SBI Life Insurance – Product Design Changes Lead to Loss of Margin – HDFC Securities


The total APE of SBILIFE is in line with our estimates; however, growth in the protection segment surprised positively despite limited access to physical medical care in the first half of the fourth quarter. A higher share of TROP, moderating margins in NPAR savings coupled with tighter mortality assumptions resulted in VNB margins falling to 26.9% (-84 bps). Growth in the premium of other channels (including banca ex-SBIN) is encouraging, helping to alleviate reliance on a single channel. The company’s three growth levers remain in place: (1) SBI’s vast distribution network (more than 24,000 branches); (2) healthy share of protection; and (3) lowest operating ratio among peers (FY22: 8.8%). We expect SBILIFE to deliver a healthy VNB FY21-24E CAGR of 25% and retain our Buy rating on the stock with an unchanged TP of INR 1,530 (2.9x Sep-23E EV).

– Timid growth and stable margins: SBILIFE published total APE of INR 41.3 billion (+4% YoY; 3-year CAGR of 10%), in line with weak industry trends, but stronger than the growth recorded by private life insurers. The personal protection segment experienced robust growth (+24% year-on-year), despite tighter underwriting; helped by the traction of the new product launched during the second quarter. Despite a higher share of retail protection and NPAR savings in the mix, Adj. VNB spreads fell 84 basis points year-on-year to 26.9%, resulting in a sequentially flat VNB at INR 11.1 billion. We believe that higher pass-through to policyholders in the NPAR savings product leads to lower margins. Persistences improved between cohorts in the range of 354 to 408 basis points, except for the 13th and 61st months. Within the channel mix, other channels (including ex-SBIN banca) posted robust growth at +36% YoY, although the agency was weaker due to restricted movements.

– VNBM and EV march: Adj. VNB (FY22) margins improved by 260 bps YoY to 25.9%, due to (1) a change in mix (+250 bps, higher share of NPAR and protection) ; (2) change in operating assumptions (-80 bps, tightening of mortality assumptions); and (3) change in economic assumptions (+90bps, mainly risk-free rate). EV at INR 396bn (+9% YoY) was negatively impacted by change in operating assumptions (INR -10.8bn) partially offset by operating experience (INR 3.1bn , mainly due to better persistence).

Shares of SBI Life Insurance Company Limited last traded on the BSE at Rs. 1107.90 from the previous close of Rs. 1116.55. The total number of shares traded during the day was 87,665 in over 4,586 trades.

The stock hit an intraday high of Rs. 1132.10 and intraday low of 1066.60. Net turnover during the day was Rs. 96482810.00.

Source: Stock market bulls


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