Bajaj Finserv Ltd

NSE:BAJAJFINSV

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Bajaj Finserv, hosted by JM Financial. [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.

[Bunny Babjee, Analyst]

Thank you. Good morning, everybody, and welcome to the Bajaj Finserv earnings call to discuss the third quarter results. To discuss the same, we have on the call Mr. S. Sreenivasan, CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance; Mr. Ramandeep Singh, 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 sir to take us through the financial highlights, post which, we can open the floor for Q&A session. Over to you, sir.

[S. Sreenivasan, Chief Financial Officer]

Thank you. Good morning, everybody. I welcome everyone to the conference call to discuss the results of Bajaj Finserv Limited for Q3 FY '21. As before, in this call, we will largely be concentrating on the consolidated results as well as the results of our insurance operations through Bajaj Allianz General Insurance, BAGIC; and Bajaj Allianz Life Insurance, BALIC; and their material, the stand-alone results of our company, BFS. Bajaj Finance, BFL, which is another major subsidiary of ours, has already had his conference call yesterday. However, if there are any high-level questions on BFL, we would be glad to take that as well. We will not be taking any questions on the status of Allianz' stake in our insurance companies. The status has remained the same as at the end of the previous quarter, and there is no change there. Any statement that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result. Remark on Ind AS, as required by regulation, BFS has adopted Ind AS from FY '19. However, the insurance companies are not covered under Ind AS. They have prepared Ind AS financials only for the purpose of consolidation. Accordingly, for BAGIC and BALIC, the stand-alone numbers reported below are based on the non-Ind AS accounting standards or Indian GAAP as applicable to insurance companies. Our results, the press release accompanying the results and our investor deck have been uploaded on our website yesterday evening. I hope you have all had a chance to go through those. Now to give you an update on the performance. The conditions, as you know, have been tough. Though sequentially, we have seen improvement in business performance, and business conditions in Q3 as compared to Q2 were better. Under these challenging times, our businesses have shifted focus to recovering growth while continuing to manage risk. In general insurance, though the growth for BAGIC was below industry for the first 2 quarters, there was a sequential recovery that was being witnessed, as seen from the fact that BAGIC reported a growth of 11% in Q3 FY '21 versus the industry growth of 2% and private players growth of 8.6%. This was from a 20% degrowth experience in Q1 of this year. BAGIC, however, has adopted a calibrated approach to growth. BAGIC is seeking to grow in preferred segments, which are private cars, 2-wheelers, commercial lines like property, engineering and retail health, while remaining cautious on group health. As you are aware, most of the retail health business we do are the indemnity-based retail health business. Within commercial vehicles, passenger vehicles as a segment in which BAGIC has had a strong presence, is yet to reach pre-COVID levels. At the same time, as we mentioned in an earlier call, BAGIC has been conservative in recognizing the potentially higher claims on COVID, non-COVID health claims, increasing claim frequencies and potentially higher third-party claims due to potential interest from MACT. Most of these have panned out as we had expected. To give some more details, the motor segment showed a turnaround. And hence, motor 2-wheeler and motor 4-wheeler reported growth of 13.1% and 9.6%, respectively, while there was a 19% degrowth in commercial vehicles. The commercial vehicle also quarter-on-quarter has shown better performance because for the 9-month period, we have added degrowth of minus 33%. The demand for retail health insurance has slowed down, partly on account of the fact that the first 2 quarters for most of the industry and for BAGIC also was supported by COVID-related policies. However, BAGIC growth in retail -- and furthermore, there has been a price increase by many of the players in this quarter, which has dampened the demand for health insurance for this quarter. On the other hand, BAGIC continues to be conservative on employer employee group health business due to excessive price competition, leading to high loss ratios. Among the commercial lines, property, which is predominantly we call fire insurance, continues to drive the growth for industry on the back of IIB-based rates. However, rate increases have been higher for riskier segments, while the more profitable segments have seen lower increases. Therefore, significant rate increases are also accompanied by higher risk. In some cases, there have been reduction in rates as well. As you are aware, BAGIC is always focused on the more profitable segments. And therefore, the average rate increase may seem lower for BAGIC. Nevertheless, we are very pleased with the overall performance on property and engineering and allied corporate lines. For example, in Q3, our property business grew by 33%, 9-month growth was 39.8%, engineering grew 22.3% in the quarter and 38.5% for the 9 months. Liability also showed a strong growth at 18.5% for Q3 and 14.4% in -- for the 9 months. An important point to note here is that since the property price increases based on the IIB rates, The Insurance Information Bureau rates, was started since Q4 of FY '20. Going forward, price-related rate increases may not be as high as we have seen in the first 9 months of this year. That will apply not only to us, but we believe for the industry as a whole as well. In the case of life insurance, since opening up of the economy in September, industry -- the industry has continued its recovery and private players reported a growth for the first time in the last 3 quarters. During the quarter, the industry reported a strong growth in October, but degrew in November as spending shifted towards consumer goods and durables due to festive season. Finally, in December, post the facility, there was a swift recovery in the growth momentum. In fact, BALIC growth of over 40% in the month of December 2020, significantly over the industry growth is a welcome sign, and we are optimistic about maintaining the momentum going into Q4, which is normally a very high sales season for life insurance. Given the uncertainty due to the pandemic, retail term protection had seen a significant uptake in Q1, but with recent price increases in price and possibility of availability of vaccine, there has been a consolidation in demand. On the other hand, while guaranteed products with a strong preference in H1 FY '21 because of market volatility, the demand for units in Q3 FY '21 has improved on the back of strong recovery in the equity markets. This was also a key driver for growth in Q3, particularly in December. Despite these circumstances, BALIC has done very well, recording a growth in individual-rated NB of 14% in Q3 as against degrowth of 9% for the market and a growth of 3% for the private sector industry. Both BAGIC and BALIC continue to utilize their digital properties and continue to emerge stronger through this crisis. We have seen a substantial increase in the digital penetration across several parts of the distribution and service chain across both our insurance businesses. For example, in BALIC, the digital asset usage increased by 77% in November FY '21, and 2/3 of the renewals are now coming via the digital medium, which were a little under 1/3 before COVID. Further details regarding BAGIC and BALIC's digital capabilities are covered in the investor deck uploaded on the website yesterday. Coming to BFL. BFL already had its own investor call, so broadly touching upon the high level results. Q3 was all about granular business recovery, significant improvement in risk metrics, tracking implementation of the business transformation plan that the company had set out and putting into motion a plan for pre-COVID financial performance from Q1 FY '22. During the previous quarter, in Q2, BFL has an estimated expected credit loss in H2 to be around INR 2,600 crores to INR 2,900 crores. Post INR 1,352 crores of provisioning in the current quarter, the company expects a residual credit cost of INR 1,200 crores to INR 1,250 crores in Q4. Hence with respect to the initial estimate of INR 6,000 crore to INR 6,300 crore of credit cost in FY '21, BFL is expected to have a credit cost of about INR 5,900 crores to INR 6,000 crores in FY '21 overall. In addition, the company experienced continued improvement in portfolio quality in Q3 and new volumes originated across businesses during Q3 as risk metrics better than the ones originated prior to COVID. The gross NPA -- the net NPA for Q3 is 0.19%. However, if we include the standstill assets as per the Supreme Court order, even then the net NPA ratio would have been 1.22% only. The company has started dialing down the liquidity buffer that it held, which was about INR 22,400 crores as of September 30, is down to about INR 14,300 crores as of December 31. Overall, from BFL, the core AUM growth to resume -- is expected to resume to pre-COVID levels by Q4 FY '21, along with loan losses and provisions to revert to pre-COVID levels in FY '22. The highlights of our consolidated financial results, which are announced in our press release, I will just repeat it for those who have not had a chance to go through that. Consolidated total income, INR 15,961 crores for the quarter versus INR 14,561 crores. Consolidated profit after tax, INR 1,290 crore versus INR 1,126 crores. Bajaj Finance consolidated after -- profit after tax, INR 1,146 crores versus INR 1,614 crores last year. General Insurance had a strong quarter, a INR 330 crores profit versus INR 191 crores, which is an increase of 72%. Life insurance shareholders profit after tax, INR 118 crores versus INR 143 crores. And as you know, the life insurance business largely works on new business margins, which also includes the expected profit as policies get renewed over the lifetime of the policy. For the 9 months, the consolidated total income, INR 45,200 crores versus INR 41,057 crores; and consolidated after -- profit after tax, INR 3,491 crore versus INR 3,175 crore. I must hasten to add that, in the case of the insurance subsidiaries, while their own stand-alone are in Indian GAAP, for the purpose of consolidation, we are considering Ind AS compatible results. The equity securities held by these companies is treated as fair value through profit and loss account. During the quarter, this has resulted in increase in consolidated profit after tax by INR 384 crores and for the 9 months of INR 896 crore. BFL, as a matter of prudence, has written off, provided for principal and interest of potentially unrecoverable loans, which were under moratorium, by also utilizing the available expected credit loss provisions. BFL continues to hold a management overlay of INR 800 crores in provisions, given the dynamic and evolving nature of the pandemic, along with other variables. Overall credit cost for BFL for the quarter were higher by INR 521 crores on account of this and INR 2,762 crores for the 9 months. BFL has a very strong capital adequacy ratio at 28.18% with a Tier 1 capital of 24.73%. This is more than twice what is required under the regulation. Bajaj Housing Finance, 100% mortgage subsidiary of BFL, the capital adequacy ratio again stood very strong at 24.94%. BAGIC has had an excellent combined ratio in Q3 FY '21 at 96.1% versus 103.6% in Q3 FY '20. And therefore, it also had an underwriting profit this year as compared to an underwriting loss in the Q3 of last year. The profit after tax was INR 1,057 crore in 9 months FY '21. I must hasten to add that this is the highest ever 9-month profit that BAGIC has supported for the period April to December in its history. The underwriting profit was INR 27 crores, with a loss of INR 87 crores in the previous year. Largely, this is due to lower claim and expense ratios. Though there were lower claims reported in motor, the claim frequency for motor OD is -- motor own damage is almost back to pre-COVID levels. On the health segment, number of COVID claims reported have started declining over the last few weeks, but as expected, the non-COVID retail health claims are inching back to pre-COVID levels, as customers have started visiting hospitals for nonemergency treatments, elective surgeries and delayed corrective surgeries. Overall, BAGIC's COVID claim share is in line with its market share segment, around 4%. And at the current moment, based on the available information, we are well provided for these. Finally, motor TP claims are still not being settled at the same pace, as courts are still not operating at full capacity. And we do see potentially a risk of higher interest when the claim gets settled. And I must hasten to add that BAGIC has taken a view on that and reasonably well provided at this stage. Coming to BALIC. BALIC AUM crossed INR 70,000 crores. This is the highest ever AUM reported by BALIC, and its -- net worth of BALIC is a shade under INR 11,000 crores. New business premium grew by 21% in Q3. This is the total new business premium. And the performance was aided by the institutional business side as bancassurance partners, Axis Bank, Bandhan Bank, RBL, IDFC FIRST Bank and India Post Payment Bank have started contributing well. Excluding the fund business, the group protection business, however, degrew by 12% during the quarter. This is largely depending on the credit offtake by banks and NBFCs and MFIs. While it is improving sequentially, it is still well below COVID levels. BALIC has also recorded a strong 26% growth in renewal premiums. While there was some pressure on the 13th- and 25th-month persistency, the BALIC persistency has improved well on the longer vintages beyond 37th month to 61st month. Overall, we do see a trend where about 5% of the 13th month is collected in arrears after the 13th month. BALIC has now a formal guarantee policy and the forward rate agreements in place to hedge its interest rates arising from guaranteed products. Finally, both the insurance companies are among the most solvent. BALIC has a 708% solvency, and BAGIC has 330% solvency and hence are financially well poised. The requirement by the regulator is only 150%. Finally, on Q3 FY '21 was a satisfactory quarter with BALIC pushing forward on growth, while BAGIC recorded excellent profit growth. BFL is now looking forward to getting back to growth with a close eye on risk and the credit cost due to the lockdown and moratorium have largely been resolved. Before I open the floor for questions and answers, I have a small request. Please try to focus on the bigger questions on the larger issues. We have gone through a very difficult time and come out in a very satisfactory manner, and we are very optimistic about Q4 and FY '22 as things stand today. We are in long-term businesses, particularly in the insurance side, and one quarter's result is not really an indicator, and the capabilities that we are building over the long-term is what drives our company and what has driven our companies in the past. Thank you. I now open the floor for questions and answers.

