The rating is centrally based on the strong support that SBI Life derives from its parent, State Bank of India which holds a 74% stake. It also factors in the distribution advantages and distinctive product strategy of SBI Life, and the flexibility available for further capital infusion into the company. These rating strengths are, however, partially offset by SBI Life’s weak earnings profile and limited track record.
CRISIL’s rating factors in SBI Life’s flexibility to raise capital from its promoters, SBI and Cardif S.A. (Cardif). Cardif is the life insurance company of BNP Paribas, a European leader in banking and financial services.
SBI also extends operational support by allowing SBI Life to sell products through the SBI group’s vast network of more than 14,500 branches. This ‘bancassurance’ channel accounts for almost 40 per cent of SBI Life’s premium receipts.SBI Life also offers creditor guarantee protection products, addressing the bank’s large portfolio of borrowers. Moreover, the proportion of investment-linked products in SBI Life’s premium receipts, at 65 per cent, is significantly lower than that of the company’s peers; this contains the potential fall in premium levels if equity markets perform poorly. CRISIL believes that these factors position SBI Life favourably for gaining market share in the medium to long term.
The rating strengths are partially offset by SBI Life’s weak earnings profile, a situation that any recent entrant in life insurance faces. Going forward, the company’s product and distribution strategy is expected to play an important role in determining its profitability. The company’s success in managing growth over the long term will also be a key monitorable.
This is the first time that CRISIL has rated a life insurance company; in developed markets, majority of life insurers are rated. According to Mr. S Venkataraman, Director, CRISIL Ratings.
We see this rating as the first indication of what is clearly a positive trend. Life insurance is a critical element of life planning for an increasing number of people in India. As more life insurers come forward to get themselves rated, the public will be better informed in taking these vital long-term decisions.”
Source: CRISIL.
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