 "ICICI Lombard")
ICICI Lombard General Insurance Company had a steady quarter which keeps it on track to achieve growth targets. It reported a 22 per cent year-on-year (Y-o-Y) growth in net profit in Q3FY24, while the gross domestic premium income surged 15 per cent Y-o-Y in Q3FY24 to Rs 6,400 crore.
The management says it will continue to invest in digital and health agency channels to accelerate future growth but it is also on track to achieve 102 per cent combined ratio by the end of FY25. The net profit could grow at 23 per cent compounded annually over FY24-26.
The growth may be driven by a pickup in the motor segment as competition eases and an increased focus on retail health. Merger synergies could result in higher yields.
The gross direct premium income growth of 13 per cent Y-o-Y in Q3FY24 was driven by the health segment, led by steady growth in retail health at 16 per cent Y-o-Y; corporate was strong with 27 per cent Y-o-Y.
Motor OD also saw pickup with 13 per cent YoY growth, as the competitive intensity started to ease. These trends in different segments are expected to continue in FY25.
The loss ratio at 70 per cent improved by 70bps Q-o-Q, led by improvement in the health segment.
Motor OD saw a sharp improvement of 810bps Y-o-Y. The total expense ratio improved by 90bps Y-o-Y, though commission rose by 250bps Q-o-Q.
However, the management believes they will remain within the new expenses.
The secular under-penetration story continues to be true.
But the company’s valuations had dropped owing to low earnings growth. That situation may have changed for the better.
The key risks remain the rise in competition and perhaps regulatory changes.
The combined ratio was at 103.6 percent versus 103.9 per cent in Q2, while net profit was at Rs 430 crore. Though it grew 22 per cent Y-o-Y it declined 25 percent Q-o-Q. The claims ratio came in at 70 per cent versus 70.7 per cent in Q2FY24.
Lower realised investment gains in the quarter and higher upfronting of acquisition cost pulled down net profit.
The lower realised investment gains were deliberate.
The unrealised investment gains increased to about Rs 1,200 crore in Q3FY24 from Rs 900 crore in Q2FY24. Capital gains in Q3 were at Rs 108 crore versus Rs 164 crore in Q2FY24.
The underwriting loss stood at Rs 280 crore versus a loss of Rs 150 crore in Q2FY24.
On a sequential basis, the commission ratio increased to 18 percent in Q3FY24 from 17.4 per cent in Q2FY24.
The expense ratio declined to 15.5 percent from 15.8 per cent in Q2FY24.
The total expense ratio came in at 33.5 percent vs. 33.2 per cent in Q2FY24. The solvency ratio was at 2.57 versus 2.59 in Q2FY24.
Management guided that once the period of limitation on motor TP claims is implemented, the frequency of claims can reduce at the industry level.
The company works with a 12-13 per cent claim inflation assumption in reserve creation, which is higher than the industry, and hence the benefit to the company will be higher.
Easing competition in the motor argument has led to a loss ratio declining from 93 percent to 87 per cent Y-o-Y.
Expected motor OD loss ratios should drop to 60-65 per cent, while for motor TP segment, 65-70 per cent would be comfortable.
The guidance of improving the combined ratio to 102 per cent in FY25 seems achievable. If growth is maintained, there could be an upside till Rs 1,650-1,750.
