Focus on profitability gives ICICI Pru new lease of life

Ability to move beyond comfort zone of ULIPS, fine mix of savings and protection plans gives confidence

ICICI Prudential Life Insurance (I-pru Life) had failed to inspire confidence nearly two years ago, on concerns that its new business growth wasn’t as profitable as that of peers.

With the value of new business (VNB) margin at less than 18 per cent — nearly 100-150 basis points (bps) lower than SBI Life and far lower than HDFC Life that was upwards of 23 per cent — these worries were justified.

Significant efforts to alter the mix of its product offerings and prioritise profitability over growth, since then, have yielded results. The December quarter (Q3) numbers indicate that the strategy has been spot on.

Despite new business premium growth remaining flat year-on-year (YOY) and annual premium earned declining by 18 per cent YOY, the private life insurer managed to expand its VNB margin by over 450 bps YOY to 25.7 per cent in Q3.

At 26 per cent VNB margin (on a 9month basis), I-pru Life has scored over peers on this front.

While the sustainability of these margins will be tested soon, what provides confidence is the ability of I-pru Life to look beyond its comfort zone — that of unit-linked insurance plans (ULIPS) — and to remain committed to its objective of having a fine mix of traditional savings products and protection plans.

At 15 per cent share to the total annual premium equivalent, the life insurer has stabilised its focus on protection plans — up from 13 per cent last year. The share of protection plans is on a par with the industry average, and may normalise at current levels.

Continued reluctance of customers to opt for medical tests is be a deterrent for life insurers to expand the protection base without compromising on pricing, in the near term. Consequently, analysts at Macquarie Capital note that for the industry as a whole, focus on protection may cool off a bit.

Share of non-linked savings products rose from 16 per cent a year ago to 29 per cent in Q3, which helped the insurer in Q3. Low returns on fixed deposits and favourable interest rates helped the segment, though analysts at Kotak Institutional Equities say Ipru Life may have just taken advantage of the situation, and it is not clear if it will push the strategy next year.

For now, I-pru Life has convincingly demonstrated it can look beyond ULIPS — the share of which reduced to 51 per cent in Q3 from 68 per cent last year — for growth, Nomura analysts say this has been factored in. Investors may be better off buying on dips.