Bajaj Finserv Ltd

NSE:BAJAJFINSV

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Bajaj Finserv Q4 FY 2021 Results Conference Call, hosted by JM Financial Institutional Securities Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Ms. Bunny Babjee from JM Financial Institutional Securities Limited. Thank you, and over to you, ma'am.

[Bunny Babjee, Analyst]

Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss the fourth quarter and full year FY '21 results. To discuss the same, we have on the call Mr. Sreenivasan, CFO of Bajaj Finserv Limited; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance Limited; Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz General Insurance Limited; Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance; and Mr. Bharat Kalsi, CFO, Bajaj Allianz Life Insurance.May I request Sreeni sir to take us through the financial highlights, post which we will open the floor for a Q&A session. Over to you, sir.

[S. Sreenivasan, Chief Financial Officer]

Thank you, Bunny. I hope all of you can hear me very well. Good morning, everyone. We hope in these tough times everybody is well at home as well as with you. We wish you all a good health as we go along.Before we get into the results, I'll just make some [ hygiene ] disclosures. As before, in this call, we will largely be concentrating on the consolidated results of BFS as well as the results of our insurance operations through Bajaj Allianz General Insurance, BAGIC; and Bajaj Allianz Life Insurance, BALIC, where material, the stand-alone results of the company, [ BFS ].Bajaj Finance Limited, which is another major subsidiary of ours and which is listed, has already had its conference call. However, if there are any high-level questions on BFL, we would be glad to take them as well. We will not be taking any questions on the status of Allianz' stake in our insurance companies except to state that the status has remained the same as at the end of the previous quarter. 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.Just a remark on Ind AS, as required by regulation, BFS has adopted Indian Accounting Standard for FY '19. The insurance companies, however, are not covered under Ind AS. We have prepared Ind AS financials only for the purpose of consolidation. Accordingly, for BAGIC and BALIC, the stand-alone numbers reported below are based on the non-Ind AS accounting standards or Indian GAAP as applicable to insurance companies.Our results, press release accompanying the results and our investor deck have been uploaded on our website yesterday. I hope you've all had a chance to go through that. Otherwise, I would strongly recommend that you go through them if you have time.Just a few points on our investor deck. For your information, we have upgraded our disclosures this time in our investor presentation. We have more details about Finserv and our business model. We also included a few additional disclosures, new business value and embedded value of BALIC and their movement; a brief on our approach to risk; the reserving triangles for BAGIC and the ESG, Environment, Social and Governance approach and initiative of the company and its subsidiaries. The detailed report on ESG will be published along with the annual report for FY '21 as part of our business responsibility report, and I would strongly recommend all of you to go through that a little bit. As we start FY '22, I would like to highlight here a major event that both our insurance businesses will be completing 20 years of service to policyholders in FY '22. We are pleased to see the significant progress both companies have made, and we remain among the top insurance groups in India in terms of market presence, number of customers acquired, customer service, brand and profitability. I would like to point out that both our insurance companies are among the lowest in terms of capital infused by shareholders, which is a testimony to their efficient utilization of capital.Let me now come to the performance for Q4 FY '21 and for the full year FY '21. Overall, we saw greater momentum in Q4 as the level of economic activity reached pre-COVID levels across most of our businesses and verticals. During the second half of the year, as the economy started showing signs of revival, our businesses have shifted their focus to recovering growth while remaining cautious to manage risks.Building on the momentum from Q3, our businesses did well in Q4, both on the growth and profitability front. Towards the end of Q4, there was a resurgence in COVID-19 cases. Based on the learnings and experience from the first wave, all our businesses have further augmented their digital capability, which, along with greater digital acceptance by the customers, should, we hope, help overcome challenges and deliver a strong performance in FY '22.Let me now touch upon each of our businesses, starting with general insurance. BAGIC's growth was lower than industry during the first half but is back on track as seen from the fact that during H2 FY '21, BAGIC grew by 8.1% versus a degrowth in H1. During Q4, BAGIC's gross written premium grew by 5%. Excluding crop and government health, where some of our competitors are participating, the gross written premium grew by 11%, in line with industry growth of 10.8%. BAGIC continues on its approach to calibrated growth, that is, seeking to grow in preferred segments, which are private cars, 2-wheelers, commercial lines, property and engineering and retail health while remaining cautious on group health. We continue to take a reasonably cautious stance in group health. Within commercial vehicles, passenger vehicles, a segment in which BAGIC has had a strong presence, is yet to reach pre-COVID levels.To give some more details, continuing from the turnaround seen in the motor segment during Q3, in Q4, motor 2-wheeler and motor 4-wheeler reported growth of 27.9% and 21.4%, respectively. While growth in commercial vehicles is not back to pre-COVID levels yet, but it's coming back gradually. A lot depends on how second wave will play out in terms of [indiscernible].The growth in commercial lines for the first 3 quarters of FY '21 was a mix of IIB base rate [ hike ] for property and pure growth in terms of new customers acquired and increases in some assured and other increases. As property price increase benefit was accrued since Q4 of FY '20, the base for Q4 is already at the higher rate. Therefore, year-on-year, we will not see the effect of rate to a significant degree. Notwithstanding this, commercial lines have shown very strong growth during the quarter. Property, fire growing at 23%; engineering grew by 64%; and liability by 20%.The demand for retail health insurance in H1 was partly driven by sale of COVID-related health policies and availability of vaccine and price hike by BAGIC along with peers has led to lower growth in retail health. BAGIC registered a growth of 9.1% during the quarter. While COVID claims affected loss ratios, they were, to a large extent, compensated by Q1 non-COVID claims.The crop insurance business was profitable. Final results of the rabi crop will be known only in May, but initial indications are for a reasonably good season. BAGIC also reported a very strong insurance operating result with a combined ratio of 96.6%. However, since Q4 FY '20 was a very strong quarter with just 93.8%, the combined -- with a 93.8% combined ratio, the underwriting profit is lower in the quarter compared to the previous year. The underwriting profit for FY '21, however, has increased to INR 237 crores in FY '21 from a loss of INR 11 crores in FY '20, which, we hope, will be amongst the best in the industry.As we reiterate in our calls, general insurance is a highly seasonal business with high degree of quarter-on-quarter volatility and needs to be seen in terms of consistency over a cycle of 3 to 4 years. Catastrophe claims, even the premiums -- a lot of corporate premiums come in Q1. The cyclone and other events, usually the monsoon season is in Q2. Therefore, one has to see this in terms of a cycle of years.The company continues to be conservative in its motor third-party ultimate loss provisions, and we have further strengthened reserves in the year to account for the possible interest on delayed court judgments due to the pandemic. Provisions were also strengthened in the old book, [indiscernible] motor third-party pool, which was disbanded in 2012.Overall, BAGIC's reserving remains comfortably prudent as can be seen from the reserving triangles. Overall, BAGIC has had an excellent year with 33% growth in profit after tax with 20.3% return on equity. The profit after tax of INR 1,330 crores in FY '21 is the highest ever full year profit after tax that BAGIC has reported in its 20-year operations. In summary, it has been a very good, balanced year for BAGIC.Let me now come to life insurance. Since December 2020, the industry was continuously reporting growth month-on-month, which is contrary to the trend which we saw in H1 and the first month of this half -- the second half. As a result, Q4 was a generally good quarter for the industry, and the industry's individual rated new business premium grew by 29%, with private players growing by 40% on the back partly of the lower base, given the negative growth observed in Q4 FY '20, especially in March FY '20 post the lockdown.Despite all the challenges during the year, BALIC consistently reported an industry-beating growth. We have seen that month-on-month, quarter-on-quarter and for the full year. BALIC was the fastest-growing life insurer among the top 10 players, a growth of 63% in Q4 and 28% for the full year in terms of individual rated premium.Given the uncertainty due to the pandemic, the demand for guaranteed products has remained