ICICI Prudential Life Insurance Company (IPru) is struggling to generate growth in the value of new business (VNB).<\/p>\n
This is due to a combination of weak growth through the parent bank’s channels, a shifting product mix in favour of unit-linked life insurance policies (ULIPS), and higher payouts to third-party channels.<\/p>\n
Leverage from current investments, a further reduction in contributions from ICICI Bank, and a pick-up in non-participating policies from the end of the year is key for this metric in the near to medium term.<\/p>\n
However, after a sell-off from disappointed investors, valuations have corrected and the stock may be worth a long-term buy.<\/p>\n
IPru reported a 3.2 per cent year-on-year (Y-o-Y) growth in the annual premium equivalent (APE) to Rs 2,060 crore in Q2FY24.<\/p>\n
The protection segment grew 2.6 per cent Y-o-Y, while the annuity segment declined 6.7 per cent Y-o-Y during the quarter.<\/p>\n
The VNB declined 7 per cent Y-o-Y to Rs 580 crore due to moderation in margins.<\/p>\n
The VNB margin for the quarter stood at 28 per cent, a 200 basis points Q-o-Q decline.<\/p>\n
For H1FY24, APE stood at Rs 3,520 crore and VNB was at Rs 1,010 crore with a VNB margin of 28.8 per cent.<\/p>\n
Analysts have cut the estimated APE and VNB margins for FY24 and FY25.<\/p>\n
There could be a 7- 8 per cent VNB decline in FY24, given a 7 per cent VNB decline in H1FY24.<\/p>\n
The APE growth was also low due to weakness in ICICI Bank (down 15 per cent). The ICICI Bank contribution to APE is now down to 14 per cent.<\/p>\n
Other (non-ICICI) banks and direct channels saw 13-25 per cent growth Y-o-Y.<\/p>\n
The expense ratio increased to 17.2 per cent in H1FY24 versus 14.4 per cent in H1FY23, despite an increase in the share of ULIPs.<\/p>\n
Assuming better performance through ICICI Bank channels in H2FY24, the VNB margin could move back to around 30 per cent.<\/p>\n
IPru is focusing on adding agents, growing in smaller towns, and this should pay off in the medium-term.<\/p>\n
The insurer is also launching new products.<\/p>\n
These include a retail health plus protection policy in partnership with ICICI Lombard and a guaranteed product (Gift Pro) and a linked product.<\/p>\n
Key variables to watch out for include possible comeback of APE growth and a more balanced product mix with higher new business margins and more volume coming through in non-ICICI Bank channels.<\/p>\n
After four quarters of decline, the ULIP APE grew 13 per cent Y-o-Y in Q2FY24.<\/p>\n
ULIPs reported growth was driven by the pick-up in direct channel and other bancassurance channels.<\/p>\n
Retail protection growth was strong at 84 per cent Y-o-Y in Q2FY24, following declines of 17 per cent and 31 per cent in FY2023 and FY2022 respectively.<\/p>\n
The cut in tax benefit for big-ticket policies has led to re-focus on this segment.<\/p>\n
Management said the share of Rs 5 lakh ticket size policies remained stable, despite change in taxation, but the product mix has shifted from non-par to par and to ULIP.<\/p>\n
The stock is trading at a discount to its private peers because it has underperformed versus its peers.<\/p>\n
This could make it attractive for long-term investors who may compute fair value with some upside to the current share price.<\/p>\n