ICICI Prudential Life Insurance Co. Ltd’s first quarterly results after the company got listed show some signs of trouble.
The insurer showed a mere 1% increase in its net profit for the September quarter. For the first half of the current fiscal, profits crawled up by 1.5% to Rs824 crore from Rs812 crore in the year earlier.
What hit the insurer? Clearly, expenses and cost ratios are a problem area. The company’s expense ratio has increased to 15.6% from 14.1% because its commissions to agents have increased 21.4%.
According to the insurer, a large distribution network and an increased focus on protection business are the reasons for higher expenses.
ICICI Prudential Life Insurance sells its policies by using its parent ICICI Bank Ltd’s network of branches, besides using agents.
The cost to total weighted received premium, a gauge of cost efficiency, too, shows an increase to 17.1% from 16.7%.
The fact that the shares of the insurer are trading at a 3% discount to its issue price of Rs334 indicates that investors already have misgivings over expenses.
But insurance being a long-term bet, investors were hoping on a rise in future profitability when they ensured the initial public offering of the company was subscribed 10 times.
Here, the indicators are still strong as the value of new business margin rose to 9.4% for April-September from 8% in the corresponding period in FY16. Its new business premium showed an increase of 16.5%.
The rise of 17.7% in renewal premiums and an improved 13th month persistency ratio should give investors comfort as well.
Once the insurer gets a firm grip on expenses, the stock could well come to a turning point.