Bajaj Finserv Ltd

NSE:BAJAJFINSV

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the 3Q FY 2022-'23 Earnings Conference Call of Bajaj Finserv Limited, hosted by JM Financial. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Sameer Bhise from JM Financial. Thank you, and over to you, sir.

[Sameer Bhise, analyst]

Thank you, Rutuja. Good morning, everyone, and welcome to the 3Q '23 earnings conference call of Bajaj Finserv. I would like to take this opportunity to thank the management of Bajaj Finserv for allowing us to host this call for yet another quarter.

From the management team, we have Mr. S. Sreenivasan, our CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance; Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance; and our CFO, Mr. Ramandeep Sahni from Bajaj Allianz General Insurance; and Mr. Bharat Kalsi, CFO, of Bajaj Allianz Life. We will open the call with opening comments from Sreenivasan sir, and we'll move to Q&A.

Over to you, sir. Thank you so much.

[S. Sreenivasan, executive]

Thank you. Good morning, everyone. Welcome to the conference call to discuss the results of Bajaj Finserv Limited for Q3 of FY '22-'23. Before I get into the performance, let me just make some standard [ hygiene ] announcements. As before, in this call, we will largely be concentrating on the consolidated results, as well as the results of our insurance operations through Bajaj Allianz General Insurance and Bajaj Allianz Life Insurance, BAGIC and BALIC, respectively, and [ where ] material, the stand-alone results of our company, the FX. Bajaj Finance Limited, which is another major subsidiary of ours, has already had its conference call. However, if there are any high-level questions on BFL, we'll be glad to take that as well. We will not be taking any questions on the status of Allianz, the stake in our insurance company. The status has remained the same as at the end of the previous quarter, and there is no change there. Any statements that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result.

A brief remark on Ind AS has acquired the regulation, BFL prepares its financials in compliance with Indian accounting standards of Ind AS. The insurance companies are not yet covered under Ind AS. They have prepared the Ind AS financials only for the purpose of consolidation. Accordingly, for BAGIC and BALIC, the stand-alone numbers reported in our investor presentation and which will be discussed 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 presentation has been uploaded on our website yesterday.

Let me now come to the performance for Q3 FY '23 and the 9 month FY '23 -- let me start with BAGIC. For the quarter, BAGIC reported a growth of 28.6% in gross domestic premium income as against the private sector growth of 22.3% and the industry growth of 18.5%. Even if we exclude the tender-driven volatile businesses, basically Crop and Government Health businesses, BAGIC has grown as [ FY '23 for the year ] 12.8%, and for 9 months, it is 14.6%. In the intensely competitive Motor segment, BAGIC has been selective, seeking to grow in compost with high profitability.

To add some more detail, the growth in GDPI was attributable to Retail and Group Health, which grew at 11.2% and 41.2%, respectively. Commercial lines; Fire, Engineering, Marine and Liability at 14.9% and overseas medical, which is travel insurance, at 44%. Overall, in Q3 FY '23, BAGIC had a motor growth of 6%, the 2-wheeler segment growing 24%, while the 4-wheeler segment grew 8% and the CV segment degrew by 5%. Specifically, BAGIC chose to give up business in larger cities where price competition was more intense.

The growth in commercial lines were aided by BAGIC's strong bancassurance network and multiline agency channel, supported by strong underwriting and large reinsurance capacity for covering large risks. BAGIC continued its robust performance across retail, commercial and industrial risk categories. Fire and Marine segments continued their growth momentum. Engineering and Liability lines have also shown strong growth, continuing their momentum from the previous quarter. Overall, commercial lines continue to do well with Q3 FY '23 and 9 months FY '23 growth of 14.9% and 15.2%, respectively against the industry growth of just 8.3% and 14.4%.

Health insurance performance has improved in Q3 as compared to previous quarters of FY '23. Overseas Medical or travel insurance continued its momentum, growing at 44%. BAGIC growth in Retail and Health 11.2% was better than the overall market, which is private, public players of [ 10.1% ]. In Group Health, BAGIC witnessed strong growth of 41.2% in Q3 FY '22 of industries, private and public players of [ 30.6% ].

For the industry, overall retail has growth, including standalone health insurers of [ SAHI ] which 32% in Q3 and 25.2% in 9 months of FY '23.

A positive feature in Q3 of FY '23 was on the claims front, where sequentially from Q1 FY '23, the claim ratio has improved. It first improved by 2.4% in Q2 and then it has further improved by 3.4% in Q3 due to better selection of business and normalizes of aberration such as high motor owned damage loss ratios. If you recall in Q1, when we had a fairly -- a spike in our loss ratios, we have said that we will be taking corrective action to bring down the loss ratios. And typically, in the general insurance business, these take 6 to 9 months to play out because the existing book will continue to have higher losses, while the new book will be returned with stronger underwriting, and the results of that are already visible.

For Q3 FY '23, the loss ratio stood at 72.1% as against 69.6% of Q3 FY '22. The increase was attributable to high inflation in Motor and Health segments, partially offset by lower commercial claims. Moreover, BAGIC has also taken additional net impact of INR 9 crores on account of the adverse court order with respect to Osmanabad Kharif 2020 crop season. At this stage, we do not expect -- we do not have any information, which leads us to believe that there's any further provision is required in respect of the Kharif 2020 crop season.

The combined ratio for Q3 FY '23 stood at 100.3% versus 98.9% in Q3 FY '22. Nevertheless, higher frequency in Motor and Health ex COVID and the impact of inflation on costs are expected to remain. BAGIC will monitor these developments closely and endeavor to initiate corrective action as required.

In a market where most companies are reporting large underwriting losses, this result, we believe, displays BAGIC's commitment to a balanced and profitable growth on the back of strong enterprise and selection. The profit after tax was at INR 278 crores in Q3 FY '23 and INR 1,026 crores in 9 months FY '23. The AUM grew by 8% to INR 25,977 crores for the 9 months ended 31 December 2022.

The lower PAT is mainly attributable to higher combined ratio and lower realized gains on investments. Clearly, the realized gains on investments quarter-on-quarter can be volatile. And this quarter, it was a bit lower than the same quarter of last year.

In summary, for the quarter with strong external headwinds in the form of price competition in Motor segment, and BAGIC has chosen to hold its own with a satisfactory combined ratio.

