ICICI Prudential’s sluggish annual premium growth may impact valuations

  • In the June quarter, overall (APE) increased by a mere 5.3% y-o-y
  • ICICI Prudential Life Insurance Company’s protection segment was up 88% year-on-year (y-o-y), which led to an increase in APE
    The tilt in ICICI Prudential Life Insurance Company Ltd’s business mix towards protection from savings may have helped the company report an improvement in profit metrics, pushing its shares 4.8% higher over two trading days.

But its overall annual premium equivalent (APE), an insurance term for annual premiums, has been sluggish. In the June quarter, overall APE rose a modest 5.3% year-on-year, implying slower growth and changing business dynamics.
Here, the protection segment clocked faster growth rates. It surged 88% year-on-year (y-o-y), which led to an increase in APE.
A positive of the improved protection business is the impact it has had on new business margin, leading to an improvement of about 350 basis points y-o-y.
A negative has been the de-growth in annual premium from its savings business. This witnessed a de-growth of about 2.1% y-o-y.
Within this, ULIPs saw a higher de-growth of about 6% y-o-y in the June quarter. ULIPs are unit-linked insurance plans and much of the growth in this segment depends on market conditions.
But slower ULIP growth shows up in persistency ratios, which is a measure of policy renewal rates. The 13-month persistency was down by about 20 basis points in the first quarter. “High net worth individual customers tend to use ULIP products to take views on asset markets and the general sluggishness and dislocations in fixed income markets have made such customers risk-averse, in our view, marginally impacting persistency in the 13th month cohort,” said brokerage Nirmal Bang Securities Private Ltd.
Operating expenses increased 8.5% y-o-y. That’s a key metric to watch going forward. Besides, higher operating expenses have meant that the company has seen a slower net profit growth of a mere 1.2% y-o-y.
Going forward, market conditions need to be watched. Additional pressures on its savings business could even impact returns on savings products if the market weakens. Besides, it also remains to be seen how much IPruLife manages to grow its annual premium equivalent.
For now, though the firm has managed to increase its value of the new business, lower annual premium growth is not comforting.

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