SBI Life flexes its market leader muscle in growth but not profitability
1 min read.Updated: 23 Jan 2020, 11:37 PM ISTAparna Iyer
The country’s largest private life insurer grew its new business premium by 35% for the first nine months of the current financial year
In annualised premium equivalent terms, which considers first year premiums and 10% of one-time premiums, SBI Life reported 22% growth
In an under-penetrated market such as India, the mettle of a life insurer is known by how fast it can push its products.
On that front, SBI Life Insurance Co. wins hands down.
The country’s second largest life insurer grew its new business premium by 35% in the first nine months of the current financial year. In annualised premium equivalent terms, which considers first year premiums and 10% of one-time premiums, SBI Life reported 22% growth.
In short, the life insurer was able to push its products to more and more customers, faster than competition. The fact that it has access to an unparalleled distribution network of its parent doesn’t hurt.
But fast growth for an insurance company would mean sacrificing on profits, given that the costs of underwriting insurance is upfront, while the payoffs to the insurer are staggered.
SBI Life Insurance’s profit after tax grew by a modest 3% due to the hit it took on its investment book, following defaults by Dewan Housing Finance Corp. Ltd (DHFL) on its bonds.
Surely, investors seem to ignore this and focus on the strong business growth the insurer has reported.
Shares of the life insurer gained about 1.5% in the past two trading sessions, in response to its earnings report.
While business growth is critical, an important aspect is how much profit the insurer is able to squeeze out of every policy account. Here, SBI Life seems to have fallen behind ICICI Prudential Life Insurance. The value of new business margin was at 18.3% for SBI Life, which was lower than ICICI PruLife’s 20%.
Another competitor, HDFC Life Ltd, too trumped SBI Life in profitability metrics. HDFC Life’s value for new business grew at a brisk pace of 45% for the nine months ended December, while value for new business margin was 26.6%.
SBI Life has been on analysts’ buy recommendation for long now. But after the stellar 29% increase in its share price in the last six months, concerns over valuations have emerged. The life insurer needs to up its game on profitability for investors to stay positive on its stock.