Bajaj Finserv Ltd Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Madhukar Nahari - Nuvama Wealth Management Limited - Analyst : First question on BALIC. So we see the growth has obviously come off significantly in this quarter and the mix has also changed. So what I wanted to get a sense of is, and in the last few years, we've grown very rapidly. So I wanted to get a sense of what the growth trajectory in the near term would shape up like? Or should we take this quarter as an aberration with sort of growth returning back to the 20%, 25% sort of level. How -- and also then what product mix should we expect on this? And then on the health side, I think there is a significant health -- insurance side a significant confusion in terms of what sort of production payouts and the way commission payout should happen while I think GI Council idea, warrant commissions to be paid sort of on a yearly basis. And as payments are meant that is not allowed. I think a large part of the distribution committee -- community is still sort of not in favor of this and -- so how do you see this progressing? What approach have we taken? And some sort of color around that will be useful. Those would be my two questions. Tarun Chugh - Bajaj Finserv Ltd - Managing Director, Chief Executive Officer of Bajaj Allianz Life Insurance Company Ltd So maybe I'll take the first one on BALIC and Tapan can step in for the health question. So we had indicated very clearly in the Investor Day that while we've had a user trailblazing growth, in the last seven years. And particularly, if you look at the last three years, we've been the fastest growing across the sector with a CAGR of 27%. This quarter, while the changes were happening, we purposely took a pause and relooked at our entire product structures. With this change happening, it was obvious that the focus now is on profitability and profitable growth. And given the heft that the company now already has in terms of the size, it could be meaningful numbers. This is something I have kind of indicated in the earlier call as well. In terms of how I see this going ahead, we did have a tough month in November, I think, purposely so because we had planned it like that after September. And the sector also had a tough month in November, but I think we had a tougher one largely because of our agency business, which is 150,000 agents getting retrained, getting reoriented to these kind of products. And of course, the fact that there was a founder value impact on commissions. The sector did on the agency side, particularly had an impact all through. Good news is that December, we are back to a slight mild growth. January also, we are in -- broadly in sync with a lot of companies that we are -- we compare ourselves with. Agency though, is still going to take some more time to settle in the new product mix and may take a few quarters before it starts coming back to its earlier growth trajectory. Bancassurance and the PSF are largely getting back, but mostly in sync with the rest of the sector. I hope that answers your question. I'm not going to give any clear numbers because as Sreeni made it clear, we do not make any forward-looking statements. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:30AM, BJFS.NS - Q3 2025 Bajaj Finserv Ltd Earnings Call

Question: Madhukar Nahari - Nuvama Wealth Management Limited - Analyst : My second question is left.

Question: Madhukar Nahari - Nuvama Wealth Management Limited - Analyst : So I wanted to get a sense of how distributor commission payouts are working in this new sort of scenario on my end. I believe a lot of the large distributors still want upfront payment whereas IDI and GI Council are not in favor of it. And also, it would adversely affect our EOM ratios. So in this context, how do you see the sort of industry moving? And finally, also, given that OM ratios are very high, for a large part of the competition. What sort of action and competition also received notices from IRDAI on this. So are we seeing any letdown in competitive intensity do we thought of foresee that? Any sort of early signs on the health side, in particular? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:30AM, BJFS.NS - Q3 2025 Bajaj Finserv Ltd Earnings Call Tapan Singhel - Bajaj Finserv Ltd - Managing Director, Chief Executive Officer of Bajaj Allianz General Insurance Company Limited Thank you for the question. So I think in your question lies the answer. The regulations have been very simplified, be it product regulations, be it commission regulations. On the commission regulations stipulate EOM, expense of management. well-run companies who have EOM less than 30, which is what they have to be there. I don't think they have any stress in terms of how they look at commission pay and the regulators does not stipulate how you pay commissions. It stipulates that you should be under the EOM, not at the counties to plate how do you pay commission. So -- and your company, I think Bajaj International company will look at. The EOM is well below 30. It's one of the well-run companies with an EOM well below 30. So I think the question is more relevant to companies who are over EOM over 30. And that is essential, I think it's a good practice because at the end of the day, what the policyholder gets also has a determination in terms of how your expense management plays out. And BALIC has been a company for a long period of time, I think, from inception. We see has been one of the lowest company in terms of expense ratios, which should be there. So from that perspective, I don't think this has any impact on the company. And if I look at the industry, also, if you look at the overall numbers for businesses, first and foremost, business, which is long term is not so significant in the overall business industry. Having said that, even there, I don't see much fall in terms of the business falling or the distributor not selling for overall for industry also. So I would think for BALIC is is positive. And for the industry also, I don't see any negative happening overall.

