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Sustainable performance; positive outlook

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

* In Q4FY24, net premium income rose 17.1% YoY to Rs. 14,788cr, driven by robust growth in non-par life insurance, annuity non-par, and linked life. The Annualised Premium Equivalent (APE) grew 9.5% YoY in Q4FY24, underpinned by a strong distribution network and digital support.

*  Value of New Business (VNB) declined 19.5% YoY to Rs. 2,227cr in FY24, and the VNB margin weakened to 24.6% from 32% in FY23. 

* IPRU witnessed better business growth as a result of increased premium income and APE in Q4FY24. The company's continuous focus on strengthening its distribution network, product and process innovation, and digitalisation in business processes, is expected to boost future performance and provide a sustainable outlook on the stock. Therefore, we retain our BUY rating on the stock, with a target price of Rs. 670 based on 1.7x FY26E EV.

Retail Agency APE showcased strong growth.

In Q4FY24, Net Premium Income grew 17.1% YoY to Rs. 14,788cr, driven by significant growth in non-par life insurance (+13.5% YoY), annuity non-par (+79.0% YoY) and linked life (+9.2% YoY). APE witnessed a growth of 9.5% YoY to Rs. 3,615cr in Q4FY24, driven by a 12% YoY increase in Retail APE. Retail segment's Agency business demonstrated a growth of 28.6% YoY, ascribed to a robust distribution network, while the Direct business grew 22.2% YoY, primarily due to the amplified digitalisation efforts. The Bancassurance business also registered a healthy growth of 18.8% YoY. On the products side, savings linked business APE grew 77% YoY, while savings nonlinked APE dropped 48.1% YoY, due to changes in consumer preferences. Commission expenses increased 107.8% YoY, due to the redesigning of the commission structure to comply with the IRDAI's regulations. Further, benefits claimed rose 42.9% YoY, and PAT fell 26.2% YoY to Rs.174cr. Other expenses grew significantly by 436.5% YoY to Rs. 9,833cr in Q4FY24.

VNB margin weakened.

VNB margin declined to 24.6% in FY24 from 32% in FY23, due to higher expenses ratio, competitive pricing pressures from new products, and a shift in the underlying product mix. Embedded values grew 18.8% YoY to Rs. 42,337cr in March 2024, driven by strong Value in force (14.5% YoY) and Adjusted net worth (31.9% YoY). Solvency ratio remained strong at 191.8% in March 2024, well above the statutory requirement of 150%.

Key Concall highlights

* In the future, IPRU management aims to maintain the growing absolute VNB margin, as the effect of commission guidelines has already been factored in. A better product mix and strong customer demand should support VNB margin.

*  Persistency ratios improved across all levels, thanks to the recently developed AI models that help forecast consumer behaviour and aided persistency ratios.

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