[Operator]

[Operator Instructions] The first question is from the line of Dhaval Gada from DSP Investment Managers.

[Dhaval Gada]

Congratulations on good performance. I had 2 questions. One is related to the motor business, and I'll split the question in 2 parts. One is related to the TP loss ratio. And I think you mentioned in the commentary around claims getting delayed in terms of settlement. And therefore, we -- from 1Q onwards, we've seen like loss ratios at a slightly elevated level. The question is, when do we see sort of normalization in your assessment? And any sort of approximate time line on this would be quite useful and any monitorables around it. So that is the first part. And the second part on motor is related to growth. So I think one of the conversation, which a few quarters back, we used to have is around discounting by certain players. And therefore, we were not so strong or aggressive in terms of growth in the segment. How is the environment right now? And how do you see market share gain opportunity going into next year. So that is the second. And the second part is on the life insurance business. So we made this transition towards mass affluent customer segment. But when I look at persistency data and the early vintage persistency data, it doesn't seem to sort of reflect the benefit which we envisaged while seeing this migration. So at what point do we see the persistency number move closer to where the larger players are given the migration that we have done on the customer acquisition side? Yes, those are the questions.

[S. Sreenivasan, Chief Financial Officer]

Thank you. I will just take a high-level answer before I hand it over to Tapan first and then Tarun. On the motor third party, as we mentioned, the courts are not operating at full capacity. And as you know, under actuarial principles, we are supposed to provide for the ultimate expected losses. Clearly, there is a substantial amount of uncertainty over this and the actuaries do take a fairly conservative view. Because all I've seen our claims triangles that we publish annually. And we continue to be, on that basis, reasonably conservative. As to when this will normalize, I think it's a million-dollar question. There's no specific answer, but things are improving quarter-on-quarter. And we wait and see, and hopefully if the vaccine drive works very well, we think this should be coming back to normal. On the second question on motor discounting. I have nothing much to say except that discounting is nothing new for BAGIC. We have always been very strong players in motor insurance across a wide variety of channels. We have MISP. We have -- we work with brokers, we work with agency. We have our own virtual points of presence. We also have our proprietary sales force. We have our online B2B -- B2C channel. And together, all of these, we are working very closely based on our assessment of profitability, effective price and where we can build a sustainable business where we can acquire, keep and grow our customer base. In terms of persistency of life insurance, yes, in the past, we had moved on to a higher proportion of mass affluent and above. And majority of the persistency impact has been on the unit-linked business, where, as you know, the higher ticket affluent people have been holding on for the last 6 months. But in the last couple of months, we have seen good traction in terms of appetite for risk in terms of buying more unit products. I'll now hand over to Tapan to add to this and followed by Tarun on the life insurance persistency bit. Tapan?

