Ladies and gentlemen, good day and welcome to the Bajaj Finserv Conference Call Q1 FY 2022 Results, hosted by JM Financial Institutional 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 and zero on your touchtone phone. Please note that this conference is being recorded. Now on the conference, over to Ms. Bunny Babjee from JM Financial Institutional Securities Limited. Thank you, over to you, ma'am.
Thank you. Good morning, everyone, and welcome to Bajaj Finserv Earnings Call to discuss the First Quarter FY 2020 Results. To discuss the same, we have on the call Mr. S. Sreenivasan Sir, CFO Bajaj Finserv Limited, Mr. Tapan Singhel, Sir, CEO Bajaj Allianz General Insurance Limited, Mr. Tarun Chugh, CEO Bajaj Allianz Life Insurance Limited, Mr. Ramandeep Singh Sahni, CFO Bajaj Allianz General Insurance Limited and Mr. Bharat Kalsi, CFO Bajaj Allianz Life Insurance Limited. May I request Mr. S. Sreenivasan to take us through the financial highlights, post which we can open the floor for Q&A session. Over to you, sir.
Thank you, Bunny. Good morning, everybody. Welcome to the conference call to discuss the results of Bajaj Finserv Limited for Q1 FY 2022, which is the financial year 2021/2022. As before, in this call, we will largely be concentrating on the consolidated results as well as the results of our insurance operations through Bajaj Allianz General Insurance and Bajaj Allianz Life Insurance, and where material, the standalone results of our company. Bajaj Finance Limited, BFL, which is another major subsidiary of ours, has already had its conference call. However, if there are any high-level questions on BFL, we would be glad to take that as well. We will not be taking any questions on the status of Allianz's stake in our insurance company, except to state that the status has remained the same as at the end of the previous quarter, and there is no change.
Any statements that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result. A few remarks on Ind AS to clean up the hygiene disclosures. As required by regulation, BFS has adopted Indian Accounting Standards or Ind AS from FY 2019. The insurance companies are not covered under Ind AS. They have prepared Ind AS financials only for the purpose of consolidation. Accordingly, for BAGIC and BALIC, the standalone numbers reported below are based on non-Ind AS accounting standards or Indian GAAP as applicable to insurance companies. Our results, the press release accompanying the results, and our investor deck had been uploaded on our website yesterday evening. Let me now give you an update on the performance for Q1 of FY 2022.
After a brief recovery in Q4 of FY 2021, economic conditions, as you are aware, worsened in Q1 FY 2022 as the second wave of COVID spread across the country. This led to localized strict lockdowns in many states. Under these challenging times, our businesses focused primarily on managing risk with a calibrated approach to growth. Despite external challenges posed by the second wave in the form of provisions for loan losses and COVID claims affecting health and life insurance claims, we saw many positives as well in this quarter. BFL was able to grow its AUM quarter-on-quarter and further continued the acceleration of its business transformation plan, which was announced late last year. The bounce rates were significantly lower than Q1 of FY 2021 and only 8% higher. Bajaj Housing Finance recorded good growth in its AUM and profit after tax.
BAGIC recorded an underwriting profit while growing better than market in most preferred segments. BAGIC had an excellent quarter of growth and was able to increase its new business value year-on-year. Let me now touch upon each of our businesses. April started off reasonably well for the general insurance industry and for BAGIC, the second wave of COVID resulted in localized lockdowns in many states across India. This led to slowdown in the economy and in turn lower sales of motor vehicles and creation of assets in the economy. In contrast to the complete lockdown in Q1 of FY 2021, localized lockdown in FY 2022 led to positive growth. As compared to Q4 of FY 2021, growth was lower. BAGIC growth of 9.1% during the quarter was marginally lower than industry, which grew at 11.1%.
Excluding government business, which is predominantly crop and health, BAGIC's GWP grew by 10.8% as against an industry growth of 11.6%. BAGIC continues its approach to calibrated growth, that is, seeking to grow in preferred segments, which are private cars, two-wheelers, commercial lines which are property engineering and retail health, while remaining cautious on group health. BAGIC has done better and grown faster than market on most of these preferred segments. To give some more detail, growth in Q1 was driven by motor two-wheeler and motor four-wheeler reporting growth of 23% and 10.3% respectively, while commercial vehicles continued to be stressed on growth. Given the fact that the Insurance Information Bureau or IIB base premium rate hikes for property was started in Q4 of FY 2020, the base for Q1 FY 2022 was already at a higher rate.
Notwithstanding this, BAGIC's commercial lines growth of 14% was very satisfactory and higher than the industry growth of 8.2%. Within the commercial lines, property fire grew by 11%, engineering grew by 26.9%, and liability insurance grew by 21.3%. The two-year CAGR, which compares the growth with pre-COVID base for commercial lines, was 26.9%. Bajaj's wide and deep bancassurance tie-ups, direct corporate strong broker relationships, and dedicated multi-line agency force were large contributors in this substantial level of growth. On the retail health insurance then, Bajaj continued the momentum from previous year as increased COVID positivity rate during the wave two heightened the need for protection. Bajaj registered a growth of 30.8%, slightly lower than the overall industry despite lower sales of corona specific products as compared to Q1 of FY 2021. During wave two, COVID claimed hit the industry much harder than wave one.
While in wave one, majority of the mortality and morbidity cases were in the 50+ segment. In this wave, lower age groups were also severely hit. This caused more claims on group health segment and also in the group and individual life segments, in addition to retail health. I'll give you some flavor of the impact of wave two. The second wave resulted in much higher frequency, with 27,000+ claims reported in Q1 FY 2022 as against a total of 32,000+ claims reported during the whole of FY 2021. That is to say, over 80% of the claims reported in FY 2021 have already been reported in Q1 FY 2022. This has resulted in increase in COVID claims cost to the tune of INR 283 crores in Q1 FY 2022 while in the previous year, the same quarter, it was just INR 14 crores.
However, by June, the cases had started tapering off. Secondly, on the motor OD claims frequency, which was very low in Q1 FY 2022, it had picked up to near pre-COVID levels by Q4 of FY 2021. In this quarter, Q1 FY 2022, the frequencies were much higher than Q1 of FY 2021 since we did not have a complete lockdown and we had mostly localized lockdown and vehicle movement had not come to a standstill. Overall frequencies were slightly below pre-COVID levels. The impact of claims from two cyclones, Tauktae and Yaas. While the amounts were relatively much lower than the other two factors of COVID claims, we still had the modest impacts in this quarter. As a result, the claim ratio for Q1 FY 2022 increased to 75.9% as against 68.1% in Q1 FY 2021.
