ICICI Prudential Life

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About the Company

ICICI Prudential Life Insurance Co. carries on the business of providing life insurance, pensions, and health insurance products to individuals and groups. Riders providing additional benefits are offered under some of these products. The business is conducted in participating, non-participating, and unit-linked lines of businesses. These products are distributed through individual agents, corporate agents, banks, brokers, the Company’s proprietary sales force, and the Company website.

Q4 FY21 Updates

Financial Results & Highlights

Detailed Results

1. There was a flat YoY movement in the Value of New Business (VNB) in FY21. 
2. APE (Annualized Premium Equivalent) fell 12.5% YoY in FY21 and grew 27.1% in Q4.  
3. The new business premium grew by 22.9% YoY in Q4 & 5.5% YoY in FY21. The new business margin was at 25.1% in FY21 vs 21.7% last year.  
4. Embedded Value grew 26% YoY in FY21.  
5. Total AUM grew 40% YoY since March 2020 to Rs 2142 billion and had a 55:45 debt to equity mix. 95.8% of debt investments were in AAA-rated bonds. 
6. The company maintained a solvency ratio of 216.8%. 
7. The cost to the TWRP ratio declined by 110 bps to 14.8% in FY21. 
8. 13th Month & 61st Month Persistency improved to 84.8% (from 83.2% last year) & 58.3% (from 56% last year) respectively. 
9. The company announced a final dividend of Rs 2 per share for FY21. 
10. The sum assured market share in Protection segment grew to 13% from 11.8% last year. 

Investor Conference Call Highlights

1. The average time taken for settlement of all the claims was 1.4 days in FY21.  
2. ULIP accounted for less than 50% of sales while non-linked savings and protection accounted for 31% and 16% of sales.  
3. ULIPs have come under pressure when the Union Budget announced that high ticket ULIPs will be incurring capital gains tax from Feb 1 2021.  
4. The company holds additional reserves of Rs 3.3 billion for potential COVID-19 claims.   
5. For FY21, non-linked savings business grew by 56% YoY and annuity business grew by 120% YoY.  
6. The AUM managed by Pension Fund Management Company has increased by 74% YoY to INR 75.59 billion as of March ’21. Its PFMs market share has increased to 18.4% from 14.8% last year. With the renewal of the PFM license, the company can now charge 9 bps as management fees vs 1 bp earlier.  
7. The company added 20,000 new agents in FY21.  
8. The company now has a total of 23 bank partnerships and has expanded its reach to 162 million bank customers through this.  
9. The annuity business through ICICI bank channel grew 400% YoY.  
10. The agency and partnership distribution channels grew by 37% YoY and 63% YoY respectively.  
11. The company delivered its highest ever monthly APE value of INR 11 billion in March.  
12. Around 3.9% of margin improvement has been on account of business mix, which includes a higher non-linked savings and protection mix. 0.2% margin improvement was due to expense management while 0.7% margin degradation was due to yield curve coming down.  
13. The RoEV for FY 2021 stood at 15.2%.  
14. The management is confident of maintaining good momentum going forward given its stellar performance in March.  
15. The management states that the entire group term margin outcome is a function of the level of pricing that ICICI Pru can sustain and what is the stickiness of the group client over years.  
16. The management has stated that it is not averse to releasing an ROP product and will do so if there is good demand for it from the consumers.  
17. The management expects that the new banking partnerships should add to productivity by year 2 at the most. One of these has grown 30% YoY already.  
18. The company is also working to leverage technology and build its direct channel to reduce dependency on the banca channel.  
19. The entire industry is also leaning towards moving physical sales to electronic sales and the regulator is also providing aid to this shift by dispensing with the physical signatures and going for electronic signatures and policy sales on virtual platforms and other measures.  
20. The long-term repricing will be a gradual process and will not be taken abruptly especially given the state of the country from COVID-19 and the urgent requirement of such products.  
21. The ICICI bank has decided to focus mainly on protection and annuity businesses as they see a lot of value in the differentiated proposition that they can offer to their customer segments apart from focusing on banking products.  
22. The management expects to achieve growth of 25-28% in FY22.  
23. The company has observed that total claims in FY21 in other countries have been 20-40% higher than pre-covid times, depending on the country. But the number of lives claimed is only 2500 so far which highlights the massive under-penetration here.  
24. VNB margin expansion in the linked savings business was mainly driven by expense efficiency and increased rider attachment.  
25. The company has been in the group business in large institutions for a fairly long time. It has also seen keen interest from customers to strengthen their employee benefit propositions using stronger group protection.  
26. The management doesn’t see this to be a temporary phenomenon and is confident that this move is here to stay.  
27. The uncertainty in retail protection stems from underwriting norms and risk appetite in a live pandemic environment.    
28. The online channel accounts for less than 10% of protection business and the majority of protection is from intermediary channels like banca, agency and others.  
29. The credit life business was following the banking and loan industry in India and had recovered in Q3 & Q4 along with these industries. The company also observed that the banking partners returned to growth faster than NBFC partners.  
30. Nonlinked savings business sees 40% of its sales from the non-ICICI banca channel. 

