The Hindu Business Line : SBI Life expects 25% growth in topline this fiscal

Mumbai, Oct. 5 SBI Life, the 74:26 joint venture between State Bank of India and BNP Paribas Assurance, is setting great store by the bancassurance model to propel growth.

According to the new MD and CEO, Mr M.N. Rao, the company will leverage the State Bank Group’s brand and vast network of 14,000-plus branches across the country to develop business. The private sector life insurer, which has assets under management of Rs 21,000 crore, has turned in a profit in the first quarter of FY2010 after posting a loss in FY2009.

In an interaction with Business Line, Mr Rao shared his thoughts on the road ahead for his company.

What are the growth triggers for SBI Life?

If you look at our growth in the past few years, we have done quite well. We have a fairly successful business model. Both our channels – agency and bancassurance – are vibrant. The bancassurance model derives its strength from the SBI group. If you consider our sales, then 67 per cent are on account of ULIPs and the remaining 33 per cent are traditional.

We do hope to continue the growth this year as well. We are expecting a 25 per cent growth in topline this fiscal. We also expect to have a profit at the end of the year.

We posted profits for three consecutive years before 2008-09. Last year, we posted a loss of Rs 26 crore. However, we are profitable now. In the first quarter of this fiscal, we had a profit of Rs 36 crore.

Are you planning to increase the number of branches and agents this fiscal?

SBI Life did grow a lot in terms of branch network and manpower last year. Our network doubled to 500 branches after we added around 250 branches in the last fiscal. Employee strength has gone up from 3,800 to about 6,000 in 2008-09. This infrastructure will be leveraged to get a greater amount of business.

For the moment, our infrastructure needs are fulfilled. We expect this to translate into a significant amount of business for us. We are at a stage where we have a good network and good workforce. Our agency workforce increased from 40,000 to 70,000. The agency channel contributes around 47 per cent to the total business, bancassurance brings in around 30 per cent. The rest of the business comes from institutional alliances and corporate solutions.

Bancassurance is a low-cost distribution model, which helps in controlling expenses. This is reflected in our expenses ratio as well and the fact that we have posted profits.

Will you infuse more funds into the business?

We have Rs 1,000- crore capital. We are fairly well-capitalised and our solvency ratios are comfortable. We do expect to make profits this year also. We expect profits to take care of some of the solvency requirements.

Even though we are profitable, there is no question of paying dividend (to the promoters) at the moment. We need the money for capital requirements. For the current year at least, we will not be requiring fresh capital inflows from the principals if we grow at a normal rate. If we do need capital, then the requirement will be only for around Rs 200 crore.

You are absent in the individual health segment. Any plans to enter this space?

We are planning to get into the individual health business by the end of this year. The products are in the planning stage. We may not go in for a Third Party Administrator (TPA). But we are still in the drawing board stage. So I am not ruling out TPA totally.

How is your group insurance businesses faring?

We are in the market for managing superannuation funds. This is around 23 per cent of our total business.

The SBI logo helps as every organisation is sensitive about the safety of their funds. This year we have received Rs 500-600 crore in new business premium. Last year, we garnered Rs 1,700-1,800 crore under group insurance. Most of these are PSU units where the workforce is large.

How far are you from an IPO?

The decision about an IPO will be taken by the principals – SBI and BNP Paribas. The parents are positively inclined towards an IPO. The decision will depend on the regulatory prescription and the amendments to the Insurance Act. It will be premature to talk about the IPO unless we know what changes are going to happen.

The two partners share an excellent relationship. The principals will sit together once we have a clear picture of what the prescription is. The other thing is requirement. Both principals have deep pockets. Besides, SBI Life is not asking for a lot of funds.

What steps are you taking to improve your persistency levels?

Persistency levels (or renewal quality) have been an issue for us. Our persistency levels are 54-55 per cent as against an industry average of 70-75 per cent. This is one of the rare black marks and we do hope to set it right.

In fact, last year and this year we have taken steps to improve renewal premium. Last year, our renewal premiums were up by more than 100 per cent. We have made it clear to our agents that renewal premiums are a focus area and they are now paying much greater attention to renewals.

Are you in favour of continuing with the present system where banks are allowed to sell policies of only one insurer?

We principally believe that for better customer satisfaction it is better to continue with the present system for some more time. Changes can be made after the industry reaches a reasonable level of maturity.

Related Stories:
SBI Life unveils savings plan
SBI Life to go slow on expansion

More Stories on : Interview | Life Insurance

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