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Edited Transcript of BAJAJFINSV.NSE earnings conference call or presentation 17-May-19 6:00am GMT

Q4 2019 Bajaj Finserv Ltd Earnings Call

Pune Jun 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Bajaj Finserv Ltd earnings conference call or presentation Friday, May 17, 2019 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Milind Choudhari

Bajaj Allianz General Insurance Company Limited - CFO

* Ramandeep Singh Sahni

Bajaj Allianz Life Insurance Company Limited - CFO

* S. Sreenivasan

Bajaj Finserv Limited - CFO

* Sanjivnayan Rahulkumar Bajaj

Bajaj Finserv Limited - MD, CEO & Executive Director

* Tapan Singhel

Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director

* Tarun Chugh

Bajaj Finserv Limited - MD & CEO of Bajaj Allianz Life Insurance

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Conference Call Participants

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* Abhishek Saraf

Deutsche Bank AG, Research Division - Research Analyst

* Avinash Singh

SBICAP Securities Ltd., Research Division - Lead Analyst

* Bunny Babjee

JM Financial Institutional Securities Limited, Research Division - Analyst

* Devansh Nigotia

Securities Investment Management Pvt Ltd - Research Analyst

* Dhaval Gada

DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials

* Hitesh Gulati

Haitong International Research Limited - Analyst

* Nidhesh Jain

Investec Bank plc, Research Division - Analyst

* Rishi Jhunjhunwala

IIFL Research - VP

* Sachin Mittal

* Sumeet Kariwala

Morgan Stanley, Research Division - Equity Analyst

* Vinod Rajamani

HSBC, Research Division - Asia Insurance Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Q4 FY '19 Earnings Conference Call hosted by JM Financial Securities Limited. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Bunny Babjee from JM Financial Securities Limited. Thank you. And over to you, Ms. Babjee.

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Bunny Babjee, JM Financial Institutional Securities Limited, Research Division - Analyst [2]

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Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss the fourth quarter FY '19 results. To discuss the same, we have on the call: Mr. S. Sreenivasan, CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj General Insurance; Mr. Milind Choudhari, CFO, Bajaj Allianz General Insurance; Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance; and Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz Life Insurance.

May I request Mr. S. Sreenivasan to take us through the financial highlights, post which we can open the call for a Q&A session. Over to you, sir.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [3]

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As usual, it's our pleasure to have all of you for the conference call. In this conference call, we will be discussing the results of Q4 of FY '19 for Bajaj Finserv and for the full year ended 31st March 2019.

As usual, Bajaj Finance has already had its call yesterday. So as usual, we will be concentrating more on the insurance operations of the Bajaj Allianz General and Bajaj Allianz Life, which are the other major contributors to the consolidated results. However, if there any high-level questions on Bajaj Finance, we'd be glad to take that as well. The status of Allianz in our insurance company remains the same as of the end of the previous quarter and there is no change there. And any statements that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of future performance.

Coming to the financial results for the year ended 31st March 2019. This is the first year we have reported the full-year results on Ind AS. Bajaj Finserv and Bajaj Finance, including its subsidiary, Bajaj Housing Finance Limited, are under Ind AS. The insurance company standalone results are not under Ind AS because it is not yet applicable to them. However, for the purpose of consolidation, they do give us Ind AS-compliant figures. Therefore, the consolidated numbers are compliant with Indian Accounting Standards and the previous year figures are also comparable.

Coming to the highlights of the quarter, were already in the press release. And we have put up our investor presentation on our website as well, which I hope all of you will have seen. It has been a very good quarter for us, 32% growth in profit, 44% growth in revenue. Bajaj Finance profits are up 57%. The GI business profit is down INR 83 crores as against INR 187 crores in Q4 of last year. And Life Insurance profit after tax is also down INR 112 crores versus INR 171 crores.

In terms of Bajaj Finance, the total income is up 52% in Q4, the profit after tax up 57%. The AUM is up 41% and the net NPA as per the extant RBI prudential norms and provisioned as per expected credit loss, which is required under Ind AS, is 63 basis points, 0.63%.

Coming to BAGIC. It has been a very good year -- quarter for us in terms of growth. Our overall growth during the quarter is 23% in GWP. And even if you exclude the crop business, which we did a bit of during the rabi season, our GWP has grown by 17%, grew well above the market. The underwriting result was a loss of INR 146 crores, the first time we are reporting underwriting result in a few quarters. And you may be wondering why.

It is primarily due to three reasons. One is the provisioning for crop insurance in rabi season. And secondly, investments in technology. Over the next couple of years, we will be investing deeply in technology: a, to revamp our core insurance module; and also to support our data warehouse and analytics teams. And thirdly, in terms of bancassurance, you may be aware that we have a considerable number of bancassurance tie-ups, very large banks, almost -- many of them are tied-up with us. We have signed up with Citibank recently as well as Central Bank, apart from HDFC Bank, Canara Bank, PNB to name a few.

Altogether, we have about 60 bancassurance corporate agents in our portfolio. But because of this, these require upfront investments both in terms of technology and manpower. And we are hoping that over the next 2 to 3 years, they will be drivers of growth as well as profitability. For the full year, the impact of Kerala floods finally has turned out to be INR 50 crores. This is reflected in the FY '19 results. Overall, we are quite satisfied with the performance of BAGIC, and we are looking forward to a very strong performance in the next year.

In terms of Bajaj Allianz Life Insurance Company, we have seen all the levers of business, which we were driving in the transformation program we started a few years ago, working in favor of the company. The product mix has become very sustainable. We have now a 60-40 product mix for the year, 60% ULIP and 40% traditional. And what is interesting is that in the second half of this year, the growth of the bank-sponsored insurance companies has been only 10%.

It means that those who are heavily dependent on ULIP did have some problem with growth because the market conditions were not conducive for further investment in ULIPs over the last few months. However, our balanced product mix did help us in driving substantial growth. Our rated individual business premium, which is our primary tracking metric, was up 45% in Q4, which is one of the highest growth rates in the market.

Our renewal premium continues to grow. We grew it 15% in the quarter. And overall GWP again was higher by 23%. However, the profit after tax for the quarter was down INR 112 crores versus INR 171 crores. Primary reason being the business strain due to strong growth. But it was also affected by additional provision of INR 40 crores against expected losses from impairment of investments. In terms of investment in IL&FS, both companies have provided 100% of their exposure. The life company is about INR 126 crores on the shareholders' account and BAGIC is about INR 49 crores.

Coming to new business value, which we have put up in our presentation on the website. We have seen very good growth in our margins and new business value. Our new business value is up from INR 224 crores to INR 222 crores to INR 347 crores, is an increase of almost 50%. Our margins before overruns have gone up from 12.5% to 15.6%. And even after overruns, we have a positive margin of 7%, the first time in a few years that we are reporting a positive net margin. Our EV has shown reasonably good growth and stands at -- a shade under INR 13,000 crores now.