[Tapan Singhel, MD, CEO & Executive Director]

Yes. Thank you, Sreeni. I think you summed it well. See, as courts open up, no, and cases are getting settled, we shall see the things getting normal in terms of how settlement is happening. Now one way when you have TP claims getting settled, interest is calculated from the time of the loss, which is payable. Now if you look at reserving, which typically done is based on your past experience of a normal settlement type. In today's time, because of courts being closed and settlement getting delayed, so let's say 1-year delay has happened. So if a 1-year delay has happened from a normal time, the interest on that 1 year is going to be added to the order, which is going to be passed. So typically, what will happen is if you have a book, no, which is, let's say, if -- for simplification, let's say, it's INR 100 reserving that you have. Now in normal time, we would be doing at INR 100 because that's a normal pattern that is following. But now this 1-year delay, the interest of the INR 100 has to be provided for because that is what the judgment is coming and it's going to come because you've seen a few judgments, the interest is, therefore, that period in which is not being settled. And that is what Sreeni was mentioning, is what we provide for. And as courts open up, settlements are happening. But this lag of this period of, no, whatever time where settlement has not happened, will, obviously, and part interest will be paid on the book that we already have, which is there. So that is why the reserving has to be strengthened for this particular part. And that is what we have done. And that's why you see that TP loss ratio there. The second issue on motor discounted. Those are market forces. They will continue to operate in terms of each company has a strategy, what they find good, what they find wrong. And we also have our own strategy. We keep on doing business, in which we're able to serve customers well. If you look at our claim settlement ratios, if you look at our [indiscernible] ratio, the lowest in the industry. If you look at IRDA sites and it's all available in the IRDA site. Look at settlement ratios on the best in the industry. So I think our focus is very clear that we want to serve the customer very, very well. We don't want to be in the game of just giving discounts, zero discounting. We try and price the risk for what the risk is supposed to be. And that's what we shall continue. We're doing it from the beginning and continue doing in the future, and that is what our focus has to be, is the customer service. Claim, we're in the business of paying claims, let us be clear about it. And that we don't compromise on, and that is what we are focusing on. I hope I could answer your question.

[Dhaval Gada]

Just one clarification. So if the -- this delay in settlement were not to happen, would the loss ratios, which were around 65%, 66% in motor TP would have been lower because the incident rates would have been lower? Is that a right understanding?

[Tapan Singhel, MD, CEO & Executive Director]

Yes. So if you look at the incident rate again, that depends on how many cases have come to the court, no, or which have come to you or it got intimated. If I look at the lockdown, the private cars initially were, no, off the road. But if I look at commercial vehicles or if I look at, other minus 2 months, they started moving on the road. And if you read newspaper reports of a lot of actions happening for migrant labors and all the way, those claims have to come as yet for us to make a judgment that is the incidents rates low or high. So the intimation has to come. And if you look at third party claims, there's ample time for it. And the average time where the incidents are maturing is about 4 years when we get reported. That is how it has been. But on the own damage part, yes, the frequency had reduced, no, for those lockdown periods. But if I look at today, we are at pre-COVID levels in terms of the frequency and the claim on the own damage part. It already is there. So if the own damage already is there to assume that TP has not picked up, just because you don't have intimation, but that is a trend. In TP, you don't have immediate intimation, you have a delayed intimation coming through. So I think that as time progresses, can tell.

[Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance]

Okay. So let me come on the persistency bit for BALIC. I think it's a good point, made, Dhaval, and we're totally cognizant on the fact that there has been a 2% drop. Let me just give a little bit color to this data. Now actually before I give this, let me just give you a little bit of a trend because you talked about the mass affluent and how we moved as a company. So I think your point is absolutely on target. When there is a movement from mass to mass affluent, these things should start getting better, customer capability to pay is getting better. And we have had a journey. We've moved from -- we weren't so great earlier in the early 50s, and now we are in the late 70s. So the journey is directionally positive, and we have moved from average premiums, which are half of what we are today. So the movement towards mass affluent is strong and sturdy. But let me just also tell you that we do have segments where we write policies, where we have like the small finance banks and others as partners as well. So that is a small mass segment that is there. Although as Sreeni correctly pointed out and until now I've answered your question on the mass affluent, really. So the point I'm making is there is a segment of mass, which is on proportion basis because we are relatively smaller to the listed companies that you also track is a little higher, given we are one of the largest players in the SMB segment. But having said that, the persistency is showing a very different kind of movement on the HNI side. And I'd be interested to see if you see something similar in the other listed companies as well because this is something we are kind of learning as we are going, and this is a unique time. So just a little bit color on this. Upwards of INR 3 lakhs ULIPs, we are seeing -- we've seen a drop of persistency by almost 4.9% or 5%. And then if I look at the various profiles of investors, who are customers, who have been with us, we are seeing a segment which has actually gotten unemployed. And there is about a 5% drop from -- in that segment. Plus in the housewife segment, too, we are now seeing a drop. These segments have been robust in the past. But as unemployment is impacting particularly and the higher ticket is getting hit, my guess there would be that this has a lot to do with the self-employed, who are now either keeping some money in their own -- in cash with them and then deploying it back into business. That is possibly impacting us in numbers. When you start going from the late 70s to the 80s, and you're working on fine margins, right, so every bucket has to get better. So this bucket has actually gotten a little worse. So that is broadly how I'd say it. But largely on ULIPs, 13-month persistency has actually dropped. So that is one key segment. But the positive bit there is that these are only early signs as the year progresses. See because there is a 13th month and then there is future buckets that start coming in. So I mean, of course, the IRDA benchmark, which all of you also look at, is a 13-month bucket. But I am more interested, honestly, in the second premium, whether it comes now or 13th, 15th, 16th month because in actuarial valuation, that doesn't really have much of an impact. But in COVID, it becomes very necessary to look at. So already I'm seeing that my rolling bucket of the past has gone upwards of 80. So it is getting better. And this is only going to help us. The difference between us and the other listed bancassurance companies is that a very systematically large proportion of HNIs for them come from the bank side. A lot of us, for BALIC, although it is agency, bank and the proprietary channel, which makes a big difference because if you go to a bank now, I might have data on customer mobile numbers. But there may be contactability data, which I can clean or wash through with the bank. That bit on bancassurance does have a little bit of an upper edge and I should very clearly tell you folks that, that does impact persistency, as contactability tends to get better.

[Operator]

The next question is from the line of Bharat Shah from ASK Investment Managers.

[Bharat Shah, Executive Director]

Once again, delighted to see the progress on the life part of the business and continuing strength in the general insurance. I had basically one point to discuss about, which is about the technology. Now collections and payments being done digitally and policy issuance being done digitally is routine and bread and butter application. But from the point of view, how much is technology-first is the DNA of the firm in terms of conceiving, creating and executing things from a digital perspective? Because in general, the services are most amenable to digitization. And finance, is it the intersection of that particular financial service as well as the technology? So we see that over the period of time in Bajaj Finance, where things are conceived from that milieu and mindset. And it is important to have the DNA of technology as a fundamental approach. So from that perspective, where do we stand and what are the plans?

[S. Sreenivasan, Chief Financial Officer]

Yes. I will take broadly that question. I think while Bajaj Finance has been showcased, I think the insurance companies are not far behind, except that we are also looking at changing our entire core system. We are in the midst of big projects in both the companies to also make our this thing adaptable. Secondly, we are investing heavily in analytics and our digital capabilities in terms of servicing, such as on the spot claim issuance for motor or health, I think we are very much ahead of the market in terms of that space. I'll now hand over to Tarun and Tapan to take the question further.

