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November 23, 2017

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

“SBI” reach, sustainable margins: key drivers

SBI Life Insurance Company (SBI Life) was established as a JV between

State Bank of India and BNPPC, an insurance subsidiary of BNP Paribas.

With robust growth of 35.45% CAGR in FY15-17, SBI Life was the largest

private insurer in terms of NBP gaining private market share at 20.04%.

SBI Life has a big advantage due to its bancassurance with SBI, with a

network of ~24000 branches. A diversified product mix and strong

distribution capabilities will pave the way for faster growth, market share

ahead. While focus on linked business is seen driving healthy growth in

NBP at 22.1% CAGR in FY18-20E, improving efficiency and persistency

and increase in share of protection products will drive operating RoEV at

~23% in FY18-20E. We initiate coverage on SBI Life with BUY rating.

Healthy growth with focus on linked and protection business

SBI Life reported highest NBP growth among top private insurers at

35.45% CAGR in FY5-17, thereby increasing its market share at 20.04%.

Led by strong distribution franchise, we expect SBI Life’s NBP to grow at

22.1% CAGR in FY18-20E, thereby gaining market share to the extent of

200-300 bps by FY18-20E. Improvement in economic conditions and

focus on HNIs is expected to keep proportion of ULIP at ~58% in FY18-

20E, growing at 36.6% CAGR to | 25586 crore in FY20E. We expect

protection contribution to rise from ~5% in FY17 to ~8-9% in FY20E.

Strong bancassurance, high agent productivity to drive growth

SBI Life has a big advantage due to its tie up with SBI, which has a

network of ~24000 branches. In addition, one of the largest (95,177 as on

July 31, 2017) and productive (Individual NBP of | 2,34,501 per agent)

agency network adds to the distribution strength. We expect healthy

traction in bancassurance at ~29.1% CAGR in FY18-20E, keeping it as

major contributor to individual NBP at ~64.8% in FY20E.

Improvement in persistency & cost efficiency to keep margins steady

SBI Life has reported a consistent improvement in persistency across

periods (61st month persistency rose from 25.5% in FY13 to 67.18% in

FY17). Improvement in persistency, focus on high margin products and

cost control to increase VNB margins by 100 bps to 16.7% in FY20E.

Strong growth, consistent RoEV bode well for valuation; initiate with BUY

SBI Life has demonstrated consistency in profitability since FY10 and

declared dividends every year since FY12. We expect EV to increase at

~21% CAGR in FY18-20E to | 29129 crore, driven by 31% CAGR in VNB

to | 2334 crore in FY20E. Amid rising proportion of ULIP recently,

operating RoEV is seen moderating to ~20% by FY20E. We value SBI Life

on appraisal basis (EV + structural value) with 1x FY20E EV + 20x FY20E

VNB, resulting in target valuation of | 75814 crore. This translates to 2.6x

FY20E EV. Hence, we arrive at a target price of | 760 with BUY rating.

Exhibit 1: Financial Summary

(| Crore) FY16 FY17 FY18E FY19E FY20E

New business premium 7106.5 10,143.8 12,576.9 15,240.8 18,482.8

APE 4878 6601 9025 11227 13977

Total premium 15665.5 20,852.5 26,222.4 33,039.3 41,396.2

PAT 844 955 1132 1397 1430

EV 12547.5 16,537.8 19,431.5 23,917.7 29,129.7

P/E (x) 80 71 60 48 47

P/BV (x) 14.3 12.2 10.5 9.0 7.8

P/IEV (x) NA 4.1 3.5 2.8 2.3

RoEV (%) NA 23.0 20.4 20.4 20.0

Source: SBI Life RHP, ICICIdirect.com Research

SBI Life Insurance Company Ltd (SBILIF)

| 675

Rating matrix

Rating : Buy

Target : | 760

Target Period : 12 months

Potential Upside : 13%

Fundamental summary (| crore)

FY17 FY18E FY19E FY20E

NBP 10143.8 12576.9 15240.8 18482.8

Total Premium 20852.5 26222.4 33039.3 41396.2

SH PAT 954.7 1131.8 1397.0 1430.1

Valuation summary

(x) FY17 FY18E FY19E FY20E

P/E 70.7 59.6 48.3 47.2

Target P/E 79.4 67.0 54.3 53.0

P/EV 4.1 3.5 2.8 2.3

Target P/EV 4.6 3.9 3.2 2.6

P/BV 12.2 10.5 9.0 7.8

RoNW (%) 18.6 18.9 20.1 17.8

VNB Margin (%) 15.7 16.0 16.5 16.7

Stock data

Particulars Values

Market Capitalisation | 67702 crore

EV (FY17) | 16538 crore

BV (FY17) | 5552 crore

VNB Margin % (FY17) 15.7

52 week H/L (|) 738 / 629

Equity Capital | 1000 crore

Face Value (|) 10.0

Comparative Return Matrix (%)

1M 3M 6M 12M

SBI Life -5.9 NA NA NA

Ipru Life -6.6 -12.6 -9.0 27.7

Max Financial -5.7 -8.4 -18.6 11.8

Price Movement

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Price (R.H.S) Nifty (L.H.S)

Research Analyst

Kajal Gandhi

[email protected]

Vishal Narnolia

[email protected]

Vasant Lohiya

[email protected]


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

(NBP) 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 ~| 10506.7 billion as of September 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

NBP, which led to an increase in market share among private life insurers

in India to 20.04% in FY17 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 were 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 September 30, 2017, 13th

month and 61st month

persistency ratios were at 81.3% and 62.1%, 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 (209% as of September 30,

2017), compared to IRDAI mandated minimum solvency ratio of 150%.

Exhibit 2: Customer wise break-up of new business annualised premium equivalent (APE) – SBI

Life

87.9 87.6 89.5 92.3

12.1 12.4 10.5 7.7

20

40

60

80

100

FY15 FY16 FY17 1HFY18

(%

)

Individual Group


SBI Life has developed a multi-channel distribution network comprising

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

Shareholding pattern (Q2FY18)

Shareholder Holding (%)

Promoter 84.1

FII 4.1

DII 3.0

Others 8.8

Total 100.0

Source: BSE Filing, ICICIdirect.com Research


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

Management profile

Exhibit 3: Board of Directors

Name Designation Age (years) Date of appointment

Rajnish Kumar Chairman 59 Oct-17

Arijit Basu MD & CEO 56 Aug-14

Dinesh Kumar Khara Nominee Director of State Bank 56 Oct-16

Pierre de Portier de Villeneuve Nominee Director of BNPPC 69 Feb-14

Gérard Binet Nominee Director of BNPPC 64 Jun-01

Ravi Rambabu Independent Director 65 Jul-12

Nilesh S. Vikamsey Independent Director 53 Apr-12

Raj Narain Bhardwaj Independent Director 72 Jan-13

Joji Sekhon Gill Independent Director 52 Mar-16

Deepak Amin Independent Director 51 Jul-17

Somasekhar Sundaresan Independent Director 44 Jul-17

Source: SBI Life RHP, RHP, ICICIdirect.com Research

Rajnish Kumar is a Nominee Director of State Bank and the Chairman of

SBI Life Insurance Company Ltd. He was appointed as a Nominee Director

with effect from October 7, 2017 on the board. Prior to this, he was

associated with the company as a Nominee Director. He joined the central

board of directors of State Bank on May 26, 2015. Prior to this, he was the

MD & CEO of SBI Capital, chief general manager, project finance and

leasing strategic business unit of State Bank of India. He has more than 37

years of experience in banking and financial services. He has a bachelor’s

degree in Science from Meerut University and a post graduate degree in

physics from Meerut University.

