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IPO Review

ICICI Securities Ltd | Retail Equity Research

SBI Life Insurance Company (SBI Life) was established as a joint venture

between State Bank of India and BNPPC, an insurance subsidiary of BNP

Paribas. In FY15-17, growth in new business premium at 35.45% CAGR

was the highest among top five private life insurers in India. SBI Life offers

a vast product basket to customers including life insurance, health

insurance and pension products and services. It has a comprehensive

product portfolio of ~37 individual and group products, including a range

of protection and savings products to address the insurance needs of

diverse customer segments.

In terms of distribution strength, it has 95177 individual agents (as of July

31, 2017) and 24017 bank partner branches across the country. With AUM

at | 1012.26 billion as of June 30, 2017, SBI Life is one of the top five

largest insurers in India. In FY15-17, SBI Life saw robust growth of 35.45%

CAGR in NBP leading to an increase in market share among private life

insurers in India to 20.04% vs. 15.87% in FY15. On capital adequacy,

solvency ratio has been above 200% in last five fiscals (211% as of June

30, 2017) vs. IRDAI mandated minimum solvency ratio of 150%.

Key business aspects

Largest private life insurer with a consistent track record of rapid growth

SBI Life is India’s largest private life insurer, in terms of NBP generated in

each fiscal year, since FY10. In FY15-17, NBP increased at 35.45% CAGR;

highest among top five private life insurers (total premium in FY17).

Consequently, NBP market share among private life insurers increased

from 15.87% in FY15 to 20.04% in FY17. In FY15-17, SBI Life’s individual

rated premium (IRP) growth remained fastest at 37.9% CAGR among top

five private insurer (total premium in FY17) thereby increasing its market

share from 15.61% in FY15 to 20.69% in FY17 among private life insurers.

Expansive distribution with pan-India bancassurance, high agent productivity

SBI Life offers its customers access to products and services through an

extensive multi-channel sales network across India including branches of

its bank partners, individual agents, corporate agents, employees and

offices. As on July 31, 2017, it had a large distribution network comprising

95177 individual agents, 24017 branches of SBI. In FY17, bancassurance,

agents contributed ~53.03%, 22.31% of NBP, respectively.

Total cost, operating expense ratios reduces over time

The commission ratio was at 3.73% for SBI Life while operating expenses

ratio was at 7.83% in FY17. Among five private insurers, operating

expense ratio has improved in past five years, as player reassessed

productivity of various distribution channels and their operating efficiency

post FY10. SBI Life had the lowest operating expense ratio (as of FY17)

followed by ICICI Prudential Life Insurance. Operating expense ratio for

SBI Life declined substantially from 9.1% in FY15 to 7.83% in FY17.

Concerns

Termination of, or any adverse change in bancassurance agreement

Higher concentration of NBP generated by certain category of product

Adverse change in relationship with promoter & BNP Paribas Cardiff

Regulatory changes can have material impact on performance

Priced at 4.2x P/IEV (post issue FY17 IEV) on higher band

At the IPO price band of | 685-700, the stock is available at P/IEV multiple

of 4.2x FY17 (post issue) at the upper end of the price band. Post issue

market capitalisation is at ~| 70000 crore.

SBI Life Insurance Company Ltd

Price band | 685-700

Rating matrix

Rating : Unrated

Issue Details*

Issue Opens 20-Sep-17

Issue Closes 22-Sep-17

Issue Size (| Crore) 8220-8400

Price Band (|) 685-700

No of Shares on Offer (crore) 12.0

QIB (%) 50

Non-Institutional (%) 15

Retail (%) 35

Minimum lot size (No. of shares) 21

*Reservation for SBI Bank shareholders for up to 10%

of offered shares

Objects of issue

To achieve benefits of listing equity shares on Stock Exchanges and

sell up to 12 crore equity shares by the selling shareholders. Listing

of the equity shares will also enhance brand name and provide

liquidity to the existing shareholders

1997-98 2001-04 2006

HUL acquires 23% stake. Mitsubishi Corporation and

Shareholding Pattern Pre-Issue Post-Issue

Promoter & promoter group 96.1% 84.1%

Public 3.9% 15.9%

Financial Summary

| Crore FY14 FY15 FY16 FY17

Premiums earned - Net 10702 12780 15666 20853

Total income 17369 23186 19120 30278Transfer to Shareholders'

account 823 707 652 655

PAT 728 815 844 955

Valuation Summary (at | 700; upper price band)

(x) FY14 FY15 FY16 Pre Post

P/E 96.2 85.9 82.9 73.3 73.3

P/NAV 20.9 17.3 14.8 12.6 12.6

P/IEV NA NA NA 4.2 4.2

Research Analyst

Kajal Gandhi

[email protected]

Vishal Narnolia

[email protected]

Vasant Lohiya

[email protected]

September 19, 2017


Company Background

SBI Life Insurance Company (SBI Life) was established as a joint venture

between State Bank of India and BNPPC, an insurance subsidiary of BNP

Paribas (BNP Paribas was a top 10 global financial institution in terms of

revenues in 2016), in 2001. In FY15-17, growth in new business premium

at 35.45% CAGR was highest among top five private life insurers in India.

In terms of distribution strength, it has 95177 individual agents (as of July

31, 2017) and 24017 bank partner branches spread across the country.

With AUM at | 1012.26 billion as of June 30, 2017 (| 977.3 billion as of

March 31, 2017), SBI Life is one of the top five largest insurers in India. In

FY15-17, SBI Life witnessed robust growth of 35.45% CAGR in new

business premium, which led to an increase in market share among

private life insurers in India to 20.04% compared to 15.87% in FY15.

