Street cheers for ICICI Pru Life as protection products drive Q4 margin

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Despite significant business pressure in the March 2020 quarter (Q4FY20), shares of ICICI Prudential Life Insurance Company (ICICI Life) were up 12.2 per cent on Monday. Strong growth and focus on high-margin protection and annuity products lifted sentiment towards the stock, which had corrected by 31 per cent over the last two months until April 24.

The results, which were announced on Saturday, showed its protection business growing 35 per cent year-on-year (YoY) in Q4 and 54.6 per cent in FY20. Thus, the share of protection in the overall annualised premium equivalent (APE) — a common sales measure for life insurers — jumped to 15.1 per cent as of March 2020, from 9.3 per cent a year ago. This, along with good persistency and cost savings, improved the value of new business margin to 21.7 per cent in FY20, 194 basis point higher YoY. In fact, despite the Covid-19-led disruption and after a Rs 400-500-crore loss in the top line in the last few days of FY20, the company is witnessing good demand for protection products in April.

Given the traction in protection and annuity business, Nitin Aggarwal of Motilal Oswal Securities (MOSL), expects 7-8 per cent growth in ICICI Life’s APE in 2020-21. These projections would have been higher but for the pressure on unit-linked insurance plans (ULIPs).


ICICI Life’s ULIP APE plunged by 43 per cent YoY in Q4 and 23 per cent in FY20  because of the Covid-led disruption and market volatility. Given the ULIP share of 65 per cent, overall APE fell 20 per cent YoY in Q4 — the worst in the last nine quarters, negating the gains in the protection business. 

The FY20 APE decline of 5.4 per cent to Rs 7,381 crore was also worse than the 3.7 per cent fall estimated by HDFC Securities. This, along with investment losses amid a bearish market, resulted in a 38 per cent YoY decline in pre-tax profit to Rs 171.7 crore, lower than the Bloomberg Consensus poll of Rs 253.6 crore.

“Had ULIP’s share not been high, the overall Q4 performance would have been much better,” says Aggarwal.  Though the company is working towards lowering its dependence on ULIP (down from 79.6 per cent in FY19 to 65 per cent in FY20), it may continue to be a near-term drag on its performance.

Analysts at Emkay, who expect better growth in ULIP, have still cut their FY21 APE estimates by 13 per cent for ICICI Life, while MOSL has cut its EPS estimates by 12 per cent for FY21, and 18 per cent for FY22.

Overall, how fast the business mix and persistency improve will be a key driver of the stock.

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