I will move to Life Insurance next. Overall, the Life Insurance industry saw momentum pick up in Q3 after a muted Q2. During the quarter, while few private players saw a slowdown in their growth as compared to the previous year, BALIC continued its month-on-month growth trajectory and reported an industry-beating individual rated premium growth of 22%. Again, the industry and private player growth of 12% and 16%, respectively. Similarly in the 9 months of FY '23, BALIC IRNB or Individual Rated New Business grew 38% as against the industry growth of 16%, private player growth of 19%. In fact, in the 9 months FY '23, BALIC was the second fastest-growing life insurer and in the top 10 private players on the IRNB basis. And on a 3-year CAGR of 35% on IRNB basis, BALIC remains the highest, fastest-growing life insurer in the industry. This compares with the pre-COVID base.

BALIC improved its market share of IRNB from 6.4% to 7.4% among private players in the 9 months. Total number of policies for BALIC also grew 24% to 1,52,000 in Q3 FY '23. And for 9 months, the growth was 33%. And as of 31 December -- the 9 months ended 31st December, we have issued 4,09,000 new business policies.

Overall, IRNB mix for Q3 stood at par 19%, non-par savings 37%, [ churn ] 4%, annuity 7% and ULIP 33%.

As we mentioned before, BALIC's primary differentiator in the market is balance. A balance across products, a balance across distribution and the balance between profitable growth -- growth and profitability. Most lines including par, non-par savings, churn, annuity and ULIP have shown growth in absolute terms. The business mix changes reflects little differences in growth and hence are not a matter we are concerned about in the short run. During the quarter, growth was driven by all our main channels with agency, institutional business and BALIC Direct growing at 28%, 18% and 15%, respectively.

Another point I would like to highlight here is the strong year-on-year increase in persistency across vintages, especially in the later buckets, where 49-month persistency increased by 4% to 63% and 61st month persistency improved by further 3% to 49%. As a result of the actions taken on persistency over the last few years, our renewal book is looking quite solid, and we were able to record a 30% growth in renewal premiums in Q3 FY '23.

New Business Value Net of expense overrun, the key metric of profitability increased by 38% from INR 152 crores in Q3 FY '22 to 210 crores in Q3 FY '23. For the 9 months under 31 December 2022, the NBV was INR 535 crores and it's again INR 314 crores for the 9 months ended 31 December 2021. This is a growth of 71% in the 9 months.

Balance PAT for Q3 FY '23, that is a profit after tax, degrew by 8% to INR 81 crores as against INR 88 crore in Q3 FY '22, mainly account of the higher new business rate given the higher growth in new business and was partially offset by lower [indiscernible] last year, we had a few reserving for COVID claims. Overall, a relatively strong quarter for BALIC.

Finally, both insurance companies are financially among the most solvent, BALIC with 529% solvency and BAGIC with 373%, and they are both well poised together any external adversity. All our businesses have further augmented their digital capabilities, which, along with greater digital acceptance by customers, should we hope, help create the foundation to deliver a strong performance in the last quarter of FY '23. Both BAGIC and BALIC has seen an increase in the utilization of the digital properties by customers and intermediaries. Further details regarding BALIC and BAGIC's digital capability are covered in the investor deck uploaded on the website. I would urge everybody to go through the sale in detail.

Coming to our lending businesses, BFL and BHFL. BFL already had its investor call and we will only broadly touch upon BFL results. Both Q3 and 9 months of FY '23 were excellent for BFL as the company delivered on all its long-term financial guidance metrics, AUM and profit growth, return on assets, return on equity, as well as gross and net NPA. The return on assets on an annualized basis are about [ 5.4% ] now.

Continuing on its growth story. BFL acquired 3,14,000, 3.14 million new customers in Q3 and 8,48,000 new customers in 9 months of FY '22. Building on this customer franchise, a number of new loans booked in Q3 FY '23 increased to 7.84 million or 7,84,000 as against 7.44 million in Q3 FY '22. The company's diversified business model has enabled to record strong AUM growth as seen from the total AUM standing at INR 2,30,842 crores on 31st December '22 as against just INR 1,81,250 crores on 31st December 2021. BFL continues to maintain a management overlay provision of INR 1,000 crores at a consolidated level for COVID and other unexpected contingencies.

The gross and net NPA continued to be under control. The gross NPA for BFL has been 1.14% and 0.41%, respectively. BFL ended the quarter with a profit after tax of INR 2,973 crores on a consolidated basis, which was 40% higher than the same quarter of the previous year. The capital adequacy continues to be strong and stood at 25.14% out of which the Tier 1 capital stood at 23.28%.

One of the strong performers in the quarter has been Bajaj Housing Finance, the 100% mortgage subsidiary of BFL. It continues to do well. The AUM grew by 33% to INR 65,581 crores as of 31st December '22 from INR 49,203 crores. Profit after tax grew by 81% to INR 334 crore in Q3 FY '23 as against just INR 185 crores in Q3 FY '22. For the 9 months ended December 31st, the profit after tax grew 87% to INR 956 crores.

The capital adequacy ratio is certainly comfortable at 23% with GNPA and NNPA continue to be under control at 0.23% and 0.10 %. In summary, a very strong quarter for both BFL and BHFL. Consequently, the BFL consolidated results reflected an all-time high quarterly profits.

Now I'll give you some update on our newer companies, which is Bajaj Finserv Direct or Bajaj Market, and Bajaj Finserv Health or BFSD, as we call it. During Q3 FY '23, Bajaj Markets has affected about 8,40,000 consumers on its digital platform, of which about 2,00,000 became customers. This is that against 80,00,000 and 2,00,000 customers in Q2 of FY '23. BFSD in lending -- the lending of the gas markets, unsecured and secured, both BFL and partnerships. The disbursement for the quarter stood at INR 1,175 crores as against INR 1,052 crores in Q2 FY '23. It also showed 62,000 cards in Q3 FY '23 as against 61,000 cards in Q2. In Q3 FY '23, Bajaj Markets reported a total income of INR 104 crores. This is the revenue that we have earned versus INR 56 crores in Q3 of FY '22. For the 9 months ended 31st December, the revenue was INR 278 crores.

Coming to Bajaj Finserv Health. During Q3 FY '23, Bajaj Finserv Health carried out 9,10,000 health transactions, having 3,90,000 plus monthly active users. For the quarter, eBH had 9,74,000 paying users with 3,10,000 users having renewable products. eBH is also managing OPD benefits for over 250 employers, covering 2,20,000 plus members under this managed care services. At the same time, eBH is powering Health Prime rider product, which is sold along with BAGIC. It's a BAGIC product, which offers OPD, teleconsultation and various other nonhospitalization benefits. And I'm glad to say that this product, which was launched in January of 2022 has already crossed 10,00,000 members or 1 million. The company is now building wellness benefits as well as fitness, dietician, mental health. And going forward over the next 2 years, we will see stronger focus on those areas, moving away from illness to wellness.