On account of higher claim ratio, the combined ratio for the quarter ended slightly above 100% and stood at 103.4%, which we hope will still be among the best in the industry during this challenging quarter. Despite these negative factors affecting the industry, Bajaj was able to record an underwriting profit of INR 15 crores. Bajaj's profit after tax for Q1 FY 2022 ended at INR 362 crores, and this is a non-annualized return on equity of about 5% for the quarter. To summarize, a tough quarter and Bajaj did very well. Let me now come to life insurance. During the quarter, on account of lower base and strong growth seen from December 2020, the industry in total continued to show excellent growth. With wave two of COVID-19 peaking in May and resultant strict lockdowns, there was a slowdown in May and in early part of June.
Despite these challenges, Bajaj continued to do well both in absolute terms and relative to the industry. In Q1 FY 2022, Bajaj with individual rated new business growth of 49% was the fastest growing among the top 10 private players who grew by 26%. As a result, Bajaj's market share increased from 5.7% to 6.7% in Q1 of FY 2022 on this metric. Bajaj's individual rated new business two-year CAGR, where the basis of pre-COVID levels stood at 22% versus private players' two-year CAGR of -1%, and that is the highest in the industry. The annuity product launched by Bajaj in Q4 of FY 2021 was very well received by the market. During the quarter, approximately 12% of the individual rated NB was from the annuity segment. Demand for retail protection in Q1 FY 2021 was much higher.
In Q1 FY2022, on account of higher prices, the demand had tapered off. It had already started tapering off by second half of last year. The contribution of protection to the mix has sequentially quarter-on-quarter improved and is better than Q4 of FY 2021. The risk appetite of the retail saver seems to have increased as evidenced by the strong demand for units. Bajaj's unit contribution to product mix was 39% in the quarter. Guaranteed non-par savings were muted in the quarter with a small degrowth. The par segment, which had degrown quite substantially in Q1 of FY 2021, has picked up and recorded a year-on-year growth of 165% and a two- year CAGR comparing to the pre-COVID levels of 24% per annum. All our main channels, agency, institutional business, which includes bancassurance and Bajaj Direct recorded excellent growth.
Let me come to group business of the life insurance company. Compared to wave one, group protection business was less impacted in wave two as it grew by 268% in Q1 FY 2022. This was mainly on account of the lower base. In absolute terms, the business is slightly still below pre-COVID levels and is about 56% lower than Q4 of FY 2021. A major portion of the group protection business, as you are aware, is from group credit protection and which is largely dependent on disbursement of loans by banks and NBFCs. Due to the wave two, such disbursements had also come down and therefore this business didn't follow that metric. Overall, group new business grew by 92% from INR 397 crores in Q1 FY 2021 to INR 762 crores in Q1 FY 2022, which is above the pre-COVID levels.
Renewals registered a strong growth of 27%. As a result of these factors, BALIC GWP grew by 48% to INR 2,560 crores. I will now cover claims, especially COVID-19 claims, as affecting the life insurance business. As mentioned before, the morbidity and mortality impact of wave two was felt across all age groups, more so in the 30-50 age group this time. Like the GI industry's health claim, BALIC and the life insurance industry too recorded significantly higher death claims on account of COVID-19 in the quarter. On the retail side, BALIC has settled around 1,600 claims pertaining to COVID-19. As a result, overall COVID-19 claim costs reserved for BALIC in Q1 FY 2022 was INR 288 crores, versus a mere INR 1 crore in Q1 FY 2021. BALIC has adequately provisioned for probable future claims as things stand today and the best estimates available as of June 30th.
The total reserve as June 30th stands at INR 304 crore. The reserves as at March 31st were INR 98 crore. The INR 304 crore is the net reserve. As mentioned before, we have declared our new business value in our investor presentation. From now on, we will be making quarterly disclosures of NBV. In addition to the NBV for the quarter, we have also indicated the NBV for the 12 months ended 30th June 2021. Due to high variations in the seasonality of business across quarters, I would advise investors to exercise caution while reading into Q1 NBV and the margins. We had mentioned earlier in our calls that quarterly NBVs and NBM may not reflect the possible year-end results.
Investors may already be aware that as a significant portion of life insurance business comes in H2, and especially in Q4, most of the fixed costs borne by the life insurance company during the year gets absorbed in the second half of the year. Please note that NBV on rolling 12-month basis does not indicate a forecast or expectation of FY 2022. The new business value, net of expense overruns, the key metric of profitability for life business, increased to INR 25 crore in Q1 FY 2022 from a negative of INR 14 crore in Q1 FY 2021. For the 12 months ended June 30th, 2021, the NBV was INR 400 crore as against INR 212 crore for the 12 months ended June 30th, 2020. INR 361 crore for financial year 2021.
Good news from the life side is that the 13-month persistency, which was somewhat lower in Q1 FY 2021, has rebounded and has reached 82%, 5% higher than the previous year. Through initiatives such as driving auto-payment, digital payments, and collection of high-value non-persistent cases, the persistency has improved not just for the 13th month, but also across all cohorts. BALIC PAT for the Q1 at INR 84 crores was lower than INR 130 crores of Q1 FY 2021 on the back of higher COVID claims and reserving, INR 245 crore post-tax is the impact, as well as the new business claim because of the strong growth, which were partially offset by the reversal of income tax provision of INR 161 crores on account of favorable assessment order received for assessment year 2012/2013 and 2013/2014. These orders were received by us in the last week of June.
Overall, an excellent quarter for BALIC, both on the top line and on NBV. Finally, both insurance companies are financially among the most solvent. BALIC with 648% and BAGIC with 340%, and hence are well poised to weather any external adversity that may affect solvency. Both BAGIC and BALIC continue to utilize their digital properties and continue to emerge stronger through the crisis. We have seen a substantial increase in digital penetration across several parts of the distribution and service chain across both our insurance companies. Further details regarding BAGIC and BALIC's digital capability are covered in the investor deck uploaded on the website yesterday. Let me now come to BFL. BFL has already had its investor call, and hence we will only broadly touch upon the results. Quarter one was significantly impacted by the severe second wave.
Both business and debt collection efficiencies were affected due to strict lockdowns across many parts of India. Despite this, AUM grew by 15% YoY to INR 159,000 odd crore. In the absence of a third wave, the company expects quarterly AUM growth to revert to almost the pre-COVID levels. Core AUM accretion in Q1 FY 2022 was approximately INR 4,100 crore. That's the absolute amount of accretion to the AUM as against a reduction by INR 9,000 crore in Q1 of FY 2021. The second wave caused a marginal increase in EMI bounce rates in Q1 FY 2022 over Q4 FY 2021. Average bounce rates in Q1 FY2022 were approximately 1.08x of Q4 FY 2021. During Q1 of FY 2021, the investors may recall that BFL's bounce rates had increased to nearly 2.5x-3x the pre-COVID levels. On account of regional lockdowns, 4.63 million loans only were booked by BFL during the quarter.
