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Bajaj Finserv Ltd
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Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Q1 FY '21 Earnings 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 Ms. Bunny Babjee from JM Financial. Thank you, and over to you, ma'am.
Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss the first quarter FY '21 results. To discuss the same, we have on the call Mr. Sreenivasan, CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance; Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz General Insurance; Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance; and Mr. Bharat Kalsi, CFO, Bajaj Allianz Life Insurance.May I request Mr. Sreenivasan to take us through the financial highlights, after which we can open the call for Q&A session. Over to you, sir.
Thank you, Bunny. Good morning, everyone. I welcome you -- a hearty welcome to the conference call to discuss the results of Bajaj Finserv for Q1 FY '21. We had issued our press release on 21st after our board meeting approved the results. At the same time, we had our AGM as well.As before, in this call, we will largely be concentrating on the consolidated results as well as results of our insurance operations through Bajaj Allianz General Insurance, BAGIC; Bajaj Allianz Life Insurance, BALIC, and where material, the stand-alone results of the company, BFS. Bajaj Finance, BFL, which is another major subsidiary of ours is also on the conference call. So 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 companies, except to mention that the status has remained the same as at the end of the previous quarter, and there is no change there.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. Just as a matter of hygiene, to clarify that, as required by regulation, BFS has adopted IA -- Indian Accounting Standards, Ind AS, from FY '19. The insurance companies are not covered under Ind AS. They've prepared Ind AS financials only for the purpose of consolidation. Accordingly, for BAGIC and BALIC, the stand-alone numbers reported below are based on non-Ind AS Accounting Standards or Indian GAAP, as you may call them, as applicable to the insurance companies.Now just to give you an update on performance. I'll start by mentioning generally about the quarter and the initiatives taken by the company before I get into the financial performance. This quarter, as you know, the first full quarter, where much of the business was impacted by the national, state, district, and local lockdowns, so we had different levels of lockdowns. Although easing of the national lockdown was announced by mid-May, many of the large cities like Mumbai, Delhi, Chennai, et cetera, continued to be under a lockdown. This clearly affected sales of motor vehicles across all segments for BAGIC, private cars, 2-wheelers, commercial vehicles. As a consequence, the general insurance industry in general and BAGIC too, suffered significant degrowth in the largest line of business, which is motor insurance.While there has been improvement in June as auto factories opened up, the capacity utilization and sales are still well below full capacity. Travel insurance came to a near standstill. It's a small line of business, but nevertheless, it is a profitable line. So to that extent, it is important. At the same time, we saw good traction in insurance by corporates, mainly property insurance. While there was reinsurance-driven rate increase, as you might be aware, I would like to stress that we have won several accounts in the corporate segment, and we had both volume and rate increases in the property segment.As customers, we were given time by the regulator to -- I mean, customers were given time by the regulator to cover -- to extend the cover under the existing policies until mid-May. And therefore, there was no incentive for customers to renew their policies. BAGIC has been concentrating on employer/employee group health business for the last 18 months or so due to excessive price competition leading to high loss ratios, as has been highlighted in the previous investor calls. BAGIC has also recorded 12% growth in retail health insurance, which is well above the industry average. And as with other major players in the industry, BAGIC had losses from the cyclone Amphan, which hit the East Coast and to a lesser extent, from Nisarga, which hit the West Coast.Now coming to BALIC. In the case of life insurance, we have seen significant degrowth for the industry, more so in respect of equity market-linked business like ULIPs. As we saw after the global financial crisis when the risk environment deteriorates, life insurance policyholders prefer guaranteed products and protection products. This is customer behavior we see across cycles. The major difference this time around is that FD rates are at all-time lows. And therefore, from a return perspective as well as taxability, traditional life insurance products have suddenly become attractive for policyholders.If you recall, BALIC had taken the bold step about 2 years ago of changing the product mix, such that the dependence on ULIPs was reduced, and the company had a more sustainable product mix going forward. And this required major shifts in the distribution. The launch of upgraded term product in early Q4 FY '20 also came in handy and BALIC was able to start making an impression in the retail term life market during the year. Both BAGIC and BALIC were able to utilize their digital properties to harness the best possible under the lockdown scenario when branches were not in operation. Considerable effort was made to reach out to partners, individual agents, retail brokers and point-of-sale personnel. And virtual training programs were initiated to quickly bring them on to the digital platforms and help them to make onboarding and sales pitches on digital media.I'll give you some more light on this because normally, we don't -- we have not talked so much about the digital capabilities of our insurance companies. And I thought this is the time that we enlighten investors on that aspect. In BAGIC, we now have a sort of all-in-one app called The Caringly Yours customer app. And this was upgraded further with more features, more functionalities. And customers were able to handle many of their current needs seamlessly through this app, including the features to facilitate Social Backtracking, we had Doctor On Call as well on this. The app usage was in excess of 2,50,000 active users during the quarter. BAGIC's digital adoption peaked during the lockdown period with about 85% plus digital policy issuance, close to 80% digital servicing and 95% telemedical examinees. Approximately 50% of motor claims and 55% of health claims are being reported digitally. Agent onboarding was completely through the digital agent onboarding app, Saarthi. BAGIC's point-of-sale personnel channel and virtual points of presence were running on fully digital processes even before the lockdown as you might be aware. As a result, during the quarter, BAGIC was able to issue over 3.5 million policies, settled over 1.6 million claims and 700,000 plus customer footprints were serviced. Most of these digital parameters are holding up even post the lockdown.Coming to BALIC. BALIC has enabled and rapidly upgraded the digital tools across the value chain, including those for onboarding of agents, customer buy journeys, lead management, among others. This digital foresight helped BALIC in ensuring end-to-end digital journeys through various tools like LMS 2.0, INS-tab, OTP enabled buy journey, iRecruit, the digital onboarding of agents and POSP and other digital tools like i-MANAGE for real-time information for sales managers and agents. For example, ESampark by BALIC is a platform for ICs and SMs to share personalized and approved content on WhatsApp, e-mails and social media. Although many of these properties for both the companies were already in use, their frequency of use has significantly increased during the lockdown.On the customer service front, various tools are provided to customers to manage their servicing requirements. WhatsApp service with best-in-class innovative features enabled with machine learning and NLP capabilities to understand customer intent and live agent connectability has also significantly helped digital -- digitization during this period. Over 5 lakh customers of BALIC have used WhatsApp service in Q1. Apart from WhatsApp, other self-servicing features such as Life assist App and customer website also empowered customers to fulfill their servicing requirement. All in all, BALIC issued 90,361 policies, which is 54% growth over last year, the highest growth in the industry's growth. Out of the 90,000 plus policies issued in the quarter, term contributed about 37%. Around 50% of total renewals came via our digital assets. BALIC also launched a revival of its Smart Protect Gold, which is the term plan. For instance, a new participating product called Flexi Income Goal and introduced an innovative Systematic In Systematic Out ULIP platform for people to manage their ULIP products. Both companies have been able to do -- able to recruit agents and POSP personnel in fairly large numbers in this quarter. BALIC recruited more than 1,000 agents, about 7,300 POSP personnel, while BAGIC recruited more than 2,000 agents and POSP personnel. Overall, both companies have handed the lockdown situation very well, and as things have started looking up, we hope to see more traction in the coming quarters. However, the situation is still evolving and the pandemic is not under full control yet. We may be seeing more local-level lockdowns until we see a vaccine or a cure develop. Both companies are financially among the most solvent, BALIC with 760% and BAGIC with 280% as against the 150% required under regulation and hence, are financially well poised to weather this crisis. The digital initiatives, the wide and deep distribution and the strong management teams of both companies should help them come out as fitter and more efficient companies.Moving to the financial results. Let me start with a small bit of good news. On June 22, 2020, BFS was included in the benchmark BSE Sensex as the top 30 stocks of the year, of which BFL is already a part of this index since December 2018. Both companies are now thus part of the 2 bellwether large category indices, which are Sensex 30 and Nifty 50.Coming to the highlights of Q1. You've seen -- some of you may have seen it in the press release, but I'll just