In Q3 of FY '23, eBH reported total income of INR 45 crores versus INR 28 crores in Q3 FY '22. And for the 9 months, the total revenue was INR 117 crores versus INR 60 crores in 9 months of FY '22.

Now a brief one on our consolidated financial results, the details of which are in our press release. Consolidated total income, 23% increase to INR 21,755 crores. Consolidated profit after tax, 42% increase to INR 1,782 crores. For the 9 months ended, the consolidated total income was up 18% at INR 58,447 crores, and consolidated profit after tax was 45% higher at INR 4,648 crores.

Under the control -- under the Ind AS, the [ insurance subsidies ] have chosen to hold a part of their equity securities portfolio as fair value through profit and loss account. What this means is that the unrealized mark-to-market gains on investments included in consolidated profit tends to be volatile. Although they are unrealized, we still need to make a provision in the books. So there were -- on account of this, there have been MTM impact. We tend to call this out separately so that investors can make an appropriate judgement of all the core results.

If one were to exclude the volatile impact of MTM losses and gains, the core profit after tax would have increased by 34% in Q3 FY '23 and 57% in the 9 months.

This, in short, is a brief on the results for Q3 of FY '23, and I will now invite questions from the participants. Thank you.

[Operator]

[Operator Instructions] First question is from the line of Avinash from Emkay Global Financial Services.

[Avinash Singh, analyst]

A few questions. First one, I would like to understand on BAGIC. I mean how is that commercial lines pricing environment, particularly post -- there was some kind of, I guess, first loan guideline by IIB Industrial [indiscernible], that the reinsurance or [indiscernible] led price for regions that not set a kind of [indiscernible], I mean, in a way, it's sort of open the road for competition as the other floor pricing is commercializing also. So post that, I mean, how is sort of a commercial line pricing environment of [indiscernible],one?

Second one, BALIC, on the group side of business, particularly if I see on the protection, if you can help us understand, I mean, the kind of a slight decline in your premium. Is it coming from the GTI or credit life and is it volume or pricing led? And also on the fund management side, of course, that business is not profitable, but what is sort of driving this -- sort of that you are -- like many others are also doing some business rather doing less business on the group fund management side? That's two. And lastly, one would be on your hedging strategy. Of course, you have FRA a part paid bonds. I mean how is the sort of a supply of part paid bonds and what sort of comfort you have like -- how -- what do -- your comfort as of the corporate [indiscernible] where you can sort of subscribe to part-time also?[indiscernible].

[S. Sreenivasan, executive]

I will just summarize the 3 questions. The first question was for BAGIC, where reward about commercial lines pricing because of the removal of the insurance to IIB cap or a floor on pricing. The second question was to BALIC on the protection side with a focus on group protection as well and what are we doing on the fund management side. And lastly, you wanted a view on the FRA. So I'll just pass it on to Tapan first to take the question on BAGIC. And thereafter, Tarun will land on the question on BALIC.

[Avinash Singh, analyst]

Last one was a part in book...

[Tapan Singhel, executive]

Thank you, Sreeni. If you look at -- let's understand what was this IIB rate to begin with. So GIC, our national reinsurer, I had put in underwriting guidelines in terms of what to accept in its books. We said that the average claims, which is part of IIB -- you can get the data from IIB, is what the minimum it will accept in terms of the [indiscernible]. So it is not that the other reinsurers in the market who were free to write the risk at anything. So everybody has the underwriting norm. So I think it's the GIC underwriting norm and will test this is what they will be looking for. Now what -- as [indiscernible] mentioned is that you do not put in not specific like this in terms of linking into some part of it. So fundamentally, what was the weakness in the norm was of good risk would also have to be priced if we got the lower strata. They cannot go and get benefit of it.

Now with this coming in, there would be underwriting norms in which [indiscernible] may actually get better discounts. And the earlier times also the worst of risk can be priced more aggressively. So if we look at the underwriting norms, which were set up by GIC, they are not something which is set up by everybody across the industry as it was made out to be, and I mentioned earlier that other reinsurance do not have these kind of norms stated there. So pricing will actually, in my view -- let's see how the future holds up, for good risk, obviously, the pricing would get much better. And for risks, which are not so good, it will get -- so it has been something which is there [indiscernible] back. That's how the pricing used to happen.

So I do not see a very huge shift in terms of fall in prices. There would be some fall in price because the good risk would be a little bit a much better price. So that will be there. but it's not something that would be catastrophic in nature in terms of the way the prices behaved -- tumbled down completely. I don't see that happening.

[Tarun Chugh, executive]

Yes, Tarun here on BALIC. So the first question is around protection. I'll basically bifurcate this into 2 parts. One is credit life and group production and the other is on the retail side. On the group side, we had a very kind of [indiscernible] first 9 months. Largely because the partners we've been working with haven't really grown much. It's a unique situation that the partners who contribute to our significant percentage of credit life haven't really themselves grown. Market has grown faster in credit life. But on the retail side, where a lot of our focus has been, we've grown quite well, I would say. So if I just talk about the number of customers we've added, we had a 68% growth in terms of the number of customers we've added on the retail protection. Your second question was -- and that's quite healthy and quite -- as per the strategy that we have.

In terms of the price, that was your second question, pricing in credit life and group term life, which is the employer/employee has now stabilized to -- group term life particularly have stabilized to pre COVID levels. And credit life, the prices have stabilized as well. In retail protection also, whatever price hikes we have done, we are mostly done with and it's stabilized there as well.

On the fund management side, I presume you're asking about the group employer/employee funds. It's not a very big focus business for us because the bottom line from that isn't really significant. But still having said that, it's a profitable business for us. And we expect that to grow with every deal that keeps coming in the market. So it's a very lumpy business, difficult to forecast. And typically, it's very responsive to pay hikes that we see in the market because gradually and superannuation, the contribution get linked to that. It is a line of business. But like I said, it's not something that we expect to really focus on too much.

On the FRA, that is your third question, I'm asking Bharat to just respond to you.

[Bharat Kalsi, executive]

So the question was more on the -- one is on the partly paid bond supply side as well as on the overall FRA. So I think FRA, as you are aware that it's an established practice, and we continue to follow that practice ahead portfolio. As far as partly paid bonds are concerned, we are already investing into a few top corporates only. But as a process, you are right to a good extent that the supply side on the partly paid bond is less. But what we are trying to do is that we are trying to go to the first class or the category A manufacturing companies in terms of if they are okay to issue a partly paid bonds. So this is more at a discussion stage, but we will be very calibrated in terms of taking any credit risk. And hence, partly paid bond will always remain one of our key areas of hedging, but it all depends on which kind of corporates are willing to [indiscernible].

