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Bajaj Finserv Ltd
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Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Limited Q1 FY '20 Results Conference Call hosted by JM Financial Institutional Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Singh from JM Financial. Thank you, and over to you, sir.
Yes. Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss first quarter FY '20 results. To discuss the results, we have on the call Mr. S. Sreenivasan, CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance; Mr. Tarun Chugh, CEO, Bajaj Life Insurance; Mr. Milind Choudhari, CFO, Bajaj General Insurance; and Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz Life. May I request the management to take us through the financial highlights, subsequent to which we can open the floor for Q&A session. Over to you, sir.
Thank you. I'm Sreeni here. Welcome, everyone, to the conference call. We will be discussing the results of Bajaj Finserv Limited for Q1 of FY '19-'20. As always, it's a pleasure to have all of you here attending this call. In this call, we will largely be concentrating on the consolidated results as well as the results of our insurance operations through Bajaj Allianz General Insurance and Bajaj Allianz Life Insurance companies. Bajaj Finance, which is another major subsidiary of ours, has already had its conference call. However, if there are any high level questions, we'd be glad to take that as well. We'll not be taking any questions on the status of Allianz stake in our insurance companies, except to state that the status has remained the same as of the end of the previous quarter and there is no change. Any statement that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result. As required by regulation, we have adopted Indian Accounting Standards for FY '19. So this year, in the first quarter, our consolidated results are as per Ind AS and the comparable numbers are also as per Ind AS. The insurance companies are not covered under Ind AS. So the stand-alone numbers of the insurance companies are as per the Indian GAAP. Now to give you an update on the performance. During this quarter, the tight liquidity conditions witnessed in the aftermath of the default by ILFS last year did not show any signs of abatement and companies with stronger balance sheets were favored by lending banks and investors. This quarter -- towards the end of this quarter actually, we saw a default by Dewan Housing Finance on a part of its commercial paper obligations. It is in this difficult environment that we have seen BFL deliver excellent results. While both BAGIC and BALIC have recorded strong growth in premiums, their profits have -- were adversely affected by a provision that we decided to take for impairment of their holdings of DHFL fixed income securities. To give you a highlight, our consolidated total income is -- was up 40%, profit after tax was up just 2.4% at INR 845 crores. However, if we were to exclude the impairment provision on DHFL, consolidated profit after tax would have been higher by 16%.Now to give you an update on the provision we made for our holdings in BHFL. Last year both BAGIC and BALIC had provided for 100% of their exposure to ILFS as was reported in the financial statements as well as in the investor calls. As disclosed in the public disclosures of the insurance companies in March 2019, we had exposures to DHFL, which defaulted towards the end of the quarter. However, before they defaulted, we collected about INR 350 crores approximately between the 2 insurance companies on the commercial papers, which were due in the earlier part of June. The companies now have, apart from the INR 50 crores of defaulted CP, NCDs following -- due into quarter 2 and in FY '20 and in FY '21. As a matter of abundant caution, we have decided to make provisions to the extent of 60% of the balance holding as of 30th June, which resulted in a pretax provision of INR 126 crores in BALIC, which is the impact on the shareholders account, and INR 76 crores in BAGIC.Now let me go to the results of our operating subsidiaries. Bajaj Finance has had another excellent quarter, total income higher by 47%, AUM by 41% and profit after tax by 43%. The risk parameters are holding well with net NPA at 0.64%. BAGIC was able to grow its premium by 17% as against the 11.7% recorded by the industry, excluding specialized companies. Ex-crop, BAGIC recorded a growth of 13% in GWP. BAGIC recorded strong growth in fire, up 58%; liability, by 18%; and retail health, by 26%. Overall, motor premium grew by 13.4%, which we consider is very good given the low volume of auto sales for new cars and 2-wheelers. Of this growth, the third-party premium recorded 21.5% growth and the OD premium, which was a modest 4.5%. As a part of the company's plan to optimize profitability, as we mentioned in the con call of Q4 of last year, group health, which was loss making, as shown, we have tightened the underwriting and pricing guidelines, as a result of which the growth is a modest 4.5%, and there is a de-growth in the government health scheme business as well. The profit of BAGIC INR 200 crores was affected by several factors. One is INR 98 crores of underwriting losses from crop insurance, mainly due to crop claims of rabi season of FY '18-'19, which was determined in this quarter. There was Cyclone Fani, which resulted in losses of INR 30 crores after reinsurance. Overall, the business is on good wicket. We have seen an uptick in motor OD loss ratios, 63.5% as against 55.8% in PY which has impacted the underwriting profit by about INR 30 crores as well. Going forward, it is our endeavor to continue to focus on profitability. We will do what we have BAGIC generally is good at doing, which means reviewing every relationship and moderating our business where required in terms of loss-making businesses. Coming to BALIC, we had an excellent quarter on the business front, 17% growth in individual rated premium, 41% in total MPs, 29% in renewals and 35% overall. More importantly, product mix delivered with 22% par, 17% non-par and 61% ULIP in the individual rated premium. Tax, however, profit after tax was affected by the provision for DHFL as mentioned above. However, one good news is that, excluding the impairment provision, the profit of BALIC would have been higher than the previous year, which is, for last few years, we have not been able to record. Since IRDA has come out with draft expanded public disclosures, including the reserve triangles for non-life insurers, we have chosen to publish the reserve triangle as of 31 March 2019 in our investor presentation, which was uploaded on our website yesterday evening. We hope you have had a chance to look at it, and we do hope you find it useful. Let me now open the floor for questions and answers.
[Operator Instructions] The first question is from the line of Bharat Shah from ASK.
