Despite ICICI Life’s good Q2, investors must watch these risks
ICICI Life Insurance has posted strong September-quarter (Q2FY27) results. Annualized premium equivalent (APE) grew 15.6% year-on-year to ₹2,799 crore, while value of new business (VNB) rose 20.3% to ₹712 crore. The faster growth in VNB expanded the margin by 98 basis points to 25.4%, largely aided by a better mix of protection (term) insurance products.
The year-on-year comparison also benefits from negative APE growth in Q2FY26. The second half of FY26 had a higher base, owing to a post-GST-exemption led spurt in business, which could weigh on H2FY27 and, consequently, overall growth for FY27.
In the absence of management guidance for FY27, investors must assess whether APE growth momentum can sustain. APE has two components: savings products, which accounted for 80% of Q2FY27 APE, and protection insurance, which contributed the rest.
Growth outlook
Savings products APE grew about 12% in Q2FY27. Unit-linked insurance plans (Ulips) contributed more than half of savings APE. But, Ulip premium growth was soft at 6.6% year-on-year to ₹1,266 crore, as sales depends on a recovery in equity markets. Even if stock markets start moving up, there could be a time lag before Ulip growth picks up.
The outlook for savings products excluding Ulip (basically non-linked) is brighter for non-participating policies (policies not allowing policyholders to share insurance company’s profit, but offer guaranteed fixed returns) versus participating policies, as interest rates have been rising.
Protection products APE rose 34% year-on-year in Q2FY27. However, management said growth could moderate ahead. The segment faces two headwinds. In credit life insurance, which is sold alongside loans, Irdai has proposed allowing loan disbursement without buying insurance, ending compulsory bundling, besides lowering commissions. Also, retail protection segment benefited the most from the GST exemption, making it difficult to sustain the same pace of growth.
Regulatory risk
Investors must also be mindful of other risks. The first is Irdai’s consultation paper on commissions, which could adversely affect most insurers, with Life Insurance Corporation of India (LIC) potentially an exception.
The paper proposes relatively lower commission rates for non-agents, such as banks, corporate partners and brokers, than for agents. ICICI Life derived 54% of its retail APE in Q2FY27 from non-agents. LIC has yet to declare its Q2 results and, historically, derived more than 90% of its new business from agents through Q1, the highest share among insurers.
If the consultation paper is finalised in its current form, ICICI Life may have to change its distribution strategy. This could mean recruiting more agents to generate additional business. Currently, ICICI Bank alone contributes 17% of retail APE, highlighting concentration risk.
A second concern is the potential supply of shares in the market exceeding demand in the near term. Prudential Plc. has acquired a 75% controlling stake in Bharti Life Insurance and will have to reduce its stake from nearly 22% to below 10%.
JM Financial Institutional Securities and Emkay Global Financial Services estimate ICICI Life’s FY27 VNB growth at 17% and 15% respectively. The stock is down 33% so far in 2026, so the price-to-VNB ratio of 21x based on the FY27 estimates of the two brokerages appears palatable, provided the impact of Irdai’s consultation paper becomes clearer.