Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strategic importance to, and expectation of support from ICICI Bank

ICICI Pru has a strong linkage with ICICI Bank which is reflected in a shared brand name and majority ownership. ICICI Bank's presence in the life insurance sector is through ICICI Pru Life, which is, therefore, one of the critical subsidiaries for ICICI Bank. Established brand name and market reputation of ICICI Bank has enabled the company to build its own brand equity, which assists in selling to customers of all segments. The Board of Directors of ICICI Bank and ICICI Pru Life have three common Directors, of which one director is nominated by ICICI Bank on the board of ICICI Pru Life and the other two are independent Directors. Additionally, ICICI Bank has also nominated a non-executive director on the Board of ICICI PruLife. In addition, ICICI Bank also acts as a corporate agent for ICICI Pru Life, which allows ICICI Pru Life to access ICICI Bank's vast network of bank branches and customers for selling its insurance products. ICICI Pru Life being a listed entity, has ability to source capital from external investors and has the financial flexibility to raise capital whenever necessary. Further, ICICI Bank will continue to support the growth plans of ICICI Pru Life and will contribute to any incremental capital requirement.

Established market position within life insurance industry

ICICI Pru Life is expected to maintain its market position as one of the largest players within life insurance industry. ICICI Pru Life's market share in terms of new business premiums (within private players) stood at 12.2% during fiscal 2023 (13.0% during fiscal 2022). In terms of overall new business premium, ICICI Pru Life’s market share stood at around 4.6% as on March 31, 2023, as compared to 4.8% as on March 31, 2022. The company has been in operation since 2001 and has a presence, Pan India. ICICI Pru Life has been able to diversify its sourcing channels over the years which has led to strong business growth. Further, strong brand image and direct access to large customer base of ICICI Bank, provides support to the business growth of ICICI Pru Life. Furthermore, low insurance penetration and other supportive macro factors are expected to drive growth.

With the intent of maintaining customer centric, balanced and profitable suite, the management is focused on maintaining a balanced portfolio mix with focus on sourcing through multiple channels. This is reflected in the product mix for Q1 fiscal 2024, with ULIPs accounting for 38.8%, non-linked products for 27.7%, protection for 23.5%, annuity for 6.2% and group for 3.8% of annual premium equivalent (APE). The two segments viz protection and annuity remain key focus area for the company.

Well diversified distribution channels

ICICI Pru Life offers its customers access to its products and services through an extensive multi-channel sales network across India that includes bancassurance, agency and direct channels (online, etc.). ICICI Pru Life has diverse mix of sourcing channels. For bancassurance, the company enjoys direct tie-up with parent i.e., ICICI Bank. Out of the Q1-FY2024 APE distribution mix of 28.9% of Bancassurance, share of ICICI Bank is 13.5% and all the other banks constituted 15.4%. Apart from ICICI Bank, the company has tie-up with 38 other banks including Standard Chartered Bank, IDFC First Bank, IndusInd Bank and many other banks. During the last 4 years, the company has transitioned its distribution profile and its diversification strategy ensures growth comes from all channels. Within the bank and non-bank channel, the company continues to add new partnerships and along-with increasing share of in the existing partnerships. In total, the company had 39 bank partnerships and over 950 non-bank partnerships as of June 2023. Further, the company continues to enhance its agency channel and currently has over 200,000 agents spread across geographies.

This diversification in channels has led to no distribution partner (apart from ICICI Bank) contributing significantly to APE thereby reducing the concentration risk. This will also lead to stability in growth in the long term as growth or decline in any one single channel will not lead to overall topline growing or declining. As on June 30, 2023, ICICI Pru Life’s distribution mix (in terms of APE) was bancassurance 28.9%, agency accounted for 24.4%, group 19.8%, direct acquisition 14.5%, and partnership distribution 12.4%.

Healthy persistency metrics and profitability

As on June 2023, 13th and 49th month persistency ratios (regular and limited pay) stood at 86.4% and 64.7% respectively. Sustenance and improvement in persistency is primarily driven by focus on better quality business and leveraging analytics and technological capabilities to provide a superior customer experience. The healthy persistency also reflects the company's ability to hold on to its policyholders for longer duration. ICICI Pru Life has improved its persistency ratios across buckets during last 4-5 years.