That was slightly less than 5.47 million loans booked in Q4 of FY 2021. However, 1.88 million new customers were acquired during the quarter, and they are in line with the company's general guidance of new customer acquisition of 7 million-8 million for the whole year. In Q1 FY 2022, BFL recorded a pre-provisioning operating profit of INR 3,116 crore and made loan loss provisions, including expected losses of INR 1,750 crore as compared to INR 1,686 crore. The second wave resulted in significantly subdued collection efficiencies, leading to higher Stage 2 and Stage 3 assets. BFL continues to balance growth vis-à-vis risk and collections while maintaining strong liquidity and capital adequacy. BFL carries a management overlay of INR 483 crore in provision for expected credit loss, as against INR 840 crore as of March 31st, 2021.
The gross NPA and net NPA recognized as per extant RBI prudential norms and provision applying the expected credit loss method prescribed in Ind AS as of June 30th, 2021, stood at 2.96% and 1.46% respectively, compared to 1.79% and 0.75%. As investors may be aware, BFL and other NBFCs are required to provide for expected credit losses over the life of the loan under Ind AS. We understand Ind AS is not yet applicable to banks. In their call, BFL has given the estimates of credit cost for a year to be INR 4,200 crore-INR 4,300 crore for the whole year. This compares with approximately INR 5,900 crore for the whole of FY 2021. Overall, BFL has pre-provision profitability remain strong and at the moment, based on the available estimates, adequate to cover expected losses.
PAT for Q1 FY 2022 increased 4% to INR 1,002 crores versus INR 962 crores in Q1 FY 2021. The capital adequacy ratio as of June 30th, 2021, was very strong and stood at 28.5%, and the Tier 1 capital also has crossed 25%. For Bajaj Housing Finance Limited, the mortgage subsidiary of BFL, the capital adequacy ratio stood at 22%. BFL's business transformation is on track for phase 1 to go live by end of September or early October 2021. In summary, BFL is well-positioned to navigate any temporary stress, and I would request investors wanting to have more information to go through BFL's investor presentation and transcript of their investor call. Before I close, I'll come to the highlights of our consolidated financial results, which have been put up in our press release yesterday.
Consolidated total income INR 13,949 crore for the quarter, compared to INR 14,192 crore in the same quarter of last year, marginally lower. Consolidated profit after tax INR 833 crore versus INR 1,215 crore. Bajaj Finance consolidated profit after tax INR 1,002 crore versus INR 962 crore. General Insurance profit after tax INR 362 crore versus INR 395 crore, and Life Insurance shareholders' profit after tax INR 84 crore versus INR 130 crore. A point to note that is under Ind AS, the insurance subsidiaries have chosen to hold a large part of the equity securities portfolio fair value through profit and loss account. Therefore, the unrealized mark-to-market gain on investments included in consolidated profit was only INR 25 crore for Q1 of FY 2022 versus INR 330 crore for Q1 of FY 2021.
This is one of the reasons for the larger drop in the consolidated profit after tax, and I must emphasize that these are unrealized losses. During Q1 of FY 2021, as you may be aware, equity markets had recorded stellar growth after a steep fall in Q4 of FY 2020. Year-on-year, this unrealized gain has reduced INR 305 crore on the post-tax profit. This does not affect the core operating profits of our businesses as it is market-linked. Final comments. With signs of the second wave ebbing, all our businesses will pursue opportunities to grow while maintaining focus on risk. At the same time, we remain cognizant and vigilant of a possible third wave. Our companies are spearheading vaccination for all employees. Learning from each wave, our companies have strengthened their digital and touch-free offerings to their customers and intermediaries.
Backed by strong solvency, well above the required capital, supported by healthy liquidity, continued focus on risk interactions, digitized processes, and improved cost structures, we are confident of being able to maneuver through these difficult times. That's all from me from the opening remarks. I will now open the floor for questions and answers. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets when asking a question. Ladies and gentlemen, we will wait for a moment while the questions queue is tended. The first question is from the line of Ravi Mehta from RBL Financial. Please go ahead. Ravi, your line is in talk mode. You can go ahead, please. We would request you to unmute yourself. It's muted from the handset. As there is no response, I muted the line. The next question is from the line of Prakash Kapadia from Anived Portfolio. Please go ahead.
Yeah. Thanks for the opportunity. A couple of questions. On the life insurance side, GWP growth has been fairly strong for us. Is it low base of last year? Is it some specific product demand or some specific channel where we are seeing traction? What kind of momentum can we see for the rest of the year on the life insurance side?
I'll just briefly give an overview before I pass it on to Tarun. The last few years we have been engaged in a transformation process. This is a fairly intensive process of planning and execution. In the process, we have rebuilt our channels, we have expanded our banca partnerships, we have remodeled our agency force, we are focused on cost, we have significantly digitized, taken a lot of actions. More importantly, we have also launched products and some product lines we were not present have also been launched during this period, like term life and annuity. In all these, our products remain among comparable to the best in class. Overall, the growth obviously year-on-year also reflects the more subdued conditions in that same quarter of last year.
Relative to market, I think we are growing very strongly on the back of all these factors. Strong performance across all channels. We cannot pick any one channel saying that it performed better than the other. It's a combination of good product mix, strong channel performance, and good execution. Tarun?
Yeah. I think Sreeni has directionally, I think, answered it. Let me just add a little bit more. You are talking about whether it was only versus last year or the year prior and is it sustainable?
Right. Right.
Last year, of course, was muted for everybody. Most insurance companies redo last year's same quarter. We actually did not. We had a flat first quarter FY 2021. Last year we grew by about 28% overall as a company. This quarter we've grown at about 49%. The reason is largely on the lines of what Sreeni's talked about. All channels, and particularly I would say a lot of agency channel has shown some good growth because this year we've been able to sustainably, this calendar year, we've been able to hire advisors, which was a little of an issue last year because of the physical lockdown.
I think we've come to a situation as a company where our product mix has largely directionally stabilized, where we have a good sprinkling of par, term, and if you look to last year as Sreeni mentioned, the transformation was massive over a period of time, and particularly showed some signs of stabilization, particularly last year. Where our product mix and channel mix was changing constantly. In 2015, we used to be 92% agency, but now we are around 44%-45% agency. This quarter we were 48% agency. I think this transformation is over. We are now on a foundation for growth. What will it be like? I can't make any forward-looking statement. I must say that the culture change, the change around business dynamics and large business calls that we had to take are behind us now.
Our product mix is also very well stabilized. We are now into all the buckets of need buckets that we look at. Our last entry in the need buckets was in the pension space, which was missing till, I would say last quarter, last year we had Q1 FY 2021 is when we launched it. This quarter we've been able to, of course, use that quite well. Because this product did not have any medical requirement, we've been able to get a lot many customers who weren't comfortable going into medicals take benefit of that. We've been able to tactical in that way in taking benefit of this product. I think you should see a good growth going forward. That's all I can come to you, sir.
Sure. That's helpful. Secondly, on the TP side, on the general insurance, on the motor, any update on pricing by IRDAI so that it brings some while this year also one. Any update from the regulator on the pricing?
You're talking about third-party pricing?
Yeah, third-party pricing.