Arijit Basu is deputed by State Bank and was appointed as MD & CEO with

effect from August 1, 2014 and was re-appointed at the same designation

twice with effect from August 1, 2016 and subsequently with effect from

July 9, 2017. He has a post graduate degree in arts from the University of

Delhi and is a certified associate of the Indian Institute of Bankers. He has

over 34 years of experience in the field of banking. He started his career

with State Bank of India in 1983 as a probationary officer and has been in

several key positions therein. Prior to this, his last assignment was chief

general manager of State Bank’s Delhi circle.


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 (AUM) 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 4: Insurance penetration remains low in India (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 5: Life insurance density is below most Asian economies (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.

Insurance penetration refers to premiums as percentage

of GDP

Insurance density refers to per capita premium or

premium per person


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 - 8100 billion by FY22E. 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.

Exhibit 6: Industry NBP growth seen remaining healthy at 11-13% by FY22E

1140 10741203

1133

1387

1750

3000

0

500

1000

1500

2000

2500

3000

3500

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E

(| b

illion)


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 7.

New Business Premium (NBP): Insurance premium that

is due in the first policy year of a life insurance contract or

a single lump sum payment from the policyholder

NBP of top private insurers (FY17)

101.5

87.0

78.6

36.832.9

0

20

40

60

80

100

120

SBI Life HDFC

Standard Life

ICICIPru Life Max Life Bajaj Allianz

(| b

illion)



Exhibit 7: Structure of Indian life insurance industry


Exhibit 8: Growth in NBP of life insurance industry at 8.8% CAGR in last 10 years

754930 871

10931258

1142 10701196 1131

1387

17501561

2014

2218

2655

2916 2871 2872

31433281

3669

4181

0

1000

2000

3000

4000

5000

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

(| b

illion)

NBP Total premium


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.

NBP market share of private insurer (FY17)

Bajaj Allianz,

6%

HDFC

Standard, 17%

SBI Life,

20%

Reliance, 2%Ipru Life, 16%

Max Life, 7%

Kotak, 6%

Others, 26%



Exhibit 9: Private players have been gaining market share gradually (IRP basis)


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.

Linked premium growth to improve ahead: Post an increase in linked

premium of total new business premium in FY07-10, Life insurance

industry has seen linked premium declining from 83% in FY07 to 44% in

FY17 over the last seven years. A capital market slowdown, stringent

IRDA regulations and cap on charges to consumer impacted linked

premium growth.

However, the transparency in linked products and charges are no longer a

deterrent for growth. Erstwhile surrenders due to three-year lock-in have

already happened for the insurance sector. Improvement in economic

and market conditions, in general, and demonetisation, in particular, has

led the sector to witness resumption in growth in premiums for both

linked and non-linked products.

Exhibit 10: Private sector - Linked premium share bottomed out in NBP

8388 87 86

79

6554

45 45 45 44

1712 13 14

21

3546

55 55 55 56

0

20

40

60

80

100

120


(%

)

Non-linked Linked


Rationalisation in commission, operating expense: Post IRDAI regulations

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

Individual Rated Premium (IRP): New business

premiums written by the company under individual

products wherein single premium are weighted at the rate

of 10% of the paid amount

Product mix for private insurers on NBP basis (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



Consequently, commission-expense ratio on a 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 11: 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 4.7

7.97.3

76.5 6.5 6.5 6.7 6.6

5.95.5 5.3

0

2

4

6

8

10

12


(%

)

Private Insurer Industry


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 at 9.6%

compared to private peers.

VNB margin higher for better product mix and cost efficient

In India, cost of acquisition remains high due to expensive agency model

involving higher overhead and operating costs apart from commission.

Bancassurance is gaining traction for companies with parent banks.

Accordingly, VNB margins are driven by product mix and higher

persistency. Margins are highest in protection (term and credit protect

types) at 70-80%, then other non par business at 20-25%, participating

products at 12-15% and finally in ULIP at 8-10%. Players with higher share

of protection business like HDFC Life (26%) have higher margins. SBI Life

has 5% protection share but cost efficiency is high leading to margins at

reasonable 15.7%. Max India has significant proportion of traditional

products in NBP leading to higher margins.

VNB margin: VNB margin is the ratio of VNB to new

business annualised premium equivalent for a specified

period and is a measure of the expected profitability of

new business.

Expense ratios of private peers (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

ICICIPru Max Life Bajaj Allianz

(%

)

Commission ratio Operating Expense ratio



Exhibit 12: VNB margin – comparable among private insurer (FY17)

15.7

22.0

10.1

18.8

0

4

8

12

16

20

24

SBI Life HDFC Life ICICI Pru Life Max Life

(%

)


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 13: Bancassurance share in individual NBP on the rise in FY07-17 (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


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

Bancassurance (Banca): An arrangement entered into

by a bank and an insurance company, through which the

insurance company sells or markets its products to the

bank’s customer base.

SBI has highest proportion of bancassurance (FY17)

22.0

6.5

16.38.3 9.0

41.9

25.7

39.8

20.4

0.4

0

30

60

90

SBI Life HDFC Std

Life


(| b

illion)

Individual Agents Corporate Agent - Banks Others



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 14: Indian population above 15 years to reach ~63% in 2020E

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: Rising

GDP growth (barring last quarter) 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 15: Financial savings (as percentage of GDP) to see an up-tick ahead

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 8.2

0

2

4

6

8

10

12

14

0

5

10

15

20

25

30


(%

)

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


Among financial savings, the share of life insurance had 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. In absolute terms, financial

savings in life insurance product increased from | 204469 crore in FY14 to

| 266063 crore in FY16, a CAGR of 14.1%. In FY17, led by demonetisation,

incremental flow of financial savings in life insurance segments surged

65.6% to | 440653 crore. Therefore, share of life insurance in total


household financial savings (gross) increased from 17.6% in FY16 to

24.2% in FY17. Further increase in proportion of life insurance in financial

savings provides an opportunity for growth in the Indian life insurance

industry.