SBI Life has a comprehensive product portfolio of ~37 individual and

group products, including a range of protection and savings products to

address the insurance needs of diverse customer segments. In the

individual segment, participating products, non-participating protection

products, other non-participating products and unit-linked products,

contributed 10.77%, 0.95%, 1.69% and 50.36%, respectively, of new

business premium in FY17 (15.43%, 0.72%, 1.85% and 49.61% as of

Q1FY18). In the group segment, credit life group protection products,

other group protection products, group fund management products and

other group products contributed 2.72%, 1.14%, 31.73% and 0.65%,

respectively, of new business premium in FY17 (2.91%, 2.04%, 26.84%

and 0.6% in Q1FY18).

In FY17, SBI Life’s 13th month and 61

st month persistency ratios was at

81.07% and 67.18%, respectively, with 61st

month persistency ratio being

the highest among top five private life insurers (in terms of total premium

in FY17) in India. As of June 30, 2017, 13th month and 61

st month

persistency ratios were at 81.97% and 64.62%, respectively. Death claims

settlement ratio has improved from 92.33% in FY15 to 97.98% in FY17,

and was 89.61% as of June 30, 2017. On capital adequacy, solvency ratio

has been above 200% in the last five fiscals (211% as of June 30, 2017),

compared to the IRDAI mandated minimum solvency ratio of 150%.

Exhibit 1: Customer wise break-up of new business annualised premium equivalent (APE)

87.9 87.6 89.5 87.8

12.1 12.4 10.5 12.2

20

40

60

80

100

FY15 FY16 FY17 Q1FY18

(%

)

individual

Source: RHP, ICICIdirect.com Research

SBI Life has developed a multi-channel distribution network comprising

an expansive bancassurance channel, including State Bank of India, the

largest bancassurance partner in India (24017 branches and ~42 crore

customers) and a large and productive individual agent network


comprising 95177 agents (as of July 31, 2017). Apart from these, other

distribution channels, including direct sales and sales through corporate

agents, brokers, insurance marketing firms and other intermediaries is

undertaken.

SBI Life commands strong brand equity in the financial sector. The

company has received various recognitions – recognised as among ‘The

Most Trusted Brands’ by The Economic Times Brand Equity – Nielsen

survey in FY17 for a sixth consecutive year. In addition, SBI Life was

awarded Life Insurance Company of the Year and Bancassurance Leader

Life Insurance (Large Category) at the Indian Insurance Awards 2016

organised by Fintelekt, the Economic Times Best Corporate Brand, 2016

and the LIMRA and LOMA Social Media Silver Bowl Awards, 2016 at the

Social Business Conference for Financial Services in Boston,

Massachusetts.

Product profile

SBI Life Insurance offers a vast product basket to customers, which

includes unit linked as well as non linked insurance products. In terms of

customer segments, it caters to individual as well as group customers.

Individual Products

Individual or retail life insurance products can broadly be classified into

two categories - non-linked life insurance products and linked life

insurance products. Non-linked life insurance products can be further

classified into participating, non-participating protection and other non

participating products. SBI Life had a comprehensive product portfolio

offering 29 individual life insurance products. These products include

child plans, retirement/pension plans, protection plans and savings plans,

with flexible and variable features addressing specific life insurance needs

of the customer. In addition, various riders providing additional benefits

for disability, illnesses and death due to accident are also provided

bundled with the main product.

Linked products

Unit linked insurance plans offer a combination of investment and

protection where the customer can choose the level of life coverage,

subject to minimum levels mandated by regulations. In this product,

customers have the flexibility to decide the asset classes in which their

contributions are invested, based on their risk appetite, and to transfer

money among different funds in a tax-efficient manner, depending on the

market outlook and changing risk appetite.

Non-linked products

Participating products (Par): Participating insurance products are those

for which the surplus is shared with policyholders in the form of bonuses

and, hence, are also referred as “with profit” products. These policies

usually have a minimum guaranteed amount that is payable on death or

maturity in addition to bonuses declared from time to time. The bonuses,

once declared, accrue to the policy and are guaranteed. Par products do

not have an explicit cap on charges as Ulips, have exit loads on policy

discontinuance and do not offer customers a choice of asset allocation.

As of June 30, 2017, SBI Life had a bouquet of 10 products in this

category.

Pure protection products

Pure protection products are those that offer benefits that are guaranteed

in absolute terms on occurrence of a particular event at the beginning of

the policy. These products do not entail any investment risk for

customers. These are protection oriented products, and generally expire

without value if the designated event does not occur. The risk covered in


most cases covers death of the insured but may also include permanent

disability or diagnosis of critical illness. As of June 30, 2017, SBI Life has

seven products in this category.

Group products

Generally, group product customers are employers across a range of

industries, including banks and financial services companies as well as

professional, consulting and other firms and informal groups. SBI Life

Insurance’s group life products are broadly classified into four categories:

Group protection products (credit life): Group protection products provide

protection to banks, financial institutions or other groups or associations

in relation to repayment of outstanding loan amount in the event of death

or disability of the insured members of the group.

Group protection products: Group protection products provide life insurance

coverage to a group of individuals, where, upon death of a member, the

sum assured is paid to the member’s nominee. These products provide

benefits to both formal (employer-employee) and informal (non-

employer-employee) groups.

Group FM products: These are fund based group insurance (unit-linked and

variable insurance products), which cater to the needs of employers

looking at financial solutions to fund their employees’ benefit schemes

including gratuity, superannuation and leave encashment.

