Currently pure protection plans are the most profitable products for SBI Life Insurance, says Arijit Basu, MD and CEO at SBI Life Insurance Company Limited in an interview with FE. Excerpts:
How do you explain the surge in valuation from Rs 46,000 crore in December 2016 to around Rs 70,000 crore now for SBI Life Insurance?
There are two or three factors for arriving at this valuation. Firstly, the deal which was done in December 2016 was done at the embedded value of March 2016 which was Rs 12,999 crore and it was multiple of around 3.5 times. But now we have embedded value of March 2017 which is at Rs 16,538 crore, which directly results in a 32% increase. Apart from that, markets have also started understanding life insurance better as they have seen the performance and track record of ICICI Prudential Life Insurance over the last one year and have given them certain value to the business they are doing. So markets are seeing what is ICICI Prudential Life’s parameters across various areas and what are SBI Life’s position. So, if certain value is ascribed to the ICICI Prudential’s business, they have ascribed different value to us. Also, markets value the likelihood of future growth, where they look at the franchise and potential, so I think broadly above factors are the broad reasons for our valuations.
So what will be the shareholding pattern post IPO, and does BNP Paribas Cardif plan to increase or decrease its stake going forward?
Currently, State Bank of India (SBI) holds 70.1% in SBI Life, while BNP Paribas Cardif has a 26% stake and the remaining 3.9% is owned by KKR and Temasek Holdings. So, now 12% is being offloaded and after the IPO, SBI and BNP Paribas Cardif will hold 62.1% and 22% respectively. BNP Paribas Cardif has said that it remains committed to the company and therefore holds a certain minimum share. So broadly this time also they are reducing their stake proportion to the SBI, so we also anticipate that it will be in proportion to what SBI does in future.
What are the key reasons to hit the IPO at this point of time?
Initial public offering (IPO) requires long preparations and two years ago I had said that, we will come out the IPO of SBI Life in 2017-18 and that is precisely what we have done. So we have never deviated from our plan to list in FY18, somebody else went to market before us — that is fine as it must be as per their plan. I would also say that IPO was always in the plan after we reached 10-12 years of operations because unless one has certain value or volume you can’t offer to the investors significantly, so once we reached a certain value and volume we decided to come out, but everything was also part of the process. Also market timing plays the role in coming out the with the IPO.
What are your most profitable products as of now? Will margins go up for SBI Life going forward?
Currently, most profitable products are pure protection plans, which are term plans where there is no return of premiums-they are highest profitable products for us. New business margins in pure protection is around 50%, traditional participating products has margins of around 13%,while unit linked insurance plans (ULIPs) has lowest margins at 10%. Margins depend on two or three things, if protection products goes up than margin also goes up. Other factors include persistency, costs and mortality rates. So if we are able to have more protection business margins will go up, if our persistency improves further our margins goes up and if mortality experience becomes better we grow. So it all depends on how this all factors plays out.