I will now open the floor for questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Dhaval Gada from DSP Mutual Funds.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [2]

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Just a few questions. Firstly, could you break down the combined ratio for the full year in BAGIC from 92.3% to 96% ex the flood losses? How much gain from loss ratio amongst major segments? And how much is related to the OpEx increase that you talked about, the investment impact, et cetera? How much has contributed to that? The second question was on the guidance on combined ratio. How do you see combined ratio moving into FY '20, given the pricing environment in motor TP and other segments? What is your thought process on combined ratio? Then I have questions on BALIC, but I'll just wait for the replies on BAGIC questions.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [3]

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Okay. I will let Tapan take this question. Tapan?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [4]

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Yes. So if you look at the combined ratio breakup predominantly for the loss ratios, other than the increase in [R&D], which was during the fourth quarter, for the year our loss ratio was comparable and a bit lower also in [term segments and it printed] a little higher. But overall [equivalent], all of it lower than [wolconotjee]. The [big thing in manachin] for two reasons. One, like Sreeni mentioned, our investment in technology and our investment in manpower. So if you look at our overall expense ratio, it's higher compared to the [peers] which should have been there. In recent times, [there was exclusion there]. So that is the breakout of the combined ratio. For the next year, if you look at the [no] TP increase, we likely mentioned about the increase of our loss ratios there. It will happen because the inflation in third parties is there. And [the tipping of it that is not there it] would have mentioned as of now. So we are hopeful that [where of the gearing mix] give some light on how it comes out. Minus that, I think if I look at the market, the correction will happen. And the industry pattern, if you look at the market combined ratio, last year, over 130%. In the last results that we had, the market already [caused] 120%. The market combined ratio is doing very well, it's 7% in this year, which is there. So the prices other than [fire], which has hardened a bit, that was due to GIC. The rest in terms of motor, as you rightly said, the TP now increased, would lead to some deterioration in the loss ratios. But overall, I don't see major shifts happened last year, either an increase of TP or deterioration of loss ratio for industry as a whole.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [5]

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As what Tapan said, if you see motor TP, I think we have a significant -- I mean we have a fairly good loss ratio as compared to the majority of the players in the market. So our ability to withstand the pricing pressure due to [the IDMR] increasing the prices for this year is relatively better than the market. So we think we are well priced. And a lot of the investments in manpower will help us, especially in the bancassurance channel. As I have said before, the banca channel is a growth engine because we have so many tie-ups and we are starting with practically zero base next year, the growth rate, we are very hopeful, will be very high. We, as a proportion of our total mix, bancassurance will grow higher. It is about 12% now. We expect that will go up. Thirdly, bancassurance gives us considerable amount of non-motor business. Almost 75% of the business from bancassurance is small property, health and the other personal lines of business. So it can be a growth-cum-profitability. And generally, it's a very powerful engine. We are really hopeful about bancassurance delivering -- helping us deliver -- continue to deliver superior combined ratios as we move forward.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [6]

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And just lastly on the crop business, what is your thought process? And second, how much has the pricing sort of improved or deteriorated, if you sort of look at premium per acre just versus 2018 -- last year versus this year? Just some thoughts around that.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [7]

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Tapan?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [8]

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Yes. So if you look at crop insurance this year in the first half, we did not write much because we saw a deterioration in the prices [you get]. [In fact now] rabi is more stable and that's very good, but unfortunately, rabi had a bad year. [Atsi year is good]. When you look at the crop business, you should never take it on a yearly basis. It has to be seen in a 4- or 5-year cycle basis. The cycle is good. The cycle is bad. But during a 4- or 5-year cycle, it has been really good for the industry. And that's why when we put it together, we could see that. [Afar at the product] was very good. The rabi deteriorated [a little bit]. So on crop, I think we always try to position ourselves on the price that we feel is right. We neither go over rate nor we go under rate. It's more or less comparable for our overall market share for the industry. And that is [whether we turn the] crop, which is what a bit less than our market share. But that was a conscious call that we take. And we have big lines of business [crops, well, we've got health]. So we always try to -- for all the [instruments of] businesses we do, we try to underwrite from a perspective that is good for the company. And [we try to sell] the farmers and others on our very proactive basis. So we continue with this strategy of price.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [9]

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And overall pricing is better or worse this year?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [10]

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If you look at it from last year, those figures have gone down a bit. But that is more also because the year before that was good. Also as I have said, the crop insurance [is into] the cycle of 3 to 4 years, so when you have a good year, the price does come down, the next year when you have a bad year the price goes up the next year. That is what we have done.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [11]

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Understood. And just lastly on BALIC, if you could just give some more details on the protection business between individual, group credit protect and group term GTA. And then I have a follow-up on profitability. How do you see, given that we've come to positive territory on VNB post cost, what's the thought process on margins over the next 2, 3 years based on product mix versus [trends et cetera]?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [12]

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I'll broadly take that question. We are very positive on the profitability of the life business. Because the business, the renewal book is building up quite strongly. And some other new business strain that we invested in the last couple of years should help us improve the margins as we go forward. There is a fine tactical play on the product mix. It is not just about ULIP versus par versus nonpar. But also within nonpar, [where our risk withstands] a protection. And that is something we tactically look at every quarter, every year. But having said that, I would like Tarun and Raman to handle the question on what is the exact proportion of [group] protection and the other question that you asked.

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Tarun Chugh, Bajaj Finserv Limited - MD & CEO of Bajaj Allianz Life Insurance [13]

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Yes. So Tarun here. It's a pinpointed question. On group risk, let me just tell you that we've had far significant growth this last year, last quarter, 32%. And for the year, 48% growth. Overall, as [para] presented, the business in group protection, which gives us 7% of our ANP. In terms of the retail protection, we spent all of last couple of years to sort out our claim handling and mortality ratios, which are now looking quite strong. And now we feel confident that we should start entering into the retail life as well. Lots of things normally required in these systems to be put in place, which are now in place. We will, therefore, increase our presence in the retail risk as we go ahead in the coming year. We dipped, I would say, down a little bit with the health risk. And we've had a fine start there. But there is, of course, a lot more to be done on the retail risk side. In terms of the NBM, as Sreeni said, we turned into positive territory after a few years now. So at 7% approximately, which we can see in the positive trajectory, given the product mix now. And the bigger impact on the profitability at this juncture, not just coming from the product mix but also the channel mix. About 3 years back, agency [to we had 5] at 92%. But now we see a significant growth in non-agency channels. So as you can see, it continues to grow. We're still at [69] % now. And the rest of the channels have grown by a healthy upwards of 80% for our institutional business, which is bancassurance and the proprietary sales, which is really a calling-based direct sales business, offline business. These 2 growth engines have a profitability and are far more low cost than agency.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [14]

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If you could share that number, absolute premium from protection and just break it down into individual and group, that would be very useful.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [15]

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So individually, [I need to in this mix]. But on group side, we've done about INR 1,450 crores in the year.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [16]

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Is this new business?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [17]

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Yes, new business.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [18]

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Okay. And largely credit protect?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [19]

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Largely credit protect. And GPL as well.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [20]

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Group plan as well, right?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [21]

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The big group proportion is credit protect.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [22]

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Okay. And just really just one request, [we avast] has a very good disclosure in their presentation. If you could add under general insurance side as well, loss ratios across segments, since the public disclosures come a little late, that would be very useful.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [23]

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We are considering that. We'll probably do it next year. Our [ideas] have already come out with some white paper on additional disclosures, including reserving triangles. There is some elements there which are not consistent. So we will wait for the final guideline to come. And we think we will be able to start doing that sometime next year.

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Operator [24]

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The next question is from the line of Devansh Nigotia from Securities Investment Management.

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Devansh Nigotia, Securities Investment Management Pvt Ltd - Research Analyst [25]

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My question was mainly related to general insurance piece. So other equity exposure of the investment that you do, what would that be currently?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [26]

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On general insurance?

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Devansh Nigotia, Securities Investment Management Pvt Ltd - Research Analyst [27]

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Yes, on general insurance.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [28]

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I think we have about 5% -- 6% of our portfolio. We have gradually increased in equity exposure. Because in general insurance, as you know, we are focusing more on cash flow generation, investing that prudently. But over time, we want to gradually increase exposure because it's like a permanent part of our portfolio. It is not something that we can keep changing dramatically. But we'll gradually keep increasing it. As we build more solvency, we will keep increasing it.

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Devansh Nigotia, Securities Investment Management Pvt Ltd - Research Analyst [29]

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[Sir, the current environment] regulation [requirements] around 40% to 50% of the investments [you take include the] ...

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S. Sreenivasan, Bajaj Finserv Limited - CFO [30]

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No, [45%] for GI business. But within that, see, it causes more volatility in your P&L. And if you see the components of PBT, I will divide it into sustaining, I mean recurring and nonrecurring. The recurring profits are your underwriting profit. Within that, how much is coming from reinsurance commission and how much is coming from core retention. The regular in interest and dividend income, which is recurring. And the third is your profit on sale of assets because we don't mark-to-market. You can play around like the public sector companies have been doing for years. If you see the proportion of the recurring source, which is underwriting profit, and the investment income, we would be one of the highest contributor to the PBT. That's been one of the cornerstones of Bajaj's sustainability over the number of years in terms of profitability. We continue to maintain that, even the dependence on reinsurance commission as PBT for us is lower than many of our peers.

