When he took charge of ICICI Prudential Life Insurance in June 2018, NS Kannan had made his priorities loud and clear. Value of new business, or VNB, was going to be his mantra.
The ICICI group veteran hit the ground running from Day One. In his message to shareholders in the 2018-19 annual report, the MD & CEO said he wanted to grow the absolute VNB through the 4P levers of premium growth, protection focus, persistency improvement and productivity enhancement.
The strategy seems to have worked as ICICI Pru remains on track to double the value of new business in FY 23, from the FY 19 number of Rs 1,328 crore. The VNB margin also rose consistently. For the nine months ended December 31, 2022, it grew at over 23% year-on-year, primarily driven by better product mix towards high-margin products.
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VNB of an insurance company is the present value of future earnings from policies issued, and reflects additional earnings expected to be generated through new policies issued.
However, as Kannan superannuates in June this year, premium growth during his stewardship has been a sour point with the stock markets. The insurance company found it hard to grow its new business premium, and as a result, its market share remained stagnant at a time when rivals SBI Life Insurance and HDFC Life Insurance were able to grow their market share. All the three private sector life insurers are backed by major banks and have strong bancassurance channels.
For ICICI Prudential, the first year premium for the previous financial year stood at Rs 5,965 crore, down 14.5% compared with Rs 6,978 crore for 2018-19 when Kannan had taken charge of the company.
Ironically, the market share of ICICI Prudential Life was 4.78% for both FY19 and FY22, according to data released by insurance regulator Irdai. During this four-year period, SBI Life grew its market share by 168 basis points to 8.10%, while that of HDFC Life rose 76 basis points to 7.73%.
On the profitability front, the company saw its net profit falling every year. Of course, FY21 and FY22 were Covid-impacted years, and death claims dented the profitability of every company.
Analysts say it would not be an overstatement to say that ICICI Pru, under Kannan’s watch, sacrificed premium growth, market share and profitability to achieve its target of rapidly growing the VNB.
Kannan has brushed off these concerns in the recent past. The objective, he said at an earnings conference call for nine months ended December 31, 2022, was to have a well-diversified product suite offered through multichannel architecture to a wide range of customer segments.
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According to him, in FY19, the composition of the company’s APE (annual premium equivalent) was highly dominated by and skewed towards linked products. “Over the last few years, we worked on broadening our product propositions through a launch of annuity variants, protection products and protection variants, as well as guaranteed products. We also enhanced our focus on group term business. As a result, in the 9MFY23, we have a much more diversified product mix with almost 60% of the APE getting generated from protection, annuity and non-linked savings products. Today, we are one of the largest pension and annuity providers in the market.”
On the distribution mix, in FY19, the company’s dominant distribution channel was ICICI Bank. The partner priorities changed over the last four years. The company focused on expanding the distribution network through acquisition of new partners as well as investing in creation of new sourcing channels.
ICICI Pru, however, witnessed its market share, in terms of new business premium in the non-life space, declining 80 bps year-on-year to 4.19% as on December 31, 2022, from 4.99% in the year-ago period.
Kannan’s successor Anup Bagchi has a challenging task ahead on premium growth.“Investor expectations are for improved growth that can aid re-rating; we see pick-up from FY25,” said Jefferies India analysts in a report. ICICI Pru’s shares are down 10% so far this calendar year.
Bagchi also has to contend with the FY24 Budget proposals on taxing maturity proceeds on life insurance policies with an aggregate annual premium of over Rs 5 lakh.