SBI Life Insurance's billion-dollar IPO to open on September 20: A sneak peak into the insurer and its financials

Aseem Thapliyal        Last Updated: September 19, 2017  | 16:02 IST
SBI Life Insurance's billion-dollar IPO to open on Sept 20: A sneak peak into the insurer and its financials

SBI Life Insurance, a subsidiary of the country's largest lender State Bank of India, is coming up with an initial public offer (IPO) on September 20 to raise up to Rs 8,400 crore. SBI Life Insurance is a joint venture between SBI and BNP Paribas Cardif (BNPPC) - the insurance holding company of France. SBI holds 70.10 per cent in SBI Life and 26 per cent is held by BNPPC.

SBI Life will become the second life insurer to go public after listing of ICICI Prudential Life Insurance last year.

Also read: SBI Life to launch India's first billion dollar IPO in seven years

State Bank of India (SBI) will dilute up to 8 crore shares while BNP Paribas Cardif SA will offload up to 4 crore shares. We look at the prospects and financials of the life insurer.

Claims ratio

SBI Life's claims ratio stood at 93.39 percent in terms of number of policies and 83.05 percent in terms of benefit amount for 2015-16.

The claims ratio is claims payable as a percentage of premium income. Market leader LIC had claims ratio of 98.33 percent in terms of number of policies and 95.59 percent in case of benefit amount. HDFC Standard logged claims ratio of 95.02 percent in terms of number of policies and 69.41 percent in terms of benefit amount. Edelweiss Tokio recorded claims ratio of 85.11 percent in terms of policies and  86.47 percent in terms of benefit amount. ICICI Prudential registered claims ratio of 96.20 percent in terms of number of policies and 88.07 percent in terms of benefit amount.

The firm has LIC, HDFC Standard Life, ICICI Prudential Life, MaxLife, Bajaj Allianz, Edelweiss Tokio Life Insurance among its major competitors in the Indian insurance market.

Financials

For the quarter ended June 30, 2017, the insurer earned Rs 313.48 crore in net profit. For the year ended March 31, 2017, the life insurer earned Rs 954.6 crore in net profit against Rs 844.1 crore net profit for the year ended March 31, 2016.

As of March 31, 2015, 2016 and 2017 and as of the three months ended June 30, 2017, the insurer's solvency ratio was 2.17, 2.12, 2.04 and 2.11, respectively, compared to the Insurance Regulatory and Development Authority of India (IRDAI) mandated requirement of 1.5. The solvency ratio indicates whether a firm's cash flow is sufficient to meet its short-term and long-term liabilities.

Some of the insurer's group firms have suffered losses in the past which are SBICAP (UK) Rs  5.42 crore, Rs 5.67 crore, Rs 3.81 crore for 2017, 2016 and 2015 fiscals , respectively.  

SBICAP (Singapore) Ltd incurred losses worth Rs 1.123 crore, Rs 1.08 crore and Rs 7.51 crore (net profit) for 2017, 2016 and 2015 fiscals, respectively.

SBI Infra Management Solutions incurred losses of Rs 67 lakh in fiscal 2017.

SBI Funds Management (International Private Ltd) incurred Rs 0.03 million, Rs 0.07 million and 0.04 million loss in for 2017, 2016 and 2015 fiscals, respectively.

As of June 30, 2017, the company's net worth was Rs 58,787.97 million and as of March 31, 2017, the net worth was Rs 55,520.80 million as per the company's restated financial statements.

Its contingent liabilities stood at Rs 416.51 crore. Contingent liability is a potential liability that may occur, depending on the outcome of an uncertain future event.

Assets under management

As of June 2017, the insurer had assets under management (AUMs) worth Rs 1,012,260.34 million and equities, government securities and corporate bonds represented 23.02 percent, 46.44 percent, and 21.92 percent, respectively of the AUM on such date.

The industry's AUM grew at a compounded annual growth rate (CAGR) of 19 percent during fiscal 2001 to fiscal 2017 to Rs 30 trillion. Total premium rose at a stupendous 17 percent  CAGR during fiscal 2001 to fiscal 2017, after the privatisation in 2000.

The firm is country's largest private life insurer, in terms of new business premium generated in each fiscal year, since fiscal 2010. It increased market share of new business premium generated among private life insurers in India, from 15.87% in fiscal 2015 to 20.04% in fiscal 2017, and market share of new business premium in the entire life insurance industry, from 4.89% in fiscal 2015 to 5.80% in fiscal 2017.

Sum assured

The total sum assured under the individual life insurance business was Rs 96 trillion as of fiscal 2017. The sum assured for the individual insurance is estimated to have increased at a CAGR of 16% from fiscals 2011 to 2017. Sum assured is the guaranteed amount the policyholder will receive. This is also known as the cover or the coverage amount and is the total amount for which an individual is insured.  

The total number of individual policies in force was 322 million as of fiscal 2017. 705 products were in force in the life industry as of March 2017, with 536 products in the individual segment and 169 products in the group business segment. In fiscal 2017, 74 new products were introduced, with 13 in the group business segment and 61 in the individual business segment.

Investments

As of March 31, 2015, 2016 and 2017 and as of the three months ended June 30, 2017, 68.75%, 77.47%, 76.81% and 76.98%, respectively, of the insurers' investments were in debt securities.

Income from investments increased by 178.22% from Rs 33,409.14 million in fiscal 2016 to Rs 92,949.84 million in fiscal 2017. This increase was primarily due to an increase in investment income of its unit-linked portfolio from a gain of Rs 3383,013.45 million in fiscal 2016 to a gain of Rs 55,266.70 million in Fiscal 2017.

Bancassurance

Bancassurance represents its largest distribution channel. The life insurer sells its products through bancassurance for which they charge fees and in turn help in raising market share of the firm. Bancassurance is the practice of selling of insurance through a bank's established distribution channels.

In fiscal 2015, 2016 and 2017 and for the three months ended June 30, 2017, the bancassurance channel contributed 51.75%, 60.74%, 64.71% and 65.66%, respectively, of SBI Life's new business premium from individual products. The insurer has bancassurance agreements with SBI, Andhra Pradesh Grameena Vikas Bank and Purvanchal Grameen Bank.

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