high throughout the year, and hence, contribution of non-par savings to the product mix stands at 24% for the quarter and 29% for FY '21. Retail term protections contribution to the product mix was moderate in the quarter and stood at 4% for the quarter and 6% for FY '21.With equity markets recovering in Q3, demand for ULIP has improved and has picked up momentum. But during the quarter, the union budget was announced, and it also announced that the amount received from redemption of ULIP with annual premium of more than INR 2.5 lakhs will be taxed as long-term capital gains. With this announcement, the demand for ULIP was expected to be impacted. However, the impact, we believe, will be fully known only in FY '22. So early trends in February and March show increasing demand for ULIP as a category, as there has been some dip in the over INR 2.5 lakh tickets, but overall ULIP has been very strong. So it has also been compensated by a stronger performance in the below INR 2.5 lakh ticket segments. As a result, the ULIP's contribution to the total product mix was 44% during the quarter.During the quarter, BALIC also launched a new, unique, competitive retirement product, Guaranteed Pension Goal. This is an annuity product. You can have deferred annuities and regular premium annuities, single premium with deferment, various options are available. This will strengthen its position in the retirement space, and during March, this product did quite well. In fact, we have got 4% of product mix coming from the quarter in a little over a month of launch. With this, BALIC's product offerings is now complete across all segments of term, savings, ULIPs and annuities.On the back of quarter-on-quarter industry-beating individual-rated premium growth, revival of group protection business with 34% growth in group protection business in Q4, which I must emphasize was helped by strong disbursement growth from banks and NBFCs and a 25% growth in renewal premiums during the year. BALIC ended the year with an all-time high record gross written premium of INR 12,025 crores.New business value, net of expense overruns, the key metric of profitability for life insurance, increased by 59% to INR 361 crores. The 13-month persistency, which was somewhat lower in H1, has rebounded, and BALIC ended the year with 80% versus '20, a tad higher than the previous year, but still some way to go there as we go into the next few years.BALIC's profit after tax for Q4 at INR 234 crores was significantly higher than Q4 FY '20 of INR 38 crores on the back of higher capital gains and better operating results on the policyholders' account. Overall, an excellent year. Finally, both the insurance companies are financially among the most solvent. BALIC is 666% and BAGIC is 345% and hence are well poised to weather any external adversities. During the quarter, both companies paid dividends, differing amounts, about INR 165 crores from BALIC and about INR 148 crores from BAGIC. And both BAGIC and BALIC continued to utilize their digital properties and continued to emerge stronger through the crisis. We have seen a substantial increase in the digital penetration across several parts of distribution and service chain [indiscernible]. For the details of a flavor of BAGIC and BALIC's digital capability are covered in the investor deck uploaded on the website.Let me now come to BFL. BFL has already had a small, as I said before, and we've only broadly touched upon BFL results. Quarter 4 was a good quarter for the company with most lean financial indicators normalizing to pre-COVID levels. BFL's business transformation plan is on track, and company expects to launch its [ 3-in-1 ] financial services in a phased manner so that it gets completed probably by Q3.After [ year of standstill ] in the first 2 quarters of the year, new loans booked by BFL during Q3 and Q4 were a little over 6 million and 5.47 million, respectively. This is compared to 7.7 million and 6.03 million in Q3 and Q4 FY '20. There's a significant improvement in H2 over H1.The company's diversified business model has enabled it to revert to pre-COVID levels of AUM growth across most of its verticals. BFL remains cautious on its wallet and retail EMI Card business based on assessment of the risk metrics.In FY '21, BFL recorded an all-time high annual pre-provisioning profit of INR 11,961 crores and made loan loss provisions, including expected losses. This is one difference between NBFCs and banks because you have to provide expected losses across the whole life cycle of the loans [indiscernible].The expected losses were INR 5,969 crores for the year as compared to INR 3,929 crores, so a shade under INR 6,000 crores versus a shade under INR 4,000 crores. This is within the earlier guidance given by BFL of about INR 6,300 crores of credit costs during FY '21. BFL continues to balance growth vis-a-vis risk and collections while maintaining strong liquidity and excellent capital [ adequacy ].BFL still carries a management overlay of INR 840 crores in its provisions for expected credit losses. In addition, BFL experienced continued improvement in portfolio quality in Q4, and new volumes originated across businesses during Q4 has risk metrics better than the ones originated prior to COVID.Gross NPL and net NPA, recognized as per extant RBI prudential norms and provisioned as per the expected credit loss method prescribed in Ind AS as of March '21 stood at 1.79% as the gross NPAs and 0.75% as the net NPAs. Standard assets provisioning, ECL Stage 1 and 2, stood at 1.81%, including additional provisioning standard assets as against 1% during the pre-pandemic times.I -- while pre-provisioning operating profit was higher, BFL ended the year with a PAT of INR 4,420 crores, which was 16% less than FY '20. H2 result, obviously, was better than H1. Overall PAT for Q4 FY '21 was more than Q4 FY '20 on account of lower provisioning during the quarter, INR 1,231 crores in Q4 versus INR 1,954 crores in the previous quarter. The capital adequacy ratio as of 31st March 2021, was very strong and stood at 28.34%, with Tier 1 capital alone being 25%. Bajaj Housing Finance as well, a 100% mortgage subsidiary of BFL, the adequacy ratio, including Tier 2 capital, stood at 21.3%.In summary, with improved bounce rates, higher collection efficiency and overlay provisions, BFL is positioned to navigate any temporary stress, and the company is entering FY '22 on a strong footing. Serious downside for any of our businesses would be really a national lockdown that we saw last year. Although we are better positioned than last year, a national lockdown will have an impact or a state-wide lockdown in the top 5 or 6 states. Otherwise, we believe all the companies are in a good position to handle the near-term volatility because of the external situation.Those who have not gone through the BFL investor deck, I would urge you to go to the website and go through that when you have the time.To summarize the consolidated results, consolidated total income from -- for Q4 for BFS was INR 15,387 crores versus INR 13,294 crores, a strong growth there. Consolidated profit after tax was INR 979 crores versus INR 194 crores. This is almost 5x, and I will explain to you [ why it is ]. Bajaj Finance consolidated profit after tax, INR 1,347 crores versus INR 948 crores. The general insurance profit after tax, INR 273 crores versus INR 304 crores; and life insurance, INR 234 crores versus INR 38 crores. For the whole year, we closed the year with total revenue at INR 60,592 crores, exceeding INR 60,000 crores, as against INR 54,351 crores last year, and a consolidated profit after tax of INR 4,470 crore versus INR 3,369 crores.As mentioned before, general insurance profit after tax was INR 1,330 crores, 33% higher and highest in its history; and life insurance, INR 580 crores as against INR 450 crores was again a strong growth. BFL had a lower profit, as I mentioned earlier.The consolidated results include one adjustment because the insurance companies are in Indian GAAP and we do Ind AS. The investments that they hold on the shareholders' account for BALIC and equity investments, [ shares buyback ] -- all equity investments, they are treated at fair value through profit and loss account. And therefore, last year, in FY -- March Q4 of FY '20, we saw a big fall in the stock market, resulting in charge into the consolidated results.But during the year, the Sensex has rebounded by 68%, and the performance of equity portfolios have also been pretty good. And this has resulted in an increase in the consolidated profit after tax of INR 892 crores for FY '21 compared to a decrease of INR 451 crores in Q4 FY '20. I thought I should highlight that. The mark-to-market adjustment, however, for Q4 is not very significant in relation to the size of our balance sheet and P&L.Finally, India is swarmed by a second wave of COVID with daily infection rates of the kind not seen in the first wave. It's difficult for us to predict how long the second wave will last and with what intensity and when it will subside to manageable levels. But as businesspeople, for us, it is to look at this as a risk and see how we can manage it. The risk of this is expected to remain elevated in Q1 and Q2 as per our current assessments. With strong solvency well above the required capital, supported by healthy liquidity, continued focus on risk and collection, [ digital ] processes and improved cost structures, we are in a better shape than we were last year to face any adverse events. We will take the events as they come along in Q1 and Q2.Thank you for your patience, and I now open the floor for questions and answers. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Prakash Kapadia from Anived Portfolio Managers.

