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November 23, 2017
Initiating Coverage
ICICI Securities Ltd | Retail Equity Research
“SBI” reach, sustainable margins: key drivers
SBI Life Insurance Company (SBI Life) was established as a JV between
State Bank of India and BNPPC, an insurance subsidiary of BNP Paribas.
With robust growth of 35.45% CAGR in FY15-17, SBI Life was the largest
private insurer in terms of NBP gaining private market share at 20.04%.
SBI Life has a big advantage due to its bancassurance with SBI, with a
network of ~24000 branches. A diversified product mix and strong
distribution capabilities will pave the way for faster growth, market share
ahead. While focus on linked business is seen driving healthy growth in
NBP at 22.1% CAGR in FY18-20E, improving efficiency and persistency
and increase in share of protection products will drive operating RoEV at
~23% in FY18-20E. We initiate coverage on SBI Life with BUY rating.
Healthy growth with focus on linked and protection business
SBI Life reported highest NBP growth among top private insurers at
35.45% CAGR in FY5-17, thereby increasing its market share at 20.04%.
Led by strong distribution franchise, we expect SBI Life’s NBP to grow at
22.1% CAGR in FY18-20E, thereby gaining market share to the extent of
200-300 bps by FY18-20E. Improvement in economic conditions and
focus on HNIs is expected to keep proportion of ULIP at ~58% in FY18-
20E, growing at 36.6% CAGR to | 25586 crore in FY20E. We expect
protection contribution to rise from ~5% in FY17 to ~8-9% in FY20E.
Strong bancassurance, high agent productivity to drive growth
SBI Life has a big advantage due to its tie up with SBI, which has a
network of ~24000 branches. In addition, one of the largest (95,177 as on
July 31, 2017) and productive (Individual NBP of | 2,34,501 per agent)
agency network adds to the distribution strength. We expect healthy
traction in bancassurance at ~29.1% CAGR in FY18-20E, keeping it as
major contributor to individual NBP at ~64.8% in FY20E.
Improvement in persistency & cost efficiency to keep margins steady
SBI Life has reported a consistent improvement in persistency across
periods (61st month persistency rose from 25.5% in FY13 to 67.18% in
FY17). Improvement in persistency, focus on high margin products and
cost control to increase VNB margins by 100 bps to 16.7% in FY20E.
Strong growth, consistent RoEV bode well for valuation; initiate with BUY
SBI Life has demonstrated consistency in profitability since FY10 and
declared dividends every year since FY12. We expect EV to increase at
~21% CAGR in FY18-20E to | 29129 crore, driven by 31% CAGR in VNB
to | 2334 crore in FY20E. Amid rising proportion of ULIP recently,
operating RoEV is seen moderating to ~20% by FY20E. We value SBI Life
on appraisal basis (EV + structural value) with 1x FY20E EV + 20x FY20E
VNB, resulting in target valuation of | 75814 crore. This translates to 2.6x
FY20E EV. Hence, we arrive at a target price of | 760 with BUY rating.
Exhibit 1: Financial Summary
(| Crore) FY16 FY17 FY18E FY19E FY20E
New business premium 7106.5 10,143.8 12,576.9 15,240.8 18,482.8
APE 4878 6601 9025 11227 13977
Total premium 15665.5 20,852.5 26,222.4 33,039.3 41,396.2
PAT 844 955 1132 1397 1430
EV 12547.5 16,537.8 19,431.5 23,917.7 29,129.7
P/E (x) 80 71 60 48 47
P/BV (x) 14.3 12.2 10.5 9.0 7.8
P/IEV (x) NA 4.1 3.5 2.8 2.3
RoEV (%) NA 23.0 20.4 20.4 20.0
Source: SBI Life RHP, ICICIdirect.com Research
SBI Life Insurance Company Ltd (SBILIF)
| 675
Rating matrix
Rating : Buy
Target : | 760
Target Period : 12 months
Potential Upside : 13%
Fundamental summary (| crore)
FY17 FY18E FY19E FY20E
NBP 10143.8 12576.9 15240.8 18482.8
Total Premium 20852.5 26222.4 33039.3 41396.2
SH PAT 954.7 1131.8 1397.0 1430.1
Valuation summary
(x) FY17 FY18E FY19E FY20E
P/E 70.7 59.6 48.3 47.2
Target P/E 79.4 67.0 54.3 53.0
P/EV 4.1 3.5 2.8 2.3
Target P/EV 4.6 3.9 3.2 2.6
P/BV 12.2 10.5 9.0 7.8
RoNW (%) 18.6 18.9 20.1 17.8
VNB Margin (%) 15.7 16.0 16.5 16.7
Stock data
Particulars Values
Market Capitalisation | 67702 crore
EV (FY17) | 16538 crore
BV (FY17) | 5552 crore
VNB Margin % (FY17) 15.7
52 week H/L (|) 738 / 629
Equity Capital | 1000 crore
Face Value (|) 10.0
Comparative Return Matrix (%)
1M 3M 6M 12M
SBI Life -5.9 NA NA NA
Ipru Life -6.6 -12.6 -9.0 27.7
Max Financial -5.7 -8.4 -18.6 11.8
Price Movement
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
0
100
200
300
400
500
600
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800
Nov-17Mar-17Aug-16Jan-16Jun-15Oct-14
Price (R.H.S) Nifty (L.H.S)
Research Analyst
Kajal Gandhi
Vishal Narnolia
Vasant Lohiya
Page 2 ICICI Securities Ltd | Retail Equity Research
Company Background
SBI Life Insurance Company (SBI Life) was established as a joint venture
between State Bank of India and BNPPC, an insurance subsidiary of BNP
Paribas (BNP Paribas was a top 10 global financial institution in terms of
revenues in 2016), in 2001. In FY15-17, growth in new business premium
(NBP) at 35.45% CAGR was highest among top five private life insurers in
India. In terms of distribution strength, it has 95177 individual agents (as
of July 31, 2017) and 24017 bank partner branches spread across the
country.
With AUM at ~| 10506.7 billion as of September 30, 2017 (| 977.3 billion
as of March 31, 2017), SBI Life is one of the top five largest insurers in
India. In FY15-17, SBI Life witnessed robust growth of 35.45% CAGR in
NBP, which led to an increase in market share among private life insurers
in India to 20.04% in FY17 compared to 15.87% in FY15.
SBI Life has a comprehensive product portfolio of ~37 individual and
group products, including a range of protection and savings products to
address the insurance needs of diverse customer segments. In the
individual segment, participating products, non-participating protection
products, other non-participating products and unit-linked products,
contributed 10.77%, 0.95%, 1.69% and 50.36%, respectively, of new
business premium in FY17 (15.43%, 0.72%, 1.85% and 49.61% as of
Q1FY18). In the group segment, credit life group protection products,
other group protection products, group fund management products and
other group products contributed 2.72%, 1.14%, 31.73% and 0.65%,
respectively, of new business premium in FY17 (2.91%, 2.04%, 26.84%
and 0.6% in Q1FY18).
In FY17, SBI Life’s 13th month and 61
st month persistency ratios were at
81.07% and 67.18%, respectively, with 61st
month persistency ratio being
the highest among top five private life insurers (in terms of total premium
in FY17) in India. As of September 30, 2017, 13th
month and 61st month
persistency ratios were at 81.3% and 62.1%, respectively. Death claims
settlement ratio has improved from 92.33% in FY15 to 97.98% in FY17,
and was 89.61% as of June 30, 2017. On capital adequacy, solvency ratio
has been above 200% in the last five fiscals (209% as of September 30,
2017), compared to IRDAI mandated minimum solvency ratio of 150%.
Exhibit 2: Customer wise break-up of new business annualised premium equivalent (APE) – SBI
Life
87.9 87.6 89.5 92.3
12.1 12.4 10.5 7.7
20
40
60
80
100
FY15 FY16 FY17 1HFY18
(%
)
Individual Group
Source: SBI Life RHP, ICICIdirect.com Research
SBI Life has developed a multi-channel distribution network comprising
an expansive bancassurance channel, including State Bank of India, the
Shareholding pattern (Q2FY18)
Shareholder Holding (%)
Promoter 84.1
FII 4.1
DII 3.0
Others 8.8
Total 100.0
Source: BSE Filing, ICICIdirect.com Research
Page 3 ICICI Securities Ltd | Retail Equity Research
largest bancassurance partner in India (24017 branches and ~42 crore
customers) and a large and productive individual agent network
comprising 95177 agents (as of July 31, 2017). Apart from these, other
distribution channels, including direct sales and sales through corporate
agents, brokers, insurance marketing firms and other intermediaries is
undertaken.
SBI Life commands strong brand equity in the financial sector. The
company has received various recognitions – recognised as among ‘The
Most Trusted Brands’ by The Economic Times Brand Equity – Nielsen
survey in FY17 for a sixth consecutive year. In addition, SBI Life was
awarded Life Insurance Company of the Year and Bancassurance Leader
Life Insurance (Large Category) at the Indian Insurance Awards 2016
Management profile
Exhibit 3: Board of Directors
Name Designation Age (years) Date of appointment
Rajnish Kumar Chairman 59 Oct-17
Arijit Basu MD & CEO 56 Aug-14
Dinesh Kumar Khara Nominee Director of State Bank 56 Oct-16
Pierre de Portier de Villeneuve Nominee Director of BNPPC 69 Feb-14
Gérard Binet Nominee Director of BNPPC 64 Jun-01
Ravi Rambabu Independent Director 65 Jul-12
Nilesh S. Vikamsey Independent Director 53 Apr-12
Raj Narain Bhardwaj Independent Director 72 Jan-13
Joji Sekhon Gill Independent Director 52 Mar-16
Deepak Amin Independent Director 51 Jul-17
Somasekhar Sundaresan Independent Director 44 Jul-17
Source: SBI Life RHP, RHP, ICICIdirect.com Research
Rajnish Kumar is a Nominee Director of State Bank and the Chairman of
SBI Life Insurance Company Ltd. He was appointed as a Nominee Director
with effect from October 7, 2017 on the board. Prior to this, he was
associated with the company as a Nominee Director. He joined the central
board of directors of State Bank on May 26, 2015. Prior to this, he was the
MD & CEO of SBI Capital, chief general manager, project finance and
leasing strategic business unit of State Bank of India. He has more than 37
years of experience in banking and financial services. He has a bachelor’s
degree in Science from Meerut University and a post graduate degree in
physics from Meerut University.
