ICICI Prudential Life stumbles amid Q1 woes; recovery in premium growth crucial

ICICI Prudential Life’s APE growth prospects appear promising, aided by diversification of product mix with emphasis on annuity and non-linked and retail protection products and channel mix. (File Photo: AP)
ICICI Prudential Life’s APE growth prospects appear promising, aided by diversification of product mix with emphasis on annuity and non-linked and retail protection products and channel mix. (File Photo: AP)

Summary

  • In this calendar year so far, the stock has rallied around 23%, but for a meaningful upside from here, APE growth is crucial

Shares of ICICI Prudential Life Insurance Company Ltd (ICICI Prudential Life) fell nearly 4% on the National Stock Exchange on Wednesday, spurred by its lackluster June quarter (Q1FY24) results. Annualized premium equivalent (APE), a crucial metric, fell 4% year-on-year (YoY) to 1,461 crore in Q1. Sequentially, too, APE declined due to a high base in Q4FY23. Although APE experienced a drop in April, it marked a recovery in May and June.

But there were other disappointments, too. 

Value of New Business (VNB) reported a 7% YoY decline. Coupled with a weak APE, it resulted in stagnant Q1 VNB margin. The management attributed the muted performance primarily to a reduced share of non-participating products in the non-linked business. However, a silver lining was found in the protection (term insurance) segment, a high-margin product category, which continued to flourish. In Q1, this segment saw an APE growth of 4.2%, and retail protection climbed around 62% YoY.

“The bank has typically been assertive on protection and pension - products that are now kicking off. We expect flat VNB from ICICI Prudential Life over the next nine months. We believe that the higher protection business will support its margins, even as higher unit linked insurance products (ULIPs) and expenses will likely offset," said analysts from Kotak Institutional Equities.

Another detractor to the APE growth was the company's bancassurance (bank distribution) channels, which faced headwinds likely attributable to advancing of high-ticket policy purchases to Q4FY23. The non-ICICI Bank channel growth stagnated while the ICICI Bank channel contracted 34.6%.

Nevertheless, the firm's endeavors in channel diversification, specifically augmenting its distribution network across multiple banks, non-banks, and the agency force, helped avert a more severe APE slump. Positive contributions to overall growth came from agency, direct channels, and non-bank partnerships.

The company's channel distribution (excluding ICICI Bank) recorded a 3.7% YoY growth in APE in Q1. While the ICICI Bank channel's downturn persists, the decline rate has slowed down since the start of FY24, with analysts expecting a limited downside hereon. As such, contributions from the ICICI Bank channel and distribution investments should foster growth going ahead. 

“We believe that IPRU’s channel diversification is now close to maturity and offers a neater product-channel fit, which is likely to reflect in stronger outcomes around persistency and profitability," said analysts from HDFC Securities. 

Despite the challenges, ICICI Prudential Life’s APE growth prospects appear promising, aided by diversification of product mix with emphasis on annuity and non-linked and retail protection products and channel mix. In this calendar year so far, the stock has rallied around 23%, but for a meaningful upside from here, APE growth is crucial.

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