[Tapan Singhel, MD, CEO & Executive Director]

Okay. So this is Tapan Singhel here. Good question, but let us understand the 2 business that is lending and insurance are very different businesses. And their requirements are very different in terms of distillation. So if I look at, let us say, the insurance business, in terms of discretion. What do we basically do is, we issue policies, settle claims. And how do we do it? Insurance business is basically distribution-driven. It's done by distributors. So most of the advancement in technology will happen in the hand of distributors, which should be there. If you look at BAGIC, in the year 2013, started something like VSO, which is virtual sales office. And we set up about 1,000 locations. We have already crossed about INR 1,000 crores of premium there, set up massive distribution without any physical infrastructure. It was the first in the country and maybe to a large extent, among the first in the world where something like this was experimented. Today, I'm happy to see most of my competitors also copying that footstep and setting up those kind of distribution which is there. Now that could not have happened if you're not digitally strong. Because we're settling policies -- issuing policies, settling claims at the doorstep of the customer just using a tablet, without any physical office presence. I think that was a very massive movement. Like Sreeni mentioned, I don't think that we have been talking about it. And that is why these questions have come. Now second, if you look at, by the year, 2000, I think, '14 and '15 itself, we are among the first in the world to settle claims on the spot using machine learning, uploading of documents, scanning, OCR, whatever technology is used. So if you look at -- if a claim happens on motor, even today, if you are a COVID customer and, God forbid, if you have claimed up to the limit allowed by IIDA, you can actually get down from the car, use our app, click pictures, upload, and we transfer money to your account in 20 minutes' time. We do it even today. And it is one of the most advanced position in the world. Now quite a few companies are doing it. When we started it way back in about 2015, '14, I don't think there was any company which was thinking of doing that. If you look at if you're a travel customer of us, you are traveling, there's something called compensation for flight delay. We use blockchain and then if a flight delay happens, and if you have registered it through the app, your travel policy and you put it there, you actually get the claim paid to your phone, even without you asking for it. So from a digital perspective, I think as a company, we would be the frontrunners of innovation and pushing things forward. Now the point that Sreeni was mentioning in terms of the core, if I look at it. We are the first, again, in the non-life business, across the world, maybe, who is putting up the entire core, that's TCS BaNCS, that we are now working with on the cloud. And now where have you heard somebody moving the core to the cloud. But our belief is with the number of transactions, the hyper speed at which things are happening and innovation changes happening, you can't have a core which is on-premise. So we took the bold step, put it on. It's already become a showcase in the world in terms of a company, which is challenging and pushing this to that level. So I can go on and on in terms of the digital infrastructure that we've created, that we're pushing innovation and what we are doing currently. And like rightly mentioned by Sreeni, I think this is something that we should talk more about it. But thank you for the question. You gave us a chance to speak about it. Thank you very much.

[Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance]

Yes. So Tarun here. Let me just address this, as what I think Tapan and Sreeni have done a brilliant job already. Bharat, I think it's a very good question, as always. Because numbers are finally an output of all the inputs that go into building a company. It's particularly in BALIC's case, because it's a big u-turn we are seeing, this becomes so much more important. So broadly, I'll just quickly address it in 4 layers. I think one in a way Tapan touched on, on the core policy systems. So BALIC, too, is moving away from legacy systems which all companies in the country today have. We are actually setting up a core, which will be on the cloud. And it's a first of its kind system in the country. And actually, not just in the country in the world. So we partnered with Infosys for this. Its system is called NGIN. And it's being set up parallel to our existing core, which we have earlier sourced from Allianz. So a lot of things are going to be determinant on this because how soon and how often and whether virtually you can reach out to the core in a secured manner is very simply to put is going to decide how this future really moves for various companies. So we've already taken that sturdy call. Although this impact doesn't start coming in just ASAP, it takes time. The core is getting implemented, will take a few more years in the case of BALIC because these are long-term policies which have to move. So that is on the core itself. And there is a digital layer. I think everything else, which is CRM, CCMs, customer relationship management, customer communication management and all other set of architectural layers that can come in, all that is already in the process of getting digitized and separate systems have been acquired and put in place. A lot of our expenses actually and investments are going into this as a company. The third layer, which, I think, gets referred to particularly where BFL excels is on the data side. Bajaj Allianz Life is pretty much on the same track. There's a lot of learning we have from BFL, which we've been gladly taking on. And I must say that we've only just benefited because the group is very positively inclined towards data. So as a company, we are only just getting better and better at it. The good news there is the life insurance data because we capture a lot of data points on customers, much more than any other financial services sector. It is really a boom. And how to be able to upsell, et cetera, becomes very critical. I mean one very clear outlay of the output is the fact that our proprietary sales channels, which is about 10% of the company, was something that started 3 years back, and it's totally dependent on this upselling data. And it just goes back to existing customers and based on profiles, offers new policies, new services, and just kind of gets more ingrained in that household in terms of a relationship? Because ultimately, ours is a pretty long-term relationship product. I think that's what we are getting to. The fourth layer is really the innovation layer, if I might call it. And I think one thing we are very clear about in the group itself is that we don't do innovation for the heck of it, we do it based on context and benefit to the customers. And one clear example of this has been the one you may have seen in earlier decks, which is a Smart Assist. So we really saw that today's problem was social distancing and customers unwilling to meet. So around September, October, we launched a product where our secured app, on which today you are -- you would buy a life insurance policy, can be done on a distant basis. So you need not be sitting next to me and looking at the paper. I can be sitting, 5 meters, 5 miles, 500 miles away from you, and you can actually talk to me, converse and do form filling on that. So that's done very well, 21,000 policies. And 5x that multiple in terms of customer interactions have already happened through that. And that's helped us in Q3, as Sreeni talked about how we've kind of moved. So I think you should be rest assured that in BFS group, each of the companies will be only just doing more and more, and I think that's the core of the group.

[Bharat Shah, Executive Director]

Yes. Just one last point on debt. You see technology has become inevitable across the businesses. And increasingly, businesses will be fusion of both physical and digital, so that's given. And therefore, there is constructive pressures on all businesses to adapt technology. My moot question was, when technology comes from, is a core DNA of the business of the heart of how we do things, then our technology responses are predictive and in anticipation rather than delayed and reactive. So the issue that I wanted to understand was is technology at the heart of what we do and how we conceive. Of course, the business remains prediction and cover and to do it efficiently at intelligent cost and adding intelligent value to the capital of the business. But if technology is seen as the core to the business, then our responses, our plans are of one kind. And when it is seen as a popular thing to do or need is felt in the environment, then our responses tend to be -- even if they are efficient, they tend to be of a different kind. So I wanted to understand whether -- how far is it central to our scheme of things?

[S. Sreenivasan, Chief Financial Officer]

I will give that answer, Bharat. I think across the group, I think we are very much focused on technology. However, the way we look at technology is that it has to be a digital business where technology is a significant enabler. Anybody can buy the technology. They can copy it, and they can use it. But how smartly you use it will make the differentiator. BFL, obviously, is in the lending business where it is more about managing risk than demand. Because at a certain price, there is unlimited demand for lending. However, in insurance business, it's highly regulated. Even for the regulator to allow full digital issuance of policies, I think it required a pandemic to allow -- to enable that. There is a considerable number of rules and regulations. Every product has to approve. The product goes through, maybe, a 6-month cycle of approval at IRDA, and the final output of the approved product may not be exactly what you wanted. So we are in a business where we have these significant overhangs. Within that, we have to operate. For example, if you take commercial vehicles. Commercial vehicles, largely people buy at the time of buying the vehicle. Along with the registration, the insurance is also sold. And there is a whole lot of intermediaries who work in that space. Now you have to work with those intermediaries. Because when you buy a commercial vehicle or a private car or a 2-wheeler, you're not going to change your car because there is something else -- because the insurance is cheaper. So therefore, if you see even B2C businesses across India have not really picked up in a big way in the general insurance space. In the life insurance space, it is all about savings. In the long run, you have to deliver on your promise to the customer, you have to deliver a superior return. So if you use technologies, which are not adding value to the customer or where the customer does not perceive value, then we are not going to add significant value in terms of the savings or the promise you made to the customer. So given the context of all this, the whole focus of technology in the group is to enhance customer experience, make it as simple as possible to buy a policy and make it as simple as possible to make a claim. More importantly, when there is a claim, how fairly you assess it. And I think both our companies are, I think, stood out on those counts. You can look at all kinds of statistics. You can look at the [indiscernible] statistics. You can look at the claim settlement ratios. For example, if you look at health claims, the rejection ratio of BAGIC, because health is something which has a considerable number of preexisting conditions and other clauses, is probably in less than 5%. But if you look at many of the peers, you will find that they are more than 10% of the claims are rejected. So we are very focused on customer experience. In insurance, we do deal with across the spectrum. We do with social businesses. We do rural businesses. We do very small ticket businesses. We also do the affluent, the HNI and the whole gamut of customers. In lending, one has to be selective as to which segments you want to lend to and we want to. So we combine all this. At a BFS level, we have very strong institutional framework to address technology, to transfer knowledge and to encourage people across the group to actually get together and learn from each other. Obviously, the new risk that we are seeing across the group is cybersecurity, which is becoming more and more important. And in a few months' time, we will have the data privacy bill as well, which will pose a further layer of diligence that is required. So compliance costs are high for any regulated industry within that framework. Depending on what the regulator allows, I think we are really on top of technology. And as we go around, if you ask me 3 years from now, a lot of the stuff that we do today will be seen as bread and butter. And the stuff that we are doing then, would become a lot more appreciated by customers and all other stakeholders. Tapan, Tarun, anything else you want to add?