Other group products: These products consist of group immediate annuity

plans primarily for corporate clients (employer-employee groups) and

other informal groups, who wish to purchase an annuity to provide for

their annuity liability (existing or emerging or both) totally or partially.

Buyout of pension liabilities is a method by which an insured transfers

liability of a defined pension scheme completely to the insurance

company. The defined benefits of group members are protected and the

insured also gets rid of the risk of the pension scheme running into

deficits due to adverse changes in demographic/macroeconomic

scenarios, going ahead.


Exhibit 2: Geographical distribution of new business premium relating to individual products

Location FY15 FY16 FY17

Andhra Pradesh 309 303 392

Arunachal Pradesh 10 14 15

Assam 91 126 165

Bihar 143 200 266

Chattisgarh 103 124 144

Goa 16 22 31

Gujarat 185 277 433

Haryana 103 127 154

Himachal Pradesh 51 72 94

Jammu & Kashmir 18 23 32

Jharkhand 86 123 154

Karnataka 246 324 399

Kerala 212 257 394

Madhya Pradesh 170 210 270

Maharashtra 345 435 522

Manipur 6 9 11

Meghalaya 12 15 23

Mirzoram 3 4 4

Nagaland 7 9 11

Orissa 165 218 258

Punjab 109 133 181

Rajasthan 162 222 294

Sikkim 3 6 8

Tamil Nadu 281 348 452

Tripura 8 12 11

Uttar Pradesh 317 447 612

Uttrakhand 63 91 108

West Bengal 214 312 390

Andaman & Nicobar Islands 4 6 6

Chandigarh 8 13 18

Dadra & Nagar Haveli 0 0 1

Daman & Diu 0 0 0

Delhi 100 118 142

Lakshadweep 0 0 0

Puducherry 6 6 10

Telangana 200 373 462

Total 3,757 4,978 6,468



Financial Performance

SBI Life is India’s largest private life insurer, in terms of new business

premium at | 10000 crore and enjoyed a market share of individual rated

premium of 20.69% among private life insurers. AUM increased from

| 71338.9 crore in FY15 to | 97,736 crore in FY17, and was | 101226 crore

as on June 30, 2017. PAT increased at 8.24% CAGR from | 814.8 crore in

FY15 to | 954.6 crore in FY17 and was at | 313.4 crore for the three

months ended June 30, 2017. The company had 61st month persistency

ratios of 64.6% and solvency ratio of 211% as of June 30, 2017.

Exhibit 3: Trend in AUM

713.39

798.28

977.371,012.26

0

200

400

600

800

1000

1200


| b

illion


Exhibit 4: Healthy growth in premium

107.0

127.8

156.7 208.5 37.6

3.4%

19.4%

22.6%

33.1%

0%

10%

20%

30%

40%

0

50

100

150

200

250

FY14 FY15 FY16 FY17 Q1FY18

| b

illion

Premiums earned - Net YoY growth (RHS)

Source: RHP, ICICIdirect.com, Research

Exhibit 5: PAT growth trend

728

815 844

955

313

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

400

800

1200


| c

rore

PAT YoY growth (RHS)


Exhibit 6: Healthy return on net worth

23.922.0

19.2 18.6

5.5

0

10

20

30


(%

)


Exhibit 7: Solvency ratio remains prudent (%)

223.0217.0 212.0

204.0211.0

100

200

300


(%

)



Life insurance industry – Quick snapshot

The Indian life insurance industry size was at | 4.2 trillion (total premium

basis) in FY17, making it the tenth largest life insurance market in the

world and fifth largest in Asia (Source: Swiss Re, sigma No 3/2017). In

FY01-17, Indian life insurance assets under management grew at 19%

CAGR to | 30 trillion while total premium grew at a healthy pace of ~17%

CAGR. Despite this, India continues to remain an under-penetrated market

with life insurance penetration (insurance penetration refers to premiums

as a percentage of GDP) at 2.7% in FY16 vs. 3.7% in Thailand, 7.4% in

South Korea and 5.5% in Singapore. Similarly, insurance density (per

capita premium or premium per person) also remains very low compared

to other developed and emerging market economies at US$47 in 2016.

Protection gap (actual insured for every US$100 of insurance protection

requirement) for India remains higher compared to other Asian peers at

~US$8.5 trillion as of FY14. (Source: Crisil report)

Exhibit 8: Insurance penetration (as percentage of GDP)

11.5

7.4 7.2

3.7

32.7

2.3

1.6

0

2

4

6

8

10

12

14

S.Africa S.Korea Japan Thailand US India China Indonesia

(%)


Exhibit 9: Life insurance density (2016)

2803

2050

1725

616

222 196 19059 47 21

0

500

1000

1500

2000

2500

3000

Japan S.Korea US S.Africa Thailand Brazil China Indonesia India Turkey

(U

SD

)


With economic growth gradually picking up and structural drivers

including rising life expectancy, healthcare spending, pension needs in

place, this is expected to drive strong growth in the life insurance industry

in the next five years. In addition, prevailing low insurance density and

penetration will support growth in the life insurance sector on account of

the low base.


According to Crisil Research, the new business premium for Indian life

insurance companies is expected to grow at 11-13% CAGR in FY17-22,

compared to 9% CAGR in FY12-17. Total premium in the Indian life

insurance market is expected to increase from | 4181 billion in FY17 to

| 7900 to 8100 billion by FY22. Improving economic growth, low inflation

and increase in financial savings, along with rising awareness of

insurance are expected be key catalysts for this growth. The

government’s focus on financial inclusion and initiatives including launch

of Pradhan Mantri Jeevan Jyoti Bima Yojana is expected to increase

awareness and open avenues for investments in insurance and other

savings products.