[Prakash Kapadia, Principal Officer]

I had 2 questions. You did mention it's difficult to quantify the impact of growth, especially due to the second wave. But If I look at the general insurance sector, most of the key states, top 5 states, be it Maharashtra, UP, Karnataka, Tamilnadu, Gujarat, all are facing cases and intensity of COVID much larger than the first wave. So what kind of an outlook for growth you are looking at for the sector and for us? That's the first question.And on the crop segment, if you could give us some color because it is a high contributor for us in general insurance. So what is our stance on crop going forward?

[S. Sreenivasan, Chief Financial Officer]

Yes. Thank you for your question. The first one I will repeat. See, the issue is not with COVID. Obviously, we offer health insurance policies and, therefore, there will be some amount of COVID claims. The issue is whether you have lockdown. That is what affects the business a lot more than the pandemic itself.As of now, we are seeing a limited lockdown. It is not like the lockdown we saw last year. There is a reasonable movement of people. Insurance companies are exempted in some of these states. They are treated as an essential service. But in terms of growth, we will have to wait and see. For example, car stock selling, I mean it's a wrong time to ask about growth actually because any business will be now focusing on the balance sheet and profitability over growth and taking the events as they come.A lot of the business, which are asset-based, which are car insurance or property insurance, obviously, the level of activity in the economy reduces. All businesses will get affected, quite a lot of businesses. And we will also have an effect on growth.But as we have seen last year, the general insurance business is very, very diverse, and there are pockets where you will have better performance, maybe lower claims if your cars are running on the roads. I mean we have seen in the last 15 days, we've been on the roads. I am -- we live in Pune. So we can see that it's about maybe 20% of the traffic that you normally see.But these are temporary. We would rather see growth and full traffic than this temporary thing. But that is what it is, and prognosis in the near term, that is what it is. So I'll ask Tapan to just add to this and also answer the question on crop.

[Tapan Singhel, MD, CEO & Executive Director]

Yes. Thank you, Sreeni. I think both questions are very relevant. So if you look at overall for the industry, last year, the growth hovered around 2% or so. So the industry does have an impact because the car sales that Sreeni was mentioning, if they go down and car sales is a big component of the business, and if you look at other expansion from an economic perspective of industries being set up or marine happening or transactions happening at that level, if those go down, there would be an impact on the business.But like Sreeni mentioned, it is very significant if a complete lockdown happens. If a complete lockdown doesn't happen, there would be an impact but not to an extent as it will be in a complete lockdown. But it all also depends on the mood and the sentiment, so we'll have to watch for the next 2, 3 months. But yes, compared to normal circumstances, the growth would be lower. That definitely would be there. Compared to last year, maybe same or a bit high.Now coming to crop. Now crop, we have been doing now for the past, I think, from the time the government started...

[S. Sreenivasan, Chief Financial Officer]

Six years.

[Tapan Singhel, MD, CEO & Executive Director]

The new crop schemes for the past 5, 6 years, and we've been doing consistently. And we have tried to maintain our share in the crop business like we do for overall market share. If you look at the overall share, close to 7%, the crop business share would be around that, about 8%, 9% or 7%, 6%, depending on how the year goes, how tender goes, with the big tenders still there. So we maintained that, I think, at all points of time. There's no change in our philosophy and how we look at crop business going forward.

[Operator]

The next question is from the line of Hasmukh Gala from Finvest Advisors, LLP.

[Hasmukh Gala]

Yes. Congratulations to Mr. Sreenivasan and the team for giving really good numbers. I have a couple of questions. Sir, my first question is just a sort of a clarification that the profit number, which we report in BALIC and BAGIC, '21 versus '20, I think that we had last year more than INR 100-odd crore worth of some special provisions, which I think are not there in current year, if I am not wrong. So the real comparison of PAT, I think, will be slightly different because, according to the numbers which were last reported...

[S. Sreenivasan, Chief Financial Officer]

Are you talking about investment provisions?

[Hasmukh Gala]

Yes, yes, yes. The provision for BHFL and corporate bonds and all that.

[S. Sreenivasan, Chief Financial Officer]

[ That was there ] in the last quarter.

[Hasmukh Gala]

Yes. Yes. That was there in the last quarter, basically. So I mean taking that off, if you really compare, in BALIC, our PAT, I think, has increased only by 1%. Just correct me if I am wrong. And in case of BAGIC, it has increased by 20% and not 33%. I mean I'm just referring to those numbers. That was my first question. Just a clarification.The second question is, as far as BALIC is concerned, how do you see the growth now in the individual business? Because if we see today, group is constituting almost 60% of our total new business premium. So how do you see the movement in the individual rated premium amongst different products that we have so that our -- the VNB margin can improve? That is my second question.And third question, you talked about BFL, that they are into these digitalization and technology transformation process. So are they on the way to become a fintech type of company? So these are the 3 questions.

