Mumbai: ICICI Prudential Life Insurance Co. Ltd, India’s largest private sector life insurer, on Tuesday reported a bare 1.9% rise in its profit in 2016-17 as expenses rose.
The insurer, which managed assets worth Rs1.22 trillion as at the end of March, said net profit during the year rose to Rs1,681.66 crore from Rs1,650.15 crore a year ago.
The insurer which got listed in 2016, saw its expenses of management (net commission and operating expenses) rising by 24.23% to Rs3,116.11 crore during the period from Rs2,508.33 crore the previous year. This is a key factor used to assess the performance of an insurer because of its dependence on distribution and management.
The ratio of cost to total weighted received premium (TWRP) stood at 15.1% for financial year 2017 as compared to 14.5% for the previous financial year, primarily on account of high growth in protection business, the company said in a release.
TWRP is a measure of total premiums from new and existing retail and group customers received in a period. It is the sum of first year and renewal premiums on regular premium policies and 10% of single premiums received from both retail and group customers by an insurer during a certain period.
Typically, an insurer’s cost of operations goes up when it increases its sales or distribution force either by increasing the number of agents or their commissions or the number of branches and their operations. The cost also depends on the nature of products sold by the insurer.
ICICI Prudential Life’s commission expenses rose 22.4% from Rs620 crore in FY2016 to Rs759 crore in FY2017. Alongside, the company’s operating expenses increased by 24.0% from Rs2,271 crore in FY2016 to Rs2,817 crore in FY2017. The company said this reflects its increased emphasis on protection business and continued focus on building distribution.
Sandeep Batra, executive director of ICICI Prudential Life, said the company’s expenses went up due to its strategy to increase the business of pure protection-oriented products.
Protection products mostly consist of term assurance plans, in which the initial costs of acquisition are slightly higher than savings-oriented insurance products such as endowment plans, pension plans and unit linked insurance products (Ulips).
During FY2017, the insurer’s protection business grew to Rs260 crore from Rs139 crore in FY2016.
“We have increased our protection business by 87%. Presently, around 3.9% of our overall products are protection plans. This has obviously increased expenses because as compared to savings-oriented plans, protection plans require higher initial costs. However, the increased focus on protection plans helped in growing our value of new business, which means we have created more value for our shareholders,” said Batra.
The insurer’s value of new business (VNB) was at Rs666 crore for FY2017 against Rs412 crore for FY2016.
“VNB margin increased to 10.1% for FY2017 from 8.0% for FY2016 primarily on account of increase in protection business and improvement in persistency,” said a company release.
ICICI Prudential Life’s net premium income rose to Rs22,155.25 crore during FY2017 from Rs18,998.7 crore a year earlier.
ICICI Prudential Life, the country’s only listed insurer, has a market share of 12% in the life insurance industry, with state-run Life Insurance Corp. of India (LIC) being the largest company with a market share of 71.07% and assets worth at least Rs24.5 trillion.