Yeah. Tapan, would you like to take it?
Yeah, thank you for the question. I think that is something that you have to ask the regulator. From industry side, we have been asking for it. I think it is there and they have to come back on it. We don't have any information on that as yet.
Sorry. Lastly, any update on the mutual fund license which we applied to SEBI? It's been some while.
No, we have applied. They have a process of sitting with our regulator. Because of COVID, things are moving a bit slowly. They have conducted their onsite inspection also. We are hoping to get the license soon.
I'll join back the queue with that focus.
Yeah.
Thank you. All the best.
Thank you.
Thank you. The next question is from the line of Sanketh Godha from Spark Capital. Please go ahead.
Yeah. Thanks for the opportunity. Sir, I have a couple of questions. One. Just wanted to understand the strategic reason why Bajaj Finserv sold a 20% stake in Finserv Marketplace to Bajaj Finance. Just wanted to understand the overall logic behind that deal. That's first question. The second question is Maybe I can go one by one. If you can answer these, I have a couple of more questions on Bajaj and Bajaj Finance.
Okay. Let me take that question. Bajaj Finserv is not selling any stake to Bajaj Finance. Finserv Direct, as you know now, as we told last year, we were fairly clear about the path of Finserv Direct as a neutral, open architecture marketplace. On the platform side, there is a lot of linkage between BFSD and Bajaj Finance, and Bajaj Finserv Direct is actually helping Bajaj Finance build its platforms as well. We believe there is a lot of advantages there. Bajaj Finance, while they build this platform which supports its core lending business, will also require a strong, stable, long-term partner who can deliver what they want. Otherwise, it can get diffused in the market. At the same time, as of now, Bajaj Finserv Markets has already started dealing with others.
From a customer acquisition point of view, Bajaj Finance will be just 1 more partner for Bajaj Finserv Direct. As time goes on, as more partners get added, obviously their share of the total pie may come down. On the platform side, Bajaj Finserv Direct will continue to support Bajaj Finance for some more time. We believe this linkage between the two is very positive for both to deliver their own individual business goals. Therefore, as we go, the incremental capital would be contributed by both Finserv, Bajaj Finserv and Bajaj Finance. By the end of that period, we expect that the stake will come down to 19.9% for Bajaj Finance.
Okay, sir. Got it.
More like a strategic and financial investment in a significant platform provider.
Got it, sir.
Okay.
Yeah, that's useful. I understand.
In fact, I must hasten to add that over time, maybe three-five years from now, even this platform, we may offer as a product to other partners.
Okay. basically other entities or banks can also tie up with Finserv Markets, offering the same solutions to them. That's to be your plan, right?
Yes. Over time, yes. As they build their business and when they get a reasonable number of customers, then more partners will get in. They've already started adding partners. Over time they'll continue to add more partners. Because the risk appetite of each lender is different, as they want, and depending on the segment of customers, they could offer differential products. The idea is people come to us. They can also compare products of others through our own ecosystem. They can choose what they want. Eventually it will become a free marketplace where customers choose. Hopefully our manufacturing entities, Bajaj Finance, Bajaj, BALIC, will end up getting a higher share of the profit pool if they compete very well. They have to compete in this marketplace.
Got it, sir. Fine. Other question is actually two on life and one on general. For life insurance, just wanted to understand the net impact, the gross impact up to INR 288 crore which we have taken with respect to COVID in the current year. It will be the number net of tax will be flown through EV as a negative mortality experience, is my understanding right? Second, just wanted to understand in this INR 304 crore of outstanding provisioning with respect to COVID, how much is IBNR or is it complete IBNR only for the claims which are completely reported in June, expected to be reported in June? Else you have provided anything beyond June also in this INR 304 crore number. That's the first question on BAGIC.
Second question, I just wanted to understand the banca channel mix, if you can provide Axis Bank and especially the new banker relationships like RBL, IFB, KVB, how much they are contributing on incremental basis.
I think the first question I will give it to Tarun, and the second question probably Bharat can give you a flavor on paid versus reserving, plus how the general approach towards reserving is adopted by BAGIC.
Sure. Actually, conversely, may Bharat answer the first one.
Fair enough.
Yeah. Basically this 288 number, the net impact on the PAT is INR 255 crore for the quarter. As we will be declaring our EV on a half yearly basis what we have agreed, that will also flow to the EV as a net worth change. With respect to the overall outstanding of INR 304 crore, this is the net amount which we are carrying, out of which INR 98 crore was as of March 2021. In this quarter we have created a INR 206 crore of additional COVID reserves. That extent, INR 304 crore is the net amount which broadly in terms of the gross claims can support up to around INR 425 crore-INR 430 crore of claims. Those are the two numbers. In case any specific I can answer that also.
Basically, given the said around gross claims of INR 117 in the current quarter, so we can safely assume that around claim of 0.5x- 4x kind of a number could be sufficient from that INR 304 crore number what you're sitting on the balance sheet. That's the way I should read it, right, sir?
Yeah. Basically what we have done, we have looked at our quarter, the past experience for this quarter, what Sreeni also mentioned that during the May and June we saw Second Wave impact. We have kind of looked at our various segment level, whether it is GTL, MFI, and retail, and this is our estimate that how much claims can come. Technically it can cover a claim up to maybe July or September, October, but as lot of claims comes with a delay, there is a projection which we have taken. To that extent it is as on date what we think that the potential claims can come. Obviously, it does not include anything on the wave three, potential wave three if it comes on.
Got it. Sir, can you break down that INR 117 crores, if possible, on individual business, group business, and say maybe credit protect business? If you are okay to give that data. Just wanted to understand the way the pain.
Basically, the breakup of the actual claim, that INR 117 crore, that is a gross number. On the net basis, net of RI, the number was around INR 112 crore. INR 101 crore for retail and the balance was for the group. Total claim is INR 112 crore, which has come into the books. If I remove the PAR element and the UL fund value option, then the net impact is INR 96 crore for the quarter. We have INR 96 crore of actual claim and another INR 192 crore net of PAR COVID reserve. Hence total number is INR 288 crore of the total number and net of tax is INR 255 crore for the quarter.
Got it, sir. Perfect. If you can answer that on our banca relationship with respect to new banks and Axis Bank.
On that. Yes. Now we are into a lot more diverse set of relationships and maybe next time we will bucketize these separately and give more details out. Just to mention, Axis Bank is about 18% of our top line. After that, we've got a few partnerships actually over the last three years, which includes four small finance banks, IDFC First Bank, RBL Bank, Karur Vysya Bank and of course, some small wealth grade banks as well.
Right.
We bucketize them in two parts, emerging bancassurance and partnership distribution. Put together this segment has about 10% now with us with various banks contributing too because they're still emerging in terms of the relationship. We've just started getting resources in the last two quarters of last year. They've now started moving and certainly we do want to move towards a highly diversified distribution.
Got it, sir. Out of 42% of the total industry business, you're saying 18% is Axis Bank in the current quarter, right, sir?
