Detailed Rationale

CRISIL Ratings has reaffirmed its corporate credit rating of ‘CCR AAA/Stable’ on SBI Life Insurance Company Limited (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/CRISIL AA+/FAAA/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 55.48% 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 22.0% in new business premium in fiscal 2022. Its market share in the overall life insurance industry stands at 8.1%.  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 17.4% in fiscal 2022 to Rs 58,430 crore from Rs 49,768 crore in the previous fiscal. In terms of new business premium, the growth was 23.4% on-year in fiscal 2022 as compared with the industry growth of 12.9%. The persistency and profitability metrics are healthy with 13th month persistency improving to 88.4% in fiscal 2022 as compared with 87.9% in fiscal 2021. The return on equity stood at 14% in fiscal 2022. Additionally, the value of new business margin has steadily increased over the years and stood at 25.9% for fiscal 2022, improving from 23.2% in fiscal 2021.

 

During Q1 fiscal 2022, due to the higher severity of second wave of covid, there was significant rise in the death claims. Reserves which were made till March 31, 2021, were sufficient to cover claims received in Q1 fiscal 2022 for deaths occurring prior to March 31, 2021. However, due to higher severity of second wave of covid, there was significant rise in death claims. During Q2 2022, company reported total claims of Rs 12,677 crore.  Nevertheless, as things settled down, pace of claims also slowed down during Q3 fiscal 2022. The overall claims reduced to Rs 6,448 crore in Q3 fiscal 22. During the year, company incurred Rs 1,590 crore of covid claims net of reinsurance (5% of the total claims in fiscal 2022). The company has kept additional reserve amounting to Rs 290 crore for covid 19 pandemic over and above the policy liabilities. The company carries out resilience test on balance sheet and its impact on solvency margin. Further, in terms of solvency, it continues to maintain strong solvency ratio of 205% (or 2.05 times) as on March 31, 2022 against required solvency ratio of 150%.

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 8.1% as on March 31, 2022 (around 7.4% a year earlier). As of March 2022, 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 22.0% during fiscal 2022 (21.9% during fiscal 2021) 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 2.05 times (as on March 31, 2022) against the regulatory requirement of 1.5 times. The absolute networth was Rs 11,418 crore as on March 31, 2022 (Rs 10,093 crore a year earlier). As on March 31, 2022, SBI held 55.48% 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 39,630 crore as on March 31, 2022, against Rs. 36,400 crore a year earlier, a growth of 9%. The ratio of embedded value to networth stood at over three times as on March 31, 2022, 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 88.4% in fiscal 2022 against 87.9% in fiscal 2021. The persistency at 61st month basis improved to 62.0% in fiscal 2022 from 61.6% in fiscal 2021. 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.

 
Healthy cash accrual has also supported the capital position. The return on equity was at an average of 18% during the five fiscals till 2021. However, owing to stress due to covid19, return on equity stood at 14% in fiscal 2022. Additionally, the value of new business margin has remained healthy at 25.9% in fiscal 2022, improving from 23.2% in fiscal 2021. The value of new business has improved to around Rs 3,700 crore in fiscal 2022 from Rs 2,660 crore in fiscal 2021 registering a growth of 39%.

 

• Well-diversified distribution network

The company’s products are distributed through bank branches as the primary distribution channel, leveraging the 22000+ 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 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 2022, around 53% of the new business premiums were sourced 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 1.46 lakh licensed agents as on March 31, 2022. For fiscal 2022, 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, 2022, SBI Life had its own 952 branches across India, which provide support to policyholders and distributors. Further, the distribution model also results in the lowest operating expense ratio of 5.1% 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 3,204 crore as on March 31, 2022. The debt investment book (within the traditional segment) had a market value of Rs 1,10,568 crore as on December 31, 2021; of this, 66% was in sovereign instruments and 23% in other ‘AAA’ rated instruments. The major outflow is benefits payout, which was Rs 31,339 crore (inclusive of interim and terminal bonus) in fiscal 2022 (Rs 21,583 crore in fiscal 2021). 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 22,000 branches of the SBI group are covered under this channel. As far as shareholding is concerned, SBI continues to hold majority 55.48% stake in SBI Life.

 

Profit after tax (PAT) was Rs 1,506 crore in fiscal 2022 (Rs 1,456 crore in fiscal 2021). As on March 31, 2022, the networth was Rs 11,418 crore, embedded value Rs 39,630 crore, value of new business Rs 3,700 crore and solvency margin 2.05 times.

Key Financial Indicators

As on/For the period ended March 31,	Unit	2022	2021	2020	2019
Gross direct premium/Gross premium written	Rs crore	58,760	50,254	40,635	32,989
PAT	Rs crore	1,506	1,456	1,422	1,327
Persistency ratio (13th month)	%	88.4	87.9	86.1	85.1
Persistency ratio (25th month)	%	81.7	79.4	78.5	76.7
Persistency ratio (61th month)	%	62.0	61.6	59.9	57.2
Solvency margin	Times	2.05	2.15	1.95	2.13

Note: Persistency is including single premium & fully paid up policies. Also group business where persistency is measurable is included

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs. Crore)	Complexity Level	Rating Assigned with outlook
NA	NA	NA	NA	NA	NA	NA	NA