repeat it for those who haven't. Consolidated total income was INR 14,192 crores, up 16% from the previous year. Consolidated profit after tax INR 1,215 crores, which is up 44% from the last year figure of INR 845 crore. And consolidated profit after tax, excluding unusual items, which I will explain later, was INR 1,459 crores versus INR 845 crores last year, which is an increase of 73%.Among the major material subsidiaries, Bajaj Finance consolidated profit after tax was INR 962 crores, which is down 19% from last year, largely on account of a specific loss provision they have taken. General insurance profit after tax was up 88% at INR 395 crores versus INR 210 crores, and life insurance shareholders profit after tax was up 110% at INR 130 crores versus INR 62 crores.I mentioned about these unusual items. I'll just highlight. There are 2 items here. Since the security -- equity securities held by BAGIC and BALIC under shareholder funds are classified as fair value through profit and loss account, they are required to be mark-to-market when they submit their Ind AS compliant figures for consolidation. While in Q4 in FY '20, this had resulted in a post-tax negative impact of INR 451 crores in the consolidated PAT, in this quarter, it has been a positive impact of INR 330 crores in the consolidated PAT.During this quarter, BFL has also upped its contingency provisions under the expected credit loss method by an amount of INR 1,450 crores pretax and this negatively impacted the consolidated profit after tax by INR 574 crores. You may recall that in the previous quarter, BFL had a similar provision of INR 900 crores pretax, which impacted the consolidated PAT negatively by INR 356 crores. If you exclude the effect of these items of unusual nature, BSF's consolidated profit after tax would have been INR 1,459 crores, as I mentioned earlier, an increase of 73%.A short summary on the performance of major subsidiaries. BFL's AUM increased by 7% year-on-year to INR 138,055 crore. Total income increased 14% Y-o-Y at INR 6,650 crores, while PAT was lower by 19% at INR 962 crores as compared to Q1 of FY '20. The lower PAT was mainly due to the extra provision for credit losses, as explained earlier, of INR 1,450 crore pretax, which is INR 1,084 crore after tax. The pre-provision operating profit continues to show strong growth and BFL was able to reduce, in the period, OpEx significantly and OpEx to NII came in at to just 27.9% as against 35% in Q1 of FY '20.Gross NPA and net NPA, ECL Stage 3, recognized as per extant RBI prudential norms and provisioned applying the expected credit loss method prescribed in Ind AS, as of June 30, 2020, stood 1.4% and 0.5%, respectively. Standard assets provisioning, ECL Stage 1 and 2, stood at 2.73%, including the contingency provision for COVID-19 and just 1.01% excluding that. So overall, the credit metrics continue to be strong. Capital adequacy ratio, including Tier 2 capital stood at 26.4% and the Tier 1 capital was 22.6%. The company is very well capitalized. For Bajaj Housing Finance Limited, a 100% mortgage subsidiary of BFL, the capital adequacy ratio stood at 25.94%, again, very well capitalized.Coming to BAGIC. The gross written premium came in at 19.5% -- negative 19.5% -- 19.5% lower than last year at INR 2,289 crores, mainly due to lower motor premium, lower government health business, where no tenders were issued in Q1 and lower employer/employee group health where BAGIC tactically had sought to reduce exposure. The claim ratio reduced to 68.1% in Q1 FY '21 versus 72.8% in Q1 FY '20. Claim experience was mixed during the quarter, with higher claims in property and engineering, which were affected by cyclone Amphan and to some extent by Nisarga as well. In addition, motor third-party line also had higher claims, mainly due to higher reserves, while some other lines like health and motor own damage had lower claim ratios. While there were lower claims reported in some segments like motor and health, especially in April and early part of May, the uncertainty over ultimate losses is quite high for the following reasons. Motor claim frequencies have started digitally post the lifting of lockdown and are moving towards normal frequency. In respect to motor third party, MACT and other courts have been at very low activity in this quarter. And when orders are finalized, we expect there could be an interest impacts on outstanding claims. Many nonemergency and elective insurance treatments got postponed. And as the lockdown gets lifted, we expect a higher frequency of health claims. And it is possible that auto garages and hospitals, which have lost revenue may seek higher rates once the lockdown is removed and things normalize.One of the major risk for the industry is obviously COVID claims at private hospitals. They are increasing in line with cases reported nationally. BAGIC has only a 4% share of the total nongovernment health business, and it is expected that the share of claims may be similar. Keeping these factors in mind, the company has sort of increased the margin for adverse deviation in its ultimate expected loss provisioning. Reflecting a strong underwriting performance, BAGIC reported a combined ratio of 97.6% in quarter Q1 FY '21 versus 103.1%. This performance is underlined in the underwriting profit, which increased to INR 175 crore for Q1 FY '21 versus INR 9 crore in Q1 FY '20. As a result of the strong underwriting performance and satisfactory investment performance, profit after tax for Q1 FY '21 increased 88% to INR 395 crore from INR 210 crore in Q1 FY '20. I must mention that the lower tax rate of 25% came into effect from the second quarter of last year. Assets under management represented by cash and investment as on June 30, 2020 stood at INR 19,611 crore versus INR 17,466 crore as on June 30, 2020, which is an increase of 12%.Now a short note on crop insurance. The scheme has been modified by the government, as you might be aware from April 1. And the major changes are: a, insurance being made voluntary for loanee farmers; and b, the scheme will be for 3 years. BAGIC has been able to secure good quality reinsurance backing for 3 years and will be participating in the tenders for the Kharif season. Coming to BALIC. Individual rated new business premium was flat at INR 331 crore in Q1 FY '21 versus INR 332 crore in Q1 FY '20, a performance which was significantly better than the market degrowth of 18% and the private industry degrowth of 23%. The performance was aided by the institutional business side, mainly as bancassurance partners, Axis Bank and India Post started contributing. During the quarter, another significant event was the corporate agency tie-up with RBL, which also started producing business in Q1. Group protection new business turnover was lower at INR 89 crores versus INR 399 crore in FY '20. The degrowth was primarily due to lower disbursements by banks and NBFCs through which these products are largely sold.Renewal premium for Q1 FY '21 was INR 958 crore, a solid increase of 16%. Increase in persistency was seen in the 25th month and later vintages. 13-month was marginally lower due to volatility in capital markets and COVID-19-related lockdowns. The -- as I mentioned earlier, the PAT was higher by 110% at INR 130 crores. And last year, the shareholders' profit after tax was adversely affected by a provision for impairment of INR 126 crores, which is INR 108 crore after tax. AUM represented by total investment stood at INR 60,968 crore as on June 30, 2020, versus INR 57,860 crore on June 30, 2019. It is an increase of 5%. So the major -- the landmarks this quarter are the net worth of BALIC has crossed INR 10,000 crores, and the total investments has crossed -- the AUM has crossed INR 60,000 crores.To -- just to close the opening remarks overall, faced with COVID-19 and the subsequent lockdown, the company and its subsidiaries took immediate steps to handle this extreme situation. The company and its subsidiaries are navigating through this challenge with focus on profitability over growth. They are conserving cash, strengthening risk, borrowing long term, strengthening collections and reducing overheads. As a result, the operating companies have strong solvency well above the required capital and are positioning themselves as stronger companies as and when the lockdown eases.Thank you for your patience. And I now open the floor for questions and answers.
[Operator Instructions] The first question is from the line of Bharat Shah from ASK Investment Managers.
I must compliment...
Mr. Shah, can you speak closer to the handset, please? Your voice is not audible.
Yes. Is this clear now?
Yes, sir.
Okay. I must compliment Bajaj Finserv team. This has been a difficult quarter, but qualitatively, the performance has been pretty robust, both in general insurance and even in life insurance, now we are seeing improvement in the shape of things to come. So my -- I have principally 2 questions. One, general insurance, we have seen, in any case, always, there has been a very robust approach to the business underwriting. And we are even seeing investment performance now catching up and improving. So this is a business where at least last 2, 3 quarters, we have once again seen the glimpse of the kind of older performance of Bajaj -- BAGIC, which used to post industry-leading performance all the time. One again, we are seeing that kind of performance coming back in BAGIC. So that's a source of a great delight. In BALIC, again, we are seeing with the change of strategy initiated over a couple of years, some of the key important shape of things to come. So my question is we've seen that individual part of the business is being emphasized, which is more profitable and more sticky, I suppose. BALIC is being deemphasized and rightly. The protection part pleasantly is surprisingly increased to almost about 17.5% of the total APE in life insurance. So all these are very, very healthy and good features. But what I want to know is over 3 to 5 years, how will the shape of things to come? What will be the metrics? And what will be the benchmarks which will be used to incur life insurance performance, BALIC performance over this period? So this quarter is a delight. And we are seeing that BALIC is now getting into a right kind of a shape in terms of behavior pursuing only right kind of business in a proper balanced way. But if you are to view the business over 3 to 5 years, how do you -- how will you define it? And what metrics we should track and graduate?
