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MOSL: SBI LIFE INSURANCE (Buy)-Strong all-round performance

Shift in underlying product mix resulted in a spike in VNB margin

• SBILIFE reported a robust 1QFY23 with APE growth of 80% YoY (7% beat) and a sharp jump of 132% YoY in VNB (28% beat). VNB margin spiked 665bp YoY to 30.4% while shareholders' PAT grew 18% YoY to INR2.6b.
• Strong momentum in APE was reflected across all product segments. However, non-par savings stole the limelight in 1QFY23 with a massive growth of 645% YoY. It now forms 28% of business in APE terms. The growth was aided by a strong response to the newly launched product 'Smart Annuity Plus' in Mar'22.
• The notable improvement in VNB margin was primarily driven by a shift in underlying product mix with a larger share of high-margin products such as non-par savings and protection. Together, they constituted 39% of APE in 1QFY23 v/s 20%, a year ago. Retail protection APE growth of 54% YoY to INR2b is commendable, considering the muted performance of private peers.
• We raise our VNB margin estimates by 340bp and 270bp for FY23 and FY24 to 30.1% and 29.7%, respectively, and raise VNB estimate by 19% each over FY23/24. We expect SBILIFE to deliver 27% CAGR in APE over FY22-24, thus enabling 36% VNB CAGR, while RoEV sustains at ~22%. SBILIFE remains our preferred pick in the Life Insurance space. Maintain BUY.

 

Robust momentum in non-par savings leads to a spike in VNB margin

• SBILIFE reported 33% YoY growth in net premium, led by 67% growth in new business and 14% YoY growth in renewal business. Shareholders' PAT grew 18% YoY, aided by controlled expenses and lower claims.
• Total APE rose 80% YoY, led by a massive growth of 645% YoY in non-par savings and 46% YoY in protection. Par products and ULIPs also saw a healthy growth of 42% and 33% YoY, respectively. Surprisingly, annuity was flat after a strong performance in FY22.
• With this, the share of non-par savings in business mix increased to 28% from 7% in 1QFY22. SBILIFE does not have any internal cap on share of this segment and will continue to underwrite as long as it can hedge interest rate risk effectively. However, 25-30% is a sustainable range as per the management.
• Trends in retail protection are encouraging with a growth of 54% YoY. This is quite commendable in our view, given a weak performance by private peers in this segment during the quarter.
• VNB grew 132% YoY to INR8.8b led by a dramatic rise of ~665bp YoY in VNB margin to 30.4% in 1QFY23, coupled with a robust 80% YoY growth in APE.
• On the distribution front, banca channel outperformed agency with a 98% YoY growth v/s 65% YoY growth for agency on APE basis. This along with rising productivity further boosted overall performance.

 

Highlights from the management commentary

• SBILIFE aims to grow premiums by 25%+ on a sustainable basis
• Non-par guaranteed savings saw a robust growth as demand for this segment remains strong. The new product, 'Smart Annuity Plus', launched in Mar'22 has been well received by the market.
• There are no internal targets on the share of this segment and the company will continue to underwrite as long as it can hedge interest rate risk well.