SBI Life VNB margins seen expanding further to 17 per cent

Q3 was strong on robust 38.2% Y-o-Y growth in Individual Rated Premium (IRP; market share further up to 13% vs 11.2% in FY17), improvement in persistency ratio (in majority of buckets), a gradual uptick in Value of New Business margin (VNB; up 40 bps q-o-q to 16%) and efficient cost management (calc expense ratio down 196 bps q-o-q to 10.9%). Consequently, PAT was in line at Rs 230 crore (up 20.9% y-o-y). VNB came in at Rs 930 crore and VNB margin at 16% in 9MFY18. We expect VNB margin to expand further to 17% by FY20 on increased share of protection products (credit life and corporate group) and better persistency. Against backdrop of strong growth in APE along with margin enhancement, the management expects 20-25% y-o-y growth in EV in FY18.

SBI Life has consciously slowed down on group saving products (from 31.5% in FY17 to 12% in Q3FY18) leading to increase in share of ULIP, 63% currently vs. 51% in FY17; management has indicated to regain the share of group saving products to keep it in 15-18% range; it guided to achieve an ideal portfolio mix of non-PAR, 25-27% with 6% of protection share, PAR 20% and ULIP 53-55% in some quarters; in channel mix, Banca and agency grew 45% y-o-y and 23% y-o-y in NBP and 46% y-o-y and 22% y-o-y in IRP; From 9MFY17 to 9MFY18, agent productivity has increased from Rs 0.2 million to Rs 0.23 million and average individual ticket size in Banca has increased from Rs 48K to Rs 64K; and SBI Life aims to increase the average Banca productivity from current level of Rs 1.8 million per branch to Rs 3 million per branch over next 2-3 years.

Robust premium growth along with increasing share of high-margin products and operating leverage to drive return on Embedded Value (EV) of ~19% by FY20E. We expect 19.6% EV CAGR over FY17-20E to Rs 28,300 crore driven by ~30% CAGR in VNB to Rs 2,290 crore in FY20E.

State Bank of India