[Tapan Singhel, MD, CEO & Executive Director]

No. I think, Sreeni, you did a beautiful summary. You summed it up very, very well.

[Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance]

Yes. Nothing more.

[Operator]

The next question is from the line of Ajox Frederick from B&K Securities.

[Ajox Frederick H., Research Analyst]

So I have 2 questions. One for BAGIC and one for BALIC. The question on BAGIC is with respect to motor OD claims. Of course, it has been better for us versus last year. And you did mention about the frequency reaching almost to pre-COVID levels. So the only way that can be true is that intensity is pretty low. So how -- how far can we extrapolate this into the future of -- for the intensity being low? Or is it because of the mix shifting in 2 favorable segments.

[Tapan Singhel, MD, CEO & Executive Director]

Yes. Thank you, Sreeni. So if you look at it, no, I think let's understand why the loss ratio for motor OD looks lower. It's a cumulative loss, which you see, no. So what actually happens is, in the month of April and May, the losses should dip because the vehicles were not in use, and it was low. By making a statement that is back to pre-COVID level means the loss ratios have reached the pre-COVID levels, no, as we progress now. So going forward, it will be the way it was before COVID. And all of us, if you look in the streets, you actually see the traffic back to normal. I think I remember in the COVID times when I used to come to office, it was like, no, 1/10 the time I took. Now it takes me the same time it used to take me before COVID, in fact, sometimes more also now. So I think the vehicle on the road has reached what it was before COVID. So obviously, the loss ratios also, the actions also as of now reaching the same level as it was pre-COVID time. That is the statement. So I expect that it will not -- it has normalized now in terms of what loss ratios were there. It will continue there in terms of the quantum of loss and the frequency. Now loss ratio is also a component of what price are you charging. So let us say if people have started charging less and the frequency and the severity is reaching the pre-COVID level, then obviously, loss ratio for the industry will start shooting up now. That is why discounting in the market has to be observed very carefully. So when the lockdown was there, it was less. And that, cumulatively, it looks less but as these months progress and no fresh lockdowns comes in, then I think you start seeing that from a pure quantum of loss in terms of frequency and severity, it will be where it was pre-COVID. But the price charge has been lower than the loss ratios are shooting are up as months progress now in the motor business. So that is what I would be seeing as we progress further. So that was my answer to your question. I hope I could answer what you asked.

[Ajox Frederick H., Research Analyst]

Yes, sir. So even in 3Q, we had that, like, lockdown effect for us?

[Tapan Singhel, MD, CEO & Executive Director]

So it was moving up, no. So if you look at -- start breaking up quarter-wise, no, you will see the frequency and the severity, no, it started moving up from April to June, it was the lowest. The second quarter, it moved up. Now third quarter, as I told you, it's really the COVID level. And the fourth quarter would be the most interesting to watch. And as you get segment-wise loss ratios and data from IRDA site, it'll be very interesting to see how it has moved on and how the industry has played this on to see that. So I think that is the time when you likely will be good to see. And then you see my word, what I mentioned to you, that with the frequency and the severity reaching pre-COVID levels, this industry is charging less than the pre-COVID times, then the loss ratios start going to hit in the fourth quarter much higher than what industry saw in the pre-COVID time. So let's see how it plays out.

[Ajox Frederick H., Research Analyst]

Okay, okay. That was helpful, sir. Sir, the second question is on BALIC. We saw some very strong growth on the institutional business. So what kind of businesses are these savings protection and if saving, is it because of us aligning in FRA market that's giving us an advantage into that?

[Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance]

Yes. So yes, the impact has been more pronounced positively for the institutional side. And as you know, BALIC hardly had any institutional business. 4, 5 years back, we used to be 91% agency. So that movement has been strong. There's a lot of ground that we had to cover, and I think that's getting covered. So yes, from channel's perspective, institutional is the one which is contributing to a lot of that growth. In terms of the product mixes, it's currently a very low percentage of term, particularly in the last quarter, as we're seeing, and Sreeni talked about it in the earlier part itself, that it's now balancing our term is maybe currently recalling in terms of growth, it's coming down as for the entire sector as a percentage overall. Maybe it will balance out once this entire price increase has gone and will get stabilized. So having said that, the initial 2 quarters was pretty much in line even for institutional business, where the term was growing up segmentally there as much as in the agency and the PSF side. And so -- but that hasn't come down proportionately like for the entire company itself. But yes, the non-par and even the par, I'm quite happy to say, is actually selling well in the institutional side, which usually is restricted to the non-par. As far as the risk side, which you just kind of allude to, yes, we are totally covered by FRA on the non-par side, and we've actually had a very good, I'd say, very comforting hedging strategy in the last 4 months, as that has only just helped us stabilize IRRs, stabilize NBVs and feel a lot more comfortable on the guarantees that we have.

[Operator]

The next question is from the line of Nidhesh Jain from Investec Capital.

[Nidhesh Jain, Analyst]

Sir, firstly, on the general insurance given your commentary on the motor OD loss ratio expectation in the future, do you expect price hike to come into for the industry next year or in sometime next year?

[S. Sreenivasan, Chief Financial Officer]

Tapan?

[Tapan Singhel, MD, CEO & Executive Director]

That, the market forces decide. So I don't think how it goes because every company has their own strategy. If you look at the industry combined ratio, and this, again, in the world is not seen before, 2007, free pricing happened. And now it's what, 2021. Industry combined ratio has been way over 100 for such a long time. If you pick up any case study in the world for the GI industry, where the combined ratio has been so high for the long time, no, you may not find so. I think this is unique in its own way. And that happens because quite a few companies are comfortable with a high combined ratio, and they're comfortable with, no, that kind of status. So to predict how the market would move in terms of pricing, it would be difficult. It depends on each company's strategy as to how they would like to position themselves and how they would like to be there.

[S. Sreenivasan, Chief Financial Officer]

So just to add to what Tapan said. See, it is about selection. See, there are 2 aspects to choosing business in insurance. One is the price, and one is the selection. The 2 are linked. At a certain price, where do you want to select and our BAGIC's effort has always been to find more and more granular ways of cutting and slicing the business. It is not something we started 2 years ago. It has been there for the last 20 years. So we will continue to do that. We are sharpening our analytics. We are sharpening our technology. We are sharpening our data lake. So quite a lot of steps we are taking at the back end to continuously improve this. So at any given price, we would be able to select better customers because on an average, only about 25% of the customers will have a claim in any given year. The challenge of underwriting is to select the 75% who are not having a claim based on data, analytics and propensity models. And we'll continue to do that.

