The worst fears of ICICI Prudential Life Insurance Co. Ltd’s investors are coming true, with the company’s stock dropping over 11% on Wednesday.

The private sector insurer reported disappointing numbers for the December quarter. It was the only listed insurer to report a contraction in annualized premium equivalent (APE). Its APE declined 2.1% for the third quarter, while it showed a drop of 4.2% for the nine-month period ended 31 December.

“The 10% increase in the stock price in the past one month was not supported by fundamentals and, in that context, 3QFY19 performance could temper any build up in market expectations," Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a note.

However, the silver lining is that the company’s valuations are modest versus peers such as HDFC Life Insurance Co. Ltd. While this may limit downside, much depends on how ICICI PruLife performs in the coming quarters.

The worst fears of ICICI Prudential Life Insurance Co. Ltd’s investors are coming true, with the company’s stock dropping over 11% on Wednesday.

The private sector insurer reported disappointing numbers for the December quarter. It was the only listed insurer to report a contraction in annualized premium equivalent (APE). Its APE declined 2.1% for the third quarter, while it showed a drop of 4.2% for the nine-month period ended 31 December.

“The 10% increase in the stock price in the past one month was not supported by fundamentals and, in that context, 3QFY19 performance could temper any build up in market expectations," Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a note.

However, the silver lining is that the company’s valuations are modest versus peers such as HDFC Life Insurance Co. Ltd. While this may limit downside, much depends on how ICICI PruLife performs in the coming quarters.


The signs are not encouraging though. As analysts at Jefferies India Pvt. Ltd noted, the life insurer’s value of new business margin has moderated 50 basis points in the third quarter, despite an increase in protection policies. Protection policies are margin-friendly and, hence, every insurer is trying to sell these products more.

Indeed, ICICI PruLife’s protection APE doubled, which is the silver lining in its earnings. But Jefferies India warns here that the growth comes through group policies, which are relatively lower margin, rather than individual. This doesn’t bode well for future persistency as growth from group insurance tends to be one-time jumps. The insurer didn’t have much luck on persistency either as its 13th-month ratio dropped. The ratio shows whether customers continue to pay premiums after the first year. To be fair, all other durations have gained and analysts are not worried just yet.

In 2017, insurance firms had wooed investors for their initial public offerings (IPOs) on the promise of being a sunrise industry. Prospectuses of firms including ICICI PruLife elaborated on the immense opportunity of growth given the low penetration of insurance products in India.

That growth story seems to have derailed, at least for ICICI PruLife. As this column had noted earlier this month, the insurer’s focus on breaking down premiums into systematic investment plans seems to have backfired.

But an insurance company is not a mutual fund and volume doesn’t come easy as insurance is a push product.

Hence, ICICI PruLife’s growth numbers are not going down well with investors and even analysts. The company’s shares are now 8% lower to its IPO issue price of 334.

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