Structural strength to drive life insurance industry

Demographics strength: Currently, India has one of the youngest

populations in the world with a median age of 28 years. It is estimated

that 90% of India’s population will remain below 60 years of age by 2020.

Increase in proportion of individuals in the age bracket of 25-49, which is

the target population for the industry, is expected to boost industry

growth. Rapid urbanisation coupled with high share of working

population with rising affluence is expected to provide impetus to growth

in the Indian life insurance sector.

Exhibit 10: Indian working population

34.727.5 30.8

6.9

30.9

27.6

33.7

7.8

27.5

26

37

9.5

0

20

40

60

80

100

120

0-14 15-29 30-59 60+

(%

)

2000 2010 2020E


Increase in share of financial savings and life insurance within: Higher

GDP growth compared to previous fiscals and control over inflation is a

key structural positive, which gives an impetus to overall savings in India.

Increase in financial savings, coupled with expected increase in share of

insurance as a percentage of financial savings, due to a significant

improvement in product proposition and delivery mechanism, is

expected to drive growth for the life insurance sector.


Exhibit 11: Financial savings as percentage of GDP

23.222.4

23.625.2

23.1 23.622.4

20.2 20.419.2

10.1

11.911.3 11.6

9.9

7.4 7.4 7.4 7.47.9

0

2

4

6

8

10

12

14

0

5

10

15

20

25

30

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

(%

)

Household Savings as a % of GDP Financial Savings as % of GDP


Among financial savings, the share of life insurance has reached its peak

at 26% in FY10. However, a downturn in the capital market, increasing

inflation and regulatory changes in the sector led to a sharp deceleration

in the share of life insurance to 15.3% of financial savings in FY14. Post

FY14, there was a considerable revival, due to improving fundamentals

and pick-up in the sale of linked products. Further increase in proportion

of life insurance in financial savings provides an opportunity for growth in

the Indian life insurance industry.

Exhibit 12: Financial savings mix

10.5 12.7 9.8 12.7 11.4 10.9 8 10.7 13.5

50.4

57.5

40.2

50.8 56.3 56.1 60.546.9 41.3

22

21

26.2

19.521

17.8 16

1918.3

0

20

40

60

80

100

120

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

(%

)

Currency Bank deposit Life Insurance premium Provident and Pension Fund Others


Rise in healthcare spending: As per IRDAI data, only 35.9 crore people

(27% of total population) have health insurance coverage as of FY16. Out

of this, ~20% coverage is provided by commercial insurance providers

(life and non-life included), while the remaining are covered under central

or state government-sponsored schemes such as Central Government

Health Scheme and Employee State Insurance Scheme.


Exhibit 13: Share of out-of-pocket mix (as % of total health expenditure) for other countries

62.4

54.8

46.9

36.1

32

13.911.9

0

10

20

30

40

50

60

70

India Singapore Indonesia S.Korea China Japan Thailand

(U

SD

)

% of Total Health Expenditure


India’s total expenditure on health was 4.7% of GDP in 2014. As per the

World Health Organization (WHO), per capita health spending increased

from US$20 in 2000 to US$75 in 2014. Despite this, India has one of the

highest shares of out-of-pocket expenses at ~62.4% in FY14 in its overall

healthcare spending mix among Asian countries. Therefore, factors

including low penetration, rising cost of healthcare, constraints for

government spending, increasing demand for quality healthcare with

rising income underscore a massive opportunity in health insurance for

commercial insurance providers.

Historical evolution of Indian life insurance industry

The Indian life insurance sector was opened for private companies in

2000 with the commencement of operations by four private companies in

the first year. Further, eight companies got added to the list till 2009, with

total number of companies aggregating to 23. Among peers, LIC is the

only public sector life insurer. Since inception, the private sector has

grown significantly and currently accounts for ~53.9% of the individual

rated premium of life insurance industry in FY17. The Indian life insurance

industry has undergone various growth phases. The current structure of

the industry is depicted in Exhibit 14.

Exhibit 14: Structure of Indian life insurance industry



Private insurer gaining market share: In FY07-11, total premium growth

remained robust at 17% CAGR, owing to an aggressive foray by private

players. Since FY07, private players gained significant market share from

18% in FY07 to 30% in FY11, driven by Ulips. A favourable commission

structure (high upfront commission to intermediaries) and capital market

performance, supported growth in Ulips. On the distribution side, the

share of banking corporate agents in the individual new business

premium increased from 6% to 13% in FY07-11.

Exhibit 15: Trend in IRP for private players and industry


Post the financial crisis in 2008 and regulatory changes in FY10, private

insurer market share on an individual rates premium (IRP) basis declined

to ~37.9% in FY14 from ~52% in FY10. However, driven by an improved

product design, primarily for linked products that offer a superior

customer value propositions and focus on bancassurance for marketing

their products, private insurers regained significant market share to 53.9%

in FY17.

Rationalisation in commission, operating expense: Post IRDAI regulations

in FY10, a significant decline was seen in commission on linked products.

Consequently, commission-expense ratio on total premium basis fell

considerably from 7.9% in FY07 to 5.3% in FY17. Among peers, LIC has

higher commission expense ratio at 5.5% (FY17) compared to private

insurers at 4.7%, owing to sourcing of significant proportion of individual

business through individual agents (96% in FY17).


Exhibit 16: Commission expense ratio (as percentage of total premium)

11

9.9

8.5

7.5

5.75.3

5.75.3

4.9 4.7

0

2

4

6

8

10

12

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

(%

)

Private Insurer Industry LIC


In FY07-10, private players had a higher operating expense ratio due to

high infrastructure costs incurred on increasing their geographic reach.