Analyst’s View

ICICI Prudential Life is one of the front runners in the life insurance industry in India. The company has established itself as one of the mainstays of the private insurance industry since its start more than 40 years ago. The company has done well to deliver good performance of VNB growth of >20% in Q4 and growth in EV of 26% YoY. The performance of the company’s protection business is particularly encouraging with group protection being a special focus. The company has also seen a good increase in persistency across the board which highlights the resilience of its base. It was also able to deliver its highest ever monthly APE in March. It remains to be seen how the company will be able to fulfill its guidance for doubling FY19 VNB and whether it will be able to maintain its growth momentum from March given the dire state of the country from the 2nd wave of COVID-19. Nonetheless, given the company’s market position, track record, and reach in the market, ICICI Prudential is a pivotal insurance stock to watch out for. 

Q2 FY21 Updates

Financial Results & Highlights

Detailed Results

1. There was a flat YoY growth of 1.1% in the Value of New Business (VNB).
2. APE (Annualized Premium Equivalent) fell 22.9% YoY in Q2FY21. The non-linked savings portion was up 45.2% YoY while the linked segment was down 41.5% YoY.
3. The new business premium declined by 14% YoY in H1. The new business margin was at 26.3% in H1 vs 21% last year. the rise in the margin is due to the shift in product mix towards protection to 19.5% vs 15.1% in FY20.
4. Total AUM grew 18.6% since March 2020 in the Q2FY21 at Rs 1529 billion and had a 56:44 debt to equity mix. 95.8% of debt investments were in AAA-rated bonds.
5. The company maintained a solvency ratio of 205.5%.
6. The cost to the TWRP ratio declined by 230 bps to 14.3% in H1FY21.

Investor Conference Call Highlights

1. The company recently announced a partnership with Indusind Bank to serve the protection and long-term savings needs of its customers.
2. It has also partnered with NSDL Payments Bank, a subsidiary of NSDL, the largest depository in India.
3. The product mix for H1 was 46% linked, 48% non-linked, and 6% group savings.
4. ULIP has seen good QoQ growth of 95%.
5. Market share in the protection business rose to 12.5% from 11.8% last year.
6. Embedded value grew 12% YoY in H1.
7. ICICI Prudential Pension Fund Management Company saw AUM growth of 41% YoY with new subscriber share at 26.5% in H1 vs 14.8% last year.
8. Savings APE grew 102% QoQ while non-linked savings APE grew 120% QoQ.
9. The active adviser count in H1FY21 was about 90% of the number in H1FY20.
10. In H1, the company added 7,400 new agents, out of which 6,200 were added in Q2 alone.
11. It saw growth of over 300% for Q2 in annuity business through ICICI Bank.
12. Overall, the new business APE in Q2FY21 from ICICI Bank almost doubled as compared to Q1FY21.
13. The direct channel grew by 76% QoQ in Q2.
14. The company was the first one in the industry to pass on the reinsurance price hike for retail protection in Q2.
15. In H1, 97% of new business applications were initiated via a digital platform.
16. The individual APE declined 15-20% YoY in H1, while overall protection APE was down 10% YoY.
17. ICICI Bank is turning out to be more of a VNB channel rather than a top-line channel according to management.
18. The focus here will be the protection plan, then annuity then ULIP in that order. ICICI Bank accounts for 35% of the top line.
19. The company will continue to price products based on the underlying risk.
20. The target market for the company is 60 million in India with current penetration at only 10% for the industry.
21. The company is not aiming for bottom scraping in the protection segment.
22. The management doesn’t expect any top-line growth in FY21.
23. Overall persistency improvement is driven by multiple factors such as the desire to continue with the product in the current health environment.
24. Agency channels have a similar margin profile as other channels.
25. 6% of APR comes from the direct channels.
26. Web aggregators are very small for the company vs other channels.
27. The management has stated that the margin for PAR products will never be the same as the non-par product.
28. The unit-linked base is getting reset this year. Starting from the fourth quarter onwards, the unit-linked base becomes more favourable which shows room for product mix expansion.
29. Group term insurance has seen good growth due to many clients taking in these policies for their employees.

