Detailed Rationale

CRISIL Ratings has reaffirmed its corporate credit rating of ‘CRISIL AAA/Stable’ on SBI Life Insurance Company Ltd (SBI Life)

 

The rating continues to factor in an established market position as one of the top private life insurers (in terms of market share) and benefits derived from a wide and efficient distribution network comprising of vast branch network of State Bank of India (SBI; ‘CRISIL AAA/Stable/CRISIL AA+/Stable’) and a strong agency network spread across India. The rating also factors in healthy persistency and operating profitability, and maintenance of an adequate capital position. These rating strengths are partially offset by the challenges expected for sustaining profitability due to rising competition.

 

The company has a strong linkage with SBI driven by the latter’s 55.42%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 the bank. The two entities have a common board chairperson. Additionally, one member on the board of SBI Life is also director on the board of SBI. Also, the MD & CEO of SBI Life is deputed from SBI. Hence, SBI should continue to provide the necessary support to SBI Life. 

 

SBI Life continued to maintain its leading position among private players with market share of around 24.6% in new business premium in fiscal 2024. Its market share in the overall life insurance industry stands at 10.1%. It also continues to benefit from its strong industry expertise, having been in operation for more than two decades, and has a wide presence across all the states and union territories in the country.

 

Gross written premium (net of reinsurance) grew by 21% in fiscal 2024 to Rs 80,587crore from Rs 66,581crore in the previous fiscal. In terms of new business premium, the growth was 29% year-on-year in fiscal 2024 as compared with the industry growth of 2%. The persistency and profitability metrics are healthy with 13th month persistency improving to 86.8% in fiscal 2024 as compared with 85.5% in fiscal 2023. Company has maintained 13th month persistency over 80% consistently during the last eight years. Similar improvement is seen in the 61st month persistency ratio to 58.6% in fiscal 24 as compared to 55.6% in fiscal 2023. The product mix in gross written premium has remained fairly balanced PAR (participating) products at 9%, Non-PAR (non-participating) products at 40%, and ULIPs (unit-linked insurance plans) products at 51% in nine months ended fiscal 2024.

Analytical Approach

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

Key Rating Drivers & Detailed Description

Strengths:

• Strategic importance to, and expectation of strong support from, SBI: The strong linkage with SBI is indicated by a shared brand name and majority ownership by SBI. The bank’s presence in the life insurance sector is through SBI Life, which is, therefore, one of the critical subsidiaries. The 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 the board level. Additionally, one member on the board of SBI Life is also director on the board of SBI. The MD & CEO of SBI Life is deputed from SBI. In addition, SBI also acts as a corporate agent for SBI Life, which allows the latter to access the bank’s extensive network of branches and customers for selling insurance products. SBI Life, being a listed entity, has the 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.

 

• Established market position among private life insurers: The company is expected to maintain its market position as one of the top players within the life insurance industry. It has maintained its market position and consistently improved market share in each fiscal. The total market share in terms of new business premiums stood at around 10.1% as of March 31, 2024 (8.0% as of March 31, 2023). As of March 2024, the company continued its leadership position among private life insurers in India on an individual rated premium basis. Within private insurers, it continued to maintain healthy market share of around 24.6% during fiscal 2024 (21.3% during fiscal 2023) in new business premium. The company has been in operation since 2001 and has a presence across all the states in India. A strong brand image, direct access to the large customer base of SBI, and having one of the strongest and most productive agency networks provide critical support to business growth. Furthermore, low insurance penetration and other supportive macro factors are expected to drive growth.

 

• Adequate capital position: The company has consistently maintained an adequate capital position year on year. The comfortable capital adequacy position is reflected in the healthy solvency margin of 1.96 times (as on March 31, 2024) against the regulatory requirement of 1.5 times. The absolute networth was Rs 14,591 crore as on March 31, 2024 (Rs 12,925 crore a year earlier). As on March 31, 2024, SBI held 55.42% stake, while the remaining stake was with the public shareholders. Further, the solvency margin has remained healthy despite no capital infusion since fiscal 2008.

 

The embedded value was Rs 58,260 crore as on March 31, 2024, against Rs. 46,040 crore a year earlier, a year-on-year growth of 27%. The ratio of embedded value to networth stood close to four times as on March 31, 2024, which was in line with some of the close peers. The embedded value is a representation of the actual capital position as it includes the future profits expected to be received from the business underwritten till valuation date. The steady increase in internal cash accrual enables the company to maintain the capital position while achieving healthy business growth.

