ICICI Pru Life Q3 Preview: APE to grow 2%, margins to contract on product mix change

As net profit is not a key metric for life insurance companies, several brokerages have not shared estimates for the bottomline number, except Motilal Oswal Financial Services. The domestic broking firm expects PAT to grow 25.7 percent YoY to Rs 280 crore.

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ICICI Prudential Life Insurance on January 17 is expected to report a muted 2 percent year-on-year growth in annual premium equivalent (APE) for the October-December 2023 quarter. APE is seen at Rs 1,856 crore, as per a poll of brokerages.

APE is essentially a measure of sales for a life insurer. The muted growth is largely in line with the industry trend as premium growth has been dull for the entire life insurance industry, as per IRDAI data.

Further, ICICI Prudential Life Insurance's VNB (value of new business) margins are set to contract over 400 basis points YoY to 29.3 percent due to a change in product mix.

Analysts at Emkay Research pointed out that sales of non-par products were higher in the base quarter while ULIP sales, which fetch lower margins, were higher in the quarter gone by.

ULIP stands for unit-linked insurance products. ULIPs are market-linked products, a combination of insurance plus investment. With markets touching new highs, ULIP sales were higher last year.

Meanwhile, non-par products are those in which profits are not shared with policyholders, and thus, the margins are higher.

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"As a result of margin contraction, VNB is expected to decline 11 percent year-on-year in Q3 FY24," said Emkay.

As net profit is not a key metric for life insurance companies, several brokerages have not shared estimates for the bottomline number, except Motilal Oswal Financial Services. The domestic broking firm expects PAT to grow 25.7 percent YoY to Rs 280 crore.

Meanwhile, Nuvama Institutional Equities has noted that growth from non-ICICI Bank channel shall be key. "Guidance on any change in ICICI Bank's distribution strategy. Longer term guidance on APE and VNB growth," the firm said.

Also Read: HDFC Life shares fall 2% post mixed Q3 performance; here's what brokerages say

Looking beyond Q3 performance, analysts at Kotak Institutional Equities said that the proposed Insurance Regulatory Development Authority (IRDA) guidelines on surrender penalty caps may remain a key overhang for life insurance companies. "We need clarity on the final guidelines, estimated impact, and the strategies to be adopted by life insurance companies hereon," they wrote.

Surrender penalty caps would limit surrender charges after a policyholder voluntarily terminates an insurance policy before its maturity or occurrence of an insured event. In this manner, a policyholder would receive a higher payout for the insurance they paid and surrender charges would be reduced. This, analysts believe could take a toll on insurance companies' margins.

On January 16, at 11:45 am, the stock was trading flat on the NSE at Rs 523.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.