Question: Madhukar Nahari - Nuvama Wealth Management Limited - Analyst : Sir, just on the health insurance question. My question was more with respect to sort of competitive intensity because a lot of these smaller players are running at EUM levels, which are above sort of 30%, 35% for private and SAHIs. So in this context, paying upfront commission further increases those ratios and loss ratios have also remained quite elevated on the health side. In that context, do we see some sort of corrective action in terms of pricing or some competitive intensity let down -- any early signs of that or your thoughts on that, if you would expect anything like that. Plus now senior citizens pricing is also capped so if -- as your sort of population ages, those cohorts age, you'll not be able to increase pricing beyond sort of 60 years of age beyond 10%. So does that mean that pricing for the -- at an entry level also increases -- yes, on the health context, some sort of understanding and clarity, I'd appreciate. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:30AM, BJFS.NS - Q3 2025 Bajaj Finserv Ltd Earnings Call Tapan Singhel - Bajaj Finserv Ltd - Managing Director, Chief Executive Officer of Bajaj Allianz General Insurance Company Limited Yeah. So again, I think the question is a broad question for the industry. It's not specific to the company. I said for BAjaj Allianz General Insurance Company, it is positive. Whatever you have said -- so this company operates well below the limit of 30%. So it has like -- so obviously, this doesn't have an impact. For smaller companies, if they are over 35, they have to correct themselves at 30, they have to clear light cost, and they have to deliver on that basis. The regulator is very clear on that. So obviously, they have to decide their strategy. I can't speak for them. In terms of civilian cap at 10% movement, it is that any increase in price would not be above 10%, which -- and if you look at the overall portfolio, what percentage is senior citizen, what percentage is the normal increase in price that should happen. And it spreads across the entire cohort. And then in that serials read the other part is exactly as industry should come forward with an agreement with hospitals in terms of standardized rates and procedures. That will also have impact on the overall loss ratio. When you put all these things together, I don't think there's any apprehension in terms of business. I think it is good for the industry. And industry will come together to deliver on those parameters and bring it together. So I don't think it's something which is so off the mark, which is going to have an impact in industry in terms of getting negative or not going the right ratio. All of what you see in here is moving in the right direction. And 30% is a good limit to have, I think, in industries win and companies and above that, we'll have to correct themselves and bring to that. And the companies are operating in that for like I don't remember -- if I look at Bajaj International company, when we were at the early stage that we would have had an which would have no cost these kind of limits. So it's how you run a company, how disciplined you are, which really matters. So if you look at it from a skeptic perspective, it looks a bit odd. If you look at the overall picture, it's a very good thing for the industry. I don't think there's any negative in this.

Question: Nischint Chawathe - Kotak Institution Equities - Analyst : First of all, congrats, Sreeni, Ramandeep and best wishes to Ankur. I think, firstly, on the life side, you seem to be making significant changes or probably overall in the entire business. So just curious, does it mean that we sort of have a low probably maybe a single digit or lower than industry growth going forward in the next couple of quarters, probably the next year as well? I'm just trying to understand the intensity of the change that you are making. And just on the surrender value guidelines, if you could quantify the change some of your peers have done that. I mean the impact. Tarun Chugh - Bajaj Finserv Ltd - Managing Director, Chief Executive Officer of Bajaj Allianz Life Insurance Company Ltd Yeah. No, that's a very good question. As far as the changes, yes, there are substantial that we've done. In terms of growth, there is often more for us to take. I will not get on to which digits, single, double. I don't think we're used to single-digit kind of growth, so don't worry about that. We will -- we've always maintained the stand that we'll be going for after then the rest industry. And you'll see that happening. It's a temporary blip. And while I would say that the base effect for a few quarters will play out. But overall, for the year, as we see, growth will be quite visibly be back. So while the changes are substantial, and the rest of the sector has made changes because we are under value only in track. For them, tried remains so the heavy lifter on profits. What we've done is we've changed the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:30AM, BJFS.NS - Q3 2025 Bajaj Finserv Ltd Earnings Call entire slew of products that we have, including ULIPs and also gotten the kind of riders we are adding significantly different to what BALIC has ever done earlier in life. So that is an additional change, which will take time to set in. But at the same time, whatever we get of that is only positive in terms of a trajectory on growth and profitable growth. So that's why we are a little different from the rest of the sector. In terms of growth, it doesn't worry me much.

Question: Nischint Chawathe - Kotak Institution Equities - Analyst : Got it. Just on BAGIC side, if I look at the long-term policies, what was the leading policy over here? And how is the inward commissioned for long-term policies treated in the P&L?

Question: Nischint Chawathe - Kotak Institution Equities - Analyst : So as we speak in terms of payouts have we deferred it or payouts remain as it is? And in terms of accounting, we have deferred both the sites.