Exhibit 16: Share of life insurance in household financial savings (gross) rises 660 bps to

24.2% in FY17

10.5 12.7 9.8 12.7 11.4 10.9 8 10.7 13.5

-17.40

50.457.5

40.250.8 56.3 56.1 60.5

46.9 41.360.19

22

21

26.2

19.521 17.8 16

19 18.3

24.21

-40

-20

0

20

40

60

80

100

120

140

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

(%

)

Currency Bank deposit Life Insurance premium Provident and Pension Fund Others


Exhibit 17: Surge in life insurance segment in FY17 led by demonetisation

1698.5 1528.6 2598.2

2101.01956.7 1799.5

2044.7 2993.02660.6

4406.5

-5000.0

0.0

5000.0

10000.0

15000.0

20000.0

25000.0

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

(| b

illion)

Currency Bank deposit Life Insurance premium Provident and Pension Fund Others



Investment Rationale

Largest private life insurer in new business premium, growing rapidly…

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. Going ahead, 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 (Crisil Research). With product

innovation and higher focus on leveraging distribution strength (both

bancassurance and online channel), private insurers are expected to

continue to gain market share ahead. For SBI Life, we expect NBP to

increase at healthy pace of 22.1% CAGR in FY18-20E to | 18482.8 crore,

led by focus on sweating of the strong distribution network. Higher than

industry growth will enable gaining market share to the extent of 200-300

bps by FY18-20E.

Exhibit 18: SBI Life to see higher than industry NBP growth in FY18-20E

5529.1

7106.5

10143.8 12576.9 15240.8 18482.8

9.1%

28.5%

42.7%

24.0%

21.2% 21.3%

0%

10%

20%

30%

40%

50%

0

4000

8000

12000

16000

20000

FY15 FY16 FY17 FY18E FY19E FY20E

| c

rore

NBP YoY growth (RHS)

Source: SBI Life RHP, ICICIdirect.com, Research

Exhibit 19: SBI Life – highest NBP compared to private insurer (FY17)

101.5

87.0

78.6

36.832.9

0

20

40

60

80

100

120

SBI Life HDFC

Standard Life


(| b

illion)


Exhibit 20: SBI Life’s market share on the rise in FY15-FY17 led by strong growth

19.95

16.85 17.1715.87

17.34

20.04

0

10

20

30

FY12 FY13 FY14 FY15 FY16 FY17

(%

)

NBP Market share among private insurers

NBP market share to increase by

200-300 bps in FY18-20E



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

11,26,211 in FY15 to 12,75,550 in FY17.

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 37.9%, the fastest among the top five private life

insurers (in terms of total premium in FY17) in India. Going ahead, we

expect SBI Life to continue with healthy growth in new business

annualised premium equivalent (APE) at 28.4% CAGR in FY18-20E.

Exhibit 21: Market share of SBI is on the rise (APE basis)

3792

2622 2876

3206

3550

5046

6727

9025

11227

13977

13.2 11.1

12.6

14.8 14.2

17.719.3

0

2000

4000

6000

8000

10000

12000

14000

16000

0

10

20

30

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

(%

)

APE (| crore) Market Share (private insurers)


Exhibit 22: Market share of SBI Life is increasing among private life insurer (APE basis)

APE -Total NBP FY15 FY16 FY17

SBI Life 14.2 17.1 19.0

HDFC Life 12.7 12.7 11.7

ICICI Pru Life 18.6 17.9 18.7

Max Life 7.9 7.6 7.9

APE - Individual NBP

SBI Life 15.6 18.8 20.7

HDFC Life 14.8 14.7 12.7

ICICI Pru Life 23.0 21.9 22.3

Max Life 9.7 9.3 9.2

Source: IRDA, ICICIdirect.com Research

Expect balanced product portfolio, marginal skewness to ULIP rising

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 new business margin of 15.4% in FY17.

Gross Written Premium (GWP): The total premium

written by the company before deductions for re-

insurance ceded.

New Business APE: First year regular premium + 10%

of first year single premium


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 increasing

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

Exhibit 23: Market share of SBI is on the rise (APE basis)

NBP FY15 FY16 FY17 1HFY18

Individual products 3,606 4,827 6,372 3,304 Participating

products 1,454 1,468 1,092 835

Non-participating products 278 168 172 86

Linked products 1,874 3,192 5,108 2,383

Group saving products 1,493 1,649 3,284 743

Protection products 430 630 487 242

Total NBP 5,529 7,107 10,144 4,289


In the aftermath of the clamp down on charges by the regulator related to

ULIP products, incremental focus of private insurers moved towards

traditional products. Consequently, share of ULIP came down from peak

of 79% in FY11 to ~45% in FY14, wherein it stabilised along till FY17. SBI

Life, on the other hand, has been focussing on linked business, which

grew at a faster rate taking its proportion in overall NBP from 34.9% in

FY15 (lower than industry) to 50.5% in FY17 (higher than industry

average). In terms of customer profile, individual segment remained the

focus with growth at 27.4% CAGR in FY15-17.

Exhibit 24: Private sector insurer witnesses slowdown in linked NBP in FY15-17…..

8388 87 86

79

6554

45 45 45 44

1712 13 14

21

3546

55 55 55 56

0

20

40

60

80

100

120


(%

)

Non-linked Linked


Exhibit 25: While SBI Life’s ULIP proportion in NBP was on rise …..

34.945.5 50.5

56.7 57.2 58.0

65.154.5 49.5

43.3 42.8 42.0

0

20

40

60

80

100


(%

)

Linked Non-Linked


Exhibit 26: …led to second position in ULIP contribution among private

insurers-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


Product wise ticket size for SBI Life (FY17)

(|) FY15 FY16 FY17 Q1FY18

Par Products 24506 23671 23544 27254

Non Par Products 5988 7206 6594 8169

Other Non Par products 98346 64721 91164 102282

ULIP 74388 76460 79104 81205



Exhibit 27: Growth in linked NBP at faster pace…..

1931.23233.3

5122.97130.8

8718.610727.1

3597.9

3873.2

5020.9

5446.1

6522.2

7755.7

0

5000

10000

15000

20000


(|crore)

Non-linked Linked


Exhibit 28: ...to keep proportion of linked business rising in total premium

5291.9 6897.010038.1

14609.7

19587.7

25585.8

7575.28928.4

10977.1

11812.7

13703.6

16126.2

0

10000

20000

30000

40000

50000


(|crore)

Non-linked Linked


Going ahead, the company’s strategy is to further optimise its product

portfolio by maintaining a balance between unit-linked, participating and

non-participating products. With improvement in economic and market

conditions, increasing focus on HNI, we expect proportion of linked

business in new business to inch northwards at ~58% in FY18-20E,

growing at 36.6% CAGR to | 25586 crore in FY20E. Protection product

portfolio, which is a high margin business, is aimed at expanding with

particular emphasis on credit life protection products. We expect

protection products contribution to rise from ~5% in FY17 to ~8-9% in

FY20E. Group business, which forms 14.9% of total business, has seen a

surge of 47.4% YoY in FY17. 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. Therefore, we

expect proportion of group business in total premium to decline, though

group fund management will continue to witness traction ahead.

