Highlights:

Even as economic conditions remain difficult, all 3 businesses have performed well till February 2020. The company has recorded its sixth successive highest annual profit after tax on a consolidated basis.

The nationwide lockdown enforced on 25 March 2020, and the moratorium on loan installments for customers of banks and NBFCs announced by RBI impacted the performance for the month of March 2020. The lockdown is still continuing in different forms.

As new car sales came to a standstill and since IRDAI had provided customers time till 15 May 2020, to pay the renewal premiums for policies expiring after 24 March 2020, the growth of the general insurance industry was affected in March and subsequently, in April as well.

The life insurance industry also recorded a steep fall in new business in the month of March as a substantial amount of business seasonally for the life industry is written in the last few days of March.

Despite these challenges, the company has been able to record its highest ever annual consolidated total income and profit after tax in FY2020.

Faced with COVID-19 and the lockdown, all 3 companies came out very well, bringing in changes as required at the rapid phase.

The situation is still evolving. The company and its subsidiaries will be focusing on profitability over growth, seeking to conserve cash, borrowing long term, strengthening collections, reducing overheads and preserving capital adequacy.

In Q4FY20, the Nifty 50 Index and the BSE 200 Index both lost 29%. Under Ind AS, the insurance subsidiaries have chosen to hold equity securities at fair value through profit and loss accounts. And therefore, the insurance companies had an unrealized mark-to-market pretax loss of Rs 768 crore in the consolidated financials.

Additionally, Bajaj Finance (BFL) had made a contingency pretax provision of Rs 900 crore in the form of provision on account of the impact of COVID-19. The MTM adjustment and contingency provision, together considered as COVID-19 impact, after adjusting for tax and the company's interest in those subsidiaries have impacted consolidated profit after tax for Q4 and FY20 by Rs 807 crore.

The reserving of BAGIC continues to be reasonably conservative.

The company has made extra provisions and most of the provisions are behind. The company has 100% provided for IL&FS and Yes Bank and 75% for DHFL. And in addition, the company has provided for a couple of performing investments as well.

NBFC

Bajaj Finance continues its outstanding growth story and has again recorded its highest annual total income and profit after tax.

General insurance

Bajaj Allianz General Insurance Company (BAGIC) issued over 1.4 million policies, settled over 700,000 claims and serviced over 270,000 customer footprints between 24 March 2020 and 30 April 2020. BAGIC onboarded 10000-plus agents digitally through the app and even launched 2 innovative products in this period - Pay As You Consume Motor product and BAGIC GOQii Copay Health product.

The outlook for general insurance business in the coming year is likely to be mixed. Based on new motor vehicles and investment in assets, the key drivers of general insurance are likely to be subdued. Motor insurance, travel insurance and credit insurance are likely to be impacted in terms of growth. Demand for health insurance should pick up as the need for protection heightens. Property business is expected to benefit from the price hike. Looking at the Chinese experience of Wuhan, the company expect atleast smaller segment and 2-wheelers to start moving up in terms of sales. Cyber insurance should go up because that's a huge risk.

Post the PSU bank mergers, BAGIC has retained all the large bancassurance relationships and gained access to over 10,000 bank branches through the already large distribution network.

On the claims front, the company expects the amount of claims will be on the lower side while the restrictions are in place. However, post the lockdown, some impact would be felt due to diesel cars lying unused, higher repair costs with dealers increasing rates.

On health claims, as of now, the company is not expecting COVID-related health claims to be exceptionally high in relation to BAGIC size given the low level of penetration of health insurance and BAGIC's own market share, which is below its overall market share.

The company had deliberately slowed down exposure to group health over the last 12 months. So overall exposure to this is actually lower than what it was maybe more than a year ago.

The company expects lower non-COVID claims during the lockdown as people postpone corrective surgeries and avoid hospital visits for smaller illnesses. However, post the lockdown, there could be a rise in claims due to postponed operations taking place and the hospitals seeking to cover their losses. Commercial lines claims are expected to be lower during the long term.

Given the uncertainty with respect to COVID-19, BAGIC will continue to drive its expense reduction initiatives and focus on digitization of operational processes, both on the customer and partner end and endeavor to transform to the new generation BAGIC in the no-touch and contactless environment.

Overall, BAGIC's robust solvency, large AUM in relation to its premium, prudent underwriting, stable management team and strong brand positions should help it withstand the crisis and take advantage of opportunities once the crisis has passed.

BAGIC recorded growth well above the market growth and recorded the highest annual profit after tax.