Arijit Basu is deputed by State Bank and was appointed as MD & CEO with
effect from August 1, 2014 and was re-appointed at the same designation
twice with effect from August 1, 2016 and subsequently with effect from
July 9, 2017. He has a post graduate degree in arts from the University of
Delhi and is a certified associate of the Indian Institute of Bankers. He has
over 34 years of experience in the field of banking. He started his career
with State Bank of India in 1983 as a probationary officer and has been in
several key positions therein. Prior to this, his last assignment was chief
general manager of State Bank’s Delhi circle.
Page 4 ICICI Securities Ltd | Retail Equity Research
Life insurance industry – Quick snapshot
The Indian life insurance industry size was at | 4.2 trillion (total premium
basis) in FY17, making it the tenth largest life insurance market in the
world and fifth largest in Asia (Source: Swiss Re, sigma No 3/2017). In
FY01-17, Indian life insurance assets under management (AUM) grew at
19% CAGR to | 30 trillion while total premium grew at a healthy pace of
~17% CAGR. Despite this, India continues to remain an under-penetrated
market with life insurance penetration (insurance penetration refers to
premiums as a percentage of GDP) at 2.7% in FY16 vs. 3.7% in Thailand,
7.4% in South Korea and 5.5% in Singapore. Similarly, insurance density
(per capita premium or premium per person) also remains very low
compared to other developed and emerging market economies at US$47
in 2016. Protection gap (actual insured for every US$100 of insurance
protection requirement) for India remains higher compared to other Asian
peers at ~US$8.5 trillion as of FY14. (Source: Crisil report)
Exhibit 4: Insurance penetration remains low in India (as percentage of GDP)
11.5
7.4 7.2
3.7
32.7
2.3
1.6
0
2
4
6
8
10
12
14
S.Africa S.Korea Japan Thailand US India China Indonesia
(%)
Source: SBI Life RHP, ICICIdirect.com Research
Exhibit 5: Life insurance density is below most Asian economies (2016)
2803
2050
1725
616
222 196 19059 47 21
0
500
1000
1500
2000
2500
3000
Japan S.Korea US S.Africa Thailand Brazil China Indonesia India Turkey
(U
SD
)
Source: SBI Life RHP, ICICIdirect.com Research
With economic growth gradually picking up and structural drivers
including rising life expectancy, healthcare spending, pension needs in
place, this is expected to drive strong growth in the life insurance industry
in the next five years. In addition, prevailing low insurance density and
penetration will support growth in the life insurance sector on account of
the low base.
Insurance penetration refers to premiums as percentage
of GDP
Insurance density refers to per capita premium or
premium per person
Page 5 ICICI Securities Ltd | Retail Equity Research
According to Crisil Research, the new business premium for Indian life
insurance companies is expected to grow at 11-13% CAGR in FY17-22,
compared to 9% CAGR in FY12-17. Total premium in the Indian life
insurance market is expected to increase from | 4181 billion in FY17 to
~| 7900 - 8100 billion by FY22E. Improving economic growth, low
inflation and increase in financial savings, along with rising awareness of
insurance are expected be key catalysts for this growth. The
government’s focus on financial inclusion and initiatives including launch
of Pradhan Mantri Jeevan Jyoti Bima Yojana is expected to increase
awareness and open avenues for investments in insurance and other
savings products.
Exhibit 6: Industry NBP growth seen remaining healthy at 11-13% by FY22E
1140 10741203
1133
1387
1750
3000
0
500
1000
1500
2000
2500
3000
3500
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E
(| b
illion)
Source: SBI Life RHP, ICICIdirect.com Research
Historical evolution of Indian life insurance industry
The Indian life insurance sector was opened for private companies in
2000 with the commencement of operations by four private companies in
the first year. Further, eight companies got added to the list till 2009, with
total number of companies aggregating to 23. Among peers, LIC is the
only public sector life insurer. Since inception, the private sector has
grown significantly and currently accounts for ~53.9% of the individual
rated premium of life insurance industry in FY17. The Indian life insurance
industry has undergone various growth phases. The current structure of
the industry is depicted in Exhibit 7.
New Business Premium (NBP): Insurance premium that
is due in the first policy year of a life insurance contract or
a single lump sum payment from the policyholder
NBP of top private insurers (FY17)
101.5
87.0
78.6
36.832.9
0
20
40
60
80
100
120
SBI Life HDFC
Standard Life
ICICIPru Life Max Life Bajaj Allianz
(| b
illion)
Source: SBI Life RHP, ICICIdirect.com Research
Page 6 ICICI Securities Ltd | Retail Equity Research
Exhibit 7: Structure of Indian life insurance industry
Source: SBI Life RHP, ICICIdirect.com Research
Exhibit 8: Growth in NBP of life insurance industry at 8.8% CAGR in last 10 years
754930 871
10931258
1142 10701196 1131
1387
17501561
2014
2218
2655
2916 2871 2872
31433281
3669
4181
0
1000
2000
3000
4000
5000
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
(| b
illion)
NBP Total premium
Source: SBI Life RHP, ICICIdirect.com Research
Private insurer gaining market share: In FY07-11, total premium growth
remained robust at 17% CAGR, owing to an aggressive foray by private
players. Since FY07, private players gained significant market share from
18% in FY07 to 30% in FY11, driven by Ulips. A favourable commission
structure (high upfront commission to intermediaries) and capital market
performance, supported growth in ULIPs. On the distribution side, the
share of banking corporate agents in the individual new business
premium increased from 6% to 13% in FY07-11.
NBP market share of private insurer (FY17)
Bajaj Allianz,
6%
HDFC
Standard, 17%
SBI Life,
20%
Reliance, 2%Ipru Life, 16%
Max Life, 7%
Kotak, 6%
Others, 26%
Source: SBI Life RHP, ICICIdirect.com Research
Page 7 ICICI Securities Ltd | Retail Equity Research
Exhibit 9: Private players have been gaining market share gradually (IRP basis)
Source: SBI Life RHP, ICICIdirect.com Research
Post the financial crisis in 2008 and regulatory changes in FY10, private
insurer market share on an individual rates premium (IRP) basis declined
to ~37.9% in FY14 from ~52% in FY10. However, driven by an improved
product design, primarily for linked products that offer a superior
customer value propositions and focus on bancassurance for marketing
their products, private insurers regained significant market share to 53.9%
in FY17.
Linked premium growth to improve ahead: Post an increase in linked
premium of total new business premium in FY07-10, Life insurance
industry has seen linked premium declining from 83% in FY07 to 44% in
FY17 over the last seven years. A capital market slowdown, stringent
IRDA regulations and cap on charges to consumer impacted linked
premium growth.
However, the transparency in linked products and charges are no longer a
deterrent for growth. Erstwhile surrenders due to three-year lock-in have
already happened for the insurance sector. Improvement in economic
and market conditions, in general, and demonetisation, in particular, has
led the sector to witness resumption in growth in premiums for both
linked and non-linked products.
Exhibit 10: Private sector - Linked premium share bottomed out in NBP
8388 87 86
79
6554
45 45 45 44
1712 13 14
21
3546
55 55 55 56
0
20
40
60
80
100
120
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
(%
)
Non-linked Linked
Source: SBI Life RHP, ICICIdirect.com Research
Rationalisation in commission, operating expense: Post IRDAI regulations
in FY10, a significant decline was seen in commission on linked products.
Individual Rated Premium (IRP): New business
premiums written by the company under individual
products wherein single premium are weighted at the rate
of 10% of the paid amount
Product mix for private insurers on NBP basis (FY17)
50.535.24
79.13
24.42
41.72
49.564.76
20.87
75.58
58.28
0
20
40
60
80
100
120
SBI Life HDFC
Standard Life
ICICIPru Life Max Life Bajaj Allianz
(%
)
Linked Non-linked
Source: SBI Life RHP, ICICIdirect.com Research
Page 8 ICICI Securities Ltd | Retail Equity Research
Consequently, commission-expense ratio on a total premium basis fell
considerably from 7.9% in FY07 to 5.3% in FY17. Among peers, LIC has
higher commission expense ratio at 5.5% (FY17) compared to private
insurers at 4.7%, owing to sourcing of significant proportion of individual
business through individual agents (96% in FY17).
Exhibit 11: Commission expense ratio (as percentage of total premium)
11
9.9
8.5
7.5
5.75.3
5.75.3
4.9 4.7 4.7
7.97.3
76.5 6.5 6.5 6.7 6.6
5.95.5 5.3
0
2
4
6
8
10
12
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
(%
)
Private Insurer Industry
Source: SBI Life RHP, ICICIdirect.com Research
In FY07-10, private players had a higher operating expense ratio due to
high infrastructure costs incurred on increasing their geographic reach.
However, post regulatory changes in FY10, private players went into a
consolidation phase and began focusing on cost efficiencies. Therefore,
an improvement was witnessed in operating expense ratio from 21% in
FY10 to 15.7% in FY17. On a relative basis, LIC, being in a mature phase,
had lower operating expense ratio since FY07. However, since an
increase in salary in October 2010 (effective from August 2007), the
expense ratio has been higher compared to the previous period. Despite
a rise in operating expense ratio, the same remains lower for LIC at 9.6%
compared to private peers.
VNB margin higher for better product mix and cost efficient
In India, cost of acquisition remains high due to expensive agency model
involving higher overhead and operating costs apart from commission.
Bancassurance is gaining traction for companies with parent banks.
Accordingly, VNB margins are driven by product mix and higher
persistency. Margins are highest in protection (term and credit protect
types) at 70-80%, then other non par business at 20-25%, participating
products at 12-15% and finally in ULIP at 8-10%. Players with higher share
of protection business like HDFC Life (26%) have higher margins. SBI Life
has 5% protection share but cost efficiency is high leading to margins at
reasonable 15.7%. Max India has significant proportion of traditional
products in NBP leading to higher margins.
VNB margin: VNB margin is the ratio of VNB to new
business annualised premium equivalent for a specified
period and is a measure of the expected profitability of
new business.
Expense ratios of private peers (FY17)
3.73 4.13.4
9
2.4
7.83
12.27
10.54
14.76
17.1
0
2
4
6
8
10
12
14
16
18
SBI Life HDFC
Standard Life
ICICIPru Max Life Bajaj Allianz
(%
)
Commission ratio Operating Expense ratio
Source: SBI Life RHP, ICICIdirect.com Research
Page 9 ICICI Securities Ltd | Retail Equity Research
Exhibit 12: VNB margin – comparable among private insurer (FY17)
15.7
22.0
10.1
18.8
0
4
8
12
16
20
24
SBI Life HDFC Life ICICI Pru Life Max Life
(%
)
Source: SBI Life RHP, ICICIdirect.com Research
Channel mix shift towards bancassurance, direct sales: A significant shift
in the channel mix of the Indian life insurance sector has been witnessed
from earlier agency-only model to a diversified distribution mix. Further, a
cap on ULIP charges, introduced in 2010, has led to rationalisation of
owned agency network and provided a shift towards third-party channels.