[S. Sreenivasan, Chief Financial Officer]

I will take broadly the question on the individual versus group and the question on BFL. And the question on the number clarification, I think the CFO will take it. And then Tarun can add to what I say on individual versus group.If you see, our proportion of individual to group over the last few years has been significantly weighted towards individual business. In fact, individual -- growth in individual rated premium remains a primary priority for the company. But -- however, that doesn't mean we do not grow our group business. There are opportunities present. And because it is profitable, and because we have been -- historically, if you look at the last 10 years, at one time, we were only players in the group protection space. [ We were really sick ].So people will continue to see growth opportunities there, but they will see better growth opportunities in the individual premium segment. There you have product may and opportunity to create more sustainable, long-term business and with a focus on NBV as well as top line and a balanced product mix. So Tarun can add to that later.Coming to the question on BFL, it is a difficult question. BFL is a manufacturer of products and solutions. Obviously, technology is becoming more and more important and, therefore, they are investing heavily. So they are having plans [indiscernible] and sell more to their customers in a more meaningful manner through their own marketplace. But they will remain a manufacturer of financial products, a risk taker, and we will be lending money [ who has ] requirement of capital.So we have another entity under BFL, Bajaj Finserv Direct, which will do the other thing. It's a pure tech platform. They will provide the tech platform to BFL. At the same time, they will also be an open-market, open-architecture company, where fully customer-centric and will be attracting customers through those platforms because all our verticals, namely, [indiscernible] everybody and all companies in the market will participate in that. The combination of the 2 is what will make it very powerful [ because ] one is a manufacturer. They can't really sell other companies [indiscernible]. And together, we want to create a holistic experience for our Finserv customers.

[Hasmukh Gala]

So will that fintech activity remain in some separate subsidiary? Like I think you have created one subsidiary under...

[S. Sreenivasan, Chief Financial Officer]

Yes. There is a separate subsidiary. You can call it a fintech if you want. We don't use that terminology [indiscernible] technology enabler. So -- but if you want to call it as fintech, you may call it so. But that requires more capital because it's a platform that we are developing internally for the group. And BFS will continue to offer technology-based support to their existing customers in lending. Tarun, would you like to take the individual versus group?

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

Yes. I'll just do that. Thanks for your question. I think Sreeni correctly talked about the focus on individual business and the growth of 28% was largely what we talked about in the prelude to the Q&A session. So that's what we will keep focusing on.And as you're aware, the VNB largely from individual products is what is important and provides for sustainable cash flows in the future as well. So that's where the focus will remain.As a company, we've been focused on ensuring that we have a balanced channel and balanced product mix. I think that was the first step. And I think now we've achieved it, and with the launch of the pension plan as well, now we are in all new segments of the customers as well now.Hereon, the focus is towards VNB and profitability, of course. And the basic risk elements of overreliance of a product mix and channel mix is now taken care of. So yes, the product mix will be a significant dealer into the VNB, if I can put it this way. But we will always remain focused on the customer and not necessarily kind of just trying to tweak our product mix only for the VNB purpose because we are here looking at a sustainable business for the long term.

[Hasmukh Gala]

Correct. Correct. So I mean, generally, how will you look at the VNB margin which was at 12.3% in FY '21? And so if you compare with companies like HDFC Life, they reported a 26% VNB margin. So how will be our journey to reach to that level, say, double-digit, 20% type, may not be 26%?

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

Yes. See, I can't make any statement, which is a forward-looking and also comparative with competition. The company has its own capability, history and lineage. I think what you see is a positive trajectory in the last 3 years. And we intend to be directionally in the same way. Of course, last year was a significant fillip. But that was a good aberration in our favor. But directionally, we shall remain positive. And beyond that, I cannot comment.

[Operator]

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

[Bharat Shah, Executive Director]

Yes. My question is more about long-term strategy rather than the quarter results. So essentially, on the insurance piece, which is basically a business of risk and protection, most insurance funds tend to put a centrality to the insurance as the core part and, of course, for valid reasons because protection and risk control is the core business of the insurance funds.But I would like to submit that investments and managing the investments is equally a critical function in any insurance business. And so far in India, by and large, we have seen investment function kind of a peripheral one rather than a central one in the operations of the insurance [ function ]. So if you talk about the core part of operation, basically, consistently being very, very prudent and extremely competent in the way it has managed risk with combined ratio always favorable, well below 100 and, therefore, it enjoys a source of negative cost kind of a float of the money.And even though contracts relatively offer shorter term, but a core part of the contract money is something which is forecastable, renewable, therefore, large part of that money, insurance float is a long-term money. Equally, life, in any cases, core underwriting profits are high. And there is a long-term non-ULIP portion, there is a long-term investment float.Now managing this entire float through fixed income is unlikely to ever give any meaningful, significant returns and, therefore, return on equity magnified on that float. Therefore, a judicious, well-balanced, risk controlled, increased long-term equity capability and equity component in the investment portfolio of both the businesses is very vital to raise bar on return on equity and to really improve the strength and the caliber of both the insurance businesses because the core part, BAGIC has always been very strong, and BALIC, after initial hiccups in last some time, the business has been very, very nicely ramping up.So what are the strategic thoughts on the investment management? Earlier, on the fixed income, we had some hiccups. We went through that. That phase is behind, and I'm glad about it. And there are no hemorrhages on account of fixed income portfolio. But even with the best job on the fixed income, it will still produce meaningfully lower return. And unless there is a well-calibrated equity management strategy of a long-term nature with a judicious percentage of the overall investment portfolio committed there, the return on equity is 0 or negative float, which is the core advantage of the insurance business. How do we propose to take that advantage?

[S. Sreenivasan, Chief Financial Officer]

Yes. Thank you, Bharat. I'll take that question. See, in insurance, we are not asset managers. It's a mistake that a lot of people make. We are liability managers. If we come to life insurance, our job is to manage liabilities. And unlike mutual funds or PMS and other people, we don't have -- we have to give guarantees. There are very tight regulations on how different buckets of the money can be invested, and there is -- a large proportion of this money has to necessarily go into Government of India bonds or housing or infrastructure or social structure. There's a detailed regulation on that.The purpose of that is to ensure that because of volatility, the policyholders, who are getting their money out, are not affected. To some extent, ULIPs can be compared to mutual funds except that ULIPs always come with a bundled life cover, and it has to have a minimum term of 5 years. So I don't know how much of money of the other competing industries actually stay for 5 years. Maybe 1/4, maybe 1/3, but not like us. More than half of the money stays for 5 years. And now you will have known a new regulation that is -- because most of it stays [indiscernible].So in terms of BALIC, in terms of the policyholder return, I think we rank among the best. ULIP this year may not have been good, but if I look at the 3-, 5-year performance, I don't think it is inferior to mutual funds either...

[Bharat Shah, Executive Director]

Just an interruption. My comments are on non-ULIP business, not on ULIP. ULIP, of course...

