Akash Jain
ICICI Prudential Life Insurance continues to be our top pick in life insurance space since its IPO. The company has always performed well consistently. With the rally of HDFC Standard Life Insurance post IPO listing, the gap between the valuation of ICICI Prudential and HDFC Standard Life has widened which makes it candidate for rerating.
The company has operating Return on Embedded Value (RoEV) of 22.7 percent which is highest in the sector. We believe earnings will get a boost from higher bond yields as most investments are linked to benchmark yields. We expect a target of Rs 530 by FY19 end.
In Q4FY18, certain important metrics have seen massive improvement. The value of new business (VNB) witnessed a whopping rise of 93.1 percent to Rs 1,286 crore in Q4FY18 as compared to Rs 666 crore a year ago.
VNB is the present value of all future profits to shareholders measured at the time of writing of the new business contract. However, there was a decline in Q4FY18 PAT by 16.6 percent on YoY basis due to higher new business strain. New business strain arises when the premium paid at the commencement of a contract is not sufficient to cover the initial expenses including acquisition costs. It also includes any mathematical reserve that the insurance company needs to set up at that point.
New business premium registered YoY growth of 16 percent to touch Rs 7356 crore in FY18. Persistency or the quality of renewals across all the different brackets saw an improvement. The 13th month persistency stood at 85.7 percent (by premium) as of Q4FY18 compared to 84.3 percent a year ago.
The company witnessed consistent improvement in persistency in last five years. The annualised premium equivalent (APE) stood at Rs 7,792 crore for FY18, up by 17.6 percent from FY17.
Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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