Sreeni, well, one broad question, while BAGIC continues to do very good job of risk control and underwriting prudent insurance business and despite the bank assurance part of the life is not really strongly in favor of BALIC, the overall life insurance performance still continues to be pretty robust. But my concern is that lot of gains are getting frittered away by investment side of the business. Ultimately, investment income and the investment written is the key for what the business is, given the fact that float is the key remains bottom line. And earlier, we saw gains being frittered away by investment into ILFS, now some INR 325 crores of Dewan Housing. Therefore, this kind of investment losses can undermine otherwise a very strong business performance. I would like to understand whether the existing investment policies and whether that size of the businesses is really kicking in as it should be doing?
Thank you, Bharat. Let me first say that in the hindsight we should not have invested in ILFS or Dewan Housing. Having said that, I think one of the reasons why this investment was made, I believe a number of insurance companies have exposures to these 2 because under IRDA guidelines, you have to invest 15% of your corpus in housing and infrastructure debt. Unfortunately, because of the lack of available names and overdependence on credit ratings, the investment was made. Having said that, we have taken a full stop of the investment philosophy of both the groups. And by the end of this quarter, we would have redefined the entire investment philosophy for both the groups. In BALIC, it's a little bit more complex. We have the participating funds, 90% of which will go back to policyholders, and therefore, our objective will be to see what is the maximum return we can give over and above the guarantees. In terms of nonparticipating business, which is savings. It is guaranteed interest business. Therefore, we have to manage the spread very carefully, and we can't afford any more such write-offs. And thirdly, on the unit-linked business, which is market business. So there, we had to perform in line with, at least be in the first quartile of all insurance companies, if not mutual funds. And then we have a large shareholder surplus, which we need to now make it work a bit harder. There's no doubt. I think -- and if you ask me, to be very frank, both ILFS and DHFL have been eyeopeners for us, and we have deeply engaged with the managements of both companies, and we are in the process of completely redefining the investment philosophy. Other than that, I cannot say because what is already invested remains there. Some of what we feel is stressed exposures, we would be winding down if we get an opportunity. Unfortunately, in both these cases, we did not get an opportunity after the ILFS scandal broke out. I think there is hardly any paper traded in DHFL, although we tried our best, nobody was willing to buy. However, going forward, we will -- we are redefining the entire way we look at things, including putting in place internal ratings as to whether we should invest or not.
Right. No, that's useful, Sreeni. I just need a broad comment. Growth is a vital part as is the risk control. And especially we've seen in case of Bajaj Finance over the long period of time that both sides of the coin have been always in a very careful manner with a great deal of agility managed, so that the growth has not been compromised as long as risk controls remains very granular and tight and with good deal of agility all the time. In terms of the business, this can be insurance either of both the -- both life and the general. The business part of the risk management seem to be very prudent and strong. It is the risk management and the investment side which gives concerns and worries. And unfortunately, that happens to be the predominant part of the value addition, especially in the general side of the insurance. Given that underwriting profits may be marginal overall, the investment ratings are the key. And therefore, that is also of significant concern that whether there is a tight review and whether the philosophy and the methods are strongly in place to ensure that the overall ratings are not derailed by investment performance.
Right. I agree with you, Bharat. That is why we said we are putting in place a completely detailed review mechanism. And going forward, we'll be reviewing investments much the same way as we do our underwriting portfolios. Particularly in the case of BAGIC, I think our business model which stood us apart in the market was to underwrite prudently, retain well, generate cash flows and invest them prudently. Unfortunately, the last part has taken a bit of a beating over the last year and that has been, as I told you earlier, an eyeopener for us, and we have -- we will set it right in the next 8, 10 weeks. By the second quarter, you should see that we have in place adequate mechanisms.
Also, I hope there are no more hopefully shockers lying around in the investment portfolio.
So we have -- if you look at our L-35 and, I think, NL-37, I think, 2 public disclosures, we are required to disclose any downgrade of any investment security every quarter. Now some of these have not been downgrading as per the regulation and as per the credit rating agencies. There are some other names which are being talked about in the market. But to the extent they have been downgraded, we have been -- we have disclosed that in the public disclosure. That is available. We do have some exposures to Yes Bank. We think as a bank, RBI would take appropriate action to safeguard the interest of the depositors. We do not consider that as exceptionally risky. We do have a couple of other names in that list, which we are watching very carefully, and at the earliest chance, we will exit those investments if we do get a chance.
Okay, Sreeni. One last suggestion. If we see Bajaj Finance outlook after the quarterly result, it is very, very detailed and absolutely, completely illuminating in terms of the profile in the creditor of the business along different lines that it is run and it becomes almost a self-explanatory document. I would suggest that both for BALIC and BAGIC if relatively more sort of value-added details are provided that will make it much more engaging and informative in terms of that output itself.
Sure. We'll take that input, and we will discuss with our management to see how we can improve it. Because there are a lot of public disclosures required for insurance companies, we thought we would not duplicate some other stuff, but I think we will look into whether we can improve the presentation.
The next question is from the line of Hitesh Gulati from Haitong Securities Limited.
I have a couple of questions. Firstly, sir, what is the quantum of advanced premium from long-term motor policies on our balance sheet as of the end of quarter?
Milind?
Yes. We have around INR 463 crores of advanced premium. End of March, we had around INR 319 crores or so. So motor premium improved in this quarter, so INR 463 crores that was here.
Okay. And sir, I'm assuming most of this is again TP only and OD traction in long-term policies is relatively lower?
Yes. The traction is relatively lower. But what I find is that as compared to the whole of last year since the long-term policies were introduced, the offtake for long-term, particularly 3x3 in private cars has improved a bit, while the offtake in terms of 5x5 arena 2-wheeler have slightly gone down.
And sir, can you just, for the sake of everyone, I believe, walk us through the reserving triangle first page that you've given, it's even couple of pages. So I think it's Page 31 of the presentation so -- because what is exactly being conveyed there, if you could just walk us through that.