[S. Sreenivasan, Chief Financial Officer]

Yes. For non-ULIP business, we have to provide guarantees. We have to protect them. And that -- there are very strong ALM-based management principles that have to be adopted. We have to hedge your risk, and you work on the margin. Then finally, you come to the shareholder fund. We are in a unique position that we have some surplus capital. And in that, you can't say ROE, but over what period do you measure ROE when you invest in the financial markets? Because if you invest in equity, you have to take the volatility. If I look at the period between, say, 2017 to '19, majority of the -- if you look at the index at least, I think fixed income did outperform equities. Even on a 5-year basis for a long period, fixed income was superior to equity.Now with the market revival, and last year, we saw in March what happened because these are not the times when you have to put in capital because we have a solvency-heavy industry. But it would not be applicable to us as an industry. I don't think companies can say that market fell, so I want more capital. Nobody will give that.In terms of GI business, a bit different. Entire money is one bucket, and there is no -- I mean there is an internal demarcation. I think all the money with of the shareholders. Our -- majority of the liabilities are short term. You have significant exposure to reinsurance. And while you may assume that all the reinsurers are of high quality and well rated, that is what we deal with. There are occasions in the international markets when there are heavy headwinds from the reinsurance side as well.So if, God forbid, even 5% of your reinsurance panel goes on that, then you will need the liquidity to pay the claims immediately. This is -- [ which is what ] actually bottoms up. It is not -- there is a big science behind how much should be the asset allocation. There is a leeway. Again, it is highly regulated. I think pretty much 75% has to be in fixed income, as per regulation. And both insurance as an industry is a big contributor to the entire funding of the fiscal deficit of the government as well, along with the SLR of banks. So overall, as we look at it, we have been increasing exposure to equity as and when we grow our surplus. If you see now, BAGIC has grown to about 7%. As we go forward, we will continue to increase it. We will see the right time to increase it as well because when prices are looking very high, there's no point in increasing exposure to equity. That's a call the investment team will take. I mean there's no strategy there. It is more about the investment performance.Same with BALIC. We already have, I think, 20% of our surplus in equities. I mean at the moment, we may be a bit lower, but 20% is what we look at. Within that, we have not bifurcated between what is required for solvency and what is not required, the surplus, because with more guaranteed products, with more this thing, the consumption of capital is increasing. You must have seen some other companies are actually raising money in the market [ with ] solvency requirements because of the higher proportion of the nonparticipating and the guaranteed products. And term as well requires capital at about 0.3% of the sum assured.So this, again, is worked by the actuaries and the investment team together. And as and when the surplus comes and we do our review every quarter, and maybe once a year, we do review whether we need to increase it or not. So directionally, that's the approach I'm taking.But as I said, the liability managers, therefore, the liability makeup, the duration, the need for liquidity, the impacts of credit defaults potentially on the nonfinancial investment, like reinsurance, and a reasonable margin for that, all these contribute to deciding how much you have surplus. Within that, obviously, you can say with each company's risk appetite, to see how much you want in equity or debt. Maybe there is some leeway. You could say why not 20 can become 25. But can it become 35? I don't think so. In BAGIC, maybe the 7 can go up to 15. Yes. 20? Maybe. More than 20? I doubt. It is something we also continuously discuss with Allianz as well because they are -- globally, they have seen all kinds of cycles, equity, debt, solvency, crises, all kinds of cycles, a write-off of sovereign debt. And therefore, we get input from them as well before we decide. Does it answer your question, Bharat?

[Bharat Shah, Executive Director]

Yes. I have 2, 3 kind of points on that. I'm not talking about ULIP part. Obviously, ULIP is -- what is dedicated is for the objectives. So I'm talking of non-ULIP part. I completely accept that liability management is the first job. And ensuring prudent, sustainable, solid and confidence inspiring, capability to stand by liability mitigation is absolutely core, especially in life insurance where long-term confidence in the viability of the insurer is very, very vital.So unequivocally, that is completely correct. My newer point is, general insurance, given our very prudent underwriting policy consistently for a long time, we have been in a situation of a favorable combined ratio all through, well below 100. Therefore, essentially, we are in a negative float situation. I accept that most of the contracts that are of a yearly duration or thereabout, but given the effect of a core portion out of even those short-term contracts, which is renewable by experience that we know is essentially long-term money, therefore, long-term float at a negative cost. Now if we multiply that, if we compound that float at the rate of 5% and 6% compared to if we are able to do it at 9% or 10% will make a world of difference to the return on equity. Therefore, steady, well-carved-out, controlled-risk equity exposure with a strong capability without, in any way, mitigating liability management capability of the core insurance businesses is something, I believe, is possible to carve out and possible to kind of really make it work over a period of time. There will be volatility. There will be [ increased ] points where it will cause discomfiture. But through that, over a period of time, in a controlled, well-planned way, I would say that is a route through which far superior return on equity can be generated without compromising on risk standards or without deviating anything away from our core need of protecting liability.

[S. Sreenivasan, Chief Financial Officer]

I think, Bharat, I can [indiscernible] average returns over the 5 years [indiscernible] last year, maybe a bit lower because we are required by regulation to keep 75%. So keeping 75% in fixed income and whether you put 15% or 25% in equity, and you look at the kind of extra returns on equity, coupled with the volatility, I don't know how many basis points it will make in the total thing. It may move it by 1% as so.That compounding -- my arithmetic will be clear to all of us, and we do that on a regular basis. But we have been delivering that kind of investment return. And in the last couple of -- we also do not go by the IRDA solvency. We also maintain internally a target solvency, which is a bit higher. As you know, most of our risk-based capital requirements are not risk-based, and they are [indiscernible]. But at some point, I IRDA [indiscernible].

[Operator]

Mr. Sreenivasan, your audio is breaking. We are not able to hear you clearly.

[S. Sreenivasan, Chief Financial Officer]

Hello? Yes. Can you hear me now?

[Operator]

Yes, sir.

[S. Sreenivasan, Chief Financial Officer]

Yes. No, I was saying that it's a highly regulated industry, and 75% you have to keep in fixed income anyway. And within the 25%, you have to say, do I keep 15%, do I keep 10%, do I keep 20%. It depends on how much excess capital you have, not the absolute amount of capital. Solvency capital is not risk-based in India. It is -- I mean, it's an old norm that they are following. But the moment they go into risk-based, they've already announced, what we call, economic capital. There are chances that the required capital may go up as well. So all you can really invest in equity is the high proportion of your surplus capital over and above what we call a target solvency that we maintain. We are doing that on a regular basis. I could give you the numbers. Bharat, do you have the return on shareholders' funds last few years? Or Raman?

[Ramandeep Singh Sahni]

Sreeni, for the BAGIC, this year, we did about 7.7%. This is -- and last year comparative was 8% almost. And this is book value...

[S. Sreenivasan, Chief Financial Officer]

Before that [indiscernible] doing 8.5%, 9%...

[Ramandeep Singh Sahni]

Yes. But this is on a book value basis. If I take market value, this year is actually 11%, and last year was 8%.

[S. Sreenivasan, Chief Financial Officer]

11% and 8%. Okay.

[Ramandeep Singh Sahni]

Yes.

[S. Sreenivasan, Chief Financial Officer]

Okay. And I think BALIC is similar as well, right, Bharat?

