ICICI Pru Life’s report card looks good; guidance is key now
Premium- In Q4, ICICI Pru Life did well on VNB margins, although APE performance was subdued
- The life insurer has reaffirmed its guidance of doubling its fiscal 2019 VNB by fiscal 2023
MUMBAI : CICI Prudential Life Insurance Co. Ltd’s shares closed marginally higher on the National Stock Exchange on Monday, a day when the benchmark Nifty50 index fell by 1.7%.
On Saturday, the life insurer announced results for the fourth quarter of the just-ended financial year (Q4FY22). ICICI Pru Life has done well on some counts. The value of new business (VNB) in Q4 was ₹775 crore, recording a 31% growth over the same period last year. For insurance companies, VNB is useful to measure the new business written in a particular period.
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Further, VNB margin rose 300 basis points sequentially to 29.7%, driven by robust traction in non-linked savings business and protection categories. One basis point is one-hundredth of a percentage point.
Even so, one dampener during the quarter was that annualized premium equivalent (APE) growth was 4% year-on-year (y-o-y). This compares with the 16% APE growth seen in Q3.
The Omicron wave of covid-19 caused some disruptions in January and February, impacting APE growth. Business from ICICI Bank Ltd, which is a large distribution channel, has also been relatively lacklustre.
“The parent bank ironically remains the biggest drag with 5% y-o-y decline for the year, bringing down the overall annual APE growth to 20% for the company," said Kotak Institutional Equities. The brokerage firm added, share of ICICI Bank has been consistently falling, down to 25% of APE in FY22 from 31% in FY21 and 56% in FY19. As such, the performance of this channel remains a key monitorable ahead, which would help evaluate the APE trajectory.
Moving ahead, FY23 is crucial. The company has reiterated its guidance of doubling its FY19 VNB by FY23. In FY19, ICICI Pru’s VNB stood at ₹1,328 crore. To meet the stated guidance, the implied year-on-year growth in VNB is around 23% in this fiscal. This compares with the 17% estimate of Kotak.
Upsides to these projections would augur well. “We believe that this remains a crucial factor for the Street to regain conviction. While the company is faring well operationally, it is challenging to predict business from ICICI Bank," said analysts from Kotak in a report on 17 April.
In a post earnings call, ICICI Pru’s management said strong premium growth and increased productivity will be the main levers for VNB growth. The management believes it has adequately diversified its product mix, with Ulips now contributing to less than half of the overall APE. Post FY23, the company’s primary objective is to beat industry VNB growth even if APE growth remains slower.
Shares of ICICI Pru are still as much as 25% lower from their 52-week highs seen in September. “Shares of life insurance companies are trading much lower than their recent 52-week highs. This underperformance is said to be because of the upcoming initial public offering of LIC, which is expected at an attractive valuation. These stocks had stiff valuation until recently, so some investors were selling these stocks to create space for LIC in their portfolios," said Deepak Jasani, head of retail research, HDFC Securities Ltd.
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In general, with a potential rise in interest rates, guaranteed products may become less attractive compared with a fixed deposit and this remains a risk for ICICI Pru. For now, investors will keep a close eye on whether the insurer is able to meet its FY23 guidance. The loss of demand momentum for high-margin verticals, protection and non-linked products, may hinder ICICI Pru from meeting its target, according to an analyst who spoke on the condition of anonymity.