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Bajaj Finserv Ltd
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Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Limited Q3 FY '22 Results Conference Call hosted by JM Financial Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sameer Bhise from JM Financial Limited. Thank you, and over to you, sir.
Thank you, Faizan. Good afternoon, everyone, and thank you for joining us for the Bajaj Finserv Q3 FY '22 Results Conference Call. From the management team of Bajaj Finserv Limited, we have Mr. S. Sreenivasan, CFO, Bajaj Finserv Limited; Mr. Tapan Singhel, CEO Bajaj Allianz, General Insurance Company; Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance Company; Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz, General Insurance; and Mr. Bharat Kalsi, CFO of Bajaj Allianz Life Insurance. Thank you for this opportunity given to us, Bajaj Finserv. I'll now hand over to Mr. Sreenivasan to open the call, and we can take it. Over to you, sir.
Good afternoon, everyone. Welcome to the conference call to discuss the results of Bajaj Finserv Limited for Q3 of FY 2021, '22. Let me clear up some hygiene points first. As before, in this call, we will largely be concentrating on the consolidated results as well as the results of our insurance companies through Bajaj Allianz General Insurance BAGIC and Bajaj Allianz Life Insurance BALIC and where material, the standalone results of our company, BFS. Bajaj Finance, BFL, which is another major subsidiary of ours, has already had its conference call. However, if there are any high-level questions on BFL, we would be glad to take that as well. We will not be taking any questions on the status of Allianz stake in our insurance companies. The status has remained the same as at the end of the previous quarter, and there is no change. Any statements that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result. Remark on Ind AS, as required by regulation, we have adopted Indian Accounting Standards for 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, standalone numbers reported below are based on non-Ind AS accounting standards or Indian GAAP as applicable to insurance companies. Our results, the press release accompanying the results and our investor deck have been uploaded on our website yesterday evening. Let me give you now an update on the performance for Q3 and 9 months. Economic recovery gained further strength on the back of sustained drop in infections, rapid vaccinations and continued surge in mobility. Aggregate demand indicates sustained recovery across sectors, although supply bottlenecks impacted festive season sales of motor vehicles. Extended unseasonal unsold did result in claims for general insurance sector. Under these circumstances, our businesses should have focused to growth and continue to tightly monitor risk parameters. The company and its subsidiaries continued their initiatives for arranging vaccination for employees and their families. We're also conducting periodic testing to reduce the risk of spread of infections. Apart from ensuring the well-being of employees and their near and dear ones, this also ensures greater preparedness to the company and its businesses in the event of another wave. Let me now touch upon each of our main businesses. Let me start with BAGIC. Overall, a decent quarter for BAGIC. For the quarter, degrowth of 13.2% in the headline numbers in gross domestic premium income is on account of higher chunky businesses like crop and government health businesses underwritten during the previous year in the same quarter. Therefore, there was a base effect. While BAGIC has been cautious in the group health segment, given the uncertainty with respect to multiple COVID claims, it has underwritten the business wherever right pricing was available. Excluding these tender-driven businesses, GDPI growth for the quarter is 6.1% as against the industry growth of 9.9%. And during 9 months FY '22, excluding crop and government help, BAGIC GDPI growth was a tad under the industry growth of 11.6% at 10.2%. BAGIC continues its approach to calibrated growth. That is seeking to grow in preferred segments, which are private cars, 2-wheelers, commercial alliance and retail health, while remaining cautious, yet opportunistic on group health. To give some more detail, ex crop and government health growth of 6.1% in Q3 was driven by fire 15%; engineering 40%; marine 25%; liability 14%; and travel 227%. Overall, in all these lines, BAGIC has been able to grow faster than the market. During the quarter, the preferred segment of new private cars and 2-wheelers was impacted the slowdown in sales of motor OD policies. The commercial vehicle segment, which was under strain to grow for much of FY '21, however, continued to recover and barring any significant impact of a third wave, we see it improving towards pre-pandemic levels in the coming quarters. Overall, in 9 months, BAGIC had a motor growth of 3.6%, which was in line with the industry growth of 3.7%. While it is expected that the auto industry will continue to face some supply side constraints in the near term, the performance in Q4 will also depend on what will be the impact on overall demand due to the third wave of COVID. In commercial lines, with air of its strong bancassurance and agency channels as well as underwriting and reinsurance capacity for covering large risks, BAGIC continued its strong performance across retail, commercial and industrial risk categories. Fire & Marine segments continued their growth momentum. Engineering and liability lines have also shown strong growth overcoming the slowdown seen in the previous quarter. Overall, commercial lines continue to do better than industries with Q3 FY '22 and 9 month FY '22 growth of 17.9% and 17.1%, respectively, as against industry growth of 15.7% and 13.7%. Within health, given the strong demand for corona coverage policies in