Okay. So before I pass it on to Tarun and Tapan, who are better -- before I pass it on to Tarun and Tapan, Bharat, good morning, anyways. I will just take a -- broadly, I will give a view. I think your question was, as of now, performance looks good. But over 3- to 5-year horizon, what kind of metrics would you see that the companies will drive to remain as best-in-class?If you know, I think when I start with BALIC, I think 3 years ago, we started on a series of levers we thought will drive the company in the right direction. The first was individual APE growth. The second was persistency that evolved to make small amounts of money over long periods from customers to be able to realize superior NBV and return on capital. The third was focus on NBV rather than NBM because different products have different margins. And ultimately, NBV reflects your volume growth as well as your margins and your product mix. Additionally, we strengthened the management team. So as we look at 3 to 5 years, from a financial perspective, it clearly are the same levers, higher persistency. We would like to see lower cost overruns and therefore, higher margins; and three, a sustainable product mix. Where no one product becomes more than, say, 50%, 55% of the total portfolio, one product line. Apart from that, new customer acquisition, use of analytics and technology and -- would be -- and expansion of distribution would be other key metrics.In terms of BAGIC, as you know, we have had a very robust and what I would call a formidable distribution network, which comprises of a large number of motor dealers running into a few thousands. We have the largest network, we claim, we think, of independent banks who are affiliated with us, all types, national banks, regional banks, cooperative banks. We also have one of the most focused underwriting teams in the industry. And we have continued to focus on combined ratio. The market is very volatile and very difficult to predict because pricing and discounting is increasing, and we are sharpening our swords on how to select better customers with lower claim experience, how to give customers more on various things on that side. And finally, customer experience is something we are spending a lot of time and effort and money on, which -- where we are redefining customers, bringing them into app, more digitization, which is why I took some time to explain the type of initiatives the companies are taking. With this broad opening thing, I would now leave it first to Tapan and then Tarun to take up BAGIC and BALIC, respectively. Tapan?
Thank you, Sreeni. Thank you, Mr. Shah. I think a very relevant question. Now if you look at the general insurance industry overall, and if you look at it historically also, it's a huge distribution-led game. Now the beauty is if from a distribution-led game where customers have to have a conversation with a distributor to buy and customers are realizing the importance of insurance on their own. And that's a very good shift which happens because then they start looking at adequate good products, good pricing and what's beneficial for them. To some extent, you see the shift happening, let's say, for health, where customers are looking at different parameters, and you see the health uptick happening. And I think COVID has also pushed that to some extent. So I personally feel that as customer awareness keeps on going up, this shift will happen in 3 to 5 years' time, where a customer would be more looking into what kind of products he has to have and what kind of protection he has to have. I think that importance to me will be happening. And that is why when Sreeni started his talk, he mentioned about our apps, he mentioned about our digital strength, he mentioned about distribution strength also. I think combining distribution with customer preferences, offering them the best products at the right price and giving them an out-of-world experience in servicing is what we shall be focusing on, and that is what we've been building up, and we have been pushing on this front. And that's when you look at the Bajaj General Insurance Company grievance ratio is among the lowest in the industry. In fact, during COVID times, our grievance ratio dropped by 90%. So not only we have been among the lowest in the industry for a long time, but in the COVID times, because there's still competence and capabilities, our grievance ratio dropped by 90% further. I think that gives me a bit of happiness. So that is what we want to push. We want to push as we move forward, a very good customer experience, which is completely fixed and best. I think that is what we'll be pushing, Mr. Shah, over time.Now while we do this, we shall not let go of our strengths. The strength has been, one, if you look at, we have been an underwriting company, which I've always mentioned, and we continue to be so. We always look at good underwriting practices because as I mentioned earlier also, if you look back a couple of years back, I had mentioned the volatility in terms of returns on investment always keeps on fluctuating. So a company has to be a very strong underwriting company, and they also have to maintain a good investment team to see how much they incur on volatility. But a good underwriting company sustains for a very long time. That's been our belief and philosophy of Bajaj General Insurance Company, which we shall not let go.Second, our philosophy has been the reach, that we should be at every nook and corner of the country because a customer would be moving, and they would be at every place. You can't be just concentrated in one location. And that's why you even see that either what we said a virtual office or through a bank branch network, we are into the furthest and the remotest corner of the country. If you go anywhere, you'll be serviced by Bajaj General Insurance Company very comfortably. I think that has been our strength. We'll not let go our strength of servicing our customers at any place, any point of time, at any part of the country, wherever they are, even internationally, with trigger trial calls, which is there. So that we're not letting go.The third strength of BAGIC has been the claim settlement. If you take any kind of feedback, any kind of matrices or any feedback from your own people who you know, they have all mentioned that Bajaj General Insurance Company is a very good claim settling company. I think that is our obsession. Claim settlement obsession, we'll not let it go, and that is our key strength, which we shall not let go in any circumstances. So broadly put forward, I think a high focus on customers in terms of the choices that he has, in terms of areas we service, keeping our anchor strength of distribution, reach, underwriting, settlement of claims and the handling a customer shall be our key focus for the next 3 to 5 years. And that, I think, is broadly till this thing turns on the way I mentioned, we'll keep on focusing and keep on improving by the day also. So while we look at long term, 5 years, 10 years, we also look at every day and how do we make us even better than what we were previously as we push forward. So I hope it answers your question, Mr. Shah. Thank you for the opportunity.
Sure, sure. And...
Tarun?
Yes. Bharat, thanks for acknowledging the shift that you're seeing in BALIC. Yes, actually, it's heartening to hear this feedback and getting this acknowledgment for the team. Because, yes, we've been through a turnaround, and I do feel that we are now sitting on a strong foundation for the future. You talked about the metrics that you'd like to see or what we would like to focus on. Honestly, they're not going to be very different from what you see in the sector, but I'll get into a little bit more finesse within that. Persistency and a lot has been mentioned already by Sreeni. So it's not going to be very deviant from what he said. Persistency is going to be a very key parameter. It's something we focus on first. And we want to be in the 80s clubs. We are every time just kind of a little shy of that. That's for the 13th month. But the focus is really to get the subsequent buckets also moving. I think we are improving in every part of those buckets. But still, there is a lot more effort that we want to put in there. And that's something that you would see improving as well.In terms of retail APE, no question about it. That is going to be, always has been and will remain, the most important bit to look at. Within that, the critical piece, which normally doesn't get reported, but is the channel mix and the product mix. About 4 years back, this company was 92% led by agency. Now while agency since then, of course, has grown, we are now at about this quarter, 44% agency, and the rest is different channels. The -- and which usually is something that has been the growth engine for most. Bancassurance is something popping up. Our partnership businesses, which are banks and corporate agents, brokers, online players and e-commerce companies is now about 45% of the business. That's a very critical part of our metric that we monitor.Why that becomes critical is that agency, as you know the way it's in India, because of regulation, it is a very high cost and -- a very high fixed cost model. So one thing we always look at is see how we can variabilize our cost more than anything else and bancassurance allows that kind of shift. So that has been a happy bit. Although within that, how we'll be different from the larger companies and these are the bank-promoted companies and some who have given their silverware to other -- to banks to own. We are very clear that not a single distributor is going to be more than 20% to 25% of our business, unlike the larger ones. So that is going to be, I think, once bitten twice shy with agency, which is 92%. So we've learnt our lessons there, and that's something that we'll be very clear. No single bank, no single partner will have a subsequent -- will have such a huge portion that today, the large companies suffer from, I would say.In terms of product mix, it is -- I think Sreeni mentioned it very clearly. We've traversed a journey of being a 75% ULIP company to now under 40%. Of course, it's to do with COVID as well at this point in time. But that's the way we see the ballpark we will reach. And that is a very critical bit. Within that, we'll have non-par term, non-par guarantee. We also intend to look at the health business, but only for a small impact for the next 1 year, but we do want to look at the morbidity risk which we've not been experimenting with. Although I must say that you saw a 17% non-par term, which is, of course, a very healthy one. This was 0 last -- same year last quarter. This is also because of the COVID push and the fact that the rates of term were quite low. The rates have now gone up because of reinsurance. So this will taper down. So let me just, I mean, be very realistic about the proportions of term. This will come down for the sector, and we won't be very different in the next 6 to 9 months. But yes, I'm quite happy with the fact that we were -- this was untested muscle that we were able to bring up. Internally, there are a lot of other bits that impact us to build up these external matrices. Cost efficiency, percentage of fixed cost, the throughput from every salesperson, the productivity, as we talk about, the -- what percentage of business is coming from new products? So are we relevant in terms of our product piece? The way we manage risk, I think that's a very critical part. Some companies, as you would see, are getting aggressive on this. We will always remain conservative. The bane for the life insurance sector globally has not been underwriting, but more guarantees. So very careful of that. And we've put a very robust risk management piece in the last 1 year in place, something that is usually not visible. In addition to that, we're quite strong now on our mortality risk as well. It's is something which was not so robust 3 years back, and now we are as good as anybody else. Broadly I'll leave it there. There's a lot I can still say because this is a very exciting area for us as a group. And we're quite happy the way we are now moving.
