3 reasons why analysts expect SBI Life to outperform peers

SBI Life is the best play to ride the upturn in the insurance sector, analysts say

Life insurers reported a stellar growth in November amid increasing awareness for risk covers due to Covid-19. Twenty-four life insurers, including LIC, reported new business premium (NBP) at Rs 27,177 crore, up 42 per cent year-on-year (YoY) from the year-ago period in November.

Of this, private insurers' NBP rose 58.63 per cent YoY to Rs 11,209.75 crore as group single premiums more than doubled during this period.

Most analysts remain optimistic on the road ahead for this sector, which, they believe, will be supported well by an improvement in distribution channels. Among the lot, they believe SBI Life, that saw an extraordinary growth of 150 per cent YoY in NBP in November, as the best play to ride the upturn in this sector. The other large entities like HDFC Life, ICICI Prudential Life, and Max Life Insurance, on the other hand, had posted NBP growth of over 25 per cent during the above-mentioned period.

"SBI Life continues to demonstrate industry leadership (30 per cent YoY on retail annualised premium equivalent or APE), as it benefits from its distribution channels firing on all cylinders. We reiterate that SBI Life will be able to deliver above-industry growth in FY22," said Rishi Jhunjhunwala, research analyst at IIFL Securities, in a co-authored note with Saurabh Thandani and Preyank Sethi.

At the bourses, SBI Life has outperformed peers as well as the benchmark Nifty50 so far in the current calendar year (YTD) by rallying 28.4 per cent YTD on the National Stock Exchange (NSE) as compared to a 25 per cent gain in the Nifty50, ACE Equity data shows. ICICI Prudential Life, HDFC Life, and New India Assurance Company, meanwhile, gained between 1 per cent and 16 per cent.

Despite this outperformance, analysts see up to 44 per cent upside (Rs 1,670) in the stock from the current levels.

Here's why.

To begin with, insurance remains a widely underpenetrated sector in India. Health insurance, specifically, is highly underpenetrated, with less than 4 per cent of the population having a retail health cover. However, the coronavirus pandemic helped increase awareness of buying a medical cover, which translated into a 28 per cent and 18 per cent YoY growth in retail health insurance in FY21 and H1-FY22, respectively.

Given this, Prayesh Jain, research analyst at Motilal Oswal Financial Services, believes the momentum in premium growth will sustain in case India sees third Covid wave due to emerging variants. Growth, he says, will accrue from a higher number of individuals subscribing to Health insurance, existing customers increasing their sum assured, and a possible price hike, considering a sharp increase in claim ratios for most players in FY21 and H1FY22.

In April 2020 (Covid first wave), growth in health insurance was muted at 5.7 per cent. While demand was strong during this phase, the distribution challenges owing to the lockdown and limited preparedness of insurers to conduct business online at such a large scale restricted growth, said analysts. During the second wave, growth was up 18 per cent YoY in the first seven months of fiscal 2021-22 (FY22).

Second, November's strong performance, analysts say, has also laid a roadmap for a sustained growth for coming years.

SBI Life has reported individual APE growth of 30 per cent YoY for Nov’21 and YTD growth of 44 per cent YoY. The number of individual policies sold was up 8.6 per cent YoY in Nov’21 and is up nearly 21 per cent YoY YTD. Further, the company has seen a strong pick-up in unit-linked insurance plans (ULIPs), with a growth of 67 per cent YoY in Q2FY22.

"The lacklustre growth in non-par savings in Q1FY22 has been more than made up for with non-par savings growing by 110 per cent YoY in Q2FY22. The company is expected to deliver strong growth in non-par savings for the remainder of FY22 as well, resulting in its share increasing to double-digits by the end of FY22," said analysts at Nirmal Bang.

Thirdly, given this, they believe SBI Life's deep reach and wide distribution network will help it mitigate growth challenges going ahead.

Those at Emkay Global, too, concur with the view and say that SBI Life's November performance highlights its powerful brand, distribution strength and consistent product strategy.

"With all its distribution engines firing and it being relatively immune from the reinsurance price hike in protection, SBI LIFE is well-positioned to deliver strong profitable growth over the coming years," say Avinash Singh and Shrishti Jagati of Emkay.

Analysts at Morgan Stanley are also bullish on the company as its reliance on reinsurers in protection is low, driven by low average sum assured per policy owing to a differentiated product (ROP) and pan-India presence.