Release Date: April 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ICICI Prudential Life Insurance Co Ltd (BOM:540133, Financial) reported a strong RWRP growth in Q4 2024, outperforming both the overall industry and private life insurance sectors.
- The company maintained an industry-leading claim settlement ratio of 99.2% for FY 2024, with an average turnaround time of 1.3 days for non-investigated claims.
- Innovative product offerings, such as the annuity product with 100% refund of premiums and a long-term pension product with partial withdrawal flexibility, have been well-received.
- The agency channel recorded an APE growth of 15.6% year-on-year in FY 2024, and the direct channel APE grew by 20% year-on-year.
- The company's embedded value grew by 18.8% year-on-year to INR423.37 billion as of March 31, 2024, reflecting a strong and resilient balance sheet.
Negative Points
- The VNB margin declined to 24.6% in FY 2024 from 32% in FY 2023, primarily due to a shift in the underlying product mix and higher expense ratios.
- The partnership distribution APE declined by 26.1% year-on-year in Q4 and 8.1% year-on-year in FY 2024, indicating challenges in the non-par product segment.
- Group business APE declined by 6.1% year-on-year in Q4 and 8% for FY 2024, mainly due to a decline in group term business.
- The cost to TWRP ratio for the savings line of business stood at 15.8% for FY 2024, reflecting higher expenses and investments in capacity creation.
- The company faced a negative mortality variance of INR2.88 billion in FY 2024, primarily due to an enhanced provision for expected claims incurred but not reported.
Q & A Highlights
Q: The VNB margin has contracted sequentially from the nine-month level to the full year number. Can you explain the factors behind this contraction and how should we think about the margin going forward into FY25?
A: The decline in VNB margin is primarily due to a shift in the product mix towards unit-linked and participating products from non-participating products, a decline in group term business, and higher expense ratios. The new annuity product, which has a trail commission structure, also impacted margins. We expect the margins to stabilize as the impact of the revised commission structure has already been factored in this year.
Q: Can you provide some numbers on the premium garnered from ICICI Bank in the fourth quarter and FY24? Also, what is the outlook for the Banca channel in FY25?
A: ICICI Bank contributed roughly INR80 crores to INR100 crores per month throughout the year. The strategy remains stable, and we expect similar contributions in FY25. The Banca channel overall is expected to continue focusing on unit-linked and protection products.
Q: You mentioned a redesign of the commission structure. Can you highlight which channels are affected and the level of escalation?
A: The redesign of the commission structure is largely complete and has primarily affected non-agency channels. The increase in commission rates is in line with market rates, driven by competitive pressures. We do not expect significant changes going forward.
Q: There was a negative variance in mortality for FY24. Can you explain the reason behind this and whether it should have been part of operating assumption changes?
A: The negative variance in mortality is due to an enhanced provision for expected claims incurred but not reported, primarily from the group credit business. This is considered a temporary variance and not a permanent change in operating assumptions.
Q: The annuity segment has shown strong growth. What are the margin implications of this growth, and how does it affect the overall VNB margin?
A: The new annuity product has a trail commission structure, which aligns distributor incentives with customer outcomes. While the product has done well, its impact on margins is neutral to positive. The overall VNB margin is affected more by the shift in product mix and higher expense ratios.
Q: Can you provide some insights into the growth in the number of customers or lives insured for FY24?
A: The total number of policies grew by about 3% year-on-year, with 587,000 policies written in FY24 compared to 571,000 in the previous year. This includes both new customers and upsell business.
Q: What is the outlook for the proprietary channels, and how do you plan to leverage the investments made in these channels?
A: We intend to continue investing in proprietary channels like agency and direct sales force. The capacity improvements made over the last two years have started yielding results, and we expect this momentum to continue, driving sustainable growth and profitability.
Q: How do you view the regulatory landscape, especially in light of recent media reports on misselling in the industry?
A: We are committed to delivering value to customers and take strict action against any instances of misselling. Our focus is on improving persistency and ensuring that our distributors adhere to best practices in customer service.
Q: Can you explain the increase in sensitivity to changes in acquisition expenses and mortality rates in the VNB margin?
A: The increase in sensitivity to acquisition expenses is due to higher unit costs in the current year. The higher sensitivity to mortality rates is due to the increased share of protection business in the new business mix.
Q: What is your dividend payout policy, and how should we think about it going forward?
A: Our dividend policy is set at 30% of profits, but the actual payout is assessed by the Board each year based on market conditions, profit delivery, and solvency expectations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