See, in the first page, we have -- in the Page 31, I think, we have given the as of -- we have given for the last 10 years. We have brought the period up to 31st March '09 and then we have given for every year. What was the -- because we provide on the basis of ultimate net loss cost after reinsurance that is expected to be paid when all the claims have been settled for that accident year. Predominantly, through a third-party insurance is where it takes a very long time for the triangles to evolve. From that net ultimate loss cost, we deduct what has already been paid and what is outstanding as of the end of the period to arrive at what is called the IBNR provision. So therefore, if you look at the first column for the period prior to -- or I'll take the second one, 31st March '10. In 31st March 2010, we had provided 11,525 million as the net loss cost expected from that accident year, out of which 4,158 was outstanding as of the end of that period. Over the period, that loss cost keeps getting adjusted as we get claim experience. So as of now, 9 years later, that 11,525 million has become 10,496 million. The triangle is showing what is paid cumulatively at the end of first year, second year, third year against that provision of 11,525 million. Coming to the next page, we are showing the same net loss cost, and we are showing what is the revised net loss cost. This includes not only what was paid which was shown in the previous triangle but also any change in the outstanding claims, readjustment of the net loss cost. So again, if I take the period 31st March, '10, the column, we estimated 11,525 million. 9 years later, that estimate of the net loss cost is 11,006 million, which means as of today, 31st March 2019, we have 519 million of favorable development. Means out of 11,525 million, only 11,006 million had so far crystalized. These estimates as of 31st March 2019 are based on the available information as on -- which has been updated for all developments which have happened between then and 31st March 2019. Still 5% of my 11,525 million is still available for me as this develops. Like that for each of the accident year cohorts, we have updated and given those numbers. I hope that clarifies your question.
Sir, so basically what you are saying is 10,496 million for year '10 has already been paid [indiscernible]. That's for Q2 [indiscernible]
Yes. We paid 31, yes.
The next question is from the line of from [ HR Gahla from Fenmet Advisors ].
I want a clarification on Bajaj Finance. I could not get a chance to ask the questions. My question was that Bajaj Finance has always been saying that they work a very robust system of Big Data Analytics, et cetera. However, during this last few quarters, the way in which the slowdown has slipped in, do our analyst data and the point of sale people who are present at the place where the loans are disbursed, do they get any feedback as to what is actually happening at the ground level, why people are spending less? Like what has happened is that people did buy a lot of air conditioners because of the extended summer, but they did not buy TVs to watch the World Cup. So like that in some of the items, spending has been there, some of them, it has been less. Now what is happening is that just because now we have got a very stable government, which people have voted, even then now why confidence level is not returning when people are resuming to the normal taking goods on the debt basis.
Let me clarify this. First of all, consumer discretionary spending as evidenced by auto sales for some months now and recently some other discretionary spending, which they don't have to spend which they can delay, that has come up in certain sectors. Having said that, in Bajaj Finance, we have a very robust system. No disbursement happens at the stores where we operate. The entire credit rule engines are driven from the system from analytics. It is very closely and tightly reviewed across every bucket. If you see the type of portfolio performance that we disclosed in our -- in the investment presentation, it is very detailed and it also indicates that we have that much more information. Every month, we have risk decks which go up to maybe 800, 900 individual slides which are reviewed thoroughly by the management team and a segment of that is even reviewed at our level. So therefore, the question of us not knowing does not arise. Now given the situation why confidence is dropping, that we don't know. That is -- we can sit and argue, it's a macro event. There is -- the banking sector first went through an NPA issue, then it was followed by HFCs not getting adequate funding after ILFS. There is a credit event in the market, both ILFS and DHFL. Therefore, the capacity to lend in the market has shrunk. Within the NBFC sector, bankers and lenders are preferring the better quality names, including Bajaj Finance. So we are not facing any difficulty in raising money. In such a situation where cash flows in the economy are down, one would normally expect demand for money to increase, which is in a way correct. But as a prudent NBFC, it is our responsibility to see that we lend it to the type of people who we think will repay. 65% of the loans that we give are to our existing customers, where we know the credit report and, therefore, there is no issue there. And remaining the 34% is something where we had acquired the business and within 3, 4 months you know where they stand and then you keep pruning the business to make it better. So it is not our intention to not to grow. We will continue to grow. However, we will continue -- this is the time when the risk button needs to act with greater force. And therefore, that is what we will be doing. I think over the BFL con call as well as in the TV interviews, it has been very well clarified by the BFL management that we will be tightening some of the underwriting norms so that the borderline cases and the gray areas do not enter into our system. That does not necessarily mean that we will de-grow because we are not consumer durable financiers now. We do digital finance, we do -- we were originally an auto finance company. From that, we have moved on to now 19, 20 businesses. Geographically, we are spread into thousands of -- 1,800-odd locations. Our rural sector is doing well. We do everything from gold loans, SME funding, LAP, everything we are doing. So we believe that our diversified model will help us withstand this much better than anyone else. And we are hoping that the macro situation will improve soon.
Okay. That helps a lot. Now coming to BALIC, sir, how much has been the new business margin because that is one important statistics we don't get in your presentation?
No, we do not publish margins every quarter because in life business, the business is highly skewed towards the last quarter. So therefore, things like your expense overruns and all have a very volatile pattern across the year. We publish it as of 31st March. All I can tell you now is that we are on track to deliver growth in NBV and margins as we stand today.
Okay. Now sir, last year in 31st -- I mean, in FY '19, we had about 6-point-odd percentage as our new business margin. Do you think that, that will grow year-over-year?
Let me give a flavor. If you look at the new business value, there are 2 aspects to it. The new business value before overruns actually increased by more than 50%. And therefore, the margins before overruns had actually increased to about 16.5% or so, which is about 4%, 5% higher than what we used to report 3, 4 years ago. Yearly, our strategy for product mix evolved. The second aspect is the overruns. Over time, we have been reducing it, which is why we entered positive territory in FY '19. Now going forward, I will request Tarun to give a flavor or -- and Raman.