However, post regulatory changes in FY10, private players went into a

consolidation phase and began focusing on cost efficiencies. Therefore,

an improvement was witnessed in operating expense ratio from 21% in

FY10 to 15.7% in FY17. On a relative basis, LIC, being in a mature phase,

had lower operating expense ratio since FY07. However, since an

increase in salary in October 2010 (effective from August 2007), the

expense ratio has been higher compared to the previous period. Despite

a rise in operating expense ratio, the same remains lower for LIC

compared to private peers.

Channel mix shift towards bancassurance, direct sales: A significant shift

in the channel mix of the Indian life insurance sector has been witnessed

from earlier agency-only model to a diversified distribution mix. Further, a

cap on ULIP charges, introduced in 2010, has led to rationalisation of

owned agency network and provided a shift towards third-party channels.

Consequently, the share of bancassurance has increased from 6% of

individual business, on a new business premium basis, in FY07 to 24% in

FY17, while the share of new business premiums from individual agents

declined from 90.5% in FY07 to 68.9% in FY17. A higher share of agency

channel in the retail new business premium can largely be attributed to

LIC. In FY17, bancassurance contributed to ~53.9% of new business

premiums for private sector companies, led by a well-developed banking

sector in India with a nationwide presence of branches.

Direct distribution channel has also gained importance over the years for

private sector companies. In FY17, direct sales contributed 5% of new

individual business premiums for private sector companies.


Exhibit 17: Individual new business premium (for industry) by various distribution channels

90.583.7

79.6 79.6 78.9 78.7 77.5 78.471.4 68.5 68.9

5.6

8.09.7 10.6 13.3 15.0 16.2 15.6

20.8 24.0 23.6

0

20

40

60

80

100


(%

)Individual Agents Corporate Agents – Banks Corporate Agents – Others Brokers Direct Selling


Key strengths and strategies:

Largest private life insurer with a consistent track record of rapid growth

SBI Life is India’s largest private life insurer, in terms of new business

premium (NBP) generated each fiscal year, since FY10 (Source: Crisil

Report). In FY15-17, NBP increased at a CAGR of 35.45%, which is the

highest among the top five private life insurers (in terms of total premium

in FY17) in India. The company increased its market share of NBP among

private life insurers in India, from 15.87% in FY15 to 20.04% in FY17, and

market share of NBP in the entire life insurance industry from 4.89% in

FY15 to 5.8% in FY17.

The company is able to leverage its diversified product portfolio to

capitalise on favourable industry opportunities. As a result, gross written

premium (GWP) and new business annualised premium equivalent (APE)

increased at a CAGR of 27.80% and 36.59%, respectively, in FY15-17. It

also issued the highest number of individual life policies annually among

private life insurers in India since FY14 (Source: Crisil report). The number

of policies issued by SBI Life increased at a CAGR of 6.42% from

1,126,211 in FY15 to 1,275,550 in FY17.

Exhibit 18: NBP and growth (SBI Life)

5529.1

7106.5

10143.8

9.1%

28.5%

42.7%

0%

10%

20%

30%

40%

50%

0

2000

4000

6000

8000

10000

12000

FY15 FY16 FY17

| c

rore

NBP YoY growth (RHS)


Exhibit 19: NBP comparison (FY17)

101.46

86.96

78.63

36.7732.9

0

20

40

60

80

100

120

SBI Life HDFC

Standard Life

ICICIPru Max Life Bajaj Allianz

(| b

illion)


SBI Life has increased the market share of individual rated premium

among private life insurers in India from 15.61% in FY15 to 18.83% in

FY16 and to 20.69% in FY17. In FY15-17, individual rated premium

increased at a CAGR of 37.90%, the fastest among the top five private life

insurers (in terms of total premium in FY17) in India.


Ensure profitable growth through balanced product portfolio, expansive

distribution network

As of June 30, 2017, SBI Life had a comprehensive product portfolio of 37

individual and group products, including a range of protection and

savings products to address the insurance needs of diverse customer

segments.

The company’s focus on maintaining a diversified product mix has

resulted in the value of new business margin of 15.4% in FY17. The

company’s strategy is to further optimise its product portfolio by

maintaining a balance between unit-linked, participating and non-

participating products. In addition, the protection product portfolio is

aimed at expanding with particular emphasis on credit life protection

products. The company plans to reduce its focus on group products due

to the inherent competitive nature of the business and high guarantee

obligations related to such products.

Exhibit 20: Product mix – NBP (SBI Life)

34.945.5 50.5

65.154.5 49.5

0

20

40

60

80

100

120

FY15 FY16 FY17

Linked Non-Linked


Exhibit 21: Comparison of product mix - NBP (FY17)

50.535.24

79.13

24.42

41.72

49.564.76

20.87

75.58

58.28

0

20

40

60

80

100

120

SBI Life HDFC Standard

Life


Linked Non-linked


In FY17, participating products, non-participating protection products,

other non-participating products and unit linked products contributed

| 1092.3 crore, | 96 crore, | 171.7 crore and | 5107.9 crore, respectively,

representing 16.89%, 1.48%, 2.66% and 78.97%, respectively, of

individual NBP. In the group products business, group protection (credit

life) has been a key focus area while NBP from these products has

increased by 15.06% from | 239.6 crore in FY16 to | 275.7 crore in FY17.

SBI Life’s liability profile reflects diversified individual product portfolio

with participating products, non-participating protection products, other

non-participating products and unit-linked products accounting for

23.42%, 2.25%, 9.60% and 64.73%, respectively, of policyholders’

reserves as of March 31, 2017.

