Good Q4, commentary perk up ICICI Lombard General Insurance stock

ICICI Lombard General Insurance Company reported financial improvement and optimistic commentary in Q4FY24. It reported 17 per cent year-on-year (YoY) growth in Gross Written Premium (GWP) and 115 bps improvement in the Combined Ratio (COR) in FY24, and improved COR guidance with COR going from 104.5 per cent in FY23 to 103.3 per cent in FY24, 102.4 per cent in FY25 and 102.0 per cent in FY26.

The solvency ratio stood at 2.62x as of March 2024.

Investment yields could be around 8.1 per cent in FY25 rising to 8.5 per cent in FY26. Investment portfolio mix for FY24 constituted 41.3 per cent of corporate bonds, 42 per cent of government securities and 11.4 per cent in equity. As of Mar’24, unrealised gain was Rs 1,217 crore.

The management guided for COR at 101.5 per cent by FY25 end.

Key positive growth drivers could include regulatory reforms (de-notification of all tariffs except Motor TP, Bima Sugam, Rural, Social Sector, and Motor Third Party Obligations Regulations).

The focus on infrastructure development provides lots of opportunities. There’s also traction in motor and health.

The motor segment has seen loss ratio trending down from 72.4 per cent in FY23 to 65.2 per cent in FY24. The company maintains a guidance of 65-70 per cent loss ratio in motor Third Party and 60-65 per cent in motor OD. ICICI Lombard’s motor GDPI mix is doing better in the private car segment while commercial vehicles has declined.

The PV/2W/CV mix as of FY24 stood at 51.4 per cent, 26.7 per cent and 21.9 per cent respectively. The growth in the new private car segment was 23 per cent in Q4FY24 and 28 per cent in FY24. New 2W growth in FY24 was 13 per cent Y-o-Y, which was higher than SIAM’s 2W sales growth of 12.3 per cent Y-o-Y. Given better rural demands, management expects the 2W trend to continue. But it has flat performance in CVs but FY25 could be better due to demand from the infra sector.

The GDPI for retail health vertical grew 22.8 per cent Y-o-Y while total health for FY24 was up 27.3 per cent Y-o-Y. The group health’s loss ratio improved from 93.2 per cent in Q4FY23 to 88.1 per cent in Q4FY24 while FY24 group health loss ratio was 93.7 per cent.

Overall, GDPI ex-crop grew 18.1 per cent in FY24 vs 17 per cent in FY23. For FY24, the company grew 14.7 per cent, which was higher than industry growth rate of 10 per cent.

Bancassurance and key relationship groups grew at 20.2 per cent in FY24. Within the ICICI Group, distribution grew 39.4 per cent in Q4 and 22.5 per cent in FY24. Lombard added 80 banca partnerships during the year.

After transitioning to the cloud, Lombard continues to invest in tech modernisation. Its core technology project, Project Orion, continues. This involves a digital-first approach, superior engagement models to connect with stakeholders and a shift away from legacy systems.  

ICICI Lombard’s one-stop-solution app, ‘IL Take Care’ has aggregated 9.3mn user downloads with 0.8 mn user downloads for Q4.

In Q4FY24, Lombard sourced premium of Rs 110 crore and the app sourced premium of Rs 370 crore for FY24, registering 3.2x YoY increase.

Overall, the performance implies earnings CAGR of 18.1 per cent between FY24-26 and return on equity (RoE) improvement from 17.2 per cent in FY24 to 20.4 per cent by FY26. The stock ended 3.7 per cent higher at Rs 1,710.30 on a day when leading indices fell by 0.6 per cent.