Correct.
Okay, perfect. That answers my question. On BAGIC, just one point. A little failing to understand why there is such a gap between NPW and NEP in the current quarter, given the growth has come back. Maybe if it's a slower year, I understand. We reported 9% growth. NEP number seems to be substantially higher compared to NPW number. Is it just contributed by one by 365 rule or something else which we need to understand the difference between NEP and NPW?
Raman, would you like to take that? It's about NEP growth compared to last quarter.
Sanketh, there's no change we've done. It's simply 1: 365. It's based on what we've written in the past. No other reason beyond that.
I think business mix also changes. Some are low retention, like higher corporate business. As the business mix changes, earning rate also changes. This is very far for the quarter. Maybe across quarters it will get normalized.
Got it, sir. Finally on the two-wheeler, we saw a very strong growth. Just wanted to understand the mix of how it is moving to two-wheelers given that we have probably ended up reporting very strong growth. A related item, what could be the likely advance premium accretion which has happened because the way we are seeing strong growth in two-wheeler segment?
The total advance premium outstanding is about INR 1,100 crores as we stand today.
Okay. Two-wheeler mix, if you are okay to share it, sir?
See, we've not been disclosing that, you know, Sanketh.
Okay. Fair enough, sir. Sorry. Yeah. Thank you.
Thank you. The next question is from the line of Bharat Shah from ASK Investment Managers Limited. Please go ahead.
Yeah. Hi. Good morning to everybody. I'm continuing to be delighted by structural improvement in life insurance part of our business and on the general insurance are proving to a wise approach continuous. Those are both most pleasing aspects in the way insurance business, both the businesses are shaping up. My core question is why general insurance given the nature is a shorter term product and especially some segments like automobile are more closer to commodities and therefore this probably is more push oriented. Life insurance and some of the segments of the general insurance should be more pull oriented and life insurance in particular being a longer-term contract, the solidity, reliability of the insurer are very important issues from the perspective of the customer. On the other end, when I see the brand building effort, I see mostly by aggregators.
We see advertisements by some Policybazaar and others all the time. It somehow, this is a comment of the industry in general, not just Bajaj Finserv, but it gives an impression that aggregators seems to be becoming the brand, while actually the underwriters of insurance contracts are kind of into the background. I was curious to understand the brand building direct pull factor, relationship creating nature of the insurance rather than being pushed as a commodity, and where the power then over the period time shifts to the aggregator.
Yeah, I heard that. Bharat, your point is valid, If you see across the world, largely, life insurance is a push business. Basically, distribution is a very important component. While some segments of non-life tend to become pull businesses over time, especially motor insurance, because it's bundled with and it's statutorily required, there is some amount of pull. Health insurance in certain times when there is a scare factor, it becomes a pull business. In life insurance, it's a long journey. Over time, I think if you compare what life insurance companies are doing now with what was happening five, seven years ago, they have made significant improvement in customer experience, significant improvement in disclosures to customers in terms of the ease of buying, the ease of owning, in terms of digital processes.
I think it is not comparable at all what was happening seven, eight years ago and what is happening now. Even if you see the misunderstanding complaints and all have come down quite substantially. Over time, retention is very important. How much you are able to retain in terms of persistency of the existing contracts. Plus, are you able to get more money from the existing customers? Because that is the ultimate sign of a pull business. I think on all these fronts, for example, our Bajaj Direct, which is a channel we set three years ago, is working quite hard. I think their persistency's are very high. We are working on portfolio management type of structures there. We believe that we continue this effort. Over time, we will be able to acquire more customers, keep them, and also get more money from them.
Unfortunately, in the case of life insurance, the role of bancassurance is very high. People tend to keep a lot of money with banks in terms of wealth management, PMS, and various other things. Therefore, banks have the data edge. They already have customers. They already know about them. They know their spending habits, their saving habits. They tend to have an edge, and therefore, that channel of distribution is very important. Having said that, the banks are not going to give it cheap either. They have a choice of 23 odd life insurances, and they have a chance to play with them. I think this will evolve. That is my take on this. In terms of the aggregators in life insurance, I think largely on term life and all, they will do much higher. Their share of the total market is still not very significant.
It may be under 3% or 4%. In terms of general insurance, yes, in motor insurance, we have seen in U.K. and all that aggregators do tend over time to dominate the new car purchases. In India, it is still dominated by OEMs, and we have a very strong presence there. Tarun, Tapan, would you like to add anything to that?
Let me just chip in. Bharat, it's an interesting question, brand building is particularly close to my heart in the life sector. You are right that it is a very critical component, particularly of the life sector, because a building of a brand requires lots of elements that come in. I think that's where the nuances also play out versus the aggregator and the various manufacturers. For example, the best way of building a brand is experience one customer gets with you with the transactions. Now, unlike banks, NBFCs, and the GI business, LI is not very heavy on transactions. Experience is what you see on a lesser action basis. Every interaction, whatever little they have with us has to be stick and span, has to be really convenient. As Srini therefore said, that therefore the investment in marketing platforms becomes critical.
The difference between what you're talking about aggregators and the manufacturers, and I'll answer it for manufacturers in a generic way and maybe a little bit for us, is that the aggregators usually want to go on mass media and their job is comparison. They're just comparing. They just want eyeballs coming. The moment the eyeballs come in, the brand of the manufacturer comes into play. Of course, there is a pricing element given the fact that it's a very narrow product that is at play. The difference between us and the aggregators is that our spends are quite wide into channel marketing into multimedia, which could be a lot more digital, could be a lot more specific to the segments we want to get into. For example, in BALIC, we actually have been spending a lot on marketing.
It may not be visible in general to everybody, but I believe we are making impact in the segments that we want to. As an example, in this quarter, when I talked about it a little bit, we were largely focused on building the brand on the annuity side of the business, which we introduced in the last quarter as a product. Last quarter of last year. This has really paid off. It's 12% of our this quarter business. Actually, we've got a good ROI on that investment. We've been investing in platforms. We've been building in experiences that customers get. We've been building on the data management behind it. As a result, in fact, we've been spending a lot on marketing. Whether it is a mass media and all that usually is the media mix that we intend to play with.
Usually for us, the first quarter is not the best time to get onto the mass media. Usually it is not justifiable on the number of transactions you see. While as you know, the aggregators may actually be looking for various, they may have various reasons. They may also be going for listing. Which may not be the case with us. The reasons are different. Our overall underlying bit is that when somebody looks at a life insurance product, we should be present at that very moment through the right channel, with the right motivation for the right, whether for the distributor, right knowledge with the distributor, and the right offering for the customer. That takes a 360-degree way of looking at service marketing, which is very different from what you see played out in the mass media. It is classical service marketing.
Tarun, would you just like to highlight that Life Goals approach that we took three years ago and how it's?
Yeah. Maybe I can talk about that as well.
