Buy ICICI Prudential Life Insurance Ltd for the Target Rs.780 by Motilal Oswal Financial Services Ltd
APE and VNB largely in line; margin expands to 24.5%
Cost optimization and favorable product mix support margins
* ICICI Prudential Life Insurance (IPRU) reported a decline of 5% YoY in new business APE to INR18.6b (in-line) in 1QFY26, largely impacted by the base effect and a slowdown in ULIP momentum due to market volatility.
* VNB margin for the quarter stood at 24.5% vs. our estimate of 23% (24% in 1QFY25). Absolute VNB declined 3% YoY to INR 4.6b (in-line).
* For 1QFY26, IPRU reported a 34% YoY increase in shareholder PAT to INR3b (24% beat), driven by robust cost optimization initiatives.
* Although the base effect may continue to weigh on quarterly growth, management emphasized that its focus remains on achieving robust VNB growth over the medium term. It remains confident about delivering growth over the next nine months, aided by operating leverage and cost efficiencies.
* We have kept our APE growth estimates intact for FY26/FY27 but increased our VNB margin estimates by 100bp for both years, considering the VNB performance during 1QFY26. Reiterate BUY with a TP of INR780 (based on 1.8x FY27E EV).
Non-linked business recovery drives margin expansion
* IPRU’s gross premium grew 8% YoY to INR89.5b (in-line) in 1QFY26, led by renewal premium growth of 14% YoY (5.5% beat) to INR49.4b and 6% YoY growth in single premium. First year premium, however, declined by 5% YoY.
* APE declined 5% YoY in 1QFY26, largely due to 14%/53% YoY decline in ULIP/ Annuity segments. The non-linked segment saw a robust growth of 20.8% YoY, led by a stronger growth in the non-par segment vs the par segment. 54% and 15% YoY growth in the lumpy group business and protection business, respectively, also cushioned the decline. The momentum of the protection business was supported by new product launch during the quarter.
* The 50bp YoY expansion in VNB margin to 24.5% was due to an increase in the share of non-linked business to 21.5% (16.9% in 1QFY25) and strong growth in protection contribution from 18% in 1QFY25 to 22% in 1QFY26.
* While retail APE declined 9% YoY, retail protection APE grew 24% YoY, maintaining strong growth momentum. However, the annuity business witnessed a decline of 53% YoY on account of a higher base.
* Commission expenses witnessed slight growth of 4% YoY to INR9.8b, while operating expenses declined 13% YoY, driven by cost optimization measures despite investment towards talent. Total expenses were largely flattish YoY at INR247.3b, with 3% YoY growth in benefits paid offset by a 3% decline in change in actuarial liabilities.
* On the distribution front, agency/direct channels saw a decline of 19%/15% YoY due to weak demand for ULIPs during the quarter and high base. The bancassurance channel declined 2% YoY, with the share of ICICI Bank stable during the year at 15% of the overall business. The group business posted strong growth of 19% YoY, largely due to the lumpy group business during the quarter.
* On a premium basis, persistency was mixed in 1QFY26, with 13th/61st month declining YoY to 86%/63.8% due to some product mix combinations and elevated persistency after tax changes in FY23.
* AUM grew 5% YoY to INR3.2t, while the solvency ratio stood at 212.3%.
Highlights from the management commentary
* While market movements remain uncontrollable, the company is focused on driving new business and improving renewal growth—both of which are expected to naturally lead to higher AUM over time.
* ULIP demand trajectory remains similar to 1QFY26, and the company does not anticipate a sharp rebound like last year. Management noted that affluent customers typically pause or take a conservative stance during market volatility rather than immediately returning to ULIP. Nonetheless, they expect demand for ULIPs to return over time, while guaranteed products are likely to retain their appeal.
* Proprietary channel performance was impacted by the increased share of annuity sales and a broader customer shift away from linked products. Management views this as a temporary phenomenon, with these channels having the capability to pivot across product categories depending on market dynamics.
Valuation and view
* IPRU reported strong performance with respect to VNB margin on the back of operational efficiency and product mix shift. Going forward, operating leverage and continued focus on cost optimization, along with increased traction of nonlinked products as well as improvement in product level margins, will support profitability for the company. We have kept our APE growth estimates intact for FY26/FY27 but increased our VNB margin estimates by 100bp for both years, considering the VNB performance during 1QFY26. Reiterate BUY with a TP of INR780 (based on 1.8x FY27E EV).
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