the previous year, the base for retail health for Q3 FY '22 and 9 months was high. Despite this, BAGIC's Q3 FY '22 retail health growth of 5.8% was more than the multiline insurance growth of 3.6%. Overall, in 9 months FY '22, retail health growth of 7.5% is marginally more than the 6.5% growth of multiline insurance. While BAGIC continues to be cautious on group health, growth is driven at the right pricing for each relationship. Excluding government health schemes, BAGIC registered a strong growth in health of 20.3% and 20.9% in Q3 FY '22 and 9 months FY '22, respectively. Finally, to further strengthen its offerings. During the quarter, BAGIC launched its health prime rider in collaboration with Bajaj Finserv Health, which is another subsidiary of ours. And this offers customers unlimited tele consultation, cashless OPD, diagnostics, pathology, radiology and annual preventing health check up. On the claims front, the experience was generally better than the previous 2 quarters, which were negatively impacted by higher health claims on the second wave of COVID. There was quarter-on-quarter reduction in COVID-19 claims, but severity of non-COVID health plans was still relatively high as compared to pre-COVID levels. Given that the extent of economic activity is not impacted as much as you take in the earlier waves, motor audit claims frequency and severity are back to pre-COVID levels. Moreover, heavy rains in Kerala, Uttarakhand and Tamil Nadu witnessed in this quarter had some negative impact on claims. All these factors did impact results for the quarter. But notwithstanding these, combined ratio increased only marginally to 98.9% as against 96.2% in the Q3 of FY '21. In a market which is intensely price competitive, this result, we believe, is encouraging. Let me take a couple of minutes to explain the top-level drivers of the GI business. The impact of COVID and the lockdown on the GI business are unique. The main drivers of growth in GI business are capital formation, including spending on automobiles, float generation and claims and expense control. About 48% of the GI industry is property in the current year, motor, fire, engineering and marine. About 38% is liability-oriented, retail health group, health travel, corporate liability and Workmen's Compensation. And about 11% is tender driven, with the rest, a small component being miscellaneous, which is difficult to classify. COVID has affected new vehicle sales as well as new corporate investments in fixed capital. Thus the property side has been affected apart from the fact that existing assets depreciate annually. While overall property-driven lines have maintained their contribution in the mix at 48%, motors contribution has come down and other lines have seen improvement and increase in these lines that BAGIC has performed better than the markets -- better than the market. The liability businesses have been stronger. Of this health business has low float and must deliver over the medium term a good combined ratio. Due to COVID, health claims went up, thereby affecting the profitability of health business across the market. Tender-driven businesses are volatile, and crop business is exposed to large claims, which may happen once in a few years. While Q3 of FY this year, the crop loss ratios did go up. Overall, for the 9 months, they are profitable for us. Historically, low-interest rates meant is lower yields on investment book as well. In these circumstances, BAGIC has focused on profitability and remaining selective in growth while focusing on customer experience. BAGIC did indeed maintain its market position, improved efficiency and enhanced customer experience with underwriting discipline in this difficult environment for the insurance business. BAGIC is cautiously optimistic on growth as it enters the last quarter of FY '22 as the green shoots are visible. Once auto sales and corporate investments pick up and in [indiscernible] of pandemic-related health claims, the prospect for FY '23 we hope will be better. However, as growth returns, there could be some strain on reported profits as earned premiums may lag GWP growth for a couple of quarters. In summary, it has been a balanced but soft quarter for BAGIC. Coming to Life Insurance next. Overall, the Life Insurance industry continues to deliver a solid growth driven by private players. During the quarter, while few private players saw a slowdown in month-on-month growth during either October or November, BALIC continued on its month-on-month growth trajectory and reported an industry-beating individual rated new business premium growth of 68% against the industry growth of 20% and private sector growth of just 28%. In fact, in Q3 of FY '22, BALIC was the fastest growing among life insurers among the top-end players. On a 9-month basis, among the top 10 private players, BALIC's individual rated new business growth of 58% was the second fastest against the industry growth of 20% and the private players growth of 30%. When compared to pre-pandemic levels by taking a 2-year CAGR for Q3 IRNB, BALIC has delivered a CAGR of 38%, which is the highest in the industry. On the product front, the annuity products launched by BALIC in Q4 FY '21 continues to be well received in the market. During the quarter as well as in 9 months FY '22, 12% of the rated new business was from annuity segment. In line with the industry, demand for retail protection continues to be sluggish, on the back of successive price increases and hence contributed 2.5% and 3.6% of the total product mix in Q3 FY '22 and 9 months, respectively. Despite the brief volatilities in the equity markets during the quarter, the risk appetite of the retail favor seems to be higher as evidenced by the strong demand for units. BALIC's unit contribution to product mix was 43% in the quarter versus 42% in Q3 of FY '21. Guaranteed non-par savings contribution to the mix in IRNB terms dropped to 23% from 28% in