Consequently, the share of bancassurance has increased from 6% of
individual business, on a new business premium basis, in FY07 to 24% in
FY17, while the share of new business premiums from individual agents
declined from 90.5% in FY07 to 68.9% in FY17. A higher share of agency
channel in the retail new business premium can largely be attributed to
LIC. In FY17, bancassurance contributed to ~53.9% of new business
premiums for private sector companies, led by a well-developed banking
sector in India with a nationwide presence of branches.
Direct distribution channel has also gained importance over the years for
private sector companies. In FY17, direct sales contributed 5% of new
individual business premiums for private sector companies.
Exhibit 13: Bancassurance share in individual NBP on the rise in FY07-17 (for industry)
90.583.7
79.6 79.6 78.9 78.7 77.5 78.471.4 68.5 68.9
5.6
8.09.7 10.6 13.3 15.0 16.2 15.6
20.8 24.0 23.6
0
20
40
60
80
100
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
(%
)
Individual Agents Corporate Agents – Banks Corporate Agents – Others Brokers Direct Selling
Source: SBI Life RHP, ICICIdirect.com Research
Structural strength to drive life insurance industry
Demographics strength: Currently, India has one of the youngest
populations in the world with a median age of 28 years. It is estimated
that 90% of India’s population will remain below 60 years of age by 2020.
Increase in proportion of individuals in the age bracket of 25-49, which is
Bancassurance (Banca): An arrangement entered into
by a bank and an insurance company, through which the
insurance company sells or markets its products to the
bank’s customer base.
SBI has highest proportion of bancassurance (FY17)
22.0
6.5
16.38.3 9.0
41.9
25.7
39.8
20.4
0.4
0
30
60
90
SBI Life HDFC Std
Life
ICICIPru Life Max Life Bajaj Allianz
(| b
illion)
Individual Agents Corporate Agent - Banks Others
Source: SBI Life RHP, ICICIdirect.com Research
Page 10 ICICI Securities Ltd | Retail Equity Research
the target population for the industry, is expected to boost industry
growth. Rapid urbanisation coupled with high share of working
population with rising affluence is expected to provide impetus to growth
in the Indian life insurance sector.
Exhibit 14: Indian population above 15 years to reach ~63% in 2020E
34.727.5 30.8
6.9
30.9
27.6
33.7
7.8
27.5
26
37
9.5
0
20
40
60
80
100
120
0-14 15-29 30-59 60+
(%
)
2000 2010 2020E
Source: SBI Life RHP, ICICIdirect.com Research
Increase in share of financial savings and life insurance within: Rising
GDP growth (barring last quarter) compared to previous fiscals and
control over inflation is a key structural positive, which gives an impetus
to overall savings in India. Increase in financial savings, coupled with
expected increase in share of insurance as a percentage of financial
savings, due to a significant improvement in product proposition and
delivery mechanism, is expected to drive growth for the life insurance
sector.
Exhibit 15: Financial savings (as percentage of GDP) to see an up-tick ahead
23.222.4
23.625.2
23.1 23.622.4
20.2 20.419.2
10.1
11.911.3 11.6
9.9
7.4 7.4 7.4 7.47.9 8.2
0
2
4
6
8
10
12
14
0
5
10
15
20
25
30
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
(%
)
Household Savings as a % of GDP Financial Savings as % of GDP
Source: SBI Life RHP, ICICIdirect.com Research
Among financial savings, the share of life insurance had reached its peak
at 26% in FY10. However, a downturn in the capital market, increasing
inflation and regulatory changes in the sector led to a sharp deceleration
in the share of life insurance to 15.3% of financial savings in FY14. Post
FY14, there was a considerable revival, due to improving fundamentals
and pick-up in the sale of linked products. In absolute terms, financial
savings in life insurance product increased from | 204469 crore in FY14 to
| 266063 crore in FY16, a CAGR of 14.1%. In FY17, led by demonetisation,
incremental flow of financial savings in life insurance segments surged
65.6% to | 440653 crore. Therefore, share of life insurance in total
Page 11 ICICI Securities Ltd | Retail Equity Research
household financial savings (gross) increased from 17.6% in FY16 to
24.2% in FY17. Further increase in proportion of life insurance in financial
savings provides an opportunity for growth in the Indian life insurance
industry.
Exhibit 16: Share of life insurance in household financial savings (gross) rises 660 bps to
24.2% in FY17
10.5 12.7 9.8 12.7 11.4 10.9 8 10.7 13.5
-17.40
50.457.5
40.250.8 56.3 56.1 60.5
46.9 41.360.19
22
21
26.2
19.521 17.8 16
19 18.3
24.21
-40
-20
0
20
40
60
80
100
120
140
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
(%
)
Currency Bank deposit Life Insurance premium Provident and Pension Fund Others
Source: SBI Life RHP, ICICIdirect.com Research
Exhibit 17: Surge in life insurance segment in FY17 led by demonetisation
1698.5 1528.6 2598.2
2101.01956.7 1799.5
2044.7 2993.02660.6
4406.5
-5000.0
0.0
5000.0
10000.0
15000.0
20000.0
25000.0
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
(| b
illion)
Currency Bank deposit Life Insurance premium Provident and Pension Fund Others
Source: SBI Life RHP, ICICIdirect.com Research
Page 12 ICICI Securities Ltd | Retail Equity Research
Investment Rationale
Largest private life insurer in new business premium, growing rapidly…
SBI Life is India’s largest private life insurer, in terms of new business
premium (NBP) generated each fiscal year, since FY10 (Source: Crisil
Report). In FY15-17, NBP increased at a CAGR of 35.45%, which is the
highest among the top five private life insurers (in terms of total premium
in FY17) in India. The company increased its market share of NBP among
private life insurers in India, from 15.87% in FY15 to 20.04% in FY17, and
market share of NBP in the entire life insurance industry from 4.89% in
FY15 to 5.8% in FY17. Going ahead, new business premium for Indian life
insurance companies is expected to grow at 11-13% CAGR in FY17-22,
compared to 9% CAGR in FY12-17 (Crisil Research). With product
innovation and higher focus on leveraging distribution strength (both
bancassurance and online channel), private insurers are expected to
continue to gain market share ahead. For SBI Life, we expect NBP to
increase at healthy pace of 22.1% CAGR in FY18-20E to | 18482.8 crore,
led by focus on sweating of the strong distribution network. Higher than
industry growth will enable gaining market share to the extent of 200-300
bps by FY18-20E.
Exhibit 18: SBI Life to see higher than industry NBP growth in FY18-20E
5529.1
7106.5
10143.8 12576.9 15240.8 18482.8
9.1%
28.5%
42.7%
24.0%
21.2% 21.3%
0%
10%
20%
30%
40%
50%
0
4000
8000
12000
16000
20000
FY15 FY16 FY17 FY18E FY19E FY20E
| c
rore
NBP YoY growth (RHS)
Source: SBI Life RHP, ICICIdirect.com, Research
Exhibit 19: SBI Life – highest NBP compared to private insurer (FY17)
101.5
87.0
78.6
36.832.9
0
20
40
60
80
100
120
SBI Life HDFC
Standard Life
ICICIPru Life Max Life Bajaj Allianz
(| b
illion)
Source: SBI Life RHP, ICICIdirect.com, Research
Exhibit 20: SBI Life’s market share on the rise in FY15-FY17 led by strong growth
19.95
16.85 17.1715.87
17.34
20.04
0
10
20
30
FY12 FY13 FY14 FY15 FY16 FY17
(%
)
NBP Market share among private insurers
NBP market share to increase by
200-300 bps in FY18-20E
Source: SBI Life RHP, ICICIdirect.com Research
Page 13 ICICI Securities Ltd | Retail Equity Research
The company is able to leverage its diversified product portfolio to
capitalise on favourable industry opportunities. As a result, gross written
premium (GWP) and new business annualised premium equivalent (APE)
increased at a CAGR of 27.80% and 36.59%, respectively, in FY15-17. It
also issued the highest number of individual life policies annually among
private life insurers in India since FY14 (Source: Crisil report). The number
of policies issued by SBI Life increased at a CAGR of 6.42% from
11,26,211 in FY15 to 12,75,550 in FY17.
SBI Life has increased the market share of individual rated premium
among private life insurers in India from 15.61% in FY15 to 18.83% in
FY16 and to 20.69% in FY17. In FY15-17, individual rated premium
increased at a CAGR of 37.9%, the fastest among the top five private life
insurers (in terms of total premium in FY17) in India. Going ahead, we
expect SBI Life to continue with healthy growth in new business
annualised premium equivalent (APE) at 28.4% CAGR in FY18-20E.
Exhibit 21: Market share of SBI is on the rise (APE basis)
3792
2622 2876
3206
3550
5046
6727
9025
11227
13977
13.2 11.1
12.6
14.8 14.2
17.719.3
0
2000
4000
6000
8000
10000
12000
14000
16000
0
10
20
30
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(%
)
APE (| crore) Market Share (private insurers)
Source: SBI Life RHP, ICICIdirect.com Research
Exhibit 22: Market share of SBI Life is increasing among private life insurer (APE basis)
APE -Total NBP FY15 FY16 FY17
SBI Life 14.2 17.1 19.0
HDFC Life 12.7 12.7 11.7
ICICI Pru Life 18.6 17.9 18.7
Max Life 7.9 7.6 7.9
APE - Individual NBP
SBI Life 15.6 18.8 20.7
HDFC Life 14.8 14.7 12.7
ICICI Pru Life 23.0 21.9 22.3
Max Life 9.7 9.3 9.2
Source: IRDA, ICICIdirect.com Research
Expect balanced product portfolio, marginal skewness to ULIP rising
As of June 30, 2017, SBI Life had a comprehensive product portfolio of 37
individual and group products, including a range of protection and
savings products to address the insurance needs of diverse customer
segments. The company’s focus on maintaining a diversified product mix
has resulted in the new business margin of 15.4% in FY17.
Gross Written Premium (GWP): The total premium
written by the company before deductions for re-
insurance ceded.
New Business APE: First year regular premium + 10%
of first year single premium
Page 14 ICICI Securities Ltd | Retail Equity Research
In FY17, participating products, non-participating protection products,
other non-participating products and unit linked products contributed
| 1092.3 crore, | 96 crore, | 171.7 crore and | 5107.9 crore, respectively,
representing 16.89%, 1.48%, 2.66% and 78.97%, respectively, of
individual NBP. In the group products business, group protection (credit
life) has been a key focus area while NBP from these products increasing
by 15.06% from | 239.6 crore in FY16 to | 275.7 crore in FY17.
Exhibit 23: Market share of SBI is on the rise (APE basis)
NBP FY15 FY16 FY17 1HFY18
Individual products 3,606 4,827 6,372 3,304 Participating
products 1,454 1,468 1,092 835
Non-participating products 278 168 172 86
Linked products 1,874 3,192 5,108 2,383
Group saving products 1,493 1,649 3,284 743
Protection products 430 630 487 242
Total NBP 5,529 7,107 10,144 4,289
Source: SBI Life RHP, ICICIdirect.com Research
In the aftermath of the clamp down on charges by the regulator related to
ULIP products, incremental focus of private insurers moved towards
traditional products. Consequently, share of ULIP came down from peak
of 79% in FY11 to ~45% in FY14, wherein it stabilised along till FY17. SBI
Life, on the other hand, has been focussing on linked business, which
grew at a faster rate taking its proportion in overall NBP from 34.9% in
FY15 (lower than industry) to 50.5% in FY17 (higher than industry
average). In terms of customer profile, individual segment remained the
focus with growth at 27.4% CAGR in FY15-17.
Exhibit 24: Private sector insurer witnesses slowdown in linked NBP in FY15-17…..
8388 87 86
79
6554
45 45 45 44
1712 13 14
21
3546
55 55 55 56
0
20
40
60
80
100
120
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
(%
)
Non-linked Linked
Source: SBI Life RHP, ICICIdirect.com Research
Exhibit 25: While SBI Life’s ULIP proportion in NBP was on rise …..
34.945.5 50.5
56.7 57.2 58.0
65.154.5 49.5
43.3 42.8 42.0
0
20
40
60
80
100
FY15 FY16 FY17 FY18E FY19E FY20E
(%
)
Linked Non-Linked
Source: SBI Life RHP, ICICIdirect.com, Research
Exhibit 26: …led to second position in ULIP contribution among private
insurers-FY17
50.535.24
79.13
24.42
41.72
49.564.76
20.87
75.58
58.28
0
20
40
60
80
100
120
SBI Life HDFC
Standard Life
ICICIPru Life Max Life Bajaj Allianz
(%)
Linked Non-linked
Source: SBI Life RHP, ICICIdirect.com, Research
Product wise ticket size for SBI Life (FY17)
(|) FY15 FY16 FY17 Q1FY18
Par Products 24506 23671 23544 27254
Non Par Products 5988 7206 6594 8169
Other Non Par products 98346 64721 91164 102282
ULIP 74388 76460 79104 81205
Source: SBI Life RHP, ICICIdirect.com, Research
Page 15 ICICI Securities Ltd | Retail Equity Research
Exhibit 27: Growth in linked NBP at faster pace…..
1931.23233.3
5122.97130.8
8718.610727.1
3597.9
3873.2
5020.9
5446.1
6522.2
7755.7
0
5000
10000
15000
20000
FY15 FY16 FY17 FY18E FY19E FY20E
(|crore)
Non-linked Linked
Source: SBI Life RHP, ICICIdirect.com, Research
Exhibit 28: ...to keep proportion of linked business rising in total premium
5291.9 6897.010038.1
14609.7
19587.7
25585.8
7575.28928.4
10977.1
11812.7
13703.6
16126.2
0
10000
20000
30000
40000
50000
FY15 FY16 FY17 FY18E FY19E FY20E
(|crore)
Non-linked Linked
Source: SBI Life RHP, ICICIdirect.com, Research
Going ahead, the company’s strategy is to further optimise its product
portfolio by maintaining a balance between unit-linked, participating and
non-participating products. With improvement in economic and market
conditions, increasing focus on HNI, we expect proportion of linked
business in new business to inch northwards at ~58% in FY18-20E,
growing at 36.6% CAGR to | 25586 crore in FY20E. Protection product
portfolio, which is a high margin business, is aimed at expanding with
particular emphasis on credit life protection products. We expect
protection products contribution to rise from ~5% in FY17 to ~8-9% in
FY20E. Group business, which forms 14.9% of total business, has seen a
surge of 47.4% YoY in FY17. The company plans to reduce its focus on
group products due to the inherent competitive nature of the business
and high guarantee obligations related to such products. Therefore, we
expect proportion of group business in total premium to decline, though
group fund management will continue to witness traction ahead.
Strong bancassurance, high agent productivity to improve efficiency
SBI Life has developed a multi-channel distribution network comprising
an expansive bancassurance channel, including State Bank of India (the
largest bancassurance partner in India). Bancassurance represents SBI
Life’s largest distribution channel. In addition, a large and productive
individual agent network comprising 95,177 agents (as of July 31, 2017)
as well as other distribution channels including direct sales and corporate
agents, brokers, insurance marketing firms and other intermediaries are
utilised for distribution. As of July 31, 2017, the company had 803 branch
offices in 29 states and seven union territories across India, set up
primarily for an agency network. The company also makes significant
direct sales, primarily comprising sale of group products, as well as
standardised individual products sold through online offerings. In
addition, the company also has tie-ups with 53 corporate agents and 121
insurance brokers as of July 31, 2017. These partners are supported by
dedicated sales team comprising business development managers and
area managers.
In FY17, SBI Life collected the highest amount of NBP generated by
private life insurers in India both through the bancassurance channel (|
4185.31 crore) as well as through individual agent network (| 2204.41
crore). In addition, it has also developed long standing institutional
relationships with large corporate with respect to group life insurance
products, particularly for group protection (others) and Group fund
management (FM) products.
Individual segment forming higher chunk of business (SBI Life)
1850.0 2119.3 3123.2 3157.3 3567.7 4005.0
11017.113706.0
17892.023265.1
29723.6
37707.0
0
10000
20000
30000
40000
50000
FY15 FY16 FY17 FY18E FY19E FY20E
(|crore)
Individual Group
Source: SBI Life RHP, ICICIdirect.com Research
Page 16 ICICI Securities Ltd | Retail Equity Research
Exhibit 29: Industry channel mix skewed towards
bancassurance….private insurer
36 32 30
47 52 54
17 16 16
0
20
40
60
80
100
FY15 FY16 FY17
(%
)
Individual Agents Corporate Agents – Banks Others
Source: SBI Life RHP, ICICIdirect.com Research (includes LIC)
Exhibit 30: Banca contributed highest proportion of individual NBP (FY17)
22.0
6.516.3
8.3 9.0
41.9
25.7
39.8
20.4
0.4
0.0
40.0
80.0
SBI Life HDFC Std
Life
ICICIPru Max Life Bajaj Allianz
rs
Individual Agents Corporate Agent - Banks Others
Source: SBI Life RHP, ICICIdirect.com, Research
1) Pan India bancassurance network
State Bank of India is the largest bancassurance partner in India and
provides SBI Life with a large distribution network giving access to 24017
branches of SBI alone and significant technology support. SBI Life has
also been licensed the use of the “SBI” logo pursuant to the SBI
Trademark Licensing Agreement. They also have bancassurance
partnerships with 17 regional rural banks, and more recently with the
Punjab & Sind Bank and South Indian Bank. Bancassurance channel
benefits from inherent cost efficiencies resulting in lower cost of sales and
greater profitability.
Bancassurance contributed 47.82%, 54.43% and 53.03% of total NBP in
FY15, FY16 and FY17, respectively. While contribution of bancassurance
remained even higher in case of individual NBP at 64.7% in FY17.
Individual NBP contributed by bancassurance channel increased at a
CAGR of 46.72% from | 1944.3 crore in FY15 to | 4185.3 crore in FY17,
compared to a CAGR of 27.2% for private life insurers in India during the
same period. Going ahead, we expect healthy traction from
bancassurance at ~29.1% CAGR in FY18-20E, thereby keeping
bancassurance as the major contributor to individual NBP at ~64.8% in
FY20E.
2) High agent productivity
SBI Life has one of the largest pan India network of agents, with 95,177
agents as on July 31, 2017. Relatively higher productivity of sales agents
was largely contributed by established brand, strong sales management
practices, an attractive rewards and recognition programme, technology
driven sales platforms, effective sales support and training provided to
agents.
SBI Life’s exclusive individual agent network contributed 32.85%, 27.47%
and 22.31%, respectively, of total NBP in FY15, FY16 and FY17,
respectively. Individual NBP contributed by individual agents has
increased at CAGR of 13.24% from | 1719.2 crore in FY15 to | 2204.4
crore in FY17, compared to CAGR of 9.39% for private life insurers in
India during the same period (Source: Crisil Report). The company’s
individual agent network generated NBP of | 2,34,501 from individual
products per agent, reflecting highest productivity among all private life
insurers in India in FY17.
Page 17 ICICI Securities Ltd | Retail Equity Research
Exhibit 31: Agent productivity at highest (FY17)
2.3
1.0
1.3
1.7
1.1
0.0
0.5
1.0
1.5
2.0
2.5
SBI Life HDFC
Standard Life
ICICIPru Life Max Life Bajaj Allianz
(| lakhs)
Agent productivity
Source: SBI Life RHP, ICICIdirect.com, Research
Exhibit 32: Geographic distribution of individual NBP (FY17)
67.24
80.81 80.2677.39
73.45
38.34
58.5355.82
50.09 50.56
0
20
40
60
80
100
SBI Life HDFC
Standard Life
ICICIPru Max Life Bajaj Allianz
(%
)
Top 10 states Top 5 states
Source: SBI Life RHP, ICICIdirect.com, Research
3) Extensive geographic reach leads to lower concentration risk
Well diversified distribution remains a key in order to keep dependence
on any particular region lower, which mitigates business risk. Owing to
diversified and large distribution channel, SBI Life’s business in terms of
geography mix remains diversified across the country. In terms of
business mix from top three, five and 10 states, SBI Life’s mix remains
distributed compared to top five private life insurers (in terms of total
premium in Fiscal 2017). Individual new business premium generated
from top three states constituted 24.67% of total individual new business
premium for FY17. On a relative basis, concentration from top five and 10
states was at 38.3% and 67.2%, respectively, which remains lower
compared to other private peers (Exhibit 32).
Page 18 ICICI Securities Ltd | Retail Equity Research
Exhibit 33: Geographical distribution of individual NBP (| crore)
Location FY15 FY16 FY17 Q1FY18
Uttar Pradesh 317 447 612 133
Tamil Nadu 281 348 452 103
Maharashtra 345 435 522 98
Gujarat 185 277 433 95
West Bengal 214 312 390 82
Telangana 200 373 462 67
Karnataka 246 324 399 66
Andhra Pradesh 309 303 392 65
Kerala 212 257 394 57
Bihar 143 200 266 57
Orissa 165 218 258 46
Rajasthan 162 222 294 46
Madhya Pradesh 170 210 270 45
Punjab 109 133 181 39
Haryana 103 127 154 32
Assam 91 126 165 31
Jharkhand 86 123 154 27
Chattisgarh 103 124 144 26
Delhi 100 118 142 25
Uttrakhand 63 91 108 22
Himachal Pradesh 51 72 94 18
Jammu & Kashmir 18 23 32 9
Goa 16 22 31 5
Nagaland 7 9 11 4
Arunachal Pradesh 10 14 15 4
Chandigarh 8 13 18 4
Meghalaya 12 15 23 3
Puducherry 6 6 10 2
Manipur 6 9 11 2
Tripura 8 12 11 2
Sikkim 3 6 8 1
Andaman & Nicobar Islands 4 6 6 1
Mizoram 3 4 4 1
Daman & Diu 0 0 0 0
Dadra & Nagar Haveli 0 0 1 0
Lakshadweep 0 0 0 -
Total 3,757 4,978 6,468 1,217
Source: SBI Life RHP, ICICIdirect.com Research
Cost efficiency & improvement in persistency to drive VNB margins
Total costs for a life insurance company consist of commission expenses
and operating expenses. For SBI Life, the commission ratio was at 3.73%
(4.7% in H1FY18) while operating expenses ratio was at 7.83% in FY17
98.6% in H1FY18), which is the lowest comparable to LIC.
In FY14, commission ratio has peaked out and is on continuous downfall
to reach 3.8% in FY17. This decline in commission ratio is attributable to
decline in remuneration paid on new business (first year premium), which
came down from 13.3% in FY14 to 8.1% in FY17. Commission on renewal
premium has remained stable at ~2.5% of premium. One of the factors to
keep cost of sales lower and thus higher profitability is its bancassurance
distribution channel which benefits from inherent cost efficiencies. We
believe bancassurance will continue to drive a larger share of the new
business with strong branch network of partner. In addition, increasing
penetration of online mode of distribution will continue to remain a focus
area. However, we have not factored in any substantial cost saving from
digitization of distribution in the initial period. Therefore, we expect
commission expense ratio to remain stable broadly at ~4.1% in FY18-
20E.
VNB margin: VNB margin is the ratio of VNB to new
business annualised premium equivalent for a specified
period and is a measure of the expected profitability of
new business.
Page 19 ICICI Securities Ltd | Retail Equity Research
Commissions increased 9.67% YoY from | 714.25 crore in FY16 to | 783.3
crore in FY17. This increase was primarily due to an increase in NBP by
42.74% and an increase in renewal business premium by 24.69% YoY in
FY17. Operating expenses relating to insurance business increased
11.17%, from | 1481.4 crore in FY16 to | 1646.8 crore in FY17, primarily
due to an increase in business promotion expenses and employee
remuneration and welfare benefits expenses.
Exhibit 34: Expense ratio to broadly remain stable ahead (SBI Life)
4.7 4.5
3.74.1 4.0 4.1
9.19.4
7.8 7.7 7.8 7.8
0
2
4
6
8
10
FY15 FY16 FY17 FY18E FY19E FY20E
(%
)
Commission ratio Operating Expense ratio
Source: SBI Life RHP, ICICIdirect.com, Research
Exhibit 35: SBI Life has lowest opex ratio among private peers – FY17
3.73 4.13.4
9
2.4
7.83
12.27
10.54
14.76
17.1
0
2
4
6
8
10
12
14
16
18
SBI Life HDFC
Standard Life
ICICIPru Life Max Life Bajaj Allianz
(%
)
Commission ratio Operating Expense ratio
Source: SBI Life RHP, ICICIdirect.com, Research
Among top five private insurers, the operating expense ratio has
improved substantially in the past five years, as players reassessed
productivity of various distribution channels and their operating efficiency
post FY10. Opex (including commission) to GWP ratio at 7.8% in FY17
has been lowest among private insurers. In FY15-17, operating expense
ratio for SBI Life declined substantially from 9.1% to 7.8%. Going ahead,
with healthy business growth which will lead to higher efficiency,
operating expense is expected to increase 25.5% CAGR in FY18-20E,
thereby keeping opex ratio stable at ~7.8% in FY18-20E.
Persistency ratio – highest among peers; conservation ratio to stay stable
Life insurance business performance and profitability is dependent on
ensuring high proportion of renewals of policies at the end of their terms
and persistency ratios reflect the company’s ability to retain customers in
this competitive market.
In FY17, 13th
month and 61st month persistency ratios were at 81.07% and
67.18%, respectively (which is the highest among major private insurers).
As of September 30, 2017, 13th month and 61
st month persistency ratios
were at 81.3% and 62.1%, respectively. With concentrated efforts by
management, there has been consistent improvement across periods –
noteworthy improvement being in 61st month persistency, which has
increased from 25.5% in FY13 to 67.18% in FY17. The increase in 61st
month persistency ratio was achieved by increasing its focus on customer
satisfaction on all aspects of business operations, including quality of
distribution and superior customer satisfaction. Renewal premium has
grown at 20.1% CAGR in FY13-17 compared to 19.2% CAGR in total
premium. In FY17, a decline was seen in 49th month persistency.
However, this was primarily led by a decline in share of single premium.
Persistency ratio: The proportion of business retained
from the business underwritten. The ratio is measured in
terms of number of policies and premiums underwritten
Page 20 ICICI Securities Ltd | Retail Equity Research
Customer retention remains key in order to improve persistency and thus
increase profitability. Therefore, the company has introduced a number of
initiatives to improve persistency of existing policies, including data
analytics. Within the operational framework, the company’s dedicated
renewal business vertical continues to focus on collection of renewal
premiums and servicing policyholders. Overall conservation ratio for
renewal business {(calculated as renewal premiums/(FYP+ LY renewal)}
has improved from 72.8% in FY14 to 84.2% in FY15, post which it
declined marginally to 81.4% in FY17. With better ULIP growth picking up
and surrenders remaining at current level, conservation ratio is expected
to sustain around 81% in the next couple of years. Consequently,
improvement in persistency and cost optimisation is expected to lead to
~100 bps improvement in VNB margin to 16.7% in FY20E.
Exhibit 36: SBI Life has highest 61st month persistency among private peers (FY17)
81.1 80.985.7
80.4
68.267.2
56.8 56.253.0
31.6
0
20
40
60
80
100
SBI Life HDFC Standard
Life
ICICIPru Max Life Bajaj Allianz
(%
)
13th month 61th month
Source: SBI Life RHP, ICICIdirect.com Research
Exhibit 37: Conservation ratio to remain stable at ~81% in FY18-20E
84.2
81.781.4
81.1
80.3 80.6
76
80
84
88
FY15 FY16 FY17 FY18E FY19E FY20E
(%
)
Conservation ratio (%)
Source: SBI Life RHP, ICICIdirect.com Research
SBI Life’s persistency has been improving over the past
86.2 79.6 79.3 80.7 81.1
24.454.5 64.5
76.962.5
25.5
19.8
40.7
53.867.2
0.0
50.0
100.0
150.0
200.0
250.0
FY13 FY14 FY15 FY16 FY17
(%
)
13th Month 49th Month 61th Month
Page 21 ICICI Securities Ltd | Retail Equity Research
Exhibit 38: Higher efficiency and stable conservation ratio to boost VNB margins
14.2
15.7
16.0
16.516.7
13
13
14
14
15
15
16
16
17
17
FY16 FY17 FY18E FY19E FY20E
(%
)
VNB margin (calculated)
Source: SBI Life RHP, ICICIdirect.com Research
Second highest AUM in industry, demonstrates reasonable performance
The life insurance business is a function of better business underwriting
and increasing AUM at efficient costs. Investment is a significant income
contributor for the insurance business. The surge in equity markets and
improving debt incomes fuelled investment income both in policyholders
and shareholders’ investment in FY15-17.
SBI Life reported AUM of | 97,736.6 crore in FY17, of which equities
constituted 23.19%, government securities constituted 46.28% and
corporate bonds constituted 21.89%. In FY13-17, AUM has grown CAGR
of 17.6% to | 97,736 crore in FY17, and was | 105066.6 crore as on
September 30, 2017.
Exhibit 39: Business growth to keep AUM growth healthy at 20.8% CAGR in FY18-20E
713.4
798.3
977.4
1,136.3
1387.1
1,692.1
11.9%
22.4%
16.3%
22.1% 22.0%
0%
5%
10%
15%
20%
25%
0
200
400
600
800
1000
1200
1400
1600
1800
FY15 FY16 FY17 FY18E FY19E FY20E
| b
illion
AUM YoY growth (RHS)
Source: SBI Life RHP, ICICIdirect.com Research
In FY15-17, policyholder’s funds have grown at 17% CAGR to | 95918
crore and shareholders’ funds has grown from | 3145 crore in FY15 to
| 4326 crore in FY17; 17.3% CAGR. Investment yield has moved higher in
FY17 and Q1FY18 led by strong equity markets. Continued business
growth and improvement in efficiency will lead to incremental growth in
AUM. Consequently, we expect AUM growth of 20.8% CAGR in FY18-20E
to | 168308 crore, while investment yields are seen stabilising at ~8.5%
in FY20E.
Page 22 ICICI Securities Ltd | Retail Equity Research
Exhibit 40: Investment schedule – SBI Life (Investments at carrying value)
| crore
Fund O/S Invt Income Yield Fund O/S Invt Income Yield Fund O/S Invt Income Yield Fund O/S Invt Income Yield
With Interest, Amort, Dividend
and Realised gains / losses
Shareholders’ Funds 2941 276 9.8% 3278 318 9.2% 3724 402 9.7% 4262 107 10.0%
Participating Funds 7663 641 9.8% 10090.3 802 8.4% 12929 11,512 8.7% 13534 357 8.9%
Non-Participating Funds 23520 1,989 9.9% 26627.1 2,238 9.4% 30783 2,617 9.2% 30850 770 9.5%
Linked Funds 34810 5,827 24.1% 36022 3,294 10.8% 44569 4,007 11.0% 46185 1,003 10.0%
With Interest, Amort, Dividends
and Realized and Unrealized
gains / losses
Shareholders’ Funds 2941 450 16.2% 3278 291 8.2% 3724 521 12.3% 4262 133 11.9%
Participating Funds 7663 1,335 20.9% 10090.3 690 6.8% 12929 1,839 13.4% 13534 743 17.3%
Non-Participating Funds 23520 3,399 16.9% 26627.1 2,037 8.3% 30783 3,542 12.0% 30850 1,035 12.2%
Linked Funds 34810 7,613 27.6% 36022 301 0.6% 44569 5,527 14.4% 46185 1,480 13.5%
FY15 FY16 FY17 Q1FY18
Source: SBI Life RHP, ICICIdirect.com Research
Robust financial position supported by high operating efficiencies
SBI Life is India’s largest private life insurer, in terms of new business
premium at | 10000 crore in FY17 and enjoyed a market share of
individual rated premium of 20.69% among private life insurers. In FY13-
17, total premium grew at a healthy pace of 19.2% CAGR to | 21015
crore. This growth was led by both – improving persistency which
resulted in 20.1% CAGR in renewals and 18.3% CAGR in NBP. Healthy
growth in topline and improving efficiency has been positive, growth in
profitability remained slower at 10.9% CAGR in FY13-17, due to increase
in valuation liabilities. With healthy growth in premium and steady opex
ratios, growth in profitability is seen at 14.4% CAGR in FY18-20E to | 1430
crore.
Based on embedded value (EV) report issued by the independent actuary,
EV, a combination of value of in-force (VIF) business and net worth (NW),
was at | 16537.9 crore as of March 31, 2017 and VNB margins were at
15.6%. With healthy NBP accumulation ahead and anticipation of lower
surrender, we expect EV to grow at 20.8% CAGR in FY18-20E to | 29130
crore in FY20E. In terms of return ratios, SBI Life has delivered average
RoE of 20.14% in last 3 fiscals. Steady growth in AUM and healthy VNB
margin is seen to keep return on embedded value (RoEV) above 20% in
FY18-20E.
Exhibit 41: Healthy growth in premium led by linked business…
107.0127.8
156.7 208.5 262.2 330.4 414.0
3.4%
19.4%
22.6%
33.1%
25.8% 26.0% 25.3%
0%
10%
20%
30%
40%
0
50
100
150
200
250
300
350
400
450
FY14 FY15 FY16 FY17 FY18E FY19E FY20E
| b
illion
Premiums earned - Net YoY growth (RHS)
Source: SBI Life RHP, ICICIdirect.com, Research
Exhibit 42: …and operating efficiency to keep profitability growth healthy
728815 844
955
1132
1397 1430
0%
5%
10%
15%
20%
25%
0
400
800
1200
1600
FY14 FY15 FY16 FY17 FY18E FY19E FY20E
| c
rore
PAT YoY growth (RHS)
Source: SBI Life RHP, ICICIdirect.com, Research
Page 23 ICICI Securities Ltd | Retail Equity Research
Exhibit 43: EV growth led by incremental NBP and lower surrender
12548
16538
19431
23918
29130
0
5000
10000
15000
20000
25000
30000
35000
FY16 FY17 FY18E FY19E FY20E
(| c
rore)
Source: SBI Life RHP, ICICIdirect.com, Research
Exhibit 44: RoEV to remain ~20% in FY18-20E
23.0
20.4 20.4
20.0
18
19
20
21
22
23
24
FY17 FY18E FY19E FY20E
(%
)
RoEV (%)
Source: SBI Life RHP, ICICIdirect.com, Research
Solvency ratio remains prudent
IRDA mandates required solvency margin (RSM) of 150% for all life
insurance companies. Solvency ratio is determined by dividing available
solvency margin (ASM) by the RSM. SBI Life was profitable within the first
five years of operations. It has demonstrated consistent profitability since
FY10 and declared dividends every year since FY12. In addition, it has
maintained solvency ratio at over 2x in the last five fiscals, which was at
2.09x as of September 30, 2017, compared to IRDAI mandated solvency
ratio of 1.5x. Since FY08, no additional capital was raised by the
company.
Exhibit 45: SBI Life’s solvency lower than peers, yet at comfortable levels
204 192
281309
580
0
100
200
300
400
500
600
700
SBI Life HDFC
Standard Life
ICICIPru Max Life Bajaj Allianz
(%
)
Source: SBI Life RHP, ICICIdirect.com, Research
Exhibit 46: Solvency ratio above regulatory requirement
223216 212
204 209
100
200
300
FY14 FY15 FY16 FY17 1HFY18
(%
)
Source: SBI Life RHP, ICICIdirect.com, Research
Solvency ratio: The ratio of available solvency margin
(ASM) to the required solvency margin (RSM). ASM is
defined as the available assets in excess of liabilities in
the shareholders’ and policyholders’ funds and RSM is the
required solvency margin that an insurance company is
required to hold as per the guidelines prescribed by the
IRDAI.
Page 24 ICICI Securities Ltd | Retail Equity Research
Valuation
Life insurance a business of long term….
Life insurance is a business of long term and valuation also incorporates
future profitability of existing written in force business over the life of the
policy. Embedded Value (EV) considered in India is Indian EV (IEV)
methodology. It is more similar to BV basis, but for the fact that many
assumptions go for the EV calculation and that it is as provided by
management.
EV = Adjusted Net Worth(ANW) + Value of in-force business (VIF)
Value of in-force covered business (VIF) is the Present value of future
profits; adjusted for Time value of financial options and guarantees;
Frictional costs of required capital; and Cost of residual non-hedgeable
risks.
Appraisal value can ideally be used to calculate market valuation of a life
insurance company, where future expected business profit is also
captured.
Appraisal value = (Target multiple x EV) + Structural value
Structural value of new business (future) = NBAP x multiple assumed
However if we look at recent IPOs in India EV basis valuation has
prevailed.
Majority of life insurance companies are reporting EV since the last
couple of years in India. Several assumptions and variances on interest
rates, operating cost variances, MTM on investments, etc along with
ANW adjusted for MTM lead to EV.
Reach, productive growth & cost efficiency to drive margin, EV accretion
SBI Life was profitable within the first five years of operations. It has
demonstrated consistent profitability since FY10 and declared dividends
every year since FY12. In addition, it has maintained solvency ratio at
over 2x in the last five fiscals, which was at 2.09x as of September 30,
2017, compared to IRDAI mandated solvency ratio of 1.50. Since FY08, no
additional capital was raised by the company.
Based on embedded value (EV) report issued by the independent actuary,
embedded value was | 16537 crore as on FY17, growing from | 12547
crore in FY16 and VNB margins were at 15.6% vs 14.2% during the same
period. In the last three fiscals, the company has reported average RoE of
20.14%.
We expect embedded value to rise to | 29130 crore by FY20E, growing at
20% CAGR in FY17-20E. This should largely be driven by VNB growth at
31% CAGR to | 2334 crore in FY20 from | 1036 crore in FY17 depicting
strong operation performance. VNB margin expansion of 100 bps to
16.7% should enable operational surplus to surge. Operating RoEV was
high at 23% for FY17 as reported in prospectus. However, we expect the
same to moderate gradually in the range of ~20% due to strong growth
in business and ULIP contributing higher incrementally.
Growth in Indian insurance sector is far higher than it is globally, resulting
in higher multiples in India. Profitability is still to reach peak levels due to
high costs of acquisition and operations.
SBI has a strong geographical reach, which SBI Life can harness over the
years to expand into rural areas. Today ~56% branches sell SBI Life
Page 25 ICICI Securities Ltd | Retail Equity Research
policies but not at full capacity. These levers apart from current scale at
>| 1 lakh crore AUM and strong margins, ascribe high value to future
growth and value proposition for SBI Life. We therefore, value SBI Life on
appraisal basis wherein we factor FY20E EV + 15x FY20E VNB. Thereby,
we value the franchise (future structural value) at||46683 crore 20x VNB
of |2334 crore. Appraisal value, post EV of |29130 crore is expected to be
|75280 crore. This translates to 2.6x FY20E EV, which looks reasonable
considering the recent IPO’s which have valued companies on 4 to 4.2x
on trailing EV basis. Therefore, we arrive at a target of |760 per share for
SBI Life. Recommend Buy.
Exhibit 47: Comparative summary
SBI Life HDFC Life ICICI Pru SBI Life HDFC Life ICICI Pru SBI Life HDFC Life ICICI Pru
Market share incl LIC (%) 5.1 4.7 4.9 5.8 5.0 4.5 4.7 4.8 4.6
NBP (| billion) 71 65 68 101 87 79 43 44 42
Total premium (| billion) 157 163 190 209 194 222 91 91 114
Expense ratio (%) 9.4 11.6 10.0 8.0 12.6 10.7 12.7 8.7
AUM (| billion) 798 743 1,039 977 917 1,229 1,051 995 1,306
VNB Margin (%) 14.2 19.9 8.0 15.4 21.6 10.1 15.6 22.4 11.7
Overall claim settlement ratio (%) 96 97 97 98 99 97
EV (| billion) 130 102 139 165 124 162 181 140 172
13th month persistency (individual) (%) 81 79 82 81 81 86 81 82 87
61th month persistency (individual) (%) 54 50 46 67 57 56 62 55 56
New policies issued (in lakhs) 12.7 11.5 5.8 12.8 10.8 7.0 5.8 4.3 3.9
H1FY18FY16 FY17
Source: SBI Life RHP, ICICIdirect.com Research
Considering strong NBP growth at efficient operating cost ratios enabling
high VNB margins, valuations are expected to remain rich for SBI Life.
Exhibit 48: Strong NBP growth & efficient opex ratio enables high VNB margins (FY17)
| bn SBI Life HDFC Life ICICI Pru Life Max Life
VIF 95 83 94 42
ANW 70 41 68 24
EV 165 124 162 66
EVOP 21 22 23 11
Opg RoEV Margin 23 21 17 20
VNB margin 16 22 10 19
BVPS 54 19 45 97
EVPS 165 63 113 194
EVOP per share 21 11 16 6
Valuation
CMP 670 310 390 583
P/BV 12 16 9 6
P/EV 4 5 3 3
P/E 71 70 33 169
Source: SBI Life RHP, ICICIdirect.com Research
Page 26 ICICI Securities Ltd | Retail Equity Research
Exhibit 49: Sensitivity of IEV as at 31 March 2017
Scenario IEV % change
Base result 16,538
Interest rates and assets
100bps increase in interest rates and discount rates 15,504 -6.2%
100bps decrease in interest rates and discount rates 17,637 6.6%
10% decrease in equity values 16,254 -1.7%
20% decrease in equity values 15,970 -3.4%
Policy / premium discontinuance rates
10% multiplicative increase in discontinuance rates 16,352 -1.1%
10% multiplicative decrease in discontinuance rates 16,725 1.1%
Taxation
Assumed corporate tax rate increased to 34.61% 13,374 -19.1%
Assumed service tax rate increased to 18% 16,532 0.0%
Source: SBI Life RHP, ICICIdirect.com Research
Page 27 ICICI Securities Ltd | Retail Equity Research
Key risks and concerns
Termination of or any adverse change in bancassurance agreement
Bancassurance represents SBI Life’s largest distribution channel. In FY15,
FY16 and FY17, the bancassurance channel contributed 51.8%, 60.7%
and 64.7%, respectively, of its new business premium (NBP) from
individual products. In particular, the company has entered into
bancassurance arrangements with its promoter, State Bank of India (SBI).