Analyst’s View

ICICI Prudential Life is one of the front runners in the life insurance industry in India. The company has established itself as one of the mainstays of the private insurance industry since its start more than 40 years ago. The company has done well to shore its reserves and maintain balance sheet resilience in the face of the ongoing crisis. The performance of the company’s protection business is particularly encouraging as the product mix % of protection is rising. The core demand for new protection products remains intact. ULIPs have also shown significant recovery which is good for the company. It remains to be seen how the company will be able to fulfill its guidance for doubling FY19 VNB and whether there will not be any adverse shocks to the industry going forward. Nonetheless, given the company’s market position, track record, and reach in the market, ICICI Prudential is a pivotal insurance stock to watch out for.

Q1 FY21 Updates

Financial Results & Highlights

Detailed Results

1. 1. There was a 35% YoY fall in the Value of New Business (VNB).
   2. APE (Annualized Premium Equivalent) fell 44% YoY in Q1FY21. The savings portion fell 51.5% YoY to Rs 6.09 billion while the protection segment was flat at Rs 2.14 billion.
   3. The new business premium declined by 32.6% YoY. The new business margin was at 24.4%. the rise in the margin is due to the shift in product mix towards protection to 26% vs 14.6% a year ago.
   4. Total AUM was almost flat YoY in the Q1FY21 at Rs 1700 billion and had a 57:44 debt to equity mix. 94.3% of debt investments were in AAA-rated bonds.
   5. The company maintained a solvency ratio of 205%.
   6. The cost to the TWRP ratio declined by 220 bps to 14.8% in Q1FY21.
   7. The company reported slight drops of 0.5-5% in persistency across all time periods.