Q3 FY '21. While contribution to the mix has come down, in absolute terms, non-par savings has grown by a solid 41% during the quarter. The annuity line of business is part of non-par savings and post includes of annuity nonpar savings has seen growth in mix at 36% versus 28% in Q3 FY '21, helping the overall NBV as well. Participating on the par segment contribution in the mix witnessed some reduction and stood at 19% versus 25% in Q3 FY '21. But in absolute terms, the power segment has shown growth of 24% and 50% in Q3 and 9 months, respectively. It can be seen that while most lines, except retail term, have shown solid growth, the business mix changes reflect relative differences in growth and hence, not a matter we are concerned about in the short term. Group Protection business continued to display strong growth of 66% from INR 431 crores in Q3 FY '21 to INR 717 crores in Q3 of FY '22. Overall group new business grew by 19% from INR 1,084 crores in Q3 FY '21 to INR 1,288 crores in Q3 of FY '22. You may recall that group business was muted 9 months of FY '21 as lending by banks and NBFCs have slowed down considerably. During the quarter, growth was driven by all the main channels of BALIC with agency, institutional business and BALIC direct growing at 44%, 102% and 42%, respectively. Renewables registered a strong growth of 18% during the quarter. And because of these factors, BALIC's GWP grew by 30% to INR 4,080 crores in Q3 of FY '22. One point I would like to highlight here is the strong year-on-year increase in persistency across all vintages. 13-month persistency increased by 3% to 81%. While 61st month persistency increased by 5% to 46%. The effort for the management to increase contactability improved the quality of products, enhanced digital offerings and focus on customer value over the last few years had been the key to delivering this increase. On the claims front, COVID wave 2 impact has largely come down in Q3, gradual month-on-month improvement claim experience observed in Q2 continued and total claims in Q3 of FY '22 were actually lower than expected. On the retail side, BALIC has received about 550 claims in the quarter pertaining to COVID-19, amounting to INR 27 crores on a gross basis in Q3. BALIC has reserved for probable future COVID claims on account of third wave and the results for the same stand at INR 93 crores as of 31st December 2021. The total impact of COVID claims and reserves in Q3 FY '22 on policyholders PBT was a negative INR 9 crores as against negative INR 105 crores in the previous quarter and INR 335 crores in Q1 of FY '22. Similar to the previous quarter, we have continued making quarterly disclosures of NBV. In addition to the NBV for the quarter, we have also indicated the NBV for the 12 months ended 31st December 2021. Due to high variations in seasonality of business across quarter, I would advise investors to exercise caution while reading into Q3 NBV and margins. We had mentioned in our earlier call that quarterly NBVs and NBMs may not reflect the possible year-end results. Investors may already be aware that as a significant portion of Life Insurance business usually comes in Q4, most of the fixed cost bond during the year gets absorbed in the last quarter of the year. Please note that NBV on rolling 12-month basis does not indicate a forecast or expectation for FY '22. New business value, net of expense overrun, the key metric of profitability, increased by 89% from INR 81 crores in Q3 of last year to INR 152 crores in Q3 of this year. For the 12 months ended 31st December 2021, the NBV was INR 533 crores as against just INR 256 crores for the 12 months ended 31st December 2020 and INR 361 crores for the whole of FY 2021. BALIC's PAT for Q3 FY '22 was INR 88 crores against INR 118 crores, impacted mainly by higher new business strain arising out of firm business growth. Overall, another very good quarter for BALIC. Finally, both the insurance companies are financially among the most solvent, BALIC with 604%, solvency and BAGIC with 333% and therefore, are well poised together any external adversity. All our businesses have further augmented their digital capabilities, which, along with greater digital acceptance by the customers, should we help overcome challenges and deliver a strong performance in the final quarter of this year and beyond. Both BAGIC and BALIC have seen an increase in the utilization of the digital properties by customers and intermediaries. And further details regarding the business capability are covered in the investor deck uploaded on the website yesterday. BFL has already added the investor call and we will only broadly touch upon BFL results. Q3 FY '22 was an excellent quarter for BFL as the company delivered on all its long-term financial guidance metrics, AUM, profit growth, return on assets, return on equity as well as gross and net NPA. Continuing the growth seen in the number of new loans booked in Q2 FY '22, the number of new loans booked a further increased to 7.44 million in Q3 as against 6.04 million in Q3 of the last year. This is almost in line with the pre-COVID times when 7.67 million loans were booked in Q3 of FY '22. The company's diversified business model has enabled it to record a strong AUM growth as seen from the total AUM standing at INR 1,81,250 crores as at 31st December 2021 as against INR 1,43,550 crores on 31st December 2020. Debt management efficiencies across products improved in Q3 FY '22. And the BFL also added a further INR 251 crores to its management overlay provisions just to cover a third and possible future waves of COVID. The total provision of management overlay for losses stands at INR 1,083 crores as of 31st December 2021. Overall, pre-provision profitability remained strong and adequate to cover expected losses. BFL ended the quarter with a profit after tax of INR 2,125 crores, which was 85% higher than Q3 of -- Q3 FY '21 PAT of INR 1,146 crores. Capital