In FY15, FY16 and FY17, NBP generated through SBI represented 38.3%,
42.7% and 41.5%, respectively. The bancassurance distribution channel
benefits from inherent cost efficiencies resulting in lower cost of sales and
greater profitability. Thus, termination of or any adverse regulatory
changes could restrict company’s ability to further grow the business.
Higher concentration of NBP generated by ULIPs
In FY17, unit-linked products (ULIP) represented 79% of SBI Life’s new
business premium (NBP) earned from individual product business and
79.2% of new business annualised premium equivalent in individual
segment. Any adverse regulatory or market development that affects
sales of Ulip could materially impact business. Further, if growth of Ulip or
pure protection products is not as anticipated, the company’s value of
new business and profitability would be adversely impacted. If unit linked
funds underperform their respective benchmarks, the company may be
unable to market these products in the future and may be in a
disadvantageous position as compared to competitors.
Change in interest rates
Life insurance companies invest AUM in various investible products
where interest rate variations impact returns as well as actuarial valuation
of liabilities for them. Interest rates can have substantial impact on
Embedded value calculation as shown in the sensitivity table.
Any adverse change in relationships with promoter, BNP Paribas Cardiff
SBI Life benefits from its relationship with SBI and BNP Paribas Cardiff, in
particular drawing from their established brand equity and goodwill
among customers. This relationship has enabled the company to enhance
brand, access specialist industry expertise, grow its business and
maintain market position. SBI is the largest bancassurance partner in India
and provides SBI Life with a large distribution network and significant
technology support. SBI Life have also been licensed the use of the “SBI”
logo pursuant to the SBI Trademark Licensing Agreement. Thus, any
adverse change in continuing relationship with SBI and BNP Paribas
Cardiff may adversely impact the company’s performance.
Changes in regulatory environment…
The company is subject to a complex regulatory framework in India. The
laws and regulations or the regulatory environment may change at any
time. In particular, any adverse change in IRDAI policies, including with
respect to investment or provisioning or rural and social sector
obligations, may result in inability to meet such increased or modified
regulatory requirements or could require company to increase coverage
to relatively riskier segments and increase the cost of compliance with
such changing regulations.
Inability to control operating and other expenses
The company’s products are priced based on assumptions for expenses it
expects to incur. These assumptions for expenses include policy
acquisition cost, infrastructure related costs, employee costs, policy
maintenance cost and other support costs. Expenses may be higher than
expected due to changes in regulations, competition dynamics,
distributor pressures, and other factors. The bancassurance expenses
may increase owing to the IRDAI mandated non-exclusive arrangements
Page 28 ICICI Securities Ltd | Retail Equity Research
with banks and insurance companies. In addition, since a significant
portion of expenses are fixed, in the event future sales are lower than
expected, expenses may not decrease in proportion, or at all, which could
adversely impact the company’s profitability and business prospects.
Page 29 ICICI Securities Ltd | Retail Equity Research
Financial Summary
Exhibit 50: Policyholders Account
(| Crore) FY16 FY17 FY18 FY19 FY20
Premiums earned - Net 15665.5 20852.5 26222.4 33039.3 41396.2
Income from Investments 3340.9 9295.0 9501.6 10855.2 12244.9
Other income 19.7 67.4 74.1 81.5 89.7
Contribution from the Shareholders' account 93.7 62.7 56.4 50.8 45.7
Total 19,119.8 30,277.6 35,854.6 44,026.8 53,776.5
Commission 714.3 783.3 1071.0 1343.7 1707.1
Operating expenses 1480.9 1646.5 2034.5 2596.7 3253.5
Benefits paid (Net) 7958.5 9526.1 11709.1 13256.5 16314.2
Change in valuation of policy liabilities 7986.9 17241.0 19630.5 24952.6 30466.4
Others 7.4 24.1 28.9 34.6 41.6
Provision for tax 327.2 402.2 496.9 634.2 794.7
Surplus/(deficit) after tax 644.7 654.5 883.5 1208.4 1199.0
Transfer to Shareholders' account 651.8 654.7 883.5 1,208.4 1,199.0
Source: SBI Life RHP, ICICIdirect.com Research
Exhibit 51: Shareholders Account
(| Crore) FY16 FY17 FY18 FY19 FY20
Amounts transferred from Policyholders' account 651.8 654.7 883.5 1208.4 1199.0
Income from investments 325.7 409.8 435.7 502.7 552.8
Total 977.5 1,064.5 1,319.3 1,711.1 1,751.8
Expenses other than insurance 28.7 27.1 32.6 35.9 43.2
Contribution to Policyholders' account 93.7 62.7 56.4 50.8 45.7
Others 3.0 4.0 4.0 4.0 4.0
Profit before Tax 855.2 974.7 1230.3 1624.4 1663.0
Provision for tax 3.0 4.0 4.0 4.0 4.0
PAT 844.2 954.7 1,131.8 1,397.0 1,430.1
Source: SBI Life RHP, ICICIdirect.com Research
Exhibit 52: Balance Sheet
(| Crore) FY16 FY17 FY18 FY19 FY20
Sources of Funds
Share capital 1000 1000 1000 1000 1000
Reserve and surplus 3691 4465 5366 6461 7582
Credit/[debit] fair value change account 42 87 50 20 20
Networth 4733 5552 6416 7481 8603
Policyholders' funds 75991 93673 113304 138256 168723
Total Liabilities 80724 99225 119720 145737 177325
Applications of Funds
Shareholders’ investments 3565 4296 5133 5985 6882
Policyholders’ investments 38256 46962 56979 67992 80910
Asset held to cover linked liabilities 36022 44573 51520 64737 81420
Loans 124 178 201 222 250
Fixed assets - net block 447 538 614 700 798
Net current assets 2311 2678 5273 6103 7065
Total Assets 80724 99225 119720 145737 177325
Source: SBI Life RHP, ICICIdirect.com Research
Page 30 ICICI Securities Ltd | Retail Equity Research
Exhibit 53: Key Ratios
(Year-end March) FY16 FY17 FY18E FY19E FY20E
Valuation
No. of Equity Shares (Crore) 100.0 100.0 100.0 100.0 100.0
Diluted EPS (|) 8.4 9.6 11.3 14.0 14.3
DPS (|) 1.2 1.5 1.9 2.5 2.6
BV (|) 47.3 55.5 64.2 74.8 86.0
EV per share 125 165 194 239 291
P/E 80.0 70.7 59.6 48.3 47.2
P/BV 14.3 12.2 10.5 9.0 7.8
P/IEV NA 4.1 3.5 2.8 2.3
Efficiency Ratios (%)
Commission expenses as a % of Gross
Premium 4.5 3.7 4.1 4.0 4.1
Management expenses incl commission as a % of Gross Premium13.9 11.6
Return Ratios and capital (%)
Return on Net worth 19.2 18.6 18.9 20.1 17.8
Opearating RoEV NA 23.0 20.4 20.4 20.0
Solvency Ratio 212 204 200 195 200
Key Ratios (%)
Conservation Ratio 81.7 81.4 81.1 80.3 80.6
VNB Margin 15.7 16.0 16.5 16.7
Surrender Ratio 4.7 5.7 5.3 4.8 4.7
Benefits paid as a % of Opening Liability 11.7 12.5 12.5 11.7 11.8
NBP (proportion %)
Traditional 54.5 49.5 43.3 42.8 42.0
Non Linked 45.5 50.5 56.7 57.2 58.0
Source: SBI Life RHP, ICICIdirect.com Research
Exhibit 54: Key parameters
(Year-end March) FY16 FY17 FY18E FY19E FY20E
NBP 7,106.5 10,143.8 12,576.9 15,240.8 18,482.8
Growth (%) 42.7 24.0 21.2 21.3
Linked 3233.3 5122.9 7130.8 8718.6 10727.1
Growth (%) 58.4 39.2 22.3 23.0
Non Linked 3873.2 5020.9 5446.1 6522.2 7755.7
Growth (%) 29.6 8.5 19.8 18.9
APE 4878.1 6600.9 9024.9 11227.2 13977.2
Growth (%) 35.3 36.7 24.4 24.5
VNB 1036.8 1444.0 1852.5 2334.2
Growth (%) 39.3 28.3 26.0
EV 12547.5 16537.8 19431.5 23917.7 29129.7
Growth (%) 17.5 23.1 21.8
AUM 77842.7 95830.3 113631.0 138713.3 169211.5
Growth (%) 23.1 18.6 22.1 22.0
PH Funds 74277.8 91534.8 108498.3 132728.4 162329.6
Growth (%) 23.2 18.5 22.3 22.3
SH Funds 3564.9 4295.5 5132.7 5984.8 6881.8
Growth (%) 20.5 19.5 16.6 15.0
Source: SBI Life RHP, ICICIdirect.com Research
Page 31 ICICI Securities Ltd | Retail Equity Research
Product profile
SBI Life Insurance offers a vast product basket to customers, which
includes unit linked as well as non linked insurance products. In terms of
customer segments, it caters to individual as well as group customers.
Individual Products
Individual or retail life insurance products can broadly be classified into
two categories - non-linked life insurance products and linked life
insurance products. Non-linked life insurance products can be further
classified into participating, non-participating protection and other non
participating products. SBI Life had a comprehensive product portfolio
offering 29 individual life insurance products. These products include
child plans, retirement/pension plans, protection plans and savings plans,
with flexible and variable features addressing specific life insurance needs
of the customer. In addition, various riders providing additional benefits
for disability, illnesses and death due to accident are also provided
bundled with the main product.
Linked products
Unit linked insurance plans offer a combination of investment and
protection where the customer can choose the level of life coverage,
subject to minimum levels mandated by regulations. In this product,
customers have the flexibility to decide the asset classes in which their
contributions are invested, based on their risk appetite, and to transfer
money among different funds in a tax-efficient manner, depending on the
market outlook and changing risk appetite.
