How ICICI Prudential Ltd became one of the most prudent Insurance companies in India?

Summary

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• The Join Venture between ICICI and Prudential in the year 2000 have become the most successful Insurance company in India
• Successful product segment and prevailing Industry opportunity will help the growth of the company
• The Growth of the company is visible and at the same time a three digit Price to Earning is a worrisome factor

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Insurance Industry Outlook

The insurance industry of India has 57 insurance companies out of which 24 are in the life insurance business, while 34 are non-life insurers (relating to Property, Vehicle, or Business insurances). In India, the overall market size of the insurance sector is expected to be US$ 280 billion in 2020. The life insurance industry is expected to increase at a CAGR of 5.3% by 2023. India’s insurance penetration was pegged at 3.76% in FY20, with life insurance penetration at 2.82% and non-life insurance penetration at 0.94%. In terms of insurance density, India’s overall density stood at US$ 78 in FY20.

The market share of private sector companies in the general and health insurance market increased from 47.97% in FY19 to 48.03% in FY20. In the life insurance segment, private players held a market share of 33.78% in premium underwritten services in FY20.In India, gross premiums written of non-life insurers reached US$ 26.52 billion in FY21, from US$ 26.49 billion in FY20, driven by strong growth from general insurance companies. Gross direct premium of non-life insurance companies rose 11.4% on a yearly basis to Rs. 12,316.50 crore (1.6 billion) in May 2021.

Six standalone private sector health insurance companies registered a jump of 66.6% in their gross premium at Rs 1,406.64 crore (US$ 191.84 million) in May 2021, as against Rs. 844.13 crore (US$ 115.12 million) earlier.In March 2021, health insurance companies in the non-life insurance sector increased by 41%, driven by rising demand for health insurance products amid the COVID-19 surge. According to S&P Global Market Intelligence data, India is the second-largest insurance technology market in Asia-Pacific, accounting for 35% of the US$ 3.66 billion insurtech-focused venture investments made in the country.

MARKET SIZE:

 

KEY TRENDS:

Government Initiatives

 

The Government of India has taken a number of initiatives to boost the insurance industry. Some of them are as follows:

• Union Budget 2021 increased the FDI limit in insurance from 49% to 74%. India's Insurance Regulatory and Development Authority (IRDAI) has announced the issuance, through Digilocker, of digital insurance policies by insurance firms.
• Under the Union Budget 2021, Finance Minister Nirmala Sitharaman announced that the initial public offering (IPO) of LIC will be implemented in FY22, as part of the consolidation in the banking and insurance sector. Though no formal market valuation has been undertaken, LIC’s IPO has the potential to raise Rs. 1 lakh crore (US$ 13.62 billion).
• In June 2021, the government extended an Rs. 50 lakh (US$ 66.85 thousand) insurance coverage scheme for healthcare workers across India until the next year.
• In February 2021, the Finance Ministry announced to infuse Rs. 3,000 crore (US$ 413.13 million) into state-owned general insurance companies to improve the overall financial health of companies.
• Under Union Budget 2021, a fund of Rs. 16,000 crore (US$ 2.20 billion) has been allocated for the crop insurance scheme.

 

About ICICI Prudential Life Insurance:

The Company is promoted by ICICI Bank and Prudential Corporation Holdings Limited. Since the commencement of operations in FY2001, they have been one of India’s leading private life insurers. Through their comprehensive product suite, pan-India geographical presence, and robust multichannel distribution network, powered by a cutting-edge technology platform, they have been serving the growing and changing needs of our customers in India over the past 20 years. Their ‘Customer First’ philosophy has enabled them to have one of the best claim settlement ratios in the industry. Their robust investment policy has ensured zero defaults since inception and across market cycles. Their wholly-owned subsidiary, ICICI Prudential Pension Funds Management Company, distributes products under the National Pension System (NPS) and is a registered pension fund manager. During FY2021, They were India’s largest private life insurer on the new business sum assured. Their total sum assured at March 2021 was ` 20.30 trillion.

