SBI Life Insurance Company Ltd’s value of new business (VNB), a key metric of profitability, more than doubled to Rs 880 crore for the June quarter and beat market estimates. India’s largest private sector life insurer reported a net profit of Rs 262.85 crore, an increase of 18 percent for the quarter.
Analysts had expected a VNB growth of 90-100 percent for the quarter. Kotak Institutional Equities puts VNB growth at 91 percent year-on-year for the June quarter to Rs 650 crore. Analysts at Jefferies and Motilal Oswal Financial Services Ltd had expected it to double to Rs 732.5 crore and Rs 726.6 crore, respectively.
VNB margin expanded to 30.4 percent from 23.7 percent a year ago. At this level, SBI Life trumps peers such as HDFC Life Insurance Company Ltd and ICICI Prudential Life Insurance Company Ltd on margins for the June quarter.
The robust VNB and VNB margin come on the back of a jump in business growth which is partly due to the base effect. The life insurer’s new business premium showed a 67 percent year-on-year growth to Rs 5,590 crore for the quarter. On an annualised premium equivalent basis, business growth was 29 percent.
To be sure, business growth was tepid in the June quarters of the previous two years owing to the pandemic’s impact. That said, adjusted for a noise of base effect, the new business premium on a five-year compounded annual growth rate basis, grew by a neat 25 percent. The APE showed a 5-year CAGR of 18 percent.
The life insurer was not only able to sell more policies but also hold on to its customers. Persistency ratios improved across tenures year-on-year with the 13th-month ratio rising to 83.03 percent from 79.53 percent a year ago. The upshot is that more customers stuck with SBI Life after having bought a life insurance policy. This is critical for a life insurance company as the cost of underwriting a policy is upfront while the policy generates income for the company over a staggered period of time. This can be earned only if the customer sticks with the company for a long time.
SBI Life’s growth came from retail sales of margin-friendly non-participatory products. The share of such products rose to 47 percent in the overall product mix from 30 percent a year ago. Share of market-linked products dropped sharply, an outcome of adverse market conditions. The life insurer took greater advantage of its parent, State Bank of India’s, branch network. The bancassurance channel contributed the most to business growth.Shares of SBI Life ended 3.78 percent higher at Rs 1,192.75 a piece on July 28 on the National Stock Exchange.