Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable’ rating on the subordinated debt issuance (also known as hybrid instrument) of PNB MetLife India Insurance Company Ltd (PNB MetLife).

 

The rating factors in the expectation that PNB MetLife will maintain sufficient cushion in its solvency ratio over and above regulatory stipulation, backed by adequate capitalisation and strong support from majority owner and promoter, MetLife Inc (MetLife; rated at 'A-/Stable/A2' by S&P Global Ratings [S&P Global]). MetLife is supportive of PNB MetLife’s stance of maintaining large cushion in its solvency ratio, above the regulatory requirement.

 

The rating is driven by the strategic importance of PNB MetLife to, and expected need-based support from, MetLife, its majority shareholder and promoter, both on an ongoing basis and in case of distress. Established market position of the company in the life insurance industry, sound investment portfolio and adequate capital position are also factored in the rating. These strengths are partially offset by modest profitability metrics constrained by high, though reducing, operating expenses and inherent challenges in maintaining growth and improving profitability amid rising competition.

 

MetLife has increased its shareholding in the company to ~49% from ~32%, which reflects the strategic importance of PNB MetLife. Considering the regulation around foreign direct investment (FDI) in the Indian insurance sector, MetLife can increase its stake up to 74%, subject to shareholder agreement and regulatory approval, but the management has not provided any timelines for the same. The company derives brand name, technical know-how and managerial oversight from MetLife. MetLife’s strong position and experience in the global life insurance market significantly benefits PNB MetLife. In return, the presence of PNB MetLife augments the product suit and geographical presence of MetLife, thereby making it critical for the Latter’s consolidated position and future scope of expansion. Additionally, MetLife has adequate board representation in PNB MetLife and also oversees the latter’s operations.

 

Punjab National Bank has been a shareholder of PNB MetLife since 2013. It provides access to over 11,000 branches for PNB MetLife to distribute its products. It also has board representation with four seats and oversees PNB MetLife’s operations.

 

PNB MetLife is ranked among the top 10 private life insurers in India based on total new premium, with market share of about 0.9% (based on new business premium income for fiscal 2024), and has been among the top players in the industry for many years now. During fiscal 2024, the company’s total premium (new business and renewals) grew at 10.8%. A large proportion of this growth was contributed by new business premium, which grew at 5.9% during the year, whereas renewal premium grew at 13.6%. On September 30, 2024, the thirteen- and sixty-one-months persistency ratios stood at 83% and 48%, respectively. 

 

In fiscal 2024, the company reported profit of Rs 276 crore, as against profit of Rs 112 crore in fiscal 2023. During this period, the company focused on bringing in operational efficiency through improved persistency, lower expense ratios and healthy product mix, resulting in growth of 146% in the shareholder profit. For the first half of 2025, the company reported net profit of Rs 107 crore.

 

The rating also considers adequate capital position and buffer in the solvency ratio over the regulatory stipulation. On a steady state basis, the company is expected to maintain adequate buffer in solvency ratio over the regulatory requirement of 1.5 times. The solvency ratio stood at 1.71 times as on September 30, 2024. The rating is also supported by the sound investment portfolio, which is driven by stringent regulatory norms. Return on equity (RoE) was 7-14% over the last five fiscals, and negative for fiscal 2022 due to Covid-19 claims. As on September 30, 2024, RoE stood at 11.6%. Value of new business (VNB) margin declined from 21.3% in fiscal 2023 to 15.8% in fiscal 2024 due to change in the product mix, reduction in interest rates and higher distribution investments.

 

PNB MetLife relies majorly on bancassurance, which accounts for ~58% of the overall business. Driven by its established partnerships with banks such as PNB, J&K Bank and Karnataka Bank and strategic distribution agreements with Unity Small Finance Bank, American Express Banking Corporation, Shinhan Bank and ESAF Small Finance Bank. PNB MetLife has easy access to their branches, which are present across the country. In fiscal 2024, the new business premium contribution by the bancassurance channel was 58% followed by 32% from the proprietary channel (agency and direct channels) and remaining from other avenues. While higher reliance on the bancassurance channel has yielded cost benefits over the last few years, it makes the distribution channel base of PNB MetLife concentrated. As on March, 31, 2024, the company had agreements with 94 insurance marketing firms (IMFs) and 155 brokers, through which the company sells its products. The company has onboarded 303 new partners over the past four years. These partnerships collectively contributed approximately Rs 286 crore in new business premium in fiscal 2024.