Sure. My second question is related to what you just now mentioned. I've always deeply appreciated strong focus on underwriting and intelligent and careful underwriting, both in BAGIC, which we have seen all the time and BALIC also now beginning to emerge with the strengthening of the initiatives over last couple of years. Now I have -- as an investor, I have one dilemma, when I look at underwriting profits, in BAGIC, it's easier because insurance policies are only for 1 year and premiums earned and the claims and expenses logically correlate. And to that extent, we can see what are the underwriting profits and those underwriting profits are probably almost entirely close to the reality. But in life insurance, whatever insurance have underwritten in the past or a distant past may reflect as a claim today. And to that extent, my ability to correlate today's premium with the past claims, doesn't give me a good picture. As far as expenses in life insurance are concerned, they probably will be more closely correlated to the current year premium earning and expenses also will be fairly higher in that year, though, there will be expenses pertaining to the past as well. Now as an investor, I can't really correlate this data very easily and because I simply do not have means to be able to do that. So unless and until the insurance firm computes the real underwriting profit, for life insurance I'm saying, by properly correlating premiums earned in a particular period and some kind of a sense of history of the -- how the past underwriting has been reflected in form of claims, judicious allocation of cost and expenses, both to the new business as well as to the past business, so that we can get a true picture of the underwriting profits. Is there any way we can get a help on this? Because while I'm sure, all of that must be being done carefully, but in a general insurance short-term product of a 1 year easily allows underwriting profit to be closer to the reality as shown. But in life insurance, it is more complicated given the longevity of the policy. So what will be your comments on that?
Bharat, can I take that question?
Sure.
What you say is right, we declare the new business value, which is nothing but the future projected cash flows as made on certain assumptions of persistency, death claims, surrenders and whatnot. Now your question says that did you actually deliver on that? And how do I, as an investor, know about it?
Correct.
That, I think what happens in life insurance is large part of the first year premium, most companies or most products run at a loss. Depending on the product, the strain on new business, we have seen that early when the companies were growing. Then we saw a period of lull in the industry after the global financial crisis, then suddenly the statutory profits, the reported profits went up. And now last few years, you are saying that reported profits are not growing looking at the value is growing for many players in the industry. One of the things we could think of maybe from next quarter, we can disclose how much is the new business strain on our life insurance business, which means that if I wrote INR 100 of new premium, how much is the loss I have incurred on that. To that extent, it might answer your question because then if you remove that loss, equates to how much is the profit from the existing book. Internally, of course, we have models and different metrics we track including how the new business value flows through, and we also have early death claims, subsequent death claims and all that. But they become too statistically complex to actually disclose. I think in the matter of couple of years, if this Ind AS 117 comes, I think it will be required that you show the development of margin in subsequent years. I think that's one of the requirements of Ind AS 117 or the IFRS 7 -- 17. So as of now, that's what I can tell you. And...
Yes, that is...
So an initiative of disclosing the new business strain, which shows that how much sort of new book and renewal book.
Yes, thank you, Sreeni. I think that will help.
And some more data, if you want, we will see what the market is doing as well. But we will try to see if we can give some flavor on our death claims, underwriting capability with term and savings products.
Sure. Yes, that exactly was my intent, and thank you for saying what kind of data can be given because past new business value asset will reflect today as a number whether it was fairly computed new business value or it was overoptimistic or underoptimistic. And that kind of a data over the trend line of the past only you as a company can do. I as an investor have really no capability to be able to actually...
Okay. We did disclose on the embedded value, the variances by different categories. But anyway, we will revisit that and see what we can do.
Sure, sure. Tapan, do you have any comments to offer on that -- sorry, Tarun, do you have any comment to offer?
No, largely, I think Sreeni has commented on that already. The issue is basically two-pronged. We're very different as a business. We just don't write only risk. If you are a, let's say, 90% risk business and a 10% savings, it would have been a lot easier to depict the way you are wanting to know. And the other is our APE is really a long-term APE. So there are enough complications in terms of modeling and reserving at the back end. Hence, it is a very different business. It's not just about underwriting. It's a lot many things that play there. So I'm myself wondering how to be able to answer other than what Sreeni is saying. I think transparency and simplicity are unfortunately something that are alien to life insurance's actual model.
Yes. No, that is exactly my dilemma because good underwriters should get recognized for what they are doing in a careful, risk controlled way, what they are doing should be recognized. Because current numbers can get confused with growth with the way business is being slanted, sometimes too much of non-par, sometimes too much of one kind of a policy, and profits and other numbers can get confused. But core to insurance business, whether general or life, remains underwriting profit as a core, supplemented by investment income and both engines must fire and good underwriting skills should reveal in terms of pricing power, prudence, mix, distribution, balance, persistency, everything. And therefore, through underwriting, profits are identified and provided, then I think it actually results in a better respect and valuation of careful underwriters compared to the others and that as a data point, I mean, much as I struggle, I'm unable to do it myself adequately. That is why this question.
Bharat, one is that actually more than underwriting in terms of risk, it is all mostly predominantly about guarantees. There's 2 things which life companies do, which nobody else does, is actually, one is giving guarantees on investments. That is fairly long-term guarantees on either regular premium or single premium. And the second thing they do is take long-term mortality risk that people will die a natural death, because natural death is also covered by general insurance. Clearly, in these 2, there is a considerable amount of statistical model, particularly in the latter and one has to -- because some of the products are like 30, 40 years. So I may be able to report profits now. But in 20 years' time, the profit is not there, then it will be very difficult to prove that. The other thing on guarantees. So ultimately, it all boils down to how much you want to expose to this risk as a portfolio; b, how do you track it? What kind of external instrument you will use to hedge the exposure, like in the case of guarantees, there are instruments available to exit to some extent. And thirdly, how you diversify your portfolio so that you're not a one-horse race. So fundamentally, we use more management principles and risk principles here and try to control our exposure. That's why you won't see us talking too much about our non-par guaranteed products and offer very fancy returns because we don't think that's a good thing to do in the long run because cyclically, you may at times get caught.
The next question is from the line of [ Hasmukh Gala ] from Finvest Advisors.
Bharat Bhai asked several important questions. Now I will just add 1 or 2 things. Will -- should we start reporting the VNB margin every quarter? Because I think a lot of things which go in the background in the insurance company, which we are not aware of, but at least when you give VNB margin, and if possible, the embedded value, like the other companies have started doing it, I think that 2 parameters will help us to understand the direction which the life insurance company is taking. So what is your view on that, although we are not listed companies, but still for helping the investors to appreciate the results better.