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Devansh Nigotia, Securities Investment Management Pvt Ltd - Research Analyst [31]

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Okay. So what would be the current strategy? Of course, it would be [relative]. But any time lines as up to what exposure we are very comfortable with?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [32]

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The initial stage, we looking at 10%, However, in the immediate future, I cannot say because a lot of uncertainties in the market. This is a call the investment team will take as to how and when they want to increase the exposure. And we will do that gradually.

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Devansh Nigotia, Securities Investment Management Pvt Ltd - Research Analyst [33]

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And sir, next question would be related to motor insurance, please. So what would be the segment mix within the CV, PV and 2-wheelers?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [34]

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Milind, can you take that?

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [35]

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Yes. I think in terms of the overall mix of the total motor business as such?

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Devansh Nigotia, Securities Investment Management Pvt Ltd - Research Analyst [36]

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Exactly.

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [37]

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Okay. Around 18% comes from 2-wheelers, around 45% from 4-wheelers, 31% from commercial vehicles and the remaining 5%, 6% comes from the other lines of business within motor, like these agricultural tractors and other things.

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Devansh Nigotia, Securities Investment Management Pvt Ltd - Research Analyst [38]

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Okay. So in the motor insurance business, maybe [to some extent in] retail and commercial we can at least have more loss ratio as compared to other segments. Is that the right interpretation or...

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [39]

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I'll take that. To broadly generalize [and say that now] because more loss ratio [endeavors]. It maybe is. But if you break it up, it's not the case. You have a lot of good profit it's in commercial [rate consumption], which gives us the potential [to there's in a priority cause out that's good]. So I think it's a very large segment. If you look at commercial vehicle compared to the -- the reflection that we have in the books is not a reflection of how the market would be in terms of 2-wheelers, 4-wheelers contributing to the group. Overall, a balanced group. It will be a [bit under rate] because of our [buyer making conflict]. Our [feeder] penetration maybe a Honda and others is much lower. But commercial and private cars will be a bit overweight. And that's how we balance out our motor portfolio overall business in line with the market. But in all segments, there are profit pools. [There will be a significant element] but specifically, it will be different.

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Devansh Nigotia, Securities Investment Management Pvt Ltd - Research Analyst [40]

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Okay. Because when we look at our peers, they have more exposure to passenger vehicles too that would seem like about lesser loss ratios. I was just trying to understand that where are [you taking] ...

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [41]

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How it happens is any business, where you see the loss ratio -- let me give you an example in passenger cars. If you go back 8, 9 years back, the high-end passenger cars was the most profitable. Today, it is among the worst. So it is not -- these are not stable kind of environments in which you can say that this will always be like this. It keeps on shifting, the market which sees profit in that area will do well. And I think we're talking about building. And GI happens very, very fast. So unlike our industry in GI, the profit [will diminish] very fast and other profits will get created. And [as I said some mission] are able to figure out where the profit will be created where [to aid] our business and where it is deteriorating. It happens. In passenger cars also, if you do a study, just take out the loss ratios of high-end vehicles you will [fine into a bind articulate you see massive regulation] in that. So I think it just keeps moving.

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Devansh Nigotia, Securities Investment Management Pvt Ltd - Research Analyst [42]

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And also one disclosure-related question that I had, do you plan to disclose the results triangle in our [order] book?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [43]

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I already answered that question. We will be looking at it sometime in FY '20. If not the first quarter, by second quarter we will do that.

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Operator [44]

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

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [45]

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Congratulations for a very strong set of numbers. Just one on the general insurance, where I think [the relative necessary] for comparable comments of the company over the last 3, 4 years, this is only the first time that we have seen combined ratio going up. And you mentioned that there is an element of crop insurance and also investments. So this investment that we have done in the field, do we expect similar sort of quantum over the next year, next couple of years?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [46]

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[I think if it's recognized] the combined ratio. And then I'll give to you for the investment profit. See, on a combined ratio basis, you have to plot the duration and the [right of] combined industry. As a company, we benchmark after the industry. As I mentioned earlier in my talk, the [minus] industry last year was 130%, which was [101 for this] time. This year, about 8 points of deterioration of combined ratio industry. And look at BAGIC's upward movement is much slower than the industry's [tradition], which means BAGIC has outperformed the industry by bigger margin that it had done last year. I think these are related terms. When we look at it in this perspective, then you do a proper perspective of how the performance of the company has been. On a rate standalone basis, when we look at it, it has gone up. But on a relative basis, I see the difference of combined ratio this year of BAGIC and [mass of the] industry is better in terms of what we [were into] last year. So the market also played [a force and had a] significant large market like us and market ability is there. The good part is that we have been able to outdid the market in terms of how the combined ratio has done. Sreeni, on the investment?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [47]

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Nidhesh, in terms of answers on the investments, there are two large pieces of expenses that we have invested in. One is manpower because we have a large number of banca tiers of different models. Some are branch banking-based, some are telecalling-based, some are centralized. So it does require and there's a lot of technology integration that the banks require as well. Additionally, as I mentioned before, we are investing in our core systems in terms of technology. So technology investment in our core systems will continue for the next 2 to 3 years. It is not something we will cut back on. In terms of manpower, as the volumes build up in banca, we expect the expense ratio, manpower cost too, GWP and [NW] to start coming down from FY '20 and for the next 2 years. So overall, to answer, our target combined ratio has never been very low. It is always, as we have guided before, we'll be very happy to have a combined ratio below 100%, maybe 97%, 98% is what we think is sustainable in this market. But in a quarter-on-quarter basis, you will always have blips. You will have catastrophes. Sometimes you'll have bad monsoons, you could have crop. So some segment or the other could have occasional quarter losses. It's not a 1 quarter business. It's a long-term business. And we are not really worried. We think Bajaj is on a very sound footing and very good results for the quarter as well.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [48]

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[2] comments that continue to deliver. Going into FY '20, we have even [saw reduced] cyclone [we have no cyclone to see]. So do you think next year also you can deliver a combined ratio of [100]?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [49]

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[We don't think now] we don't predict what the combined ratio will be. There will always be even slight duration risk of catastrophes. We do not think the risk of floods will have such a significant effect. As of now, we are still waiting for information because a lot of banca [in thing] does get reported. But as of now, we're not expecting a very big impact. Having said that, in terms of TP, I already mentioned our TP loss ratios were among the best in the market. We have much better ability to withstand the pricing decision by the [IAD]. Tapan?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [50]

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So if you look at [the grouping] forward-looking statements has more elements than if you look at in the past [performance] that we have. And we continue over the years, [they have been tied to mostly] look at market demand [you can see we are committed to various] innovation. We continue doing that. And like Sreeni mentioned, one-offs did happen. [Losses will] happen, there would be some losses which we'll be reporting. But we have a good [nat cat record we recover too and we recover net]. And that's fine. That's part of business. Last year [we had the big up cyclones, before that you had problems with May floods]. So this will keep on happening. And for something that [Sava] mentioned around the country in terms of geography in terms of [available] markets. But we will [continue that trend until] we have significant for rate down] .

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [51]

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Sure, sir. And if you can just [maybe the 2 points with the] insurance, when is it [what will be the loss ratio in Q2] FY '19? And what is the advance premium that you have [determined] long term with the third-party premiums?

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [52]

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Yes. For the advance premium as far as this long-term plan is concerned, it's currently around -- which is majorly coming from [Alecta] as well as [Puja].

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [53]

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Hello?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [54]

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I think the line is a bit choppy.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [55]

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What is the number of -- or what is the quantum of advance premium?

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [56]

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INR 300 crores.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [57]

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INR 300 crores. And the segment-wise loss ratio, what is TP overall?