In terms of profitability, ICICI Pru Life has been generating healthy accruals which has also supported its capital position. The value of new business (VNB) margin has remained healthy at 32% during fiscal 2023 improving steadily over the years from 17% during fiscal 2018. In Q1 fiscal 2024, the VNB margin stood at 30%. In fiscal 2023, Return on Equity (ROE) stood at 8.6% as compared to 8.6% in fiscal 2022 (8.6% in Q1 fiscal 2024). In terms of absolute profitability, the company reported PAT of Rs 811 crores during fiscal 2023 as compared to Rs 754 crore during fiscal 2022. During Q1 fiscal 2023, the company reported PAT of Rs 207 crore. During fiscal 2023, the company’s operating expenses (Operating expenses/Net Premium) stood high at 11.9% as compared to 10.1% in fiscal 2021. The operating expense continued to remain high during first quarter of fiscal 2024 and stood at 15.8%. The increase in operating expenses was primarily on account of employee remuneration, advertisements, investments in technology & digitalization in line with the objective of capacity creation tosupport sustainable growth over medium term. Nevertheless, the ability of the company to maintain its VNB margin and also improve its profitability will remain monitorable.

Adequate capital position

ICICI Pru Life maintains adequate capital position which is reflected in healthy solvency margin of over 190% maintained for last 10 years. The absolute net worth was Rs 10,031 crore as on June 30, 2023, and Rs 9,812 crore as on March 31, 2023 (Rs 9,029 crore as on March 31, 2022). While CRISIL Ratings expects capital support from ICICI Bank to be forthcoming if required; ICICI Pru Life has been maintaining its capital position through internal accruals, not necessitating any such support. Although, there has been no incremental capital infusion during last eleven years, ICICI Pru Life has maintained solvency margin of above 190%. The company’s solvency ratio as on June 30th,2023 stood at 203% as compared to 209% at March 31st, 2023.

In terms of embedded value (EV), the company has shown healthy growth in its EV which stood at Rs 35,634 crore as on March 31, 2023 as compared to Rs 31,625 crore as on March 31, 2022. The ratio of embedded value to networth stood at 3.6 times at March 31,2023 and 3.5 times as on March 31, 2022, which was in line with similar sized peers. The embedded value can be seen as a representation of actual capital position since it includes the future profits that company is expected to receive from the business it has underwritten till valuation date. The steady increase in internal accruals enables the company to maintain capital position while achieving healthy business growth.

Weaknesses:

Ability to sustain growth in non-linked segment

The company has taken measures to create a balanced mix between linked, non-linked, annuity and protection segment. The proportion of non-linked products, annuity and protection products to total APE improved to 37.3%, 5.9% and 17.4% respectively in fiscal 2023 as compared to 27.4%, 3.9% and 17.0% in fiscal 2022. Further, during first quarter of fiscal 2024, proportion of non-linked, annuity and protection segment stood around 27.7%, 6.2% and 23.5% respectively of APE. This has supported healthy expansion in value of new business margins to 30% in Q1 Fiscal 2024 (32% in fiscal 2023, 28% in fiscal 2022). Nevertheless, ULIP continued to account for decent share of 35.9% (of APE) as on March 31, 2023, as compared to 48.3% in fiscal 2022. Given the nature of ULIP products, it remains prone to cyclicality in capital markets and economic environment. CRISIL Ratings, however, notes that company over the past four years have shifted their focus towards creating balance mix between linked and non-linked segments in order to reduce their dependency on any one product segment and also improve bottom line profitability. Accordingly, in the last four years, the company has launched more products catering to a wide range of customers and their various needs. The company has also added new distribution partners along-with enhancing agency network with focus to expand to tier II & below locations in order to acquire more mass and mass affluent customer segments along with the affluent segment. As historically, ICICI Pru Life has been market leader in ULIPs, their ability now to sustain growth in non-linked segment will be a key monitorable.

Exposure to inherent competition in the insurance business, and associated challenges

Intense competition from other private life insurers can make it challenging for ICICI Pru Life to maintain its profitability. Moreover, with the dominant position of the Life Insurance Corporation of India in the domestic market, private players need to continuously innovate to attract customers, and also manage the returns expectation of policy holders. Hence, the company's ability to continue to gain on new business, generate profit and manage the investment portfolio to earn adequate returns, will determine its profitability and market position over the longer horizon.