Sure. See, I'll tell you, the reason we are not doing that is because quarter 1 is basically a very weak quarter for the whole industry. And usually, the expenses are upfronted. So it doesn't give a correct picture. And I don't think there's a regulation or any framework under which we can report rolling 12 months kind of margins and all that. So last time we had in the call discussed this, we said we will consider reporting this half yearly from this September. We are still working on it. Hopefully, we should be able to disclose at least interim and to divide the industry largely, it's a half year, half year business. Business starts picking up slowly in July, then it somewhat goes up in Q3 because of the MDRT and the agent reward programs and the last quarter is the tax season. This year, the whole [indiscernible] got upset as well. For COVID, the tax season was extended, the renewal dates were extended. So we are looking into that, and we'll see whether we can disclose it from Q2.
Okay. Okay, that would be great. My second question for BAGIC as well as BALIC is that going ahead, do you expect sizable chunk of claims to come either COVID or non-COVID related like you very correctly mentioned in your presentation that lot of motor claims could come up, health claims of non-COVID-related treatment could come up. So are we capable to handle all that? And how will it affect our finances?
See, as far as finances are concerned, we said we have increased the margin for adverse deviation. So we have made based on available information because there are limited ways in which -- you can't just put something there, you can only do it on existing policies. To that extent, we have -- actuarially what is allowed under the actuarial standards and IRDA guidelines, we have reviewed that and made some provisions. Now exact amount, I don't want to disclose now, but there have been some assessment of each of these risks I told you about.Regarding ability to handle, Tapan, you can take that.
Yes. Okay. Thank you. I think it's an interesting question because this is very relevant in terms of how the quarters will move going forward. COVID, if you look at now, on a per day basis, the number of claims have moved up. In fact, for the industry, it has started touching close to INR 10 crores now, which is there. So expectation, if you look at it that the COVID claims will move up. And like Sreeni mentioned, we have assessed this, and we have made provisions on that basis for insurance right now. As it moves up, we have adequately provided for it, and we don't start losing in terms of where you'll be and caught by surprise.The second phase where we feel that things will come is the third-party part; I think Sreeni mentioned in his opening speech. Right now because of courts being closed, a lot of judgments have not come. And then because of delay in judgment, there would be interest which will be levied. And the claim size will actually move up higher is our belief. And again, for that also, we have assessed ourselves and provided for it in terms of [indiscernible]. The third part is motor own-damage. So because of lockdown, a lot of vehicles had less movement. So there seems to be an advantage there. But what we forget is as the lockdown gets over, and you look at in the countries other than India, where it has happened in the past, let's say, Wuhan, China, if you take, a lot of people preferred to move in their own vehicles, so instead of looking at commercial movement, which means that the number of vehicles on the road increases dramatically, which also means the frequency of accident goes up. So the belief, again, as you rightly know or thought about it, times will come, the motor OD claim will also move up. And that also, we have looked into and understood and see how we should provide for. So the company to your point, we have assessed these 3 big impacts, which would happen in businesses. In fact, some impact would have also happened in the industrial business. But that's because of the -- if you look at the initial Nisarga and the Amphan cyclones, that have already got impacted to a large extent because of the cyclones, which happened, which is there. But predominantly retail line, these will see big impacts, which we have taken into consideration, and we have provided for. So in that sense, as of now, we feel that based on the information that we have, and on judgment, we would be prepared to handle the scenario as it [indiscernible].
Okay. My last question is on the crop insurance, what is your thinking? Like how will we move now, which are the states which we will cover up, et cetera?
That is too micro a question for investor call, I think, but let me give you a broad view on that. If you look at our crop insurance performance, we have been there from 2014 in crop insurance, if I'm right. And every year, we have been able to generate profit. So our segmentation, our picking up the states and our spread of the business has been -- and our hard work on the ground in terms of deployment of people, in terms of crop cutting size, in terms of collaborating with the government, in terms of technology we use, I think we have been pushing ourselves and picking this business pretty well over time consistently. So our strategy remains the same. I think that is what we have done. And if you look at it also, like Sreeni mentioned in opening speech, even for 3 years, the government requirement, we have also arranged for a good reinsurance support in that sense. So this is what business, we really worked hard, understood the business well, and we'll continue doing the business as we have been doing in the past.
The next question is from the line of Harshit Toshniwal from PremjiInvest.
2 questions. One on the protection. So clearly, in Q1, we had a strong competitive pricing advantage, but we have taken the rate hikes in the near end of the quarter. To that extent, I understand that maybe for industry, the volumes might normalize, but our market share, which we saw, how do you think that gets impacted for the balance 9 months?
Okay. I presume this is related to BALIC. Yes. So we had a very aggressive pricing, but at the same time, a very strong underwriting capabilities, which we put forth. See, what we've done is we've increased prices like anybody -- everybody else. And in fact, honestly, we would have wanted to increase more. But I mean there was an informal understanding that companies will not increase more than a certain amount. So now what we've done is we've got both a nonmedical and a medical rate. And we do expect that the price hike will affect the overall business for the life sector, because as advisers could see this coming, they've ensured that they have pushed a lot more term cover as a fire sale in the first 3 months of the quarter. And honestly, with COVID there, there's lot more interest in term, particularly in the lockdown, had exponentially taken up the risk thought process.Now we are going to be focused on term. But overall, I do find at this point our guaranteed products are going to -- are selling more off the shelf and flying off the shelf more. So I do not expect that 17% is sustainable because there was a movement of significant purchase that was happening. Now that is going to get down. So within our own business, there is going to be a reduction in market share there. But nevertheless, it's going to be an engine, which we are already clearly looking at.Plus, we are very mindful of the kind of risks we are writing. So therefore, we are only hardening our underwriting as we are going and gaining more and more experience. So when there's a lot of demand for a product, you have to balance out underwriting as well. So we're going to be mindful of that. As far as the sector is concerned, we'll be broadly in sync with the sector. Does that answer your question?
So it seems like we lost the connection for the current participant. We move to the next question from the line of Lalitabh Shrivastawa from Sharekhan.
Yes, I wanted some -- on BAGIC business. We had -- this is an yearly renewing business. And we, as an insurer would have assumed a certain number of hospitalization days for an average client for a particular age category. And so say suppose we have -- the average cover is around INR 2 lakhs, and we have assumed x as a probable amount of expense claims to be paid. So 2 minus x is what is the margin that we have. Now with the COVID situation, not only the probability of a 2-day or 3-day hospitalization has gone up, the expenses have also climbed, which means that the margins that an insurance company would normally have would considerably come down for a lot of its customers if the pandemic continues the way it is. So my question is that, are we expecting or are we -- how are we planning to address this?
Tapan?
Yes. Okay. Thank you. I think I'm very impressed with all the interesting questions are coming up. Pandemic is a black swan event. When a black swan event happens, a lot of things changes very, very fast. Let me explain 2 things: one side is, where you were saying, that the COVID claims are coming and the expense -- obviously, the fact is the severity has moved up considerably and the frequency also is moving up, which is there. The second place, if you look at, most hospitals, if you heard them, their occupancy is only 35% for non-COVID part of their hospital which they have kept. Because many people are not going to hospital right now because of the fear of COVID. So whatever can be postponed, what does not require urgent intervention, they're not going. So it's interesting. Across the world, the occupancy of hospitals fell sharply in the COVID times. India also, I think 25%, 35% is the occupancy of hospitals. The beds are going vacant which is interesting. While the COVID ones are overflowing, these ones are going empty. So obviously, there is some benefit there of beds going empty based on the previous calculation. That is a relief. And COVID obviously is building up as the claims are moving up. Now Sreeni in his opening speech also mentioned that if you look at our BAGIC share, it's about 4%, which is there. And a company like BAGIC, which has got multichannel, multiproduct, multi-distribution and the widespread, we assume things like this. Let's say, when a cyclone happens, then the property business gets hit. Let's say these 2 cyclones happened early on. The first month itself, we got hit in April and May, these 2 cyclones hit us pretty bad, and now it will build up. So the general insurance business, expect these things. That is why a good insurance company will diversify the product and will diversify their geography also being at different places. Because when a certain event happens, it does not cripple the company to a large extent. Now that is why if you look at BAGIC as a company because of the diversified presence, it is able to handle the shocks pretty comfortably, and it's been tested over time.Now coming to the health part of it. In the COVID part, as you rightly mentioned, now if you see, the severity and the frequency is moving up, and the per-day cases are moving up pretty fast. There are 2 things happening, which is interesting here. Now a lot of home treatments are happening now, which is there. So hospital beds are not available, and that home treatment has a different cost compared to a hospital treatment, and that too happens when ventilators are in place, then the frequency and the severity moves up.Now having calculated that and the uncertainty of that, in our books using the actual calculations as provided by IRDA and the actuarial practices, we provided for these kind of future events will be happening. So that when it happens, we have already provided for it. So we're not caught off by guard. But yes, black swan events are very, very interesting. They teach you a lot, and they take out very, very interesting factors, which is there. So a very good question. And as a company, as I mentioned that, we have looked into this. And we are observing the trend and how the claims will be moving up, and we are providing for that. So we're not caught off by guard. But because of our distribution and our multi-product strategy and our strength in nearly all the products that are in the market substantially, even if this goes out of control, the company will not be hit very, very bad.
