Detailed Rationale

CRISIL Ratings has reaffirmed its corporate credit rating and rating on subordinate debt instrument of SBI General Insurance Company Ltd (SBI General) at 'CRISIL AAA/Stable'.

 

The ratings continue to centrally factor in the company’s strategic importance to, and expectation of continued support from, State Bank of India (SBI; 'CRISIL AAA/Stable/CRISIL AA+/Stable/CRISIL A1+'). The rating also reflects SBI General's adequate capitalization and solvency ratio, its diversified premium portfolio, sound investment portfolio quality, adequate risk management systems and practices, and restoring underwriting performance. These strengths are partially offset by high reliance of overall profitability on income from investments and exposure to inherent risks in the crop insurance segment owing to the sizable, though reducing, and share of this business in the company’s premium portfolio.

 

The rating on subordinated debt instrument of SBI General also factors in CRISIL Ratings’ expectation and the company’s intent and track record of maintaining a comfortable level of cushion in solvency ratio above regulatory minimum. The extent of surplus in solvency is a critical determinant of the insurer’s ability to service subordinated debt and thus remains a key rating sensitivity factor. This is because these instruments carry additional risks owing to restrictions on their service if the solvency ratio falls below the regulator-specified minimum, and the need to obtain the regulator’s approval for servicing them in the event of loss or inadequate profit.

 

With a market share of 4.3% basis gross direct premiums written in the first half of fiscal 2025, SBI General is the eleventh-largest overall general insurer in the country. In fiscal 2024, the company underwrote Rs 12,554 crore as gross direct premiums, marking an annual growth of 16% over the past year as against an industrial growth of 13%. Health and Motor portfolios, which grew at 24% and 31% in fiscal 2024 respectively, constituted about 23 and 28% respectively of the company’s overall premium portfolio and were the primary drivers for growth. For the first half of fiscal 2025, the company underwrote gross direct premiums Rs 6,586 crore, registering a year-on-year growth of 16%.

Analytical Approach

CRISIL Ratings has assessed the CCR of SBI General, which is an indication of the company's ability to meet the obligations of the policyholders. For arriving at the CCR, CRISIL Ratings has factored in the support SBI General receives from SBI in addition to assessment of the company's standalone business, financial and managerial risk profiles. The subordinated debt instrument is then assessed for additional risk factors to determine whether its rating should be the same as, or lower than, the CCR. The extent of cushion that SBI General intends to maintain over and above the regulatory stipulation on a steady state basis is taken into consideration. SBI’s stance to support SBI General in maintaining a solvency ratio comfortably above the regulatory requirement has also been factored into the rating.

Key Rating Drivers & Detailed Description

Strengths:

• Support from the parent and majority owner, SBI: The company remains strategically important to SBI and derives significant managerial, funding and branding support from the parent. This is reflected in representation of SBI's directors, including the chairman of SBI being the chairman of SBI General's board, and the bank's high involvement in SBI General's functioning. Moreover, SBI has a track record of extending capital support to the latter in times of need, indicated by cumulative capital infusion over Rs 1,230 crore since the inception of SBI General.

 

In fiscal 2024, SBI along with other promoters and investors -  infused Rs 689 crore as capital in SBI General with both investors contributing in proportion to their respective shareholding in the company. Currently at 69%, SBI is expected to retain a majority stake in the company over the medium term. SBI General's strategic importance to the bank is underpinned by the former's improving market position among private sector general insurance companies and expected restoration in its underwriting profitability to pre-pandemic level over the medium term. Furthermore, SBI General, being the general insurance arm of SBI, offers a variety of customized policies to the clients of SBI, which makes it a key element of the latter's bouquet of financial service offerings.

 

• Adequate capitalization with demonstrated track record and steady state stance, of maintaining a healthy solvency ratio: Capitalization remains adequate in relation to the company’s nature and scale of business, evidenced by a reported net worth of Rs 4,577 crore on September 30, 2024. Cushion in solvency ratio has also been comfortable over the last 3 years, barring a minor blip witnessed in the aftermath of Covid-19 which resulted in moderated underwriting performance for the period. On September 30, 2024, the reported solvency ratio was at 2.26 times (2.25 times as on March 31, 2024). This has been bolstered by capital infusion of Rs 689 crore by the promoters and investors in the first quarter of fiscal 2024, along with the issuance of subordinate debt of Rs 700 crore during the year. On a steady state basis – the company and the parent SBI – intend to maintain the solvency ratio at above 1.7 times.

 

The cushion in the solvency ratio over the regulator-specified minimum will remain a rating sensitivity factor, given the likelihood of default in debt servicing on the subordinated debt instrument if the ratio falls below the stipulated minimum.

 

• Diversified presence across insurance segments: In comparison to the industry's higher reliance on traditional segments such as motor and health, SBI General has maintained a relatively diverse premium mix over the years. Apart from traditional segments like motor (28%) and health (23%), the company has been focused on fire segment (14%) as well in fiscal 2024. On a steady state basis, the company endeavors to limit exposure to any single segment to 35% of its overall premium base. This premium mix is a function of the company’s approach to maintaining a diverse product suit which would keep it insulated in the event of segment-related events. Several products across niche segments are tailor made for customers of SBI – which are dispersed across sectors and geographies – adding to the diversity. During fiscal 2024, the motor insurance portfolio clocked a healthy growth rate of 31% thereby retaining its share in the gross premium. The health insurance segment, outpaced by motor in the past few quarters - is the second largest segment for the company based on the gross premium written in fiscal 2024. For the first half of fiscal 2025, motor formed 30% of the overall premiums whereas crop accounted for 24%, followed by health insurance at 19% and fire insurance at 14%.

