Safeguard Your Portfolio With SBI Life Insurance

SBI Life Insurance

SAFEGUARD YOUR PORTFOLIO WITH SBI LIFE INSURANCE

"Despite being under-penetrated, the Indian life insurance market is the tenth largest life insurance market worlwide and fifth largest in Asia."

SBI Life Insurance Company Ltd. is one of the leading life insurance companies in India. It is a joint venture between State Bank of India, which is India’s largest public sector bank, and the leading global insurance company BNP Paribas Cardif. As of March 31, 2019, the company covered as many as 24 million lives.

Industry Overview

With India being the seventh largest economy in the world and one of the nations with highest youth population having a median age of 28 years, there is undoubtedly a rise in demand for life insurance. The demand is further propelled by the burgeoning share of working population, swift urbanisation, rising affluence and increased focus on financial inclusion. The Indian life insurance market is the tenth largest life insurance market worldwide and the fifth largest in Asia with Rs.4.6 trillion in total premium business. Despite this, it continues to be under-penetrated in comparison to countries like Japan, Thailand and Korea. Moving forward, we can expect an increase in financial savings as a percentage of household savings along with an increase in share of insurance as a percentage of financial savings to bolster growth in the life insurance space.

Financial Performance

On the standalone financial front, the company reported a growth of 5.56 per cent YoY in total income from operations to Rs.386.75 crore in Q1FY20 as against Rs.366.39 crore in Q1FY19. The assets under management (AUMs) stood at Rs.1,46,950 crore in Q1FY20 as compared to Rs.1,41,020 crore in Q1FY19, marking a growth of 4.21 per cent. Profit before interest, exceptional items and tax rose to Rs.377.84 crore in Q1FY20 from Rs.363.25 crore in Q1FY19, posting a YoY growth of 4.02 per cent. Net profit for the period climbed 4.96 per cent YoY to Rs.371.90 crore in Q1FY20 from Rs.354.31 crore in Q1FY19. EPS showcased a growth of 5.08 per cent as it soared to Rs.3.72 in Q1FY20 from Rs.3.54 in Q1FY19. The debt-to-equity ratio came in at 77:23. However, 91 per cent of its debt investments are in AAA and sovereign instruments.

For the quarter ended March 31, 2019, the company reported a healthy financial performance. The company reported profit after tax (PAT) of Rs.457.68 crore in Q4FY19, posting a YoY growth of 20.1 per cent. This was primarily on account of higher income from investments, which came in at Rs.4,150 crore, up 476.1 per cent YoY.

The gross written premium (GWP) surged 30 per cent YoY to Rs.32,990 crore in FY19 from Rs.25,350 crore in FY18. Net premium earned stood at Rs.32,890 crore in FY19 as against Rs.25,160 crore in FY18, posting a growth of 30.72 per cent. PAT soared 15.65 per cent YoY to Rs.1,330 crore in FY19 from Rs.1,150 crore in FY18. Its net worth surged 16.08 per cent to Rs.7,580 crore in FY19 from Rs.6,530 crore in FY18. AUMs increased 21.3 per cent YoY to Rs.1,41,020 crore with equities constituting 23 per cent, government securities constituting 35 per cent, debentures and bonds constituting 33 per cent and other securities comprising the remaining share of the AUM.

Operating Performance

The individual business premium has continued to grow and delivered profitable returns for all stakeholders. Individual new business premium (INBP) stood at Rs.1,870 crore in Q1FY20 as against Rs.1,330 crore in Q1FY19, posting a growth of 40.60 per cent. Group NBP surged 71 per cent YoY to Rs.1,280 crore in Q1FY20 from Rs.750 crore in Q1FY19. Renewal premium exhibited a YoY growth of 32 per cent as it reached Rs.3,540 crore in Q1FY20 from Rs.2,680 crore in Q1FY19. Gross written premium (GWP) came in at Rs.6,690 crore in Q1FY20 from Rs.4,760 crore in Q1FY19, thereby rising 41 per cent YoY. The company showcased 35 per cent growth in IRP, while the private industry grew by 24 per cent and the overall industry grew by 14 per cent. Opex ratio stood at 7.4 per cent in Q1FY20 as against 9.7 per cent in Q1FY19. Commission ratio came in at 3.7 per cent in Q1FY20 versus 4.1 per cent in Q1FY19. 

New business premium exhibited a growth of 26 per cent YoY as it rose to Rs.13,790 crore in FY19 from Rs.10,970 crore in FY18. New business annual premium equivalent (APE) climbed 14 per cent YoY to Rs.9,700 crore in FY19 from Rs.8,540 crore in FY18. Individual rated premium stood at Rs.8,950 crore in FY19 as against Rs.7,790 crore in FY18, posting a growth of 15 per cent YoY. Renewal premium grew 33 per cent YoY to Rs.19,200 crore in FY19 from Rs.14,390 crore in FY18. Indian embedded value rose 17 per cent YoY to Rs.22,400 crore in FY19 as against Rs.19,070 crore in FY18. The value of new business surged 24 per cent YoY to Rs.1,720 crore in FY19 from Rs.1,390 crore in FY18. New business margin reached 17.7 per cent in FY19 from 16.2 per cent in FY18.

Soaring to record highs

On the back of a robust performance for the quarter ended June, the shares of SBI Life Insurance Company rose as much as 4.2 per cent on July 24, 2019, to reach a record high. The stock has performed remarkably well as compared to its peers. The shares of the company gained a whopping 18.9 per cent, whereas its peers such as HDFC Life Insurance Company and ICICI Prudential Life Insurance Company showcased a growth of 5.3 per cent and 2.2 per cent, respectively.

Recent developments

On July 25, 2019, the American private equity major KKR sold one-third of its stake in SBI Life Insurance Company through a block deal on the market. The 6.5 million shares were sold by KKR’s affiliate, Value Line Pte Ltd., at a price of Rs.775 each. The entire transaction generated an income of Rs.503.7 crore for KKR. We can see that the percentage of promoter holding has been declining for the last few quarters.

Growth Drivers

The company is using the digital mode to sell individual small ticket policies. 64 per cent of its renewal premium was collected through the digital mode. Moving forward, the management expects app-driven sales to increase as more and more products get listed in its products basket.

Conclusion

The Indian insurance market is underpenetrated. This presents a horde of opportunities for players such as SBI Life Insurance Co. owing to its superior distribution franchise, strong brand value and competitive operating matrices which are at par with other prominent players. The management has consistently improved its product mix and enhanced the bancassurance per branch productivity. Furthermore, the cost ratios were kept in check while the company strived to achieve higher capitalisation levels. The company has maintained its cost leadership and has decreased its opex ratio to 6.4 per cent. Its retail business franchise is strategically well-diversified across geographies. This has enhanced the company’s immunity to capital market downturns. Overall, the company has to its advantage a widespread distribution footprint, improving protection share, lowest operating cost ratios and improving margins. By virtue of these factors, we urge our reader-investors to BUY this stock.