‘Adequate capital as of now, may raise it after around 3 yrs’
Ahead of SBI Life Insurance's initial public offering (IPO) of equity, ARIJIT BASU, its managing director and chief executive officer, talks to Subrata Panda on where they are and what's ahead. Edited excerpts:
Managing Director and Chief Executive Officer, SBI Life Insurance
SBI Life was valued at ~46,000 crore when KKR and Temsaek purchased 1.95 per cent share in December 2016. Now, the valuation is close to ~70,000 crore. What has caused this sharp rise in nine months?
The valuation is dependent on the embedded value and the multiple you give for the future value of the company. When SBI Life sold stake in December 2016, the embedded value taken into consideration was of March 2016. At that point, it was ~12,999 crore and a multiple of 3.54 over it. So, the company was valued at ~46,000 crore. Since then, our embedded value has increased to ~16,538 crore, a 32 per cent growth. The other factor that is considered is what is the market capitalisation and the valuation of listed peers.
Your listing involves only dilution of share. Will SBI Life in future look to raise capital through new issuance of shares?
As of now, we don’t need capital based on our assessment, as our solvency margin is over two, higher than the industry standard. In future, when we will want to go to the market after three years or that kind, then we might want more capital.
With so many insurance companies going for listing, will there be enough investor appetite? What drives this race to get listed at the same time?
The feedback from institutional investors is that there is very good demand for our issue. Insurance is a relatively new sector. Previously, there was only LIC (governmentowned Life Insurance Corp). The sector got opened 16 years earlier and e companies take 12 to 15 years to mature. So, this is a stage when all the top companies have matured. Hence, they are going for listing.
Second, there were no insurance companies in the market. In the financial sector, only banks and non-bank finance companies were listed on the bourses. So, investors are welcoming the listing of the various insurance companies. With listing, the performance can be assessed better and it provides a certain level of liquidity.
SBI Life’s average ticket size has grown substantially. What impact will it have on penetration of products?
Our ticket size has gone up because of ULIPs (unit-linked insurance products). These are basically sold to the high-end people. Hence, the average ticket size of these products is higher. The premiums have gone up but we have not decreased the number of policies sold. Every year, we keep on increasing the number of policies. This year, we are growing at around 15 per cent. So, we are increasing both the ticket size and the number of policies sold.
Second, there are a lot of policies on the group platform where we cover a large number of people and there we have seen a huge increase. We participated in the Pradhan Mantri Jeevan Jyoti Yojana and got about 70 lakh (seven million) policies there. The improvement in ticket size is good from our perspective because that was one area where we were not as good as the private insurance companies.
What is your outlook for FY18, given your 33 per cent growth in gross premiums in FY17?
The first quarter's results have been encouraging. In new business premium, we have reduced our group business. In the individual platform, we have grown 48 per cent. In renewal premiums, 25 per cent. So, if we compare the first quarter trends to Q1 of FY17, we are on course for whatever we did in the past. The Reserve Bank of India’s annual report showed the contribution of insurance funds in household financial savings reached a six-year high of 2.9 per cent of Gross
National Disposable Income in 2016-17. Is this a positive sign for the insurance sector?
We have a different figure, as the way of calculating is different. If household financial savings are 100, what percentage is insurance? At the end of 2016, it was 19 per cent. The largest is in bank deposits and then comes insurance; it has been like this for the past five or six years. It’s not gone up significantly but there is an upward trend. However, it has always been above 15 per cent.