That underlying-
We changed our entire tack to Life Goals and Life Goals enablers. That requires a very systemic investment over a period of time, and we've only been increasing that investment. What we have been focusing on is product marketing, particularly for various Life Goals segments. Now we've, like I said, we're into all the relevant segments with the annuity business falling in place. That is what we will intend to do for the next five to seven years. We're very clear about that. Our platforms are going to do the speaking a lot. The other bit, if I might add, is also how we go with pre-approved offers to existing customers. That's possibly the most efficient to keep our cost of acquisition low.
That is something if you're not a customer of ours, of course, you need to buy a policy, Bharat, and then you'll see us more often. These are very targeted marketing plans. I hope I've answered your question.
Sure. If I take each of those elements, I mean, three critical elements. Platform is a way of distribution and mechanism, customer experience and service help being enhanced by digital journey and brand building and pull factor. Customer experience part, I understand what you're saying. I also understand the platform building efforts to widen and deepen distribution capability. I'm seeing soft touch aspect of building the brand where not just the existing customer, but a potential new customer is favorably inclined towards insurance brands rather than being just mercenary basis sold only through the distribution mechanism. That brand building such an effort that whenever a particular prospective customer is ready, he kind of thinks of first name of recall, let us say, is Bajaj Life Insurance solution. That brand building effort I am seeing seems to be not visible.
Not just for BALIC and portions of the business of Bajaj. In general, for the insurance industry, it seems to be kind of hinted over long period to the distribution channels, or at least that is the impression I’m having, maybe wrongly.
I think there is nothing right or wrong in this, Bharat. All I would say is there is an X amount of money to be spent and Y amount of output to be taken out of that. We have to balance out over here and over the life of our offerings how we play this. This will vary, but if you are seeing it as a trend for all life insurance companies, lots of life insurance companies are sitting with pots of money and they're not really investing, there must be some logic behind it. That's what I will only just allude to.
Okay. This is Tapan here. Yeah, if you look at it, Bharat, in terms of brand for Bajaj and all the brand reports you've watched, that Bajaj brand is rated as the best brand in the general insurance market, way above from other brands. By independent reports, whenever you get a hand on that, you'll be watching that. One of our philosophy has been, because if you look at the general insurance industry, claims happen. The frequency of claims is high. Our obsession has been that we should be the best claim payers in the Indian market. If you see over time, all the awards that we've won or all the rating that we get, we are rated as one of the best claim payers in the Indian market. That is what our obsession has been.
For us, our product is not that we are selling a policy. Our product is that we're settling claims in the best possible manner to our customer, in the fairest possible manner, and the best claim experience should be there. We've been doing it consistently, and that is why our brand has a very strong recall in terms of where we are. That is the point when you say even if you have aggregators in the market, aggregators can only sell policies, and they can do a price comparison. But the experience of the policy when a claim happens is up to the manufacturer, and that is where the difference comes in. That is where as Bajaj Allianz General Insurance Company, we are focused very high on that.
If you look at all brand reports, you'll find that Bajaj Allianz General Insurance Company is way above any other brand in terms of the general insurance industry. If you look at our claim settlement and the positioning in the market as far as claim settlement is concerned, and you look at any kind of survey reports or any kind of thing, you'll find us among the best in terms of doing that. It's a combination of it because in general insurance you have claims, you have experiences, and the moment of truth keeps on happening. It is how you focus on that.
That is precisely why if you're a good claim settler and you do it very fairly, I don't think there's a major threat from aggregators per se because they maybe will sell a policy at a much cheaper rate, but when an experience of a claim happens, that is where the moment of truth happens, and that is where good companies get differentiated from average companies.
Sure. No, appreciate. Just one last small point I'll make. From all that I heard, what I surmise is that brand building effort is part of our conscious recognition, and it is something that we are focused on. Brand building is not something left as an accidental happenstance, but it'll be a long-term kind of a conscious strategic choice. Secondly, the brand building spend and the efforts are in sync with the return on investment or ROI equation compliant. Is that a fair way to summarize what I heard?
Yes. Bharat, I think you were spot on. Bajaj has chosen Life Goals as their main plank on which they will deliver all this. Bajaj has chosen care as the main plank on which they will do that. In the short run, customers will take time to appreciate it, but investment into these brands will continue. Not just through the traditional means that you may not see too much on the above the line TV and other media advertising, which are very short recall nowadays, but we spend a lot on digital marketing, on mobile apps, through multiple channels. I think it's fair. Anything to add, Tarun, Tapan, on this?
No, I think-
Sir, Sreeni.
No, you covered it quite well, actually, Bharat.
You actually summed up well, Srini, in the initial stage also, and what Mr. Bharat said also is right, but insurance brand building is something which is very interesting. Unlike maybe an FMCG brand building, an insurance brand building requires trust, and trust does not happen in a microsecond. It is led by demonstrations over time of what you have said and how you stood for it. Over time it gets built. If you look at powerful insurance brand across the world, you will find most of them have stood the test of time and delivered to customers over time.
I think this is where that is relevant, and if you look at what Tarun said or what I spoke about, I think if you try to look at that angle, that comes out very clearly that building long-term trust, staying true to our commitments, delivering on the ground and being with the customer in times of need and ensuring that they have very good experience is what builds a long-term brand. Along with, obviously, the activity that we do for marketing, which is there, and digital is what we've been focusing on a pretty high note. Simply because if I look at customers today, I think they watch more digital views than on television. I think that is what the research also is showing. It's a combination also. We also use television. We'll keep on building it.
Insurance brands over time become very powerful if the commitment to what they have been promising has been there.
Right. I think all of us have added significant to that and one of the very interesting question that was, which is why you see the answers coming in from everybody. Maybe I'll just close with just two statements here. For services, number of times your brand is as good as your last interaction. That is one statement. Which is where what Tapan also said was very important, the way you pay your claims. The second is the Bajaj brand. I think there is enough trust behind that in any case. I think we ride on both.
Sure. No, appreciate. Okay. Thank you and all the best.
Thank you, Bharat.
Thank you. The next question from the line of Hasnukala from CNBC-TV18. Please go ahead.
Yeah. Hello, thank you very much for giving me the opportunity to ask the question. My question was pertaining to the digital initiatives which are being taken by the group. Now, what I feel that individual company has done a work on digitization, automation, and things like that. Bajaj has done separately, Bajaj has done separately, Bajaj Finserv has done separately, Bajaj Finance has done separately. Now you are, I think, probably trying to put everything in Bajaj Finserv Direct. That is what I would like to know.
Let me get this clear on this aspect. One is, you see there is a fundamental difference between some of these businesses. If you look at insurance business as compared to, say, the lending business, the lending business is largely, I think customer comes to there because they need money. You buy a house, you take a home loan. Therefore, when the customer comes in, the rest of the entire investment goes into how to keep the customer there, how to make them use Bajaj Finance when they need money again. Now the new transformation will also ensure that while they are in our ecosystem, they keep getting engaged through the acceleration of the payments and other platforms that they are building. In the case of insurance, it's a journey.
