Backed By Strong Growth, SBI Life Gets IPO Ready

SBI Life Insurance, a subsidiary of the country’s largest lender State Bank of India Ltd., hopes to go public in the second half of the current financial year, having recently initiated the IPO process.

While not sharing the exact timeline for launching its public offering, Arijit Basu, the company’s chief executive officer, told BloombergQuint that the request for proposal to appoint lead managers for the issue has gone out. Following this, the company will need to seek approvals from both the insurance regulator and the capital market regulator before it hits the market. This can take anywhere from one to four months, said Basu.

SBI Life will be the second pure-play life insurance firm to go public after ICICI Prudential Life Insurance listed in September 2016. The listing helped establish some benchmarks for valuing insurance companies, hitherto a rarity in the market.

At the time of listing, ICICI Prudential was valued at close to 2.73 times its March 2018 embedded value. According to a September 2016 Nomura report, this was lower than the HDFC Life Insurance-Max Life Insurance combine. SBI Life, whose valuation benchmark was set based on a sale of 3.9 percent stake to private equity investors in December 2016, was valued still lower at close to 2.19 times its March 2018 embedded value.

When asked whether the company expects a valuation upside when it lists, Basu said that the management hopes that a strong growth in the company would be received well by the investors.

For the financial year ended March 2017, SBI Life reported a net profit of Rs 955 crore, an 11 percent increase over last year, the company said in a press release on May 3. The new business premium grew 43 percent to Rs 10,144 crore, the insurer said, adding that it has become the first private sector life insurer to cross Rs 10,000 crore in new business premium, as measured on an ‘annual premium equivalent’ or APE basis. APE is a measure derived by normalising policy premiums into the equivalent of regular annual payments.

According to Basu, SBI Life has seen a pick-up in growth over the last two to three years as it has pushed business growth through both the bancassurance and agency channels. The bancassurance channel, where the country’s largest lender is its partner, was underutilised, said Basu.

“What we have managed to do in the last two-and-a-half years is that the bank itself is giving a lot more attention to cross-selling of third-party products... We have also collaborated much better with SBI, which has helped in this growth,” said Basu while adding that even now less than 50 percent of SBI’s branches are active in pushing the insurance company’s products. This suggests that high growth can be sustained if the bancassurance and agency channels are simultaneously developed.

Basu also highlights that the insurer is doing better than peers in customer satisfaction metrics such as persistency ratio. SBI Life’s 61st day persistency ratio, which shows how many customers are holding on to their policies even after five years, is at 69 percent. This is the highest in the industry, according to Basu.

SBI Life, will, however, face a crowded market when it comes out with its IPO later this year. The government plans to list five state-owned general insurance companies during the year, suggesting that investors would be offered a lot of insurance paper. Basu expects investors to distinguish between general insurance companies and life insurance firms. In the life insurance segment, SBI Life will be the only company to go public this year, he pointed out.