The next question is from the line of Dhaval Gada from DSP Mutual Fund.
I had 3 questions. First is for Tapan. This is related to the retail health business. So last year, I understand we set up a separate vertical for this business. And we expected the separate distribution to gain significant advantage on the growth side. So -- but when I look at the market share trends, it doesn't seem to be reflecting the momentum as yet -- just yet. So just wanted to understand when could we see the benefits starting to kick in, in terms of more velocity of sales and the consistent 20% plus kind of momentum on this line of business? So that is first.The second, again to Tapan, is on the crop business. So historically, we've had this philosophy that this is a 7- to 10-year business and should be looked at in cycles. So how does the regulation change impact the overall business model thought process that we initially had? Does it change that or it only strengthens the approach to the business? So just wanted to understand the outlook on the crop business. Maybe you partly answered, but just more clarity.Then the third one was to Tarun. This is on the agency side. So over the last couple of years, we've been trying to maximize profit of this channel by reducing the share of ULIP and optimizing it for other products in order to get closer to where the large size, something like IPRU, et cetera, operate. So just where are we in that journey? And how much more is left to see the benefit on that front?And lastly, again, to Tarun. As far as persistency is concerned, we have been migrating to this one step higher customer segment, more to mass affluent kind of category. But -- and then traditionally that segment offers better persistency is what our understanding is. So why are we not seeing that in the 13-month persistency just yet? Is there some other reason that I should look for to see the benefit come through in the subsequent period?
Tapan, you want to take first?
Yes. Okay. So again, thank you for your question. So let's talk about health vertical. If you look at the health vertical, it is growing at 170-odd percent. But what we have to see also that BAGIC was -- not had started health fresh with health verticals. We already had health in our portfolio, done by our agency and our different distribution network, which is already there. So from a pure health vertical perspective, they will be going well, but the base would be big for them to make a huge impact, which you will see in terms of growth percentage we're talking about immediately. And as time progresses, that would show impact on that basis which is there. So we understand it is not that health started just about 1.5 years back in BAGIC, and that is why if I look at pure health vertical yes, that' going 170% and their growth is going fine. But we already have a large pool of retail health, which is there in the book that we have. So on that, when we add that, this percentage growth looks lower. But having said that, if you look at the percentage, it is still over the industry growth, which would be there from a retailer perspective, which is there. So that obviously we'll continue doing and continue building on that way. So that's a significant line of business, and we keep on working on that. And it depends also, sometimes we go aggressive, sometimes we go slow depending on how the market is behaving and how the underwriting and the profit pool in the market is seen at. So it is not something that we consistently press the accelerator. At times, we de-accelerate also if we don't find the market conducive, and we push it. But yes, we have all the armies and all the distribution network ready to fire whenever we want to fire a particular product in a particular line of business in a particular place, which is there. So that is why you don't see overall a big impact. But yes, it's a channel when you look at, it has an impact which is there.Coming to the crop business. If you look at it now, we have already been close to 5, 6 years. And when I had mentioned earlier, if we look at a longer perspective also and now you will see a lock-in also, and then all the 6 years, if you look at, the BAGIC has been able to generate profit on the business and the next year also, which we have acquired base and tender. And we're in the business. But as I mentioned, these are businesses which you have to work hard to understand, to learn, like any of the business. If you look at BAGIC, not only at crop, if you look at our motor business, we have been able to do a net in profit there. If you look at our property business, engineering business, in all lines of businesses, we have worked very hard to understand business as an underwriting company, and we were able to generate returns and profit on that business.Similarly on the crop also, we have worked hard. We worked on the field. We worked on the claim settlement. We worked on the pricing. We worked on tenders. We looked at loans, the underwriting part of it. And if you look at the number of people we have put on the field, crop would be among the largest in the country that is there. So it's a serious business that we take, and we work on it. And we deliver results on that also based on our core expertise, which is there. And so we continue looking at it, as I mentioned to you. Still, we really find things go out of control which is not there. Having said that, if you look at in the 3 years' move, the pricing has hardened in crop overall compared to what it was last year for the industry as a whole if you see as 3 years' lock-in has happened. And still, there are significant amount of states which are participating in this. So I feel that the business is still going strong, and let us see how it develops. I hope I've been able to answer your question. But thank you, I love the question that you are asking. Thank you very much.
Yes. Very, very interesting questions. You asked me 2 questions, one on agency, the second on persistency. I think the agency one is particularly quite interesting, what you asked was that on the journey of profitability, where are we, and you've taken examples of a few other companies. So I think the agency has been on the path of reformation for the last 3 years. And I think as far the -- there are 2, 3 levers on which you largely work.One is the product mix, which is possibly the most critical lever. The second is productivities, and the third is fixed costs.On the first one, I think we have pretty much ended our journey. We've achieved what we wanted to. We had a bias towards ULIPs. ULIPs need not necessarily be the most cost-effective for companies. At the same time, you want to shift only when you have a customer base that is willing to buy non-ULIPs. I think -- and a distribution which is capable of doing that. I think that transition has been very aptly made and like this quarter itself, I was explaining, that we are under 40% -- well under 40% for ULIPs. But for the sake of comfort, I would assume that -- we should assume that 40% ULIPs, as ULIPs are very customer-friendly, may not be very shareholder friendly, but a very customer-friendly. So therefore, 40% is where we'll keep that ballpark around. So we are in a lot better place now. And among agencies, I think we are as strong as everybody in terms of our ability to sell non-ULIPs, something which was lagging 4 years back. So that journey has ended. But as I was answering Bharat there, the entire bit around the term sales is something which is still now on, and we will continue on that path. So that part of the production will be more gradual. It's a very different kind of selling process versus selling the savings plan.On the productivity piece, I think we are as good as anybody else, particularly if you look at an indexing of -- with the leaders, you talked about ICICI there in terms of ULIPs and non-ULIPs. If you index these products and try to figure out productivity, I think we are as good as anybody else there as the productivity per sales manager gets to a very critical piece.Then comes a bit about fixed cost. And honestly, this journey has very seriously begun, thanks to COVID. And I think we've begun this with so much gusto than I don't think anybody else in the market is looking at. Let me just give you a little bit whiff of that. What we've been looking is -- looking at is to see if we can have a low fixed, high variable kind of a model, where we can -- within agency. So we are remodeling that and trying to see if we can pay-for-performance and work aggressively on that model. A few companies, the smaller companies, have got success in this, but none of the large agencies have been able to even start this process. And I think we'll be the first ones to initiate it, and it's already started -- the path we have already started, let me put it this way. And that benefit will be seen in a couple of years.The second bit is how we manage our fixed costs around admin and home branches. Because given the infrastructure that we normally have to have, we're having a wide footprint like the way Bajaj Allianz Life has that is a fixed overhead that we always carry. Now we huddled up with a lot of consultants, looked at various ways in which the rest of the sector is -- not in India but abroad is thinking about work from home and being able to optimize that. We've basically gone back to the basics that agency business was never really meant for the offices, never really meant for customer walk-ins. But in India, somehow, it has been large agency offices and very little customer space within that. So what we've done is we looked at the combination of work from home, and Bombay is a model where we are trying it out first, where what we're doing is now instead of -- I'll just take Bombay as an example, 16 large branches, where we have anywhere between 2,500, to maybe even 20,000 square foot of space, the area -- customer area gets to be about 150-odd square foot there. So what we're doing instead is, we are -- and everybody comes to the branches, et cetera. But if you look at Southeast Asia, the way it works is that people are more out of the branch and selling than sitting in the branch. Usually in the afternoon, branches are all empty. So what we've done is we are now consolidating 16 to 6 plates. And at the same time, these plates would be in the same range 2,500 to 14,000 square foot, a few properties we own. But the rest of the branches will actually move into smaller customer shoppes. It will be about high street branches, 300, 350 digital branches, where customers can self-service as well. This is expected to have a significant effect on our fixed costs. And we will be using a good mix of work from home. So we want to make this change as work-from-home pitch and culture has just about begun, particularly in BALIC we're quite seriously looking at it. So that is on the agency part.So on the cost bit, the journey has started, just kind of summarize it at the end there. On persistency, you raised a very good point. In the last 2 years, and I'm happy that you're all watching us that the customer segment movement begun into earnest. I think we've -- this will always remain a work in progress, but we are quite well placed. Now you asked this question with a tinge of persistency. And yes, the higher net worth and the customers usually have a better persistency. How we are different from the others, our peers, is that a lot of their customers are gotten through bank branches. Now that makes a big difference. If you're not able to contact the customer, you have another vote of call, another source of data to really go and be able to reach out to the customer. You have alternate numbers, you have got other means of reaching out, another sales team almost at your behest to help you with that.Given the fact that we are a largely agency business, we've had a slight of that problem. But having said that, this was -- this is the year where we will enter the club of 80s. We would have done it in the last year itself, but for what happened in the month of March. But this year, we are very clear that we will be in the 80s clubs, and then the movement begins strongly. We are really going after auto-debit. Usually, our 15th month -- 15th month persistency, which is better than our 13th month, but unfortunately, what is measured is 13th month by IRDA. If you just look at a perspective of the second year premium and not just a 13th- or 14th- or the 15th month because all actuarial models actually look at the second year and not the 13th month only, then we are actually well in the 80s already. Are we the best? No, not yet. As a business distribution exchanges and the customer segmentation is going to be a work in progress all the time, this is going to get better and better. I hope I answered the question.
