IGI Logo

Healthy margins drive VNB beat; persistency trends steady

Renewal growth remains tepid

* ICICI Prudential Life (IPRU) posted ~16% YoY growth in New Business APE, led by healthy trends in the Protection (19% YoY) and ULIP businesses. Protection growth was supported by higher growth in the Credit Life business, led by improved credit demand and an increase in product pricing. Shareholder PAT stood at INR3.1b (~2% YoY growth).

* VNB grew ~20% YoY to INR5.15b (~13% beat). This was led by better-thanestimated APE growth and healthy margins at 26.7%.

* 13th month persistency stood flat at 84.8%, while 61st month persistency improved 290bp (v/s FY21 levels); the company guided for an overall improvement in persistency levels over FY22.

* We estimate IPRU to deliver a ~23% CAGR in VNB over FY21–24E, largely led by robust premium growth, buoyed by new partnerships and product segments, enabling operating RoEV at ~16.4%. Maintain BUY.

VNB margins improve QoQ on improving product mix; reinsurance threshold increased

* Net premium income was flattish YoY, affected by ~4% YoY decline in renewal premium. However, new business premium grew 10% YoY on 14% YoY growth in regular premium. Shareholder PAT grew 2% YoY to INR3.1b.

* APE growth stood at 16% YoY (~30% YoY growth over 9MFY22). This was led by steady growth in the ULIP (21% YoY) and Protection (19% YoY) businesses. Retail Protection improved in 3Q. Conversely, improved credit activity, coupled with a price hike to reflect the hike in the reinsurance rate, aided overall growth in the Credit Life business. The mix of Protection in total APE improved to 15.9% (v/s 14.2% in 2QFY22). The Annuity mix was stable sequentially at 4%, while the mix of traditional savings moderated marginally at ~25%.

* COVID update: IPRU had COVID-19 claims (net of reinsurance) of INR9.82b in 9MFY22 (INR8.62b in 1HFY22). The company was carrying a provision (net of reinsurance) of INR2.03b for COVID-19 claims as of 3QFY22 (INR4.12b as of 2QFY22) – this was towards future claims, including IBNR (Incurred But Not Reported).

* VNB grew 20% YoY to INR5.15b, led by better-than-estimated APE growth and healthy margins at 26.7%. On the persistency front, 13th month persistency came in flat at 84.8%, while 61st month persistency improved 290bp over FY21 levels; the company guided for an overall improvement in persistency levels over FY22.

* On the distribution side, the share of the banca channel in total APE stood at 39.5%, with ICICI Bank accounting for ~28% share. The share of the agency channel improved to 25.8%. Cost-TWRP stood at 17.7% for 9MFY22 (v/s 14.6% for 9MFY21). The Savings business cost stood at 12.2% (v/s 9.3% in 9MFY21).

Highlights from management commentary

* IPRU cited that it may receive comfort on potential claims from the current Omicron wave given the reduced severity of the disease. Thus, the company increased the threshold for retention of risk within Retail Protection to INR10m (v/s 2m earlier). Therefore, the mix of Reinsurance within Retail Protection would likely moderate to less than 50% vis-à-vis 60–70% earlier.

* The company has further launched Return of Premium products to cater to customer demand in the Protection business.

* The company was able to restrict the reinsurance price hike to 0–10% across segments without compromising on margins. The company does not expect the rate hikes to impact margins.

* IPRU believes there is a structural long-term play in Retail Protection and would therefore look to grow this business over the long term.

Valuation and view

IPRU has maintained steady traction in VNB growth, led by a healthy product mix and APE growth. The share of banca (excluding ICICI Bank) has increased to ~12% (v/s 5.1% in FY20), supporting growth and diversification in the distribution mix. The increase in agent recruitment and addition of new partnerships would continue to support premium growth. We expect the VNB margin to remain stable and IPRU to deliver a ~23% CAGR each in New Business APE and VNB over FY21–24E. This would enable operating RoEV at 16.4%. Maintain Buy, with TP of INR760 (2.6x 1HFY24E EV).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer