Rating Rationale
May 30, 2020 | Mumbai
CRISIL assigns its 'CCR AAA/Stable' to SBI Life Insurance Company Limited; Financial Strength Rating of 'AAA/Stable' withdrawn
 
Rating Action
Corporate Credit Rating CCR AAA/Stable (Assigned)
Financial Strength Rating AAA/Stable (Withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilitien
Detailed Rationale

CRISIL has assigned Corporate Credit Rating of 'CCR AAA/Stable' to SBI Life Insurance Company Limited (SBI Life) and simultaneously withdrawn its Financial Strength Rating (FSR) of 'AAA/Stable' for SBI Life.
 
In line with SEBI notification dated May 30, 2018, a financial strength rating can no longer be offered or evaluated by a credit rating agency. CRISIL now assesses the corporate credit rating of the insurer which reflects the insurer's ability to honour all debt obligations as well as policyholder obligations.
 
The rating continue to factor in SBI Life's position as among the top private life insurers (in terms of market share) and the benefits that it derives from a wide and efficient distribution network including access to the wide branch network of the State Bank of India (SBI, rated 'CRISIL AAA/CRISIL AA+/FAAA/Stable/CRISIL A1+') to sell its insurance products and strong agency network spread across the country. Further, the rating also factors in adequate capital position that SBI Life has been maintaining. 
 
SBI Life has strong linkage with SBI driven by its 57.6% ownership and the shared name. SBI's presence in the life insurance sector is through SBI Life, which is, therefore, one of the critical subsidiaries of SBI. Hence, CRISIL expects SBI to continue providing the necessary support to SBI Life going forward. 
 
In the aftermath of covid-19 break-out, a number of regulatory relaxations have been extended to the policyholders. Insurance Regulatory Development Authority of India (IRDAI) announced an extension for paying the renewal premiums due until March 2020 across all life insurance policies till May 31, 2020. Also for renewal premiums due in month of April 2020, an additional grace period of one month has been announced by IRDAI. Furthermore, the restrictions on physical movements imposed by the government during the different phases of lockdown has also affected the growth in new business for the life insurance industry.
 
In light of the above, CRISIL believes the growth in gross premiums for first quarter of fiscal 2021 could be relatively moderate driven by extension given by IRDAI in paying premiums. However, once the extension period is over inflow of deferred premiums will result in traction thereafter. Further, due to present pandemic situation, the demand for life insurance products is expected to increase over near term which in-turn is expected to result in new business growth for the industry.  
 
These rating strengths are partially offset by the challenges that SBI Life is expected to face in sustaining its profitability due to rising competition.

Analytical Approach

For arriving at the ratings, CRISIL has assessed the standalone financial and business risk profiles of SBI Life. The company's strategic importance to, and expectation of providing the necessary support from, its parent, SBI (holds majority stake in SBI Life) has also been factored.

Key Rating Drivers & Detailed Description
Strengths:
* Strategic importance to, and expectation of strong support parent, SBI:
SBI Life has a strong linkage with SBI which is reflected in a shared brand name and majority ownership. SBI's presence in the life insurance sector is through SBI Life, which is, therefore, one of the critical subsidiaries for SBI. Established brand name and market reputation of SBI has enabled the company to build its own brand equity, which assists in selling to customers of all segments.
 
SBI and SBI Life have a common chairperson at board level. Additional 2 members on the board of SBI Life are also directors on the board of SBI. The managing director & CEO of SBI Life is deputed from SBI. In addition, SBI also acts as a corporate agent for SBI Life, which allows SBI Life to access SBI's vast network of bank branches and customers for selling its insurance products.
 
SBI Life being a listed entity, has ability to source capital from external investors and has the financial flexibility to raise capital whenever necessary. Further, SBI is committed to and capable of, infusing capital.  As on date, SBI Life doesn't have any debt obligation on its balance sheet.
 
* Expected to remain top players within private life insurers
SBI life is expected to maintain its market position as one of the top player within life insurance industry. SBI life has maintained its market position and consistently improving its market share in each fiscal year. SBI life's market share in terms of new business premiums stood at around 6.4% as on March 31, 2020 (around 6.4% as on March 31, 2019). As on March 2020, the company continued its leadership position amongst private life insurers in India on Individual Rated Premium basis. The company has been in operation since 2001 and has a presence across all the states in the country. Strong brand image and direct access to large customer base of SBI and one of strongest and most productive agency network provides critical support to the business growth of SBI Life. Furthermore, low insurance penetration and other supportive macro factors expected to drive growth.
 
The company's products are distributed through bank branches as the primary distribution channel, leveraging the State Bank of India's vast distribution reach and large customer base. As a part of SBI's strategy, there is a strong and renewed focus on tapping the synergies with subsidiaries. The bank's continued focus on cross selling augurs well for SBI Life and will help the latter improve its market share. For fiscal 2020, around 60% of the company's New Business Premiums were sourced through Bancassurance channel. Also, the company's agency channel is the biggest (in terms of New Business) in the private industry & comprises of a large sales force of over 1.30 lakh licensed agents as on March 31, 2020. For fiscal 2020, agency channel contributed 20% of the company's New Business Premiums. As on March 31, 2020, SBI Life has its own 950 branches across country which provides support to its policyholders and distributors.
 