adequacy remained strong with including Tier 2 capital, it was 26.96%, of which 24.4% was Tier 1. Bajaj housing finance, another 100% mortgage subsidiary of BFL, continues to do well. AUM grew 39% to INR 49,203 crores from INR 35,492 crores in Q3 of last year. And the profit after tax grew by 87% to INR 185 crores in this quarter as against INR 99 crores in Q3 of FY '21. And on account of robust AUM growth, higher net interest income and better portfolio performance. Capital adequacy ratio stands at 19.37%. Finally, the BFL Board has approved an infusion of up to INR 2,500 crores in Bajaj Housing Finance and INR 400 crores in our securities business, Bajaj Financial Securities to support their capital needs for the next 24 months, at least. In summary, we believe BFL is well-positioned to navigate in a temporary stress. I would request investors wanting to have more information to go through BFL's investor presentation and transcript of their con call. Coming to the consolidated results. Total income, up 10%, INR 17,620 crores. Consolidated profit after tax, a 3% decrease, at INR 1,256 crores. I must add on the consolidated profit after tax, under Ind AS, the insurance subsidiaries have chosen to hold a large part of their equity securities portfolio as fair value through profit and loss account. Therefore, unrealized mark-to-market gain or loss on investments post tax included in consolidated profit was a loss of INR 38 crores in this quarter versus a gain of INR 384 crores for Q3 FY '21. If we exclude the volatile impact of the MTM losses or gains and which generally follow the trends in the equity market, the core profit after tax would have increased by 43% in Q3 of FY '22 and 20% in 9 months FY '22, respectively. Finally, with a gradual reopening post second wave of COVID-19 and the third wave so far being not seeing as damaging as the previous 2 waves and steady economic recovery [indiscernible], we are cautiously optimistic. Even though we are facing the risk of a third wave, the future outlook remains positive. Under these circumstances, our business is such shifted focus on regaining growth while continuing to manage risk. Backed by strong solvency well above the required capital supported by healthy liquidity, continued focus on risk and collections, digitize processes and improved cost structures, we believe we are in a strong position to maneuver through these different times. Let me now open the floor for questions and answers. Thank you.
[Operator Instructions] The first question is from the line of Bharat Shah from ASK Investment Managers.
Behind what are apparently excellent results for the Life Insurance business and the continuing progress are there any soft spots that you may want to identify or highlight? And similarly, behind apparently difficult quarter for the general insurance business, what are some of the good things that they happened or happening, which are not -- which numbers don't reveal?
Bharat, thanks for your question. I will let Tarun first and then Tapan take the questions. Tarun, my question was, are there any soft spots that very good performance of Life company does not reveal. That was the question, I think.
I think, great. Thanks, Bharat, always deep and insightful questions from you. Yes, so let me just talk about the spots where we could have been a little better. First, our term mix has dropped significantly because of the impact of the reinsurance regulations changing very often. It is causing a lot of customer pain. Hence we calibrated our entire approach. And of wait and watch on our underwriting platform and our analytics platform to be able to set our processes right and stronger before we took more terms. So versus the other companies, you'll find that this is a strategy we built differently. I think it's time well spent, and we are feeling a lot more strong on the quality of lives that we are adding versus the general market. But yes, in terms of results, it will show that there our term [indiscernible] is low.The number of policies that we've added, while overall, the growth has been fantastic, I mean, it's been a very good quarter for us. But on a 9-month basis, number of policies added could have been a way better. The growth is not as high. It's largely growth because of average premium, average ticket size that has gone up. NOP growth, if I remember, was softer to about 6% to 7% in that range. I would have been happier if the growth came more from that than average ticket size.Having said that, average ticket also shows that BALIC is now kind of strongly on the journey, which we envisage 3 to 5 years back of moving to more affluent base than in the mass market. So that, of course, on one end seems to be good, but one -- the other end, NOP growth could have been better.On the product mix, I would have been happier with maybe a little bit more power and lesser But that is, I think, the way it is. We -- given the addition of new channels that we've had, there was a good run towards ULIP plans in the last month of the quarter. So as a result, it has helped increasing productivity, but at the same time, it has been more than what we have envisaged write. Good thing is that all this is at the behest increasing top line. It's not that there we have done less and within that product mix is changed. So I think it's no loss really, but would have been happier if a lot of that came from the power plants. We are, hence, looking at our strategy on power lines. And we already have a pretty strong presence in states where [Technical Difficulty].Yes. Thank you. We do have a good presence in states where power plants do well, and we would be focusing a lot more on that and training our teams on power plants. Largely, these are the 3 things that I can think of. Bharat Kalsi, is there anything you feel that we should add to this?
No, I think Tarun, you covered all relevant points.
Thank you, Tarun, for that explanation, very useful.
