With growth engine strong, SBI Life now needs to focus on quality
The country’s largest private life insurer, SBI Life Insurance Co. Ltd, reported an impressive 41.9% growth in new business premium for the quarter ended December.
The growth in premiums was driven by retail individual business, the insurer said, adding that even renewal premiums have grown faster in this segment. As a result, its growth in assets under management was also higher at 23% for the nine months ended December compared with 17.6% in the corresponding period last year.
That, along with improving persistency ratios is a sign that the insurer continues to leverage on the unparalleled access of its parent’s distribution network and that its products are not only getting sold but also held on to. But this is a given, since bancassurance contributes to more than 65% of business.
Acquisition of new business would mean an increase in costs. SBI Life’s total cost as a percentage of its new business premium increased marginally to 12.3% from 12.6%.
Ever since insurance companies have begun getting listed on stock exchanges, investors have looked for growth potential. Analysts have given a “buy” rating for SBI Life’s stock since the insurer’s market share has grown to 20% from 13% in the last five years. The December quarter metrics show that the insurer’s profitability has strengthened.
But what of future profitability?
An improving persistency ratio indicates that the insurer’s future growth prospects are safe. SBI Life’s persistency ratio for the 13th month rose to 81.51% from 79.81% a year ago and for the 37th month rose to 68.81% from 67.48%. However, the ratio for the 61st month plummeted to 59.48% from 69.59%. Juxtapose this with the fact that the share of market-linked products has risen to 20% of its total portfolio from just 10% a year ago and prospects for future profitability look less upbeat.
Bullish equity markets have stoked the sales of market-linked products for most insurers and SBI Life is no exception. But sustainable profits lie in increasing traditional policies and especially protection plans. For SBI Life, traditional policies still form the lion’s share of its product portfolio and the insurer saw a growth of 18% in protection plans.
The stock ended 1.96% lower on Tuesday, even though it trades at just a little over three times its estimated embedded value for fiscal year 2019, much lower than its peers.
While SBI Life trumps competition in terms of growth, it now has to shoot for quality of business by focusing on protection plans.