ICICI Prudential Life Insurance, the country's second-largest life insurer, has turned profitable during the year-ended March 2010.
The company's net profit was estimated at Rs 258 crore against a loss of around Rs 780 crore in the previous financial year. Low operational costs, high renewal premiums and a decline in capital-consuming new sales helped the life insurer swing to profit.
This is the first time the company has reported profits since it started operations in 2001.
“We have significantly brought down our management expenses. Reduction in cost and increase in renewal premium income helped us report profits,” said a senior executive of ICICI Prudential. There was no capital infusion during the last financial year.
The management expense ratio for the insurer came down from 11.78 per cent in 2008-09 to 9.5 per cent in 2009-10.
There are only a handful of profitable life insurance companies which includes SBI Life, Bajaj Allianz, Sahara Life and Kotak Life Insurance. In recent months, most insurance companies have turned their attention to turning profitable and the list is expected to grow this year.
In order to bring down costs, ICICI Prudential has consolidated its business. “We have relooked at our operations and focused on profitable areas. We have completely reworked our business model and closed branches which were not productive,” the executive added. In addition, the insurer did not open any branch last year.
A drop in new business income also helped the insurer boost profit. During 2009-10, the insurer registered a 7 per cent decline in new income collection over 2008-09. Compared to the Rs 6,813 crore collected from the sale of new policies in 2008-09, the insurer collected Rs 6,334 crore in 2009-10. Insurers have to set aside extra capital to meet solvency requirements. The renewal premium grew 19 per cent during the year.
Insurance companies need capital to expand business and distribution network.
Is the decrease in net interest income (NII) a worry?
No. The decrease in NII is much less than that in the size of the balance sheet. The margins have improved and as our balance sheet grows, NII will also improve.
You said the loan book would grow by zero to 5 per cent, but there has been a contraction. So, when do we see a reversal in the trend?
We have resumed growth. If you look at the quarter-on-quarter numbers, there is an increase. This year, we hope to grow the loan book by 15-20 per cent.
What is the retail-corporate loan mix and will that change this year?
Retail loans are around 43 per cent of the loan book, while wholesale and the international loans account for another 43 per cent. That mix will remain roughly the same.
You have said there have been repayments from overseas branches. Is the loan book growing and what is the plan?
The overseas book will grow around 10 per cent, while the domestic will grow over 20 per cent. Indian companies have just about started going overseas once again, but the level of activity is nowhere close to the 2007 level.
Your operational expenses have decreased, but there is a limit to belt tightening…
Costs may go up, but the ratios will remain the same. Out cost to average assets was 1.6 per cent.
You planned to open 600 branches last year. How many have you opened and what are the reasons for the delay?
There is no delay. We have opened around 350 branches. The rest are in advanced stages of opening. They should be ready by next month.
Are you seeking permission to open more branches? What will be your strategy?
No, we have not sought permission for more branches. The strategy is to capitalise on the branches that we have. Last year, we opened 500 branches and, in two years, we would have opened 1,000 branches. We want to capitalise on them.
What is the outlook on the net interest margin, given the impact of the change in the interest rate regime for savings accounts and the base rate mechanism?
On the savings bank side, there will be some impact on cost of funds, of the order of 12-15 basis points. We are drawing a strategy to increase the Casa (current account and savings bank account) ratio so that NIM is not affected.
But the base rate will push up the yield on advances?
Yield will not go up. What is going to change is the method of calculation.
Will you be able to meet the deadline for 70 per cent provision coverage ratio and have you got an extension from RBI?
We will meet the deadline, which has been revised to March 2011.
How much loan restructuring did you undertake in the fourth quarter and are you seeing slippages in the accounts that were restructured last year?
No, there are no slippages. We restructured loans of around Rs 250 crore, but there a similar amount waiting for upgradation. So, the restructured amount remained around Rs 5,300 crore.
How many people are you looking to recruit this year?
We will hire anywhere between 5,000 and 7,000.