Once the customer come, he can't say that, "I don't need insurance tomorrow." Most of the insurance, they have to stay through their life, whether it's health insurance, life insurance, or even car insurance, throughout as long as they own a car. Therefore, the approach has to be different. Insurance continues to be heavily intermediated businesses. There's no need to look down upon intermediated businesses, whether it is agency or bank insurance. We have some fantastic intermediaries who actually deliver substantial value to both the customer and the insurance companies. Therefore, the approach has to be different. At the back end, we do have, at the group level, through the efforts of Finserv, councils where technology partners, where they discuss technologies that are happening, where they also share best practices across the technology teams.
While we allow companies a substantial amount of freedom in doing what they want, at the back end, they also collaborate quite a lot in terms of the platforms and the resources that they use. The individual strategies and delivery is obviously left to the companies. Finserv Markets is not a digital platform for the group. Initially, when we set up the company, there was a thinking like that. It is an open marketplace. To the extent that there is some commonality with Bajaj Finance, they are providing the platform to Bajaj Finance. In terms of insurance, they would just be dealing in APIs. The insurance company's role is largely to provide the APIs, the risk algorithm, the products, and the customer insight will remain with the Bajaj Finserv Direct. It is not a technology platform for the group.
It is the front end of a digital marketplace. I hope I got that clear.
Now, we said in our press release that we are contributing INR 342 crore and Bajaj Finance INR 284 crore. All the initiatives, to take them to the logical conclusion, how much more capital we will have to provide and whether we will go down below 20% or 19.9%?
See that over time, we have to see how this business is still a start-up. The next two-three years are very critical. Whatever numbers we have seen in our stock exchange communication indicate this is the expected amount of capital that we feel will be required for this year and the next year for Bajaj Finserv Direct. There are two segments to it. In this business, you have to continue to invest in new capabilities, new investments, new partnerships. At the same time, the existing customers who come in, they need to be in the ecosystem and transact with us across the entire marketplace, whether they want to. It is like a supermarket. You can get loans, you can get credit cards, you can get insurance, you can buy investments and even participate in the e-store.
This is the marketplace. You'll have existing customers, and so they will look at it both differently. As customers come in, they will increase the engagement levels with existing customers, offer them greater choices, have campaigns or whatever is needed to do that. There will be a new investment required till it reaches a scale and what we call a normalized level of growth. As of now, this amount that we have mentioned should be sufficient for us for the next two years. Even now it is, I would say about 50% R&D and 50% business. We have seen the green shoots, which are quite substantial, and we like this business quite a lot. We will continue to invest. Now in the future, all possibilities are open.
Will there be other kind of partners entering this? Maybe. What type of partners, what capability they bring, what purpose they're coming in. This, we have not taken a decision at all on this. I think our mind is open. This will remain an open marketplace and we will build it up to the scale that we think is good. Obviously, as a business, there are a lot of risks and we will play it as we go along. You have the manufacturers at the back end. You have this marketplace at the front end. Underlying all this is the Bajaj brand of products and long-term value.
Okay. That's fine. My second question is on margin. Do you have any rethinking on the crop? We didn't write any crop in this quarter.
No, first quarter there is no crop. Basically, kharif season starts in July.
Gotcha.
Rabi is in January. I think Tapan can give a flavor on that.
Yeah. If you look at crop insurance, this quarter the next one, you will see a pickup here happening. See, it depends on how the tenders get done, how the announcement happened at the government. Like Maharashtra came in later this time. Earlier they were not planning to come in. Obviously, the announcement came a bit later. You'll see the booking happen this quarter.
Okay. Thank you very much. Wish you all the best.
Thank you. The next question is from the line of Nitish Jain from Investor. Please go ahead.
Thanks for the opportunity. Sir, firstly on the life insurance, two questions. One is, our margins have improved quite significantly over the last two years, around 12%-13% VNB margin. Some of the companies which are having bancassurance partner are operating at around 25% margin. Do we think that over the next three-five years that the gap between our margin and some of the larger players can reduce over a period of time, given that our product mix has now already been stabilized quite a bit from the high margin products like protection and non-par has already been forming a decent share of our product mix. Do you expect the margin gap between our side and large players bridging, and what could be the drivers of that?
This is directionally what we would like. Now, we can't compare exactly number to number because part of the margin is highly volatile, especially on the non-par segment where there is an element of interest rate. While a lot of us have hedged it and tried to reduce that volatility, I think the margins will fluctuate depending on your business mix. Obviously, as part of our first level of transformation, as Tarun said earlier, that's more or less complete. If we continue to grow like this over time, our fixed costs will get absorbed over larger volumes and we should see that the net margin should improve. At a gross margin level, we are already very close to the top four, five players.
The pure captive banks with single partnerships definitely have an edge because they are not offering multiple companies and they have an arrangement between their own group companies. Other than that, I think if you compare with any other multi-level, which do not have a composite partner and who are dealing with independent bancassurances or building up their own agency for their direct channel like we are doing, we think we are already on the right track. Tarun?
I think largely answered by Sreeni. I'll just maybe take a minute more to say a few things. I think Sreeni touched on the fact that as we grow faster, which implies scale, there is still a significant scale that we can achieve, and that's the gap. Scale also has an underlying benefit of productivity getting better, which show up in bottom line. Product mix, we are largely there, but now we have to figure out how can we take more out of this. The other movement is on the customer segments, because customer segments do have an impact on persistency and on ability of customers to maybe reinvest and buy more. That is something we still have to work on and we'll continue that part. It's a journey and I think the more and more we get into details, the more we will get better.
Every company is working to its strength, and that's all I would say.
Sure. What would be the provision for future claims from COVID? The provision that we have provided is entirely IBNR or we are also make some provisions for the future claims after Q1.
As of now, I think Bharat has already clarified in great detail in an earlier question. Maybe you missed that. It includes a provision for all the actually reported claims. It also has what we believe using our analytical models, what we expect from the current wave of COVID. We have not planned for because nobody knows whether there will be a third wave, whether that will be intense, how intense it will be. These are anybody's guess. Therefore, as it evolves, we will be looking into those. Having said that, I think one of the great strengths that we have is our surplus solvency. These are difficult times when capital is king, and we have enough of that. We hope that will help us provide the right sort of cushion for this.
Sure. On the general insurance business in the motor segment specifically, if I look from a longer-term perspective of last seven, eight years' data, we have lost a bit of market share in the motor segment. Within motor segment, the market share loss is more pronounced in the motor OD. While I think in motor third party, we have gained market share. Any particular reason why in that segment we have lost market share over last seven- eight years?
There is no specific answer to that question because motor is not very simple because motor has got many, many segments. There are geographies, there are risk policies of different companies. There are smaller players who will get into motor business in a big way because it's the most visible and easier to sell than all others for a startup company. Competition will be more intense there. However, we have been growing in the segments that we like. Yes, last two years, commercial vehicles have been a bit slow on the segments that we like, particularly passenger vehicles. I can ask Tapan to actually add flavor to that.