BAGIC had an exceptionally good quarter. The combined ratio improved to 93.8% in Q4FY20 versus 103.9% in Q4FY19. This is a remarkable achievement given the current circumstances. Underwriting profit, which is a very rare term in the general insurance industry in India, was Rs 159 crore for Q4FY20 versus a loss of Rs 146 crore in Q4FY19. The higher underwriting profit was mainly due to lower claim ratios.

During Q4FY20, BAGIC has recognized provision for impairment in respect of some corporate bonds for a further Rs 53 crore. The total provision for impairment for FY20 was Rs 129 crore, including provisions made in the previous quarters. At this stage, the company does not believe there will be a very significant residual impact of impairment going forward.

Solvency ratio is very strong, 254% as against 150% required under regulation.

AUM represented by cash and investments stood at Rs 18,746 crore versus Rs 17,237 crore as at March 31, 2019, an increase of 9%.

In April 2020, BAGIC reported a 10% decline as compared to 9.7% decline for the industry, excluding the crop and government business. Strong growth was recorded in property, liability, engineering, marine and retail health lines, while motor and travel, as expected, were in the negative territories. Group health degrowth was planned due to high loss ratios.

Life insurance

Bajaj Allianz Life Insurance Company (BALIC) issued approximately 24,000 policies between 24 March 2020 and 30 April 2020. Of which, around 15,000 policies were issued in April 2020 with term policies contributing to 21% of the total policies. In addition, BALIC digitally onboarded around 8,000 points of sales person through the iRecruit app from 1 April 2020, till 20 May 2020, with about 3,500 of them being onboarded in April 2020.

During the period of national and state lockdowns, where businesses are not functioning, coupled with volatile capital markets, retail customers are cautious and are seeking to conserve cash. They don't seem to be comfortable making long-term commitments. This will initially have an impact on new business, subject to containment of the pandemic. In addition, retail term sales, though doing well, could have done more, but for the compulsory medicals for flagship new product, Smart Protect Goal.

There has been an increase in demand for guaranteed savings and protection products, and it is hoped that this demand will continue even after the pandemic.

BALIC's move towards the balanced product mix, which started a couple of years ago, is expected to help it stand in good stead.

BALIC will be focusing on renewal premiums, channelizing new types of partnerships, controlling costs, reaching out to prospective customers digitally and enhancing digitization of operational processes.

Overall, an excellent solvency margin, a well-balanced product mix, a robust multichannel distribution, covering proprietary and partnership business models with extensive geographical reach and strong brands should help BALIC overcome the effects of the pandemic and emerge as a strong player.

BALIC recorded growth well above the market growth in individual rated business and strong growth in new business value, further moving ahead in its transformation that started a few years ago.

BALIC has recognized provision for impairment in respect of some corporate bonds by a further Rs 224 crore, out of which only Rs 47 crore impacted the shareholders' profit after tax. The provision for impairment for FY20 was Rs 390 crore, of which Rs 135 crore impacted the shareholders' profit after tax. The company believes much of the impairment is behind looking forward to the coming years.

BALIC was having negative margins a couple of years ago, and now we have almost reached a double-digit positive margin.

Overall, all 3 companies are well capitalized, sufficiently liquid and have the diverse product and channel offerings that are critical at this stage. All 3 companies have very strong rural presence and most of them are in green and orange zones.

BALIC has traditionally been strong in lower-tiered towns, while BAGIC has expanded its footprint in rural areas through its virtual offices over the last few years. BFL's rural vertical remains one of its fastest growing segments.

Given COVID-19 circumstances, BALIC April performance was better than expected. BALIC's individual-rated new business premium actually did not degrow in the month of April as compared to minus 40% for private players and minus 48% for LIC.

Agency, 54% share was the main contributor in April business for individual-rated new business as the bank channel was affected due to the bank's focus on their core operations and because the number of the bank branches were not operational. However, the company is slowly witnessing momentum in bancassurance business in the month of May. Total policies issued by BALIC in April increased by 4% as compared to a degrowth of 31% for private players.

The mix for BALIC has a high proportion of non-par business, 36% versus 15%, in April last year.

The company is focusing on VNB in a big way through persistencies trending upwards, shifting product mix significantly with ULIPs down to half of the entire company's portfolio and the channel mix shift.

The agency used to contribute 91% of channel mix 4 years back, now dipped to 55% with proprietary sales force, bancassurance and online channel showing growth. The company has got a maximum number of bank partners, including Axis, RBL and KVB and also 2 Middle East banks in the last year. The online business was around 11%, which is up from 9%. The institutional business, which is basically bancassurance brokers, was up from 11% to 21%. And proprietary sales was at 11% from 10%.