20 Apr , 2021 By : Kanchan Joshi
ICICI Prudential Life Insurance Company Ltd has been a laggard among insurers for the past one year. The insurer’s fourth quarter metrics will, in all probability, break the pressure on its valuations.
The company reported 23% year-on-year growth in its new business premium for the March quarter, a sharp improvement from the previous quarter. On an annualised premium equivalent (APE) basis too, the insurer’s business grew by 23%, ending the streak of contraction for three consecutive quarters. This has cheered investors with the shares today gaining more than 6% in early trade.
Granted, the growth numbers look robust partly because of a low base. That said, ICICI Prulife has managed to improve its growth metrics every quarter. It has managed this through fortifying its distribution by tying up with 110 new partners during the quarter. “ICICI Prulife has expanded distribution channels by adding new bancassurance partners like IndusInd Bank, RBL Bank, AU Small Finance Bank, IDFC First Bank, NSDL Payments Bank during FY21. These led to a 40% rise in addressable client base, and we see pay-offs helping growth from FY22 onwards," wrote analysts at Jefferies India Pvt Ltd in a note.
What’s more is that much of the growth has come through margin friendly protection plans and non-participatory savings products. In fact, the share of market-linked products has dropped to just 48% of the total portfolio. This augurs well for the company’s profitability metrics going forward. For the fourth quarter too, profitability metrics shone. Value of new business (VNB) grew by 26% and new business margin expanded to 25.1%. The management has guided for further improvement in FY22. Analysts at Motilal Oswal Financial Services Ltd believe that the company is in a sweet spot and will deliver a higher return on embedded value. “We estimate ICICI Prulife to deliver 25%/26.5?GR (compounded annual growth rate) in new business APE/VNB growth over FY21-23, led by stable margin and controlled operating expenses, enabling 15% growth in operating return on embedded value," they wrote in a note.
While most factors seem to be positive for the life insurer, investors should note that profitability metrics may look robust in FY22 largely because of a low base. That is because FY21 was a challenging year due to the pandemic. Sans the optical boost, a more sustained business growth would fetch ICICI Prulife the premium valuation it desires.
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