Analyst corner: Maintain ‘reduce’ on ICICI Lombard with TP at Rs 1,065

Q2 results highlighted a rebound in sales, especially in motor OD, and retail indemnity health loss ratio improvement was driven by lower losses in motor TP, motor OD and fire. Maintain ‘reduce’ with no change in estimates; raise TP to Rs 1,065 from Rs 1,040 to account for unrealised gains.

Profits in line with expectations, ICICI Lombard reported 2QFY21 PAT of Rs 4.2 billion (+28% y-o-y), 4% above our expectations. The gross direct premium income (GDPI) rose 10% y-o-y to Rs 31.9 billion in 2QFY20 vs industry growth (e.g. crop insurance) of 9%. The loss ratio fell 740 bps y-o-y to 67.2% (1QFY21: 69.8%) mainly due to an improvement in the motor third-party (TP), own damage (OD) and fire loss ratio.

The combined ratio fell 290 bps y-o-y to 99.7%. Shareholder funds rose 6% over Q1, while the solvency ratio rose to 274% (Q1: 250%). The company reported a 22% y-o-y rise in investment income, emanating from an 80% jump in realised gains and a 12% rise in interest and dividend income. Investment assets rose 4% over Q1, with flat 8.1% yield (annualised). Related to the deal to acquire Bharti AXA’s non-life
business, management said that it was on track with the company awaiting Competition Commission of
India approval.

Health and motor OD power growth; motor profitability rise could result in rate cuts. Retail health indemnity continues to be the top-line growth driver (48% growth in Q2 y-o-y), along with motor OD.

The company has introduced several policies to take advantage of an increased awareness of health plans during the Covid-19 pandemic and has got approval for a comprehensive health product. Covid-19-related health claims, while under control, will need to be tracked closely, as there could be a risk of a second wave.

On motor, with an improvement in overall industry profitability, we could now start seeing competition-induced rate cuts in own damage premium.