Strong bancassurance, high agent productivity to improve efficiency

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). Bancassurance represents SBI

Life’s largest distribution channel. In addition, a large and productive

individual agent network comprising 95,177 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.

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

private life insurers in India both through the bancassurance channel (|

4185.31 crore) as well as through individual agent network (| 2204.41

crore). 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 fund

management (FM) products.

Individual segment forming higher chunk of business (SBI Life)

1850.0 2119.3 3123.2 3157.3 3567.7 4005.0

11017.113706.0

17892.023265.1

29723.6

37707.0

0

10000

20000

30000

40000

50000


(|crore)

Individual Group



Exhibit 29: Industry channel mix skewed towards

bancassurance….private insurer

36 32 30

47 52 54

17 16 16

0

20

40

60

80

100

FY15 FY16 FY17

(%

)

Individual Agents Corporate Agents – Banks Others

Source: SBI Life RHP, ICICIdirect.com Research (includes LIC)

Exhibit 30: Banca contributed highest proportion of individual NBP (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


rs

Individual Agents Corporate Agent - Banks Others


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 giving access to 24017

branches of SBI alone 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 channel

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

greater profitability.

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

FY15, FY16 and FY17, respectively. While contribution of bancassurance

remained even higher in case of individual NBP at 64.7% in FY17.

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. Going ahead, we expect healthy traction from

bancassurance at ~29.1% CAGR in FY18-20E, thereby keeping

bancassurance as the major contributor to individual NBP at ~64.8% in

FY20E.

2) High agent productivity

SBI Life has one of the largest pan India network of agents, with 95,177

agents as on July 31, 2017. 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.

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. 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.


Exhibit 31: Agent productivity at highest (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 32: 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


3) Extensive geographic reach leads to lower concentration risk

Well diversified distribution remains a key in order to keep dependence

on any particular region lower, which mitigates business risk. Owing to

diversified and large distribution channel, SBI Life’s business in terms of

geography mix remains diversified across the country. In terms of

business mix from top three, five and 10 states, SBI Life’s mix remains

distributed compared to top five private life insurers (in terms of total

premium in Fiscal 2017). Individual new business premium generated

from top three states constituted 24.67% of total individual new business

premium for FY17. On a relative basis, concentration from top five and 10

states was at 38.3% and 67.2%, respectively, which remains lower

compared to other private peers (Exhibit 32).


Exhibit 33: Geographical distribution of individual NBP (| crore)

Location FY15 FY16 FY17 Q1FY18

Uttar Pradesh 317 447 612 133

Tamil Nadu 281 348 452 103

Maharashtra 345 435 522 98

Gujarat 185 277 433 95

West Bengal 214 312 390 82

Telangana 200 373 462 67

Karnataka 246 324 399 66

Andhra Pradesh 309 303 392 65

Kerala 212 257 394 57

Bihar 143 200 266 57

Orissa 165 218 258 46

Rajasthan 162 222 294 46

Madhya Pradesh 170 210 270 45

Punjab 109 133 181 39

Haryana 103 127 154 32

Assam 91 126 165 31

Jharkhand 86 123 154 27

Chattisgarh 103 124 144 26

Delhi 100 118 142 25

Uttrakhand 63 91 108 22

Himachal Pradesh 51 72 94 18

Jammu & Kashmir 18 23 32 9

Goa 16 22 31 5

Nagaland 7 9 11 4

Arunachal Pradesh 10 14 15 4

Chandigarh 8 13 18 4

Meghalaya 12 15 23 3

Puducherry 6 6 10 2

Manipur 6 9 11 2

Tripura 8 12 11 2

Sikkim 3 6 8 1

Andaman & Nicobar Islands 4 6 6 1

Mizoram 3 4 4 1

Daman & Diu 0 0 0 0

Dadra & Nagar Haveli 0 0 1 0

Lakshadweep 0 0 0 -

Total 3,757 4,978 6,468 1,217


Cost efficiency & improvement in persistency to drive VNB margins

Total costs for a life insurance company consist of commission expenses

and operating expenses. For SBI Life, the commission ratio was at 3.73%

(4.7% in H1FY18) while operating expenses ratio was at 7.83% in FY17

98.6% in H1FY18), which is the lowest comparable to LIC.

In FY14, commission ratio has peaked out and is on continuous downfall

to reach 3.8% in FY17. This decline in commission ratio is attributable to

decline in remuneration paid on new business (first year premium), which

came down from 13.3% in FY14 to 8.1% in FY17. Commission on renewal

premium has remained stable at ~2.5% of premium. One of the factors to

keep cost of sales lower and thus higher profitability is its bancassurance

distribution channel which benefits from inherent cost efficiencies. We

believe bancassurance will continue to drive a larger share of the new

business with strong branch network of partner. In addition, increasing

penetration of online mode of distribution will continue to remain a focus

area. However, we have not factored in any substantial cost saving from

digitization of distribution in the initial period. Therefore, we expect

commission expense ratio to remain stable broadly at ~4.1% in FY18-

20E.

VNB margin: VNB margin is the ratio of VNB to new

business annualised premium equivalent for a specified

period and is a measure of the expected profitability of

new business.


Commissions increased 9.67% YoY 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, primarily

due to an increase in business promotion expenses and employee

remuneration and welfare benefits expenses.

Exhibit 34: Expense ratio to broadly remain stable ahead (SBI Life)

4.7 4.5

3.74.1 4.0 4.1

9.19.4

7.8 7.7 7.8 7.8

0

2

4

6

8

10


(%

)



Exhibit 35: SBI Life has lowest opex ratio among private peers – 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


(%

)



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. Opex (including commission) to GWP ratio at 7.8% in FY17

has been lowest among private insurers. In FY15-17, operating expense

ratio for SBI Life declined substantially from 9.1% to 7.8%. Going ahead,

with healthy business growth which will lead to higher efficiency,

operating expense is expected to increase 25.5% CAGR in FY18-20E,

thereby keeping opex ratio stable at ~7.8% in FY18-20E.

Persistency ratio – highest among peers; conservation ratio to stay stable

Life insurance 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.

In FY17, 13th

month and 61st month persistency ratios were at 81.07% and

67.18%, respectively (which is the highest among major private insurers).

As of September 30, 2017, 13th month and 61

st month persistency ratios

were at 81.3% and 62.1%, respectively. With concentrated efforts by

management, there has been consistent improvement across periods –

noteworthy improvement being in 61st month persistency, which has

increased from 25.5% in FY13 to 67.18% in FY17. 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. Renewal premium has

grown at 20.1% CAGR in FY13-17 compared to 19.2% CAGR in total

premium. In FY17, a decline was seen in 49th month persistency.

However, this was primarily led by a decline in share of single premium.