Yes, I think Sreeni has -- this is Tarun here. Pretty much given you the direction that we're on, but let me just add a little bit more. So largely, the NBM starts popping up particularly in the second, third and the fourth quarter, mostly the fourth quarter. But yes, our trajectory is positive. Coming to the mix and what various elements that you have. First, the product mix itself. Now versus last year, our par noncomp mix has gotten more diversified and has only just improved in such a way that the NBM is going to get better. We did not have much of nonpar in last -- first -- last year first quarter. Nonpar is -- adding nonpar, as we're aware, has a better NBV. That should help us more. The other bit that moves the needle in NBV is the mix of channels. Agency is really the costliest channel in India. Now versus last year already, we have a change in our mix now. Agencies which, tell you, about 3 years back was as high as 90-odd percent is -- and the rest was only 8%. So now a lot different. So our nonagency channels are up, close to 40% now in our BALICs in which we have our institutional business, which is growing quite fast, the proprietary sales force, which is the upselling channels, not dependent on any out -- payout of any commissions. It has also grown quite healthy as a channel we set up last year. That was really making, getting the channel mix also towards the lower cost and more variable channels if I may put it.
Okay. That helps a lot. Now sir, the question in BALIC will be that we have got huge reserves of more than INR 8,000 crores. So how will you plan to utilize this?
As of now, we have started paying a modest dividend. It is not our intention to take significant amount out at this stage, a, because the company is in a growth path and because of the product mix, the more proportion of guaranteed business, we think we could use some of it to support the business. Secondly, we are now working out obviously this investment thing, as Bharat said earlier, we are doing a complete review. We want that money to work a bit harder for the company and for us because taking the money out unless we have a need for it actually has no meaning because it only ends up in paying an additional tax in terms of GDP. And it will -- again, we'll do the same thing out here. We are a GIC, so we can only invest in group companies. So we are going to do that every year. As of now, it seems the better option for us is to keep it in the life company itself.
Okay. Sir, any M&A plans?
No. As of now, no.
No plan. Okay. And sir, last question from my side. The stressed assets, either DHFL or any other group, how much is still outstanding which we have yet to collect and we have not provided? Can you give that number?
I'll refer you to our public disclosure on 31st March. I think all the assets are given there.
No. As on 30th June?
30th June will be up -- as soon as the public disclosures come, it will come up.
Okay. So there, the details will be available?
The latest provision will be available. Obviously, DHFL, we have collected a lot of money. So the amount will be less than what it was on 31st March.
The next question is from the line of Haresh Kapoor from IIFL Asset Management Company Limited.
My first question is on BAGIC. We've obviously had some one-off this quarter and some one-off last year. But given in terms of the overall combined ratio and the loss ratios, obviously it's kind of inched up. Could you just help me understand by the end of this year how do you see the combined ratio? Because for the last few years, we have always been in the early 90s or the mid-90s. This quarter obviously is elevated. But do we still expect to close around mid-90s in terms of combined ratio? Or what is the overall outlook for this year?
Has Tapan joined us?
Yes, he's there, Sreeni.
Yes. So if you look at it right, I think our development has been that we write good business. And I think -- and we make an [ earning ] profit. This time, we look at the assets and I think corporate and such. So [indiscernible] on what will it be and not very bad on my side. But we shall continue our endeavor of not going over the market and having an earning profit is what we keep on continuously working on. So if you continuously work on that, I think the results should reflect that as much of what I can say there.
Any particular range will be helpful, sir.
The range is always 100 to 200, and that is our ambition as a company. So we continue striving for that.
My second question is in terms of the DHFL bonds that you have provided for 60% right now. And you kind of indicated that some of the instruments will be getting -- expiring by '20 or '21. But what was going to be the target on your recognition of the above policies then? Are you going to provide it in Q2? Or are you kind of comfortable on the 60% level? How are you thinking about this one?
See, this -- let me -- almost all -- I mean, a lot of insurance companies have exposure to DHFL because as per the regulation, that's about 15% in infra and housing. And therefore, this is one of the investments people had picked up because this was rated to play at the time. Having said that, we have taken a fairly bold stand in trying and providing 60% of our holding. At this stage, we think that is sufficient. There is a lot of news flow coming. There is an interterritorial agreement to be signed by the banks. They're waiting for the resolution plan. And depending on that, we will take appropriate action. If in the meantime, we get an opportunity to recover what we have done, we will obviously not overlook that possibility. So at this stage, we believe 60% is adequate. As developments happen -- because a lot of things is in the media, news. There is rumor. And then some news comes today, and then after 2 days you find a completely opposite news. So we have to wait and see.
Okay. And just in terms of BALIC, just 2 questions on that side. One is from [ this side ], June is obviously a good quarter. We expect liquidity to move up second half of the year. But the only people who indicate anything in terms of the mix -- likely mix of this year, any other projects, et cetera.And second on BALIC side, if you can talk about how the participants' persistency has obviously come out. Last year or two, you kind of had a [indiscernible] kind of things that you started at 73%, ended at 79%. So what is the reason for your persistency being worse in Q1? And do you expect the same recovery, I mean, by the end of this year? Or what is the...
Let me just give a very brief comment to your first question as to the product mix. As of now, we are very comfortable with the product mix that we have. Clearly, one piece which is missing now in this thing is the individual risk product. We do have a product in the market. But the way the rates have moved in the last few years, even what you find 2 years ago seems to be outpriced in the market. And it's something the management is looking at. But now I'll hand it over to Tarun to handle the question on the product mix as well as the persistency. Both Tarun and Raman can handle it.