[Bharat Kalsi, Chief Financial Officer]

Yes. Sreeni, this was an upward of [ 12% ].

[S. Sreenivasan, Chief Financial Officer]

Yes. So Bharat, we have been -- I mean, increasing it in a calibrated fashion. And given the requirement of an excess capital and how much it is and what we need to keep for supporting our business. And that's how it is.

[Bharat Shah, Executive Director]

Okay. Point noted. I thought I'll just leave my point for thinking...

[S. Sreenivasan, Chief Financial Officer]

Not a problem. I think we can have a call later, and we can explain to you what are the historical returns and how we are managing and what changes we have made.

[Bharat Shah, Executive Director]

Sure. And I was referring to basically non-mandatory part of the investment. What is mandatory...

[S. Sreenivasan, Chief Financial Officer]

[indiscernible] excess capital of shareholders.

[Bharat Shah, Executive Director]

Yes. We will take it up.

[Operator]

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

[Hitesh Gulati, Analyst]

Yes. Congratulations on a good set of numbers. Sir, my question is, in motor TP claims ratio, we've seen an increase this year, which you also mentioned that you have strengthened our reserves in motor TP segment because you expect future claims to be higher because courts are giving such orders. But if you look at the reserving triangles, they have still a release this year. So is my understanding correct? Or is there something wrong that I'm looking at?

[S. Sreenivasan, Chief Financial Officer]

Raman, would you like to take that?

[Ramandeep Singh Sahni]

Yes. Yes. So you are right. If you look at the loss triangles, there is a release of upwards of INR 300 crores, and that reflects on our approach of conservation in the past reserving. However, if you compare the number versus last year, it's a dip of about INR 100 crores. And that's where the indication of strengthening comes.So overall, while we have strengthened it, but there is still a release, so it's a temporary thing. But on a long-term basis, we will still be close to what we've been delivering in the past. Whatever you see in the past few years, we've delivered almost a release of 5% to 7% almost every year. And hopefully, that trend should continue.

[Hitesh Gulati, Analyst]

Okay. Sir, just one more question...

[S. Sreenivasan, Chief Financial Officer]

What I would like to add, a release happened when you settle claims less than what you reserved. So as a policy, you can see from a triangle that our reserving at the point of [indiscernible] conservative, which is why you have releases when the claim is actually settled.Now this is part and parcel of every GI business. Some companies may have more and more charge if they have not reserve prudently. Those who reserve prudently will have more releases, but those releases will come every year. When you reserve more, it's not necessarily that net-net the reserves have increased. That means the release can be lower in that particular year because on the settled claims, you will have leases. On the expected losses, you would have increases. The 2 will offset, but that offset -- net amount after offset this year is about INR 100 crores lower than last year. That's what Raman is saying.

[Tapan Singhel, MD, CEO & Executive Director]

Exactly. If you look at the claim settlement this year, it has been lower because of courts being closed. And that's why you see that difference. The more claims we have settled because we are a prudent company, and reserving is right for us. So once we settle claims, then [ the difference gets released ]. That is how you look at it.The other thing is why we are strengthening it is, if you look, there is a particular judgment, which is the Kirti judgment, in which the court now says that even notional income for all the [indiscernible] will be taken for calculating the amount to be paid. Now that means the quantum of claims is going to move up in the TP segment for the entire industry across. And because that is going to happen, so that is the strengthening part of it. So that is how it is done. And I think Sreeni explained it very beautifully in terms of, there are 2 different things. Reserving is for different set and release is on a different set of business.

[Ramandeep Singh Sahni]

Yes. Just to add on the release, which Tapan indicated, that number of claims settled have gone down. And that is to the extent of almost 30% lower than last year. So last year, we settled about 31,000 claims. This year, we have settled only about 20,000 claims. So that's the kind of impact.

[Hitesh Gulati, Analyst]

Sure. Sir, can you also quantify the quantum of COVID claims paid by you in the life and general insurance business?

[Ramandeep Singh Sahni]

So overall, till date, we've done almost INR 400 crores of claims. While registered are more, but paid is actually close to INR 400 crores of claims paid out.

[Hitesh Gulati, Analyst]

So this is in general...

[Bharat Kalsi, Chief Financial Officer]

Yes. General. General. In case of life, we have paid 1,335 claims worth INR 73 crores for FY '21.

[Hitesh Gulati, Analyst]

This is operating assumption change that you've taken in our embedded value that is related to mortality only. Is that understanding correct?

[Bharat Kalsi, Chief Financial Officer]

So that is to have some bit of a mortality. There is not much of a variance, but it is because of a persistency of our one of the product lines, and that is a little negative. And then we have moved to the effective tax rate, which is positive, and the net number is plus INR 16 crores. That's where the numbers were.

[Hitesh Gulati, Analyst]

And the COVID assumption change?

[Bharat Kalsi, Chief Financial Officer]

That is the COVID part. So we have kept another INR 39 crores as our COVID reserves, and we have also strengthened our IBNR by around INR 18 crores. So those are the 2 numbers which are sitting in the assumptions change part.

[Operator]

The next question is from the line of Madhukar Ladha from Elara Capital.

[Madhukar Ladha, Research Analyst]

First, on BAGIC. So the higher claim provisioning is happening mainly on the TP side, and this is because courts are now considering notional income, as Tapan explained. Sir, what is our expectation of price hikes in FY '22? And what are we seeing on competition on the OD segment?Second question on health. Loss ratios have improved in the fourth quarter. And what would be the main drivers there? And I think we're still growing in the group health segment. What are we actually seeing there?And finally, on -- for BALIC. My question is, how is the Axis channel done? And what are our expectations for that channel going into FY '22? Do we have, like, targets in mind? Is there sort of a written agreement between the 2 partners of how much growth should be there on a year-over-year basis? And -- yes. Hello?

[S. Sreenivasan, Chief Financial Officer]

Tapan, can you take that? Motor OD, expectation of price increase in TP?

[Tapan Singhel, MD, CEO & Executive Director]

Yes. Okay. If you look at the TP price increase, it would come from the regulator. No, it is not something which the market controls. It is still controlled by the regulator. Last year, there was no TP price increase. This year, until now, there has been no announcement. So on how much will it be? I don't think that anybody can tell you in terms of how much will be paid -- will it happen, will it not happen. No, it is speculative in nature if anybody makes a guess on that.But when we ramp businesses, we always start with a philosophy that, okay, there's no price hike, how do we look at business or how do we go about it? If it happens, good. Then we can recalibrate and relook into the business model and how do we take on business. That would be my answer to your TP price hike because it is controlled. They're not market price driven. So it has to come from the regulator. Last year, it didn't happen. This year, until now, there's been no announcement.If you look at the OD premium movement, which had happened at discount, this is controlled by the market. So depending on the risk, the way the company sees a particular risk for a particular vehicle. And the business philosophy is, they would write or discount OD or harden it as time progresses. This is market controlled, so this fluctuates. Sometimes when you see -- like last year, the first 2 months, there was complete -- 2, 2.5 months, there was a complete lockdown. The loss ratios fell down, so the discount in OD moved up. Then again, the losses are moving up, so there will be some strengthening happening again.So it fluctuates in the market as the year progresses. So I think fix that for the whole year. This is what the discount was. This is how the price tightening will happen. So that will keep on moving. And depending on how the loss ratios move, individual company will decide how it goes. So that is how to look into it.If you look at the health portfolio also...

