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Value of new business growth provides heft

ICICI Prudential Life Insurance Co. Ltd. (IPRU), a joint venture between ICICI Bank and Prudential Corp. Holdings, offers life, health and pension products.

* The company’s gross premium rose 3.8% YoY to Rs. 9,895cr in Q2FY23, mainly due to growth in non-linked savings and protection segments, along with continued expansion of partnerships with banks, and growth in agency and direct-to-consumer channels.

* Value of new business (VNB) rose 20.6% YoY in Q2FY23 to Rs. 6.2bn, driven by a balanced product mix. VNB margin expanded 300bps YoY to 31.0%, owing mainly by sale of high-margin products.

* IPRU has been continuously focusing on adding agencies and entering into partnerships, which should help boost its premiums. The management is also on track to double FY19 VNB by year-end, with improved cost management and business quality. Hence, we reiterate our BUY rating on the stock, with a rolled forward target price (TP) of Rs. 629 based on 2.2x FY24E embedded value (EV).

Premium growth led by a balanced product mix

IPRU’s gross and net premiums marginally increased to Rs. 9,895cr (+3.8% YoY) and Rs. 9,581cr (+3.2% YoY), respectively, in Q2FY23, owing to growth in group protection and non-linked savings. The average premium equivalent (APE) product mix was well diversified at 40.8%, 28.3%, 6.6%, 4.1%, and 20.2% for linked, non-linked, annuity, group savings, and APE protection, respectively. Furthermore, in 1HFY23, protection APE grew 29.1% to Rs. 7.1bn. Persistency ratios have also improved across cohorts as IPRU has primarily focused on its overall quality business. IPRU's 13th and 49thmonth persistency improved by 130bps and 200bps from March 2022 to September 2022 to 85.9% and 61.2%, respectively

VNB growth on track

VNB grew a significant 25.1% YoY to Rs. 10.9bn in 1HFY23, mainly due to higher sales of high-margin products; VNB margin was a healthy 31.0%. During the period, expenses rose 20.9% YoY to Rs. 27.0bn as the company continues to leverage technology and building for future growth. Commission ratio, though, remained stable at 5.7% (vs. 5.5% in 1HFY22). Meanwhile, assets under management rose 3.0% YoY to Rs. 2,442.79bn and embedded value grew 8.1% YoY to Rs. 326.5b in H1FY23. Also, the insurer’s solvency ratio was strong at 200.7% as of September 2022.

Key quarter highlights

* IRPU added 15,465 agents, three bank partners and entered into 44 non-bank partnerships in 1HFY23. Also, it had access to over 13,000 bank branches.

* Insurance Regulatory and Development Authority’s (IRDA) primary vision is for every family to have life and health coverage by the centenary year of India's Independence.

* A proposal for setting up Bima Sugam, an all-in-one digital platform, by the IRDA for solicitation, servicing and claims could be a game changer for the industry

Valuation

IPRU continues to adopt a more customer-centric approach and plans further diversify its product range to boost premiums. The management is also on track to double FY19 VNB by FY23. It remains optimistic on demand being higher in 2HFY23 as well, spurred by improving product mix. IRPU is actively expanding its reach as well. Hence, we reiterate our BUY rating on the stock, with a rolled forward TP of Rs. 629 based on 2.2x FY24E EV.

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