 

Sneak-peek into Company’s Journey

2020	In December 2020, ICICI Prudential Life Insurance and RBL Bank entered a bancassurance partnership to offer an array of life insurance products to customers. In September 2020, ICICI Prudential Life Insurance entered a corporate agency agreement with NSDL Payments Bank to provide customer-centric protection and savings products to customers of NSDL Payments Bank. Launched ESG Fund, an open-ended equity scheme Launched LiGo, a chat box service on Google Assistant for its policyholder
2019	Announced tie-up with Standard Chartered Bank
2017	First insurance company in India to list on NSE and BSE.
2015	The company ranked as one of the best brands in BFSI sector as per “Brands top 50 most valuable Indian brands 2015”, a study conducted by Millward Brown and published by WPP.
2013	The company received the Silver Effiee award in the financial services category for the brand campaign “Achche Bandeh”.
2011	The company was awarded “The Best Leading Private Player Life Insurance” at the CNBC TV18 Best Bank and Financial Institutions Award.
2008	Crossed the mark of five million policies
2002	Crossed the mark of 100,000 policies.
2000	The company was incorporated in Mumbai on July 20, 2000 as ICICI Prudential Life Insurance Company Limited, a public limited company under the Companies Act, 1956.

 

Product Portfolio

The company provides life insurance, pensions, and health insurance to individuals and groups. It conducts business in participating, non-participating and unit-linked lines of businesses.

Its segments include par life, par pension, non-par, annuity nonpar, health, linked life, linked pension, linked health, and linked group.

It offers:

• term plans such as ICICI Pru iProtect Smart;
• unit-linked insurance plans (ULIPs) such as ICICI Pru Wealth Builder II and ICICI Pru Elite Life II;
• child education insurance plans such as ICICI Prudential SmartKid with Smart Life;
• retirement plans such as ICICI Pru Easy Retirement;
• traditional savings/money back plans such as ICICI Pru Cash Advantage and
• ICICI Pru Savings Suraksha; and
• Health insurance.

It offers products on retail, mortgage, and group platforms

Financials ICICI Prulife dominates its peers in Sales but is the only company facing difficulty in generating Profits. Let’s look at the CAGR Growth Rate: 5 years - CAGR Growth (%)   10 years - CAGR Growth (%) Sales 17.09   Sales 15.31 Ebitda Degrowth   Ebitda Degrowth PAT -11.68   PAT -5.5 Other Income 71.2   Other Income 7.87 EPS -11.22   EPS -5.42 ICICI Pru life is able to generate sales much better than HDFC Life and SBI Life, but much of the part is eroded in Provisions. Hence the company is unable to post Profits. Segmental Bifurcation: Understanding the Terminologies Linked life/ Linked Group Life  also known as Term Life: These insurances get good coverage at Low Premium The Insured person gets NO REFUND on Maturity if the person Survives. We can see degrowth in this category by 73%.   Non-Par (non-participating) category also known as Endowment plan : This is a mixture of Insurance and Investment. The Insured person gets LIFE COVERAGE ON DEATH AS WELL AS FIXED RETURN on Maturity. This category is grown by 29%   Par (participating) category also known as ULIP (Unit Linked Insurance Plan) : The Insured gets life cover coverage, fixed return on maturity, and some profit which is variable This category is grown by 14%   Annuity Non-Par: Annuities are insurance contracts that promise to pay you regular income immediately or in the future This category is grown by 68%   Non-Par Variable : Variable life insurance plan (VIP) combines investment and insurance like Ulips. However, the returns are declared by the insurance companies on a yearly basis and are not linked to the stock market. This category is grown by 373% & the Non-Par Variable Pension has grown by 88% These two are the most Dominant categories.     Peer Comparison -   ICICI Pru life dominates its peers in Sales but is the only company facing difficulty in generating Profits.   Futuristic Approach –   Protection opportunity: Low penetration and India Stands at the lowest with respect to GDP Penetration, which determines India has great space to expand.

 

 

Valuations:

The Valuation remains the tricky part, the company has stock rise provided CAGR of 21% for the past three years and the company has also grown steadily and has the potential to sustain the higher growth levels. However, the company is trading at a Price to Earnings Multiples of 196 and that is indeed a big valuation and for growth companies in India, in recent days there has been no ceiling for the PE of the company. But it's prudent for value investors not to pick the stock at higher levels rather wait for a steep correction and buy the dip.

 

Conclusion

The future looks promising for the life insurance industry with several changes in the regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers. The overall insurance industry is expected to reach US$ 280 billion by the end of 2020. The life insurance industry in the country is expected to increase by 14-15% annually for the next three to five years. Demographic factors such as the growing middle class, the young insurable population, and growing awareness of the need for protection and retirement planning will support the growth of the Indian life insurance sector and ICIC Prudential will act prudently like before and harness the growth opportunity in the sector.

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Exclusivity:

This article is exclusive to investoguru.

Stock Disclosures:

The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Author Disclosures:

This Article represents the Author's own personal views. The Author did not receive any compensation and do not have any business relationship with any of the companies mentioned in the Article.