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ICICI Prudential Life Insurance (ICICIPru Life), the country’s largest private life insurer by premium income and profits, wants its financial performance to be judged on the metric of ‘value of new business’ and not on profit after tax (PAT) growth.
“Don’t measure me on accounting profits, but on the value of new business (VNB). In the overall hierarchy of things, VNB is the most important thing to measure,” Sandeep Batra, Executive Director, ICICIPru Life, told BusinessLine , in an interview.
Batra also made it clear that he was not taking a stance that analysing PAT growth was not important. “I am not saying PAT is not important. It comes in at number four or five (in the order),” he added.
While the analyst community and institutional investors have understood the concept of VNB for measuring insurers’ performance, retail investors and media need to get used to it, he pointed out.
“Globally, if any insurance company is valued, it would largely be on the basis of VNB. The headline number will be VNB,” Batra said. Simply put, VNB is the profit the company (insurer) hopes to make on policies written during the year after accounting for all the costs incurred, assuming future persistence and mortality. “We have taken a conscious decision to disclose the VNB publicly and have it audited by an independent actuary and tell you all the assumptions. In the high growth insurance companies, you will not see movement in accounting profits,” Batra said. For 2016-17, this listed private life insurer’s VNB had come in at ₹666 crore, a 61.7 per cent increase over the previous year figure of ₹412 crore. It was ₹270 crore in 2014-15.
However, PAT remained almost flat in 2016-17 at ₹1,682 crore, compared to ₹1,651 crore last year.
Meanwhile, Batra said that protection business, now at a nascent stage, will be a significant driver of profitability for the life insurer in the coming days. “Because we are operating in a competitive market, the prices for protection policies are very comparable. If you manage this business well, you will make huge profits,” he said.
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