I must add one point to what Tarun said is that we will be looking to more diversify our distribution, especially on the institutional business side over the next 2 to 3 years because we have done and we have axis, but some of the younger relationships, IDFC, RBL, Karur Vysya, they need to grow ITPB. So a lot of this balancing had -- it will happen over the next 2 to 3 years. So that volatility could remain depending on how the market behaves.
Sure. General insurance family, behind, obviously, a difficult environment in a quarter, anything good which has happened and happening or being designed?
Thank you, Bharat bhai. I think first and foremost, if you look at the generation industry, it follows 2 things: one, the economic growth of the country; and second, it also gets impacted by the losses which has happened. This is a direct impact like is not in the future. So we look at new car sales has been down. We all know the chip story. I think that's not happening, which is a big component for the national business.Second, if we look at COVID waves, it keeps on coming. So no, I think health claims keeps on moving up. Third, if we look at auto wheel sales, which were down because of lockdowns. But this time, there were not such intense lockdowns. And after the lockdown opening up, the motor change also went up.Fourth, there has been no hike in TP premium increase, which also contributes significantly. If you look at overall growth for Industrial has also has come down, close now is going to story reach to single digits from the high voltage it used to be, earlier, now it's just hovering around low double digit right now, but the way it's going, it's going to reach into a single digit kind of operation. And the loss ratio, the industry has moved up.Look at the competitive basis entire industry, you'll see for companies which were close to their loss, the combined issues overall have moved about 10% or so compared to the previous year, which was there. And for us, the movement will be 2% to 3%, which is best. So -- and what growth also to look at from a perspective of the industry, Bajaj Allianz at industry growth.So when the market is taking a beating in terms of loss ratios, is taking a beating in terms of -- the growth opportunity is getting restricted because of the different circumstances, I think we look at international company, it has been still able to maintain in the lines of business, it wants to grow growth over the market and the combined ratio, which is very comfortable in terms of still making underwriting profit in the market which is losing money considerably.Now having said that, the plus point which would be from your perspective question ask me, the awareness is getting created. One, for health insurance. I think people are now aware about healthy insurance and that -- when it is getting treated for insurance which we hope that in the long-term may lay out, but let us see a lot of time. We have also seen that the public memory is very short. When things get normal, I think these awareness levels also drop very significantly.Second thing is happening good in terms of dilation. If you look at a lot of work is happening in terms of digital processes, in terms of making things very simpler for customers in terms of the data lake getting created, in terms of processes becoming much better for customer, so customer experience has really moved up. If you look at [indiscernible] in terms of the customer ratio, they would be down. But BAGIC continues its being the least -- Given company in the industry. So I think those work in terms of strengthening the infrastructure of the company, strengthening the distribution of the company, strengthening the servicing capability of the company is the good thing which is happening. But the market is -- there's no one quarter, but if you look at it is for dimensional industry, to pick up entire industry numbers, you'll see the industry is going through a difficult time, which would always happen. The economic slowdown terms of the sale of vehicles, if it starts happening and no projects coming up, if losses keep on happening because of is happening. So the industry would go through this turmoil, so we should be there.
Tapan, you want to highlight on health value add?
Yes. So that, Srini, I think what we're also doing is good for -- as Srini mentioned is, we believe that the issue in today's time is customer looks for value, and we have strongly believed that not only about the customer always looks for the cheapest product, which may not give it value. In fact, a lot of questions asked a lot of people is that how many of actually wears the cheapest shirt in the town or the cheapest food we eat or the cheapest place in town. I have to find somebody who can give me an answer of what is cheapest. So I do figure over cheaper ask this question. So nobody has it, which means that people pay for value. And the general insurance product, which is so transactional in nature. I think as a company, we are very focused on providing value. From the very beginning, we have been making huge efforts. The first and foremost effort was that we had this ambition and we have this striving and we have received awards for this as one of the best claim playing company in the industry. So we are very obsessed about the amount of claims. It has to be of the highest quality. Second, what we have been doing is from very early on, we're bringing a lot of value add product for the customer. Let's say, in motor, we -- on the first to begin roadside assistance from a customer perspective or if you look at now Power Health, which you have done and with our sister company, we have come out with a product which is marvelous. Like it's a rider, which we are giving on top of our health product if we look at.Now look at the rider, what does it offer? For our family floater, I think I'm just talking the highest range of it, so which is plus INR 2,000 in a year, you hit the tangible benefits of up to INR 25,000 of diagnostic charges being paid to you or doctor consultation we paid to you. You get unlimited tele consultation, you get a huge benefit in terms of OPD also being cash test for you. Now that also we have bought in with our main products as a rider. So if you look at the value addition we give you a customer perspective, a lot of work in the company is going on to see that from a customer, which comes to BAGIC, the amount of value that the customer sees is much beyond just transition registration.So this is always there. When you see a difficult type of industry, I think it's a very good time for you as a company to really make use of much more stronger in terms of service to customers, much more stronger in terms of value to customer. I think that's what we're working on Bharat.