Further, SBI Life's distribution model also allows it to have the lowest operating expense ratio amongst private life insurance companies (operating expense ratio is calculated as operating expense as a percentage of gross premiums earned).
 
* Adequate capital position 
SBI life has consistently maintained adequate capital position despite showing growth in New Business Premium year on year. The comfortable capital adequacy position is reflected in the healthy solvency margin of 1.95 times (as on March 2020) against the regulatory requirement of 1.5 times. The absolute net worth was Rs 8,743 crore as on March 31, 2020 (Rs 7,576 crore as on March 31, 2019). As on March 31, 2020, the promotors, SBI and BNP Paribas Cardiff held 57.6% and 5.2% stake, respectively, while remaining stake was with public & other institutional investors. Despite there has been no capital infusion in the company since fiscal 2008, the solvency margin has remained healthy.
 
SBI life reported embedded value (on actual tax rate basis) of Rs 26,290 crore as on March 31, 2020. The ratio of embedded value to networth stood at close to 3 times as on March 31, 2020 which was in line with some of its close peers. The embedded value is representation of actual capital position since it includes the future profits that company is expected to receive from the business it has underwritten till valuation date. The steady increase in internal accruals enables the company to maintain capital position while achieving healthy business growth.
 
Weakness:
* Exposure to inherent competition in the insurance business, and associated challenges
Intense competition from other private life insurers can make it challenging for SBI Life to maintain its profitability. Moreover, with the dominant position of the Life Insurance Corporation of India in the domestic market, private players need to continuously innovate to attract customers, and also manage the returns expectation of policy holders. Hence, the company's ability to generate profit and manage the investment portfolio to earn adequate returns, will determine its profitability over the long term.
Liquidity Superior

SBI life had cash and bank balance of Rs 1,423 crore as on March 31, 2020. Further, the company had debt investment book (within traditional segment) with market value of Rs 74,524 crore as on December 2019; of which 61% were in sovereign instruments and 24% in 'AAA' rated instruments. The major outflow for the company is claims settlement which was Rs 16,251 crore in fiscal 2020 (Rs 15,294 crore in fiscal 2019). Since life insurance inherently is highly granular and stable business, CRISIL expects liquidity to remain comfortable on an on-going basis.

Outlook: Stable
CRISIL believes that SBI Life will continue to receive strong support from SBI over the long term. Also, SBI Life will continue to benefit from the SBI's distribution channel.

Rating Sensitivity factors
SBI Life will remain strategically important to the SBI, and thus, continue to receive strong support from SBI, and also benefit from the bank's distribution channel.
'
Downward Factors:
* Revision in rating of the parent SBI, resulting in similar action on SBI Life
* Reduction in the proportion of shareholding of SBI to below 51%
* Reduction in the solvency margin to below the minimum set by IRDA (1.5x)
About the Company

SBI Life, began as a joint venture between State Bank of India (currently 57.6% stake) and BNP Paribas Cardif (currently 5.2% stake) and commenced operations in 2001. The company is uniquely positioned to tap the vast potential of the Indian life insurance sector by harnessing the vast branch network of State Bank group. Over the years, SBI Life has gradually increased the coverage of branches and presently, around 22,000 branches of State Bank group are covered under this channel. SBI life was successfully able to place its IPO during the 3rd quarter of fiscal 2018. Around 12% stake was diluted during the process.
 
SBI Life reported a profit after tax (PAT) of Rs 1,422 crore in fiscal 2020 (Rs 1,327 crore for fiscal 2019) As on March 31, 2020, SBI Life had a net worth of Rs 8,743 crore, embedded value of Rs 26,290 crore (on actual tax rate basis), value of new business of Rs 2012 crores and a solvency margin of 1.95 times.

Key Financial Indicators
As on/For the period ended March 31, Unit 2020 2019 2018
Gross direct premium/Gross premium written Rs crore 40,635 32.989 25,354
Profit after tax Rs crore 1,422 1,327 1,150
Persistency ratio (13th month) % 86.1 85.1 83.0
Persistency ratio (25th month) % 78.5 76.7 75.2
Persistency ratio (61th month) % 59.9 57.2 58.4
Solvency margin Times 1.95 2.13 2.06

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)		 Maturity Date Issue Size
(Rs.Cr)		 Rating Assigned  with Outlook
NA NA NA NA NA 0 NA
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
-  CCR  0.00  CCR AAA/Stable    --    --    --    --  -- 
Financial Strength Rating  LT  0.00  Withdrawn     17-12-19  AAA/Stable  31-12-18  AAA/Stable  27-12-17  AAA/Stable  AAA/Stable 
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Life Insurance Companies
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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