[Nidhesh Jain, Analyst]

Sure. This is because it's -- I don't think it seems like in the motor OD segment, we have lost some market share in 9 months and probably in Q3 also because probably the price is not adequate.

[S. Sreenivasan, Chief Financial Officer]

So I think it is largely related to commercial vehicles, especially passenger vehicles, because we were more aggressive on commercial vehicles 2 years ago, but after COVID because of loss of production. So motor OD is not a segment for us. We have private car, we have 2-wheelers, we have commercial vehicles, we have multiple cuts within that by make, model, geography or goods carrying, passenger carrying. And based on what we see at a given point of time, we will take a call. And that is how this business is very dynamic. What works today may not work tomorrow and what worked yesterday is not working today, and you have to be very agile and fast. Tapan?

[Tapan Singhel, MD, CEO & Executive Director]

Yes. I think that seems if you look at, I think, passenger carrying and that is [indiscernible], it is yet not back to the pre-COVID time. So car shares moved up. And I think in the presentation, it is mentioned, if you look at our growth in the 2-wheeler and private car for the quarter, it's over the industry, no. So it is not that we would have lost that position there, but passenger carrying vehicles have not moved up to the pre-COVID levels in terms of the sales or in terms of where the business is moving. And we had a good sense of commercial vehicle, the right segment, again, and that is why you look at our loss ratio was good. And as you see now, that has come down. So obviously, a good segment that we were strongly present in that comes down, then it takes time for us to make it on other segments. And like Sreeni said, it's a very agile business. We keep on moving and seeing where and what opportunities lie, and we keep on taking it on.

[Nidhesh Jain, Analyst]

Sir, secondly, on the life insurance, our protection business has been quite volatile. In Q4 and Q1, there was a really strong growth, and it has become almost 17% of our AP. And then it suddenly declined to 5% of AP in Q2 and now 4% too of AP in Q3. So if you can just explain what is happening and what is the strategy going forward with respect to debt reduction?

[S. Sreenivasan, Chief Financial Officer]

Yes. Tarun?

[Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance]

Yes, I will. I will just respond to that. I think it's a good point. And I mean it is the pretty much a trend that we've seen in the sector. Of course, companies have been in term life for longer than us, have learned their ropes on it. And maybe they would be settling on a little bit higher percent product mix than we are at today. So see, we are, of course, focused on the term side, but we do not want to just make this as the core. It is also something that customers want to buy. We should not forget that India is an average age of 29, where some will sell, of course, but it will not be always the first product while it maybe should be, but it today isn't. So in terms of strategy, we are focused, but we are not going to be kind of making it so critical that we do not -- we just focus only on this being the major product mix. It will be an important part. Let me put it this way. As we go by, we are looking at ways of issuing policies a lot more quickly. I think the big issue around the term is around how soon you get the policy issued, what is the kind of process we follow, what is the kind of reinsurance guidelines. These are things that have mold the sector in this year. And they have changed so much in the last 6 months, where reinsurers have struggled themselves and passed that struggle on to the life insurance companies as well. So we need to have this stabilize and then start looking at things afresh. But like I said, it will remain a very critical part, but it's not that we kill ourselves only doing terms.

[Nidhesh Jain, Analyst]

Sure, sir. And lastly, do you expect further reinsurance rate hike on term insurance?

[Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance]

I think for the time being, it has stabilized. I do hear some reinsurers who are dealing with some of the companies who have developed concerns with them. But this is all here. say, Currently. I think we should wait and watch. But I feel, at least, in our book, we have stabilized quite well because we've been quite mindful of the kind of policies we're writing.

[Operator]

The next question is from the line of Hitesh Gulati from Haitong Securities.

[Hitesh Gulati, Analyst]

Sir, I just wanted to check on the pricing in group health because you mentioned that group health pricing has probably deteriorated. And also on crop price, because I think crop pricing has improved this year, so does that explain why our claims ratio is down in crop in 9 months and also growth has been strong in Q3?

[S. Sreenivasan, Chief Financial Officer]

Let me take that upfront. Group health, Tapan will give greater flavor. But on crop, I think this is now the -- since 2015, the Fasal Bima Yojana was launched. It has undergone many metamorphoses in the process. And today, we are in the sixth year. We have consistently maintained a similar level of crop insurance throughout these 6 years. And I think every year, we have been able to deliver very good underwriting results. As we mentioned earlier, this is not a float business because governments do take time to pay. So it has to work on combined ratio. It is because of the size of the risk, it has to be heavily reinsurance-driven. And we have one of the best reinsurers in the world to support us. So therefore, crop insurance is something we take a call every year. We do stress test to see how much is the downside, what is the upside, and we have taken. And over time, we have built a lot of capabilities, which I think Tapan can again further expand what I'm saying. Tapan?

[Tapan Singhel, MD, CEO & Executive Director]

Okay. So let's look at group health. I think what was our assumption on group health, so that, no, we get an idea of what it was. So if you look at group health, it's an annual contract, no. And if I see how COVID was coming up, and the way COVID claims, no, started rolling in, and also, if I look at learning which we have from the SARS issue a bit many years back, in Hong Kong when SARS was there and what happened to hospital claims when SARS ebbed out. Actually short of much before levels, what was there when SARS happened. So you combine the 2 together to make a guess on the pricing we write or not write for group health, was a bit difficult. Because if COVID claims and the way it actually went through the roof in the month of September, October, August, these were 400-odd percent and it starts going up in terms of how it is moving up, and now with COVID coming down, the hospital claims moving up, so we thought it's better to be a bit low on the group health policy because on an annual contract basis, it is not like a retail health policy where, okay, fair enough, we lose -- have a higher claim ratio this year, but next couple of years will be better. And a group health is an annual contract, it gets over with that. So that is why for group health -- and that's the point Sreeni mentioned, in terms of the pricing, we were a bit cautious on that, and we said, no, we'd go a bit slow here because not very clear as to how it will pan out. On the crop business, I think, Sreeni said it beautifully. We have been doing it about 5, 6 years. And it's not a hobby for us. Consistently, we have delivered good results in the business. It's not about price moving up. It's about selection of like for all our business we do selection of risk of our spread, our commitment to the ground level, our commitment to serve well, our commitment on the technology part of it and be one of the leading players. I think I mentioned in one of the previous calls also that as a company, we want to be in all lines of businesses and in all distribution. And we want to be one of the leading key players. And for that, we work hard to understand the business and do it well. I think that is what we have been doing consistently for the long time. This is not like one-off that we say, okay, this quarter, this has happened or that is happening. It's part of a business plan.

[Operator]

The next question is from the line of Harshit Toshniwal from PremjiInvest.

[Harshit Toshniwal, Investment Analyst]

Congratulations on good numbers. Am I audible?

[S. Sreenivasan, Chief Financial Officer]

Yes.

[Harshit Toshniwal, Investment Analyst]

Just 2 questions, sir. So one, that yesterday on Bajaj Finance call also, they said a lot about creating the ecosystem and marketplaces for insurance, asset management products, et cetera. Just want to understand that how cohesive the entire group decision is with respect to -- so when they say it as a marketplace, do they mean specifically for Bajaj products? Or they mean that they would want to be a platform for all of the insurance and the asset management product?