Persistency ratio: The proportion of business retained

from the business underwritten. The ratio is measured in

terms of number of policies and premiums underwritten


Customer retention remains key in order to improve persistency and thus

increase profitability. 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. Overall conservation ratio for

renewal business {(calculated as renewal premiums/(FYP+ LY renewal)}

has improved from 72.8% in FY14 to 84.2% in FY15, post which it

declined marginally to 81.4% in FY17. With better ULIP growth picking up

and surrenders remaining at current level, conservation ratio is expected

to sustain around 81% in the next couple of years. Consequently,

improvement in persistency and cost optimisation is expected to lead to

~100 bps improvement in VNB margin to 16.7% in FY20E.

Exhibit 36: SBI Life has highest 61st month persistency among private peers (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


Exhibit 37: Conservation ratio to remain stable at ~81% in FY18-20E

84.2

81.781.4

81.1

80.3 80.6

76

80

84

88


(%

)

Conservation ratio (%)


SBI Life’s persistency has been improving over the past

86.2 79.6 79.3 80.7 81.1

24.454.5 64.5

76.962.5

25.5

19.8

40.7

53.867.2

0.0

50.0

100.0

150.0

200.0

250.0

FY13 FY14 FY15 FY16 FY17

(%

)

13th Month 49th Month 61th Month


Exhibit 38: Higher efficiency and stable conservation ratio to boost VNB margins

14.2

15.7

16.0

16.516.7

13

13

14

14

15

15

16

16

17

17

FY16 FY17 FY18E FY19E FY20E

(%

)

VNB margin (calculated)


Second highest AUM in industry, demonstrates reasonable performance

The life insurance business is a function of better business underwriting

and increasing AUM at efficient costs. Investment is a significant income

contributor for the insurance business. The surge in equity markets and

improving debt incomes fuelled investment income both in policyholders

and shareholders’ investment in FY15-17.

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%. In FY13-17, AUM has grown CAGR

of 17.6% to | 97,736 crore in FY17, and was | 105066.6 crore as on

September 30, 2017.

Exhibit 39: Business growth to keep AUM growth healthy at 20.8% CAGR in FY18-20E

713.4

798.3

977.4

1,136.3

1387.1

1,692.1

11.9%

22.4%

16.3%

22.1% 22.0%

0%

5%

10%

15%

20%

25%

0

200

400

600

800

1000

1200

1400

1600

1800


| b

illion

AUM YoY growth (RHS)


In FY15-17, policyholder’s funds have grown at 17% CAGR to | 95918

crore and shareholders’ funds has grown from | 3145 crore in FY15 to

| 4326 crore in FY17; 17.3% CAGR. Investment yield has moved higher in

FY17 and Q1FY18 led by strong equity markets. Continued business

growth and improvement in efficiency will lead to incremental growth in

AUM. Consequently, we expect AUM growth of 20.8% CAGR in FY18-20E

to | 168308 crore, while investment yields are seen stabilising at ~8.5%

in FY20E.


Exhibit 40: Investment schedule – SBI Life (Investments at carrying value)

| crore

Fund O/S Invt Income Yield Fund O/S Invt Income Yield Fund O/S Invt Income Yield Fund O/S Invt Income Yield

With Interest, Amort, Dividend

and Realised gains / losses

Shareholders’ Funds 2941 276 9.8% 3278 318 9.2% 3724 402 9.7% 4262 107 10.0%

Participating Funds 7663 641 9.8% 10090.3 802 8.4% 12929 11,512 8.7% 13534 357 8.9%

Non-Participating Funds 23520 1,989 9.9% 26627.1 2,238 9.4% 30783 2,617 9.2% 30850 770 9.5%

Linked Funds 34810 5,827 24.1% 36022 3,294 10.8% 44569 4,007 11.0% 46185 1,003 10.0%

With Interest, Amort, Dividends

and Realized and Unrealized

gains / losses

Shareholders’ Funds 2941 450 16.2% 3278 291 8.2% 3724 521 12.3% 4262 133 11.9%

Participating Funds 7663 1,335 20.9% 10090.3 690 6.8% 12929 1,839 13.4% 13534 743 17.3%

Non-Participating Funds 23520 3,399 16.9% 26627.1 2,037 8.3% 30783 3,542 12.0% 30850 1,035 12.2%

Linked Funds 34810 7,613 27.6% 36022 301 0.6% 44569 5,527 14.4% 46185 1,480 13.5%

FY15 FY16 FY17 Q1FY18


Robust financial position supported by high operating efficiencies

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

premium at | 10000 crore in FY17 and enjoyed a market share of

individual rated premium of 20.69% among private life insurers. In FY13-

17, total premium grew at a healthy pace of 19.2% CAGR to | 21015

crore. This growth was led by both – improving persistency which

resulted in 20.1% CAGR in renewals and 18.3% CAGR in NBP. Healthy

growth in topline and improving efficiency has been positive, growth in

profitability remained slower at 10.9% CAGR in FY13-17, due to increase

in valuation liabilities. With healthy growth in premium and steady opex

ratios, growth in profitability is seen at 14.4% CAGR in FY18-20E to | 1430

crore.

Based on embedded value (EV) report issued by the independent actuary,

EV, a combination of value of in-force (VIF) business and net worth (NW),

was at | 16537.9 crore as of March 31, 2017 and VNB margins were at

15.6%. With healthy NBP accumulation ahead and anticipation of lower

surrender, we expect EV to grow at 20.8% CAGR in FY18-20E to | 29130

crore in FY20E. In terms of return ratios, SBI Life has delivered average

RoE of 20.14% in last 3 fiscals. Steady growth in AUM and healthy VNB

margin is seen to keep return on embedded value (RoEV) above 20% in

FY18-20E.

Exhibit 41: Healthy growth in premium led by linked business…

107.0127.8

156.7 208.5 262.2 330.4 414.0

3.4%

19.4%

22.6%

33.1%

25.8% 26.0% 25.3%

0%

10%

20%

30%

40%

0

50

100

150

200

250

300

350

400

450

FY14 FY15 FY16 FY17 FY18E FY19E FY20E

| b

illion

Premiums earned - Net YoY growth (RHS)


Exhibit 42: …and operating efficiency to keep profitability growth healthy

728815 844

955

1132

1397 1430

0%

5%

10%

15%

20%

25%

0

400

800

1200

1600

FY14 FY15 FY16 FY17 FY18E FY19E FY20E

| c

rore

PAT YoY growth (RHS)



Exhibit 43: EV growth led by incremental NBP and lower surrender

12548

16538

19431

23918

29130

0

5000

10000

15000

20000

25000

30000

35000

FY16 FY17 FY18E FY19E FY20E

(| c

rore)


Exhibit 44: RoEV to remain ~20% in FY18-20E

23.0

20.4 20.4

20.0

18

19

20

21

22

23

24

FY17 FY18E FY19E FY20E

(%

)

RoEV (%)


Solvency ratio remains prudent

IRDA mandates required solvency margin (RSM) of 150% for all life

insurance companies. Solvency ratio is determined by dividing available

solvency margin (ASM) by the RSM. 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

2.09x as of September 30, 2017, compared to IRDAI mandated solvency

ratio of 1.5x. Since FY08, no additional capital was raised by the

company.

