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Steady quarter, APE/VNB beat our estimates

Agency channel witnessing strong momentum

* SBILIFE reported a strong 3QFY22, with APE growth of 31% YoY and stellar VNB growth of 54% (10% beat). VNB margin stood broadly stable QoQ at 25.6%. Shareholders’ PAT grew 56% YoY to INR3.64b (20% beat).

* Among segments, ULIP saw an APE growth of 28% YoY. Non-PAR/Protection grew better than its peers at 67%/27% YoY. Persistency improved across cohorts, with 13th month persistency at 87.2% (up 103bp YoY).

* We raise our growth projections and expect SBILIFE to deliver 29% CAGR in APE over FY21-24E. VNB margin is estimated to touch 26.3% by FY24E, thus enabling 34% VNB CAGR, while RoEV sustain at ~19%. SBILIFE remains our preferred pick in the Life Insurance space. We reiterate our Buy rating.

Robust growth in premium; persistency trends improve

* SBILIFE posted a 31% YoY growth in net premium, led by a 105% YoY growth in the single premium business. Growth in renewal premium improved to 14.4% YoY v/s 9% YoY in 2QFY22. Shareholders’ PAT grew 56% YoY aided by controlled expenses.

* Total APE grew ~31% YoY, led by a 28%/67% growth in the ULIP/Non-PAR segment. The Protection business grew 27% YoY on the back of a 55% growth in the Credit Protection business. The share of Non-PAR rose to 12% (v/s 9.5% in 1HFY22), while ULIP stood ~67%. Mix in the Protection segment moderated slightly to 9.2%.

* COVID-19 update: SBILIFE received 26,708 COVID claims in 9M (22,606 claims in 1HFY22). COVID-related claims net of reinsurance paid out stood at INR15.3b (INR13.4b in 1HFY22). It carries an additional reserve of INR2.7b towards COVID-19 claims.

* Absolute VNB growth was a robust 54% YoY (66% YoY in 9MFY22) at INR11.7b, while VNB margin moderated by 34bp QoQ to 25.6% on the basis of ETR (in line). Thirteen month persistency moderated 50bp QoQ to 87.2%. It improved slightly (20-60bp range) across other cohorts.

* On the distribution front, the share of banca/agency channel in total APE stood ~66%/~23%, with the banca channel gaining 252bp QoQ. The share of other channels (including tie-ups with other partners) stood ~11%.

* SBILIFE continues to maintain its cost leadership, with a total expense ratio of 7.7% in 3Q (v/s 9.5% in 1HFY22). The solvency ratio stood at 209% v/s 212% in 2QFY22.

Highlights from the management commentary

* The Credit Life segment grew 31% YoY. Total Annuity and the Pension business grew 28% YoY in 9MFY22.

* SBILIFE is planning to launch a deferred Annuity plan within the Individual business. Overall, the target remains to grow higher than the market.

* The company didn’t witness any hike in re-insurance rates.

* SBILIFE is likely to see a jump in renewal premium in 4QFY22, led by an improvement in persistency ratios.

Valuation and view

SBILIFE reported a strong quarter, with VNB growing at a stellar pace, led by an improving product mix and strong business volume across all key segments. The shift in product mix towards higher margin products such as Non-PAR and Protection would drive an improvement in VNB margin. SBILIFE continues to maintain its cost leadership, with persistency trends showing an improvement across cohorts. We estimate 29% CAGR in APE over FY21-24E. VNB margin is estimated to touch 26.3% by FY24E, thus enabling 34% VNB CAGR and ~19% EV CAGR over FY21-24E. We maintain our Buy rating with a revised TP of INR1,600/share (2.9x Sep’23E EV).

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