Yes. So on the product mix, we're quite comfortable actually turning this kind of photograph to you. We have a very clear city-based strategy where, based on the kind of customer segment we have in the city, we go out and put our product mix based on the kind of customers that are there. HNIs and mass affluent who are able to take a higher call on markets and can participate more in the growth story typically are the ones who buy ULIPs. And that's where -- our focus is not just on top city. But also, we -- as you know, we are a little blessed in terms of our spread. We have 620 branches and more than 470 cities. So that is where we are able to manage this with the right selling approach that we've got.Our -- but broadly and strategically, our product mix shall remain balanced. And we referred this year onwards a fair mix of nonpar -- nonpar saving currently. It will move to nonpar protection in the second half. We are expecting an approval as soon as the product has been won. That will be there. Our existing product [indiscernible] to come down. So that is a little of a blip there. Plus the good thing is our entire mortality risk and all of those are looking quite strong. So we are in a lot better now place to sell risk products.Your second question was on persistency. Yes. I am myself not happy with the 73% having come down to 72%, although I must say it's a blip which is intriguing at this point. We expect this to crawl back up. And we are focused very heavily on persistency. Just to give you a little bit more information, March -- persistency last March, which was recorded at 79%, up from 77% the year before, that bucket is at about 80.5% now. So what you see usually is the 13th month. But what really goes ahead, we have a little lopsided aging. Usually, 15, 16 months onwards starts looking a lot better. So I would wait before I pass any judgment on the 73% having come down to 72%. Our persistency buckets otherwise have improved on -- there is 25th, 27, 49, 61. So all of this is looking a lot healthier. And we shall very clearly endeavor to be in the top 5, 6 in the persistency buckets.
Well, then on that reason, what is the reason you kind of said -- I understand it's looking better [indiscernible] 15, 16 months, et cetera. But what could be the reason that there's been such an impact?
I think it's a 1% drop, so 73% to 72%. So you're talking about that?
Yes. No, I'm largely looking at even the [ general ] number. So I'm just [indiscernible] trend because if you look at other players, they do report persistency in terms of there is a quarterly number you attach for the 13th month persistency [indiscernible] I'm just trying to understand.
No. I get that. So like I was answering, we are a little more lopsided on the way the 15th to 16th, 17th month comes. This is a culture change that we're bringing in. Usually, if you have better autopay pickup where -- usually it happens with a very high banca focus, which is in the bank itself. You can just look up the autopay. And then there is no paperwork that is required to take signatures and all of that. So it's a lot more easier with banca companies. So their 13th month by itself, the -- is usually higher, while our 15th month, 17th month gets a lot better.The way to look at it not just from a metrics perspective is 13th month is just an indicator. Ultimately, the second premium that's coming in a month, that's what the way I will look at it. Our second premium will be healthy because our 13th month bucket may be lower than the banca companies, but our second premium will be healthier. So you'll find it coming right back in the 14, 15, 16 months.
.The next question is from the line of Nidhesh Jain from Investec Bank.
The first question is on life insurance, sir. There is a fair bit of increase in nonparticipating guaranteed products. So if you can give some color on what is the level of guarantees tenure of these products' premium payment terms? And how are we hedging this interest rate risks, given sharp reduction in interest rates in the economy?
Yes. The non-par largely is our first product that we launched. It varies between 5.5% to a little over 6%, depending on the age, provided they hold it to maturity. This is largely sold through certain segments of agency as well as through the ID business. It is a high-margin product, but the margin is volatile because it is dependent on interest rates.As of now, our book size is not big enough. We just launched the product last year. Therefore, we are able to completely hedge it through partly paid bonds of very high-quality bonds with companies like HDFC and others. So therefore, we have -- which are at a fixed coupon. The money is called over maybe 5, 7 years, and the maturity is up to 15 years. Tarun, would you like to add to that?
I think you've answered it perfectly, Sreeni. So it's fully hedged on not just a triple-A set of papers but name checks very clearly in place, which is our learning from whatever we've seen in IL&FS and DHFL. We were very careful about everything we're buying.The other is, of course, the cost product, which is a very low-ticket product. So that kind of keeps a check of the amount we sell. So the maximum premium on this product is only 1 lakh, unlike others that are in the market. So this is -- and then this is not a long duration. Our average duration is -- Sreeni said will be in the range of 5, 7 years that usually are -- and the maximum outstanding guarantee won't be beyond 25 years, and that is perfectly hedged.
Sure. Sure. And then just to confirm, the treatment payment term is on an average of 5, 7 years?
Yes. So -- but if you look at the duration, to do more a duration business, yes.
Okay. And secondly, in General Insurance, if you can share the segment-wise loss ratio, that would be very, very helpful. And if not, at least a commentary on ex of crop and ex of this one-off cyclone event. What is the combined ratio movement Y-o-Y?
Milind, would you like to take that?
Yes. Regarding the claims ratio, isn't it?
Yes. Yes. Loss ratio segment-wise.
Yes. I think as far as segment-wise loss ratios are concerned, we find some increase in the 4-wheeler portfolio specifically. And that has contributed also because of some increase in the discounting. So that is one area where the loss ratio has increased. We have also seen some increase in our retail health loss ratio, which we have seen now down, which is getting witnessed in July. Well, I think we witnessed some additional claims particularly during the onset of monsoon and other things. So we have seen some increase in retail health, too. These are the 2 segments, I think, where we have seen some increase in loss ratios. And we also have an impact of the Orissa cyclone, which is Fani. So the net impact on our loss is around 30 crores.
And especially on the on-damage side, we have seen a loss ratio for the, I think, entire industry inching up. So do you think incrementally it will worsen or players have started taking corrective action on pricing?
I have seen some action from the other companies also in this regard. We are also seeing some action being taken even from the OEM side as far as this issue is concerned. So we have seen some, I would say, freezing up in terms of the discounting levels that will be offered by OEMs. So I think there are some segments in the market coming up. So we don't expect it to rise very high.