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [58]

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What is TP, overall TP, the loss ratio is lower than the last year. It's only around 65%. And motor only is around INR 60 crores.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [59]

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And [I'm concerned] if you could just share the reason for negative operating variance this year of INR 172 crores? What is contributing to that? And what is the other variance of INR 261 crores?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [60]

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Just a second. I just opened that. Yes, the other variance includes the provision we made for ILFS and the dividend that we paid. Okay, last year, we paid INR 105 crores of dividend. And we had ILFS exposure of INR 126 crores. That comes as other variance because it affects the NAV.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [61]

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And operational variance, why is it negative despite [we see the specific] improvements?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [62]

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The margin is negative.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [63]

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Yes.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [64]

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I don't think in the context of the [NTV] it's a very big amount. It's a very immaterial -- it's not a material amount.

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Operator [65]

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The next question is from the line of Avinash Singh from SBICAP Securities.

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Avinash Singh, SBICAP Securities Ltd., Research Division - Lead Analyst [66]

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A couple of questions. The first one, crop. I mean, can you tell what sort of [number for] FY '19 was the final number of losses in crop, including the [reasons] cost? And how had been the [reason added been]? Because the INR 115 crores kind of a loss in the rabi season looks a bit on the higher side. So some more color on the [reason added] in the crop you had this season. So that's the question number one. The second question again related to the GI only. Particularly, if we look for the growth -- the growth in profitability going into FY '20. Now of course, motor TP, as you are saying, [hope is] temporarily [free under regs], but that risk is there. There is still no sign of [the 9] companies around the [OD] side. And crop, you have sort of an intention not to be very aggressive. So I think we can expect a sort of a lower-than-market growth for you in the crop side. Additionally, what you said about property fire line, that okay, that GIC certainly has had an impact. But at the same time, we are also hearing that now clients have come back to the same old era, where they're again negotiating hard for the discount on the group health side. I mean so in all this sort of [regulatory] environment and on the macro side, your[ratio fields, new ratio fields have been] not great. So how do you see that growth in profitability going in this year, I mean? Because there are so many factors working against.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [67]

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There are always factors have been working against in GI, it is the only business that we have seen significant depreciation in prices over the last 10 years or so. So it's not something new for the market. Only the type of challenges that you face keep changing year-on-year. Tapan, would you like to take those questions? There are many questions that he has asked [as in the crop] the reinsurance arrangement on crop. Third is property pricing. And four is auto sales being lower.

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [68]

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Yes. So if you look at the regions of growth for us in this year it was with GIC -- led by GIC. But I think for all, nearly all players [minus a] couple of them, GIC led the [reinsurance] program this time, which was [good]. And that is why we had a good [cooperation] of stop loss arrangements. Having said that, if you look at the overall crop business for the entire year, it has not made losses for us. I think we still have some profit from that. And the second point is in terms of the market getting tougher. And like Sreeni mentioned, I think this is normal for us, a tough market is not something that is something new or we [have fear of it]. The sales of cars with the TP [we feared would] happen. But as I said earlier in my speech, I think the [bit of reinsurance], it is now widespread. It has a lot of components. On a general basis, the statement is right. And on a specialty basis, smart companies which are very customer [offices] focused and have other innovations happening, [absolutely been able to find] areas where they can do good. That has always been the [rule] and I think we have some real good talent with us. And that's what we should continue doing. So the point you mentioned, the market, as you rightly said, a massive correction either [which I said] in terms of [polluting], in terms of new losses or in terms of the market transforming will not happen. Market [will still] further. And we have seen the impact of it the last year's results. If I look at the [Pearson] results, which happened this time, so [I grant you] a couple of [not here results]. So I think companies will be a bit wary of really trying to push things a bit too much beyond what it already is. So as Sreeni mentioned for us, it is something which is similar, a bit of drop in passenger cars will happen, but the company should be there for 18 years. I think we have substantial book of not only existing customers. We have substantial book of [there], as Sreeni mentioned, also we have banks tied up for this year, all good names. So [puchino] business is always there. The market will be tough, that you're right, I'm not denying that. But as a company, I think we are not seeing [a new market for so many years so it's perfectly fine with us].

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S. Sreenivasan, Bajaj Finserv Limited - CFO [69]

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Yes, overall, our strategy is to grow market share in the segments which we prefer. So that segment the way we define it, is much more granular and detailed than what the lines of business are. So in each segment, based on analytics, we try to find more and more finer segments, where we would like to grow our market share. That has been our strategy until now and will continue.

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Avinash Singh, SBICAP Securities Ltd., Research Division - Lead Analyst [70]

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Yes, okay. Sreeni, one follow-up question for you. Do we have -- I mean our group entity expose us to the [ses group the dion housing ADAD] and [SL]?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [71]

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See, as of now, we have fully provided for ILFS. The others, we are evaluating on a group basis for each BAGIC and BALIC separately. And we will see as things evolve. But we only provide against where there is a loan default. [We aren't going to based] on market rumors.

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Avinash Singh, SBICAP Securities Ltd., Research Division - Lead Analyst [72]

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No. So can you define the extent of exposure to these companies?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [73]

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I don't have the data with me now. We would have [into is farms nonpart farms] and insurance companies some exposure, that we will disclose it if required at a later stage.

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Operator [74]

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

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Hitesh Gulati, Haitong International Research Limited - Analyst [75]

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Just to clarify, so the motor mix that you say -- so you said about 40% on CV. Has this number moved up substantially from last year, what it was in FY '18?

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [76]

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Yes, the business mix in terms of commercial vehicles has improved as compared to last year. And it has multiple compensating impacts, and I would say, I think the auto sales part [run slow] in this financial year. Although if I look at it in an absolute manner, we actually increased our number of policies by almost around 32%. And we have improved our penetration in most of the OEM programs. But in spite of that, I think the commercial vehicle segment afford better opportunities. And I think as a little [note], it has a longer impact in terms of the ability of note and delivering investment income, which [improves on date].

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S. Sreenivasan, Bajaj Finserv Limited - CFO [77]

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So Hitesh, just to add to what Milind said, more than half our motor overall business from 2-wheelers, private cars and commercial vehicles, 56% is from TP and 44% is from OD for the current year. Last year, it was only 48% from TP. Our loss ratios on TP are very good at 65% overall. And the [oly] loss ratios are about 60%. Overall, motor loss ratios haven't changed. So there is a lot of adjustment between lines that happens. And we are building float quite handsomely in our motor business.

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Hitesh Gulati, Haitong International Research Limited - Analyst [78]

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Sir, can you give the number what this was CV proportion in FY '18?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [79]

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I gave you 48%, the CV proportion.

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Hitesh Gulati, Haitong International Research Limited - Analyst [80]

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Yes, so in motors. So for example, you said 41% in FY '19. So what was that in FY '18?

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [81]

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As far as the commercial vehicles are concerned...

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S. Sreenivasan, Bajaj Finserv Limited - CFO [82]

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33%.

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Hitesh Gulati, Haitong International Research Limited - Analyst [83]

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33% [is up to 38.] Okay. And sir, can we -- [in this] what you're giving us for the overall motor piece, can you give a similar mix for motor OD and motor TP? Because in TP, having a claim ratio of 65% looks very good, sir. So is that the same assumption we should make that TP also has a similar CV mix?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [84]

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I think that is something that you will have to make an assumption because as we mentioned, it was a very dynamic business. If you ask me next year what it will be, it depends on not only the volume but also the pricing and how we see the market quarter-on-quarter.

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Operator [85]

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The next question is from the line of [Tanesh Jain] from [RT Industries].

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Unidentified Analyst, [86]

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So my question is on BALIC. [It appears] this company has reported a strong growth in [the Indian IND] a 45% level. And this is mainly [contused] by [growth in company at ID past]. So do you think that all this [good all this] growth momentum continue?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [87]

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See, that is a difficult question. We always would like the growth momentum to continue. This year has not been that easy a year because the [unit] market was quite subdued. And in [IB], I think last few years ago, we have made a conscious effort to grow our individual rated premium at a faster rate than our group premium, which anyway we were doing quite well. Tarun?

