Reaffirming our earlier conviction (refer initiation note), ICICI Lombard General Insurance (ICICIGI) remains a compelling investment opportunity given- 

Long Growth Runway: The general insurance industry has a long growth runway supported by (a) under-penetration compared to global averages (1% of GDP vs. 4% global average in FY23), (b) low insurance density (premium per capita of USD 25 vs. USD 528 global average in FY23). Other factors include growing economy, rising awareness, favourable regulatory landscape and policy push (insurance for all by 2047). Among insurance players, market share is shifting to private insurers from public insurers due to efficiency as well as balance sheet strength. ICICI Lombard has consistently demonstrated higher Gross Direct Premium growth than the overall industry due to diversified product portfolio, product innovation, early digital adoption and extensive distribution network. 

ICICI Lombard's revenue primarily comes from its core business of underwriting various types of general insurance. Its main revenue segments include – 

• Motor Insurance: Covering vehicles, this segment is a significant contributor to overall gross direct premium income (GDPI).  Within this segment, revenue is generated from both mandatory Third-Party (TP) liability cover and Own Damage (OD) cover, which protects against damage to the insured vehicle itself. Over the last 5 years, overall motor insurance GDPI has been grown at 10% CAGR; within it, commercial vehicles segment has more than doubled based on underlying economic activity, cyclical recovery, and replacement demand as well as sustained efforts by the company. Management is expecting mid-single digit to low double-digit growth next year on (a) relatively high passenger vehicle base, (b) lower two-wheeler volumes on soft rural demand and (c) increasing penetration in old vehicle segment. Loss ratio (claims/premium collected; lower the better) has improved from ~77% in FY20 to ~64% in FY25 on better risk management as well as pricing rationality across industry. 
• Health, Travel & Personal accident: This segment has been a significant growth area for ICICIGI (18% CAGR over FY20-25 on GDPI basis). It includes both retail health insurance policies sold to individuals and families, and group health insurance provided to employees of corporates and other organizations. Further growth (expected in double digits) to be supported by rising awareness, medical cost inflation, network of hospitals as well as agents for distribution. Given a higher portion of group claims, loss ratio has increased from ~70% in FY20 to 82% in FY25. Such elevated loss ratio is an industry phenomenon and higher growth in this segment would mean overall loss ratio would remain slightly elevated. 
• Fire Insurance: This segment provides coverage against financial losses resulting from fire and allied perils like lightning, explosions, and other specified events. ICICIGI has doubled its GDPI over FY20-25 in this segment, in spite of pricing pressures over last few years. Government capex as well as improved pricing are expected to aid growth of this segment. Loss ratio has improved from 64% in FY20 to 47% in FY25 due to selective underwriting.
• Marine, Crop and other segments: ICICI in the marine segment has grown its GDPI by 9% CAGR over FY20-25. In the crop segment, it had scaled down its operations in FY20 and now contributes to ~5% of overall GDPI. Other segments combined together have grown at a healthy pace of 23% over the last 5 years; contributing ~11% to GDPI in FY25.   

Disciplined Underwriting and Risk Management: ICICI Lombard distinguishes itself through a consistent focus on profitability driven by disciplined underwriting and robust risk management, rather than solely pursuing market share. The company has demonstrated the strategic agility to exit businesses/pare down segments facing irrational pricing pressures and re-enter when conditions normalize (as seen in exhibits below). 

Underwriting superiority can be seen by lower incurred claim ratio (ICR), which denotes total value of claims settled by an insurer against the total premium amount collected. ICICI Lombard’s ICR (avg. of FY19-24) stands at 71.94% vs. 75.70% for private insurers and 84.30% for the overall industry. 

Their emphasis on a granular retail book (motor and individual health) minimizes concentration risk. Furthermore, their conservative provisioning approach, which results in later reversals, highlights a cautious and effective risk management culture. 

Extensive and Diverse Distribution Network: A key strength for ICICI Lombard is its deeply entrenched and varied distribution network. This network includes digital platforms, bancassurance partnerships, agents, brokers, direct sales channels, and crucially, strong relationships with auto dealers and OEMs (Original Equipment Manufacturers) They boast the highest number of OEM tie-ups and relationships (~50% of India's auto dealers in FY17; currently standing at >65%). They have also tripled their number of agents (incl. POS) over the last 5 years and increased their corporate agents by 2.6x. This allows them to reach diverse customer segments across multiple product lines effectively and maintain leadership position among private insurers (on Gross written premium basis). Building such a comprehensive distribution infrastructure, which requires significant time, investment, and relationship management, presents a challenge to other competitors. 

Significant Float Generation and Conservative Investment: The general insurance model allows ICICI Lombard to generate substantial 'float' – premiums collected upfront that are invested before claims are paid. Their business mix, including a high proportion of motor third-party insurance, contributes to a large, long-term investment float. This float is managed conservatively with a primary focus on capital safety and liquidity, rather than aggressively chasing higher returns with increased risk. They aim for stable overall returns and maintain a 'zero default track record'. This consistent investment income significantly contributes to profitability and Return on Equity (RoE), providing a stable financial foundation that supports long-term growth and resilience.

Moneyworks4me opinion:

We continue to recommend ICICI Lombard, recognizing its market leadership among private insurers (GWP basis) and track record of growing faster than the general insurance industry. The company is uniquely positioned to capitalize on the long growth runway through its diverse product portfolio and extensive distribution network. Its disciplined underwriting, focus on a granular retail book, and conservative management of its substantial investment float ensures profitability and strong financials, reflected in consistent return ratios and healthy solvency levels. We recommend buying with upgraded MRP of Rs. 1,750.  

Overall ICICI Lombard grew faster than industry in some segments. Higher investment income resulted in steady profitability. 