Non-linked products
Participating products (Par): Participating insurance products are those
for which the surplus is shared with policyholders in the form of bonuses
and, hence, are also referred as “with profit” products. These policies
usually have a minimum guaranteed amount that is payable on death or
maturity in addition to bonuses declared from time to time. The bonuses,
once declared, accrue to the policy and are guaranteed. Par products do
not have an explicit cap on charges as Ulips, have exit loads on policy
discontinuance and do not offer customers a choice of asset allocation.
As of June 30, 2017, SBI Life had a bouquet of 10 products in this
category.
Pure protection products
Pure protection products are those that offer benefits that are guaranteed
in absolute terms on occurrence of a particular event at the beginning of
the policy. These products do not entail any investment risk for
customers. These are protection oriented products, and generally expire
without value if the designated event does not occur. The risk covered in
most cases covers death of the insured but may also include permanent
disability or diagnosis of critical illness. As of June 30, 2017, SBI Life has
seven products in this category.
Group products
Generally, group product customers are employers across a range of
industries, including banks and financial services companies as well as
professional, consulting and other firms and informal groups. SBI Life
Insurance’s group life products are broadly classified into four categories:
Group protection products (credit life): Group protection products provide
protection to banks, financial institutions or other groups or associations
in relation to repayment of outstanding loan amount in the event of death
or disability of the insured members of the group.
Page 32 ICICI Securities Ltd | Retail Equity Research
Group protection products: Group protection products provide life insurance
coverage to a group of individuals, where, upon death of a member, the
sum assured is paid to the member’s nominee. These products provide
benefits to both formal (employer-employee) and informal (non-
employer-employee) groups.
Group FM products: These are fund based group insurance (unit-linked and
variable insurance products), which cater to the needs of employers
looking at financial solutions to fund their employees’ benefit schemes
including gratuity, superannuation and leave encashment.
Other group products: These products consist of group immediate annuity
plans primarily for corporate clients (employer-employee groups) and
other informal groups, who wish to purchase an annuity to provide for
their annuity liability (existing or emerging or both) totally or partially.
Buyout of pension liabilities is a method by which an insured transfers
liability of a defined pension scheme completely to the insurance
company. The defined benefits of group members are protected and the
insured also gets rid of the risk of the pension scheme running into
deficits due to adverse changes in demographic/macroeconomic
scenarios, going ahead.
Exhibit 55: Product profile of SBI Life Insurance (Individual segment)
Individual Products Need based classification
Participating Products
SBI Life - Saral Pension Retirement Pension
SBI Life - Flexi Smart Plus Savings
SBI Life - Smart Women Advantage Savings
SBI Life - ShubhNivesh Savings
SBI Life - Smart Income Protect Periodic Money Back /Income
SBI Life - Smart Money Back Gold Periodic Money Back /Income
SBI Life - Smart Champ Insurance Child Education/Marriage
SBI Life - Smart Money Planner Periodic Money Back /Income
SBI Life - Smart Humsafar Savings
SBI Life - Smart Bachat Savings
Non-Participating Protection Products
SBI Life - Saral Shield Protection
SBI Life - GrameenBima Protection
SBI Life - eShield Protection
SBI Life - eIncome Shield Protection
SBI Life - Smart Shield Protection
SBI Life - SaralSwadhan Plus Protection
SBI Life - Smart Swadhan Plus Protection
Other Non-Participating Products
SBI Life - Smart Guaranteed Savings Plan Savings
SBI Life - CSC Saral Sanchay Savings
SBI Life - Annuity Plus Retirement Pension
Unit-Linked Products
SBI Life - SaralMaha Anand Wealth Creation
SBI Life - Smart Elite Wealth Creation
SBI Life - Smart Wealth Builder Wealth Creation
SBI Life - Smart Scholar Child Education/Marriage
SBI Life - Retire Smart Retirement Pension
SBI Life - Smart Power Insurance Wealth Creation
SBI Life - Smart Wealth Assure Wealth Creation
SBI Life - eWealth Insurance Wealth Creation
SBI Life - Smart Privilege Wealth Creation
Source: SBI Life RHP, ICICIdirect.com Research
Page 33 ICICI Securities Ltd | Retail Equity Research
Glossary of Terms – Life Insurance
Individual business premium
Insurance contracts that cover the life of an individual and premium earned from
the same
Group business premium
Insurance contracts that cover a defined group of people and premium earned
from the same
Single premium
Those contracts that require only a single lump sum payment from the
policyholder. Single premium include top up premium, which refers to additional
amounts of premium over and above the contractual basic premium received
during the term of unit linked insurance contract.
Unit linked business
Non participating insurance contracts that are investment cum protection plans
that provide returns directly linked to the market performance.
New business premium (NBP)
The premium earned on new insurance policies written in a financial year.
Net premium earned
The difference between total premium and benefits paid (gross of reinsurance).
Renewal premium
Premium received or receivable on regular premium paying contracts in the years
subsequent to the first year of the contract.
New business margin (NBM)
A measure of profitability computed as the present value of future profits on the
business sourced in a particular period and denoted as a percentage of APE.
Non participating business
Insurance contracts that do not participate in profits of the company.
Participating business
Insurance contracts that participate in the profit of the participating business of
the insurance company during the term of the contract.
Annualised premium equivalent (APE)
Sum of annualised first year premium and 10% weighted single premiums
including top-up premiums.
Annuity benefits
A series of payments payable at regular intervals in return for a certain sum paid
upfront, under an annuity contract.
Assets under management (AUM)
Total value of investment of shareholders & policyholders that is managed by the
insurance company as prescribed by Insurance Regulatory and Development
Authority of India (IRDA) under investment regulations. AUM includes
investments disclosed in the balance sheet under Schedule 8, 8A, 8B and loans in
the nature of investments included in Schedule 9.
Conservation ratio
Ratio of renewal premium of the current financial year to sum of first year
premium and renewal premium of the previous financial year.
Contribution from shareholders’ account
The amount transferred from shareholders’ account to policyholders’ account to
make good the deficit arising in non participating funds as per requirement of the
Insurance Regulatory and Development Authority of India (preparation of
Financial statements and auditor’s report of insurance companies) Regulations,
2002.
Page 34 ICICI Securities Ltd | Retail Equity Research
Death benefit
The contractual amount as specified in policy document, payable on occurrence
of death of the life assured.
Fair value change account
Unrealised gains/losses (net) on mark to market securities pertaining to
shareholders and non-linked policyholders’ funds, as required by the Insurance
Regulatory and Development Authority of India (Preparation of Financial
Statements and Auditor’s Report of Insurance Companies) Regulations, 2002.
First year premium
Premium received or receivable on regular premium paying contracts in the first
year of the contract.
Free-look period
A period of 15 days or 30 days, allowed to a new policyholder, from the date of
receipt of policy documents, to enable him to review the terms and conditions of
the policy and cancel the policy, if it does not meet his requirement.
Funds for discontinued policies
The liability of the discontinued unit linked policies, which are within the lock in
period of five years from the date of issue, is held in this fund.
Investment yield
The income earned/received from an investment based on the price paid for the
investment. Investment yield is disclosed as a percentage.
Market consistent embedded value (MCEV)
The present value of shareholders’ interests in insurance business, using market
consistent methodology, where explicit allowance is made for risk in business.
Maturity benefit
The contractual amount, as specified in the policy documents, which is payable at
the end of the term of policy.
Mortality and morbidity risk
Mortality is the term used for the number of people who died within a population.
Mortality risk means the fluctuations in the timing, frequency and severity of death
insured, relative to that expected at the time of underwriting (at the inception of
the contract). Morbidity refers to the state of being diseased or unhealthy within a
population. Morbidity risk means fluctuations in timing, frequency and severity of
health claims, relative to that expected at the time of underwriting (at the
inception of the contract).
Net asset value (NAV)
The market value of each unit of a fund. NAV is declared on all business days,
reflecting the combined market value of the investments/securities (as reduced by
allowable expenses and charges) held by a fund on any particular day.
Persistency ratio
The proportion of business retained from the business underwritten. The ratio is
measured in terms of number of policies and premiums underwritten.
Policy liabilities
The amount held by the insurance company for meeting the expected future
obligation on existing policies.
Reinsurance premium ceded
Premium paid or payable by the insurance company to a reinsurance company in
lieu of reinsurance protection.
Return on invested capital
The ratio of profit after tax to share capital including share premium.
Solvency ratio
The ratio of available solvency margin (ASM) to the required solvency margin
(RSM). ASM is defined as the available assets in excess of liabilities in the
Page 35 ICICI Securities Ltd | Retail Equity Research
Shareholders’ and Policyholders’ funds and RSM is the required solvency margin
that an insurance company is required to hold as per the guidelines prescribed by
the IRDAI.
Sum assured
The benefit amount, which is guaranteed to become payable on a specified event
of the life assured as per the terms and conditions specified in the policy.
Surrenders
Termination of the policy at the request of the policyholder before maturity of
policy.
Terminal bonus
An additional bonus payable to participating policyholders on maturity and may
also be payable on death or surrender, provided the policies have completed the
minimum duration at death/surrender.
Transfer to shareholders’ account
The amount of surplus transferred from policyholders’ account to shareholders’
account based on the recommendation by the appointed actuary.
Weighted received premium (WRP)
The sum of first year premium received during the year and 10% weighted single
premiums including top-up premiums.
Indian Embedded Value (IEV)
IEV consists of Adjusted Net Worth (ANW) and Value of in-force (VIF) covered
business. ANW is market value of assets attributable to shareholders, consisting
of Required Capital (RC) and Free Surplus (FS).
Value of in-force covered business (VIF)
VIF is present value of future profits; adjusted for time value of financial options
and guarantees; frictional costs of required capital; and cost of residual non-
hedgeable risks.
Required Capital (RC)
The level of required capital is set equal to the amount required to be held to meet
supervisory requirements. It is net of the funds for future appropriation (FFAs).
Free Surplus (FS)
Free surplus is market value of any assets allocated to, but not required to
support, the in-force covered business.
Present value of future profits
Present value of projected distributable profits to shareholders arising from in-
force covered business. Projection carried out using ‘best estimate’ non-economic
assumptions and market consistent economic assumptions. Distributable profits
are determined by reference to statutory liabilities.
Page 36 ICICI Securities Ltd | Retail Equity Research
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its
stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold
and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts'
valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
Page 37 ICICI Securities Ltd | Retail Equity Research
ANALYST CERTIFICATION
We /I, Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research
report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report.
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