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Sep 20, 2017 10:34 PM IST | Source:

SBI Life IPO – Get insured for life by paying the premium

While every good thing comes at a price, so is the IPO (initial public offer) of SBI Life. Long term investors should lock in to this offer for a safe journey.

Insurance is about safety and assurance and what better than when it comes from the most trusted lender – the State Bank of India. In an underpenetrated insurance market like India, the State Bank of India with its trusted brand and reach has already curved out a vantage position for itself. With greater penetration of financial literacy in far corners of the country, its position is only likely to strengthen. While every good thing comes at a price, so is the IPO (initial public offer) of SBI Life. Long term investors should lock in to this offer for a safe journey.

The History

SBI Life was established as a joint venture between the State Bank and BNPPC (an insurance subsidiary of BNP Paribas) in 2001. The parent SBI has a network of 24,017 branches and 195 international offices in 36 countries and more than 420 million customers. The company has a comprehensive product portfolio of 37 individual and group products.

The offer

The issue is an offer for sale of 12 crore shares valued at Rs 8400 cr – Rs 5600 crore from State Bank of India and Rs 2800 crore from BNPPC, Offered in a price band of Rs 685 to Rs 700 per share, the issue remains open for subscription from 20th September to September 22, 2017.

A nascent insurance market

India although a high growth market for insurers is still a nascent stage with a share of 2% in the global market. The size of the Indian life insurance industry is Rs 4.2 lakh crore on a total-premium basis as of fiscal 2017. Industry’s assets under management (AUM) grew at a compound annual rate (CAGR) of 19% during fiscal 2001 to fiscal 2017 and total premium has grown at 17% CAGR over this period.

Extremely low insurance penetration

India’s life insurance penetration stood at 2.7% in 2016 which compares unfavourably to peers like Thailand, Singapore and South Korea where it was at 3.7%, 5.5%, and 7.4%, respectively in 2016. Hence this suggests the untapped potential of the Indian life insurance market.

High protection gap

The protection gap for India stood at US$ 8.5 trillion as of 2014, which was much higher compared to its Asian counterparts. This means that for US$ 100 of insurance protection requirement, only US$ 8 was actually insured. This indicates the absence of pure protection coverage (term insurance) for a large part of the population.



Growing pension pool

As of 2014, only ~8% of retirees within the private sector receive a pension; therefore, a multi-fold increase in pension coverage to the private sector workforce is an imperative. If 70% of private sector retirees are adequately covered by 2030, their retirement assets will rise to ~26% of GDP in 2030.

Favourable demographics

Currently, India is one of the nations with the highest young populations, with a median age of 28 years. 90% of Indians will still be below the age of 60 by 2020 and 63% are expected to be between the age of 15-59. The target population for the industry, is therefore increasing in India and would boost industry growth. A large share of the working population, coupled with rapid urbanisation and rising affluence is expected to propel Indian life insurance sector growth. The endeavour for financial inclusion opens avenues for investments in insurance and other savings products as well.

Structural change in life insurance business

With IRDAI (Insurance Regulatory and development authority of India) permitting bank agents to sell insurance products, private insurance players have leveraged banking channels to market their products. This has led to a substantial reduction in commission-expense ratio. On an industry level, the same has dropped from 7.9% in FY07 to 5.35 in FY17. Operating expense too has fallen considerably especially for private players.

SBI Life – the leadership advantage

SBI Life has been reporting strong growth in NBP (new business premium), with 38.9% growth in FY2017 and 3 year CAGR of 28.3% v/s. industry growth rate of 26.2% and 13.5% respectively. Over FY2014-17, SBI Life has improved its market share by 300 bps to 20% (FY2017). Among the Private Insurers, SBI holds the leadership position, and retained its No.1 position since last 8 years in NBP.

Well entrenched distribution

SBI Life’s parent i.e. SBI has a mammoth network of ~24,000 branches, which has helped it in garnering new business on a continuous basis. The company has developed a multi-channel distribution network comprising of an expansive bancassurance channel (64.7% of sales), a large and productive individual agent network comprising 93,849 agents as well as other distribution channels including direct sales and sales through corporate agents, brokers, insurance marketing firms and other intermediaries.

Balanced portfolio

SBI life has a well balanced portfolio (ULIP - 50.5%, Non-participating - 34.7% and Participating - 15.4%). The focus on maintaining a diversified product mix has resulted in Value of New Business Margin of 15.4% in Fiscal 2017. It is well capitalised with a solvency ratio of 211% (mandatory - 150%). This will ensure growth without dilution in the coming years, boosting the RoE from current level of 17%. Further, 13/37/61 month persistency ratio (Persistency is the percentage of premium of policies remaining in force to the premium of all policies issued) is the best among Private Players (SBI – 81.1/67.4/67.2, ICICI Pru – 85.7/66.8/56.2 & HDFC Life – 80.9/63.90/56.8). This reflects in the lowest surrender ratio of 22.8% among the private players (ICICI Pru – 52.8% and HDFC Life 31.3% for FY2017).

Large well-managed investment portfolio

SBI Life’s assets under management stood at Rs 97,736 crore as of March 31, 2017and  most of their unit-linked funds that  are benchmarked to independent indices have out-performed the benchmark over the last 5 year, 3 year and 1 year horizons. The average realized returns for traditional portfolio in Fiscal 2017 was 9.00%.


Strength of financials

In the past four years while premium has grown by 19%, profitability has increased by 11% and the company has consistently maintained a healthy return ratio.


With the exclusive positioning of SBI Life, the issue has come at a premium.


We do not expect short-term upside. But for the long-term investors looking for stability in returns while riding on a secular theme, SBI Life is one policy that is worth paying a premium for.
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