Yes, this is all very clear. Just one last thing for Sreeni. Any update on the medtech and finserv market initiative? Any plans for FY '21 on those fronts?
No. I think they are -- basically, we are still fine-tuning the model. Clearly, the fintech, refinance, the finserv direct model has already started selling on the marketplace. They're selling loans. But our initial -- I mean, we primarily want to use that to attract new-to-Bajaj customers using a completely [indiscernible] platform for distributing financial products. So they were selling more of loans, insurance. But because of the slowdown in the market, the sales will be a little bit slower than what we thought it was before this year. But for the model to develop, I think it is still maybe more than a year away. But we are very happy with the traction of new customer [indiscernible] utilizing the services. We also have our own payment interface, Bajaj Pay. So we'll wait and see.On the other one, we are still -- it's still too preliminary to make any advance comment. We have started tie-ups and pilots with a few hospitals and doctors, but as things evolve, we will be communicating more information.
The next question is from the line of Abhishek Saraf from Jefferies, India.
So I have 1 question on life insurance. Basically on the non-par savings side, if you can help me understand what portion of this is all the guaranteed products that we are selling that have become so popular right now and seems like most players are doing that. And obviously, the share of non-par savings [indiscernible] 33% and we do acknowledge that on guarantees that it can be a bit risk in the medium- to long-term perspective. So what are the internal tolerance levels for the non-par savings kind of [indiscernible] ? I understand that right now, [indiscernible] obviously the temptation tends to be a bit on the high-margin side as well. But what are the internal checks and balances that we have and [indiscernible]
[indiscernible] at the top before your handset.
Are you done with your question?
Yes, please.
Yes. So see, it's a very good question and a very important one. Guarantees is the one thing that life insurance companies, and Sreeni mentioned that in his starting speech as well. Have to be very mindful of, we've been on the top of this and being very proactive. I can tell you that, I can give you that comfort very clearly. We normally hedge our portfolio well in advance. So at this point in time, if I was to continue to write a similar percentage of this business for the next 9 months or even a year, I am still hedged. So that's the good part. We -- as a group, we are very careful on risk, and that's exactly the way we are looking on. So just to give you comfort, if this momentum continued even till March for us, we would not be in any stress whatsoever or be bothered to go cover more. But there is another point, maybe let me just add here. Till now, we've been covering this risk very comfortably with very high-grade corporate bonds AAA and AAA backed with very strong management, because AAA, we know how AAAs sometimes -- have turned out in the past. So very mindful of that.Beyond that, what we've also done this quarter is adding another layer of comfort through FRAs. So at this point in time, because of the high liquidity in the market, FRAs are actually looking very, very comfortable. One of the reasons where life insurance companies are actually selling a lot many guarantees is because the -- at the back end, they have FRAs to cover this. We've also started doing that despite the fact that we're already well covered with partly paid bonds. What we are already in the process, let me also give you a little bit more comfort, is bringing down our guarantees, although we need not, honestly, at this point in time, because we are well covered, from the first week of August itself. So we're very clear that we want to be more conservative, while other players may not be, but we are very clear that we will be. Instead, what we've done is we've moved our business, and that transition is currently visible, a little slow because the non-par is really flying off, like I said. But onto a roughly path-breaking par product, which again, Sreeni mentioned, FIG, fixed -- Flexible Income Goal plan, this is something that is, from August onwards, going to be a very critical part of our portfolio.
If I can just add, as Tarun said, [indiscernible], if you look at 3 types of products, par, non-par guaranteed and unit-linked, they actually meet 3 different needs of the customers. Par, it gives a low guarantee, but it gives an upside. It is -- gives a lot of protection, and typically, sold with a lot of riders. And this is the product which largely caters to the middle class, and the lower middle class across India. For years, LIC has sold that kind of product [indiscernible] on how profit you can take. But clearly, without doing that, you can't be in business. And in the long run, the infinite ROE business, if you build the results properly and remain in the business long enough.In case of non-par guarantees, there are times when people want guarantee. This is one of those times. The downside for the customer in non-par guaranteed products is there's no upside. That's what you get. It's very clear from upfront. And from an insurance company's perspective, hedge is obviously important. Whatever means you use, use cash flow, natural cash flow hedging, you could use partly paid bonds, you could use FRAs and maybe in future, some other instruments may be allowed.But net-net, what we are like to look at is, when there is a market, you have to expose yourself and this is one segment of customers, who want guarantees or customers who normally want growth may look for guarantees when the market risk environment is difficult. Unit linked clearly is the only product, which has the potential to beat inflation in the long run, although the performance of the Sensex and Nifty, the last 10 years doesn't show it has beaten inflation. But it is one where the customer by investing prudently for the long term, can get both protection and growth beating inflation. So as market cycles change, you need to be nimble enough. The sales techniques required, the distribution required for selling each of these is different. Therefore, as a company, we would continue to be diversified. Depending on the market, we will expose, and at the end of the day, all the risks, we have a balance sheet risk, especially in guarantees, which we monitor every quarter. We have detailed discussions, that internally the company monitors much more frequently. And then we will take appropriate decisions.
Sure. That was quite reassuring. Last bit on it. So is it possible to share that what would be the currently on a stock level, so if I were to compare with the balance sheet number, so what will be our share of non-par in this in the guaranteed product, let's say, as a percentage of our liabilities?
I think we have shown that, I think. It is ...
Yes. It is hardly anything.
How much is non-par guaranteed products of our total retail?
Bharat, would you have the number on the stock flow, I can say, [indiscernible] but non-par will be very, very small. See, with INR 62,000 crores currently under our belt...
INR 3,000 crore is the non-par retail fund portfolio a year. INR 3,000 crore.
That's the accumulated balance sheet exposure?
Yes.
Although a lot of that -- this is the one which is gaining off, this is a large but about almost like 2/3 of this is one written, maybe 10, 15 years back. So that's the one that's going up and maturity is happening there. The new portfolio is pretty small.
Yes. However, we gave a lot of guidelines, you can see this, again, with a lower -- we can start new series at different rates. So that increases the flexibility available to the company to manage the guarantees.
Sure. Just 1 question on the general insurance part. So on our catastrophe thing, so what would have been our losses [indiscernible] Amphan cyclone result?
Amphan and this thing, I think this -- Raman? I think it's about INR 40 crores, right?
Yes. Total exposure is about INR 44 crores.