[S. Sreenivasan, Chief Financial Officer]

Let me take that question. Bajaj Finance, as you know, as a corporate agent, they're allowed to have 3 life insurance, 3 general insurance and 3 health insurance. And they have never been exclusive corporate agent of our group companies only. So our focus is on what the customer wants. And Bajaj Finance, with -- of the type of business they run and the various verticals they run, they have a variety of customers. You have retail customers, B2B2C customers, B2C customers, personal loan customers, home loan customers. Depending on that, I don't think there is any 1 company which can meet all their requirements and also meet their underwriting requirements. So it is for that company to decide. And the insurance marketplace, obviously, will now provide a digitally seamless platform where the customer can choose from multiple insurers. And so as this thing, they are a part of their strategy, which Rajiv must have talked about, it will be like that. The next wave of that will be also the investment marketplace, where they have their own FDs, but they have -- they will now offer mutual funds and other investments. And therefore, across this, customer has a choice. Now we are very confident that because we have strong companies, both in life, non-life and others, we have the lion's share of that business, of the type of business that the companies want. So there is interaction between the companies. Some of the ecosystem is common to all the companies, especially on the digital technology side. Some of the ecosystems are unique to each company because of the nature of their businesses. And as we go forward, it will be more and more about the ecosystem, the partnerships and how well we combine across the board. So it is not a particular risk for any of our companies because you could say that the investment marketplace of BFL could be a competitor to its own strategy of acquiring FDs. But it won't be like that because there will be a specific focus on driving up the value that they offer, the security that they offer, will also drive customers' demand for those products. Similarly, insurance would be driven more and more by the claim experience, the product range and the ability to quickly deliver what the customer wants.

[Harshit Toshniwal, Investment Analyst]

Got it, got it. And maybe just one more thing. On the crop insurance, when we look at the current loss ratio, so please correct me if I'm wrong, I think this is the kharif season, which is getting reflected. For the rabi, we are going to get the numbers in Q4, Q1?

[S. Sreenivasan, Chief Financial Officer]

That is right. Q4 will be the time we write the premium. We make estimated provisions based on information available because we track the growth of the crop across all the clusters over the sowing season till the harvesting. And based on that, we have a reasonably good estimate as at end of March. The final determination will be sometime in April, May by the state governments and the central government.

[Operator]

The next question is from the line of Sanketh Godha from Spark Capital.

[Sanketh Godha, Vice President]

Just wanted to understand that in slide you have mentioned that excluding us, probably we have taken hike -- price hikes in the retail health segment, which I believe from October 1st onwards, many players have done. So I just wanted to understand the quantum of price hike we have taken and likely impact of it on combined ratio because do you think because of more inclusions happening, the severity could potentially go up and government ratios can deteriorate for the kind of price hike we have taken? Or you think it can potentially improve and maybe severity will not change meaningfully? That is the first question I have on BAGIC.And the second question on BAGIC. I just wanted to understand given our PCV, our passenger commercial vehicle, have slowed down, just wanted to understand what -- how overall motor mix looks maybe in the current 9 months and compared it with 2 previous 9 months of last year? So that is -- those are 2 questions on BAGIC. On BALIC, just wanted to understand it. We have seen a sequential improvement in the credit protect for most -- for the current quarter and even in Q2. So just wanted to understand that given we had a bit of negative experience with respect to MFI portfolio last year because our negative operating finance was from large -- from MFI portfolio. This growth what we are seeing or revival in the growth we are seeing on potential basis is largely coming from non-MFI portfolio? Or if you can give us the broader indication that how much is Axis Bank backed and MFI mortgage? Some flavor on that particular piece, [indiscernible]. Yes, these are the questions I have.

[S. Sreenivasan, Chief Financial Officer]

Let me just summarize the question. The first question was on retail health, the price hike. And whether with this price hike, what will be the impact on combined ratio, especially with more and more people taking health insurance? Is that your question?

[Sanketh Godha, Vice President]

Yes. Even the inclusion is increasing because of the high cost more to consider more inclusion eventually will go up, potentially in some of that region or not?

[S. Sreenivasan, Chief Financial Officer]

Yes. Okay. Then you had a question on Life Credit Protect, whether MFI portfolio is causing losses? Or whether we have a better spread of business across MFI and non-MFI portfolio?

[Sanketh Godha, Vice President]

Right.

[S. Sreenivasan, Chief Financial Officer]

And third was on the commercial vehicles. You had a question whether how we are seeing the 9 months and the rest of the year. Is that...

[Sanketh Godha, Vice President]

No. I was largely asking for the mix of motor. How it appears now compared to previous year, given commercial vehicles have declined for us in the current fiscal.

[S. Sreenivasan, Chief Financial Officer]

Okay. Tapan, Tarun? Maybe Tarun can take the MFI and the credit protecting. And Tapan, you can take the health and the commercial vehicles.

[Tapan Singhel, MD, CEO & Executive Director]

Okay. So let's understand the retail health issue for the industry and then see how it moves. And I think on giving mix as of now, our segmentation, how much business we do what that I would like to refrain from because that's too micro a question. But on the industry part, I'd like to answer, that's the retail health. So as per regulations, we can't increase the price for 3 years. So you have, let's say, if you increase the price in about 3 years, you can't increase the price. Now there are 2 things to it. If you look at the medical inflation, that will hover from 12% to 15%. And hospitals in India are not regulated. So from that perspective, no, the price moves up, and we saw it in COVID times how the prices started moving up for the treatment of COVID, which is there. The third thing, which comes into play is that if you look at the book of retail health, on the first year, the loss ratios are in the range of, let's say, 30% to 40%. And by the fourth year, they would be in the range of over 100%. That is for the same policy as it moves forward. So it is not a simple calculation of how much increase we do and how the combined ratio starts improving immediately and how does the market play out. It's a complex parameter of 3, 4 big issues than our more micro issues, which sees the perspective. And then we decide how do we look at the business and how does it go forward? So if we write a new book, new, let's say, if you write more new business, then overall, your loss ratio will look lower because the new business has a lower loss ratio compared to the older book, which is there. How do you balance the two? And how do you create a book which is long-term standing. And how do you serve your customer well is what the health pricing and how is it alluding to, that is how it has be done. And that is why it is not that suddenly because of September, October, you saw a price hike happening. It happens once in 3 years. That is how the relations allow it. And then as companies see their books and they try and figure out at what segment what they should be looking at and what is the right way to look at, that is how they do that. So that is what we have also done and some companies have also done it, that is good. So which actually means that as the COVID ends, then the other issue comes in is the awareness part of it, if you look at the retail health. In the month of April, the retail health growth industry of minus 3%. It peaked up in, let's say, August, where it reached 40%, and it had the corona product also in that. If you look at the retail health growth now, it's again back to about 14%, 15%. So fortunately, unfortunately, if I look at the awareness level, peaks have been a crisis is high. We saw that in floods also when we saw Chennai flood, when we saw Uttarakhand flood, the awareness for home insurance was at high for about 5, 7 days. As the floodwater receded and as things went back, the awareness there was as it was before as it has been going forward. Having said that, retail health is a huge chunk of business, which has still to be done. Because if I look at total coverage by the industry, it is about INR 10 crores, INR 12 crores. In fact, the government scheme covers about INR 40 crores, which is much more than what the industry has covered over so much time. So there's a huge chunk of population which has to be covered. It's a very good product, and that is the endeavor, and we should keep on doing that. The loss issue will definitely get better with the price increase, but that is more a company of 4, 5 we've explained to you, not just simply a price increase.

[Sanketh Godha, Vice President]

Okay. Got it. Just on credit protect, sir?

[Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance]

Yes. So you see, the trend in general on MFI and the non-MFI credit protect, there has been a degrowth more on the MFI side on credit protect in the last 9 months, and we see that continue even in the last quarter. But having said that, the non-MFI part, the NBFC and Axis Bank as well, there has been an upside in terms of the credit protect in Q3. Although overall, the bucket is still negative, all of this put together, but Q3 has been relatively positive for the non-MFI side. You did also hint about the past experience in non-MFI -- in the MFI business as well? I think we've taken a lot of actions as a company. And I think I would say that today, as a company, we are way more led by lead indicators and lag indicators on how we manage the MFI portfolio as well. So we were actually a lot more stable and relaxed the way it seems as of now. Of course, it's a statement I'm making in the midst of COVID on the MFI portfolio as well. So despite the fact that, yes, it is a substantial part of our business. And despite the fact that we have access in NBFC, I'm still quite proud of my MFI business.

