ICICI: Wheel of life

The old joke about life insurance is that it is a bet you cannot win. ICICI and Prudential are aiming to demonstrate that, for investors at least, the opposite is true.

The Indian bank has confirmed plans to list 12 per cent of ICICI Prudential Life, a joint venture with the UK insurer and the biggest player in India’s life insurance market. At the likely sale price, the company would be worth $6.2bn, making it the largest initial public offering since 2012.

Less than 3 per cent of Indians have life policies, compared with 4 per cent of Thais and 7 per cent of Koreans. McKinsey predicts life insurance premiums will grow at 12 per cent a year over the next decade, driven by a large, young population, a growing middle class and high savings rates. Demand for non-life products should also rise with disposable wealth.

Regulatory changes introduced in 2010 after mis-selling scandals have squeezed insurance profits; margins on new policies have dropped from around 20 per cent in 2009 to mid-teens now. But the new regime benefited those like ICICI Prudential that could sell through retail bank networks. Pre-tax profits at ICICI Prudential Life have grown at 6 per cent a year since 2012.

The sale will not raise new capital for the business, but a public listing would certainly facilitate the logical next step: consolidation. The industry is fragmented, although last month Max Life announced a merger with HDFC Life that will result in the creation of another listed life insurer. Both Max and HDFC are joint ventures. State Bank of India is also expected to float its life business in due course.

Even without more consolidation, the outlook is promising. Shares in Max Financial Services, the holding company for Max Life, have more than tripled over the past five years, well ahead of returns from the country’s benchmark index.

ICICI Prudential Life looks like a gamble worth taking.

Email the Lex team at lex@ft.com