Exhibit 45: SBI Life’s solvency lower than peers, yet at comfortable levels

204 192

281309

580

0

100

200

300

400

500

600

700

SBI Life HDFC

Standard Life


(%

)


Exhibit 46: Solvency ratio above regulatory requirement

223216 212

204 209

100

200

300

FY14 FY15 FY16 FY17 1HFY18

(%

)


Solvency ratio: The ratio of available solvency margin

(ASM) to the required solvency margin (RSM). ASM is

defined as the available assets in excess of liabilities in

the shareholders’ and policyholders’ funds and RSM is the

required solvency margin that an insurance company is

required to hold as per the guidelines prescribed by the

IRDAI.


Valuation

Life insurance a business of long term….

Life insurance is a business of long term and valuation also incorporates

future profitability of existing written in force business over the life of the

policy. Embedded Value (EV) considered in India is Indian EV (IEV)

methodology. It is more similar to BV basis, but for the fact that many

assumptions go for the EV calculation and that it is as provided by

management.

EV = Adjusted Net Worth(ANW) + Value of in-force business (VIF)

Value of in-force covered business (VIF) is the Present value of future

profits; adjusted for Time value of financial options and guarantees;

Frictional costs of required capital; and Cost of residual non-hedgeable

risks.

Appraisal value can ideally be used to calculate market valuation of a life

insurance company, where future expected business profit is also

captured.

Appraisal value = (Target multiple x EV) + Structural value

Structural value of new business (future) = NBAP x multiple assumed

However if we look at recent IPOs in India EV basis valuation has

prevailed.

Majority of life insurance companies are reporting EV since the last

couple of years in India. Several assumptions and variances on interest

rates, operating cost variances, MTM on investments, etc along with

ANW adjusted for MTM lead to EV.

Reach, productive growth & cost efficiency to drive margin, EV accretion

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 2.09x as of September 30,

2017, compared to IRDAI mandated solvency ratio of 1.50. Since FY08, no

additional capital was raised by the company.

Based on embedded value (EV) report issued by the independent actuary,

embedded value was | 16537 crore as on FY17, growing from | 12547

crore in FY16 and VNB margins were at 15.6% vs 14.2% during the same

period. In the last three fiscals, the company has reported average RoE of

20.14%.

We expect embedded value to rise to | 29130 crore by FY20E, growing at

20% CAGR in FY17-20E. This should largely be driven by VNB growth at

31% CAGR to | 2334 crore in FY20 from | 1036 crore in FY17 depicting

strong operation performance. VNB margin expansion of 100 bps to

16.7% should enable operational surplus to surge. Operating RoEV was

high at 23% for FY17 as reported in prospectus. However, we expect the

same to moderate gradually in the range of ~20% due to strong growth

in business and ULIP contributing higher incrementally.

Growth in Indian insurance sector is far higher than it is globally, resulting

in higher multiples in India. Profitability is still to reach peak levels due to

high costs of acquisition and operations.

SBI has a strong geographical reach, which SBI Life can harness over the

years to expand into rural areas. Today ~56% branches sell SBI Life


policies but not at full capacity. These levers apart from current scale at

>| 1 lakh crore AUM and strong margins, ascribe high value to future

growth and value proposition for SBI Life. We therefore, value SBI Life on

appraisal basis wherein we factor FY20E EV + 15x FY20E VNB. Thereby,

we value the franchise (future structural value) at||46683 crore 20x VNB

of |2334 crore. Appraisal value, post EV of |29130 crore is expected to be

|75280 crore. This translates to 2.6x FY20E EV, which looks reasonable

considering the recent IPO’s which have valued companies on 4 to 4.2x

on trailing EV basis. Therefore, we arrive at a target of |760 per share for

SBI Life. Recommend Buy.

Exhibit 47: Comparative summary

SBI Life HDFC Life ICICI Pru SBI Life HDFC Life ICICI Pru SBI Life HDFC Life ICICI Pru

Market share incl LIC (%) 5.1 4.7 4.9 5.8 5.0 4.5 4.7 4.8 4.6

NBP (| billion) 71 65 68 101 87 79 43 44 42

Total premium (| billion) 157 163 190 209 194 222 91 91 114

Expense ratio (%) 9.4 11.6 10.0 8.0 12.6 10.7 12.7 8.7

AUM (| billion) 798 743 1,039 977 917 1,229 1,051 995 1,306

VNB Margin (%) 14.2 19.9 8.0 15.4 21.6 10.1 15.6 22.4 11.7

Overall claim settlement ratio (%) 96 97 97 98 99 97

EV (| billion) 130 102 139 165 124 162 181 140 172

13th month persistency (individual) (%) 81 79 82 81 81 86 81 82 87

61th month persistency (individual) (%) 54 50 46 67 57 56 62 55 56

New policies issued (in lakhs) 12.7 11.5 5.8 12.8 10.8 7.0 5.8 4.3 3.9

H1FY18FY16 FY17


Considering strong NBP growth at efficient operating cost ratios enabling

high VNB margins, valuations are expected to remain rich for SBI Life.

Exhibit 48: Strong NBP growth & efficient opex ratio enables high VNB margins (FY17)

| bn SBI Life HDFC Life ICICI Pru Life Max Life

VIF 95 83 94 42

ANW 70 41 68 24

EV 165 124 162 66

EVOP 21 22 23 11

Opg RoEV Margin 23 21 17 20

VNB margin 16 22 10 19

BVPS 54 19 45 97

EVPS 165 63 113 194

EVOP per share 21 11 16 6

Valuation

CMP 670 310 390 583

P/BV 12 16 9 6

P/EV 4 5 3 3

P/E 71 70 33 169



Exhibit 49: Sensitivity of IEV as at 31 March 2017

Scenario IEV % change

Base result 16,538

Interest rates and assets

100bps increase in interest rates and discount rates 15,504 -6.2%

100bps decrease in interest rates and discount rates 17,637 6.6%

10% decrease in equity values 16,254 -1.7%

20% decrease in equity values 15,970 -3.4%

Policy / premium discontinuance rates

10% multiplicative increase in discontinuance rates 16,352 -1.1%

10% multiplicative decrease in discontinuance rates 16,725 1.1%

Taxation

Assumed corporate tax rate increased to 34.61% 13,374 -19.1%

Assumed service tax rate increased to 18% 16,532 0.0%



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 ULIPs

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 annualised 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.

Change in interest rates

Life insurance companies invest AUM in various investible products

where interest rate variations impact returns as well as actuarial valuation

of liabilities for them. Interest rates can have substantial impact on

Embedded value calculation as shown in the sensitivity table.