Investor Conference Call Highlights

1. The company has announced a partnership with the IDFC First Bank where the entire suite of protection and savings products will be made available to customers of IDFC First Bank.
2. The company saw encouraging growth in June where activity was double that of April.
3. Within the protection business, retail protection continues to dominate the mix.
4. The company has launched the revised product incorporating the reinsurance rate changes in the first week of July.
5. 13-month and 49-month persistency were at 81.8% and 63.9% respectively.
6. The development of VNB in Q1 was due to:
   1. a shift in product mix towards higher-margin products, resulting in an improvement in margins;
   2. transition in the protection product portfolio, resulting in the segment profitability being temporarily suboptimal;
   3. a decline in the new business APE for the unit-linked business, resulting in a lower absolute VNB for that business.
7. During the quarter, 97% of policies were logged on the online platform and 95% of the documents were submitted on the online platform.
8. Online payment options were availed by the customers to pay around 78% of the new business premium.
9. ICICI Bank contributed about 65% of Q1FY21 APE.
10. There was indeed a surge in protection inquiries but demand was kept down due to challenges to conduct medical tests. This demand is expected to come back once normalcy comes back.
11. The cost to the TWRP ratio for savings business was lower at 8.8% compared to 11.3% for the same period last year.
12. The management has stated that they expect protection prices for new products to rise by 10% to 25% from the old pricing before the 31st of March.
13. The management states that short-term product mix will lead to margin expansion. Once the economy comes back to normal in the medium term, top-line growth shall resume.
14. The management remains confident of doubling its FY19 VNB in 3-4 years as guided before.
15. The management maintains that the company remains a more retail protection-oriented company.
16. The negative surplus in the par life category is expected to get adjusted by the end of the year.
17. The focus in this product grouping of nonpar guaranteed return products would be on annuities.
18. The management does not expect any further price hikes from reinsurance for the near future.
19. The new product launched in July is an all-in-one product, which includes the critical illness cover and a proposition to add a term and health together.
20. The major sources for cost reduction are discretionary expenses related to sales, marketing, and travel. Another major source is the freezing of wage hikes.
21. The nonlinked business overall grew at about 13% and it contributes to almost 75% of the VNB.
22. Even in areas with higher cases of COVID-19, the demand for the protection product remains intact.
23. The protection opportunity is very large for India with only an estimated 8% being covered at present.
24. Total costs are down 21% YoY. The management believes that as the momentum for nonlinked savings products continues it will become more affordable for the company.
25. The variations in channel persistency are mainly due to the different product mixes in those specific channels.
26. 95%+ of the protection APE from the Banca channel is from ICICI bank.
27. The company’s penetration in bank partners’ customer base is so small that there aren’t many multi-product sell opportunities. The first priority is still to get the bank customers to buy their first term life product.
28. Less than 10-15% of retail protection APE comes from Five Pay in Q1.
29. ULIP has actually been affected because of a combination of factors like:
    1. Overall sentiment remains subdued
    2. Customers which typically pay large premiums, do not want to commit significantly long-term on a fresh contract in current uncertain times
30. ULIP declined 66% in Q1.
31. On a long term basis, ULIP margins should normalize as all in increases will be passed on in prices from July.
32. Overall for the protection business, the company retains 50% and reinsures the rest 50% at an aggregate portfolio level.
33. The management does not foresee any need to move out of our target market as such at current levels.
34. Persistency is expected to get better as the reported figures only contain data from April and May when the damage was most significant.
35. The company is encouraging its entire distribution to focus more on a goal-based approach as opposed to an investment return-oriented approach.
36. Margins in the savings business were at the same level as last year.

Analyst’s View

ICICI Prudential Life is one of the front runners in the life insurance industry in India. The company has established itself as one of the mainstays of the private insurance industry since its start more than 40 years ago. The company has done well to shore its reserves and maintain balance sheet resilience in the face of the ongoing crisis. The performance of the company’s protection business is particularly encouraging. The core demand for new protection products remains intact. But the company could still face major hurdles in its path from the uncertainty in equity markets and the reliance on ULIPs which have declined by a sharp 66% in Q1. It remains to be seen how the COVID-19 situation unravels and how the company will be able to fulfill its guidance for doubling FY19 VNB. Nonetheless, given the company’s market position, track record, and reach in the market, ICICI Prudential is a pivotal insurance stock to watch out for.

Q4 2020 Updates

Financial Results & Highlights

Detailed Results

1. 1. The company saw an income decline of 148% YoY in Q4 periods. PAT fell 31% YoY in the same period.
   2. This fall in income is mainly due to the impairment in investments due to the recent fall in Indian equity markets.
   3. There was a 20.9% growth in the Value of New Business (VNP).
   4. APE (Annualized Premium Equivalent) fell 5.4% YoY in FY20. The savings portion fell 11.5% YoY to Rs 62.65 billion while the protection segment grew 54.6% YoY to Rs 11.16 billion.
   5. The new business premium grew by 20.4% YoY. The new business Margin was at 21.7%.
   6. Total AUM declined 4.6% YoY in the FY20.
   7. The Embedded Value grew 6.5% YoY to Rs 230.3 billion.
   8. The company maintained a solvency ratio of 194%.
   9. As of 31st March 2020, the AUM was at Rs 1,529 billion and had a 60:40 debt to equity mix. 93.9% of debt investments were in AAA-rated bonds.
   10. The cost to the TWRP ratio declined by 110 bps to 10.4% in FY20.
   11. Expense ratio excluding commission increased 100 bps to 10.3% in FY20.
   12. The company reported improvement in persistency across all time periods with 13-month figures improving to 84.6% vs 83.2% a year ago. 49th-month persistency reduced slightly to 63.8% vs 64.6% a year ago.
   13. The return on embedded value declined 5% YoY to 15.2% in FY20.