And just lastly on the expense ratio in General Insurance. It is slightly on the higher side if you look at the last 7, 8 quarters' data. So is there any one-off there or -- any comments on that?
Last quarter of last year, we [Technical Difficulty]
Hello?
Can you hear me?
Yes.
Last quarter of last year, we had said that expense ratios have gone up because we have signed up a large number of banca buyers. This includes public sector banks, private sector banks, big ones like HDFC Bank. And now even Citibank has started kicking off from this year. These require a lot of manpower for it -- before it reaches a certain scale. So in the initial part, you will not find productivities as high as a mature banca relationship.So that investment has already been made. We're already seeing good traction. I think the first quarter we have seen a 35% uptick in our bancassurance business. And over the next 3 to 4 years, we think bancassurance, not only will it grow as a proportion of our total channel mix, but we think it can become a growth as well as profitability engine. It gives us high-quality, non-motor business.There are so many banca relationships, some of them we are starting from scratch. Therefore, the base effect itself should give us good growth. Apart from that, the downside is only that bancassurance typically is the most visible when you have a catastrophe because bancassurance tends to have -- barring some very large losses which may come from corporates, a lot of the mid-sized losses usually happen through funding by banks. And therefore, you'll find that in catastrophes, you will have the bancassurance getting hit. But net-net, I would say over the next 3 to 5 years, we think that should power this company back to higher profitability and growth. Tapan?
You're right, Sreeni. So if you look at the latest structure, we invested not less than what we already invested in banking asset. The investment, this will give return over time for the business [ by month ].
The next question is from the line of Ashish Sharma from ENAM Asset Management.
Just on the BAGIC in your motor, what is the mix between cars, 2-wheeler and CV? And in 2-wheeler, do we do only Bajaj? Or -- I mean this is one clarification on that.And second would be on how do you see the behavior with this new norm kicking in where IRDA has sort of unbundled even the OD component. So I mean technically now, the customer can have 3 different policies. So I mean how do you think the behavior will pan out once those norms sort of come into effect from September 2019?
Milind?
Yes. As far as the mix in terms of the motor business is concerned, around 11% to 12% is coming from 2-wheelers and around 48% coming from 4-wheelers. Remaining around 40% comes from the commercial vehicles and other miscellaneous types of vehicle. So what we have seen is that as compared to last year there is a slight increase in terms of the contribution of the mix from 2-wheeler business. The motor -- 4-wheeler business is slightly lower as compared to last year, down from 52% to 48% now. But the rest of the segments, particularly commercial vehicles, I think they continue to grow in the same manner as per last year. So in terms of mix, I think the 4-wheeler portfolio dominates the entire motor business. And we mentioned that 4-wheeler business also affects the overall performance favorably of [ our subsidiary ].
Sure. In terms of -- I mean is this 2-wheeler entirely Bajaj?
No, it's not entirely Bajaj as such. Basically, we have a tie-up business. But I think as far as other OEMs are concerned, we do not have direct tie-ups. So there is some, I would say, in terms of happening through the [ BSAs ] and the financiers and other things and also through the multiline agency.
Okay, sir. And then on the unbundling of the OD component, how do you see that sort of -- I mean do we see that customers are preferring an integrated plan? Or does the -- and does the unbundling sort of creates further competition and further pricing power on...
Tapan, do you like to take that?
Yes. So if you look at unbundling, it had to come. Last year, they allowed 3-year long-term policies and 5-year policies. They also allowed 1-year OD with 3-year policy. You spend that in the second year. You have to have a separate OD because how would you know? [indiscernible] so I think this unbundling is something which is direct [indiscernible].Okay. If you look at unbundling, it just means that if you want to buy an OD cover, you can buy from one. The company will give you the [indiscernible]. Or you can buy from the nearer company of your choice, which also means that now the ratio which earlier, as my colleague was [indiscernible] will now probably also be OD to OD. And TP to TP also will start coming to play in time to come from pure operation perspective.And broadly, it will not have much impact in terms of how the pricing and how things are moving. Basically, it will be given a nice [indiscernible]. Most customers would actually take OD from the place that they have [indiscernible] most customers. Some will take it differently, but that is fine. So that is a big impact. That's why we have [indiscernible]. The only problem can be that some people may not take an OD policy. So the percentage of people taking OD may not decrease a bit. But that will be only marginal, not very huge.
Okay. And just lastly, if I can. In terms of Bajaj Finserv Direct, I mean what's the road map? I mean some color on that would be helpful, sir. And that will be all, sir.
We will be making a proper announcement later in the year. It is an internal initiative. It will be a digital company. It will focus on selling products across the group. Beyond that, at this stage, we have nothing more to say. There is a lot of research and R&D work going on, a lot of background work going on in setting up that. So we will make a proper announcement once we are ready to launch that company's products.
But this will be launched this year? I mean...
We are hoping to.
The next question is from the line of Anirvan Sarkar from Principal Mutual Fund.
Most of my questions have been answered. Just one question I have on the net earned premium being higher than the net written premium in this quarter. So am I right in understanding that this would be because during the last quarter -- I mean in the comparable quarter last year, there would be a large chunk of premiums that were not earned and that came into this quarter? And what segments would they be if that is the case?
Milind?
Yes. Actually, the change which has happened is in the current quarter. It has nothing to do with the last year same quarter. Basically, we entered into long-term dealings where we had increase in concentrations in certain areas, so where we've entered into a new reinsurance arrangement. And we have to see the long-term premium to the reinsurers.So that is why the net written premium in this quarter is lower because the recessions have been disproportionate in terms of what has been written in the GWP because the long-term premium was sitting on our books because it's clearer to the reinsurers. That's why the ratio is a little skewed. And it also has an impact in terms of the ratios which are derived in terms of the net written premium. Even, for example, I would like to mention about the combined ratio, which is currently at 103%. That is because the expenses and the commissions are being -- the denominator which is being used is the net written premium. And if we look at the complete net earned premium base, the combined ratio is based -- [ staying at 100% ].
