Maintaining premium growth, sustained margins key for ICICI Prudential Life

In Q1FY25, ICICI Prudential Life Insurance (IPRU) reported 34.4 per cent Y-o-Y growth in Annualised Premium Equivalent (APE) to Rs 1,960 crore with APE in ULIPs up 78 per cent Y-o-Y, while protection and ex-ULIP individual savings segments reported moderate APE growth of 3.2 per cent and 10 per cent Y-o-Y, respectively. The Value of New Business (VNB) grew 8 per cent Y-o-Y to Rs 470 crore. The VNB margins declined to 24 per cent, down 600 basis points Y-o-Y. The decline in VNB margins was on account of a shift in the mix toward ULIPs and high cost assumptions. The net profit grew 8.9 per cent Y-o-Y to Rs 230 crore, which was below consensus.

If these trends continue, VNB margins will have to be re-rated downwards, while APE growth estimates would have to be upgraded. IPRU’s ability to sustain strong premium growth and hold VNB margins will be vital. IPRU’s gross premium grew 12.3 per cent Y-o-Y to Rs 8,280 crore, well below consensus with renewal, first-year and single premium were up 4.3 per cent, 48.8 per cent and 10.6 per cent Y-o-Y respectively.

On the distribution side, the share of agency and direct channels increased Y-o-Y to 29.4 per cent and 15.2 per cent respectively. Corporate agents and group channels declined Y-o-Y to 11.5 per cent and 15.1 per cent respectively. The share of the bancassurance channel was flat Y-o-Y at 28.8 per cent with gross business from ICICI Bank channel stable at Rs 100 crore per month. The focus on retail protection has increased within the ICICI Bank channel.

The cost to weighted received premium rose 480 basis points Y-o-Y to 32.5 per cent. Y-o-Y persistency improved across all cohorts with 49th month and 61st month persistency at 69.3 per cent and 65.2 per cent respectively. The AUM grew 15.9 per cent Y-o-Y to Rs 3.09 trillion, while solvency ratio moderated to 187.9 per cent.

The agency growth was driven by the addition of more than 12,000 agents, plus the launch of new products such as trail-based ULIP and 100 per cent money-back annuity product, and improvements in productivity due to tech initiatives. New ULIP products such as one with claim-based commissions, have seen good acceptance. The impact of surrender charges is not likely to be very significant as the share of non-linked business, and non-par within that non-linked business, is much lower than industry average. The impact may be absorbed through changes in product and commissions.

IPRU’s own online channel and web aggregators are significant contributors to retail protection and there is high competition. Pricing has changed, affecting the demand negatively. IPRU has gained market share, although VNB margins are under pressure owing to the product mix (higher share of ULIPs) and cost allocations. Scale benefits should help sustain margins. Given continued investments in the distribution network and innovation in products, the management remains optimistic about the growth trajectory.

In the calendar year 2024 (Jan-June’24), there’s been growth of 28.6 per cent Y-o-Y in individual business in Q4FY24 and 42.3 per cent Y-o-Y in Q1FY25. Led by individual APE growth, APE could grow by close to 20 per cent Y-o-Y in FY24. However, the base effect will start catching up by Q4FY25, normalising growth rates. The higher VNB cost is already reflecting and VNB margins may compress until late into FY25. Analysts remain optimistic about the stock.