Private life insurer, SBI Life Insurance (SBI Life), reported an 8 per cent growth in pre-tax profit for the quarter ending in March 2020. The company’s pre-tax profits in Q4FY20 stood at Rs 522 crore compared to Rs 482 crore in the same period of the last financial year.
The net profit of the insurer jumped 16 per cent to Rs 531 crore in Q4FY20 from Rs 458 crore because of lower tax provision. The insurer made losses in its investment portfolio to the tune of Rs 6,677 crore in Q4FY20 as opposed to an investment income of Rs 4,150 crore in the same period of the last financial year.
As was the case with other life insurers, new business of SBI Life took a big hit amid the Covid-19 outbrteak in Q4, though it improved on a yearly basis i.e. for FY20. SBI Life’s annualised premium equivalent or APE (a common sales measure for life insurers) declined by about 13 per cent year-on-year in Q4 to Rs 2,690 crore (11 per cent up to Rs 10,740 crore for FY20). In fact, the insurers’ gross written premium during the quarter was entirely driven by renewal premium, which was up 15 per cent year-on-year. It’s new business premium fell by about 12 per cent year-on-year. For FY20, NBP was up 20 per cent to Rs 16,590 crore. Gross written premium is a summation of renewal premium and new business premium.
However, a strong growth in high-margin protection products (up by 27 per cent in FY20 and 10 per cent in Q4), sustained improvement in cost ratio and good persistency (customers’ stickiness) protected the insurer’s operating profitability in Q4. Its value of new business (VNB) margin improved 102 basis points in FY20 to 20.7 per cent on effective tax rate basis (18.3 per cent on actual tax basis). VNB margin was 20.5 per cent during April-December 2019 period. Quarterly margin figures are not available. SBI Life’s total cost to gross premium ratio drifted down to 9.9 per cent in FY20 from 10.5 per cent in FY19.
Going ahead, how the cost ratio pans out would be a key as the management, during analyst call, indicated higher investment in infrastructure and it is aiming at single digit growth in June quarter mainly led by protection business.
In fact, on growth front, Madhukar Ladha, analyst at HDFC Securities believes that, “in the light of current situation, how the company’s banca channel (65 per cent of APE) performs would be a key for its growth.” Persistency and mortality would also be crucial, he added. In fact, the company witnessed some slowdown in persistency in April.
The company has provided 100 per cent (around Rs 53 crore) for its exposure towards the debt ridden mortgage lender Dewan Housing Finance bonds in its unit-linked portfolio. Its solvency ratio deteriorated to 1.95 per cent in March 2020 from 2.13 per cent a year ago. However, it is still higher than the regulatory requirement of 1.5 per cent.
The company has provided an additional reserve amounting to Rs 60 crore because of the Covid-19 pandemic over and above the policy level liabilities. It will continue to closely monitor any future developments relating to Covid-19
The SBI Life’s stock gained 4 per cent to Rs 715.65 on the BSE on Monday.