The next question is from the line of Mayur Parkeria from Wealth Managers.
Just 2 small questions. One is on a consolidated basis, apart from the insurance and finance companies, there is a loss of 10 crores where others are there. What is that?
No, that is our internal expenses for setting up our Bajaj Finserv Direct.
Okay. So in that company, that is...
We have many of these new initiatives. We call it expenses. We have a strategy with various things happening in the market that we will be spending this money going forward.
Okay. Okay. In BALIC, you have transferred from -- money from the shareholders' account to the policyholders' account 30 crores. For which pool that would be?
Nonpar, I think. Raman?
Yes. It's largely nonpar because of the strain we are getting suddenly because we have never sold so much of nonpar. And because of that, we are getting the strain. And also, the impairment part was setting in policyholders' fund and that's what also appeared here.
Actually, it is -- begins as neutral for shareholders because we transfer it back. And then the profit goes up in policyholder fund and then we can transfer it back to shareholders.
Sir, the last part I didn't get. Can you please explain?
No. It is an income in the policyholder account and an expense in the shareholder account. Then if still that account is positive, then that will again get transferred back to shareholders on the nonpar side. At the par side, it was [ drawn out ].
Yes. But this figure must be net of it, right?
Raman?
Yes. Sorry, no. So Sreeni, what you said is not actually true. That holds true only for the [ UM ] funding we do. But otherwise, this is largely coming from the new business trend, which is coming from the nonpar.
Okay. So there is a loss on the nonpar account, which is what it is.
How do we see this going ahead?
I stand corrected.
So Raman, how do we see this going ahead? Will it continue for some more time?
Until the time we have huge growth appearing in any segment. So for example, in nonpar, we believe that this trend will continue for some few quarters because this product has just picked up. So this trend will continue for the next few quarters until we -- scale is achieved in this line of business.
Okay. Just one -- a little bit more on this. Are we trying to cap this? Or will we have a policy where we cap this loss? Or is it based on the business growth, which we'll first want to achieve a decent scale and then look at this?
I'll take that question. I think we do have a very rigorous planning mechanism. We do a 3-year plan and a 1-year plan. Always, when there is an opportunity in the market, the question is how much do you want to burn in terms of new business strain because it is a very profitable product. So that is the part we take looking at the entire business mix and all parameters of P&L.Clearly, given the high solvency surplus and the excess capital within the Life company, we can afford to invest a little bit more. Our focus is to grow the new business value. And therefore, P&L may be having a new business strain when we have a growth opportunity, and we want to tap it. It's an annual number we just take. I mean you'll have to see what the growth is. And based on that, we will take it.
Okay. Just a very small bookkeeping question. If you see the individual rated new business and group new business, the total does not add up to the breakup. So there is a small difference of only 14 crores, 15 crores, 18 crores every quarter. But I just was wondering if it's consistent there. So if you can just see into that?
So sorry. Your question is individual rated, does it add up to what?
Individual rated plus group new business does not add up to the total new business?
It will not because rated business is 10% for single premium. Yes.
No. I'm saying after the...
So [indiscernible] which we write, it is the entirety of that.
668 crores plus 332 crores is 1,000 crores. But in total, we say it as [ 1,014 crores ].
Yes, because one is on rated basis. So individual rated means where you have single premium, you've rated it at 10%. So if you gross it out, it will be that small component because we write very small amount of [indiscernible].
Okay. It's a small component.
Yes. This will be available in the public disclosure and the revenue account and the premium schedule as to what is the first year premium, what is the single premium and what is the year figures. So you take the...
Regulatory disclosures for Q1 are uploaded?
Not yet.
The next question is from the line of Sanketh Godha from Spark Capital.
Just on crop insurance, just wanted to understand that we had a loss of 98 crores which you mentioned in initial comments. With respect to FY '18 and FY '19 crop, we have underwritten. So it is like the ultimate loss has been crystallized. Or we still can see that loss to come up in subsequent quarters with respect to the products which we have returned in FY '18 and FY '19 on crop?
Milind?
I think whatever we have written this quarter, it was only a spillover of last rabi season, which was a little loss making particularly the [indiscernible]. This will not be carried forward going forward.
No. Because you said that in the quarter, you provided for FY '18 also. So all the losses with respect to FY '19 also have been crystallized in that sense?
No, no. I mean what actually happened [indiscernible] business. There are 2 parts. One is kharif, one is rabi. Now the rabi as -- finally now it's over. Now the kharif's period is going to start. So whatever loss comes through, we provide the product. And then it gets natural.We also [indiscernible] depending on that. The little division from that can happen. So last year, our rabi was back. And that's why this quarter, the result looks a bit bad. We removed the crop losses. And then Milind also mentioned, including the crop losses also, our combined ratio on the earned basis is lower than 100. It is because of when we remove the crop, it's much better. But having said that [indiscernible] you do not have to not bring it, I'd like to say [indiscernible]. So we had a bad rabi and it's reflected here in this quarter. And next quarter, we do think as well it will not be there.
Okay. And I just wanted to understand or just if you can repeat your loss corridor for the crop insurance. Maybe you have said it in the previous quarter on call, but can you give further what are -- how the loss corridor looked for our crop work?And the second question is what is our crop strategy going ahead? How much is kharif and which states have -- what is the kharif? Which states will be contributing to kharif in the current year? And what will be our stance on rabi for the year?
