‘Buy’ maintained as valuations lend stock value; however, as insurer is in a transitory phase, its growth is likely to lag private peers
ICICI Prudential Life Insurance in its Jan-19 update has given its APE (annual premium equivalent) and retail weight received premium (RWRP) trend for Dec-18 (before the IRDA monthly update). Its individual WRP (weighted retail premium) business contracted by 5% y-o-y but overall APE grew by 3% y-o-y in Dec-18. The diverging trend in individual WRP growth (5% contraction) and 3% growth on APE on y-o-y basis we believe is mainly due to increasing focus on selling ULIPs through SIP mode from Nov-18. For example: An Rs 180k premium policy could have been sold as a Rs 15k monthly SIP policy. Here, the WRP in case of a SIP policy will be Rs 15k only, while in case of an annual policy it will be Rs 180k, while APE will be Rs 180k in both cases.
New business trend stabilising
3% APE growth in Dec-18 is coming on a relatively benign base of no growth in Dec-17. For 9MFY19, IPRU has had a 4% APE contraction in new business. We recently cut our growth expectations for IPRU to 3% contraction in FY19 and just 8% APE growth in FY20F. Given relatively muted base in Q4FY18, we see very little risk to our APE growth assumptions.
What do we make of IPRU’s recent trend?
IPRU is trying to diversify into smaller ticket ULIPs and that we believe will be a 12-month journey. Meanwhile, trends in Nov-18 and Dec-18 indicate the company has been able to at least arrest the APE decline. Nov-18 had seen a 38% y-o-y growth in new individual policies (by number).
We believe IPRU’s stock has value as it trades at 1.8x Sep-20F EV and implies just 6-7% long term VNB growth and hence we see value and maintain our Buy rating and Rs 430 TP. But since IPRU is in a transitory period (focusing on smaller ticket ULIPs and SIP ULIPs), its growth is likely to underperform private peers; hence growth catalyst will be missing in the near term.