ICICI Prudential Life Insurance Company (ICICI Prudential Life) was the first among India’s life insurance companies to release its Q4FY22 results, a quarter that usually records the highest quarterly sales for a life insurance company in a financial year.

For ICICI Prudential Life, Q4FY22 saw a disruption in the months of January and February 2022 due to the third wave of the pandemic and still recorded its highest ever monthly sales in the month of March 2022. 

The APE (annual premium equivalent) and NBP (new business premium) grew substantially in FY22 on account of the introduction of new protection and annuity products. Expansion of distribution channels, particularly with the new-age fintech companies as well the bancassurance channel helped in achieving new milestones.

Quick Takes

• APE grew 20% YoY to Rs 7,733 crore and NBP (new business premium) grew 33% YoY to Rs 15,036 crore in FY22
• VNB (value of new business) grew 33% YoY to Rs 2,163 in FY22
• VNB margin stood at 28% for FY21, higher by 2.9% from FY21
• Annuity products NBP grew 29% YoY to Rs 300 crore, highest amongst all products
• Highest market share in private sector insurers for NBP in sum assured products with market share of 13.4% in 11M-FY2022

ICICI Prudential Life scores well on key metrics

Insurance industry metrics define the sale of new policies as well as recurring premiums paid on policies, and these are used to measure sales growth. APE is the sum of the annualised first-year premiums on regular premium policies and 10% of single premiums, from both individual and group customers. NBP (new business premium) is the amount of premium due in the first year of a policy. ICICI Prudential Life scores well on both these metrics in FY22.

ICICI Prudential Life saw both APE and NBP rise YoY in FY22. While APE grew by 19.6% to Rs 7,773 crore, NBP grew YoY by 15.3% to Rs 15,036 crore. The growth in NBP was driven by the diversification of the product mix over the years.

In FY22, the maximum APE contribution came from linked policies at Rs 3,738 crore, a YoY growth of 21%. Protection policies come next with APE at Rs 1,313 crore, a YoY increase of 25.5%. Except for the group insurance segment APE in all other segments grew YoY.

More diversified product and distribution mix is driving growth

The company in its investor presentation for the Q4FY22 results stated a plan to double the FY19 VNB (value of new business) over the next four years. With this context, let’s see the changes in the product and distribution mix over the years and whether these targets are achievable with the current structure of products and distribution channels.

Going back to FY19, around 80% of the policies sold were linked policies, more commonly referred to as ULIPs (unit-linked insurance policies). The premium paid towards a linked policy is divided into two parts. A part of it is contributed to life cover, and the other part is invested in the funds, either in equity, debt, or a combination of both funds as per the risk appetite of a customer. 

While this was the largest segment in FY19, these policies are market-linked and have market-linked risk associated with them. Through the pandemic (two financial years FY21 and FY22), customers opting for fixed returns and pure protection have changed the product mix in FY22.

Coming to FY22, linked policies account for only 48% of sales while diversification of product mix has added a significant amount of sales from non-linked policies as well as protection plans.

Non-linked insurance plans are traditional insurance plans that only aim to offer comprehensive financial protection. Non-linked insurance plans are low-risk plans that offer low returns and a well-defined death or maturity benefit. In FY22, ICICI Prudential Life introduced non-linked plans with an option to choose the date of income as per customer’s own choice, which has helped grow sales YoY in this product segment.

Protection plans include plain vanilla term insurance which offers pure protection against yearly premiums till a certain age without return of premium at the end of the protection period. In FY22, a newly introduced product that offered return of premium at end of the term did well under the protection segment. The total sales from the protection segment have almost doubled from FY19 to FY22.

ICICI Prudential Life’s introduction of new products in FY22 has helped it achieve a diversified portfolio, and significant growth from each product segment. The product mix was expanded to include single premium annuity plans and term plans with return of premium. Apart from the product mix, another key factor that defines sales growth is the distribution mix.

