Bajaj Finserv Ltd’s net profit in the December quarter grew 58% from a year ago to Rs170 crore. But investors would be keenly tracking how the insurance segment performed. The insurance regulator introduced a new set of rules such as capping expenses and ensuring a lock-in period for policies in September 2010, which crippled growth in insurance premia. Thus, the December quarter is the first one where the so-called base effect can be ruled out.
The short point is that the insurance industry hasn’t recovered from the blow, as is evident from Bajaj Finserv’s December quarter numbers. Its unit Bajaj Allianz Life Insurance Co. Ltd reported a business profit of Rs283 crore for the quarter, down from Rs300 crore a year ago. That’s mainly because policyholders’ surplus fell. The management said that it could be a one-off owing to some products maturing and also the falling markets.
To be sure, because of Insurance Regulatory and Development Authority rules, which recommend that profits from the “policyholder account” can be transferred to the “shareholder account” at the end of the fiscal year, very little of the insurance segment profit is reflected in the December quarter consolidated results. At the earnings before interest and tax level, this segment accounts for one-fifth of consolidated profits.
Also See | Staying ahead
The short point is that the insurance industry hasn’t recovered from the blow, as is evident from Bajaj Finserv’s December quarter numbers. Its unit Bajaj Allianz Life Insurance Co. Ltd reported a business profit of Rs283 crore for the quarter, down from Rs300 crore a year ago. That’s mainly because policyholders’ surplus fell. The management said that it could be a one-off owing to some products maturing and also the falling markets.
To be sure, because of Insurance Regulatory and Development Authority rules, which recommend that profits from the “policyholder account” can be transferred to the “shareholder account” at the end of the fiscal year, very little of the insurance segment profit is reflected in the December quarter consolidated results. At the earnings before interest and tax level, this segment accounts for one-fifth of consolidated profits.
Also See | Staying ahead
But the key metric in this segment is business premia. New business premia fell 21% to Rs653 crore in the three months ended December. While the extent of the fall is less than what was seen in the preceding couple of quarters, remember that the base effect no longer applies. More worryingly, renewal premia fell by 28.6%. That is sharper than the 20% fall seen in the September quarter. Managing director Sanjiv Bajaj said that business could pick up in the next couple of quarters as the insurance regulator allows banks to sell policies of more than one insurer.
So, essentially, the other businesses such as finance and general insurance propped up Bajaj Finserv’s profits. Bajaj Finance reported a 58% jump in net profit and continued to do well owing to its near monopoly in consumer financing. The general insurance segment has picked up well and its net profit nearly doubled from a year ago. However, there is a red flag here. With the third-party motor pool closing by the end of March, Bajaj—as well as the industry—will have to make extra provisions. Although the Bajaj Finserv stock has outperformed its benchmark for most of this fiscal year, the extent of outperformance has come down. The general insurance provisions plus how the life insurance segment pans out will have a bearing on the stock’s performance in the coming months.
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