Investor Conference Call Highlights

1. The company has filed for a revised protection product with the regulator and has instituted the pricing change based on the change in underlying mortality. This change is expected to expand the target market for the product.
2. The management has emphasized that the company’s balance sheet is resilient enough to withstand much more severe system shocks than the one driven by COVID-19. The company is confident of maintaining solvency and liquidity at current levels despite future uncertainty.
3. It has been observed in the past that due to under penetration of the insurance industry, even when natural catastrophes have resulted in extensive loss of life, the claims from the company’s existing customer base has been negligible. Even then the company shall hold additional reserves for excess potential COVID-19 claims.
4. The company has seen digital interactions with customers rise dramatically since the lockdown started. Daily chatbot interactions have increased 42% while Whatsapp interactions have increased 61% and mobile app logins have increased by 94%.
5. The company’s claims settlement ratio stands 98%. The average time taken for claim settlement has improved to 1.6 days in Fy20 from 2.3 days in FY19.
6. The management has stated that the improvement in the VNB margin has been mainly due to the change in the effective tax rate of dividend income.
7. Around 74% of VNB is coming from the emerging businesses of protection and non-linked savings.
8. ICICI Bank remains the most significant distributor for the company with 46% of total company APE coming from this channel in FY20.
9. The management has admitted that ULIP shall remain subdued in the near future and VNB for Q1FY21 will also remain subdued.
10. The management remains optimistic of its medium-term goal of doubling FY19 VNB in 3-4 years.
11. The company added 23,000 new agents in FY20 to its sales force. More than half of the agency business has been from non-linked savings and protection products.
12. The bancassurance channel also saw good growth in both the above-mentioned products. Protection APE for this channel grew 137% YoY while the annuity business grew 70% YoY in FY20.
13. The partnership distribution channel also saw a significant focus on the same products with almost 80% of all businesses form this channel coming in the protection and non-linked savings businesses.
14. The credit life segment also grew 50% YoY with an APE of Rs 2.35 billion in FY20. It contributed to 16% of total protection APE in FY20.
15. The management has admitted that first-year premiums for ULIP have been on a declining trend for the past few years because of sentiment and market conditions. The management has decided to focus on expanding VNB on absolute terms and drive this by improving product mix. As ULIP is the lowest margin product for the company, greater focus will be applied to developing products from other categories. The protection category remains the primary focus area here for the management and the company going ahead. Retail protection is expected to be the driver in this area.
16. The management is confident of maintaining a VNB growth rate of 19% to 25% despite the COVID-19 situation and the economic damage caused by it and the lockdown.
17. The management is confident that the demand for the protection products both in the individual and group categories shall rise post-COVID-19.
18. The management has disclosed that it has zero NPAs in its balance sheet right now.
19. The management has clarified that the company has not launched any COVID-19 specific products but its default protection product does cover death by COVID-19. The change due to COVID-19 in the protection product that the company is instituting is in the medical underwriting process.
20. The management has clarified that the ticket size for the protection product has almost doubled mainly because of the launch of the limited pay option where the policyholder has the option of shortening the pay period. This was well received and exercised by many customers. This was especially exercised by self-employed customers which are almost 75%- 80% of the customer set.
21. The management has clarified that the growth in the number of policies may appear subdued due to a variety of factors including the rise of group cover policies where a large group of people has been covered by a single policy. Thus the number of policies should not be taken as a proxy for the number of lives covered.
22. The management maintains that maintaining a high level of persistence is one of the paramount objectives whenever the company is making any product or designing any sales process.
23. The company is mainly seeing fraud cases in less than Rs 50 lacs of the sum assured category. One of the ways to prevent large fraud is to allow only an appropriate amount of cover based on underwriting considering the income level of the person covered. The company is also using various data repositories from the credit bureau, insurance information bureau to apply analytics to identify suspicious fraud patterns.
24. The management has stated that the reason for the introduction of the limited pay was essentially customer-driven.