[Avinash Singh, analyst]

Yes. Very clear. Just on group one management speed, the completion has intensified. I mean, particularly from the large incumbent in that segment. Is it from the reason why sort of you are -- or like it is that [indiscernible] spread is compressed by the larger player in that segment?

[Tapan Singhel, executive]

Yes. So that is correct. The incumbent's focus has been on this. They are quite good at this and have a very good spread of corporates. Our overall fund management base for group funds remains quite healthy, close to 10,000 crores. So as the overall portfolio base does make money, and this is why we focus really on the bottom line here, but not necessarily significantly growing top line. We would like to keep profitable business on our books only.

[Operator]

Thank you. The next question is from the line of Bhavesh Kanani from ASK Investment Managers.

[Bhavesh Kanani, analyst]

My question pertains to the health insurance business and BAGIC. The share of retail health has been pretty low. So just wanted to kind of get your sense on the strategic direction for this business, how do we look at the opportunity there, the profit pool valerate interests to us? And if so, what can be expected in terms of future growth from this business?

[S. Sreenivasan, executive]

I'll pass it on to Tapan to take that.

[Tapan Singhel, executive]

So if you look at, I think, retail premium, if you look up for industry also, it is not the leading business, be mostly Group Health, Government Health and Retail Health. That is how it is structured at. Coming to BAGIC, in the COVID times, we had gone slow on Retail Health, if you look at because it was very uncertain. And if you see the losses happening in the health portfolio, it's very high. The price correction are not happening at that speed as it should be.

But if you look at it when the market has treated prices to a large extent on the Retail Health basis, and we also have done some correction on it, as we have mentioned last time about a couple of this. And now if you look at our focus, we have been growing with Retail Health. So we would remain focused on that. It depends how the market conditions were. COVID at to the time of huge uncertainty -- and that time, we prefer to go slow compared to the market, simply because it is not very clear as to how the health portfolio would play out. But now if you look at, we are again growing in health portfolio, and we are focusing on it.

[Bhavesh Kanani, analyst]

Any targets or any road map you have in mind of what kind of contribution you would look to get from the retailer?

[Tapan Singhel, executive]

For us, it's actually a very simple as a strategy. We are very agile. Whatever it looks good to us. We grow that more than the market. And what we look is not giving us good returns, we slow down the market. And you see the motor itself, commercial vehicle at one time was giving us good returns we grew over the market. Not to look at the commercial vehicle is much lower than the market. So if the market What we feel is good, we will grow over the market. And if we feel that it's a difficult right now, we grow below that. We don't try to fix targets and just go for it without looking at how the market behaves.

So our response will how the market is behaving so we're able to keep our motive of keeping very clear, such as one customer obsession, some of the products is very customer-centric. And I would like to mention that if you look at the product we came up with [indiscernible] issue with respect to the health which we have set up an IoT, a polytection, a call center and ambulance -- emergency ambulance to pick up an elderly if something goes wrong from their home and take them to a hospital to be treated. Even before the call -- on our own, we get a call from the fall detection to our call center to pick them up. So we keep on pushing boundaries for customer excellence, I think, again, very first and [indiscernible] opened up , he came out for OPD also, a very strong product in -- with collaboration with Bajaj Finserv Health. So we keep on pushing bond in terms of customers servicing in excellence. That's the first thing that we keep on doing and we'll keep on doing that as we progress also.

The second thing that our obsession is, as I mentioned to you, that we will go over the market if we feel the market is too conducive and which is there. So we don't try to keep targets on it. The obsession with the customers or with innovative products that is a [indiscernible] society, and also keep on looking at [indiscernible] and keep on doing that. We'll keep on doing that as we [indiscernible] further.

[Bhavesh Kanani, analyst]

Any sense on where we are in terms of investing for expanding the Retail Health business? Any investment plans you can share?

[Tapan Singhel, executive]

Yes. So if you look at our distribution to expand, we are expanding Tier 2, Tier 3, we have a plan. So as we expand distribution, in distribution, predominantly the 2, 3 lines of businesses get pushed, one is Motor, one is Health. So you will see this happening with the expansion of distribution. So that is a clear investment that we are going ahead and which we have been doing consistently.

[Bhavesh Kanani, analyst]

And last bit, what in your sense is a sustainable ROE for Retail Health business?

[Tapan Singhel, executive]

So Retail Health has been an interesting thing. And it's a good question. If you look at across the industry, currently, the profit and the retailer portfolio comes from new business. So any company is growing new business aggressively has a lower loss ratio. And the old book has a -- loss is pretty high. That to me is not a business which is sustainable. All years and all books should be on a profitable basis, the way we look at it.

And currently, that's what's driven a lot of the companies to grow [indiscernible] because that brings books very profitably. We look at the loss ratio for the third or fourth tier of their books, will not be [indiscernible]. So fundamentally, if you look at retail, I think the balance pricing and solutioning, which comes to is what will give good ROE. Our obsession has always been to our combined ratio, which should be close to 100 in a market like this. And that is what we keep on targeting for all lines of business.

[S. Sreenivasan, executive]

Just to add to what Tapan said, while there is a lot of focus on Retail Health, Retail Health as Tapan has pointed out has a fundamental problem that everybody is depending on new customers coming in or price increases to be able to keep up with the deteriorating loss ratio as the customer profile pages. But the group health is an important thing. And BAGIC over the years, we have been then we felt the market was not conducive. We have slowed down. But when the market is attractive, we have been more aggressive. Whenever we get business on our terms, we take it. And overall in our group health, now we are able to operate it very profitably with a combined ratio of below 100%. And that is also growing at 40%.

So clearly, when we look at the overall health spectrum, it is about how much of the payments that you control, including group and retail. That is an important metric and BAGIC stands fairly high in the pecking order on that. As the health insurance market evolves, I think both will have an important role to play. And the one is better because in the -- as you do have a chance that every year you get to re-underwrite the business. So it's not subject to acquiring new customers only. And it's also very service-sensitive being an employer/employee benefit. In both of these, BAGIC continues to invest and be strong. And we think that overall health business is doing quite well.

[Operator]

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

[Sanketh Godha, analyst]

Sreeni, I have a first question to you. Just your view on the composite licensing given -- both life and general insurance and where the ownership is common. So how do you see this composite license coming out, whether BALIC will compete with BAGIC on health, if they choose to do health. This broader area, what you have on composite license? That's the first question. Then I have specific questions on BALIC and BAGIC, if you can respond to that.