Focus on persistency ratios

In FY17, 13th month and 61st month persistency ratios were at 81.07%

and 67.18%, respectively. In FY15, FY16, and FY17, 13th month

persistency ratio was at 79.27%, 80.69% and 81.07%, respectively,

showing a gradual improvement. In FY15, FY16, and FY17, 49th month

persistency ratio was 64.54%, 76.90% and 62.46%, respectively. The

decline in FY17 is primarily attributable to a decline in share of single

premium. The 61st month persistency ratio was at 40.65%, 53.78% and

67.18%, respectively. The increase in 61st month persistency ratio was

achieved by increasing its focus on customer satisfaction on all aspects of

business operations, including quality of distribution and superior

customer satisfaction.

SBI Life’s business performance and profitability is dependent on

ensuring high proportion of renewals of policies at the end of their terms


and persistency ratios reflect the company’s ability to retain customers in

this competitive market. Therefore, the company has introduced a

number of initiatives to improve persistency of existing policies, including

data analytics. Within the operational framework, the company’s

dedicated renewal business vertical continues to focus on collection of

renewal premiums and servicing policyholders.

Exhibit 22: Comparison of 13th and 61st month persistency (FY17)

81.1 80.985.7

80.4

68.267.2

56.8 56.253.0

31.6

0

20

40

60

80

100

SBI Life HDFC Standard

Life


(%

)

13th month 61th month


Expansive distribution with pan-India bancassurance, high agent productivity

SBI Life has developed a multi-channel distribution network comprising

an expansive bancassurance channel, including State Bank of India (the

largest bancassurance partner in India). In addition, a large and

productive individual agent network comprising 95177 agents (as of July

31, 2017) as well as other distribution channels including direct sales and

corporate agents, brokers, insurance marketing firms and other

intermediaries are utilised for distribution. As of July 31, 2017, the

company had 803 branch offices in 29 states and seven union territories

across India, set up primarily for an agency network. The company also

makes significant direct sales, primarily comprising sale of group

products, as well as standardised individual products sold through online

offerings. In addition, the company also has tie-ups with 53 corporate

agents and 121 insurance brokers as of July 31, 2017. These partners are

supported by dedicated sales team comprising business development

managers and area managers.


Exhibit 23: Channel-wise individual new business premium for industry

90.583.7

79.6 79.6 78.9 78.7 77.5 78.471.4 68.5 68.9

5.6

8.09.7 10.6 13.3 15.0 16.2 15.6

20.8 24.0 23.6

0

20

40

60

80

100


(%

)

Individual Agents Corporate Agents – Banks Corporate Agents – Others Brokers Direct Selling


Exhibit 24: Individual new business channel mix (FY17)

22.0

6.516.3

8.3 9.0

41.9

25.7

39.8

20.4

0.4

0.0

40.0

80.0

SBI Life HDFC Std

Life


(%

)

Individual Agents Corporate Agent - Banks Others


In FY17, SBI Life collected the highest amount of NBP generated by

private life insurers in India both through the bancassurance channel as

well as through individual agent network. In addition, it has also

developed long standing institutional relationships with large corporate

with respect to group life insurance products, particularly for group

protection (others) and Group FM products.

1) Pan India bancassurance network

State Bank of India is the largest bancassurance partner in India and

provides SBI Life with a large distribution network and significant

technology support. SBI Life has also been licensed the use of the “SBI”

logo pursuant to the SBI Trademark Licensing Agreement. They also have

bancassurance partnerships with 17 regional rural banks, and more

recently with the Punjab & Sind Bank and South Indian Bank.

Bancassurance contributed 47.82%, 54.43% and 53.03% of NBP in FY15,

FY16 and FY17, respectively. Individual NBP contributed by

bancassurance channel increased at a CAGR of 46.72% from | 1944.3

crore in FY15 to | 4185.3 crore in FY17, compared to a CAGR of 27.2% for

private life insurers in India during the same period.

2) High agent productivity

SBI Life’s exclusive individual agent network contributed 32.85%, 27.47%

and 22.31%, respectively, of total NBP in FY15, FY16 and FY17,

respectively. As of July 31, 2017, the company had over 95177 individual

agents. Individual NBP contributed by individual agents has increased at

CAGR of 13.24% from | 1719.2 crore in FY15 to | 2204.4 crore in FY17,

compared to CAGR of 9.39% for private life insurers in India during the

same period (Source: Crisil Report). The company’s individual agent

network generated NBP of | 2,34,501 from individual products per agent,

reflecting highest productivity among all private life insurers in India in

FY17. Relatively higher productivity of sales agents was largely

contributed by established brand, strong sales management practices, an

attractive rewards and recognition programme, technology driven sales

platforms, effective sales support and training provided to agents.


Exhibit 25: Comparison of agent productivity (FY17)

2.3

1.0

1.3

1.7

1.1

0.0

0.5

1.0

1.5

2.0

2.5

SBI Life HDFC

Standard Life


(| lakhs)

Agent productivity


Exhibit 26: Geographic distribution of individual NBP (FY17)

67.24

80.81 80.2677.39

73.45

38.34

58.5355.82

50.09 50.56

0

20

40

60

80

100

SBI Life HDFC

Standard Life


(%

)

Top 10 states Top 5 states


Total cost and operating expense ratios reduced overtime

Total costs consist of commission expenses and operating expenses. The

commission ratio was at 3.73% for SBI Life while operating expenses

ratio was at 7.83% in FY17.

