Rating Rationale
December 31, 2018 | Mumbai
SBI Life Insurance Company Limited
Rating Reaffirmed 
 
Rating Action
Financial Strength Rating AAA/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'AAA/Stable' financial strength rating on SBI Life Insurance Company Ltd (SBI Life).
 
The rating also factors in SBI Life's position as among the top private life insurers (in terms of market share) and the benefits that it derives from accessing the wide branch network of the State Bank of India (SBI, rated 'CRISIL AAA/CRISIL AA+/FAAA/Stable/CRISIL A1+') to sell its insurance products. Further, the rating also factors in adequate capital position that SBI Life has been maintaining.  
 
SBI Life has strong linkage with SBI driven by its 62% ownership and the shared name. SBI's presence in the insurance sector is through SBI Life, which is, therefore, one of the critical subsidiaries of SBI. Hence, CRISIL expects SBI to continue providing the necessary support to SBI Life going forward.  
 
These rating strengths are partially offset by the challenges that SBI Life is expected to face in sustaining its profitability due to rising competition.

Analytical Approach

For arriving at the ratings, CRISIL has assessed the standalone financial and business risk profiles of SBI Life. The company's strategic importance to, and expectation of providing the necessary support from, its parent, SBI (holds majority stake in SBI Life) has also been factored. 

Key Rating Drivers & Detailed Description
Strengths
* Strategic importance to, and expectation of strong support parent, SBI:
SBI Life has a strong linkage with SBI which is reflected in a shared brand name and majority ownership. SBI's presence in the life insurance sector is through SBI Life, which is, therefore, one of the critical subsidiaries for SBI. Established brand name and market reputation of SBI has enabled the company to build its own brand equity, which assists in targeting customers of all the segments.
 
SBI and SBI Life have a common chairperson at board level. Additional 2 members on the board of SBI Life are also directors on the board of SBI. The managing director of SBI Life is deputed from SBI. In addition, SBI also acts as a corporate agent for SBI Life, which allows SBI Life to access SBI's vast network of bank branches and customers for selling its insurance products. SBI Life's distribution model also allows it to have the lowest operating expense ratio amongst private life insurance companies (operating expense ratio is calculated as operating expense as a percentage of gross premiums earned).
 
SBI life has the financial flexibility to raise capital whenever necessary, as both its promoters, SBI and BNP Paribas Cardif (rated 'A-/Stable' by S&P Global Ratings) have established reputations and significant customer goodwill in India and globally. Further, with SBI Life is now being listed entity, has ability to source capital from external investors.
 
* Expected to remain top players within private life insurers
SBI life is expected to maintain its market position as one of the top player within life insurance industry. SBI life has maintained its market position and consistently improving its market share in each fiscal year. SBI life's market share in terms of gross premiums stood at around 5.5% as on March 31, 2018 (around 5.0% as on March 31, 2017). As on September 2018, the company continued its leadership position amongst private life insurers in India. The company has been in operation for more than a decade and has a presence across all the states and union territories in the country. Strong brand image and direct access to large customer base of SBI, provides critical support to the business growth of SBI Life. Furthermore, low insurance penetration and other supportive macro factors expected to drive growth.
 
The company's products are distributed through bank branches as the primary distribution channel, leveraging the State Bank of India's brand, reputation and large customer base. As a part of SBI's strategy, there is a strong and renewed focus on tapping the synergies with subsidiaries. The bank's continued focus on cross selling augurs well for SBI Life and will help the latter improve its market share. For the six months ended September 30, 2018, approximately 61% of the company's New Business Premiums were sourced through bancassurance. Also, the company's agency channel is the biggest (in terms of New Business) comprising of 1,13,045 licensed agents as on September 2018. For the six months ended September 30, 2018, agency channel contributed 21% of the company's New Business Premiums.
 
* Adequate capital position
SBI life maintains adequate capital position despite showing high growth in New Business Premium (FY18 3 Year CAGR > 25%). The comfortable capital adequacy position is reflected in the healthy solvency margin of over 2.0 times maintained for last 10 years. The absolute net worth of over Rs 7000 crore as on September 30, 2018 (Rs 6530 crore as on March 2018). Post listing in October 2017, SBI holds 62.1% and BNP Paribas Cardiff holds 22% stake with remaining stake is with public. Despite there has been no capital infusion in the company during last 10 years, the solvency margin has remained above 2 times.
 