Any adverse change in relationships with promoter, 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 50: Policyholders Account

(| Crore) FY16 FY17 FY18 FY19 FY20

Premiums earned - Net 15665.5 20852.5 26222.4 33039.3 41396.2

Income from Investments 3340.9 9295.0 9501.6 10855.2 12244.9

Other income 19.7 67.4 74.1 81.5 89.7

Contribution from the Shareholders' account 93.7 62.7 56.4 50.8 45.7

Total 19,119.8 30,277.6 35,854.6 44,026.8 53,776.5

Commission 714.3 783.3 1071.0 1343.7 1707.1

Operating expenses 1480.9 1646.5 2034.5 2596.7 3253.5

Benefits paid (Net) 7958.5 9526.1 11709.1 13256.5 16314.2

Change in valuation of policy liabilities 7986.9 17241.0 19630.5 24952.6 30466.4

Others 7.4 24.1 28.9 34.6 41.6

Provision for tax 327.2 402.2 496.9 634.2 794.7

Surplus/(deficit) after tax 644.7 654.5 883.5 1208.4 1199.0

Transfer to Shareholders' account 651.8 654.7 883.5 1,208.4 1,199.0


Exhibit 51: Shareholders Account


Amounts transferred from Policyholders' account 651.8 654.7 883.5 1208.4 1199.0

Income from investments 325.7 409.8 435.7 502.7 552.8

Total 977.5 1,064.5 1,319.3 1,711.1 1,751.8

Expenses other than insurance 28.7 27.1 32.6 35.9 43.2

Contribution to Policyholders' account 93.7 62.7 56.4 50.8 45.7

Others 3.0 4.0 4.0 4.0 4.0

Profit before Tax 855.2 974.7 1230.3 1624.4 1663.0

Provision for tax 3.0 4.0 4.0 4.0 4.0

PAT 844.2 954.7 1,131.8 1,397.0 1,430.1


Exhibit 52: Balance Sheet


Sources of Funds

Share capital 1000 1000 1000 1000 1000

Reserve and surplus 3691 4465 5366 6461 7582

Credit/[debit] fair value change account 42 87 50 20 20

Networth 4733 5552 6416 7481 8603

Policyholders' funds 75991 93673 113304 138256 168723

Total Liabilities 80724 99225 119720 145737 177325

Applications of Funds

Shareholders’ investments 3565 4296 5133 5985 6882

Policyholders’ investments 38256 46962 56979 67992 80910

Asset held to cover linked liabilities 36022 44573 51520 64737 81420

Loans 124 178 201 222 250

Fixed assets - net block 447 538 614 700 798

Net current assets 2311 2678 5273 6103 7065

Total Assets 80724 99225 119720 145737 177325



Exhibit 53: Key Ratios

(Year-end March) FY16 FY17 FY18E FY19E FY20E

Valuation

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

Diluted EPS (|) 8.4 9.6 11.3 14.0 14.3

DPS (|) 1.2 1.5 1.9 2.5 2.6

BV (|) 47.3 55.5 64.2 74.8 86.0

EV per share 125 165 194 239 291

P/E 80.0 70.7 59.6 48.3 47.2

P/BV 14.3 12.2 10.5 9.0 7.8

P/IEV NA 4.1 3.5 2.8 2.3

Efficiency Ratios (%)

Commission expenses as a % of Gross

Premium 4.5 3.7 4.1 4.0 4.1

Management expenses incl commission as a % of Gross Premium13.9 11.6

Return Ratios and capital (%)

Return on Net worth 19.2 18.6 18.9 20.1 17.8

Opearating RoEV NA 23.0 20.4 20.4 20.0

Solvency Ratio 212 204 200 195 200

Key Ratios (%)

Conservation Ratio 81.7 81.4 81.1 80.3 80.6

VNB Margin 15.7 16.0 16.5 16.7

Surrender Ratio 4.7 5.7 5.3 4.8 4.7

Benefits paid as a % of Opening Liability 11.7 12.5 12.5 11.7 11.8

NBP (proportion %)

Traditional 54.5 49.5 43.3 42.8 42.0

Non Linked 45.5 50.5 56.7 57.2 58.0


Exhibit 54: Key parameters

(Year-end March) FY16 FY17 FY18E FY19E FY20E

NBP 7,106.5 10,143.8 12,576.9 15,240.8 18,482.8

Growth (%) 42.7 24.0 21.2 21.3

Linked 3233.3 5122.9 7130.8 8718.6 10727.1

Growth (%) 58.4 39.2 22.3 23.0

Non Linked 3873.2 5020.9 5446.1 6522.2 7755.7

Growth (%) 29.6 8.5 19.8 18.9

APE 4878.1 6600.9 9024.9 11227.2 13977.2

Growth (%) 35.3 36.7 24.4 24.5

VNB 1036.8 1444.0 1852.5 2334.2

Growth (%) 39.3 28.3 26.0

EV 12547.5 16537.8 19431.5 23917.7 29129.7

Growth (%) 17.5 23.1 21.8

AUM 77842.7 95830.3 113631.0 138713.3 169211.5

Growth (%) 23.1 18.6 22.1 22.0

PH Funds 74277.8 91534.8 108498.3 132728.4 162329.6

Growth (%) 23.2 18.5 22.3 22.3

SH Funds 3564.9 4295.5 5132.7 5984.8 6881.8

Growth (%) 20.5 19.5 16.6 15.0



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 55: Product profile of SBI Life Insurance (Individual segment)

Individual Products Need based classification

Participating Products

SBI Life - Saral Pension Retirement Pension

SBI Life - Flexi Smart Plus Savings

SBI Life - Smart Women Advantage Savings

SBI Life - ShubhNivesh Savings

SBI Life - Smart Income Protect Periodic Money Back /Income

SBI Life - Smart Money Back Gold Periodic Money Back /Income

SBI Life - Smart Champ Insurance Child Education/Marriage

SBI Life - Smart Money Planner Periodic Money Back /Income

SBI Life - Smart Humsafar Savings

SBI Life - Smart Bachat Savings

Non-Participating Protection Products

SBI Life - Saral Shield Protection

SBI Life - GrameenBima Protection

SBI Life - eShield Protection

SBI Life - eIncome Shield Protection

SBI Life - Smart Shield Protection

SBI Life - SaralSwadhan Plus Protection

SBI Life - Smart Swadhan Plus Protection

Other Non-Participating Products

SBI Life - Smart Guaranteed Savings Plan Savings

SBI Life - CSC Saral Sanchay Savings

SBI Life - Annuity Plus Retirement Pension

Unit-Linked Products

SBI Life - SaralMaha Anand Wealth Creation

SBI Life - Smart Elite Wealth Creation

SBI Life - Smart Wealth Builder Wealth Creation

SBI Life - Smart Scholar Child Education/Marriage

SBI Life - Retire Smart Retirement Pension

SBI Life - Smart Power Insurance Wealth Creation

SBI Life - Smart Wealth Assure Wealth Creation

SBI Life - eWealth Insurance Wealth Creation

SBI Life - Smart Privilege Wealth Creation



Glossary of Terms – Life Insurance

Individual business premium

Insurance contracts that cover the life of an individual and premium earned from

the same

Group business premium

Insurance contracts that cover a defined group of people and premium earned

from the same

Single premium

Those contracts that require only a single lump sum payment from the

policyholder. Single premium include top up premium, which refers to additional

amounts of premium over and above the contractual basic premium received

during the term of unit linked insurance contract.