Question: Nischint Chawathe - Kotak Institution Equities - Analyst : Commission is also on the RI side being recognized up. And just one final one for Tapan, do you really see the non-life players coming together with the hospitals. The way, let's say, IDA is asking the industry to do. I mean have you already seen any discussions on this in the IIB forums? Tapan Singhel - Bajaj Finserv Ltd - Managing Director, Chief Executive Officer of Bajaj Allianz General Insurance Company Limited Do you want me to answer the question is religious Chairman Generation.

Question: Nischint Chawathe - Kotak Institution Equities - Analyst : Sure. But it's something that the industry will look forward to is what we see. Tapan Singhel - Bajaj Finserv Ltd - Managing Director, Chief Executive Officer of Bajaj Allianz General Insurance Company Limited It has to. You have to understand one thing. See, what was the problem. Look at the media, in spite of the industry is doing so much and in fact, on the health portfolio and tall portfolio, overall industry is not making money. If we look at the media news, it is so negative at times. But what is the problem for health insurance. It is the medical inflation and no regulation on hospitals coming into both. And that is what the industry has been asking for that there's a three-pronged approach on health. One is the premium. Other is the tax that is GST. And third is the outgo in terms of hospital charges is happening. Now hospital is not regulated. And GST the industry has been asking for reduction in -- so the entire owner comes from industry than to take care of the whole portfolio and do the societal need of serving the society and putting it together. Because others to the industry is demanding hopefully, they should, at some point of time, be considered. Now if it is on the industry when the industry has no option but then to on its own method it generates, I think, to the hospital income of close to INR1 lakh crore is what the industry is paying then the necessary industry comes together and at least there's some correction on that basis to be able to deliver to society, the requirement of a good health cover for the season of India. So from that perspective, there's no other option but to invest to come together and do this.

Question: Nidhesh Jain - Investec - Analyst : The first question is on BALIC. So what is the rationale of reducing the share of ULIP as you've articulated the focus is on VNB growth and not on VNB margins. So why are we reducing the share of ULIP in the product mix consciously? Tarun Chugh - Bajaj Finserv Ltd - Managing Director, Chief Executive Officer of Bajaj Allianz Life Insurance Company Ltd I think it's an obvious answer, ULIPs do have a lower VNB margin than tradition plans since we are reducing focus on ULIPs.

Question: Nidhesh Jain - Investec - Analyst : Sure. Second question is on BAGIC. So if you look at BAGIC, we have done quite well on profitability vis-a-vis sector. We are very well capitalized, and customer metrics are quite positive in terms of customer satisfaction, and we have a very strong distribution. But if you look at last four, five years, despite a lot of these strength that we have, we have not been able to gain market share with the customer obsession that we have been displaying and the customer metrics are issuing, ideally, such kind of business should see a rapid market share gain in the retail segment. If you look at the float growth in last five years, the float has grown at 12% CAGR. So why is the market share trend and the float growth trend are broadly in line with market and not significantly ahead of market? Tapan Singhel - Bajaj Finserv Ltd - Managing Director, Chief Executive Officer of Bajaj Allianz General Insurance Company Limited Okay. So I would like to look at it in a different way. First, if you look at BAGIC, it's in a top three company of Fed and organically grown. It has not acquired any company than any merger acquisitions. In spite of that, it's organically grown. And if you look at it on the top three company. With a significant millet has moved up organically in 23 years' time, brick by brick, been a top three company, first point. Second point, at all points of time, the margin to the market in terms of combined ratio has always been over 15%. It is not a 15% profit percentage. It's a full 15% combined ratio perspective, which means that if the industry about 117, BAGIC has been close to 100. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:30AM, BJFS.NS - Q3 2025 Bajaj Finserv Ltd Earnings Call At times, industry is 120, BAGIC has been at 98, 99. So you gave me any business in the world, which for decades has beaten the combined ratio by such huge margin and organically, these the top three position consistently moving up in terms of ranking in the market. So whatever Tarun said has allowed BAGIC to reach this stage. Second point is we look at number of policy issued last year of all companies, you will see BAGIC issue close to INR3.6 crore. If I'm not -- I don't remember the number -- complete number right time, but if Raman can correct the wrong. And even the larger in terms of top line, India had issued INR2.67 crore or INR2.7 crore now. In terms of number of policies issued, BAGIC was the highest number Indian market. So fundamentally, I think when you look at the positioning, the movement that is slowly move of the ranks and where it stands over a long period of time consistently to the difference of profit to the market that it has made in terms of combined ratio, the gap that is kept at all point of time, to the expense ratio, and you heard Raman mentioned by six industries over 30%. The kind of discrete is maintained. I think it was fundamental things. balancing of all three, not only buses pushing your weight and acquiring rapid in terms of position and moving on the market with is doing right thing consistently over a long period of time. We deliver a good insurance company. And this is how it has to be. However if my numbers wrong in terms of number of policies or they were close to right.