[Madhukar Ladha, Research Analyst]

But just to interrupt up on this point. So what is the competitive intensity? Are we seeing any improvement? Because now for 1 year, you've not seen price hikes and economic activity has sort of come back. So were we seeing some improvement in the pressure of -- in OD prices from competition? Some sense on that.

[Tapan Singhel, MD, CEO & Executive Director]

See, as I told you, every company has its own philosophy where they want to be. So there are some companies which would be heavily discounting, but their philosophy would be to work on discount. Some company would be adding a lot of value in terms of claim settlement. They would be looking at servicing the customers well, and they would not be heavily discounting. So it is not a fixed price that you see. So let's say -- let me explain to you. I think...

[Madhukar Ladha, Research Analyst]

No, I understand that. I understand that. But I was looking for any trend if you're seeing.

[Tapan Singhel, MD, CEO & Executive Director]

Yes. That's what I was saying. Let's say there are 10 companies into the market, yes? Let us say hypothetically, these are listed companies. Now 4 of them were discounting until yesterday, and 6 were not discounting at the level 4 were discounting. Now from these 4, 3 may actually move to hardening because they would have suffered more losses. And from the above 6, 2 may actually move to discounting more. It's a moving target between companies. You never find that the market is moving up or down.So you will always have the market. Any year after 2007 when [indiscernible] you'll find some companies which are heavily discounting, and then if they suffer losses, [indiscernible]. There will be some companies, which would be prudent. There will be some companies which fluctuate depending on the [ strategy which is there ]. So it is very difficult to say overall how the market will move because I would want the market to correct and become more sustainable. We have seen how solvency has become issue in the industry for quite some companies. We have seen how companies have been losing money. That is not good for the industry because companies typically, which lose money, there the customer service gets affected. I think that is also what we have seen in terms of [ grievance ] ratios moving up.So if you ask my personal opinion, I would say a fair price in the market and a very good service to the customer what should be. No -- but I cannot predict in terms of how customers -- how companies would react to different scenarios because it's a moving target for every company on the strategy, which is there. Now that is what it is. So if you ask me, will it move up, go down, for individual companies, yes, they can decide, because overall, there will always be some movement happening. It is a moving target.

[S. Sreenivasan, Chief Financial Officer]

I'll just add to that. I think if you see the market in 2012, I think people were losing money on third party. Most companies were losing money. We were pretty much making money most of the year, except the 1 year when the [ pool loss was ] happened.But thereafter, when the rate hike increased, people started making money. More companies started becoming profitable. And I think at one time, more than 2/3 of the market was profitable just a couple of years ago. Now if rate increases do not happen and if they are not managing their third party claims properly, they will be under pressure to find other sources of profit. So one could logically argue that this would result in better price discipline in other segments like motor OD or property. But depending on how much capital is there available to burn and whether their goal is to just get market share in terms of GWP, the company can have a different way of looking at it. As long as there is capital to burn, you can build a business by just writing business at a loss for some time until the capital runs out.

[Bharat Kalsi, Chief Financial Officer]

On the BALIC side, let me just...

[Madhukar Ladha, Research Analyst]

Sir, the health segment also.

[Bharat Kalsi, Chief Financial Officer]

Okay, health, maybe Tapan should answer it.

[Tapan Singhel, MD, CEO & Executive Director]

Yes. So health, what was the question, sorry?

[Madhukar Ladha, Research Analyst]

So we've seen an improvement in the health loss ratios in 4Q. What are the main drivers? And the group health also seems to have done well. So what are we seeing there on the market side?

[Tapan Singhel, MD, CEO & Executive Director]

Okay. So if you look at, again, the health portfolio, there are 2 ways to look at it. And if a company is going very aggressively, they get new business. New business has much lower loss ratio than older book. If you analyze heath portfolio, you should look at year-wise loss ratios. So first year loss ratio for the health book is always much lower than, let's say, fourth year loss ratio for any company because that is how the health portfolio moves.So if you see a company which has high growth and loss ratio is moving up, that is an area of concern because then that means the older books is getting pretty bad as it's progressing or you have a lot of claims in the [indiscernible].So typically, if you look at BAGIC, we have a moderate growth. We don't have a very high growth, and we don't have a very low growth also, negative growth also. On a moderate growth, typically, if a loss ratio improvement happens, it will happen for 2 reasons: one is your segmentation of customers and your price. If you look at, we did a price hike early on in the book that was there. So if you combine that together and the segmentation of the risk that you take, you would have an improvement in loss ratio there.The group health also, as Sreeni mentioned earlier also. So if you look at our growth, we are not overboard in terms of going and picking up any business. We have our customers whom we service in a corporate business, and we also have digital customers who look at us from a servicing perspective, and we were on the first -- we were the first in the year 2004 to set up our own HAT network of servicing customers directly, which was called the Health Administration Team. And on that basis, we price our work, and that's how we serve the customer. So that's why you see this difference which is there. So basically, as a company [ on the standards ], we are a company which would be approving the underwriter and very focused on customer [ offices ] and servicing. I think to look at our -- be it our claim settlement ratios, our grievance, which is the least among the industry and all that stuff. So that is where obsession would be. The customer delight has to be very high. And that's why most of the questions, if you put this parameter as a judgment parameter, the answer would come there as to why and how [indiscernible] and how do we look at it.

[Madhukar Ladha, Research Analyst]

On the group segment?

[Tapan Singhel, MD, CEO & Executive Director]

Yes. Group health, I told you. The group health, we -- if you look at it, we write risk, which we feel comfortable with the price. And customers which have -- want pretty good servicing to be done, they come to us, and that's how we write it.So nothing that we say that we don't write. If you look at BAGIC, we write all lines of businesses, and we do business through all channels, which is possible. But we do business where the customer values high servicing and customer obsession and solution providing for the customer. And that is how we look at it. So group also we do it, but we're not overboard or aggressive on group and picking up any business for the sake of picking up.

[S. Sreenivasan, Chief Financial Officer]

Let me just add one thing to that. I mean if you talk about group health, I think there may be companies operating at more than 100% loss ratio. Insurance is a business where the customer feels they have risk. Otherwise, they will not buy insurance. Similarly, insurance companies also, there's a chance that I will make money, and that chance can be reasonably well calculated or assessed.And when you know that I have to take 100 and pay more than 100, then that is not insurance because that's a certainty. So the only right business where our expectation is that we have a fair chance of making money. So we normally -- if it costs us 90%, we get a bit conservative. When it's lower, we can get a bit more aggressive. But today, you know the times are not great for writing blind, non-underwritten policies like group because of -- normally, COVID claims will come and all that. So we are naturally careful. But we have a pricing policy. And if people accept the price, we go ahead with that. And if people don't accept it, we will withdraw.And there is no other benefit on group health. There's no float. It is a short-tail business. It is not like motor TP where we [ can't return ] the money for 2, 3 years. There's nothing like that. Claims start coming in immediately after the policy is written because there's a large group of people. So it is not even like retail [indiscernible].So it is a business one has to look at it a bit differently, and that's how we have done over the years.

[Operator]

The next question is from the line of Nischint Chawathe from Kotak Securities Limited.

[Nischint Chawathe, Director of Research & Senior Analyst]

A couple of questions from my side. We just discussed about the health claims and your pricing going up, et cetera. But I was curious whether this is what has driven the big change in the fourth quarter. I understand the broad strategy, but is this what is the reason for -- because if it is quarter-on-quarter, change in the claims ratio for health is pretty sharp.

[S. Sreenivasan, Chief Financial Officer]

One is, obviously, the price increase, which is effective from 1st of October and for the renewal policy from 1st of January.

[Nischint Chawathe, Director of Research & Senior Analyst]

But that could be the sole reason for the big change.

[S. Sreenivasan, Chief Financial Officer]

That's one of the changes. Raman, any other reason? Or Tapan?

[Ramandeep Singh Sahni]

Yes. So I'll take it, Sreeni. So on the health fees, actually, one, obviously, is the fact that from 1st of Jan, we had all policies on retail side, which is about 60%, 70% of our flagship products, being sold at a price increase. The second one is also that, on GMC, like you've seen the -- like Tapan explained, we've been conservative there and picking up only the good accounts. So that is also the second reason. Third is the non-COVID claims have also gone down to some extent. So I think the summation of all these 3 has led to the loss ratio coming down in quarter 4.

[Nischint Chawathe, Director of Research & Senior Analyst]

So you said non-COVID claims have gone down.

[Ramandeep Singh Sahni]

Yes, non-COVID also. While COVID has been there for a while now, but non-COVID also because of the situation, people are fearing going to the hospitals, those have also gone down. That we've seen in the past, it comes back after a while when things start opening up. So that's something which we'll have to wait and watch.

[S. Sreenivasan, Chief Financial Officer]

They go in opposite directions. When COVID claims increase, non-COVID claims come down because hospitals have limited capacity and people don't want to go to hospitals.

[Nischint Chawathe, Director of Research & Senior Analyst]

Well, I thought intuitively, we saw non-COVID claims going up in 4Q. I thought we saw non-COVID claims going up in 4Q for the industry because of a lot of surgeries, et cetera. I mean you've seen some kind of moderation in COVID numbers. So...

[Ramandeep Singh Sahni]

So they have sequentially moved up, Nischint. You're right. They've sequentially moved up, but versus last quarter of last year, it is still [ worse ].

[Nischint Chawathe, Director of Research & Senior Analyst]

Fair. Fair point. Just moving on, if you could explain the table in Slide 55 and just trying to understand how should one be reading this provisioning going up from INR 466 crores to INR 518 crores.

[Ramandeep Singh Sahni]

See, the issue on hand is that -- okay, so the increase is almost about INR 100 crores, which I'll explain. So if you see the delta between the claims paid till last year, it got up by about INR 49 crores. And if you see the total provision, that has also gone in the opposite direction by about INR 54 crores. So the summation of these 2 is actually the strengthening of INR 100 crores. So the provision movement and the claims paid movement delta adds up to the strengthening of INR 100 crores.

[Nischint Chawathe, Director of Research & Senior Analyst]

Sure. Just moving on to the life side. If you could give some color in terms of how do you see business from Axis Bank. I think it ramped up quite a lot this year, while agency, I think, on a full year basis, was almost flat. So if you could give some color in terms of how do you see that playing out. Obviously, we know that there are uncertainties around the second wave, et cetera. But still, do we see a very similar ramp-up this year as well? This is for BALIC.

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

Yes. So see, Axis is going to ramp up, of course, given the base effect. We were largely in one vertical, and now we are slowly adding to some branch banking branches as well, and that is going to help in the ramp-up.So it is going to pull up our company average on growth very clearly. It is going to be higher than the company average. But we are very clear that we have to look at profitability as well and keep a balanced channel mix. I think we've been through that phase of BALIC where there was dependence on the agency channel. One channel contributed to upward of 80%.So how we intend to differentiate ourselves from the large life insurance companies is that, there, the dependence on one partner is so high that, that increases the risk. So we will be always focused on keeping this in a balanced way.

[Nischint Chawathe, Director of Research & Senior Analyst]

Sure. Just on the EV walk side. On the operating variance side, I believe you said that persistency experience was a big negative in one of the products. But actually, if I see the operating variance on a net-net basis, it's positive. So I believe the other 2 lines have been more positive. How should we think about it?

[Bharat Kalsi, Chief Financial Officer]

So Nischint -- yes. So Nischint, 2 things. As I said, there's one line of non-par savings where we saw some persistency best estimate being updated. But what we have moved is now [ this year ] we have moved to the effective tax rate. So the way we have taken the effective tax rate is in 2 forms: one, whatever was the unwinding for this year, that has gone through an ROV or an operating variance. Whatever is the pending for the future profit, which is like whatever is the opening balance of the [ base ] and unwind of that, that we have taken as a separate line item. So you would see that there is another INR 89 crores, which we haven't taken into ROV. So this is only because of 2 things: ETR, effective tax rate change; and persistency on one line of the products, which is sitting in the ROV and operating variance.

[Nischint Chawathe, Director of Research & Senior Analyst]

Perfect. Just one last clarification. The reduction in unwind rate -- sorry, unwinding rate purely reflects the movement in interest rates?

[Bharat Kalsi, Chief Financial Officer]

The reduction in unwinding rate. So we will follow a consistent unwinding rate. So there is no reduction or change in the unwinding rate.

[Nischint Chawathe, Director of Research & Senior Analyst]

If I look at effective unwinding rate, expected return enforced upon opening EV, that ratio has come down to around 7% in '21 from 7.6% in 2020 and around 8% in 2019.

[Bharat Kalsi, Chief Financial Officer]

Should not be the case if we've fallen 8% only. But let me just come back to you separately on this. Will that be okay?

[Nischint Chawathe, Director of Research & Senior Analyst]

Perfect. Perfect. All the best.

[Operator]

Due to time constraints, that was the last question. I would now like to hand the conference over to Ms. Bunny Babjee.

[Bunny Babjee, Analyst]

Thank you. On behalf of JM Financial, I would like to thank Mr. Sreenivasan sir and the senior management team of the insurance businesses and all the participants joining us in the call today. Thank you, and have a good day, and stay safe.

[S. Sreenivasan, Chief Financial Officer]

Thank you. Thank you, everybody.

[Ramandeep Singh Sahni]

Thank you.

[Tapan Singhel, MD, CEO & Executive Director]

Thank you, everybody.

[Bharat Kalsi, Chief Financial Officer]

Thank you.

[Operator]

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