Unit linked business

Non participating insurance contracts that are investment cum protection plans

that provide returns directly linked to the market performance.

New business premium (NBP)

The premium earned on new insurance policies written in a financial year.

Net premium earned

The difference between total premium and benefits paid (gross of reinsurance).

Renewal premium

Premium received or receivable on regular premium paying contracts in the years

subsequent to the first year of the contract.

New business margin (NBM)

A measure of profitability computed as the present value of future profits on the

business sourced in a particular period and denoted as a percentage of APE.

Non participating business

Insurance contracts that do not participate in profits of the company.

Participating business

Insurance contracts that participate in the profit of the participating business of

the insurance company during the term of the contract.

Annualised premium equivalent (APE)

Sum of annualised first year premium and 10% weighted single premiums

including top-up premiums.

Annuity benefits

A series of payments payable at regular intervals in return for a certain sum paid

upfront, under an annuity contract.

Assets under management (AUM)

Total value of investment of shareholders & policyholders that is managed by the

insurance company as prescribed by Insurance Regulatory and Development

Authority of India (IRDA) under investment regulations. AUM includes

investments disclosed in the balance sheet under Schedule 8, 8A, 8B and loans in

the nature of investments included in Schedule 9.

Conservation ratio

Ratio of renewal premium of the current financial year to sum of first year

premium and renewal premium of the previous financial year.

Contribution from shareholders’ account

The amount transferred from shareholders’ account to policyholders’ account to

make good the deficit arising in non participating funds as per requirement of the

Insurance Regulatory and Development Authority of India (preparation of

Financial statements and auditor’s report of insurance companies) Regulations,

2002.


Death benefit

The contractual amount as specified in policy document, payable on occurrence

of death of the life assured.

Fair value change account

Unrealised gains/losses (net) on mark to market securities pertaining to

shareholders and non-linked policyholders’ funds, as required by the Insurance

Regulatory and Development Authority of India (Preparation of Financial

Statements and Auditor’s Report of Insurance Companies) Regulations, 2002.

First year premium

Premium received or receivable on regular premium paying contracts in the first

year of the contract.

Free-look period

A period of 15 days or 30 days, allowed to a new policyholder, from the date of

receipt of policy documents, to enable him to review the terms and conditions of

the policy and cancel the policy, if it does not meet his requirement.

Funds for discontinued policies

The liability of the discontinued unit linked policies, which are within the lock in

period of five years from the date of issue, is held in this fund.

Investment yield

The income earned/received from an investment based on the price paid for the

investment. Investment yield is disclosed as a percentage.

Market consistent embedded value (MCEV)

The present value of shareholders’ interests in insurance business, using market

consistent methodology, where explicit allowance is made for risk in business.

Maturity benefit

The contractual amount, as specified in the policy documents, which is payable at

the end of the term of policy.

Mortality and morbidity risk

Mortality is the term used for the number of people who died within a population.

Mortality risk means the fluctuations in the timing, frequency and severity of death

insured, relative to that expected at the time of underwriting (at the inception of

the contract). Morbidity refers to the state of being diseased or unhealthy within a

population. Morbidity risk means fluctuations in timing, frequency and severity of

health claims, relative to that expected at the time of underwriting (at the

inception of the contract).

Net asset value (NAV)

The market value of each unit of a fund. NAV is declared on all business days,

reflecting the combined market value of the investments/securities (as reduced by

allowable expenses and charges) held by a fund on any particular day.

Persistency ratio

The proportion of business retained from the business underwritten. The ratio is

measured in terms of number of policies and premiums underwritten.

Policy liabilities

The amount held by the insurance company for meeting the expected future

obligation on existing policies.

Reinsurance premium ceded

Premium paid or payable by the insurance company to a reinsurance company in

lieu of reinsurance protection.

Return on invested capital

The ratio of profit after tax to share capital including share premium.

Solvency ratio

The ratio of available solvency margin (ASM) to the required solvency margin

(RSM). ASM is defined as the available assets in excess of liabilities in the


Shareholders’ and Policyholders’ funds and RSM is the required solvency margin

that an insurance company is required to hold as per the guidelines prescribed by

the IRDAI.

Sum assured

The benefit amount, which is guaranteed to become payable on a specified event

of the life assured as per the terms and conditions specified in the policy.

Surrenders

Termination of the policy at the request of the policyholder before maturity of

policy.

Terminal bonus

An additional bonus payable to participating policyholders on maturity and may

also be payable on death or surrender, provided the policies have completed the

minimum duration at death/surrender.

Transfer to shareholders’ account

The amount of surplus transferred from policyholders’ account to shareholders’

account based on the recommendation by the appointed actuary.

Weighted received premium (WRP)

The sum of first year premium received during the year and 10% weighted single

premiums including top-up premiums.

Indian Embedded Value (IEV)

IEV consists of Adjusted Net Worth (ANW) and Value of in-force (VIF) covered

business. ANW is market value of assets attributable to shareholders, consisting

of Required Capital (RC) and Free Surplus (FS).

Value of in-force covered business (VIF)

VIF is present value of future profits; adjusted for time value of financial options

and guarantees; frictional costs of required capital; and cost of residual non-

hedgeable risks.

Required Capital (RC)

The level of required capital is set equal to the amount required to be held to meet

supervisory requirements. It is net of the funds for future appropriation (FFAs).

Free Surplus (FS)

Free surplus is market value of any assets allocated to, but not required to

support, the in-force covered business.

Present value of future profits

Present value of projected distributable profits to shareholders arising from in-

force covered business. Projection carried out using ‘best estimate’ non-economic

assumptions and market consistent economic assumptions. Distributable profits

are determined by reference to statutory liabilities.


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]


ANALYST CERTIFICATION

We /I, Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research

report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)

or view(s) in this report.

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ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities

Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has

its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which

are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking

and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts

and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and

meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without

prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.

Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended

temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this

company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This

report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their

receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific

circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate

the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any

loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the

risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to

change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment

in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in

respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned

in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any

compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts

and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA Research Analysts of this report have not received any compensation from the companies mentioned in the report in the

preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month

preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject

company/companies mentioned in this report.

It is confirmed that Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities

described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and

to observe such restriction.

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