State Bank of India ::SBI Life – leveraging the bank:: Macquarie Research,

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State Bank of India
SBI Life – leveraging the bank
Event
 SBI Life Insurance is a joint venture between State Bank of India and BNP
Paribas Assurance. SBI owns 74% of the total capital and BNP Paribas
Assurance the remaining 26%. The company is the second-largest private life
insurance company in India in terms of retail new business premiums in FY10,
with a market share of 14%. In 2008 it became the first life insurance
company in India to post accounting profits.

Impact
 Rapid growth. New business premiums have grown at a rapid pace (CAGR
of 100%) over the past five years. The company has leveraged SBI’s (the
largest bank in India) 15,000 branches to post this impressive growth in
premiums. SBI life has a relatively lower share of ULIPs at 65%, compared
with peers who have around 85%+ business coming from ULIPs.
 Distribution – parent bank’s vast network a big plus. SBI Life extensively
leverages the State Bank Group relationship as a platform for cross-selling
insurance products. SBI’s access to over 100 million accounts across the
country provides a vibrant base for insurance penetration across every region
and economic strata of the country, thus ensuring true financial inclusion.
Agency Channel, comprising a productive force of more than 70,000
Insurance Advisors, offers door-to-door insurance solutions to customers. The
company has nearly 33% of business coming from the bancassurance
channel and about 45% coming from the agency channel.
 New regulations result in significant headwinds to industry profitability.
We believe industry profitability is now structurally likely to be lower after the
revised regulations. New business margins are likely to be down significantly,
and growth prospects look poor in the near term. New business strain is likely
to increase in the near term, resulting in more capital infusion. We think the
product mix would be difficult to alter materially, as the market demand is for
ULIPs. However, industry participants are sanguine over the longer term
considering the demographics and macroeconomic potential of India.
Action and recommendation
 We value SBI Life at 14x FY12E NBAP. This results in Rs163 per share
contribution to SBI SOTP. We rate SBI as Underperform.


SBI Life Aide Memoire
1. What is the trend for new business margins for the life insurance business? How have they been impacted post the new
IRDA guidelines? What do you think are your sustainable new business margins?
2. What is the growth you are targeting for FY11 in terms of new business premium, and what is the medium-term outlook for
growth?
3. What is your take on long-term growth prospects for the industry? Do you think the long-term growth drivers for the industry
remain intact?
4. How is the product mix going to change for you in the new regime? For the industry? How are you retraining your agents?
5. When do you expect sales to normalise from the impact of current uncertainty in the marketplace?
6. What are the cost-cutting measures you have taken for improving margins?
7. Are you facing issues of agent dissatisfaction in view of lower commissions on ULIPs? Do you see lower commission a
hindrance for your company and/or the larger industry to attract talent?
8. How much further capital is required for the insurance business?
9. When do you expect to list the business? Is the foreign investment limit to be raised (from the current 26%) an important
requirement before listing the subsidiary?