Analytical Approach

CRISIL Ratings first arrived at the corporate credit rating of PNB MetLife, which is an indication of the company’s ability to meet policyholder obligations. For this, CRISIL Ratings has factored in the support PNB MetLife receives from its parent companies in addition to the assessment of the business, financial and management risk profiles of PNB MetLife. The subordinated debt instrument is then tested for additional risk factors to determine whether its rating should be the same as, or lower than, the corporate credit rating. The extent of cushion that PNB MetLife intends to maintain -- over and above the regulatory stipulation -- on an ongoing basis is taken into consideration to arrive at the rating on the subordinated debt instrument. The stance of PNB MetLife and MetLife on the level of cushion PNB MetLife would maintain in the solvency ratio has also been factored.

Key Rating Drivers & Detailed Description

Strengths:

Strategic importance to, and expected strong support from, MetLife

PNB MetLife is strategically important to MetLife and derives significant technical, funding and branding support from the parent. This is reflected in the representation of MetLife’s directors, including the regional president of MetLife Asia being the Chairman of PNB MetLife’s board, and MetLife’s high involvement in PNB MetLife’s functioning. Since PNB MetLife’s inception in 2001, MetLife has been its key stakeholder and provided need-based capital support. In line with earlier expectations, MetLife has increased its shareholding in PNB MetLife from ~32% to ~47% in fiscal 2022 and further to ~49% in November 2024. MetLife is expected to retain majority stake in the company and remain the largest shareholder with high representation on the board and management and operational oversight. As per FDI regulation applicable for the insurance sector in India, a foreign investor can hold a maximum of 74% stake in an insurance company and hence MetLife has headroom to increase its stake in PNB MetLife, if required. PNB MetLife’s strategic importance to MetLife is underpinned by the former's established market position among private sector life insurance companies in India and expectation of improvement in its market share and overall profitability over the medium term. Further, PNB MetLife - being the Indian life insurance arm of MetLife – enhances the parent’s market position in the Indian market and adds diversity to the latter's bouquet of insurance product offerings.

 

Adequate capitalisation and cushion in solvency over regulatory minimum

PNB MetLife’s capitalisation is adequate for the nature and scale of its business. As on September 30, 2024, the company reported networth of Rs 1,836 crore which, apart from the financial support from the parent companies, has been supported by internal accrual.

 

The company has maintained solvency ratio above 1.8 times over the last 5-7 years and intends to operate at a solvency margin above 1.7 times on a steady state basis, which is aligned with MetLife’s stance. As on March 31, 2023, PNB MetLife had solvency ratio of 1.86 times, which dipped marginally to 1.71 as on March 31, 2024, and is maintained at 1.71 times as on September 30, 2024. As the company’s product portfolio has always been balanced across unit-linked insurance plans (ULIPs) and traditional products, its capital requirement will not increase materially with growth.

 

Established market position

Since its inception in fiscal 2001, PNB MetLife has been among the top 10 life insurance companies in the country. Between 2014 and 2024, its overall market share in terms of new business premium has increased marginally from 0.6% to 0.9%, whereas in terms of annual premium equivalent (APE), the market share has increased from 1.1% to 1.8% over the same period. The portfolio was initially focused on participating products (PAR) and ULIPs; however, the company has migrated towards a higher share of non-PAR businesses over the last few years. As on March 31, 2024, the PAR segment accounted for 34% and ULIPs 28% of the premium whereas the non-PAR segment accounted for a significant 37%. Over the medium term, the company aims to achieve a balanced product mix between traditional and ULIP segments while continuing to grow at a higher rate than the industry.

 

Sound investment portfolio supported by stringent regulations

PNB MetLife follows a stringent investment policy in addition to the regulations prescribed by the Insurance Regulatory and Development Authority of India. The investment expertise of MetLife and its oversight provide further strength. As on September 30, 2024, ~98% of debt investments were in sovereign instruments and 'AAA' rated instruments. Equity investments accounted for ~22 of the investment portfolio as on September 30, 2024. The company has a track record of zero non-performing assets (NPAs) since inception in the non-linked portfolio.