One way to look at it is if you look at it in the GI business, any company which would start new would start with a motor base. You look at all the new companies, you will see that motor is significantly very high in their portfolio because as discussed earlier, that's the easier business to acquire and move forward. If you see as number of players move up in the insurance industry, the motor market share will get distributed over time. Not only for us, across you will see this happen. The smaller players would gain more market share, and since it's a limited pool, you will see a shift in market share happening. That is not important. The important thing is to see that is the shift happening in businesses which the company prefers to have or not.
Look at Bajaj, we have been a strong four-wheeler player over time, and there we have a strength and you'd actually be seeing that over time in the years, quite a few years, we've gained market share. Some we would have lost, but mostly we have gained. If you look at this quarter, our private market shares, four-wheeler, we have gained substantially.
The other part was that we were pretty good in the commercial vehicle space, in that era, in which we had a substantial market share. Obviously, we made good profits there, which the market observed, and so more players have come to that space. When you have more players come into space, the market share will get distributed. It's a normal phenomenon which will happen for motor business as you progress and go forward. As the overall motor keeps on moving up, I think the industry would keep on gaining from that perspective. I don't think that is something that would be not what we have thought through or seen through. When you have limited players, the same market share will be divided. Bajaj has been a strong retail player from the very beginning compared to its peers, which came to retail later.
Obviously, our retail presence was much, much higher, and from the same pool, other players also tried to move into this. That should be the way to look at this. Does it answer your question?
Yes. On the health insurance, what I see that SAHIs are growing at almost 40%, 50%. Some of the SAHIs have become 10x of our size in terms of retail health insurance. While we have been there for 20 years, they have been there for 10 years. Why do you think multi-line insurance companies have not been able to scale? I know there is a regulatory arbitrage in terms of agency channel, but I don't think that completely explains the differential in scale that they have been able to achieve versus us.
No, I think your question has the answer itself. If you look at the scale of SAHI in terms of premium and look at the agency portfolio, you will see a substantial amount of life insurance in the SAHI agency, if you look at a bifurcation of that and the health insurance space. I think the arbitrage that they have of being able to sell health through any agent is a very powerful arbitrage. We should not underestimate it and not say that it is not substantial. It's very substantial because, see, to build an agent, you acquire an agent, you train the agent, you teach products, you get the agent licensed. It's a task and a journey. Then as the agent matures, and then they start selling. It's a journey when you're building agency. That's why agency is a pretty intense channel to build.
Let's say if you're an arbitrage, you can pick up any agent and start selling your product. Especially, let's say, if I look at the SAHI group of companies and their major agency force comes from the life agency, and they can do without the requisite infrastructure of putting it up. That gives a huge boost. If you look at number of agents of some of the big size, which that runs into INR 2 lakh, INR 3 lakh agents, and look at any general insurance company, the largest one, like among us, they would have 50,000, 60,000 agents, which requires a lot of time to build this force. That arbitrage is big arbitrage, and that does give a huge push to business, which you'll be doing.
There is one more angle to this, is that we are a composite insurance company. Ultimately, in the long run, general insurance is a business of risk, therefore adding property and casualty in the right mix is what composite companies do. If you have a catastrophe in fire, you could make money in motor, or when you have both motor and fire, there are issues. You could have health growing. We saw that last year. A monoline will have to achieve a much higher scale to achieve the same level of profitability. Most of the health insurance business is low float, like motor third party, that kind of benefit you don't get. Therefore, the float benefit is also much lower. They are specialized. It is like comparing a composite player with a niche player because they will be selling only one group of products.
In that they will get more specialization, no doubt. In our case, we will have to continuously manage our risk, and that is what gives us more profitability. If you have seen our combined ratios or our profitability or ROEs of the top Tier 3 insurance companies, we are really up there.
Thank you. It is the last question from the line of Mr. Nischint Chawathe from Kotak Securities. Just please go ahead.
Yeah. Hi. Two questions from my side. Maybe you touched a little bit upon it. On the same point about
Mr. we lost you.
Hello. Am I audible?
Yeah. Now you're audible.
On the same point on the health side, did you consider setting up a health subsidiary separately to capitalize on the arbitrage? Or you probably felt that look, there's just too much of a risk because it's a standalone play, so might as well skip it.
We are adding that at BFS level because as of now, IRDAI is not very clear whether an existing insurance company should set up a subsidiary or not. If you know, some of the mergers have happened also. I think even the standalone company has been merged into the other company. At a BFS level, we have considered that, see, this arbitrage and all is not a long-term thing. At some point it will go away. If you see last few years, the composite companies have also been growing their health portfolio quite well. It is something we considered, obviously we do have a joint venture arrangement with Allianz, those partners we do discuss it, we have not taken a decision to set up another company yet.
Just pertaining to Finserv Direct, where Bajaj Finance. The company is working closely with Bajaj Finance, and I think now Bajaj Finance is also invested in that company. This is a kind of an open access platform where you expect other lenders to come in.
Right.
On the face of it, wouldn't it be like that Bajaj Finance would always have an upper hand over here?
Why would they have an upper hand? See, a 19.9% stake does not give them any upper hand. It is only because of the strategic nature of the platform they are building. For Bajaj Finance that they will share. On the customer acquisition, Finserv Direct has its own decision. They will build their own this thing over time. Obviously, as the company started, they did have the advantage of some things like e-store and all. They did borrow on Bajaj Finance's network. As time goes by, they will start adding more partners to every line of their business. You can see already in insurance they have other partners. Some of them are not partners with Bajaj Finance as well. There are limitations on insurance side because of the regulation that they can't become a broker, but they will go with the corporate agent model only.
Similarly, on investment, they will build. It's a completely different thing. I don't think a stake means that they're not independent. If you see mutual funds, every distributor is open market. Right? Nobody is pushing any particular mutual fund. The stake is not to control Bajaj Finserv Direct. It is only to ensure that continuity of support is there, and the future is they are in terms of the technology, the platform they will be collaborating.
Even in case of future partnerships, the banking partner might kind of consider or you might kind of consider even investor as a banking partner or an industry partner?
As I said earlier, as of now, we cannot take a call because until this company reaches a scale, we may not consider that, but it is not ruled out. That's all I can say now.
Yeah. That's fine.
Yeah.
Great. Thank you very much, and all the best.
Thank you.
Thank you. That was the last question. I would now like to hand the conference over to Ms. Bunny Babjee for closing comments.
On behalf of JM Financial, I would like to thank Sreeni sir, the top management of the insurance businesses, and all the participants for joining us on the call today. Thank you and have a good day.
Thank you all. It's been our pleasure.
Thank you. On behalf of JM Financial, that concludes this conference. Thank you everyone for joining us, and you may now disconnect your lines. Thank you.
Thank you.