ICICI Prudential Life – Largest private player:: Macquarie Research,

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ICICI Bank
ICICI Prudential Life – Largest private player

Event
 ICICI Prudential Life is the largest private life insurance company in India. It
has a market share of 17.7% among the private players. ICICI Pru Life is a
joint venture between India’s largest private sector bank, ICICI Bank, and
Prudential of UK. ICICI Bank holds a 74% stake, while the remaining is held
by Prudential.

Impact
 Sales see 33% CAGR over five years. New business premiums have grown
at a CAGR of 33% over the past five years. New business premium for the
last two years has, however, actually contracted YoY. The company’s
distribution network is one of the largest among private players, with 1,900
branches and 210,000 agents force.
 One of the largest distribution networks. The company has one of the
largest distribution networks among private players. Nearly 40% of the
company’s business comes from agents, while bancassurance accounts for
20%. The company has about 90% of its new business premium coming from
the Unit-linked policies.
 New regulations result in significant headwinds to industry profitability.
We believe the industry profitability is structurally likely to be lower now after
the revised regulations. New business margins are likely to be down
significantly, and growth prospects look poor in the near term. New business
strain is likely to increase in the near term, thereby resulting in more capital
infusion. Product mix could be difficult to alter materially as the market
demand is for ULIPs. However, the industry participants are sanguine over
the longer term considering the demographics and macroeconomic potential
of India.
Action and recommendation
 We value ICICI Prudential Life at 14x FY12E NBAP. This results in Rs122 per
share contribution to ICICI SOTP. We rate ICICI Bank shares Outperform.


ICICI Prudential Life Aide Memoire
1. What is the trend for new business margins for the life insurance business? How have they been impacted post the new
IRDA guidelines? What do you think is the sustainable new business margins for you?
2. What is the growth you are targeting for FY11 in terms of new business premium, and what is the medium-term outlook for
growth?
3. What is your take on long-term growth prospects of the industry? Do you think the long-term growth drivers of the industry
remain intact?
4. How is the product mix going to change for you in the new regime? For the industry? How are you retraining your agents?
5. When do you expect sales to normalise from the impact of current uncertainty in the marketplace?
6. What are the cost-cutting measures you have taken for improving margins?
7. Are you facing issues of agent dissatisfaction in view of lower commissions on ULIPs? Do you see lower commission a
hindrance for your company and/or the larger industry to attract talent?
8. How much capital is further required for the insurance business?
9. When do you think you can break even?
10. When do you expect to list the business? Is the foreign investment limit to be raised (from the current 26%) an important
requirement before listing the subsidiary?