 

• Healthy persistency and profitability metrics: The company has maintained healthy persistency in its overall product portfolio. The 13th month persistency stood at around 86.8% in fiscal 2024 against 85.5% in fiscal 2023. The persistency at 61st month basis improved to 58.6% in fiscal 2024 from 55.6% in fiscal 2023. Improvement in persistency across cohorts has been led by focus on better quality of business and leveraging technological capabilities to provide a superior customer experience. The healthy persistency also reflects the ability to hold on to policyholders for longer duration. The capital position has also remained supported by healthy accruals from business. The return on equity has remained in range of 13-14% during last 3 years (till fiscal 2024). Additionally, the value of new business margin has remained healthy at 28.1% in fiscal 2024 (30.1% in fiscal 2023). The value of new business stood at Rs 5,550 crore in fiscal 2024 registering a year-on-year growth of 9%.

 

• Well-diversified distribution network:The company’s products are distributed through bank branches as the primary distribution channel, leveraging the 27000+ branches of State Bank of India and its vast distribution reach and large customer base. As a part of SBI’s strategy, there is a strong and renewed focus on tapping 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 2024, around 52% of the new business premiums were sources through the bancassurance channel. Also, the agency channel is the biggest (in terms of new business) in the private sector and comprises a large sales force of over 2.46 lakh licensed agents as on March 31, 2024, registering a growth of 18% over last fiscal. For fiscal 2024, the agency channel contributed 18% of the new business premiums. The Company has also focused on developing other key partnerships and have strong association with some of the key names like Indian Bank, UCO Bank, South Indian Bank, Punjab & Sind Bank, Yes Bank, etc. As on March 31, 2024, SBI Life had its own 1040 offices across India, which provide support to policyholders and distributors. Further, the distribution model also results in the lowest operating expense ratio of 4.9% among private life insurance companies (operating expense ratio is calculated as operating expense as a percentage of gross premiums earned).

 

Weakness:

• Exposure to inherent competition in the insurance business, and associated challenges: Intense competition from other private life insurers can make it challenging for the company to maintain 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 ability to generate profit and manage the investment portfolio to earn adequate returns, will determine profitability over the long term.

Liquidity: Superior

SBI Life has maintained a superior liquidity profile, in relation to its scale of business. Apart from adequate reserving against anticipated claims, the liquidity position is supported by a highly liquid investment portfolio. The cash and bank balances were Rs 5,081 crore as on December 31, 2023. The debt investment book (within the traditional segment) had a market value of Rs 1,47,280 crore as on December 31, 2023; of this, 56.4% was in sovereign instruments and 30.5% in other ‘AAA’ rated instruments. As life insurance is an inherently highly granular and stable business, liquidity should remain comfortable

Outlook: Stable

SBI Life should continue to receive strong support from SBI over the long term, and benefit from the latter’s distribution channel.

Rating Sensitivity factors

Downward factors:

• Downward revision in the rating on SBI
• Reduction in the proportion of shareholding of SBI to below 51%
• Reduction in the solvency margin to below the minimum set by the Insurance Regulatory and Development Authority (1.5 times)

About the Company

SBI Life, began as a joint venture between SBI and BNP Paribas Cardif and commenced operations in 2001. The company is uniquely positioned to tap the vast potential of the Indian life insurance sector by harnessing the extensive branch network of the SBI group. Over the years, SBI Life has gradually increased the coverage of branches and presently around 27,000 branches of the SBI group are covered under this channel. As far as shareholding is concerned, SBI continues to hold majority 55.42% stake in SBI Life.

 

Profit after tax (PAT) was Rs 1,894 crore in fiscal 2024 (Rs 1,721 crore in fiscal 2023). As on March 31, 2024, the networth was Rs 14,591 crore, embedded value Rs 58,260 crore, value of new business Rs 5,550 crore and solvency margin 1.96 times.

Key Financial Indicators

As on/For the period ended March 31,	Unit	2024	2023	2022	2021
Gross direct premium/Gross premium written	Rs crore	81,431	67,316	58,760	50,254
PAT	Rs crore	1,894	1,721	1,506	1,456
Persistency ratio (13th month)	%	86.8	85.5	85.2	85.4
Persistency ratio (61th month)	%	58.6	55.6	49.5	50.9
Solvency margin	Times	1.96	2.15	2.05	2.15

Note:  Persistency – Regular Premium & Limited Premium Paying Term policies of only Individual Segment.

Any other information: Not Applicable