SBI Company Limited

Instrument/Facility Amount Rating Action In Rs. Crore (September 2016) Claims Paying Ability - iAAA Reaffirmed

ICRA has reaffirmed the highest claims paying ability rating of iAAA of SBI General Insurance Company Limited (SBIGIC). The rating takes into consideration the ownership structure of SBIGIC, with 74% of the company being owned by State Bank of (SBI; [ICRA]AAA with a stable outlook) and the balance by Insurance Australia Group (IAG International Pty Ltd). The commitment of the parent companies to SBIGIC is demonstrated by their regular equity infusions and operational support in the form of senior management deputation. The rating also considers the company’s shared brand name with SBI, the company’s ability to leverage the bank’s (and its subsidiaries’) wide distribution network, and its consequently low cost structure. The rating also factors in the company’s short track record of operations, sustained competitive pressures in the industry and its continuing losses. SBIGIC’s rating would be sensitive to any changes in the ownership structure and its ability to profitably scale up business operations.

Starting its operations in India six years ago, SBIGIC currently operates mainly in the Fire (30% of total gross direct premium (GDP) as on June 30, 2016), Motor (36%) and the Personal Accident (11%) segments. During FY2016, the company reported a 29% YoY rise in GDP (to Rs. 2,040 crore) to report a market share of 2%1. With growing size, its net retention ratio2 had been improving over the last few years. However, retention ratio moderated to 78% in March 2016 from 80% in Mar 2015, and fell further to 73% in June 2016, on account of the declining retention ratios for Personal Accident and Motor portfolios. Going forward, the management intends to maintain a net retention ratio of at least 80%.

In FY2016, SBIGIC’s combined ratio3 moderated to 115% from 117% in FY2015 owing to a decline in its claims ratio (from 85.8% in FY2015 to 83.0% in FY2016). The other components of the combined ratio remained largely stable during FY2016. SBIGIC’s underwriting losses widened in FY2016 to Rs. 383 crore vis-à-vis Rs. 312 crore in FY2015. On account of earnings from its investment book (both in the form of investment income as well as profit on sale of investments), the company was able to contain its net losses at Rs. 120 crore in FY2016 vis-à-vis net losses of Rs. 105 crore in FY2015.

The company’s investments continue to be entirely in the highest rated debt instruments, with tenures ranging between three and six years. In FY2016, its investments in the infrastructure and social sectors increased by 65% even as the rest of investment book grew by only 24%, on account of the higher yields on the short-tenure papers in the sector. As on June 30, 2016, the company’s solvency ratio stood at 1.65, against the regulatory requirement of 1.50. In Q2 FY2017, the company received an equity infusion of Rs. 225 crore which is expected to improve its solvency ratio further, going forward.

Company Profile SBI General Insurance Company Limited SBIGIC is a joint venture between India’s largest bank, (74% stake) and Insurance Australia Group (IAG) (26% stake). The company commenced operations in 2009 with its head office at . During FY2016, the company reported net losses of Rs. 120.1 crore on a gross direct premium of Rs. 2,039.8 crore and had a networth of Rs. 717.0 crore as on March 31, 2016.

Recent Results SBIGIC reported a net profit of Rs. 0.4 crore and a net premium earned of Rs. 353.1 crore in Q1FY2017.

1 Excludes premium earnings of ECGC and AIC 2 Defined as Net Premium Written/Gross Direct Premium 3 Calculated as a sum of Net Claims Incurred/GDP, Management Expenses/Net Premium Earned and Net Commission Expense