Commissions increased 9.67% from | 714.25 crore in FY16 to | 783.3

crore in FY17. This increase was primarily due to an increase in NBP by

42.74% and an increase in renewal business premium by 24.69% YoY in

FY17. Operating expenses relating to insurance business increased

11.17%, from | 1481.4 crore in FY16 to | 1646.8 crore in FY17. This

increase was primarily due to an increase in business promotion

expenses and employee remuneration and welfare benefits expenses.

Among top five private insurers, the operating expense ratio has

improved substantially in the past five years, as players reassessed

productivity of various distribution channels and their operating efficiency

post FY10. SBI Life had the lowest operating expense ratio (as of FY17)

followed by ICICI Prudential Life Insurance. The operating expense ratio

for SBI Life declined substantially from 9.1% in FY15 to 7.83% in FY17.

Exhibit 27: Expense ratio – SBI Life

4.7 4.5

3.7

9.19.4

7.8

0

2

4

6

8

10

FY15 FY16 FY17

(%

)

Commission ratio Operating Expense ratio


Exhibit 28: Comparison of expense ratios – FY17

3.73 4.13.4

9

2.4

7.83

12.27

10.54

14.76

17.1

0

2

4

6

8

10

12

14

16

18

SBI Life HDFC

Standard Life


(%

)

Commission ratio Operating Expense ratio


Second highest AUM in industry

SBI Life reported AUM of | 97,736.6 crore in FY17, of which equities

constituted 23.19%, government securities constituted 46.28% and

corporate bonds constituted 21.89%. As of March 31, 2017, SBI Life was

the second highest among top five private life insurers (in terms of total

premium in FY17) in India. AUM has grown to | 101226 crore as on June

30, 2017.


Exhibit 29: Net investment income and yield on AUM – SBI Life

| crore

Investment

Income Yield

Investment

Income Yield

Investment

Income Yield

Investment

Income Yield

With Interest, Amortisation, Dividends and Realized gains / losses

Shareholders’ Funds 276 9.8% 318 9.2% 402 9.7% 107 10.0%

Participating Funds 641 9.8% 802 8.4% 11, 512.47 8.7% 357 8.9%

Non-Participating Funds 1,989 9.9% 2,238 9.4% 2,617 9.2% 770 9.5%

Linked Funds 5,827 24.1% 3,294 10.8% 4,007 11.0% 1,003 10.0%

With Interest, Amortisation, Dividends and Realized and Unrealized gains / losses

Shareholders’ Funds 450 16.2% 291 8.2% 521 12.3% 133 11.9%

Participating Funds 1,335 20.9% 690 6.8% 1,839 13.4% 743 17.3%

Non-Participating Funds 3,399 16.9% 2,037 8.3% 3,542 12.0% 1,035 12.2%

Linked Funds 7,613 27.6% 301 0.6% 5,527 14.4% 1,480 13.5%



Robust financial position supported by high operating efficiencies

SBI Life was profitable within the first five years of operations. It has

demonstrated consistent profitability since FY10 and declared dividends

every year since FY12. In addition, it has maintained solvency ratio at

over 2x in the last five fiscals, which was at 2.04x as of March 31, 2017,

compared to IRDAI mandated solvency ratio of 1.50. Since FY08, no

additional capital was raised by the company. NBP, gross written

premium and new business annualised premium equivalent increased at

CAGR of 35.45%, 27.80% and 36.59%, respectively, in FY15-17, while

their individual rated premium increased at 37.9% CAGR in the same

period.

Based on embedded value report issued by the independent actuary,

embedded value was | 16537.9 crore as of March 31, 2017 and VNB

margins were at 15.6%. In the last three fiscals, the company has

reported average RoE of 20.14%.

Exhibit 30: Solvency ratio (FY17)

204 192

281309

580

0

100

200

300

400

500

600

700

SBI Life HDFC

Standard Life


(%

)


Exhibit 31: Three year average RoE

20.14

29.4531.23

23.65

12.2

0

10

20

30

40

SBI Life HDFC

Standard Life


(%

)



Key risks and concerns

Termination of or any adverse change in bancassurance agreement

Bancassurance represents SBI Life’s largest distribution channel. In FY15,

FY16 and FY17, the bancassurance channel contributed 51.8%, 60.7%

and 64.7%, respectively, of its new business premium (NBP) from

individual products. In particular, the company has entered into

bancassurance arrangements with its promoter, State Bank of India (SBI).

In FY15, FY16 and FY17, NBP generated through SBI represented 38.3%,

42.7% and 41.5%, respectively. The bancassurance distribution channel

benefits from inherent cost efficiencies resulting in lower cost of sales and

greater profitability. Thus, termination of or any adverse regulatory

changes could restrict company’s ability to further grow the business.

Higher concentration of NBP generated by a certain category of products

In FY17, unit-linked products (ULIP) represented 79% of SBI Life’s New

Business Premium (NBP) earned from individual product business and

79.2% of new business annualized premium equivalent in individual

segment. Any adverse regulatory or market development that affects

sales of Ulip could materially impact business. Further, if growth of Ulip or

pure protection products is not as anticipated, the company’s value of

new business and profitability would be adversely impacted. If unit linked

funds underperform their respective benchmarks, the company may be

unable to market these products in the future and may be in a

disadvantageous position as compared to competitors.

