ICICI Prudential Life Insurance delivered a quarter that reinforced its evolving investment narrative: moderate near-term growth, but structurally improving profitability. While headline premium growth remained muted due to a high base and a sharp decline in single premiums, value creation accelerated meaningfully. A decisive improvement in product mix—led by protection and non-linked savings—pushed Value of New Business (VNB) margins to multi-quarter highs. Management remains confident that GST reforms, cost discipline, and rising retail protection penetration will sustain margin expansion even as growth re-accelerates. Motilal Oswal reiterates a BUY rating, arguing that valuation does not yet fully reflect the durability of earnings and embedded value accretion.

Quarter in Focus: Profitability Outpaces Volume Growth

ICICI Prudential reported APE of Rs 25.3 billion in Q3FY26, up 4% YoY.
The performance was broadly in line with estimates, though growth remained constrained by a strong base in the previous year and weakness in the group and annuity segments.

Profitability, however, delivered a clear positive surprise.
PAT rose 19% YoY to Rs 3.9 billion, beating Motilal Oswal’s estimate by 21%. For the nine-month period, PAT growth stood at 23% YoY, underscoring the operating leverage embedded in the business model.

VNB Margin: The Defining Metric of the Quarter

VNB margin expanded sharply by 320 basis points YoY to 24.4%.
This represented a 90bp beat versus estimates and marked one of the strongest margin performances in recent quarters.

Absolute VNB increased 19% YoY to Rs 6.2 billion.
For 9MFY26, VNB stood at Rs 16.6 billion, up 6% YoY, with margin expansion compensating for modest volume growth.

Motilal Oswal has upgraded VNB margin assumptions.
The brokerage raised margin forecasts by 50bp for FY26 and FY27, and 100bp for FY28, reflecting sustained improvement in product economics and distribution efficiency.

Product Mix Shift: Protection Takes a Larger Role

Protection business emerged as a key growth and margin driver.
Protection APE grew 19% YoY in Q3FY26, aided by GST exemption and higher average sum assured. Protection’s share of total APE rose to 18.4%, up from 16% a year ago.

Non-linked savings gained momentum.
The contribution of non-linked business increased to 18.1%, nearly doubling from the prior year, benefiting from rising demand for guaranteed products in a declining interest-rate environment.

ULIPs delivered steady growth.
ULIP APE rose 8% YoY, supported by improved market sentiment and recovery in equity-linked product demand.

Premium Trends: Renewal Strength Offsets Single-Premium Weakness

Gross premium declined 3% YoY to Rs 122 billion.
This was primarily due to a 25% YoY decline in single premiums, which tend to be lumpy and capital-intensive.

Renewal premiums grew a steady 8% YoY.
Renewals now account for 54% of total premium, improving earnings visibility and reducing volatility in reported growth.

Distribution Strategy: Diversification Enhances Stability

Bancassurance remains balanced and diversified.
Approximately half of banca business flows through ICICI Bank, with the remainder distributed across non-ICICI partners—no single partner contributing more than 4–5%.

Corporate agency channel posted standout growth.
Corporate agents grew 52% YoY, increasing their contribution to 13.5% of APE, driven by strong traction in traditional products.

Group business moderated.
Group APE declined 20% YoY, reflecting a slowdown in lumpy group sales and MFI-linked credit life, though early recovery signals emerged in Q3.

Cost Discipline Holds Despite GST-Related Headwinds

Operating efficiency remained resilient.
While commission and operating expenses rose 12% and 15% YoY respectively, the company absorbed the loss of input tax credit without compromising profitability.

On a nine-month basis, cost ratios improved.
The total cost ratio declined to 19.3%, from 19.8% last year, indicating that most structural cost optimization initiatives are now embedded.

Persistency and Balance Sheet: Mixed Signals, Strong Foundation

Persistency ratios showed short-term softness.
13th-month persistency declined to 81%, while 61st-month persistency fell to 58.6%, largely due to regulatory changes that extend policy life cycles.

Management expects improvement.
Corrective measures are underway, with management guiding for 13M persistency to recover above 85% over the next year.

Solvency remains robust.
The solvency ratio improved to 214.8%, comfortably above the regulatory requirement of 150%, supporting future growth without balance-sheet strain.

Key Financial Snapshot

Valuation and Investment View: Buy the Margin Story

Motilal Oswal values ICICI Prudential at 1.7x FY28E EV.
This translates into a target price of Rs 800, offering 17% upside from current levels.

The investment case rests on profitability durability.
While growth may remain cyclical, rising protection penetration, non-linked product traction, and disciplined cost management provide a strong underpinning to long-term value creation.

Recommendation: BUY
Target Price: Rs 800
Best suited for investors seeking steady compounding through margin-led earnings growth.