ICICI, Pru pour more into life business

MUMBAI: Life insurance business is turning out to be a money guzzler for promoters. ICICI Bank and the UK’s Prudential have pumped in an additional Rs 230 crore into ICICI Prudential Life Insurance, taking the company’s paid-up capital to Rs 1,815 crore. The capital infusion makes I-Pru the most highly capitalised private financial services company, second only to its parent ICICI Bank. This is the third equity hike during this financial year, taking the capital infusion to Rs 630 crore.

I-Pru has done new businesses of over Rs 3,000 crore during the first nine months and expects to generate 40% of its annual business in the fourth quarter. If the trend continues, the current year’s new business could go up to Rs 5,000 crore. Funds under management accumulated from earlier years stand at around Rs 13,000 crore.

Although the company was expecting to break even in 7-8 years of business, the sharp surge in business has prompted shareholders to revise growth plans and the break-even period is now likely to get pushed back by a year.

Speaking to ET, Shikha Sharma, managing director, ICICI Prudential, said the infusion was to meet the solvency margin requirements for its growing business coupled with the need to fund infrastructure for future.

Life insurance companies need to set aside their own funds to meet solvency margin requirements which are the insurance industry’s equivalent of capital adequacy norms for banks. Since acquisition costs of policies are front-ended, insurance companies make money only in the subsequent years after a policy is sold. As long as premium from new policies outstrips renewal premiums, companies would need to set aside capital.

“The need for capital is higher because of the IRDA guidelines that require companies to achieve solvency margins, which are 150% of the statutory level,” she said. Ms Sharma added that this requirement may get eased in future as companies have demonstrated their responsibility.

While the infusion bloats I-Pru’s balance sheet, Ms Sharma said she was confident of the business’ ability to service the large equity base. “We have a marketshare of 29% of the private life industry in terms of premium.”

In addition to capital requirements, the company needs money to fund the infrastructure requirements for growth. For the eight months ended November 30, 2006, the company garnered Rs 2,279 crore of weighted new business premiums and wrote over 950,000 policies. It has a network of 415 branches over 146,000 advisors as well as 18 bank partners.