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ICICI Prudential Life Insurance (IPRU) reported a 3.9% YoY decline in APE (6% beat) in 1QFY24. While savings and annuity segments saw a decline of 6% and 7.1% YoY, respectively, the protection segment registered a growth of 4.2% YoY.

* VNB declined 7% YoY to INR4.4b (in line), while VNB margin declined 200bp QoQ to 30% in 1QFY24. Lower margins were led by a change in product mix, wherein the share of non-par savings shifted to par and ULIP products. This was partially offset by strong growth in the protection segment.

* We estimate IPRU to deliver a 14% CAGR in VNB over FY23-25. This will be driven by a combination of premium growth and steady margins, thereby enabling an operating RoEV of ~18% over FY23-25E. We reiterate our BUY rating with a TP of INR670 (premised on 1.9x Mar’25E EV).

Protection segment, direct channel report healthy growth

* IPRU’s gross premium grew 1.5% YoY to INR73.7b (6% beat) in 1QFY24, with renewal premium up 7% YoY, while first year/single premium declining 1.5%/5.9% YoY, respectively. PAT grew 33% YoY to INR2.1b in 1QFY24 (12% beat).

* APE declined 3.9% YoY to INR14.6b (6% beat), driven by a 6% decline in savings product (Linked savings/non-linked savings/Annuity down 8%/4%/7% YoY, respectively).

* Protection business saw 4.2% YoY growth with retail protection jumping 62% YoY. The mix of protection in the overall mix stood at 23.5% in 1QFY24 vs 21.7% in 1QFY23.

* VNB declined 7% YoY to INR4.4b in 4QFY23 (in line), while VNB margin declined 200bp QoQ to 30% in 1QFY24.

* On the distribution front, the banca channel faced challenges with a decrease in the share of ICICI Bank and stagnant growth among non-ICICI Bank partners. However, this was offset by the agency and direct channels, which experienced robust expansion. Additionally, the inclusion of nonbank tie-ups contributed positively to overall growth. ICICI Bank now contributes 13.5% to overall APE of IPRU.

* Cost-TWRP escalated 390bp YoY to 27.7% in 1QFY24. Savings business cost increased 190bp to 18.8% in 1QFY24.

* On the persistency front, all cohorts witnessed an improvement. On a premium basis, the 13th month persistency saw a QoQ increase of 270bp, reaching 84.4%. Similarly, the 49th month persistency improved to 280bps, reaching 58.5%.

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