Yes. That goes at the core of the brand building. Is the effort to -- because the effort to communicate value is a tougher exercise. So this is price every much like in investment was prices are tangible, but value has to be decent. Therefore, when you have to communicate value proposition, if it is sought to be done through the distribution channel, it's -- probably it may get lost in the noisiness of the distribution channels. How exactly standing superior value equation and experience is being communicated and the brand perception is getting strengthened?
It's a very good question again. So we do a lot of surveys by independent bodies in terms of NPS scores or in terms of the brand positioning compared to market or in terms of how the customer perceives it. He'll be happy in thought to know that in the lines that we do our NPS scores, be it the retail lines, we have had the highest NPS score for a considerable long over time. Or if you look at the brand recall, we have the highest brand recall in the market. When you look at or talk to customers or talk to distributors in terms of what is the recall that they have, I think most of them survey shows that we are known as the best claim-paying company which offers value. So we do a lot of the dipstick checks in terms of how it is building up. We do our communication, which is the digital media, social media and to distributors. And we do come out with a lot of things, which customer sees a huge value. And we keep on checking this. And I think all the [indiscernible] check on these parameters, we are way above the market.
Sure. And one last issue, in terms of the investment book, how much is the equity percentage in the life part of the business? And how much it is in the general insurance part of the business? Policy and framework wise, are the equity percentages different for each of the books?
I think in life, we are talking about the shareholder funds because the policyholder funds are unmatched and depends on the terms of the policy. So UL will be all policyholders risk. In the non-power, it's all guaranteed, so we don't hold much equity there. In the power, we will have close to 20%. I think it's 18%. I think we -- the allowed regulatory limit is 25% there. The shareholder funds, we have 20%, the total shareholder funds, including the solvency capital and the excess capital. We currently may be close to that, about 18% or so. In the non-Life side, our policy limit as of now is 10%. They have the opportunity to increase it as we go along. But as of now, they are at about a little under that, about 8.5% or so. Raman, Bharat, number is right?
Yes, 8% for BAGIC, right.
Yes, broadly the numbers are closeby.
And I support philosophically given effect that general insurance is a shorter-term contract, equity percentage conceptually has to be lower than for the Life business.
That is right. Because the -- barring to some extent, the motor third-party liability, almost all others are short-tail businesses. So roughly, if we look at our excess capital in General Insurance is a little over INR 4,000 crores, and we hold about a little under half of that and about 45% of that as equity. In the Life business, I think it will be similar. Bharat, in the shareholder fund, what percentage of our excess capital would be in equity?
Of the excess capital, it will be -- so we have a total shareholder fund of around INR 10,500 crores and excess capital will be around INR 7,000 crores or so. But at the total level, we have an equity exposure of 15%.
Okay. So that means we'll have about 20%, 22%, right.
Yes, 20%, 21%.
But technically, it would go up to 30%.
Yes.
Policy limit is 30%. It was 20% of INR 10,000 crores.
Yes.
Yes. So that's where we are.
So about 18.5% on the general insurance side.
Yes. That's right. Of the excess capital. [indiscernible] capital to add for solvency. Overall, 25% is the general limit for both under regulation.
The next question is from the line of Manish Dhariwal from Fiducia Capital Advisors.
My question is regarding the 2 verticals that are being created, one is on the health side. And also, the second question was on this app that you have on the finance side. So my understanding is that those 2 top apps on the finance side, one, which was only selling the Bajaj Finance products. And the second one was also on the open architecture, which was under the Bajaj Finserv. So I need some clarity on that.
Yes. What do you -- what's your question?
Okay. I will repeat my question. On the financial side...
Bajaj Finance is offering marketplace and for their own customers and Finserv has an open architecture marketplace. But what is the question?
No. Are there 2 apps or there is one app?
No, they are 2 different companies, there are 2 apps. But at the back end, the architecture, there will be a lot of commonality because the Finserv Direct makes the IT platform for Bajaj Finance. So some of the marketplaces are built. So to that extent, there will be a common back end because the way we are developing finserv market is also as a fintech company in the sense we don't like to use the fintech, but I'm just using it because at the back end, it is a technology-driven company. We have a lot more software and engineers working in that company, a lot more youngsters. And they would have a platform. They will also develop platform for BFL as per their need because they have opened the investment marketplace, which is limited or they have a different set of partners for GI or LI. The main difference between the 2 is that people will come to finserv markets because there are multiple partners other than Bajaj Finance. They will also come directly. They could come for insurance. They could come for loans. They could come for restore, whatever the different product lines there are investments. In Bajaj Finance, they come for a loan and then the whole platform is for a cross-sell to their existing customers. But in terms of experience, I think there will be some commonality in tech side, but experience could be different because of the different partners and [indiscernible].
Okay. And the second question was on the health. The health platform, I mean what's the update, I mean, how is it like shaping up? What are the metrics that you are...