Question: Sanketh Godha - Avendus Spark - Analyst : Yes, see, I have two questions on BAGIC. Both are related to third-party See, if I look at other players in Motor TP, the loss ratios are meaningfully very low compared to what you guys are reporting. I just wanted to understand that is it to conservative reason, we are following. And therefore, for likelihood of a release is very high going ahead? Or is it the product mix incrementally have changed in the favor of products where the claims are a little higher than normal. That is leading to the higher TP loss ratio? And second, the point I wanted to ask is that you seem to be growing very well in OD and probably gaining market share also at least in the current year. But CP seems to be off complete market share gain point of view. So any specific reason for the divergence in the growth trend? Or is it largely heroes playing out in OD as a strong growth on a low base. That's my question on OD, moderate basically. And second on developments is on -- have you seen pricing improving in commercial lines already? And if that is the case, then likely benefit of it coming in FY26 or calendar '25, how do you see it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:30AM, BJFS.NS - Q3 2025 Bajaj Finserv Ltd Earnings Call

Question: Sanketh Godha - Avendus Spark - Analyst : Okay. No, it was on commercial lines fire segment. Tapan Singhel - Bajaj Finserv Ltd - Managing Director, Chief Executive Officer of Bajaj Allianz General Insurance Company Limited So let me answer the question. See, first and foremost, as a GI company. it's always better to be conservative than it will be reckless on reserving to answer your question. And Bernie has always been conservative and never been reckless on reserving. And that's the point I made earlier also that if you look at our release to reserving has always been there. But that is our good GI company runs. On the part of increase of price for the commercial lines of business. So yes, we see the trend happening there. And obviously, in my view, again, I've always mentioned this, is that the market forces to determine the right price for the right risk. That is what it should always be there. Right now, we see an increase in price happening, which is positive for the industry. And BALIC is being a large player in the commercial lender businesses also, it will be good for whether intentions company if this sustains and this carries on, which is there. But the likelihood of subsidies is there, it is -- as of now, it looks high, which should be the way move forward. Have I missed any question of yours or we have covered all?

Question: Sanketh Godha - Avendus Spark - Analyst : My next question is on BALIC. The point is that basically, third quarter, as you highlighted, the growth was pretty muted compared to what we have been delivering in the past. So just again to clarify, is it largely because you were trying to realign the channels with the new norms? That led to the moderation of the growth or it was more conscious decision to slow down ULIP, which plays a major role. And if realignment of the channels is the major reason, what -- how much more time you will take to see that realignment happens and the growth will come back to the company. So that's one thing. And secondly, this is on tablet life business, it seems to be bottoming out because we did the same amount of business, what we did in second quarter. So just wondering whether we can see a positive outlook in credit life incrementally going ahead. Tarun Chugh - Bajaj Finserv Ltd - Managing Director, Chief Executive Officer of Bajaj Allianz Life Insurance Company Ltd Yeah. So see, the changes that we've done this quarter have been substantially on the product and the product structures. The mix tweak has been there. So you asked about ULIP. And are we steering away from ULIP? No, we are not steering away from ULIP. Some customer segments, which will be very prone to ULIPs, and some distributors will be very prone to ULIP as well. But on the whole, we are working more on the back end where we've treated our structures. To the earlier question that had come, tweak the ability to take more expenses at the same time, structure them in such a way that customers get there a bit as well. This quarter has been tough because we've had to do this on the fly all across, and we took a call that we've had a significant growth. We've reached a certain level of size. Now it's time that we start looking at our overall VNB growth, and that is what you will start seeing in the future. Whether specifically, we will grow in every channel significantly? I think our agency will take a little bit more time to settle in with agencies far more dispersed. Our institutional business and the proprietary sales channels are more or less back now. So we should start seeing, starting to clock industry-level growth while agency taking a little bit more time to come in as we reconfigure a lot many things because distributors are usually trained to sell only a few bits of products. It may not be at agency very good at all. So that training is going on. We're trying to engage with them more and trying to get them back on track. So maybe a quarter more may take before agency can start coming in. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:30AM, BJFS.NS - Q3 2025 Bajaj Finserv Ltd Earnings Call So that's on the growth and the product shifts. As far as credit life is concerned, yes, you're right. And if you can foresee the future and you're saying it's bottoming out, yes, then, of course, we'll be back. Everybody will be back in the sector. And as far as we are concerned, we have streamlined a lot of our credit life across partners. If you remember, a few quarters back, when we were discussing, our focus used to be more based on a couple of partners. And even the mix was largely towards MFI. That, I'm happy to say, is quite well diversified now in terms of the partners we have, the number of partners we have. No set of partners now contribute one or two partners do not contribute any significant part of our credit life portfolio. So that is kind of (technical difficulty). Unidentified Participant Thank you to all the participants for joining the call and a special thanks to the management team of Bajaj Finserv for giving us the opportunity to host the call. Thank you, and good day, everyone.