 

While the focus on health has increased, the segmental diversity in SBI General’s gross premium remains higher than most peers.

 

• Underwriting performance supported by benefits that accrue due to association with SBI: As SBI's exclusive insurance partner, SBI General has access to the footfall at branches of SBI, which saves sourcing cost. Another key benefit derived from this association is the ability of SBI General to source business at competitive commission rates from SBI as its bancassurance partner. Furthermore, the company has historically maintained a low retention ratio, thereby earning high reinsurance ceding commission, which results in better net commissions.

 

In the recent past, while the company has started to retain higher premiums on its books – causing the commission ratio to rise, it still remains relatively lower than peers. For the first half of fiscal 2025, commission ratio increased to 8.1% as compared from 6.9% for the corresponding half of the previous fiscal corresponding to an increase in retention ratio to 61.2% from 63.5%, respectively. For full fiscal 2024, the company’s retention ratio was 66.8% as compared to 52.8% for fiscal 2023 and commission ratio for the respective periods were 8.5% and 1.1%. The operating expenses for SBI General have also remained lower than that peers owing to synergies with SBI. For Fiscal 2024, expense ratio was 13.9% whereas the same for the first six months of fiscal 2025 was 16.7%.

 

Weaknesses:

• Overall profitability remains contingent to investment income: While underwriting performance has previously been better than industry average in the past, its contribution to the overall profit of the company remains small. Therefore, the company’s earnings are largely dependent on income from investments – similar to that for rest of the industry. For fiscal 2024, the net profit of Rs 240 crore was constituted of Rs 1,228 crore investment income and Rs 904 crore of underwriting deficit. For the half year ended September 30, 2024, the company reported net profit of Rs 414 crore with investment income of Rs 997 crore and underwriting deficit of Rs 416 crore. With the change in retention philosophy and gradual elevation in loss ratio, the company’s combined ratio has increased from its previous levels of close to 100% to 108.2% for fiscal 2024 and 110.8% for the first six months of fiscal 2025.

 

Over the medium term, the ability of the company to restore its low level of combined ratio will be critical to achieve its earlier underwriting performance. Until then, the overall profitability will remain mildly constrained and contingent on income from investment.

 

• Large, though declining, proportion of the crop business poses inherent susceptibility to natural caprices: After 2017, crop insurance emerged as a key business area for SBI General with its share increasing to one-third of the total premium mix, as against nearly one-fifth for the entire industry, stimulated by SBI's large rural reach and presence and the association with regional rural banks (RRBs). As a result, the company is exposed to inherent challenges such as natural calamities spoiling harvest, and irregular monsoon, which could lead to high claim volumes.

 

While the share has declined from 33% to 21% between fiscals 2020 to 2024, it keeps the company exposed to inherent challenges within this segment – like natural calamities spoiling harvest, irregular monsoon, etc. which could lead to high volume claim instances. The combined ratio for this segment peaked at 151.4% for fiscal 2022 (in the last 5 years) and stood at 94.4% for fiscal 2024.The corresponding claims ratio for the fiscal year 2024 and 2023 was 83.3% and 85.5% respectively. Apart from natural disturbances, other issues such as untimely settlement of claims, delayed payment of premiums from state governments or socio-political issues impacting farmers could also impact the underwriting performance of this business. Lastly, the underwriting expertise required for this business is limited among non-life insurers, and the lack of knowledge has resulted in high combined ratios.

Liquidity: Superior­

Liquidity was comfortable, reflected in a substantial base of highly liquid investments in the form of government securities (39%; from both central and state government) based on carrying value as on September 30, 2024. Additionally, the company always maintains adequate reserves with a buffer of over 5% for claims. The company also has various routes to avail short-term funding, if needed.

Outlook: Stable

SBI General will remain strategically important to and receive strong support from SBI. The company's underwriting performance should continue to restore and remain supported by its sound risk management practices and accrued benefits of association with SBI. The financial risk profile will remain stable, supported by healthy solvency ratio and stable internal accrual.

Rating sensitivity factors

Downward factors:

• Downward revision in SBI's rating or change in rating outlook will lead to a commensurate change in the rating or outlook of SBI General
• Reduction in SBI's ownership to below majority or in the strategic importance of SBI General
• Weakening in underwriting performance of the company, resulting in a combined ratio remaining above 120% for a prolonged period, impacting overall profitability
• Decline in cushion in solvency ratio such that it remains below 1.7 times

About the Company

SBI General commenced operations in 2010 as a joint venture between SBI and Insurance Australia Group Ltd (IAG). Pursuant to stake sale by IAG on March 27, 2020, the company is now a joint venture between SBI (69.0%), Napean Opportunities LLP (15.8%) and other key shareholders consists of Honey Wheat Investment Ltd (9.9%), PI Opportunities Fund-1 (2.3%) and 360 ONE (1.2%) as on September 2024.

Any other information: Not Applicable