I-Pru Life: Retail focused portfolio, no investment risks augur well

The life insurer tinkered with its enterprise technique — raised the share of safety plans and decreased dependency on ULIPs up to now 4 years.

It’s uncommon for a agency to always cede market share, file a decline in development quarter after quarter, and but have the Street’s confidence within the inventory stay unwavering.

If something, it has improved of late.

ICICI Prudential Life (I-Pru Life), which held prime spot within the trade throughout itemizing in 2016, has now slipped to 3rd.

Despite the steepest fall in premium inflows year-to-date — down 31 per cent year-on-year — I-Pru Life enjoys 82 per cent ‘Buy’ ranking, in line with a Bloomberg ballot of analysts.

After rating second by way of returns up to now, the inventory has outperformed friends within the 1-month and 3-month time spans.

Credit goes to the life insurer for tinkering with its enterprise technique — elevating the share of safety plans and lowering dependency on unit-linked insurance coverage (ULIPs) up to now 4 years, although it gathered tempo since 2018.

From beneath 5 per cent share in FY17, the significance of the more-profitable safety plans elevated to 17 per cent within the July-September quarter (Q2), making I-Pru Life’s dependence on safety insurance policies just like friends.

On the opposite hand, ULIPs, which accounted for over 75 per cent of whole premiums, noticed their relevance fall to 51 per cent in Q2.

The drastic alteration within the product combine has tilted profitability within the insurer’s favour.

From 16.5 per cent worth of latest enterprise (VNB) margin in FY18, the quantity stood at 26.3 per cent in Q2.

Another upside is the development in persistency ratio — with the important 13-month and 61-month ratio at over 80 per cent and 60 per cent, respectively, being on a par with most popular trade requirements.

VNB margin displays the profitability on new insurance policies issued throughout a interval, whereas persistency ratio signifies the stickiness of shoppers at varied levels of their insurance policies.

Diversification in favour of safety additionally eliminates balance-sheet threat.

Since policyholders choosing safety plans achieve this for all times cowl and never with a return goal, it permits the insurer to deploy these funds in risk-free devices like authorities securities, which stabilise its stability sheet and defend the insurer from bond-market debacles.

This is why analysts at JM Financial say regardless of the underwhelming development, “we just like the franchise, given its strengths, resembling a retail-focused portfolio, sturdy distribution community, no asset high quality or investment risks, and comfy solvency”.

The analysts word that from January 2021, the worst by way of tepid development needs to be behind the insurer, and therefore, forecast VNB development of 14 per cent in 2021-22, in opposition to 5-per cent decline anticipated in 2020-21 (FY21).

At 2.2x its FY21 estimated price-to-embedded worth, I-Pru Life stays an reasonably priced choice for buyers.

Photograph: Shailesh Andrade/Reuters