After a couple of tepid quarters in the beginning of FY21, SBI Life Insurance saw robust growth in gross written premium in the second half of FY21. The company ended Q4FY21 with a nearly 50% year-on-year growth in gross written premium to Rs 15,650 crore, which helped it close FY21 with a 24% YoY rise in this metric to Rs 40,630 crore. Net profit for Q4FY21 came in at Rs 532.4 crore, compared to Rs 530.7 core a year ago.

This growth in premiums during H2FY21 came mainly through individual customers paying to renew the insurance and savings plans i.e. renewal premiums. While new business premium (i.e. premiums received on new products sold) rose 24% in FY21 to Rs 20,520 crore, renewal premium rose 23% to Rs 29,630 crore.

SBI Life Insurance is the largest private insurer in new business premium with a market share of 21.9% at the end of FY21. After the company announced its results, the stock touched its 52-week high of Rs 1,044.70 on Friday. During trade on May 7, 2021, buyout firm Carlyle sold its 3.5% stake in SBI Life for Rs 3,300 crore, according to reports.

We dig in to SBI Life’s FY21 and Q4FY21 numbers to figure out how FY22 will pan out for the life insurer.

Strong H2FY21 raises FY21 performance

As new business premiums from both individual and group products fell during the first two quarters of FY21, the new business margin (NBM) also took a hit. NBM indicates the expected profitability of the new businesses i.e. premiums the company has written. After finishing Q4FY20 with NBM of over 20%, this fell below 19%.

Business saw a revival due to customers loosening their purse strings as economic prospects improved.  Improving customer confidence came with  increased buying in insurance policies and investments in insurance savings plans. The latter was mostly because the stock market’s stellar performance led to more customers buying savings plans and unit-linked insurance policies or ULIPs.

However, despite the revival in SBI Life’s business in the second half of FY21, the company’s annual premium equivalent (or APE) in FY21 rose at a slower pace of 6.6% over FY20. (APE is the sum of annualised premium written by a life insurer during a financial year and includes 10% of single premiums).

This shows the impact of  lockdowns and the resultant economic pain on customer willingness to buy a life insurance policy or a savings plan/ULIP.

Among the three listed life insurance players, SBI Life has the lowest operating expense ratio. In fact, it is the lowest cost life insurance player in India. Using its parent State Bank of India’s pan-India branch network, the company plans to increase its market share, via this network. The company ended FY21 with an operating expense ratio of 4.8% (vs 5.9% in FY20) and commission ratio of 3.5% (vs 4% in FY20).

This suggests that as the company’s business grows in the future, its margins will improve as it has managed to control its costs.

Protection product’s share rises in FY21

A positive signal is the rising share of protection products (protection against risk of death) over the past four financial years. This shows that SBI Life isn’t relying on just one category of products for growth.

Out of the new business premium of Rs 20,620 crore written in FY21, nearly 12% came from protection products compared to 12.5% a year ago. This might seem confusing unless we look at the share of annual premium equivalent that the company has written over the years.

 What the graphic above shows is that in terms of APE, the share of protection (both group and individual) has been rising steadily over the past few years. This ties in with the company’s policy of not pushing one particular product. The management claims that it presents the available product options to its customers, and lets them make the choice.

This could be the reason that the proportion of ULIPs in total APE in the past four years has gone up from around 66% in FY18 to 70% in FY19 and FY20, and now down to 66% again in FY21. ULIPs have been hit by a change in the laws that taxes income from ULIPs above a certain threshold. This is expected to impact large ticket ULIPs, and the impact on SBI Life is expected to be limited.

What is also encouraging is the rising persistency of customers’ paying their premiums across various time periods. Persistency denotes the stickiness of customers paying their premiums on insurance policies.

 The management said that they are taking all necessary measures to revive lapsed policies. The results of this will have to be seen in the renewal premiums that the company earns every year.

Covid and future risks

SBI Life has created a specific provision, like other life insurers, of Rs 183 crore for Covid related death claims. There were a total of 5,076 claims worth Rs 320 crore that pertained to Covid in FY21. On an overall basis, the company settled nearly Rs 3,000 crore worth of claims in FY21.

The current environment with lockdowns does make it difficult to guess how customers of life insurance companies will behave. Any turmoil in the markets can impact the sale of ULIP products as well. The company is also focussing on credit protection business (insurance on life of a borrower mandated by lenders).

How that will pan out in the current environment is unclear, considering the economic uncertainty. The management for now, seems confident of a good performance in FY22.