After registering profits for three years, SBI Life has reported a loss of around Rs 26 crore during 2008-09 due to mark-to-market provisions of around Rs 100 crore on its equity portfolio. SBI Life Managing Director & CEO U S Roy tells Shilpy Sinha and Sidhartha that the country’s third-largest life insurer has a better year ahead thanks to the investment that has gone into strengthening the distribution infrastructure and also due to improvement in the market environment. Excerpts:
Were your losses only due to mark-to-market provisioning?
In the traditional sense of accounting in insurance operations – income, expense, actuarial reserves, etc – we have not incurred a loss. However, there has been a significant exceptional provision which, though mandated only in general terms, is yet to be sufficiently detailed by regulations and is, hence, practised differently across the industry.
While the detailed regulatory provision for ‘marking-to-market’ in the insurance sector is expected during the current financial year, we have, in anticipation, made a significant mark-to-market (MTM) provision on our traditional equity portfolio, in line with our very conservative accounting approach. Considering our high 60:40 ratio of Ulips (unit-linked insurance plans) to the traditional product portfolio, the MTM provision has impacted the accounts significantly. Besides, we invested heavily in 2008-09 for strengthening our own distribution infrastructure.
During the current financial year, though the markets are not expected to peak, there are lesser chances of fresh MTM hits.
We have been extremely prudent in the area of operational expenses. Hence, the marginal loss during the last financial year is not our concern going forward.
Do you plan to expand at the same pace this year?
No. This year will be a year of consolidation for us. The bancassurance contribution comes from State Bank (SB) group customers, whereas the other contribution comes through insurance advisors (IAs). In the retail business, the ratio between business coming through agents to that through banks is 60:40. Our endeavour will be to change the ratio to 50:50, without dampening the retail growth potential of IAs, as the cost of business through bank branches works out lower.
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Of the 16,000 branches of the State Bank group, less than 25 per cent are really active. The focus will, therefore, be on generating more business from the remaining branches. Drilling down to the branch level is a major challenge; it is like getting into a diamond mine. Over all, the market is expected to grow at around 20 per cent and we will look at a 50 per cent growth.
Is it not ambitious, given that the economy may grow by 6 per cent?
We have set up capacity in places where we were not very strong. We followed the overall SBI philosophy of planning new branches, given the huge untapped potential. Besides, this is also the best time to benefit from our past expansion, since there is a lot of trust in SBI.
Brand SBI is very strong, while people may be generally cautious about some other brands. We can not only tap the potential better but can also provide a safe and transparent insurance alternative to the public. We recruited and trained in large numbers last year. Now that the hand-holding period is over, these resources are expected to generate revenues.
Our average productivity from agents is five-six times the private sector average. When most of our peers saw a fall in new business, we managed to grow our new business APE (annualised premium equivalent) by 33 per cent. These make our projections realistic.
What will be your product strategy at a time when some insurance companies are focusing on garnering business through single premium covers?
Single premium (SP) business helps to improve the market share and ranking as per Irda, and at a fast rate. But our market share has been good and has grown in 2008-09. Regular premium (RP) premiums are indicative of the future strength.
As a company ages, whatever RP business they have done in the previous years and their collection and revival machinery to improve renewals helps them build a strong base for flow of premium from renewals. Some strategic SP products may, however, be very much on the cards depending on the market.
Will you need capital this year if you are to grow at 50 per cent?
We have rich parents, but the child is able to manage on its own. We are among the least capitalised companies with Rs 1,000 crore paid-up and the last time we saw capital infusion was in the fourth quarter of 2007-08. While we underwrite substantial amounts of traditional business, we have no accumulated losses to deal with. Currently, we have a solvency margin of around 2.8, against the mandated level of 1.5. So there is no need for capital at the moment. Our operating expense is also among the lowest in the industry.
By when do should we expect SBI Life to go public?
Listing requires a lot of preparations and the process is going on. However, market conditions make it difficult to say when we will go public. Also, we do not need to go to the capital market now for infusion of capital, while the proposed changes to the Insurance Act and regulations has made the decision for going public dependent on it becoming a law. Thus, this is not immediately on our radar.