ICICI Prudential Life: Moderate valuations, health growth prospects

ICICI Prudential Life Insurance Company (IPRU) reported a weak performance for the January-March quarter (Q4) of FY25, seeing a decline of 3 per cent year-on-year (Y-o-Y) in annualised premium equivalent (APE) to ₹3,500 crore.

 

This is due to a fall in unit-linked insurance plans (Ulips), which constitute 43 per cent of the APE. However, many analysts have retained the ‘buy’ recommendations for IPRU.

 

The negatives are said to be factored into the price. Value of new business (VNB) margin, a profitability indicator, improved to 22.7 per cent in Q4FY25, up 120 basis points (bps) Y-o-Y and 150 bps quarter-on-quarter (Q-o-Q).

 

In FY25, embedded value grew 13 per cent with embedded value operating profit (EVOP) growth at 10 per cent Y-o-Y.

 

However, there were assumption changes in embedded value due to the possibility of higher mortality from the group protection segment (₹250 crore, which is minus 0.6 per cent of opening embedded value), assumption changes in VNB calculation (3.3 per cent impact on VNB) due to higher cost of Ulips, weakening persistency in 49th and 61st months, and a sharp decline in protection VNB margin in FY25 to 54.5 per cent compared with 75 per cent in FY24.

 

For FY25, APE grew 15 per cent Y-o-Y to ₹10,410 crore.

 

The absolute VNB grew 2 per cent to ₹800 crore in Q4 and for FY25, VNB was at ₹2,370 crore (up 6 per cent) and margin was at 22.8 per cent (24.6 per cent in FY24). IPRU missed its initial VNB margin guidance of 24 per cent for FY25 and saw a drop in margins.

 

For Q4FY25, IPRU reported 122 per cent jump in shareholders’ profit after tax (PAT) to ₹390 crore, which beat consensus. For FY25, PAT grew 39 per cent to ₹1,190 crore. 

 

The management expects stable market conditions. The focus is on higher VNB growth compared to APE growth, driven by repricing group term products, and sustaining higher margins in Ulips.

 

There is no specific APE growth guidance, but the minimum target is to grow higher than the industry growth of 15 per cent in FY26.

 

IPRU’s gross premium grew 11 per cent to ₹16,830 crore in Q4FY25 and the same was up 15 per cent to ₹49,850 crore for FY25.

 

Renewal premium grew 9 per cent to ₹9,210 crore.

 

The Q4FY25 APE dropped due to 3 per cent fall in Ulip and 16 per cent decline in the non-par segment. 

 

The launch of a new guaranteed product in Q4FY25 led to a good pickup in the non-par segment. The declines were offset by 115 per cent and 9 per cent growth in group business and protection business, respectively.

 

The 120 bps expansion in VNB margin to 22.7 per cent was due to a higher share of non-linked business and higher contribution of Ulips.

 

Retail protection and annuity, key focus areas, saw divergent trends. Retail protection rose 26.5 per cent, while annuity saw a drop of 57.8 per cent.

 

Commission expenses were flat at ₹1,580 crore, while operating expenses declined 8 per cent owing to focus on operational efficiency.

 

Total expenses declined 33 per cent to ₹14,970 crore, due to changes in actuarial liabilities.

 

IPRU has a balanced distribution mix and can withstand adverse regulations in the bancassurance channel.

 

Agency and direct channels saw declines of 20 per cent and 8 per cent, respectively.

 

The bancassurance channel grew 7 per cent, with the share of ICICI Bank stable at 14 per cent of the banca contribution.

 

Group business posted a buoyant growth of 33 per cent, largely due to a strong Q4.