Strong parent backing leaves no scope for doubts
SBI Life Insurance is a JV between State Bank of India (SBI-70%), and BNP Paribas Cardiff (26%). The insurer's new business premium grew 35% from FY15 to FY17; it has a leadership position with 20% market share in New Business Premium (NBP) in FY17.
Strong premium growth has resulted consistent market share gain: SBI Life has been reporting strong growth in NBP, with 38.9% growth in FY2017 and 3 year CAGR of 28.3% v/s. industry growth rate of 26.2% and 13.5% respectively. Over FY2014-17, SBI Life has improved its market share by ~300bps to 20% (FY2017). Among the Private Insurers, SBI holds the leadership position, followed by HDFC Life - 17.2%, ICICI Pru - 15.5% and retained No. 1 position since last 8 years in NBP.
Widest distribution network backed by parent has ensured healthy AUM growth: SBI Life's parent i.e. SBI has a mammoth network of ~24,000 branches, which has helped it in garnering new business on a continuous basis. This has been instrumental in the strong AUM growth up 17.1% over FY2015-17 v/s. ICICI Pru's 10.7% and HDFC Life's 16.9% over the same period. Low miss-selling, high claim settlement and low surrender ratios will continue to drive the business of the company and we expect high double digit growth to sustain for multiple years going ahead.
Diversified product portfolio, high solvency & persistency makes SBI Life's business more predictable: SBI life has a well balanced portfolio (ULIP - 50.5%, Non participating - 34.7% and Participating - 15.4%) and is well capitalised with a solvency ratio of 211% (mandatory - 150%). This will ensure growth without dilution in the coming years, boosting the RoE from current level of 17%. Further, 13/37/61 month persistency ratio is the best among Private Players (SBI - 81.1/67.4/67.2, ICICI Pru - 85.7/66.8/56.2 & HDFC Life - 80.9/63.90/56.8). This reflects in the lowest surrender ratio of 22.8% among the private players (ICICI Pru - 52.8% and HDFC Life 31.3% for FY2017).
Outlook & Valuation: We believe the Indian Life Insurance industry is in a phase of high growth and lower penetration will ensure the growth remaining higher for next couple of years. SBI Life with its strong brand name and wide distribution network is one of the best plays for Indian Life Insurance industry. At the upper price band of `700 the issue is offered at 4.2x its Embedded Value of `16,538cr, little higher than 3.8x for ICICI Prudential. We believe the premium valuation for SBI is justified due to its higher incremental market share gain, and hence we recommended investors to "SUBSCRIBE" to the issue with long term perspective.