[S. Sreenivasan, executive]

No, broadly, this is just a proposal now to change the ads, empowering IRDA to create some classes of business and to offer licenses, differentiated basis for people who want to do only certain class of business or more than one class of business. I believe that is now being under discussion with a large group of stakeholders. And we have to wait and see the final control before we take a call.

So at this stage, we cannot comment on whether it is a good thing or a bad thing. Clearly, [indiscernible], it looks like there are benefits of cost by sharing our branches and sharing of people. But at the operating level at the risk level, IRDA and [indiscernible] are completely different businesses. So it's not necessarily that just by combining the two, you actually get a superior business. And there is an accumulation of risk across health and life, for example, when the person falls sick and they call the person dialed, you end up paying much more than when a person care is done by 2 independent companies. So there are pros and cons broadly, but we are studying this in detail, and we are selling practices across the growth. And some countries, life and health are together. In some countries like U.S., health insurer, health companies are independent. In some companies, some countries like India, health has traditionally been for the nonlife companies. So there are multiple models, and we will be studying all that and taking a view if and when it becomes law.

[Sanketh Godha, analyst]

Now Bajaj Life, the question which I have is that if I look at the third quarter growth, the Axis Bank asset channel has grown lower than the company average only for the third quarter. So first, I just wanted to understand that now the market share story in Axis is almost over, and the growth will be more in line with the channel growth. And then also just wanted to understand that whether you are seeing some kind of a pressure with respect to deposit mobilization target by the bank and that is getting reflected in bank channel growth because overall, the bank health growth has been lower compared to the company average.

So that's on Axis and bank channel. and the second point, which I wanted to ask is that we had a pressure in deferred annuity business in second quarter. We see the same pressure continuing in the third quarter too. So anything to read there because the other companies, larger companies have also launched that particular product -- is it because of the competition or something to do or some other reason, if it's leading to that slowdown in the deferred Annuity. So these are questions on BAGIC. I have one question on BALIC. Which i will ask on queue.

[S. Sreenivasan, executive]

Yes. I think I'll pass it on to Tarun. The one1 question was on bancassurance and Axis and is there a slowdown in pros and so this way forward. And second question was whether the deferred annuity business growth was because of competition or was it a deliberate strategy of the company.

[Tarun Chugh, executive]

So, Sanketh thanks for the questions. The question specifically on Axis. We've maintained our market share in Axis despite not being having an equally stake from there. So I think it's -- that will continue. We expect our market share to hover around the current levels.

In terms of the fact that whether the growth will mellow down, yes, it will grow as per the growth now of the bank and productivity that we're able to get. Of course, we always keep pursuing other white spaces where we can help the bank grow its third-party income business, and that work will always be on. And that is what will decide the growth of Axis in the future. And this quarter particularly was the quarter in which the base effect kind of annulled itself. And hence, particularly in December that came back in May.

As far as the deferred annuity is concerned, I know you're talking about the pressure, but honestly, as far as we're concerned, we are the market leaders, we are the first ones to come up with a deferred annuity. There is a lot of 42.26[indiscernible] memory about that in the market. We wanted to balance out our product mix in the quarter before. And that pressure of balancing it out is now absolutely out of the window, so it's not a problem at all. And we will be -- way back in doing as much as we possibly can in the annuity business. It's already growing at a healthy rate. And it's grown almost by 45% over the last 9 months. So I think it's back in action there. There are 5 better than the entire company. So I think that's not an issue. The market recognizes who was the innovator and we will keep getting that benefit. And we will be innovating further in this product..

[S. Sreenivasan, executive]

I think over the last 2 years, you must have seen that BALIC has expanded its bancassurance portfolio. We have IDFC First, we have City Union Bank, we have DBS, we have added Punjab &

Sind Bank, have added J&K Bank. Typically, these are banks that are going to take some time to see some, maybe a year or 2. And we have started building a more diversified bancassurance portfolio. And that effort will continue over the next few years.

[Sanketh Godha, analyst]

And the last one on Bajaj General, Motor TP loss ratio, what we look in third quarter, it has improved compared to what it was in first half. But 82 percentage seems to be still on the higher side compared to what we have imported in historical part. Sir, I just wanted to understand that given the competition is not reporting these kind of numbers, do we see a release happening in fourth quarter or in subsequent year, maybe because of our conservatism? And second, if motor vehicle at benefit given the mother of high court judgment has come if you bake in that benefit, what is the likely improvement you can expect to happen in motor TP loss ratio or overall combined ratio for the company?

[S. Sreenivasan, executive]

Before I pass it on to Tapan or Raman, let me just highlight that motor TP loss ratios quarter-on-quarter can be volatile. Historically, we have published our brands, and you can see that we are generally reasonably conservative in our provisioning without being excessively prudent. And we will continue that strategy. We do not comment on what competitors are doing as a goal. Although we track them and we know some of the numbers in greater detail we studied from their public disclosures. But I think by end of the year, we will have a clearer picture. We, as a rule, do not do big reversal end of the year normally. And unless there is an actuarial reason to do so, or actually, as we build in enough margins for adverse deviation, we build in enough provisions for inflation and claims, we also build in provisions for any changes due to regulations such as the motor TP and the development thereafter.

Now I'll just hand it over to the management of BAGIC to add any other points they are feeling to add.

[Tapan Singhel, executive]

Sreeni, I think you covered it. So if you look at it and it's a very relevant question. So in kind of overall combined ratio and you look at the reserving, then you get a very good comfort that as a company, we are very well reserved. And in spite of reserving [indiscernible] very well, our combined ratio is also among the best in the industry. That is the our first statement that not should clearly come out from your question that you asked.

Now coming to the point that why is it like this, the health inflation that -- sorry, the claim inflation that we see in TP and then the COVID turns all of courts are shut down. So it is not very sure in terms of how the number of cases, which are carrying will play out. So obviously, we have to keep all that provision to perspective. One was inflationary impact. Second was the impact of code closure in the COVID times. And how would these things start coming out, and that's why we have now kept it also the trend that we see in terms of the loss ratios.

So it's a full science in terms of how the reserving here would be done. But at no point in time we want to be in a scenario where we would be under reserved. So it's better that we take care of our reserving by taking into all parameters and adding it well. Now if the court cases that you're talking about, if it becomes a trend, then obviously, the long-term TP becomes a short tail which has 2 impacts. One impact will be in terms of your reserving, it actually becomes more clear because short tail, you would have this vagaries of long-tail prediction as to how it is going to go , which I think it will bring the results in terms of a lot of clarity of how the loss ratios will move. That is a good part.

The other part will be impact on the reserves that companies have for investment. That will start coming down. So while you do this calculation, you also see that perspective that in the short term, take a lot of money which companies have is the third-party money which is there with them.