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Tarun Chugh, Bajaj Finserv Limited - MD & CEO of Bajaj Allianz Life Insurance [88]

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Yes. So that's a very good question, yes. So as Sreeni also responded, we have been -- put together a focused strategy around institutional business. And we've grown by 86% last year. I can't make a forward-looking statement, but I can tell you that the IB side will, of course, remain a focus area and therefore grow more. And similarly, we also have another proprietary sales channel, which is also growing a healthy 82%, if I remember. And there also, the growth rate shall be good. But I cannot make any forward-looking statement on percentages. And you will see our non-agency business grow faster than agency, broadly, I can say that.

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Unidentified Analyst, [89]

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Are you certain growth's not there? and on the (inaudible) as [Raman] mentioned, (inaudible) if you could somewhat weak investment area or enlargement that other company focus on that mainly balance itself in company (inaudible) list on the [double senior side] so in the coming time due to changes in the (inaudible) political scene and all, changes and the (inaudible), is it possible the company is going to focus more on the midsize investments in [area]?

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Sanjivnayan Rahulkumar Bajaj, Bajaj Finserv Limited - MD, CEO & Executive Director [90]

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Okay. So I don't know -- the sound wasn't very clear. So is your question around the product mix and the units and volumes direction? Is that the question?

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Unidentified Analyst, [91]

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Yes, yes, that's correct.

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Sanjivnayan Rahulkumar Bajaj, Bajaj Finserv Limited - MD, CEO & Executive Director [92]

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Okay. See, as stated earlier on the call, we've always been intending to move towards a balanced mix and last year, we made some significant movements. See, the way it's -- of course, we have a broad plan towards achieving it. But the underlying business scenario is that we focus -- we have a city-based strategy. So given the presence that BALIC is -- got a strength over the rest of everybody, the rest of the industry, we are present in about upwards of 400 cities, which most life insurance companies are not. In fact, we have been in some cities where LIC is also not present. So as we have a city-based strategy, unlike other life and travel insurance companies, we are not just dependent on the metros which are more ULIP focused. We are able to, therefore, run on a portfolio level a good mix and our focus shall be to grow both metros and non-metros. As a result, this product mix shall be balanced. And it's not that we want to push customers in a certain direction, but I do expect that in the non-metros, the mix of traditional will be higher. And what metros like Bombay and Delhi, the big ones at least, where people are more financially literate and do benchmark our products to wealth products as well. So therefore, the investment direction shall be more around ULIPs. So largely, we shall remain like that, whether it's agency and other channels as well. The balanced mix is going to be popping up from every channel and city. There will be tactical calls that we will take quarter-on-quarter. And for example, we have to see what -- how the markets fare in the next 3 months. And the business is expected to be a little bit of a different, I'd say, situation versus what you've seen in the past. As the election results come out, the direction of the market will get clearer. And then tactically, we will work around product mix for the quarter. Directionally, we shall remain balanced in both traditional and non-part on and ULIPs.

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Operator [93]

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The next question is from the line of [Anivan Soldat] from Principal Mutual Fund.

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Unidentified Analyst, [94]

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My questions have been answered. Thank you.

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Operator [95]

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The next question is from the line of Rishi Jhunjhunwala from IIFL.

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Rishi Jhunjhunwala, IIFL Research - VP [96]

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I first wanted to understand given your strategy in group health, it has grown at almost 86% year-on-year. How have your loss ratios moved as a result in FY '19 versus '18? And what kind of -- what is the general nature of corporates that you're addressing?

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Sanjivnayan Rahulkumar Bajaj, Bajaj Finserv Limited - MD, CEO & Executive Director [97]

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Tapan?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [98]

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Okay. If you look at the group health this year, the initiative [at first] has hardened and then it does soften a little bit again, and like some of the other questions, the expectation has softened more. So last year when the prices happened we entered the group health space and we [believe most opportunities] like some big corporate or some IT consulting side and some small segment also. And the losses have deteriorated, which [are more] like treatment. But group health also has a couple of play which happened. Group health gives you access to a number of customers, and these customers, because of the large numbers, the ability to negotiate with hospitals better pricing compared to what they are normally offering to our retail customers, which were a lower impact on the retail customer [loss ratio] also. The group has technically never has loss ratio which is very low. We always hover between 90% to 100% because the loss ratio of group health is substantially lower. Why would a retail company get a group health done. Now the law of large numbers also played to that. But we should come and look at group health for 2 reasons. One, it gives them a massive unit volume and the ability to negotiate with the hospitals [of the fillage] , which impact the retail portfolio also. And two, it also gives them data in terms of figuring out what is happening on the space of health and how it moves. So it serves the purpose and I think at times, the company is right. At times, it comes up. So last year, we had within group health an issue and for a specific reason. This is, again, due to prices that were soft and will not be that [low] as they were last year.

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Rishi Jhunjhunwala, IIFL Research - VP [99]

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And on crop, what has been the loss ratio to sale versus last year? And have you won any tenders yet for the curry season?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [100]

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We have won quite a bit over the curry season. Our loss ratio varies but because of traveling I don't have the figures right now. Milind, can you give our won/loss ratio.

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [101]

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Yes, won/loss ratio for this financial year has been around [121%], so I think, this year as compared to around [75%] last year, so that is what has taken impact, particularly in rabi. The rabi loss ratio has been [150] plus, particularly in 2 states of [Mayar Tran and Uttar Pradesh]. So I think that has a certain impact in Q4 results particularly.

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Rishi Jhunjhunwala, IIFL Research - VP [102]

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Okay. We didn't have an [excess] loss cover at [110] in that case?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [103]

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We have actually the loss cover, but we set our benchmark higher than that. And maintain [usually] this kind of loss cover, no?

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Rishi Jhunjhunwala, IIFL Research - VP [104]

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Okay, understood. The other thing, in motor, so we have seen a fairly strong growth in TP for you but market share on OD has marginally declined on a full year basis. How are you strategizing around it considering that with the long-term TPs and we probably see some movement towards people also adopting long-term ODs if the pricing is right. How do you see that strategizing around it? And also as a result of this, do you expect loss ratios structurally to be higher but compensated by probably higher float and investment leverage?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [105]

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First and foremost, when you look at OD the situation, you look at premium. And as I mentioned earlier, the growth power has been strong. The duration in OD payer is simply because there were more discounts in OD this year compared to last year, and that is precisely why. And that is 1 reason that I told you that we keep on looking at where the profit will be shrinking, where it's moving and keep on shifting on that business. So overall, we're going to get a lumpy growth, you'll likely see a good growth in the motors business, in the number of [way computed], over 20%. If you look at premium, it is lower. We lost market share OD premium space, which I think is fine. We'll be adding segments, which we picked up on that business [where we fell], the profit we [did not so there]. And by the way the order of TP loss ratio has been much better than the market. So I think we did it very consciously. In times to come, yes, float [degradation] will be a big issue in terms of managing debt, but it also keeps float dimension we see the inflation of the claim which is happening. I think we are able to see the rates return on the float and inflation on claims and how we balance it out. And I mentioned earlier, 3 or 4 years from now how it will play out, the company will be looking very strong, we look at how the next years would look, and how the members are looking at it. We'll continue locking in PP for 3 years now or 5 years on the same premium. So that is something (inaudible). So [we are really just in] play, which should happen in the motors business in time to come.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [106]

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But we -- add to what Tapan said that OD component of 2 wheelers particularly is very small. The total OD premium for us is largely more than 1.5% of our total GWP. And the TP component is much higher for 2 wheelers. So therefore, 2 wheelers because of the 5-year rule and because of the higher penetration under the 5-year TP, we think will remain a float business.

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Rishi Jhunjhunwala, IIFL Research - VP [107]

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Understood. And lastly on life, so we're seeing a substantial jump in our solvency ratios. It used to be 5 90-odd percent. It is now 804%...

