SBI Life Insurance, a prominent player in the insurance sector, has recently reported a modest APE (Annualised Premium Equivalent) growth of 4% for the quarter ending June 2023. Despite this, brokerages are maintaining a bullish outlook on the company’s stock, citing several factors that contribute to its positive standing, including the brand reputation, effective distribution channels, and cost advantage.
APE Growth Falls Below Expectations
APE, a critical metric for life insurance companies, represents the measure of new business written. Market analysts had anticipated SBI Life’s APE to grow by 10% to reach Rs 3,177.5 crore. However, the actual figure came in lower at Rs 3,030 crore. Despite the subdued growth in Q1, experts are optimistic about the company’s future due to its impressive four-year CAGR (Compound Annual Growth Rate) of 12.7%. This figure stands higher compared to HDFC Life’s 8% and ICICI Pru Life’s 0.1%, as noted by Nuvama Institutional Equities.
Value of New Business (VNB) and Margins
During the same quarter, the Value of New Business (VNB) for SBI Life declined by 1% YoY (Year over Year) to Rs 870 crore, falling short of the estimated Rs 973 crore. The VNB margin also experienced a decline, dropping to 28.8% from 30.4% in the previous year. The primary reason for the margin decrease was attributed to weakness in the non-par segment. Life insurers experienced reduced demand for non-participating policies after the implementation of new tax regulations. This led to a shift in the company’s product mix towards ULIPs (Unit Linked Investment Products), which offer lower margins.
Management’s Guidance and Key Drivers
The management at SBI Life has maintained an optimistic outlook, projecting better-than-industry premium growth and a range-bound VNB margin of 28-30%. They acknowledged that product-level margins are likely at their optimum levels in the near term. Hence, the mix of products will be a crucial factor in determining the margin trajectory going forward.
Distribution Channels and Market Share
Bancassurance continues to be the dominant channel for SBI Life, with an APE mix share of 65%, showing a growth of 2.8 percentage points YoY. In contrast, the agency channel saw a decline in its share, standing at 25%. This decline is attributed to the dominance of non-par savings products in this segment. Market analysts, including Nuvama Institutional Equities, have adjusted their VNB estimates for FY24/25 slightly lower due to these developments. However, despite this adjustment, they have retained a ‘buy’ rating on the stock and maintained a target price of Rs 1,600.
SBI Life’s Growth Factors
Several investment experts including Motilal Oswal Financial Services and JM Financial also have ‘Buy’ rating on SBI Life with targets of Rs 1,570 and Rs 1,500 respectively. They throw light on the various factors contributing to the growth potential of the company. One of the growth factors for SBI Life is its parent company SBI, which boasts of a wide network of 23,000 branches and 2,22,000 strong agency strength. Additionally, SBI Life has the advantage of having one of the lowest cost ratios in the industry, giving investors added confidence.
Conclusion
While SBI Life Insurance reported modest premium growth in the recent quarter, its overall performance and strong market position have impressed investors and market experts alike. With a solid brand reputation, an extensive and well-established distribution network, and the backing of its parent company, SBI Life is well-positioned to maintain its sector leadership in the insurance industry. However, investors are advised to seek guidance from certified experts before making any investment decisions, as market conditions can change rapidly.