Compared to the distribution mix from FY19, ICICI Prudential Life now has a more balanced distribution network and is no longer heavily dependent on one particular distribution channel. Half of the sales in FY19 were driven through its group company, ICICI Bank. In FY22, the bancassurance channel's contribution stood at 39% with ICICI Bank’s contribution at 25% while other partner banks contributed 14%. 

Over the past few years, the company has reduced its dependence on ICICI Bank for distribution. At the same time, the bancassurance channel has grown to include a total of 27 banks, at the end of FY22, some added during this financial year.

ICICI Prudential Life is aggressively growing its agency channel and this is the second-largest contributor to revenues after the bancassurance channel. In FY22, 24,607 agents were added to the agency channel. The agency channel's strength lies in the sale of non-linked policies and 42.2% of sales from this channel in FY22 were from non-linked policies.

Growing digitisation has led to the growth of direct and partnership distribution (online aggregators) which together contribute 22% of the sales. These partnerships include tie-ups with wallets, payment banks, and new-age fintech companies taking it to a total of 800 partnerships including 107 new partnerships in FY22. 

Another key metric in the insurance industry is the VNB (value of new business) from each of the product categories. VNB is the present value of the future earnings from policies issued during a period. It reflects the additional earnings expected to be generated through the new policies issued. ICICI Prudential Life’s VNB has seen a YoY jump of 33% at Rs 2,163 crore in FY22.

Along with VNB, VNB margin is a critical metric as it directly defines the profitability of the company. VBN margin is calculated by dividing the value of NBP by the APE. Data on the VNB for the past four years shows that it is consistently rising. In addition to that, the VNB margin is also rising, implying rising profitability along with rising sales.
 

The VNB in FY19 stood at Rs 1,328 crore and the same rose to Rs 2,163 crore in FY22, an overall increase of 63%. The company aspires to double the VNB of FY19 by FY24. Going by the VNB contribution of FY22, it still has a large margin to cover in order to achieve the target by FY23.

In FY19, linked policies contributed to nearly 80% of sales, but VNB from this product segment was only 31.4%. In FY22 the change in product mix has led to higher contribution from other product segments. VNB from protection was 42.7% with 17% sales contribution and non-linked segments at 41%, with 28% sales contribution.

The next critical metric in insurance industry parlance is the persistency ratio. It is the proportion of policyholders who continue to pay their annual renewal premium. 

For the period of 11MFY22, the persistency ratio is rising across the 13th month, 25th month, 37th month and 49th month. This is a healthy sign that more customers are renewing their premiums. 

While ICICI Prudential scores well on most metrics, FY22 saw much higher Covid-19 claims. These claims were almost four times higher at Rs 2,107 crore as compared to Rs 354 crore in FY21. With the outlook that the pandemic is behind us, it is a reasonable assumption that future Covid-19 claims would taper off to an insignificant level. 

Another key metric for insurance companies is the embedded value (EV). This is the sum of the net asset value and present value of future profits of a life insurance company after sufficient allowance for the aggregate risks in the business. The EV of ICICI Prudential Life has risen to Rs 31,625 crore in FY22, up 8.7% from FY21. This can be seen as healthy growth in EV considering the provisions set aside for Covid-19 claims in FY22.

Strengthening digital presence holds key to staying ahead of the competition

The pandemic also accelerated the digital approach across industries and the insurance industry was quick to adopt it. ICICI Prudential Life also has expanded its technology initiatives with its website being one of the highest visited sites amongst private-sector insurers. 

With more than a million downloads, its app can also be leveraged for better penetration. With a system in place that does not require physical paperwork, a policy can be bought from anywhere digitally. Initiatives taken on this front will define future growth.

ICICI Prudential life has scored well on all the key metrics in FY22. A well-defined product mix and spread-out distribution have delivered YoY higher numbers in FY22. As often cited, insurance in India is an underpenetrated sector and some of the private sector insurers have massive scope. 

Based on the premium growth over the last three years, ICICI Prudential Life could lead private sector insurers in the days to come. Presently, its stock is down nearly 20% from its highest level in September 2021. This may be a buying opportunity for investors looking at private sector insurance companies