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S. Sreenivasan, Bajaj Finserv Limited - CFO [108]

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That is because for a couple of years, [IAD] had allowed us to classify some part of your excess capital as funds are not required to meet solvency margins, so that was not technically counted for solvency ratio. The money was still lying in the company as shareholder funds. However last year, we took a part to merge it back because we did not find any advantage because most of the potential norms of IAD apply to this fund as well. So we didn't find any additional advantage by keeping it separate. So the [margin] to the reported solvency will actually go up, though technically the amount of fund is always available with us. Tapan, am I right?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [109]

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You're absolutely right.

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Rishi Jhunjhunwala, IIFL Research - VP [110]

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And so as regards this excess capital, are we looking at this -- we have introduced dividend from last year but are we looking at increasing it? I think, the [savings] just maintain the same way?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [111]

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Yes, we maintain because here the profitability, that is a little bit lower. This is a matter we will review. We have a dividend policy, which we will keep reviewing every year. This is a joint venture decision between the 2 partners. So we take a decision as we come. As of now, this is what we will maintain.

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Operator [112]

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The next question is from the line of Sumeet Kariwala of Morgan Stanley.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [113]

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I had 2 questions. One is on the operational variance. I know the amount is very low, it's only INR 17 crores, but just had this question as to what's driving the negative part, because if I look at persistency that has improved quite well. Growth this year has been very good. So that was my first question. What's driving the negative [stockholder]? Second question is ticket size improvement, which has been very good over the last couple of years. Even this year when you reduce the ULIP mix, the ticket size has done very well. So what is driving that? Those are the 2 questions.

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Ramandeep Singh Sahni, Bajaj Allianz Life Insurance Company Limited - CFO [114]

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So I'll take the first one, Raman here. I think the small operational variance is more the actualization, and what we disclosed there is nothing but [a slide which] into year end which will always remain a small number. And essentially, the impact of cancellation which happened during the year. So that's a very small number in any case. The other question, I think Tarun will take up on the average ticket size.

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Tarun Chugh, Bajaj Finserv Limited - MD & CEO of Bajaj Allianz Life Insurance [115]

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Yes, so what has been happening is that as we've been -- we've been looking at focus areas on customer segments and there is a lot of data crunching that happens in the back end. We've consciously now balanced out from being a mass-market player to mass affluent and HMI player as well. So what's been happening is the smaller [ticket] has been hitting the top now as well, while we're usually drenched in the mass markets there. And in the metros, of course, we are present in all segments but largely, on the ticket size business, it tends to deliver a higher average ticket. So as a result, the phase of our agency, with the kind of advisors we've been hiring has come, if I say, quality of customers has gotten a lot better. So these agents are the ones who moved up to mass affluent and above customer segments. We've been hiring these kinds of agents more. As a result in [rural] with the ticket size has moved up from 76,000 to 86,000. In traditional, there has been a far larger shift in terms of our ticket size from 23,000 to 36,000. What we've seen was that the [new survive] lower tickets traditional, the early mortality was higher. So we basically on a focused manner moved up to a higher ticket in traditional. Overall, we did see traditional has also moved up from 44,000 to 58,000. So as a result, which is a rare thing you will see with that, is with most longer-term companies that non-agency ticket sizes are currently low, while agency ticket sizes are high. But having said that, I think it's already kind of near peak. And we don't expect too much of a ticket size movement in the agency now.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [116]

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All right. Yes, those are very good actually. If I -- on Slide 27, if I look at your average ticket size, I believe it's down now 75,000, is that right?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [117]

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Yes, yes, ticket of that [size] you will find traditional average.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [118]

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Correct. Correct. And last question about [abrupt] change. That's quite a positive number. Anything which would challenge that?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [119]

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Largely, the change is coming from improve lapses, so our consistency as you see has been improving year-on-year across all buckets, and this is essentially the impact of that.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [120]

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Got it. I am a bit confused as to why is that not reflecting in the operating line still.

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [121]

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So actually it's a classification issue. So if you look at those 3 buckets together, that is essentially the operating variance, yes.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [122]

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So you do assumption mainly at the start of the year? Is it?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [123]

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We do it -- not really at the start, but in quarter 1.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [124]

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Ah, okay, okay, okay, so then I get that. Because then, it's reflecting an assumption change, obviously.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [125]

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Right.

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Operator [126]

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The next question is from the line of Sachin Mittal of [Karvy Stock Broking].

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Sachin Mittal, [127]

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Hello?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [128]

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Yes, go on.

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Sachin Mittal, [129]

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So I have a question on BALIC, particularly what do you think about the back book growth? Is it going to change in the coming year? How is it going to change the cash [commissions here]? One question -- first question. Second question is what is the decision -- how do you decide the contribution, which is clearly the policy holder from shareholder [and what do you expect will change] that? And the guidelines on the [bearer] transfer to shareholders account from policyholders in the coming years to come?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [130]

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So Sachin, your voice wasn't very clear. Can I just broadly summarize your question. One is you're talking about the back book. How is it going to grow? The second question is -- and correct me if I'm wrong, is around policyholder fund...

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Unidentified Company Representative, [131]

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Surplus.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [132]

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On the surplus...

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Sachin Mittal, [133]

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Particularly for the [power] business, the (inaudible) fund in the policy (inaudible) Surpluses. In that case, the shareholders' profit is transferred to the policyholders to make up that particular -- for their [equity] products. How is it going to change and how the firm is going to decide on that? And the third one is, what is the direction of the surplus transfer from the policyholder to the shareholders in the coming years?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [134]

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I'll let Raman take the second and the third and I'll take the first after that.

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Ramandeep Singh Sahni, Bajaj Allianz Life Insurance Company Limited - CFO [135]

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So just correct me if I'm not answer your questions. So in terms of contribution, there are 2 parts to it. One is, if there is a deficient in any line of business, that needs to be funded by the shareholders. So there are some channels in which -- some lines of business where you will see us invest and that's where you'll see a contribution from some of the LLPs there is indeed a contribution. And to answer your question, just correct me if I'm wrong is, what is the trend expected going forward. So currently, we have some deficients in some lines of business because we are running over in some of these lines of business. Do we actually look at it from this perspective and try to have a scenario of break even at a rupee level? I don't think we'd go at that level but we look at it more a channel level than at the rupee level. So for a channel, depending on combine our product mix of bank traditional and the [met of sizes] and be positive then we do not get into micromanaging at that level. So that's why you might have some LLPs, which might [bid one another and overall] situation and that's why the contribution will be there. Having said that, for us, the surplus has been lower largely on 2 counts. One is that the realized gains on the investments portfolio were lower compared to last year, and the second one was the same which is coming from the new business which we are writing. That's why you see that the policyholder surplus is different. And as you lower the more business you write until you have a big mass of [business] book which is created, you might still see the strain in the coming periods also. So I started -- there is a healthy growth in the numbers, I don't think you should worry about the surplus being depressed. But having said that, I think moving on from here, you will see that maybe for the next few quarters, that amount is depressed but then it will turn around because your [enclosed] book will become bigger. And hence, your surplus will start getting reflected through the policyholders' revenue account. I hope I answered your question.

