BackSBI Life’s optimism to get tested in FY22 as LIC’s IPO looms large
SBI Life’s shares have not made big gains this year compared to peers and growth figures did not excite investors
PremiumIndia’s private life insurance firms have managed to weather the pandemic, making good the loss of business during the lockdown. The largest life insurer, SBI Life Insurance Co. Ltd, too, has shown a sharp recovery and investors have taken note of this. Business growth is crucial for life insurers because it is the bedrock of future profits.
The company’s management is optimistic that it would end the year on a growth note despite the massive hit on business in the April-June quarter. Analysts have pegged the FY21 business growth to be around 5% on an annualized premium equivalent basis. With much of the year already gone by, the focus now has rightly shifted to the next financial year. The question now is whether SBI Life will not just sustain but also show a significant boost in growth for FY22.
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The life insurer has launched new products during the year, increased its focus on simple protection plans and has utilized the vast network of its parent, State Bank of India, to a great extent.
The last parameter is a strength that analysts have often highlighted.
However, the access to SBI’s network has always been there and SBI Life has been able to use less than 2% of SBI’s customer pool, said analysts at Jefferies India Pvt. Ltd. This untapped potential and the tie-ups with other public sector banks augur well for growth prospects in the coming years.
Given that proprietary channels were hit during the lockdown, the life insurer has seen a sharp rise in its digital sales. This is a good sign for growth. That said, bancassurance channel contributes the lion’s share in premiums. SBI accounted for 60% of the premiums in the nine months ended December.
Even as growth comes back, SBI Life’s profitability metrics showed an improvement, too. The value of new business grew 13%, not a mean feat during a pandemic. Covid has made Indians more willing to buy life insurance and that seems to have worked in favour of life insurance companies.
However, SBI Life’s shares have not made big gains so far this year compared to peers and its growth numbers did not excite investors. There is one other aspect that investors need to focus on. Life Insurance Corp. of India (LIC), the largest player in the country, may get listed in FY22.
The government has reiterated its intention to list LIC through an initial public offering. Of course, this is a threat to all listed private life insurers. However, SBI Life could be hit harder than others because there is overlap between its target client base and that of LIC. “We will watch for any impact of aggressive sales push by LIC, which may have higher overlap with the targeted segments and markets of SBI Life," wrote analysts at Jefferies in a note.
In FY22, SBI Life must not only deliver high growth but also guard against the insurance behemoth in market share.
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