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MOSL : ICICI PRUDENTIAL LIFE INSURANCE: Robust margin drives VNB growth

.  ICICI Prudential Life Insurance: Robust margin drives VNB growth

(IPRU IN, Mkt Cap USD9b, CMP INR513, TP INR600, 17% Upside, Buy)

Persistency ratios steady; on track to double VNB over FY19-23E

• ICICI Prudential Life Insurance (IPRU) posted a flattish new business APE (1% YoY growth) in 2QFY23 as strong growth in group protection and non-linked savings was offset by weak performance in ULIPs and group savings. However, APE grew 10% YoY in 1HFY23 to INR35b.
• VNB grew 21% YoY to INR6.2b (8% beat), primarily driven by a 502bp YoY expansion in VNB margin to 31.1% in 2QFY23. For 1HFY23, VNB rose 25% YoY to INR10.9b; VNB margin also expanded 372bp to 31.0%.
• We marginally cut our APE estimates for FY23/24 but estimate IPRU to deliver 23% CAGR in VNB over FY22-24. This will be driven by a combination of premium growth and slight improvement in margins, thereby enabling operating RoEV at ~17% in FY24E. Maintain BUY with a revised TP of INR600 (premised on 2x FY24E EV).

 

Balanced distribution mix; broad-based improvement in persistency ratio

• IPRU's net premium income increased 3% YoY in 2QFY23 propelled by a strong show in non-linked savings and group protection. PAT increased 37% YoY to INR3.5b in 1HFY23.
• The share of protection in overall mix improved 485bp YoY to 19% in 2QFY23. However, this was driven by group protection as sales in retail protection remained weak. Sequentially, though retail protection stabilized.
• Annuity APE saw a solid growth of 69% YoY in 2QFY23. On an NBP basis, it formed 17% of mix. Further, the pension subsidiary is also scaling up well with 36% growth in AUM to INR132b. Due to volatile capital markets, ULIPs declined 19% YoY and impacted overall premium growth adversely.
• VNB grew 21% YoY to INR6.2b in 2QFY23 led by optimal business mix with a greater share of higher margin products.
• On the distribution side, banca channel continued to remain weak led by declining share of ICICI Bank. However, this was offset by new bank partnerships, agency and addition of non-bank tie-ups. ICICI Bank now contributes 17% to overall APE of IPRU.
• Persistency improved across all cohorts with 13th-month improving 90bp QoQ to 85.9% while 61st-month persistency improved 940bp QoQ to 61.2%.

 

Highlights from the management commentary

• IPRU is on track to achieve its stated guidance of doubling the absolute level of FY19 VNB by FY23, guided by its 4P strategy. This implies a 23% growth in FY23.
• Non-linked savings, protection and annuity segments are contributing to growth.
• The strategy of having a wider product suite makes it easier to add new agents and partners.