ICICI Pru Life (ICICI Prudential Life Insurance Company) was the first among life insurance companies to declare their Q2FY23 results. It got a mixed reaction from analysts. The company chose to present its results based on half-yearly performance, and H1FY23 saw a lower growth rate compared to FY22.

A change in strategy drove strong growth in group protection and non-linked savings but these were offset by weak performances in ULIPs and group savings–a surprise because this has traditionally been the strength of the company. 

Explaining the results, NS Kannan, MD & CEO of ICICI Pru Life stuck a persistently optimisitc note. “We achieved a robust year-on-year (YoY) growth of 25.1% in the Value of New Business (VNB), ending H1FY23 at Rs 10.92 billion," he said. Dig deeper however, and weaknesses arise.

Quick Takes

• Annualised Premium Equivalent (APE) for H1Q2FY23 stood at Rs 3,519 crore, a YoY increase of 10.1%
• New Business Premium (NBP) for H1FY23 stood at Rs 7,359 crore, a YoY increase of 13.9%
• Net profit increased to Rs 355 crore in H1FY23 from Rs 259 crore in H1FY22 
• Net premium earned (gross premium less reinsurance premium) increased by 3.6% YoY to Rs 16,466 crore in H1FY23 from Rs 15,888 crore in H1FY22 
• Investment income under unit-linked products decreased to Rs 1,377 crore in H1FY23 from Rs 19,987 crore in H1FY22
• Investment income under other categories decreased to Rs 3,149 crore in H1FY23 from Rs 3,496 crore in H1FY22 
• Total expenses (including commission) increased from Rs 2,610 crore in H1FY22 by 17.5% YoY to touch Rs 3,066 crore in H1FY23 

Key metrics in H1FY23 results disappoint 

The VNB did see a steep increase YoY, as Kurian points out, but APE, another key metric, was flat with an approximate YoY growth of 1%. Meanwhile, gross premiums grew 3.8% YoY to Rs 9,900 crore, with NBP up by 7.3% and renewal premiums 1.3% on a YoY basis.

The share of protection in the overall mix improved 20% in H1FY23 from 17% in FY22. Another visible change in the product mix is lower dependence on linked products (also commonly known as unit-linked insurance schemes). While it was 48% in FY22, it dipped to 41% in H1FY23.

ICICI Pru Life is changing the product mix with a high emphasis on the non-linked and annuity segments, while protection is also witnessing healthy growth. On the other hand, the ULIP segment is adversely impacted by market volatility.

Changing product mix and distribution mix yet to stabilize, focus is on annuity

A wider product suite compared to the past has enabled better management of volatile financial markets and changing consumer preferences. The underwriting process and prices have stabilized in retail protection. The YoY decline in sales has also come down, which is encouraging.

Annuity remains the key focus area for the company. It believes that under-penetration of annuity & protection segments offers a significant opportunity for growth. In the protection segment, it continues to take advantage of the opportunities in the group business, specifically on group credit life products. There is significant demand for group protection products, especially with the prices being recalibrated closer to the pre-COVID-19 levels.

On the distribution side, the Banca channel sees lower dependency on group banks. While ICICI Bank’s share stands at 23%, other banks saw a rise to 17% in H1FY23 from 14% in FY22. There has also been a significant increase in contribution from the Agency channel–31% in H1FY23, compared to 24% in FY22.

During H1FY23, ICICI Pru Life added over 15,000 agents, 3 new bank partners and 44 non-bank partnerships. With this, it has access to around 13,000 branches. ICICI Bank is focused on selling non-linked savings and protection products. Eventually, Agency channels will  contribute to one-third of the total APE, while direct channel contributions grow the fastest.

Partnerships with new age fintechs ramp up

The partnership distribution channel has also grown significantly over the last two quarters. It was aided by the proliferation of new age fintech companies partnering with insurance companies for online sales. Whether these fintechs can change the rules of the game, which remains largely dependent on the agency channel, is something that investors must watch out for.

Persistency ratio is the percentage of policyholders who continue to pay renewal premiums every year. Higher ratio indicates higher number of customers paying renewal premiums on time.

Persistency has improved across all time periods with 85.9% in the 13th month and 61.2% in the 61st. The management has reiterated its guidance to double FY19 VNB by FY23E, aided by the opportunity in the long-term savings/protection business and improving persistency and cost ratios. 

Regulator’s unified digital platform may trigger faster growth of the insurance industry

The government is also doing its part to ensure higher penetration of life insurance. The IRDA has proposed a unified platform with tremendous potential and could be the single point factor to drive exponential growth in the industry. 

The regulator has proposed Bima Sugam, an all-in-one digital platform for solicitation, servicing and claims. This would be a game-changer for the insurance industry. ICICI Pru Life expects this unified platform to be used by customers to fulfill all their insurance needs. This will also enable insurers and intermediaries, in conjunction with other market participants such as insurance repositories, to seamlessly connect to external databases and ecosystems.

The rising share of financial savings and higher disposable incomes, along with favorable demographics, would enable healthy growth for insurers. Thus, India’s life insurance sector is well-positioned to deliver healthy long-term structural growth. While ICICI Pru Life’s H1FY23 failed to enthuse investors, we await results from peers like HDFC Life and India’s largest life insurers LIC of India to see how they fare on key metrics.