Private insurer ICICI Prudential Life has said it is on course to meet its target of doubling the value of new business to Rs 2,560 crore this fiscal from FY19 levels.
The optimism of the management to meet the target it had set for itself in the beginning of FY19, when the Value of its New Business (VNB) stood at Rs 1,328 crore, stems from the much more than anticipated VNB growth clocked in the first quarter at Rs 471 crore, which was 31.7 per cent higher than the year-ago period when it was only Rs 358 crore.
VNB is a key profitability metric in the life insurance industry as life insurance is a long-term business unlike general insurance which is a year-long commitment. So, VNB means the future profit of a life policy written now. Higher the VNB margin the better will be the profitability of a company. This is calculated by dividing the VNB by annualised premium equivalent or regular premium plus 10 per cent of the single premium.
Having already grown so much in the first quarter, the company now needs to grow at a lower 22.5 per cent rate only to meet the target, according to the management.
“We’ve ticked on all the four boxes in the June quarter. Our 4Ps strategy, initiated in FY19, of focusing on premium growth, products especially on the protection side, improving persistency, and enhancing productivity, are performing as planned and we’re on track to achieve our aspiration of meeting the target set in FY19 of doubling the VNB to Rs 2,650 crore this fiscal from Rs 1,328 crore then,” N S Kannan, managing director and chief executive, told PTI in a recent interview.
Having already grown the VNB by a shade less than 32 per cent in Q1, this gives the company the comfort of meeting the target at a much lower quarterly run rate of 22.5 per cent now, he explained and asserted that the strong 31.6 per cent VNB growth was driven by a robust 24.7 per cent growth in APE and the overall numbers show the success of our 4P strategy.
The first quarter was exceptionally well because of steeply fallen Covid claims which fell to a trickle of Rs 16 crore from almost Rs 500 crore a year ago, leaving it bleeding Rs 186 crore. Another enabler was the improving persistency ratio which jumped to 85 per cent, Kannan said.
Persistency ratio, a measure of customer trust and the quality of its business, improved in Q1 across all cohorts and the key 13th month ratio stood at 85.5 per cent. While the premium income grew 25 per cent, productivity component also chipped in with a 4 percentage points overall improvement, Kannan said.
The quarter also saw the company becoming the largest among the peers in terms of new business sum assured at Rs 2.21 lakh crore and with a market share of 15.8 per cent in the reporting quarter, up from 14.7 per cent in the year-ago period.
VNB margin soared 31 per cent from 29.4 per cent on-year, on the back of a 24.7 per cent growth in the APE (Annualised Premium Equivalent) which grew to Rs 1,520 crore, while its annuity APE grew 69 per cent to Rs 98 crore, the chief financial officer Satyan Jambunathan said in the interview.
From a product perspective, he said the savings rose 22.4 per cent to Rs 1,092 crore, protection grew by 22.2 per cent to Rs 330 crore, annuity jumped by 69 per cent to Rs 98 crore and the new business received premium improved by 24.4 per cent to Rs 3,184 crore.
Assets under management grew 3.1 per cent to 2,30,072 crore.
“Going forward I see more traction for protection given the massive under-penetration and the pandemic-induced fear for safety. Currently this segment gets us 21 per cent of the income, up from 17 per cent in FY22 and I see this scaling to 23-25 per cent over the medium term,” Kannan said.
He also welcomed the growth target set by the new Irdai chairman Debasish Panda to increase insurance penetration by doubling sales, saying it will usher in a sustainable growth for the industry.