So that starts coming down. So that's a very interesting play, which will happen, but we will still wait and watch how it plays out. But I think we're very good for the customers. it will eliminate a lot of fraud, and it also will ensure speedy justice. So from a customer perspective, it is very good. So we welcome this if it happens. I hope we were able to answer your question.

[Operator]

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

[Bharat Shah, analyst]

Two questions. One, on the life insurance, that's more of a suggestion. On the life insurance, if we provide complete EVOP work on a quarterly basis, while not mainly do that, it will give a much better insight into the evolution of the character of the 48.54[indiscernible], and how the past and the present, we can correlate a little better when the data is available. In extent of that, the data doesn't really become complete in itself.

So that was on life insurance. On general insurance, when we see over the period of time that the character of the industry is much more focused on growth rather than growth along with profit and capital efficiency, how does it impact you as a player? Either it affects your growth or it affects your capital efficiency if you have to mimic the way industry is doing. Therefore, [indiscernible] with the evolution of the character of the general insurance industry has an impact on the way you will perform, so just wanted to get your thoughts on this.

[S. Sreenivasan, executive]

Yes. Bharat, I will take it first half before passing on to the insurance company management. The first question, I'll take the general insurance question first. I think globally in general, insurance as you see there are 2 types of players: people who seek to grow market share and they define market share as gross written premium. And there are a few companies, maybe a lot more than the top design, or top 2 designs of companies, which actually delivered double-digit ROEs on a sustainable basis. most of EV companies we have seen. I think last few years, we have seen many disruptors entering the market.

But you see the combined business they have return in terms of premium, whether it is in U.S. or China. These are a very small proportion of the market, right now will be even 1% of the market. So clearly, this is a business which is long term. quarter-on-quarter, year-on-year, there can be volatility on claims.It is exposed to very large act of god risks. And therefore, what our approach has always been to follow what is prudent, underwrite well, select business well.

In terms of certain businesses, especially asset-based businesses like motor, pricing can play a big role because most of the young companies start with writing motor business. That's the easiest to write and sell. Which I think, at some point, they will run out of capital. The point is do we want to acquire customers knowing fully well that we will lose money or do we want to write business where we see a visibility of profit? It is possible that some businesses may not deliver profit in the first year, but if we see that over 3, 4 years, we have a sustainable business to be delivered there of a reasonable scale, then we would go for that.

I think the company has a very detailed long-term planning and AOP process. And it is a business of -- it's very dynamic. What you do today and select or deselect may change, maybe 6 months down the line. If the market conditions change as some people withdraw or some people get more aggressive. So it is that.

In terms of expansion, I think Tapan can explain in better detail what the company plans to do, but this is largely my question.

On the life, yes, we have been started disclosing the EV and not the EV work in great detail quarter-on-quarter basis. We're also showing the 12-month rolling EV just for information. The reason we do that is because while the life business is very seasonal, with a large amount of business being returned in Q4 and to some extent in Q3, but the first 2 quarters are generally very tepid.

At the same time, the fixed expenses are stretched throughout the year. So quarter-on-quarter, EV will not be probably a good measure or give an indication as to where the year might end at because in the last quarter, pretty much there are no [indiscernible] overruns are very well under control. That is the reason. However, [indiscernible] is useful, we will consider publishing that from next year. We will discuss internally and take a call on that. We will do whatever the market is doing, and therefore, we will be aligned with that.

Now I'll pass it on to Tapan, and then to Bharat or Tarun to take the questions.

[Tapan Singhel, executive]

I think you gave a pretty valid answer in terms of how it should be. So if you look at our philosophy from the very beginning has been, it's a balanced growth. We would be among the large companies. Having done this also, we have sustained this over so many years. It has never been a year in which we think is very comfortable in terms of the market behaving perfectly well for you to grow above. So if you see for us, this is normal business. I don't think that we worry about the market behavior in terms of sacrificing the profits for growth. I think it doesn't worry us because we have seen this for many years.

What we are obsessed about and what is our philosophy is what we continue to maintain. As I said on the last year that we should be one of the most customer-centric companies in the country. We should be one of the best [indiscernible] 54.20 in the country. And if you look at our record, with close to 13 crore customers and with close to the [indiscernible] website consistently for quarters together for over a decade, if you see these numbers, then you see our philosophy remains the same that service the customer very well, in a way to the best in the market come out with very customer-centric products.

And we focused about growing business, but in a balanced way where you don't lose sight that the balance sheet gets so upset that you really cannot sustain a company to which is there. So we are building a company for hundreds of years. We're not building a company for a short-term basis. And in that, I think the market conduct of behavior, which to us is not comfortable has no impact on our strategy in thinking. We continue doing so.

We continue investing into reaching deeper routes into the country. Our obsession is that today, if I divide by a number of customers to the total operation country, we will be present number one in 4 households. So how can reach every household going forward in the country? How can we serve every Indian? That is our philosophy -- so these are our philosophy. If you look at our philosophy they're very long-term philosophy. They're not very short term or in the next quarter philosophy that we have, and we will continue maintaining our strategy aligned to a long-term philosophy. Which is what -- so to answer your question in short, our market will always be behaving in a certain way, and it's perfectly fine. I think that is why it's interesting for us to look at our business and continue to win, but not losing sight of our philosophies of how do you want to build business.

[Bharat Shah, analyst]

Yes. So in short, what you are saying is adverse or [saviour] behavior of some of the players in the industry will not cause damage to our long-term philosophy.

[Tapan Singhel, executive]

No, sir, we should not worry about how others behave -- it's our personal life also it's about business also. I think our obsession should be how we behave, what kind of character thinks that we have and how do we keep on building on it. The market will keep on changing. It will keep on being a different plan. I don't think we should be very worried about how the market plays.

[Bharat Shah, analyst]

Great to know that. because at times you develop a concern, whether in the [indiscernible] and competitive behavior will it alter the way we want to pursue the things that are -- and on EVOP work Idea was not nearly the date of quarter-to-quarter inside. It is basically to get insight into how the company is doing the business over the period of time. And therefore, [indiscernible] passed to the present, then basically see how the future is shaping up. It's more from that perspective that when you have a series of data points of the period of time data at the judgment is to how the company is using [ which ] Insights appropriately?

The other question was if we look at last few years for life insurance as well as general insurance, can we see one or 2 things that we feel will be reflect either we could have done better or faster, both in life and insurance.

[S. Sreenivasan, executive]

Can you repeat that? Was there a question ? Do you [indiscernible] A question at the end?

[Bharat Shah, analyst]

No, that was the question. That if we reflect over last few years. What are one or 2 things, both for life insurance as well as general insurance, in our opinion, we could have done faster or better?