Any adverse change in relationships with promoter and BNP Paribas Cardiff

SBI Life benefits from its relationship with SBI and BNP Paribas Cardiff, in

particular drawing from their established brand equity and goodwill

among customers. This relationship has enabled the company to enhance

brand, access specialist industry expertise, grow its business and

maintain market position. SBI is the largest bancassurance partner in India

and provides SBI Life with a large distribution network and significant

technology support. SBI Life have also been licensed the use of the “SBI”

logo pursuant to the SBI Trademark Licensing Agreement. Thus, any

adverse change in continuing relationship with SBI and BNP Paribas

Cardiff may adversely impact the company’s performance.

Changes in regulatory environment…

The company is subject to a complex regulatory framework in India. The

laws and regulations or the regulatory environment may change at any

time. In particular, any adverse change in IRDAI policies, including with

respect to investment or provisioning or rural and social sector

obligations, may result in inability to meet such increased or modified

regulatory requirements or could require company to increase coverage

to relatively riskier segments and increase the cost of compliance with

such changing regulations.

Inability to control operating and other expenses

The company’s products are priced based on assumptions for expenses it

expects to incur. These assumptions for expenses include policy

acquisition cost, infrastructure related costs, employee costs, policy

maintenance cost and other support costs. Expenses may be higher than

expected due to changes in regulations, competition dynamics,

distributor pressures, and other factors. The bancassurance expenses

may increase owing to the IRDAI mandated non-exclusive arrangements

with banks and insurance companies. In addition, since a significant

portion of expenses are fixed, in the event future sales are lower than

expected, expenses may not decrease in proportion, or at all, which could

adversely impact the company’s profitability and business prospects.


Financial Summary

Exhibit 32: Policyholders Account

(| Crore) FY13 FY14 FY15 FY16 FY17

Premiums earned - Net 10345.3 10701.9 12780.0 15665.5 20852.5

Income from Investments 4374.0 6354.0 10242.9 3340.9 9295.0

Other income 12.0 12.4 13.9 19.7 67.4

Contribution from the Shareholders' account 244.3 301.1 149.7 93.7 62.7

Total 14,975.6 17,369.4 23,186.5 19,119.8 30,277.6

Commission 510.1 557.6 603.7 714.3 783.3

Operating expenses 1000.2 1089.4 1167.5 1480.9 1646.5

Benefits paid (Net) 7778.7 8780.2 8197.6 7958.5 9526.1

Change in valuation of policy liabilities 4741.1 5922.8 12284.1 7986.9 17241.0

Others 0.7 1.5 2.7 7.4 24.1

Provision for tax 210.0 205.9 228.1 327.2 402.2

Surplus/(deficit) after tax 734.8 811.9 702.7 644.7 654.5

Transfer to Shareholders' account 741.1 823.3 707.3 651.8 654.7


Exhibit 33: Shareholders Account


Amounts transferred from Policyholders' account 741.1 823.3 707.3 651.8 654.7

Income from investments 157.1 209.5 283.6 325.7 409.8

Total 898.2 1,032.8 990.9 977.5 1,064.5

Expenses other than insurance 23.8 4.1 11.8 28.7 27.1

Contribution to Policyholders' account 244.3 301.1 149.7 93.7 62.7

Others 0.0 1.0 2.0 3.0 4.0

Profit before Tax 630.2 727.7 829.4 855.2 974.7

Provision for tax 0.0 1.0 2.0 3.0 4.0

PAT 630.2 727.7 814.9 844.2 954.7


Exhibit 34: Balance Sheet


Sources of Funds

Share capital 1000 1000 1000 1000 1000

Reserve and surplus 1709 2320 2991 3691 4465

Credit/[debit] fair value change account 27 36 65 42 87

Networth 2736 3356 4056 4733 5552

Policyholders' funds 49545 55647 68170 75991 93673

Funds for Future Appropriations 23 12 7 0 0

Total Liabilities 52304 59015 72233 80724 99225

Applications of Funds

Shareholders’ investments 1812 2353 3070 3565 4296

Policyholders’ investments 21688 25324 31504 38256 46962

Asset held to cover linked liabilities 26548 28597 34810 36022 44573

Loans 0 1 2 124 178

Fixed assets - net block 286 308 298 447 538

Deferred tax asset 0 0 0 0 0

Net current assets 1976 2434 2552 2311 2678

Debit Balance in Profit & Loss Account (Shareholders' account) 0 0 0 0 0

Total Assets 52308 59017 72236 80724 99225



Exhibit 35: Key Ratios

(Year-end March) FY13 FY14 FY15 FY16 FY17

Valuation

No. of Equity Shares (Crore) 100.0 100.0 100.0 100.0 100.0

Diluted EPS (|) 6.3 7.3 8.2 8.4 9.6

NAV (|) 27.4 33.6 40.6 47.3 55.5

IEV (| crore) NA NA NA NA 16538

P/E 111.1 96.2 85.9 82.9 73.3

P/NAV 25.6 20.9 17.3 14.8 12.6

P/IEV NA NA NA NA 4.2

Efficiency Ratios (%)Commission expenses as a % of Gross

Premium 4.9 5.2 4.7 4.5 3.7

Management expenses incl commission as a % of Gross Premium14.5 15.3 13.8 13.9 11.6

Return Ratios and capital (%)

Return on Net worth 25.7 23.9 22.0 19.2 18.6

Return on Embedded value NA NA NA NA 23.0

Solvency Ratio 216 223 217 212 204

Persistency Ratio (%)

13th Month 0.86 0.80 0.79 0.81 0.81

25th Month 0.80 0.82 0.74 0.73 0.74

37th Month 0.60 0.72 0.79 0.69 0.67

49th Month 0.24 0.55 0.65 0.77 0.62

61th Month 0.3 0.2 0.4 0.5 0.7



RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its

stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold

and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts'

valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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