Protection business, the Achilles' heel of ICICI Prulife
Summary
New business growth was led by unit-linked insurance products (ULIP) given the bullish equity marketsOn the face of it, ICICI Prudential Life Insurance Co. Ltd has held up on business growth for the September quarter and profitability too seems to have improved. But investors seem hardly impressed, judging by the roughly 4% fall in its shares on Wednesday.
The private sector life insurer reported 35% year-on-year (y-o-y) growth in business on annualized premium equivalent (APE) basis, though base effect is also one factor behind this. New business growth was led by unit-linked insurance products (ULIP) given the bullish equity markets.
Profitability metrics looked up, with value of new business (VNB) growing 28% and VNB margin improving to 26%. To be sure, both growth and profitability metrics have moderated from the quarter before, as expected. Recall that in the first two quarters of FY21, growth was hit due to lockdowns.
But growth and profitability don’t seem to have enthused investors and one reason was weak growth in retail protection. While overall retail APE was up 34%, much of this came from credit life and annuity. Simple protection products are margin-friendly and have been a key focal point for all life insurers including ICICI Prudential Life. The lacklustre performance of retail protection should worry, although much of this can be explained by the second wave restrictions. Another reason is the price hike due to elevated reinsurance prices. “Reinsurance pricing discussions are underway and management indicated passing on a likely reinsurance price hike later in 2HFY22. In the last instance of reins price hike, pure term prices were raised by an average of 15% on 35% reinsurance hike," analysts at Jefferies India Pvt. Ltd wrote in a note. Analysts say that the firm would have to maintain, even boost, its growth from here on for profitability as margin improvement looks difficult.