SBI Life continues to witness strong momentum in the Protection and Annuity business, while ULIPs see a recovery. Motilal Oswal expect growth to revive further from FY22E. Persistency ratios are holding well across cohorts, while cost leadership continues. Motilal Oswal estimates VNB margin to touch 22% by FY23E, enabling 23% VNB CAGR over FY20-23E. Motilal Oswal expects operating RoEV to sustain 19% by FY23E and estimate 18% EV growth over FY20-23E.

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Motilal Oswal maintains Buy rating on SBI Life with a target price of Rs 1050/share (2.4x FY23E EV). Linkages with Yes Bank, Suryoday Small Finance Bank and UCO Bank will act as a booster shot too. Persistency has been holding well with 13th month persistency 86.2% (50 bps YoY) as on 9M FY21. Also, 61st month persistency is the highest in the industry.

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The recent taxation announcement in the Budget 2021-22 with regard to ULIPs will not have a material impact on SBI Life due to:

a)      lower ticket size
b)      strong diversified savings suite

Currently, 61% of banca branches are active, which generates a premium of Rs 50k/month, while the rest generate lower premium. SBI Life continues to see improving trends from non-metro locations and expects Insurance penetration to improve in Tier II/III cities.

SBI Life saw 5000 COVID related claims and paid out Rs 3.4 bn. A similar rise in death claims was seen in other Insurers as well, with IPRULIFE settling claims of Rs 3.4 bn. HDFC Life settled COVID-related claims with 1271 Individuals and 542 Group-related settlements. Death claims for MAX Life were the highest at 10525 (vs 7313 in Q3 FY20).

SBI Life has formed new banca partnerships with Yes Bank, Suryoday Small Finance Bank and UCO Bank during FY21. It has also tied up with Regional Rural Banks. YONO is also emerging as the key focus area for growth in Individual protection, with 0.77 mn lives covered over the past year and a cover of up to Rs 4 mn. While SBI will continue to dominate the banca mix, the share of non-SBI banca is demonstrating healthy growth and its share is likely to rise to higher single-digits over the next few years.

On the agency channel front, SBI Life has the highest agent network of 170k (barring LIC) and will continue to make investments in expanding the agency channel. The COVID outbreak has affected agency growth. The management expects a healthy rebound in the agency business, thus aiding positive growth in Individual APE during FY21. SBI Life has one of the highest agency productivity among major Insurers.