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Strong APE & VNB growth driven by new business premium

Strong premium growth: ICICI Prudential Q4FY23 Annualized Premium Equivalent (APE) increased by 27% YoY to Rs 33bn on the back of strong New Business Premium (NBP) which grew by 33% YoY. The company successfully doubled its Value of New Business (VNB) in FY23 from FY19 at Rs 27.7bn in FY23 from Rs 13.3bn in FY19 at a CAGR of 20.1% over FY19-23.

VNB Margin picking up: The life insurer had subdued VNB margin compared to its peers, however, the company posted healthy VNB margin of 32% in FY23. Healthy VNB margin combined with NBP growth is a testament that premium growth is picking up and will grow further in the estimates. We expect the VNB margin to remain stable in the estimates at ~32% in FY25E.

Product Mix: Unit linked product’s share in APE declined to 36% in FY23 from 48% in FY22. At the same time, share of annuity and protection plans stood at 23% in FY23 from 21% in FY21. The company is determined to provide customers with products which suits their requirements and needs. The management said that the share of ULIPs and Linked products are well compensated by Protection and Annuity plans. Also, management is confident that the recent announcement in Union Budget will have little to no impact in their sale of policies.

Widening Distribution channel: The Bancassurance channel of distribution has shown a decline from 39% in FY22 to 29% in FY23. The share of its partnership with the parent bank ICICI Bank has declined from 25% in FY22 to 14% in FY23. The bank has partnership with 39 banks and has access to more than 17,500 bank branches. The share of APE through other banks increased from 14% in FY22 to 16% in FY23. We believe that the insurance company will continue to maintain strong partnership with banks and also partner with non-traditional distributors like payment banks and fin-tech companies to push its insurance products.

Improvement in Persistency ratio: ICICI Pru’s persistency ratio has improved substantially as its 13th month persistency was 84.6% in FY22 to 86.6% in FY23. The 61st month persistency ratio improved to 65.7% in FY23 from 54.7% in FY18. The increase in persistency is a positive sign and it will give the private insurer competitive advantage over other players. Also, the change in product mix to term and annuity plans in contributing to increase in persistency ratio.

Valuation: We remain positive on the insurance company on the back of its strong APE and VNB growth. Also, the products are gaining traction and the company is widening its network to reach the underpenetrated market. Its VNB margin has constantly improved over the years. We expect APE/NBP/VNB to grow at a CAGR of 14%/14%/15% over FY23-25E. We maintain Accumulate rating with a target price of Rs 496 valuing the company at 1.8x of FY25E embedded value: We remain positive on the insurance company on the back of its strong APE and VNB growth. Also, the products are gaining traction and the company is widening its network to reach the underpenetrated market. Its VNB margin has constantly improved over the years. We expect APE/NBP/VNB to grow at a CAGR of 14%/14%/15% over FY23-25E. We maintain Accumulate rating with a target price of Rs 496 valuing the company at 1.8x of FY25E embedded value

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