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Sachin Mittal, [136]

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Because the priority mix is going to be -- going forward is going to be [a big part of it], because most of the peers in the industry, they are [really] strict particularly in the [power] business because it [should have clarity parts] and does not go well with the profitability for the [firm] itself. But here, the priority is [the on par] as well, which actually led to a particular caution that how is R&D process to be judged [and to what extent]?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [137]

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Today, you represent the par business in a little bit different way. In a par business, you normally are given no guarantee. You give us -- [what the] policy holders reasonable expectation in terms of bonuses. The expectation of the policyholders is they do either 8% or 4% investment income scenario, that's committed. Typically, most par products in terms of the normal guarantee plus the bonuses comes to maybe 3%, 4%, 4.5% of IRR. Within today's interest rate scenarios and what we have seen in India for a growth market like India, gives you reasonable spread. Additional profits will be added by the policyholders who lapse, but the only condition being that the shareholder get only 10% of the distributed profits. The key here is how much money you make, how much you distribute and how you build your estate or FFPP, as they call it, Fund for Future Property Pursuance. Our property appropriation has been growing over the years. And once the fund for future operations, which is 8% to 9% based on the current solvency margin loans, your par business becomes completely capital-free. Whatever it adds and whatever bonuses you can give will be for [3 of] capital and in finite ROE. Therefore, the par business is a long-term business. It does make sense to do a lot of par business because India's largest segment of customers will save money is still the par segment. Most of the [LIC's] customers are par customers. They are people looking for protection. They are not people looking to make market returns from equities, but they want protection. But in case nothing happens to them, they want their money back with some IRR which is at least comparable to a savings bank account. There are people who buy par products also for tax savings under ATC. So for them the actual returns could be higher because you don't get that in all other types of investments. So this is roughly the mixture of par and having par in the mix is very important to acquire customers and to be in a market, which is the largest segment of the market.

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Ramandeep Singh Sahni, Bajaj Allianz Life Insurance Company Limited - CFO [138]

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On your question -- the first question on maturities and the back book will keep increasing. So just to tell you that this is the first year since 2013 that we've had a net premium accretion as positive. So we have nonstop maturities until the last year. Our [signups] have come down significantly because we've been focusing on how to retain customers and how to kind of invest for the longer term. So our signups came down by 44%, and that has helped us get a net AUM accretion of 8.9% [for this], but INR 5,000 crores -- INR 5,800 crores of additional AUM. That's been built into the business. So here on, we expect that the back book is going to get stronger. And therefore, helping the equity build up in the entire shareholders' surplus as well. So this is, to me, a payoff of the focus on quality that we particularly had in the last few years.

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Sachin Mittal, [139]

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Regarding the [central] structure from the policy holders and shareholders, unit shareholders, how do you see that in the coming years? The (inaudible) but the benefits are [looking quite] ordinary, but as such, will you transfer more to EPS growth or the ROE growth for the firm? Or it will be transferred to the bonus distribution for the par [entities]? And [in terms of shareholders] how do you -- where do you see [their] policy ?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [140]

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I don't think we got your question clearly. In the par business, very clear. You can either keep an FFA or you can distribute as bonuses. If you distribute as bonuses, the shareholder gets 1/9 of what you give to the policyholder. That is 10% of the total distribution. So it depends on [further] surplus generated each year. There is a policyholder reasonable expectation for each product, which we have given in the past. You could in that case in a year give a one-off bonus but being very clear that this is a one-off gain. But overall, that will continue. So our objective will be to generate and distribute to the par policyholders. And within that, we'll get our 10%. In the meantime, we will also keep aside, keep building our FFA until it reaches maybe 10%, 12% of our total AUM.

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Sachin Mittal, [141]

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Sir, my question was on -- maybe the funds for opportunities -- on bonus will be the focus of the funds, particularly on increasing the ROE percentage? That was my question, sir.

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [142]

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No, ROE is mainly lower only because there's a significant solvency margin, surplus capital sitting in the shareholder funds. That is something, as we mentioned before, our dividend policy we, as of now, we are continuing to maintain what we have. Over time, we'll keep evaluating what the surplus is and take the call as it comes.

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Operator [143]

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The next question is from the line of Vinod Rajamani from HSBC.

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Vinod Rajamani, HSBC, Research Division - Asia Insurance Analyst [144]

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So I just wanted to know on the motors side, what kind of price erosion have we seen in terms of motor-owned damage this year? That was question number 1. Then on group health, so you've been very -- so this year, you've grown your group health portfolio. So I just wanted to know how the outlook you think for that segment is likely to be?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [145]

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I think that's already covered in an earlier question by Tapan on group health.

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [146]

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Growth for group health is close to 15%, 20%. That represent [a partial] increase in the private [complement].

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Vinod Rajamani, HSBC, Research Division - Asia Insurance Analyst [147]

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15% to 20%. Okay.

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [148]

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Yes.

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Operator [149]

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The next question is from the line of Abhishek Sarana (sic) [Saraf] from Deutsche Bank.

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Abhishek Saraf, Deutsche Bank AG, Research Division - Research Analyst [150]

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This is Abhishek Saraf here. So just one question on life and one on general. So as I see that the individual non-par mix has actually increased very sharply this quarter, around 16%, while it used to be anywhere around 5% to 7%. So just a bit curious on this, sir, is it more of a tactical in nature? Or are you actually seeing a reasonable growth opportunity here? The reason I ask is that a few other life insurance companies have now started to focus on non-par savings segment a lot, given the need for longevity solutions rather than only mortality solution. So are we also following the same line of thinking? And within this, if you can give some more thoughts and color on the margin and the kind of customers you're able to get in the segment.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [151]

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Sure. That's a very good question. Firstly, we have, since last year, moved to a par, non-par and non-par savings and a ULIP mix. And as we progress, we will also have a fair piece of non-par risk as well. But having said this, the strategy last year has been to check out the POS products, point-of-sale products, which today are simplistic in nature and largely non-par. And the reason why we've done that is -- see, if you look at the overall industry, the number of advisers that have been added to the industry have actually been negative or near stable. So the net number of advisers aren't happening significantly to the life insurance sector. We've also been in the range of about 70,000 advisers every year. Now we are very clear that we would, therefore, try to test out simpler products, which can be sold by a set of population which is linked to get into the distribution of life insurance products. And that was a strategy which has worked quite well in the second half for us. So as we've gotten approval for our POS plan, the POS-savings plan, we found that there is a segment we can, therefore, pursue, and it has been encouraging. It's already picked up by our agency channel very well. Not only that, even in the institutional business, the POS-savings plan is relatively a lot easier to explain to customers, has clear offerings in terms of cash flows, and we have a lot more customer, I'd say previous customer trust. Because in the case of par, future bonuses, of course, cannot be predicted while in the case of manpower, you do know your cash flows, which are there in the savings plan. So this then add another segment for us in the mass accruals in the lower market [point] space. We intend to go out further in the strategy, and I think what [IRDA] has allowed in the POS product and the POS channels is unique, and we shall extract more out of this on a city by city basis. Last year was more like a testing phase, where we -- as I said, launched in the second half and we tested it with a few of our partners and a few agents. Now we've brought a specific POS channel within the agency, where we try to onboard part-time agents, get them to get used to simple life insurance products and then graduate them into proper agency license. And in the institutional business side, we -- as you are aware, we have a tie-up with India Post savings bank. Now as we move towards working with them, we will be testing better in the [Post savings] bank and start selling to the [dark] savers. They are able to sell simple products like POS. And it's very important to have a person who has a very good relationship, but who is not very financially literate as yet, but good support of cost it's a simple cash flow based product. So this will remain a strategy. We've also been talking to the regulator to see if more products can come to the POS market. And therefore, add a segment of distribution which has largely been untested in the life insurance side. We remain bullish on this. Given our large presence -- and I talked about this earlier in the call, more than 400 cities that have hardly any life Insurance can be present in some of our locations. We shall be getting back, using that advantage because this is where we can add more distribution without necessarily making it more cumbersome for somebody to go through the sale process and licensing process.

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Abhishek Saraf, Deutsche Bank AG, Research Division - Research Analyst [152]

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So just to follow on, on this. So these would be mostly like, immediate [entity] plan kind of products, or different entity ?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [153]

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So not that, we will nothing get a different [order] for that [entity]. These are cash flow based product, so basically this is around a certain IRR on the cash flows.

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Abhishek Saraf, Deutsche Bank AG, Research Division - Research Analyst [154]

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So how do we manage the interest -- I believe that the interest rate was going to be with the company at certain shareholders. So how do we intend to manage that risk?

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Ramandeep Singh Sahni, Bajaj Allianz Life Insurance Company Limited - CFO [155]

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I will answer that question. As of now, it's a very small proportion of our AUM. But as it builds to a certain level, we are putting a threshold. We will start looking at hedging it.