First and foremost, our strategy on crop has always been that our market share of the total business, let's say, about 7% or so will be there. Our crop business [indiscernible] a bit less, a bit more. But we are now trying to be ready to overrate on crop or underrate. Crop is a significant amount of business. It is about 20,000-plus crores kind of business [indiscernible] which means that as a large player, you have to have some play in the cropping, which we do. And we keep it within the limit of our market share. So our strategy on crop has been clear from day 1, and we have delivered very good on that. When we do businesses like crop, one-off there will be bad season. If there is a good [ season ], everything is right, the beginning volumes are large.If you look at our kharif, here, again, diversified our selection of business, spread all across the country. We do that so that there can be one-off -- even a particular business goes bad, we still are protective from that perspective. And the monsoon [indiscernible] it keeps on fluctuating. Earlier, that is good [indiscernible]. Now the industry is going to be good and the [indiscernible]. So we're hopeful that things would come out well.
Okay. And can you just give us the loss corridor details of crop insurance? At what rate does stop loss stop for us -- work for us, sorry?
You're asking our reinsurance delivered...
Yes, yes.
Reinsurance vehicles?
Yes, yes.
A range of stop loss would be working over at 130 or so. Milind, correct me if I'm wrong.
Yes, yes.
And it come backs to us at what level after 180...
[indiscernible] greater details. I think that is all we can confirm now.
Okay. And one more question on Bajaj Life. Just wanted to understand the group protection business what we have returned. What is the contribution of Bajaj Finance and non-Bajaj Finance? And I just wanted to understand whether Bajaj Finance has also started selling savings products for us because one of the other competitors has said that Bajaj Finance is selling -- got into selling things first for them.
Bajaj Finance has been -- has started last year itself selling savings products for us. And group business, not only Bajaj Finance, we do group business with a lot of other partners as well.
If you can share the mix between Bajaj Finance and...
Yes. And we can't provide details in -- or explain. That would not be right.
The next question is from the line of Neeraj Toshniwal from Emkay Global Financial Service Company.
So picking up on the last question on Bajaj Finance selling same sort of BALIC. Anything we are doing for the BAGIC side of it also in terms of challenge from the Bajaj Finance?
Can you repeat the question, please?
So how much contribution is coming from Bajaj Finance in terms of BALIC -- BAGIC channel for BAGIC?
We cannot provide that kind of information. We are one of their major partners and one of their largest partners on the insurance selling side for BAGIC and BALIC.
Okay. Sir, now what is the road map ahead if at all we were to obscure that business...
Bajaj Finance has taken the route of going for multiple partners, keeping in mind the different types of verticals they do and the need to provide choice to the customer. So our objective will be to grow the business that we're already doing with them. And it's a plan that every year, the company and Bajaj Finance, like any other partner, they will sit and work out what is needed to be done.
And are we paying market benchmark rates then? Because I think HDFC Life is a bigger partner for them. So I just wanted to understand that context. If you take the pie, I mean...
This thing is at arm's length. We can't really do business with any partner, which is not at arm's length.
Okay. Got your point. And the second question is on the RD or TP rate increase. What would be our portfolio rate increase? Because we are seeing every portfolio, I think it was a little lower on this side this year. So what would be the blended rate increase for us?
No. We -- Milind?
Yes. I think the overall rate increase is coming around 7%, 6% to 7%.
6% to 7%. Okay. And in terms of strategy, like what -- we have already discussed in the call unbundling of the motor OD or increase of discount already, which is hampering your 4-wheeler loss ratio. Or the -- let's say, for the TP, loss ratio also inched up. So what is our strategy going ahead? And how we are actually targeting to contain the combined ratio below 100 apart from the ex crop, if we talk about just -- which is not in our hand, but definitely if we can have some color? And also on the fire, which I think after GIC has increased the rates. A lot of interest has started coming into that. So any strategy and color will be really helpful.
Tapan, you want to take?
Okay. So I think the strategy for us is always very clear. In the market, we want to be servicing our customers well. And we want -- and write the risk at the price that we see we are comfortable with, be it fire, be it motor. If we look at the GIC rate increase in fire, it is an average increase based on the ID loss ratio, which is there. And GIC reinsurance has the right to underwrite what comes here. And that is why GIC business result in rates lower than the average rate of losses, which is there with the ID. And I think they're writing [indiscernible] what will be good from a company perspective [indiscernible].So the strategy has always remained the same for our company, that we will be customer obsessed; two, we will pick up business at the price that we are comfortable with; three, customers who come to our fold, we will service them very well; and we shall keep on looking for market opportunities where we feel that growth can happen. So that is what we are doing.And like I said, a business built with crop, which are large-scale businesses, I understand that there is volatility in that business. But on a scale of 5 years, it looks like good business. And that is why again [indiscernible] where it feels comfortable with the way it has to go. And our strategy will always remain what's our strategy in the past.
Okay. And on the target towards combined ratio, I mean any color on that?
We want to be and have been a good underwriting company, and we'll just continue that. We're not letting that go. So -- I heard somebody rightly said in the call earlier that the entire industry, its combined ratio is diluted. If you look at the combined duration from last year to this year, it's about 8% to 9% the combined industry has then fallen. And compared to that, I think we have still done reasonably well. We have not seen crop losses come up, which you'll have seen have been a pretty decent result. And as Milind said, our ambition is our combined ratio is still below 100. So we continue being a good underwriting company. That is what we want to do.
Okay. And the last question, how has been our experience in terms of Ayushman Bharat scheme? And any initial comments on that? I mean the changes happening.
Yes. We have always supported the government in all the initiatives that they have taken especially for the insurance sector. So we also support Ayushman Bharat. We have 2 states with us. And it's too early to comment on how the scheme will move. But yes, we want to be a part to -- this benefits the citizens at large.
Ladies and gentlemen, due to time constraint, that was the last question for today. I will now hand the conference over to Mr. Karan Singh from JM Financial for closing comments.
On behalf of JM Financial, I would like to thank Mr. S. Sreenivasan and the Senior Management team of Bajaj Finserv and all the participants for joining us on the call today. Thank you. Goodbye.
Thank you. Thank you, everybody.
Thank you.
Thank you very much. On behalf of JM Financial Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.