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In response to new IRDA guidelines on ULIPs, the insurer has made a U-turn in product strategy.
We expect its high agent productivity and strong focus on protection to pay off during the painful
transition. We revise our target price to Rs1,387 and maintain our Buy.
BSLI: U-turn in product strategy
Birla Sun Life Insurance (BSLI) thrived on product innovations in the unit-linked insurance plan
(ULIP) segment (it was the first private sector insurer to introduce ULIPs and NAV guarantee
plans in India), allowing it to charge premium pricing. However, with new product guidelines
capping the cost of intermediation, the expensive agency-based model has made it difficult for
Birla Sun Life to grow its linked business. Hence, to maintain profitability, it has shifted to selling
traditional non-participatory policies (50% of NBP in 2HFY11) and steered away from singlepremium
policies.
BSLI: Focus on agency productivity looks set to continue
Birla Sun Life relies heavily on its agency force for distribution (agency: 70%, bancassurance:
15%). In the absence of a bancassurance partner, it is critical for the insurer to maintain high
agent productivity and it has said this will remain a priority. Going forward, it will focus on a
‘gradual’ network expansion. If the regulator allows multiple tie-ups for banks , we think this could
provide a further fillip to its new business growth.
BSLI: Focus on protection should pay off
The insurer’s product strategy is focused on: 1) selling linked policies with guarantees; and 2)
higher sum assured giving the savings/investments business the ‘protection’ tilt. We believe
higher sum assured insulates the insurer against the risk posed by proposed direct tax code.
We increase ABNL’s TP as we revise valuation for BSLI and MTM listed investments
With no strong bancassurance support, we expect BSLI to grow slower than bank-backed
insurers. However, BSLI could retain or even improve its margins as it is selling high-margin, nonpar
products. We raise our valuation of BSLI from Rs47bn to Rs70bn (1.5x FY12F EV, 5.3x
FY12F BV) or from Rs297 per share to Rs439, and mark to market listed investments. This lifts
our TP to Rs1,387 from Rs1,100. A key risk is that pricing restrictions imposed by IRDA on
traditional policies adversely impact the company’s business model.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In response to new IRDA guidelines on ULIPs, the insurer has made a U-turn in product strategy.
We expect its high agent productivity and strong focus on protection to pay off during the painful
transition. We revise our target price to Rs1,387 and maintain our Buy.
BSLI: U-turn in product strategy
Birla Sun Life Insurance (BSLI) thrived on product innovations in the unit-linked insurance plan
(ULIP) segment (it was the first private sector insurer to introduce ULIPs and NAV guarantee
plans in India), allowing it to charge premium pricing. However, with new product guidelines
capping the cost of intermediation, the expensive agency-based model has made it difficult for
Birla Sun Life to grow its linked business. Hence, to maintain profitability, it has shifted to selling
traditional non-participatory policies (50% of NBP in 2HFY11) and steered away from singlepremium
policies.
BSLI: Focus on agency productivity looks set to continue
Birla Sun Life relies heavily on its agency force for distribution (agency: 70%, bancassurance:
15%). In the absence of a bancassurance partner, it is critical for the insurer to maintain high
agent productivity and it has said this will remain a priority. Going forward, it will focus on a
‘gradual’ network expansion. If the regulator allows multiple tie-ups for banks , we think this could
provide a further fillip to its new business growth.
BSLI: Focus on protection should pay off
The insurer’s product strategy is focused on: 1) selling linked policies with guarantees; and 2)
higher sum assured giving the savings/investments business the ‘protection’ tilt. We believe
higher sum assured insulates the insurer against the risk posed by proposed direct tax code.
We increase ABNL’s TP as we revise valuation for BSLI and MTM listed investments
With no strong bancassurance support, we expect BSLI to grow slower than bank-backed
insurers. However, BSLI could retain or even improve its margins as it is selling high-margin, nonpar
products. We raise our valuation of BSLI from Rs47bn to Rs70bn (1.5x FY12F EV, 5.3x
FY12F BV) or from Rs297 per share to Rs439, and mark to market listed investments. This lifts
our TP to Rs1,387 from Rs1,100. A key risk is that pricing restrictions imposed by IRDA on
traditional policies adversely impact the company’s business model.
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