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Steady increase in premium income: ICICI Prudential Life Insurance reported healthy top-line growth as the net premium income increased by 17.1% YoY to Rs 14,788cr. Both first year premium and single premium showed strong growth of 11.9%/20.7% YoY while renewal premium increased by 16.6%. The insurance launched new products across segment which gained traction during the year and saw healthy premium sale. The management expect such growth momentum to continue going forward in FY25

Margins continue to slide: The insurance company saw decline in its VNB margin by 140bps QoQ/1052bps YoY to 21.5% as the commission expenses saw a sharp increase of 56.3% QoQ/107.8% YoY along with higher sale of ULIP products. During the year, VNB margin declined by 738bps YoY to 24.6% as compared to 32% in FY23. The management expects margin to improve going forward as the commission costs normalises along with shift in consumer preference towards other form of high margin products.

Diverse distribution channels: The company’s distribution channel remained diverse as channels like Banca/Agency/Direct saw traction. The company has established relationship with banks like Standard Chartered to sell its policies. During the quarter, Banca/Agency/Direct contribution in the overall APE mix increased by 229/471/133bps YoY, however, partnership and group channels declined by 640bps/193bps YoY. The company shall continue to focus on increasing its capacity by onboarding new agency to sell its policies which shall provide further access to tier 2/3 cities.

Improvement in persistency ratios: One of the key highlights of the outcome is the improvement in persistency ratios for the insurance company across cohorts. The insurance company continues to provide products which caters to the customer needs and expectations. The company saw improvement in its persistency ratio across cohorts as the 13/25/37/49/61 month’s persistency ratio stood at 88%/79%/72%/68%/64% as compared to 82%/76%/69%/63%/63% in Q4FY23. The persistency has improved even as the customer preference saw a shift towards ULIP products which tends to be less sticky as compared to other products like non-participating.

Linked products continue to see traction: During the quarter, the company saw traction in funds like linked products, annuity products while non-linked products continued to see decline. In the APE mix, linked products increased by 1656bps YoY to 43.5% while annuity products increased by 1183bps YoY to 17%. The management expects that going forward it expects to see traction in other products as well like non-linked and protection which shall aid margins.

Valuation and outlook: ICICI Prudential Life Insurance saw healthy growth in its top-line, however, margin continue to decline similar to last quarters of FY24. Commission costs remained elevated in adherence to the new commission structure which further put pressure on margins. Products like linked and annuity gained traction. Financially, we expect APE/NBP/VNB to grow at a CAGR of 10%/11%/17% over FY24-26. The company is expected to see challenges in FY25 which regards to margins and increase in its operating costs. Hence, we revise our rating to Accumulate from Buy with a revised target price of Rs 670 valuing the company at 1.6x of its FY26E embedded value per share.

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