[S. Sreenivasan, executive]

If you ask me, I think I will answer that question. I think in general insurance, I think we have done -- well, I'd say what was done and what we have done exceptionally done and what we haven't or where we could have done better. What was a necessary is our very strong bancassurance ties. We have to add more than 240 partners. Most of the bancassurance business is commercial. And we have been growing those lines much better than the market. And we believe in the long run, commercial lines are a very important component of a P&C portfolio. They give both property and casualty business, as you say. And it also gives you large exposure to MSME and SME business, which otherwise is very difficult or very expensive to acquire. That is one definite plus point.

Secondly is the overall balance of the portfolio. We are not tied away from any line of business. any distribution channel. We are fairly strong players in bancassurance strong multiline agency network. We have one of the strongest OEM tires for new cars. We also have a strong presence in the BT e-commerce led businesses. We do small ticket mass business, we do large ticket corporate business. We have outstanding reinsurance network as we believe. And therefore, these are some of the very good things which have been drivers of profitability.

What we could have done better in my view is that, yes, there could have been a little bit more traction on retail health. We still are not very clear about the profitability model for retail health because it does not generate float and you have to operate at about 92%, 93% combined ratio in order to be able to deliver a superior ROE -- that at the moment is not available in the market, and it is an aging portfolio. The prices while not controlled, is still subject to approval by the regulators, and there is a big social impact there.

So in terms of health, as I explained before, we have done exceptionally well in group health business, which today is delivering a combined which were below 100 and growing at more than 40% in this quarter. Overall, health both group plus retail, we become one of the larger players in the market. As long as we are the strongest player over time, we should be able to demand better terms from hospitals. At the moment in India, the insurer use of hospitals is much less than the noninsured use.

And therefore, internal companies tend to pay much higher than our individual pay for the same play that has been our experience. You look at even COVID, the average COVID claim was about INR 115,000 for the market [indiscernible] complete statistics of the market. At the same time, the non COVID claims are hardly INR 60,000 to INR 70,000, which includes your cancer and cardiology and all.

So clearly, there has been some liberation because of that. It is an area where we are now investing. We are now looking at continuously look at profit pools and the larger cities, we believe, is over competition is so intense that we need to use our financial strength, our balance sheet and our ability, our customer service to be able to expand our business into Tier 3, Tier 4 towns. There are a lot of regulatory changes, which may enable us to do that in terms of vessels in composite limit for expenses. There are going to be some digital properties like [indiscernible] and we already are present in many of those markets who crop insurance through CSPs and our rural and other outreach businesses. So we think this win of intense price competition will correct itself over time. In the meantime, we have to continue to do what is good.

One good thing feature of us is that even the last 4 years, our share of the industry's profit continues to be very strong. We probably tell you more than 30%, 35% of the industry's profit even today. And that is very important for us. Our solvency is very strong. Today, BAGIC itself has a surplus capital of more than 65,000 crores, and they are looking to increase dividends as we go along. So I would say retail health is an area where we want to focus and rebuild. The other areas on the commercial insurance is something where we want to maintain our strength, corporate and commercial businesses. On motor business, we want to be cautious and focus more on 2-wheelers and select parts of commercial vehicle business and older private cars.

In terms of life business, I think pretty much everything has worked. We have used our surplus capital to good effect to build an industry be the performance over the last few years. We have gone from a negative margin after overruns to a significantly clean positive margin. Our NBV has been growing for the last 4 years much faster than our premium which itself was growing significantly above the market. We have built a strong proprietary sales platform. We have -- our agency is now delivering double-digit margins. And in terms of bancassurance where we had practically nothing to speak of 5 years ago. We have now a set of partners. Clearly, what we could have done better is probably on the term life, which is a high-profit product where we could have probably done better.

Unfortunately, COVID took us back, but that is just a reason for not doing it. We could have done it maybe 2 years before or later. But now the company has a defined focus as Tarun explained on pushing the percentage of term into the total. There are a lot of risks associated with them, especially rising whole of life and long-term businesses because there is always the pressure of under pricing and then the claims hit you after a number of years. but we have very strong reasons to believe that reasonable traction can be obtained on term, which can alter the market.

So in terms of balance, they have done remarkably well. In terms of building more tier is on the institutional side like bancassurance, it is still work in progress, and we can do far I don't know whether we could have done it faster. But definitely, we will continue to focus on that. And thirdly is to improve the efficiency of operations where we believe there are some pockets where we can further improve the efficiency and deliver a better result. So lastly, this is how we see it. And if Tarun and Tapan want to add something to it?

[Tapan Singhel, executive]

It should might be -- its a very good summary...

[Tarun Chugh, executive]

I agree, and we answered it last...

[Operator]

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

[Nidhesh Jain, analyst]

General Insurance, we have been doing 20% ROE in the past. Now the competitive intensity, I understand it's quite intense in the motor segment. probably because of that ROEs have now dipped to the 50%, 60% for the 9 months. So in your experience for how long this competitive intensity is likely to remain intense, and consequently, when do we see ROE trajectory improving to 20% level that we used to see in the past?

[S. Sreenivasan, executive]

I will take your question first half. I think 20% is a number. I would not really say this competitive pressure that has reduced the profitability. I think we have had 2 years of COVID claims in which bagging did very well to have very -- lower percentage of exposure to COVID claims than their overall market share in retail and group health. And now I think as the market came back, there has been what is called sort of pent-up demand or in terms of cars on the road are at an all-time high. The risk of driving has increased substantially. The non COVID health inflation has got up quite a bit. And there is that onetime effect in this year that you have seen in terms of claims, as we explained very well in Q1.

This obviously cannot sustain, and we did increase price just before COVID as part of our normal actuarial increases. And we believe some of the other competitors will now be forced to look at price increases. It's what was reported in the press. As they increase the prices, that will also stabilize. So therefore, I do not see that this year is 15 and next year is 20. This is a very volatile business.

Globally, if you see, nobody makes consistent ROEs in the business unless they give up growth -- or I mean, there's no such profit pool available. It is a market which follows what is called the underwriting cycle. The underwriting cycle globally is very well known of a period of high prices, and then losses mounting and then prices hardening, and therefore, companies soften on growth. In terms of the reinsurance market, you've had a lot of companies going under as well. And then the market corrects itself. It's completely different from the investment cycle or a business cycle. And this is the beauty of the insurance business. And therefore, the cycle has to play itself out. In a retail market, where new competitors are entering, obviously, price competition will be fell in the EV to sell businesses.

