ICICI Pru Life deals with rising costs, flat profits

Photo: AFPPhoto: AFP

ICICI Prudential Life Insurance Co. Ltd, India’s largest private sector life insurer, reported a marginal rise in its profit because of rising costs.

In the six months to September, net profit rose 1.5% to Rs824 crore from Rs812 crore a year earlier.

Its cost of operations, a key yardstick to measure the performance of an insurer because of its dependence on distribution and management, rose to Rs1,425 crore in the six months to September from Rs1,196 crore a year ago. The ratio of cost to total weighted received premium deteriorated to 17.1% from 16.7% in the year earlier.

“The marginal increase in cost ratio was due to increased emphasis on protection business and continued focus on building distribution,” the firm said in a press release.

Typically, an insurer’s cost of operations goes up when it increases its sales or distribution force either by increasing the number of agents or the number of branches in order to strengthen the reach for acquiring more customers.

Bigger distribution network implies higher costs and expenses, which include commissions paid by the company to the agents and other distribution channels.

ICICI Prudential Life sells most of its policies through the bancassurance channel since the parent firm, ICICI Bank Ltd, has a vast network across the country.

ICICI Prudential Life said its commission expense increased by 21.4% to Rs309 crore in the first half of this year from Rs254 crore in the year-ago period.

Although the company said the increase in commission expense is broadly in line with the increase in premium, the financial results showed ICICI Prudential Life’s net premium in April-September increased only by 8.43% to Rs8,931 crore from Rs8,236 crore a year earlier.

The company’s first-year premium collections stood at Rs24,524.2 crore for the six months to September against Rs21,053.8 crore during the same period of the last financial year.

During the half year, the company’s operating expenses increased to Rs1,312 crore, compared with Rs1,103 crore during the first half of financial year 2016.

Additionally, the company’s solvency ratio has come down from 328.2% as of 30 September 2015 to 305.9% now.

Solvency ratio is an insurer’s capital at hand as compared with the risks it may face from the potential claims by policyholders, typically in the long term. The Insurance Regulator and Development Authority of India, or Irdai, stipulates a minimum solvency ratio of 150%.

ICICI Prudential Life, with assets under management worth Rs1.13 trillion, has a market share of 12.4% in the life insurance industry, with state-run Life Insurance Corp. of India (LIC) being the largest company with assets worth at least Rs20 trillion.

The insurer announced an interim dividend of Rs1.75 per equity share (including a special dividend of Rs0.65 per equity share) of face value Rs10 each, for the September quarter of this financial year.


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