Note- Long term Health Insurance Premium impacted due to new 1/n accounting rule which came into effect in Q3FY25, excluding the 1/n rule, the growth in premium would have been 4.8%. Previously, barring the motor insurance, the premium on long term products such as health insurance and other line of products were recognized on the year of underwriting itself. Under the new rule, the reporting of the premium earned has to be spread over the period of the long term policy, with the commissions paid to also be spread over the period of the policy. 

• Combined ratio stood at 102.7% for the quarter, a decrease from 103.6% in the year ago period. (The number would have been slightly less when adjusted to remove the effect of new accounting rules). Combined ratio was impacted by change in business mix and expenses towards technology and avenues for future growth. 
• Management expects to see a decrease in combined ratio in the coming few quarters.
• Segment performance-
  • Motor and health insurance segments outpaced industry growth, with growth of 9.4% and 10.3% respectively, though, on account of new accounting standards, there was a degrowth of 4.6% in health. Motor was unaffected as the segment was already being reported on basis of the new accounting standards.
  • Within health, retail segment grew at 44.3%, again, due to the new accounting standards, the adjusted growth came in at 19.1%.
• Its agent count grew by 4.7% sequentially to 1,40,077, including Point of Sale persons.
• Solvency ratio has been impacted by 30bps due to change in regulations.

Initiating coverage: ICICI Lombard

ICICI Lombard General Insurance Company Limited is the leading general insurance companies in India. It is a joint venture between ICICI Bank, and Fairfax Financial Holdings Limited, a global insurance and reinsurance company.

Industry

Indian non-life insurance is highly under penetrated with non-life penetration (premium as percentage of GDP) at just 1% as on FY21 compared to world average of 4.1% and advance EMEA average of 3.3%

The size of the non-life insurance industry in India is 2.2 lakh Cr as on March 2022 on the basis of gross direct premium income (GDPI) and has been growing at 16% CAGR in the past 10 years.

Business

Health Insurance: ICICI Lombard offers comprehensive health insurance plans that cover medical expenses, hospitalization, surgeries, and other healthcare-related costs. They also provide policies specifically designed for critical illness coverage and personal accident insurance.

Motor Insurance: ICICI Lombard offers car insurance, two-wheeler insurance, and commercial vehicle insurance. These policies provide coverage against accidents, theft, third-party liability, and damage to the insured vehicle.

Property & Casualty (P&C) Insurance: ICICIL operates P&C insurance under Fire, Marine, Engineering, Liability segments.

Fire insurance is designed to protect various types of properties, including factories, buildings, offices, warehouses, and other structures, against losses caused by fire and other specified risks. IC holds 12.8% market share under this segment with loss ratio of 49.3% in FY23.

Engineering insurance aims to safeguard businesses from losses arising due to breakdowns or damage to plant, machinery, and engineering equipment, including mechanical, electrical, and electronic equipment. IC holds 15.4% market share under this segment with loss ratio of 55.1% in FY23.

Marine insurance primarily involves insuring ships, boats, and similar watercraft, as well as the goods being transported on them. Marine hull insurance pertains to coverage for the physical structure of the vessel itself, while marine cargo insurance focuses on insuring the goods being carried aboard the vessel. IC holds 17.8% market share under this segment with loss ratio of 72.4% in FY23.

Liability insurance primarily entails providing coverage for potential liabilities and legal obligations. It protects individuals or businesses from financial losses resulting from claims or lawsuits filed against them due to bodily injury or property damage caused to third parties. IC holds 16.6% market share under this segment with loss ratio of 63% in FY23.

Business Performance

Risks

Inability to reduce operating and commission expenses.

Competitive intensity and low barrier to entry in the market could reduce growth.

Higher than expected claims.

Competition

ICICI Lombard faces competition from various general private (HDFC ergo, SBI general), public (New India, United India), Standalone health (Star Health, CARE) and fintech (Acko, Digit) in various segments.

Gross Direct Premium Income (GDPI) of the Company stood at Rs. 21,025 Cr in FY2023 compared to 17,977 Cr in FY2022, a growth of 17% .GDPI of the Company was at 49.77 billion in Q4FY2023 as against 4,666 Cr in Q4FY2022, a growth of 6.7%. Combined ratio stood at 104.2% in Q4 FY2023 compared to 103.2% in Q4 FY2022. Profit after tax grew by 36.0% to 1,729 Cr in FY2023 compared to 1,271 Cr in FY2022.  PAT grew by 39.8% to 437 Cr in Q4 FY2023.

Result was negative due to higher than expected combined ratio.

ICICI Lombard General Insurance Company Ltd

Market Cap 56,771 Cr

CMP 1156

P/E 35.4

Key Highlights –

·        Retail Health distribution grew by 24.2%, while retail health agency vertical grew by 40.1%.

·        ICICI Lombard saw 15-20% increase pricing in group health insurance segment.

·        Commission expenses declined by 14% to 174.4 Cr on yearly basis.

·        Claims incurred increased by 15.7% to 2,666.3 Cr. Claims Ratio at 70.3%.

·        Combined ratio for 9MFY2023 at 104.6% vs. 111.0% in 9MFY2022. Combined ratio improved by 0.1% to 104.4% on yearly basis.

Management Outlook –

·        Management expects health segment to grow at 40% based on investments made to scale.

·        Management has made conservative reserve provisions for crop insurance business which came with Bharti AXA.

·        Management guided on combined ratio to be at 104% levels in FY2 and is expected to start declining in FY24.

·        Management guided on Expense ratio to remain elevated as investments in retail health and digitalization continues. However, with technology migration of Bharti AXA business being completed, synergy benefits to be visible.