Yes.
Yes. That is net of reinsurance. Otherwise, on the gross basis, it's higher.
Yes, it will ...
And in reinsurance, I presume that the excess of loss ratio treaty will be there. So our losses are capped at what level in these events?
Yes, our reinsurance treaties, we don't want to divulge too much, but they are structured with multiple layers. And of course, capped treaty is one of the treaties we have. But we have very good protection on our net, and there is a certain amount of risk we take as a company on catastrophes, but there are protections available on that as well. So if you look at the reinsurance commission, the [indiscernible] to do your ratios, you may get some feel of what we are doing there.
The next question is from the line of Kishore Kaushal from Max Life.
My question is for BALIC. Is there any COVID deaths happened out of our customer base? How many claims have been received and how much we have paid for because of unfortunate COVID?
Yes. So there are deaths that have happened, and there's a total amount that is about INR 50 lakhs that we paid.
How much deaths?
9.
9 deaths. Okay. And one more question I have. Briefly tell about retail protection through bank regular pay term product, how our sales have? And how -- can I get some color on that without brokerage?
Sorry, can you say that again?
Briefly tell about the retail protection through bank, regular pay term product, how our sales have?
I think as of now, our protection product itself is only 6 months old. And as you know, bancassurance, some of the banks we are dealing with are basically branch based. We have only started activating them since May. So it will take some more time for us to get more flavor of protection versus non-par and ULIP and all that.
The next question is from the line of Geetika Gupta from First Voyager.
I have a couple of questions on the protection products. Firstly, what standards would you have on the loan protection this quarter? That's the first question.
I didn't really get exactly. You said something on the protection products?
Ma'am, can you speak closer to your handset, please?
Yes. Is it better?
You want to know which channels are selling motor protection products?
Yes. Correct. Correct. What would be the breakup of the standard for retail protection?
See, so the channels that have been selling this more are the online channel and the agency channel.
Okay. Got it. So just wanted to understand the market right now. We've seen a very high growth in the overall segment. At the same time, there's a pricing competition that we're seeing among the various players. Given that protection is a relatively riskier [indiscernible] already the pricing in India is quite low when you compare to the global averages, do you expect the aggressive pricing on protection to continue?
No. I don't expect the aggressive pricing to continue, although I just want to give it a little bit more hue to you. If you look at protection rates and I'm going to not talk 1 or 2 years, but in 2000, and the way they have flown all the way then in 2010, '15 and now. Protection rates have really come down significantly from the time there was no private sector, and they've come down drastically. So if you look at it from that perspective, there's only a little blip that they've gone up. And hence, I would say that from a customer perspective, I think these are still low. Currently, there is a knee-jerk reaction of not buying too much protection at this point in time in this quarter, more because there was a fire sale of low-cost products that have happened till May, June. I expect now that the prices of term plans will only remain high in the last [indiscernible].
Okay. So I just wanted to understand your long-term strategy here. You have been highlighting earlier that our pricing is low, but we're trying to make it up by better underwriting. Once we see the market sort of stabilizing, what kind of advantages could a player like Bajaj have because you already have a larger presence in the market. So how are you planning to compete with them? That's my final question.
I will take it before I hand it over to Tarun. You see unlike general insurance, it is very rare for customers in life insurance to be chased by multiple companies. Because the way the distribution is for life insurance is that the bank has got its customers, it tries to sell it to its customers. You've agents, each of whom has got a set of customers, they try to sell it to those customers. And people are -- I mean, people don't know, right? When a car is sold, immediately, there are means of knowing that somebody has bought a car, and therefore, by the next year, they will all chase that car for renewal. So in that sense, it is not that if somebody is doing better, that we would do worse. Secondly, in terms of term life, it is more or less a commodity. There is no financial value. Of course, we do sell a lot of return of premium products, but no return product as such. And therefore, it is a question of how you manage your distribution, what kind of product mix you have, how do you drive profitable growth on that. Tarun?
Yes. I think Sreeni's answered it to a significant bit. So there is nothing that is going to be suddenly coming out of a magic box on this one. We have dedicated distribution. We haven't been in term for such a long time. Wherever this commoditized product can be upsold, it will be. Our advisers have been passed for this, so they are going to keep selling. The only bit comes in when you require something different from your competition, when you have an open perfect market, which is really the aggregators. In that perfect market, we are as good as somebody else, and there usually the brand plays a big role. I think that by itself will be a strong enough bit for us. When you are just about 2% of the entire life insurance market if I count in LIC, I don't think we require too many -- we need too much of rocket science really to make it work very well, if you ask me.
The next question is from the line of Rishi Jhunjhunwala from IIFL.
A couple of questions, both on the motor side. So one, we wanted to understand basically, if you look at last year, there was a significant divergence or at least growth differential between your motor OD and motor third-party products. But what we have seen in the past 4 months in the lockdown that the decline in businesses -- in both the businesses have been similar. So just wanted to understand the reason behind that, whether it is because of the vehicle mix? Or is it that because of -- impacted by new sales versus renewals? Just wanted to understand that, sir.
Yes. Tapan?
Yes. If you look at it from the lockdown period, most businesses in motor came down, but commercial vehicle came down very heavily. The decline in commercial vehicle was to the tune of 60-plus percentage. Obviously, they would be paying premium when they will be moving on the road. And if you look at our business mix, it's distributed well between 4-wheelers and commercial vehicles, and some 2-wheelers which we have. So a significant drop in the commercial vehicle segment had that number that you're seeing there, because the drop which is there. But as commercial starts picking up again, I think those numbers should get better.
Understood. And secondly, just on the loss ratio. So we have seen significant improvement on the OD side, but we have seen a lot of -- basically, the TP loss ratios go up substantially. Just wanted to understand how -- are there different ways in which you are assuming provisioning in both of these considering the lockdown, and do we intend to see that converge for the rest of the year?
Rishi, I think I answered that early in my opening speech. We did strengthen the margin for deviation. And the longer tail businesses would obviously get a higher share of that. So we still don't know how this thing is going to evolve in terms of both health, motor OD, TP. To some extent, commercial claims may be a little bit easier to predict. So therefore, we'll see as it evolves. So this quarter, we may have some impact of that, but otherwise, we don't see any major trend. Tapan?
Yes. Agree with you, Sreeni. I think you've summed it up well.
Yes. So just on TP, basically, last year, which really had 65%. So do we expect for the full year also that the numbers will be substantially higher than last year?
Never ask a general insurer as to what the claim ratio will be.
This is a too micro question...
It as simple, if you ask me tomorrow, I won't tell you because I don't know whether tomorrow, there is going to be a storm or not.
So I think this is a too micro a question. But as I earlier said that we worked very hard to ensure that, we underwrite well, we pick up good risk and serve the customer well. We continue doing that. So to tell you exactly what the next move would be and how would we pick our business, I don't think we can do that in business call.
The next question is from the line of Dhaval Gada from DSP Mutual Fund.
I just had a question for Tarun, related to the Axis Bank channel. How does life change after the sort of formal announcement of Max-Axis transaction? And any progress that we've made on the credit protect business from the bank or the other channels where we were not given access initially? So just some comments around your thought process on that channel.
Okay. So yes, we got the Axis transaction last October. At the time we got it, we were well aware that there will be 1 major player, and there will be a smaller share given to us. I think that was something that was very clearly told to us by the Axis management. I think they've been very transparent on that from day 1, and we appreciate that. And it pretty much remains the same after the announcement as well. So nothing has really changed for us from that perspective.As far as the channels you talked about, well, we're currently in the liability sale, which is really the new customer acquisition channel, and that's where we are selling only. As far as credit protection is concerned, we've been in 2 zones of Axis, and we continue to be there. Albeit since we've come in, the productivity of these loans has particularly gone up versus what they were earlier. And at the same time, I must say that it's not that credit protect business today is flying off-the-shelf for -- because credit is not being given out at all. So that -- but it's going -- it's really going slowly at this time. These are the channels that we are largely there.
Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Ms. Bunny Babjee for closing comments.
On behalf of JM Financial, I would like to thank Mr. Sreenivasan and the senior management team of the insurance businesses and all the participants joining us on the call today. Thank you, and have a good day.
Thank you. Ladies and gentlemen, on behalf of JM Financial Institutional Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.