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APE, VNB miss estimates; margin down 600bp YoY

Minimal impact of surrender charges

* In 1QFY25, ICICI Prudential Life Insurance (IPRU) reported 34.4% YoY growth in APE to INR19.6b (4% miss). APE in ULIPs grew 78% YoY, while protection and ex-ULIP individual savings segments reported a moderate APE growth of 3.2% YoY and 10% YoY, respectively.

* VNB grew 8% YoY to INR4.7b (6% miss). VNB margins declined to 24% in 1QFY25 (down 600bp YoY) vs. our estimate of 24.5%.

* Considering the 1Q performance, we have cut our VNB margin estimates for FY25 and FY26. However, we have raised our APE growth estimates to factor in a strong trajectory in proprietary channels.

* We expect IPRU to deliver a 19.4% CAGR in VNB over FY24-26. Going ahead, the company’s ability to sustain strong premium growth and VNB margins will be vital for re-rating of the stock. Retain BUY with a TP of INR740 (based on 1.7x Mar’26E EV).

Shift in product mix toward ULIPs

* IPRU’s gross premium grew 12.3% YoY to INR82.8b (14% miss) in 1QFY25, with renewal/first-year/single premium up 4.3%/48.8%/10.6% YoY.

* APE grew 34.4% YoY to INR19.6b in 1QFY25. The protection and ex-ULIP individual savings segments reported a moderate growth of 3.2% YoY and 10% YoY, respectively. ULIPs grew 78% YoY. Retail protection as a percentage of total APE came in at 5.7% in 1QFY25 vs. 7.5% in 1QFY24.

* VNB grew 8% YoY to INR4.7b (6% miss). VNB margins declined to 24% (down 600bp YoY) vs. our estimate of 24.5%. The decline in VNB margins was owing to the shift in the mix toward ULIPs and high cost assumptions.

* On the distribution side, the share of agency/direct channels increased YoY to 29.4%/15.2%. Corporate agents and group channels declined YoY to 11.5%/15.1%. The share of banca channel was broadly flat YoY at 28.8%.

* Gross business from ICICI Bank channel is stable at INR1b per month. The focus on retail protection has increased within the ICICI Bank channel.

* Cost-WRP rose 480bp YoY to 32.5%. PAT grew 8.9% YoY to INR2.3b (6% miss).

* On premium basis, YoY persistency improved across all cohorts. 49th month and 61st month persistency stood at 69.3% and 65.2%, respectively.

* AUM grew 15.9% YoY to INR3.09t, while the solvency ratio moderated to 187.9%

Highlights from the management commentary

* Agency growth was driven by 1) the addition of more than 12k agents, 2) the launch of new products: trail-based ULIP and 100% money-back annuity product, and 3) improvements in productivity led by tech initiatives.

* IPRU has recently launched a product in ULIP, which will have claim-based commissions, and it has seen good acceptance. The impact of surrender charges is not likely to be material as the share of non-linked business, and non-par within that, is significantly lower than the industry level. Any impact would be absorbed through changes in product and commissions.

* IPRU’s own online channel and web aggregators are significant contributors to retail protection and this channel is seeing high degree of competition. Pricing has been changed, which has affected the demand in the short term. IPRU expects growth to come back in the medium term.

Valuation and view

IPRU has been delivering strong growth in the past three quarters and has been gaining market share. VNB margins have been under pressure owing to the product mix (higher share of ULIPs) and the allocation of costs, but scale benefits should help to offset the impact. In terms of surrender charges, the company expects a minimal impact. Considering the 1Q performance, we have cut our VNB margin estimates for FY25 and FY26. However, we have raised our APE growth estimates to factor in a strong trajectory in proprietary channels. We expect IPRU to deliver a 19.4% CAGR in VNB over FY24-26. Going ahead, the company’s ability to sustain strong premium growth and VNB margins will be vital for re-rating of the stock. Retain BUY with a TP of INR740 (based on 1.7x Mar’26E EV).

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