25. The management has stated that the company has indeed pushed for cost management to keep fixed costs as low as possible in current uncertain times. Thus discretionary expenses like sales rewards and new recruitment have been put on hold.
26. The management has clarified that the starting point for the price increase is the price increases has been the increasing prices demanded by reinsurers. The company is committed to passing on all such price increases to maintain its margins and thus have had to increase prices of final products accordingly. The management is confident that due to industry under penetration, price increases should not adversely affect demand.
27. The company has seen a YoY increase in inquiries for protection products in April while ULIPs have declined YoY in the month.
28. The company conducts background checks and data gathering for customers with sum assured of Rs 50 Lacs to 1 Cr. Above this amount, the company does a telemedical interview of the customer with a doctor depending on the specific customer. Beyond Rs 2 Cr which is typically for more affluent customers, actual medical tests are required for underwriting.
29. Right now, around 25.7% of protection APE is from retail policies while the rest is from group policies.
30. The management has stated that currently the surrender rate has been drastically reduced because no one wants to surrender in the current time of low market prices for equity markets.
31. The company has seen persistency remain almost unaffected from the COVID-19 disruption. Furthermore, it has also seen persistency in protection products increase after COVID-19 appeared.
32. The VNB margin for protection has fallen from 109% in FY19 to 86% in FY20. This is mainly because of the rise of limited pay products in this category which has a smaller margin compared to regular pay keeping in mind that both options have the same absolute VNB. Another reason for the fall is the fall in benchmark interest rates in the past year.
33. The management has stated that in the protection business, half of the sum assured is reinsured while the other half is retained by the company. In case of savings products, all of the sums are retained by the company.
34. Within ULIP, 60% of the corpus is invested in equities. In participating businesses, 25% is into equity, the rest in fixed income. In guaranteed return products, all the allocation is in fixed income. The average ticket size in ULIP has gone up from Rs 1,60,000 to Rs 1,83,000 while in par the ticket size has gone up from Rs 60,000 to Rs 64,000. There has been demand compression in ULIP as the customers in the bottom segment in ULIP have moved on to par.
35. The management does not believe that there will be any big impact from the 30-day grace period on offer for insurance payments as it is unlikely to affect persistency over the course of the year going forward. This is mainly because insurance savings is a long term commitment and customers will only break it and withdraw when they are at last dire straits.
36. The management has stated that when the solvency of the company will be near 150% only then will the company get triggered to raise additional capital. The management does not expect such a case to happen as it has not occurred even in the stress tests that the company has undertaken.
37. The sharpest reduction in costs has been in variable costs for the company. This is because the management has reduced discretionary elements like distribution commissions and others.
38. Interest rate sensitivity for VNB has gone down YoY. Last year the interest rate sensitivity for 100 bps increase in reference rate was 4.3% which has gone down to 2.4% in FY20. This is mainly driven by a change in the product mix.
39. The management has stated that the only way maintenance costs will worsen is if persistency drops sharply and the book becomes smaller.

Analyst’s View

ICICI Prudential Life is one of the front runners in the life insurance industry in India. The company has established itself as one of the mainstays of the private insurance industry since its start more than 40 years ago. The company has done well to shore its reserves and maintain balance sheet resilience in the face of the ongoing crisis. The performance of the company’s protection business is particularly encouraging. The management has stated that during the upcoming uncertain tomes, the company shall focus on maintaining its solvency, reducing costs, and promotion of its fast-growing protection business which is expected to increase in demand as the COVID-19 situation goes forward. But the company could still face major hurdles in its path from the uncertainty in equity markets and the reliance on ULIPs which are still the most sold products for the company. It remains to be seen how the COVID-19 situation unravels and how the company adapts and maneuvers the uncertainty ahead. Nonetheless, given the company’s market position, storied track record, and reach in the market, ICICI Prudential is a pivotal insurance stock to watch out for.

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