And therefore,one has to look for alternatives and come up those lines in a more profitable manner and build the right skills, capabilities and risk management. Our endeavor is to do that. I do not say that we have reached where we want to, but it is work in progress to guess. And through our long-range planning and annual operating plan process, we continue to improve. Substantial improvements have been made in digital outreach to customers in terms of digital experience and claims, and we will see as we go along. We also are now focusing a lot on loyalty in general insurance, very fickled customers globally are very fickle that the best service does not necessarily mean that there's loyalty -- there's a combination of service and price and engagement will value that -- and that project, you will see will evolve over the next 2, 3 years in a more meaningful manner to all our premium customers --

[Nidhesh Jain, analyst]

As a follow-up. So you seeing any signs on price hardening and cycle correcting over the next 12 months, 18 months? Or still, there are no signs?

[Tapan Singhel, executive]

I think that we have to wait and watch now. But if you again look at the industry overall, I'll take it to year 2007 when prepricing happened for most of the lines of businesses, that industry has been operating at a combined ratio, which is not very good, I would say, for 16 continue years. So as I mentioned earlier, I think that there would be like mentioned, there will be cycles, but it has to some way settled up. But will it happen in the next 12 months, I cannot comment on that because to wait and watch how it goes. So it depends on the appetite of people or the capital that they have, the strategy of how they would like to behave in the market. So it will be difficult for us to predict in terms of how the market will behave in terms of price correction in the next 12 months.

[Nidhesh Jain, analyst]

Secondly, on life insurance, we have seen robust growth in retail protection in this quarter, while peers are not able to show growth. So what has -- what we have done differently so that -- which has led to such sharp growth? And how is the growth outlook in retail protection for FY '24?

[Tarun Chugh, executive]

Yes. So yes, we've grown past years, and I think we shall continue to do that. I think you should expect that to bare minimum for BALIC. What is really work for us is really the way our agency and the Direct channel has particularly ramped up. And of course, an infusion business, the scale-up has been happening for a few years. That's really happened. And going forward, we also our production -- retail protection, which has become a strong part of our direction to move ahead with to be more and more prominent.

I think that's where we want to really make a difference. The good thing is that Underlying all of this growth, I think the big thing, which is not getting picked up so often is the number of policy growth that we've had. That was the one question I was asked in about 9 months back. It was something we wanted to correct, and that was the one thing we wanted to correct. And while a lot of insurance companies like insurance companies are focusing on increasing per ticket size, we maintain a robust ticket size per policy. But scale of customers, the number of customers we add is something which is critical at the same time, keeping our ticket size growing with inflation, and that is what is more and more to expect of us in the future as well.

[Nidhesh Jain, analyst]

Sure. And lastly, just 2 common questions for both companies. Commission regulation has commission is expected to be deregulated for both gender insured and life insurance next year. So do you see any implication for our business because of that? And lastly, Bajaj plans have come out with nominal strategy where they've shown aspiration of over 5 years, do you have plans to share similar long-end strategy for life insurance and general insurance business?

[S. Sreenivasan, executive]

Tapan, would you like to take that first?

[Tapan Singhel, executive]

Thank you, Sreeni. So I think it's a good move in terms of the regulation of commission. Because typically, if you look at when this commission regulation, so where they established to an era in which the only distribution was agency. So now you have different distribution like [indiscernible] to direct to web, which would require -- some will require more commissions, some would require more expenses to be add, and that should be left to the companies to decide how to play out within the expense of management limit. So I think that's a very progressive move by the regulator, and it is going to benefit in terms of establishing different modes of distribution, put in together. So I don't see it as a major impact coming through in terms of our strategy of lines. But I think it's a very progressive step, and we welcome that going forward. Your second question was on? Sorry.

[Nidhesh Jain, analyst]

On the long-range strategy, 5-year strategy, with share and other group companies

[Tapan Singhel, executive]

Bajaj Finserv as a holding group, we along with [indiscernible], we engage in setting up OPA for all the good companies. I think that's a phenomena that we do it together. And whether to disclose or not, that's the call we can take later, but to give you an assurance that every company in Bajaj finserv group of companies has this long-range plan and [indiscernible] establishing every year is a and the process which is [indiscernible].

[Nidhesh Jain, analyst]

On Life insurance, do you expect any impact because of commission [indiscernible]?

[Tarun Chugh, executive]

See, I think quite well answered by Tapan already. I think the only added it to all of this in the AUM guideline, which doesn't seem to catch people's eye is the positive, which while capping the AUM very the current limits, there is a provider in the new AUM guidelines. Let's see how they come out, but that's there's a provider there, where any reduction in AUM, we have a portion of it has to result in benefits going to the customer. I think this is something that most people miss out on. I think it's a very forward-looking step that IRDA has taken. And so it's not that something you want to give to extra to the distributor after that matter, even the company would want to keep. But IRDA is interested that the part of that has to go to the customer. I think all of that envelope is the positive progressive movement from IRDA. It will help the life insurance sector as well.

[S. Sreenivasan, executive]

If I can just add to what Tapun and Tarun said, what will happen in the expense cap is that, let's say, there are people who come into the market and we want to gain market share. Today, they spend a lot on expenses, and try to gain market share and whatever that is easier to sell first and then they graduate on to more complex businesses. It's typically the strategy of any company that is in life for [indiscernible]. Now with the expenses being capped they get some remake for the first 5 years. But thereafter, they will have to then focus on good underwriting, which means that the only way they can take market share away is not by spending more money, but it is by taking more losses, either you underprice or pay higher claim ratio or take higher guarantees or whatever, depending on the type of business. That is a recipe for disaster because that is like saying that the bank will take market share by taking a lot of credit losses, but by keeping its OpEx under control.

I don't think any financing institutions can work like that. Similarly in insurance, it cannot be like that. And ultimately, whatever the limit is, the companies have to spend a big portion of that in customer service and managing relaunches and managing third-party cores and depending on the business, there are a variety of things that they need to do. So therefore, this will -- in the long run, support businesses, building good brands over long run, building quality business, focusing on customer value and customer service and customer engagement. This is broadly the team. In the [indiscernible], there will be a lot of disruptors and tailwind engine starts to see that we tackle them properly

[Operator]

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to Mr.Sameer Bhise for closing comments.

[Sameer Bhise, analyst]

Thank you, everyone, for joining this call today. And also a big thanks to the management of Bajaj Finserv Limited for giving us this opportunity to hold the call. We will end the call here. Thank you so much.

[S. Sreenivasan, executive]

Thank you all. Thank you, JM.

[Bharat Kalsi, executive]

Thank you.

[Tapan Singhel, executive]

Thank you.

[Tarun Chugh, executive]

Thank you, everybody.

[Operator]

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