“We have registered a 22 percent growth in annual premium equivalent (APE) YoY to Rs 6,830 crore, and 53 percent YoY increase in value of new business to Rs 2,120 crore with value of new business margin rising by more than 6 percentage points to 31% in half year ended September FY23.”
– Management, SBI Life
Post the COVID 19 Pandemic, there has been a trend towards seeking insurance protection by the general consumer. This trend has resulted in an increase in policy sales for the Life Insurance Industry. The same has been the case for SBI Life Insurance Co.
Embedded Value:
The Life insurance Business generally possesses a longer term horizon. The policies offered by life insurers are usually long term contracts because policyholders pay their premiums spread over several years. Thus to accurately assess a life insurance company, embedded value presents itself as a better alternative than usual metrics of profitability. Embedded Value is the sum of present value (P.V) of all anticipated future profits from the business as well as the shareholder’s wealth.
Increase in Embedded Value showcases that the firm’s profits are originated through policy sales and not any other accounting changes.
Product Mix:
In the mid 2000s, the life insurance industry was majorly dominated by ULIP based products. However, due to regulatory changes ULIP based products lost their appeal. Private Insurers then shifted to higher margin products.
As per the investor presentation, it is evident that the largest product for SBI Life Insurance is ULIP. This showcases that SBI Life Insurance has not shifted its focus towards other higher margin products.
Channel Distribution Mix:
In the past, the industry used to depend on Agency based distribution channels. However, with regulatory changes coupled with capital constraints the agency channel became less profitable. The solution came through the bance channel. Banca Channel refers to using bank branches to sell Life Insurance Policies. This provided insurers with a banking heritage a significant advantage such as SBI Life Insurance Co.
As observed through the above diagram, SBI Life Insurance Co.’s channel mix is dominated by the readymade low cost Banca Channel.