 

Weaknesses:

Modest profitability metrices constrained by high, though reducing, operating expenses

PNB MetLife’s expense ratio, though improving, have been higher than its peers. The higher operating expense ratio is due to the smaller size of business compared to peers. Increase in business over the past few years has resulted in improvement in the operating expense ratio.

 

Also, the share of renewal premium has been increasing gradually over the last few years and the operating expense to net premium and new business premium ratios have been declining, though, still remain higher than peers. Nevertheless, the company is focused on bringing in operational efficiency through improved persistency, lower expense ratio and healthy product mix, resulting in growth of 146% in shareholder profit.

 

For new business premium, PNB MetLife’s operating expense ratio has improved to 39% as on September 30, 2024, as against 43-56% earlier, whereas for overall premium, the company’s operating expense ratio was 16-17% over the last 3-4 years. The admin expense ratio reduced to 15.5% in fiscal 2024 from 16.9% in fiscal 2023. Resultantly, PNB MetLife’s earnings profile has been modest. Moreover, factors such as the company’s non-PAR focused business model and lower-than-peers, though improving, persistency ratios have constrained its premium income. PNB MetLife’s pre-tax returns (basis total assets) remained sub 1% and return on networth (RoNW) stood at 11.6% as on September 30, 2024. Value of new business (VNB) margin declined to 15.8% in fiscal 2024 from 21.3% in fiscal 2023 due to change in product mix, reduction in interest rates and higher distribution investments. The ability of PNB MetLife to improve returns amid growth and competition remains monitorable.

 

Exposure to challenges such as sustaining profitability due to changing regulatory environment and growing competition

Intense competition from other private life insurers can make it challenging for the company to maintain profitability. Moreover, with the dominant position of Life Insurance Corporation of India in the domestic market, private players need to continuously innovate to attract customers and manage the return expectations of policyholders. Top players had the early mover advantage and captured larger market share while others are continuously focusing on innovative products and increasing persistency to get a higher share of the market. The ability to generate adequate profit while growing in sync with the industry will be a key monitorable over the long term.

Liquidity: Strong

As on September 30, 2024, total non-linked policyholder investments stood at Rs 37,272 crore. The company had debt investment (non-ULIP, excluding investments in real estate, InvITs and money market investments (TREPs and CPs) of Rs 34,302 crore, of which 99.6 % was rated 'AA’ or above or was sovereign in nature. The major outflow for the company is benefits to claimants (net of reinsurance), which have remained stable, barring when Covid-19 claims elevated. Since life insurance inherently is a highly granular and stable business, liquidity is likely to remain comfortable on an ongoing basis.

Outlook: Stable

CRISIL Ratings believes PNB MetLife will continue to derive strong financial and managerial support and oversight from MetLife both on an ongoing basis and in the event of distress. The company will maintain adequate cushion in its solvency ratio over and above regulatory minimum on a steady-state basis.

Rating Sensitivity Factors

Upward Factors

• Increase in shareholding of MetLife in PNB MetLife, depicting increase in the strategic importance of the latter to, and support from, MetLife

 

Downward Factors

• Downward revision in the rating or outlook on the parent MetLife will result in a similar action on PNB MetLife
• Significant & sustained reduction in the solvency ratio below 170%

About the Company

Incorporated in 2001, PNB MetLife is one of the leading life insurance companies in India with MetLife International Holdings LLC (MIHL) and Punjab National Bank Ltd (PNB) being its key shareholders. Other prominent investors are M Pallonji and Company Pvt Ltd, Jammu & Kashmir Bank Ltd (JKB), and other private investors.

 

As on March 31, 2024, PNB MetLife had 150 branches across the country with access to over 16.5 lakh customers in ~19,178 bank branches through PNB, JKB, Karnataka Bank and other bank partners.

 

The company offers a wide range of products through agency sales of over 28,172 financial advisors and multiple bank partners, and provides employee benefit plans to over ~520 corporate clients in India.

Any other information: Not Applicable