Multiple headwinds ahead for ICICI Prudential Life Insurance Company

The ICICI Prudential Life Insurance Company's net premium income in the third quarter (October – December) of the current financial year (Q3FY24) swelled by 4.9 per cent year-on-year (Y-o-Y) to touch Rs 9,929 crore.

Income from investment rose 111.3 per cent Y-o-Y to touch Rs 16,315 crore.

The Annual premium equivalent (APE), and new business premium (NBP) increased by 4.8 per cent Y-o-Y. Both declined 7.5 per cent and 5.6 per cent respectively, quarter-on-quarter (Q-o-Q).

Commission expenses and expenses of management (EOM) dragged down the profitability. The net profit grew just 2.4 per cent Y-o-Y to Rs 227 crore.

The commission expense is due to the revamped commission structure.

Unit-linked products recorded growth of 8.7 per cent Y-o-Y in the APE.

The product mix seems skewed towards par products and unit-linked instead of non-par products.

Annuity products also saw a growth of 17.3 per cent Y-o-Y. On the overall APE mix, unit-linked products and annuity products increased by 162bps and 68bps Y-o-Y, while other products saw a decline.

This hurt the value of the new business (VNB) margin, which declined by 1106bps Y-o-Y to 22.9 per cent.

The management said competitive pressure in the non-par and annuity segments contributed to the margin compression.

The company saw an increase in the sale of premiums in the agency channel, which was due to the capacity addition in Q2FY24.

The agency channel contributed 30.3 per cent to the overall APE mix with a growth of 194bps Y-o-Y.

The share of ICICI Bank in the bancassurance channel stood at 13-14 per cent of the overall APE mix, while other banks contributed 11 per cent of the APE mix.

The company uses derivatives to hedge interest rate risks in its non-participating guaranteed savings and annuities portfolio.

Strategic partnerships with banks help in the diversification of channel mix, which may aid rural penetration.  

The management expects more than 10 per cent Y-o-Y growth in APE, which will be driven by the mix of products, investment in channels, and initiatives taken to ensure capacity addition.

The company has invested in the proprietary channel, adding 28,750 agents during the nine months of FY24.

The company expects that VNB growth will be driven by the growth in APE.

The management remains focused on providing products that fit the needs of customers for example, the credit life product has seen APE growth of 20 per cent Y-o-Y and will continue to drive growth going forward.

On the product side, in the nine-month FY 2024, par-linked business has grown by 5.7 per cent, while non-linked savings business has declined by 4.5 per cent Y-o-Y.

Despite the uninspiring results, there are positives such as the diversified distribution channel, growth in retail premium and new product launches.

The company expects double-digit growth in APE in Q4FY24 along with stabilising margins. Productivity should also rise in Q4.

But it must meet challenges like low premium growth, decline in margins, and increasing commission costs. Double-digit growth would absorb higher fixed costs.

The company is also open to the acquisition of new partners and sourcing channels.