Right now, it is -- we are building that business. The company is focused on driving the tie-ups with the doctors. They have signed up with a lot of doctors. We are not exposing the numbers because we still need more stability. So they have apps for doctors. So they have apps for patients who will get OPD through those doctors. And those doctors will start using those apps and they've already started, many of them have started using it. And we are now present in, I think, probably about 150 towns or so in India. Apart from that, they also do like this help time rider with BAGIC. They sell the health card through Bajaj Finance, and they will also be doing a few corporate deals where they are helping the corporates manage their health claims. So it is still in early stages. We still have to invest in capabilities over the next couple of years. We will be in front in serve putting in that capital. We will see how it goes. But I think in about 1.5 years, we should have reached a level of maturity there. Finserv Direct, obviously, is already, I think the path is clear they'll be looking to partner and more customers as we go now.
The next question is from the line of Heena from Systematix Group.
So I wanted to ask if there was any security of a reverse merger?
Reverse merger?
Yes.
Between what?
Between Bajaj Finance and Bajaj Finserv.
No, we are not considering that at all.
The next question is from the line of Nidhesh Jain from Investec.
Sir, three questions. Firstly, on Bajaj Finserv markets, the e-store and the EMI store is owned by which company and which...
Yes, as of now, the e-store which Bajaj Finance has is what Finserv market offers their platform. Over the next few years, they will develop their own e-stores, which may be outside of categories that Bajaj Finance may not do as well.
Okay. So today, EMI stories or e-Store is owned by the Bajaj Finance is...
To the extent that they already have a presence and the store is there, they have it, but customers do come through Bajaj Finserv markets as well. Over time, we will have multiple options, and we will have more categories, which Bajaj Finserv Direct will also build. But that is not our first priority. Our first priority is to develop the loan business and the insurance business, followed by the investment business on the e-store.
Sure. Sure. Second, sir, in the general insurance business, how do we see about the direct-to-consumer companies which are coming up, where they are offering the motor insurance policy at sharp discount to our pricing or industry current pricing. So how do we think about that...
I'll let Tapan that question.
See, all markets will have different strategies. If you look at the companies, what you should have relate their performance in terms of what is the market share that is being acquired or in terms of the position within the market in terms of profitability in terms of the balance sheet. That is something if you are investors have to assess that. Now having said that, if you look at valuations, we also have a very strong direct website, which is there in terms of -- and we also do better a significant amount of business from there. So for companies like us, for the customers, there are options. If they want a direct service, they can approach our website and they get direct services. They want to intermediate, they can approach intermediates, which is also we have different be it banks, be it agents, be it brokers or be it POS or the CSC Village network. So I think the advantage that the legacy companies and companies like us, which have massive distribution, is that a customer you have so many choices. If you want to come direct, you can also come direct. So I think everybody has their own space in the market. So we'll all find different strategies. But overall, as investor, you're looking to the market share in terms of the profitability in terms of customer service to assess what would be more relevant as time focus.
Just to add to what Tapan said, I think if you look at property insurances, which is motor, fire and all that, that is where pricing is free. Almost all the liability products are pricing. Usually where B2C customers come in are low ticket sachet products. Number two, they discount where there is free pricing, especially in motor. Largely, there will be more into the cash in the middle part, where the claims are settled in cash because building the garage network, building network for monitoring third-party claims, the MACTs and all that is whether you are acquiring customers directly or not, it is the same. So globally, I think there is no -- I think, maybe barring U.K. I don't think there is any specific evidence that direct companies have a lion's share of the market. And we will like to see how it goes. As of now, there is heavy discounting going on by them, but they do not have any tie-ups with the OEMs who control a lot of the new car sales through their marketplaces and platforms.
Sure, sir. And lastly, sir, on the Life Insurance on the protection, you mentioned that we are making changes to -- we are strengthening our underwriting and analytics platform. But is there any change to our reinsurance strategy that we were having in the past? And are we rethinking about that?
We will be doing that by end of the year because normally that's the time we do that, that are doing changes during the year-end pricing. See, clearly, the more you retain, the more you have to be responsible in underwriting. And with the COVID wave happening, mortality and morbidity risk was staring at in front. I mean the more business you do, the higher the risk immediately and the chances of making money were much lower notwithstanding what the assumptions were in NBM or NBV, which companies may have used. So we have been fairly conservative there. But as things ease up, I think that is something we will look at. Obviously, we'll have to balance. And over time, we'll have to keep increasing the retention because unlike, say, property or other business of GI, in Life business, the premium in relation to the claim amount is very small, be it is a financial payout. So there's a great incentive for fraud and term plans. And over time, term premiums had dropped to such an uneconomic extent. The reinsurers who are losing money, and that's why they have pulled the plug. So the next few years, we will be looking at increasing retention, but not overnight, we go for a big increase, but gradually, we will increase it. In the meantime, we will continue to strengthen our underwriting. Does that answer your question?