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Abhishek Saraf, Deutsche Bank AG, Research Division - Research Analyst [156]

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Okay. And sir, what would be the threshold?

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Ramandeep Singh Sahni, Bajaj Allianz Life Insurance Company Limited - CFO [157]

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We don't have it exactly. We have a very small threshold as of now. It's very small percentage so we don't...

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [158]

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What we've done, we got it comfortably hedged as of now in terms of the current cash flows, yes.

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Abhishek Saraf, Deutsche Bank AG, Research Division - Research Analyst [159]

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Fair enough. Fair enough. Sir, one question on the general insurance side, on the motor business [asset]. Was wanting to have some sense on what is the kind of retention of motor insurance policies of the existing book? So basically, you see a lot of migrational churn happening in terms of, as the insurance policies for the year mature, so the customers can do -- switch here between different insurers. So for us what has generally been the experience in terms of the transfer in and -- transfer out versus transfer in. Just some color or your thoughts on that.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [160]

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If you look at the motor business number, 60% plus in rupee of retention would be there, and probable company. You will also be more than 60%. And the churn is of 2 reasons. One, some of them sell the vehicle to somebody else and there will be some churn happening, which is -- should happen. So churn, it happens, but one again gets evened out, because if I look at my older business, it also has a reasonably good growth compared to the new business. But predominantly, why does the churn happen? And what is your relation [to the say for] lines of business study that for two-wheelers the [real] ratio industry grown 26-odd percent, which means quite a few two-wheelers don't even insure their rating, that is why we're getting a long term opportunities come into play. For adding uninsured that would be a bigger issue. For commercial vehicle about 40% [regular insured], 60% of that. That is why again that's also a bigger issue [we have been discussing widely]. And [par is got] OD, about 80% basis insured and 20% are not insured. So if you look at the income ratio and over 60%, 65%, 66% and you see that about 80% are the ones which have insurance and 20% are dropping out as it is, and you also see that there will be some users in the cars too somewhere else and that is where it hovers around for the industry, but the good players should be there. I hope it answer the question.

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Operator [161]

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

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [162]

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One question on Motor TP. If I look at the loss ratio on Motor TP it's 65%. I look at the other players, they are hovering around 100%. So frankly, what we are doing [here] can you just throw some light because we have a very sharp percentage in your Motor TP loss ratio versus the industry?

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [163]

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That wasn't why it is so high for that. Motor TP, it is a court matter and we have a very strong [DPD]. Historically, it's not just about private cars, two-wheelers and commercial vehicles. There are multiple segments, geographies, customer segments within that, and we have always been strong in that. So we can't answer about why others are high.

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Operator [164]

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The next question is from the line of Dhaval Gada from DSP Mutual Fund.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [165]

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Just a couple of questions. First is, Sreeni, about 18 months back, we had this initiative at the group level to sort of mine the group customer base. So just wanted to get an update. Where are we on that front? And just performance on that? And if you can share the cross-sell ratio for the insurance businesses, both general and life? That's the first question. And secondly, could you share the reserve releases from prior years in FY '19 for the general insurance business?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [166]

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The call 18 months ago, it was not a data mining exercise. We have just collected and created a system by which companies can put in data, enrich the data. Each company would then be given the data back. So they don't have a system of sharing data across companies at all. That is not allowed by regulation either. So each of the companies has bought much more [insurance] data. This is happening in many ways. Each company is doing has both cross-sell and up-sell initiatives. That, I would like Tapan and Tarun take it.

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [167]

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Okay. So if you look at the range for this business typically, I think as I mentioned in the past, you typically push for revenues [jump] automobile is 1 which customers will look for. Less [trail or positive action] of an issue of continuous interaction with customers where you are [part them]. But so cost of ratio has definitely moved up but not significantly. It moved up [in summation], but continues [at where is that] we strongly believe that somebody has to crack this. Overall, we look at GI business as a whole, the cost of operation are much, much lower than this banking operation. And typically the customer's behavior in terms of how you would set this up. So a lot of conversation, a lot of discussion has to happen. It's one of our focus areas. And [numbers] have moved up, but it's not so significant which I would know, but right now that's what's [for to now].

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Tarun Chugh, Bajaj Finserv Limited - MD & CEO of Bajaj Allianz Life Insurance [168]

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From the life side, what we've done is I talk to the proprietary sales force. So this is a channel which basically works on the principle that Sreeni has discussed with you. Basically, these are data scroungers. They work on enriching the existing data that we have on customers, work on the profile-based pitches and also service calling. Based on which, we figure out what right time, when to call a customer and what kind of an offering. This for us has -- is, of course, small, but last year has moved up to about 10% of our entire business and as I've explained, this has been one of those healthy growth channels for us. So we get about INR 180 crores of new business, retail-related new business out of this channel. And we shall remain focused on enriching the data and getting more out of this in terms of how we can pitch through first on us.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [169]

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Okay, just one, general insurance, would cross-sell be more than 1.5 at this point?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [170]

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No, it will be less than that. That is how it will begin to settle out in the next 3 to 4 years as we built out -- we have set up a great analytics team for both life and nonlife. And it is our intention because we see that as a big profit pool.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [171]

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And the second was on the reserve releases from prior years in FY '19 for the general insurance business?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [172]

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Milind, is there any significant reserve releases last year overall? Milind?

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [173]

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Hello?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [174]

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Yes. Is there any reserve releases last year net on the P&L?

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [175]

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No, they have been more or less in line with earlier years only. So no significant releases as such.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [176]

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So 1% to 2% of combined ratio, that's the broad range, so...

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S. Sreenivasan, Bajaj Finserv Limited - CFO [177]

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No, it wouldn't be that much, I think. Would it be that much, Milind?

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [178]

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No, no, it won't be that much.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [179]

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And sir, lastly...

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S. Sreenivasan, Bajaj Finserv Limited - CFO [180]

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It's after 1 o'clock, we have a meeting after that (inaudible).

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [181]

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Sorry, just last thing on this health insurance business. So the health business, we had done some restructuring in the GI company to sort of increase the focus. So just some update around growth in the individual business and what is our broad mix today and some color around where retail health could be?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [182]

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Last year, if you see in the market we have grown about 15%. About 3 standalone companies have grown faster than that, about 28%, 29%. Two of the large competitors in the composite insurers have actually been growing their health insurance business. One thing we were not doing is be benefit-based bundled business, which the bank-owned companies were doing. We have kept away from that for various reasons, including potential concerns about creating a compliance structure for that. So we predominantly sell more than 90% of our products on an indemnity base. Majority of our businesses come from agency and banca. So our growth overall in retail health was 15% last year. We also became the largest payer in claims among the composite insurers in the private sector, which we believe a better now study of U.S. companies. Building the payment capacity is very essential to have control on the pricing going forward vis-à-vis the hospitals and then [it will] partners.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [183]

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And what is the broad mix today between government, corporate and individual?

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S. Sreenivasan, Bajaj Finserv Limited - CFO [184]

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Government, we have done only -- this is the first year we have done.

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [185]

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It is around 15%, Sreeni, this year.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [186]

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Government?

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [187]

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Yes.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [188]

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Government is 15%.

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [189]

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Corporate is 50%, 5 0.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [190]

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Yes, and 35% is...

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [191]

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Individual.

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Operator [192]

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Ladies and gentlemen, that was the last question for today. I would like to hand the conference over to Ms. Bunny Babjee for closing comments.

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Bunny Babjee, JM Financial Institutional Securities Limited, Research Division - Analyst [193]

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

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Tapan Singhel, Bajaj Allianz General Insurance Company Limited - MD, CEO & Executive Director [194]

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Thank you, everybody.

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S. Sreenivasan, Bajaj Finserv Limited - CFO [195]

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Thank you.

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Milind Choudhari, Bajaj Allianz General Insurance Company Limited - CFO [196]

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Thank you.

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Operator [197]

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