ICICI Lombard: Motor and crop segments drive performance.

ICICI Lombard General Insurance Q1FY2019 Results

ICICI Lombard reported 35% YoY earnings growth to Rs 289 crore. Net earned premium was up 20% YoY led by motor and medical insurance, while crop exposure shrunk significantly. Decline in commissions and claims ratio led to reduction in underwriting loss (Rs 69.9 crore, down from Rs 156 crore in Q1FY18). Investment income was up 12% YoY on the back of 22% growth in the investment book even as calculated investment yield declined to 10.8% from 11.9% in Q1FY18.

ICICI Lombard

Key insights and their implications

  • Motor business – Motor has driven 72% of its operating profit (23% in Q1FY18) and 63% of net earned premium (up 25% YoY) in Q1FY19. Improvement in pricing in the motor TP segment coupled with a higher provision in the base year led to decrease in loss ratio to 90.6% from 97.5% in 1QFY18. Loss ratio in motor OD was almost stable at 63%. Management has guided that loss ratio in motor TP segment will likely remain at the current levels unless tariff hikes are low in FY2020E. Net benefits of the MISP guidelines, though largely offset by reduction in pricing, are already reflected in the loss ratios in the motor OD segment.
  • Health –  ICICI Lombard has delivered 24% growth in net earned premium, shifting its focus a bit to the corporate segment (up 35% YoY, up 900 bps to 63% of the health
    premiums). Its loss ratio was stable at about 86%. Within the corporate business, pricing has been better in SME and mid-corporate segments. Large corporate segment remains unattractive even as prices have improved here as well. 
  • Crop – Net premium in crop declined 29% YoY; its share remains low at 3% of net premium. Loss ratio in this segment reduced to 117% from 140% in Q1FY18. The high base reflects a higher provision made for previous period; incrementally, the Company is providing for about 100% loss ratio and likely variation in reinsurance rates. While ICICI Lombard is going slow in this segment, it is open to look at profitable pockets, especially in well-governed states such as Maharashtra and MP; it covered 4 states and 30 districts in FY2019 versus 7 states and 56 districts in FY2018. The long-term contracts in MP will continue to put pressure on combined ratio in FY2019E as well.

Challenges faced by the company

  • Unlikely shifts towards large ticket business aside, an over-emphasis on under-writing profits remains the risk to watch, quite contrary to the popular narrative.

ICICI Lombard General Insurance. (CMP: Rs. 746, Market Cap: Rs. 33,863 crores, 4.54x FY21 P/Bv)

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