I-Pru Life: New product mix to help meet investors' profitability hopes

At 25.6 per cent VNB margin, Q3 has been rewarding despite lower growth

Nearly two years ago the biggest grouse investors had about ICICI Prudential Life Insurance (I-Pru Life) was that its new business growth wasn't as profitable as peers. After all, with the value of new business (VNB) margin at less than 18 per cent, nearly 100–150 basis points (bps) lower than SBI Life Insurance and far lower compared to HDFC Life, which was upwards of 23 per cent, the concern was justified. Since then, significant efforts have been made to alter the mix of product offering and make its business more profitable rather than growth-oriented and in December quarter (Q3) one could say the efforts are yielding fruits.

Despite new business premium growth remaining flat year-on-year and annual premium earned declining by 18 per cent year-on-year, the private life insurer managed to expand VNB margin by over 450 bps year-on-year to 25.7 per cent in Q3. On a 9-month basis, at 26 per cent VNB margin, I-Pru Life has scored over peers on this front.

While the sustainability of these margins will be tested soon, what’s comforting is the ability of I-Pru Life to look beyond its comfort zone – that of unit linked insurance plans (ULIPs) and remain committed to its objective of having a fine mix of traditional savings products and protection plan. At 15 per cent share to total APE, the life insurer has more or less stabilised its focus on protection plans, up from 13 per cent a year-ago. The share of protection plans is nearabout the industry average and may likely normalise at current levels in the near-term.

Continued reluctance on the part of customers to opt for medical tests (an important condition for reinsurance) would be a deterrent for life insurers to expand the protection base without compromising on pricing in the near-term. Consequently, analysts at Macquarie Capital note that for the industry as a whole focus on protection may cool off a bit.

Share of non-linked savings products rose from 16 per cent a year-ago to 29 per cent in Q3 which helped the insurer heavily in Q3. Low returns on fixed deposit and favourable interest rate have helped the segment, though analysts at Kotak Institutional Equities note that I-Pru Life may have just taken advantage of the situation and it is not clear if it will push the strategy next year. March quarter commentary will be important to understand the focus areas going ahead.

For now, I-Pru Life has convincingly demonstrated that it can look beyond ULIPs, the share of which reduced to 51 per cent in Q3 from 68 per cent a year ago for growth, though analysts at Nomura note that this positive is almost baked into the stock price. Investors may be better off buying on dips.