What is your retention policy today? At what some short level we reinsure?
Bharat?
Yes, today, Nidhesh, we are at INR 40 lakhs, which is after the revised reinsurer guidelines for the retail.
[Operator Instructions] The next question is from the line of Mayur Parkeria from Wealth Managers.
Am I audible?
Yes.
Actually -- just correct me in my understanding, actually, did I read somewhere on the -- maybe in the press release that the Life Insurance profitability is lower due to new business stream, right? So is this something which is expected to continue for a couple of quarters because the growth on the production side has been higher and the profitability is obviously back-ended. So is it that the new business stream will continue for a few more quarters before we see...
More strongly, there will be more new business strain. If you -- because that is -- every new business is done by all the life companies, irrespective of the product, the first year is a loss. The amount of loss will vary according to the product. But by and large, it is from year 2, year 3 onwards that you start making money, which is why the -- I mean, the emphasis on persistency. So my feeling is that growth is strong. The NBV will go up, if you have managed your business mix reasonably well and contained your productivity and costs. But business strain will continue to be there. That's why we have to invest capital upfront. Luckily, we are in a position where we have surplus capital. We are sitting on a very strong solvency. And which is why we are using part of that to build this. Tarun, would you like to add something?
Largely, you answered, Srini, maybe it's only 1 added point I'll say, we write metric look at any life insurance company's bottom line is not really in India -- basically in India, particularly given the fact that accounting practices assume all the costs for the life insurance company, which usually has 10- to 20-year kind of a span every of these policies of us, everything -- all expenses have to be taken in the first year. Hence, if you go fast, the losses will be higher. And as Srini said, the added point maybe to that is you basically see the net -- the new business value added. And the NBV is the one which unfurls over a period of time to get -- draw the value out in the business and from the insurance plan. That is what we've been focusing on, not so much on the PAT because the NBV is someone that goes up.
So sir, correct my understanding. Sorry, I may not be well versed with the accounting here so much on the Life Insurance side. But if -- because of new business, the profitability is impacted, how does NBM increase on an annualized basis? I read that some 11% last quarter, it is 12.9%, right? So how is it that the NBM has increased, but the profitability because -- or am I mistaken somewhere?
So yes, I think there is a little bit more you may have to work on this information. Yes, the NBM is the right metric. The NBM percentage growth is the way Srini hinted, is the way if you look at the health of a Life Insurance company that is growing, and the entire NBV is -- the entire pool is also growing. Those are the real indicators of profitability of our Life Insurance company.
Okay. And this does not include the impact which you mentioned about the M2M losses on the equity?
No, no. Those are quarter-on-quarter adjustments, and they would not impact. That is only for the purpose of consolidation in our consolidated results. It does not affect the stand-alone results of the insurance companies. Insurance companies have to -- because Life Insurance is a long-term business, they have to consider the future profits that will be earned over the policies we have written in the year and that is what NBV reflects is the percent value of future cash flows expected from new business policies that you have written during the period.
Sir, other 2 questions were slightly on a consolidated level. We had taken a mutual fund asset management license in October, if I correct, sir. Sorry for the wrong but we have been relatively quiet on that side. And if you can throw light to what...
The process of getting full registration, there is a multistep process with SEBI. We got in-principle approval. Now we have to do step 1, after which they'll come, do an inspection, then there will be another step, after which they will grant us the right to launch our products. We think that will be at least another 12 to 15 months from now before we are allowed to launch products by SEBI.
So another 12 to 15 months?
Yes. That is the process for getting a mutual fund register, licensed and then go through the whole process and then we like the product. Meantime, we are started planning and strategizing and see how we can fringe into that market. But over time, you will hear about it.
Okay. And sir, as the initial comment you also mentioned that we are -- from a -- from the Finserv balance sheet, we are going to invest INR 2,500 crores in the housing finance subsidiary, right?
BFL is investing INR 2,500 crores in the housing finance.
But isn't housing finance was a subsidiary fully owned fully owned by the...
But right. I mean they are preparing for a higher period of growth. They have grown 39%. The capital adequacy is 19%, but BFL wants to -- I mean, BFL and BHFL decided that they need to infuse capital.
Sir, have we mentioned the percentage stake that you will have there? I'm sorry, I've missed the notes...
As of now 100% BFL.
No, no, for our investment, what will we ours?
We are not investing in Bajaj Housing Finance. BFL is investing INR 2,500 crores.
As there are no further questions from the participants, I now hand the conference over to Ms. Bunny Babjee for closing comments. Thank you, and over to you, ma'am.
On behalf of JM Financial, I would like to thank Mr. Srini sir, the senior management team of the insurance businesses and all participants joining us on the call today. Thank you. You may now disconnect your line.
Thank you all. Thank you.
Thank you.
Thank you, everybody.
Thank you.
Thank you. Ladies and gentlemen, on behalf of JM Financial Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.