memory goes.
I think it varies according to the segment of business, especially in commercial vehicles, you have passenger carrying, goods carrying, heavy vehicles, light vehicles. IRDAI also uses this information to grant price increases. Each one's business mix will determine the inflation there as well.
Right.
Some of them are prone to have more severe accidents than others.
Sure. On the allied business, what proportion of the premium that you generate from Bajaj Finance is credit protection?
30%, I think, no, Raman?
Yeah, it's about 30% as of now.
The balance would be?
Like I mentioned earlier, from various other institutions, MFI as well as banks and NBFCs put together.
My question was a little different. What you're saying is that 30% of your credit protect business comes from Bajaj?
No. Out of Bajaj Finance's credit protect business, we do 30%. Correct, Raman?
Yeah.
Yeah.
A little over that for nine-month periods, about 35%.
Okay. My point was that of the business that you generate from Bajaj Finance, is it only credit protect or do they sell any other products for you?
We've started the journey of selling retail with them, and this started only late last year. In addition to credit protection, we are running various pilots with them to start selling retail. This will be our first full year of doing retail business with them. We expect a healthy double-digit number to end this year with.
On the share of retail.
Yeah.
-with the total business. Is that right?
Yeah.
Okay, great. Thank you very much. All the best.
Thank you. Next question is from the line of Adarsh B from Nomura. Please go ahead.
Question on life business. This ramp-up in ULIP business in the last two to three years. Just wanted to understand what RIY is, say, on a 10-year product or on a 10-year basis you all are offering vis-à-vis where the other large players would be.
What is RIY?
The charge that you bake into the product. Like if I exit the policy after, say, 10 years, what is the gross return minus the net return in the ULIP business?
That is set by IRDAI. In fact, our Bajaj Allianz Life Goal Assure product actually returns the mortality charges also. Effectively, after 10 years, we only earn the FMC on that product. There are different products there. Raman?
Yeah. I think the way we have to look at it is we do that at a very channel level. With the channels which are high cost, you will see that there the range is in line with what the maximum allowed by the regulation is. For lower-cost channels, which is our proprietary sales force and online, there, like Sreeni said it could be as low as only 1.35%, which is the maximum allowed FMC. There's a wide range, wide as in from 1.35% to what maximum the regulation allows. I think overall, if you compare us with the industry, the range will be very narrow because the leeway allowed by the regulator itself is very limited.
The point I was trying to ask you is when you compete in this market, and I don't know how much of this pricing matters, but what I'm trying to understand is there some of the players like ICICI, SBI would have a cost structure which will be significantly, at least as of today, significantly better off, and offering same or lower RIY, how does it add up in terms of VNB margins for you?
I'll assume every product that we have launched, we are comparable with the best in the market in terms of the eventual return to the customer based on what the underlying investment does. We do that benchmarking with every product in the market, and we are among the best.
The return to the investor should be okay.
Our par products are also similar to the range. Maybe LIC offers a higher return. We are in line with the market.
Sreeni, I think what's in this from affordability perspective
No.
Yeah.
What I was trying to ask is that, if you're offering probably the best returns to the investor and having a higher cost base, then the VNBs in ULIP, how is it stacking up vis-à-vis, say, some of the larger guys? Overall, how are the VNBs in the ULIP business written in the last couple of years?
I think the right way to answer that question is the way we manage it is. Last few years, like you rightly said, we've been selling a lot of ULIPs, but that was with the clear intent that we wanted to get the scale of business up to a particular set of level of sustainability and then start focusing on having a diversified mix to manage our bottom line. First question to answer ourselves is what product can be afforded by a particular channel to maintain a particular level of profitability is what we answered. There, the need for diversification actually played in. If you see what Sreeni mentioned earlier, we've moved away from selling a lot of ULIPs, largely in the agency channel, to now having a well-diversified mix to ensure that our margins improve.
Second obviously is that in the product segment itself, how much of play do we do? That, what I mentioned earlier, comes from the fact that how much of cost actually gets loaded into from each channel. The channels which can afford a particular cost level will be able to sell the product they afford. Like I said, online costs are lower, and hence they can sell a product where the ROI is much lower than what agency can do. That's how we play it.
Understood. No, I'll probably take it offline. Thank you.
Thank you. Next question is from the line of Anirban Sarkar from Principal AMC. Please go ahead.
My questions have been answered. Thank you, sir.
Thank you. Next question is Well, ladies and gentlemen, this is the last question for today. I would now like to hand the conference over to Mr. Karan Singh for his closing comments. Over to you, sir.
Yeah. 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 goodbye.
Thank you, everybody.
Thank you.
Thank you.
Thank you very much. Ladies and gentlemen, on behalf of JM Financial, we conclude today's conference. Thank you all for joining us. You may disconnect your lines now.
Thank you.