[Operator]

The next question is from the line of [ Hasmukh Gala from Finvest Advisors ].

[Unknown Analyst]

Yes. I just wanted to know, in the BAGIC, what is the difference of net earned premium and gross written premium? If so, why? I think one factor will be definitely the higher reinsurance days. How much would be on extra reserve, et cetera, because we don't have that P&L with us.

[S. Sreenivasan, Chief Financial Officer]

You're asking -- see, in general insurance, gross premium is what you get from the customer, net of GST, then you pay the reinsurer, depending on the type of policy, you may have different reinsurance arrangements. For retail policies, you normally retain more. For large high-ticket policies, you may retain less. Then if you deduct that, you get what is called net written premium. However, this net written premium has to be spread over 365 days. The premium cannot be earned on day 1. So you create a reserve for the amount of unearned premium. And after you deduct the net change in unearned premium, you will get what is called net earned premium. That is a premium you book as your this thing. You carry forward that unearned premium because still the policy expires, you still have a possibility of claim. And when that claim happens, you must have the premium in your books to offset that claim.

[Unknown Analyst]

Okay. Because in Q2 from P&L, we have seen that reinsurance you get was almost INR 2,000 crore from gross written premium of INR 4,100 crore, and this adjustment for changes in reserve was only INR 100 crore. So I guess...

[S. Sreenivasan, Chief Financial Officer]

It depends on the make of business, no. If you write more of the higher ticket business, you will have higher reinsurance. Quarter-on-quarter, we cannot compare. Overall, it depends. Line by line, if you check it, there would not be a significant difference. There will be some difference because every year we do relook at our reinsurance treaties. But you won't find a major difference. But if we have more of the corporate business because this time, for example, fire engineering, there has been price increase, so their share of the premium is higher. So you'll find the reinsurance component is maybe higher. But when the motor and health are growing faster than the commercial lines, you will find that you will have higher retention and lesser reinsurance. So there's nothing specific that the company does to manage that.

[Unknown Analyst]

Okay. Okay. And my second question is, in case of BAGIC, a lot of questions have been asked about the claim ratios being lower and you expect more claims to come as things get to normal, especially on the motor side, your crop claims also will start coming. So you think that you are reserving what we have done, it's quite adequate to cover those higher claims?

[S. Sreenivasan, Chief Financial Officer]

The very fact that we recognized the problem early answers that question. And as more data comes in, we keep putting it into our actuarial models, and we keep recalibrating our results. Eventually when all this blows off, we will know where we stand. And that time, we will know where we -- it is just like the banks and NBFCs are also providing for credit losses. They know in April, how much it will be. But by November, they have a better picture. But March, they will have an even clearer picture.

[Unknown Analyst]

Okay, okay. And the last question is on the unit-linked policies, what will be our strength going ahead in BALIC?

[S. Sreenivasan, Chief Financial Officer]

Tarun?

[Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance]

Yes. See, we are -- we don't take any specific stand on products like what you just said. We are a lot focused on segment, customer segment and distribution segment as well as the cities we are working in. Like in Bombay, you'll find more unit-linked selling. The moment Bombay starts thriving a little bit better, it's been struggling, I'd say, in the last 8, 9 months to all companies. Few of the ULIPs going up. So these trends are actually ruled more by city-wise plans that we've got and distribution segment-wise plans. But yes, directionally, we are working towards a product mix, which is more balanced. And you would have already seen that impact that ULIP has come down, and that directionally has been a conscious call, yes, and shall remain. If I was to make a statement that am I comfortable with the amount of ULIP that we are seeing or would I want it to be higher or lower? I think at this point in time, I'm at a sweet spot. I like this mix. Would I want us to be higher or lower? No, I think it is just perfect.

[Unknown Analyst]

Okay. And as far as the group fund business is concerned, what will be our stand because that has substantially increased in Q3.

[Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance]

Yes. No, good question. I think normally, it doesn't get asked in these presentations. But group funds is basically a very low margin product. Yes, exactly. Yes. At the same time, it's a very low-cost product. See because it's a fixed cost of your sales teams. And the sales team is quite limited in size. It's like, may -- we'll have maybe 20, 25, 30 people only selling it. So if the throughput through that team goes better, it's only just good. It's not a conscious push, I would say. So if I was to be asked whether I would do more of that than retail, I would do more of retail, of course. But if I am getting this based on the same cost containment, it's great. Because this then helps me, a, in terms of my brand. It helps me in terms of upselling. It helps me in stand-alone profitability because group business by itself, group employee benefits business, is a profit-making business.

[S. Sreenivasan, Chief Financial Officer]

I think we'll stop now. Last call, is it? Last question?

[Operator]

Yes. It was -- we'll take the one last question. The next question is from the line of Nischint Chawathe from Kotak.

[Nischint Chawathe, Director of Research & Senior Analyst]

Yes. Am i audible?

[S. Sreenivasan, Chief Financial Officer]

Yes, yes.

[Nischint Chawathe, Director of Research & Senior Analyst]

Just one thing I wanted to check was your views on the banking license. If any, do you have any updated view on this?

[S. Sreenivasan, Chief Financial Officer]

See, that is -- there is an IWG report. That is not a regulation yet. It has raised a lot of questions. I think debates are going on. We will have to wait for the final guidelines. We had in the past, as you know, in 2013, applied for one. The situation was different then. We did not have on-tap licenses. Then they brought in on-tap guidelines, but then nobody really applied. But we'll have to wait and see what the final guidelines are. And whatever is good for our companies and our group, we will do. At this stage, that's all I can tell you because we still don't know what the guidelines are going to be because RBI is responsible of giving out the guidelines.

[Nischint Chawathe, Director of Research & Senior Analyst]

And from a promoter point of view, is there any kind of a comfort that if you take this down to 25%, is there some comfort that, that seems to be okay? Or...

[S. Sreenivasan, Chief Financial Officer]

Obviously, the higher, the better, and the law does not allow more than 26%. But if it is less than that, we'll have to wait and see how we want to take a call. Obviously, that involves a much higher level decision than the managements of the companies. But I think everybody sees that a problem, the risk, the opportunities presented by the banking license, the strength of the brand and the role of the promoters and everything is there. I mean, the availability of liability financing. So we know what are the pluses and minuses of doing that. And as an NBFC, we are well capitalized now for the next 3, 4 years. But if there is an opportunity coming up there, we will look at it on merit.

[Nischint Chawathe, Director of Research & Senior Analyst]

And just one last aspect in this. In terms of processes or your compliance with PSL, et cetera, are you kind of preparing for it? Or are you well placed? Or you would kind of want to do some more?

[S. Sreenivasan, Chief Financial Officer]

See we'll keep doing our math internally. I think if it does happen and we find the opportunity, and we want to get into it, we'll be well prepared. Clearly, converting from NBFC from bank has its own set of challenges in terms of the asset side being logged in PSL. But as you know, we already run an SLR book. Our liquidity is almost stronger than what a normal NBFC should keep. We also do a lot of rural business on our auto finance and our regular financing side. There will be some gaps, we will assess as it comes. In case if we would take that decision, we will take a call at that time. We will do our math completely and then take a decision at that time.

[Nischint Chawathe, Director of Research & Senior Analyst]

So prima facie PSL is the only thing that you'll have to work on.

[S. Sreenivasan, Chief Financial Officer]

Maybe, maybe. Okay.

[Operator]

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Ms. Bunny Babjee for closing comments.

[Bunny Babjee, Analyst]

On behalf of JM Financial, I would like to thank Mr. Sreenivasan sir and the senior management of the insurance businesses and all the participants for joining us on the call today. Thank you very much. Bye.

[S. Sreenivasan, Chief Financial Officer]

Thank you.

[Tapan Singhel, MD, CEO & Executive Director]

Thank you.

[Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance]

Thank you.

[Operator]

On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.