SBI life reported embedded value of Rs 19,910 crore as on September 30, 2018 (On effective tax rate basis, the embedded value is at Rs 21,170). The proportion of embedded value to networth stood at close to 3 times as on March 31, 2018 which was in line with some of its close peers. The embedded value is representation of actual capital position since it includes the future profits that company is expected to receive from the business it has underwritten till valuation date. The steady increase in internal accruals enables the company to maintain capital position while achieving healthy business growth.
 
Weakness
* Exposure to inherent competition in the insurance business, and associated challenges
Intense competition from other private life insurers can make it challenging for SBI Life to maintain its profitability. Moreover, with the dominant position of the Life Insurance Corporation of India in the domestic market, newer players need to continuously innovate to attract customers, and also manage the returns expectation of policy holders. Hence, the company's ability to generate underwriting profit and manage the investment portfolio to earn adequate returns, will determine its profitability over the long term.
Outlook: Stable

CRISIL believes SBI Life will remain strategically important to the SBI, and thus, continue to receive strong financial and operational support from SBI, and also benefit from the bank's distribution channel. The outlook may be revised to 'Negative' if, in CRISIL's opinion, there is a diminution in SBI Life's strategic importance to SBI, translating into a potential reduction in support from SBI, or weakening, in CRISIL's view, on SBI's credit risk profile.
 
Liquidity position
SBI life had cash and bank balance of Rs 1,984 crore as on September 30, 2018. Further, the company had debt investment book (within traditional segment) with market value of Rs 58,311 crore; of which 60% were in sovereign instruments and 24% in 'AAA' rated instruments. The major outflow for the company is claims settlement which was in the range of Rs 2200-3000 crore on quarterly basis during March 2017 to September 2018. Since life insurance inherently is highly granular and stable business, CRISIL expects liquidity to remain comfortable on an on-going basis.

About the Company

SBI Life, began as a joint venture between State Bank of India (currently 62.1% stake) and BNP Paribas Cardif (currently 22% stake) and commenced operations in 2001. The company is uniquely positioned to tap the vast potential of the Indian life insurance sector by harnessing the vast branch network of State Bank group. SBI tied up with BNP Paribas Cardif essentially on account of its expertise in selling insurance through the financial institutions channel (Bancassurance) and product development capabilities. Over the years, SBI Life has gradually increased the coverage of branches and presently, over 22,300 branches of State Bank group are covered under this channel. During third quarter of fiscal 2018, the company went for public issue through IPO wherein SBI's stake was diluted by around 8%. SBI life was successfully able to place its IPO during the 3rd quarter of fiscal 2018. Around 12% stake was diluted during the process. Presently, SBI continues to remain majority stake holder with 62.1% stake while BNP Paribas (Cardiff) holds 22% stake in SBI Life.
 
SBI Life reported a profit after tax (PAT) of Rs 1150 crore for fiscal 2018, against a PAT of Rs 955 crore for fiscal 2017. For the half year ended September 30, 2018, the company reported profit of Rs 605 crore compared to Rs 539 crore during corresponding period of previous year. As on September 30, 2018, SBI Life had a net worth of Rs 7,091 crore, embedded value of Rs 19,910 crore and a solvency margin of 2.21 times.

Key Financial Indicators
As on/For the period ended March 31, Unit Sep-18 2018 2017
Gross direct premium/Gross premium written Rs crore 12,444* 25,354 21,015
Profit after tax Rs crore 605* 1150 955
Persistency ratio (13th month) % 83.2 83.0 81.1
Persistency ratio (25th month) % 74.7 75.2 73.9
Persistency ratio (61th month) % 57.5 58.4 67.2
Solvency margin Times 2.21 2.06 2.04
*during half year ended September 30, 2018

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of the instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Rating Assigned with outlook
NA NA NA NA NA NA NA
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Financial Strength Rating  LT  0.00  AAA/Stable      27-12-17  AAA/Stable  29-12-16  AAA/Stable      AAA/Stable 
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Life Insurance Companies
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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