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We believe ICICI Prudential Life is positioned uniquely among private insurers to take advantage
of opportunities in the life insurance space. It benefits from a highly profitable linked book under
management, bancassurance support from the largest private sector bank and timely
consolidation. Buy; new Rs1310 TP.
ICICI Pru Life: Rebalanced product mix in FY11
Management has revisited its product strategy. Focus is shifting to: 1) single premium ULIPs in
the high-ticket segment (more than Rs0.1m) to reduce persistency risk; 2) traditional policies in
the low-ticket segment (less than Rs15,000); and 3) regular premium ULIPs in the mid-ticket
segment. We believe that while strong bancassurance support will give the insurer an added
advantage in the high-ticket single premium business, low operating expenses will help it offset
persistency risk in regular premium ULIPs.
ICICI Pru Life: Network consolidation is over; insurer to maintain distribution mix
Besides affecting volumes, the new product guidelines will delay expense break even, which was
expected in FY12. The insurer has been in a consolidation phase since FY08 and in our view has
already done away with the excesses built up during the bull run (reflected in the low expensesto-
GWP ratio of c15% in FY11, one of the lowest among private insurers). Going forward, we
believe new business growth should generate scale benefits facilitating expense break even over
the next two to three years. We believe the insurer is finished with network consolidation, having
reduced its number of branches to 1,400 (from 1,958 in FY08) and number of agents to 140,000
(from 300,000 in FY08). Management plans gradual expansion, maintaining the current
distribution mix (agency: 43%, bancassurance: 39%).
We increase our target price for ICICI Bank on an increased valuation of ICICI Pru Life
In our view, ICICI Pru Life has achieved a sound balance between persistency, expense control
and asset growth, while maintaining its dominant position in the sector. We believe timely
consolidation puts it in a position from which it can invest in growth while other companies focus
on getting their business models right. We revise our ICICI Pru Life valuation to Rs178bn (from
Rs102bn) and increase our target price for ICICI Bank to Rs1310 from Rs1261, driven by
increased valuation of the life insurance company from Rs65 per share to Rs114 per share (1.9x
FY12EV, 5.8x FY12 BV). In our view, the key risk is that ICICI Pru Life has scaled down over past
two to three years, resulting in lower new business volumes. This may affect asset growth (and
thus profits), especially if surrenders remain elevated, as witnessed throughout FY10-11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We believe ICICI Prudential Life is positioned uniquely among private insurers to take advantage
of opportunities in the life insurance space. It benefits from a highly profitable linked book under
management, bancassurance support from the largest private sector bank and timely
consolidation. Buy; new Rs1310 TP.
ICICI Pru Life: Rebalanced product mix in FY11
Management has revisited its product strategy. Focus is shifting to: 1) single premium ULIPs in
the high-ticket segment (more than Rs0.1m) to reduce persistency risk; 2) traditional policies in
the low-ticket segment (less than Rs15,000); and 3) regular premium ULIPs in the mid-ticket
segment. We believe that while strong bancassurance support will give the insurer an added
advantage in the high-ticket single premium business, low operating expenses will help it offset
persistency risk in regular premium ULIPs.
ICICI Pru Life: Network consolidation is over; insurer to maintain distribution mix
Besides affecting volumes, the new product guidelines will delay expense break even, which was
expected in FY12. The insurer has been in a consolidation phase since FY08 and in our view has
already done away with the excesses built up during the bull run (reflected in the low expensesto-
GWP ratio of c15% in FY11, one of the lowest among private insurers). Going forward, we
believe new business growth should generate scale benefits facilitating expense break even over
the next two to three years. We believe the insurer is finished with network consolidation, having
reduced its number of branches to 1,400 (from 1,958 in FY08) and number of agents to 140,000
(from 300,000 in FY08). Management plans gradual expansion, maintaining the current
distribution mix (agency: 43%, bancassurance: 39%).
We increase our target price for ICICI Bank on an increased valuation of ICICI Pru Life
In our view, ICICI Pru Life has achieved a sound balance between persistency, expense control
and asset growth, while maintaining its dominant position in the sector. We believe timely
consolidation puts it in a position from which it can invest in growth while other companies focus
on getting their business models right. We revise our ICICI Pru Life valuation to Rs178bn (from
Rs102bn) and increase our target price for ICICI Bank to Rs1310 from Rs1261, driven by
increased valuation of the life insurance company from Rs65 per share to Rs114 per share (1.9x
FY12EV, 5.8x FY12 BV). In our view, the key risk is that ICICI Pru Life has scaled down over past
two to three years, resulting in lower new business volumes. This may affect asset growth (and
thus profits), especially if surrenders remain elevated, as witnessed throughout FY10-11.
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