ICICI Lombard Q1 Review: Motor Third-Party, Tech Investments To Augur Well, Say Analysts
Here’s what the analysts have to say about ICICI Lombard Q1 FY23 results.
Analysts expect premium growth led by new auto sales, investments in health distribution channel, expected benefits from past investments in technology and synergies from merger with Bharti AXA to augur well for ICICI Lombard General Insurance Co. even as its overall loss ratio deteriorated in the first quarter.
The private general insurer saw its after-tax profit surge 80% over the year earlier in the quarter ended June as its underwriting loss reduced. The company’s net premiums rose 10%, while total revenue grew 4% during the period.
Its combined ratio, which refers to incurred losses and expenses and dividing them by the premium earned, stood at 104.1% against 123.5% a year ago.
Shares of ICICI Lombard were trading 3.25% down as of 10:40 a.m. on Wednesday. Of the 30 analysts tracking the company, 23 have a ‘buy’ rating, two suggest a ‘hold’ and five recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 20.1%.
Here’s what the analysts have to say about ICICI Lombard Q1 results:
Motilal Oswal
Maintains ‘buy’ with a target price of Rs 1,500 apiece, implying an upside of 18%.
Quarter-on-quarter, claims ratio increased to 72.1% from 72% in Q1 FY23 as the benefits of a lower loss ratio in health and motor third-party was offset by higher claims in fire and motor own damage.
Net earned premiums for the health and motor business saw decent growth, whereas the fire business declined quarter-on-quarter.
Commission ratios dipped 180 basis points quarter-on-quarter to 2.2% owing to a higher share of the group business and better reinsurance commissions.
Expense ratio grew to 29.9% from 27.1% quarter-on-quarter, led by a 33% quarter-on-quarter increase in employee costs, and investments in the health distribution channel and on technology.
ICICI Lombard’s private vehicle/ two-wheeler market share stood at 14%/64%. It saw a year-on-year decline in market share for new vehicles on account of a calibrated business strategy, but managed to gain market share in commercial vehicles, with the same for two-wheeler stabilizing.
With improving productivity of newly hired retail health agents, growth is expected to remain strong for the segment in Q2FY23.
The management expects the combined ratio to trend downwards. However, the same is not expected to fall below 100% in FY23.
The brokerage expects strong premium growth for ICICI Lombard, led by strength in new auto sales, investments in the health distribution channel, and expected results from past investments in technology.
Earnings growth will accrue from synergies from its merger with Bharti AXA and improvement in the loss ratios for the health segment.
Cut estimates led by lower investment income.
The increase in loss ratio estimates is offset by higher premium growth assumptions.
Jefferies
Maintains ‘buy’ with a revised target price of Rs 1,620 from Rs 1,680 apiece, implying an upside of 28% from pre-result closing price on July 19.
For Q1FY23, ICICI Lombard reported a healthy premium growth of 28% year-on-year aided by health and motor third-party segments plus a tad lower base.
Investment in distribution, uptick in business from ICICI Bank, hike in (motor) third-party tariffs and tad better crop insurance business will aid premium growth.
Still, profitability has been dragged with rise in combined ratio to
104% and return on equity down to 15% due to competition, claims and merger—this should improve slowly.
Growth in premiums was aided by uptick in business momentum across most segments as well as increased contribution from ICICI Bank on health insurance and some crop insurance.
Management also indicated that there are selective opportunities arising in crop insurance, which they are leveraging on.
From Q2, company will also benefit from recent hike in motor third-party business and with investment in retail health insurance agency / teams, that segment will also ramp-up.
Underwriting profits faced pressure with loss ratio at 72%
and combined ratio rising to 104%—it was 100% in FY21 and 109% in FY22.
Large part of impact arose from lower profitability in motor insurance business (increased competition and lower tariff hike) and merger with Bharti Axa that had lower profitability.
Moreover, investment in distribution and digital platforms were a
drag.
Management indicated that combined ratio will steadily fall but will stay above pre-merger levels and new normal on ROEs will be around high-teens.
Health insurance premiums are expected to post strong growth of over 18% over FY23-25. ICICI Lombard will benefit disproportionately from a Covid-catalysed growth reset in health insurance.
High dependence on investment income is a risk.
Improving underwriting profitability in the medium to long-term remains a monitorable.
Yes Securities
Maintains ‘buy’ with a target price of Rs 1,605 apiece, implying an upside of 26%.
Net premiums earned grew driven by health (including personal accident) and motor segments.
Overall loss ratio has deteriorated by 10 bps quarter-on-quarter to 72.1%, where motor own damage and fire evolved negatively on sequential basis.
The company expects motor OD pricing discipline to come back this year.
The motor third-party loss ratio was 73.9%, down 440 basis points quarter-on-quarter, as rate hikes helped.
Management stated that the rate hike is not in line with claims inflation. However, if the courts begin to adopt six-month limit under the motor vehicle rules, it would be a positive.
Retail indemnity loss ratio was 78% due to high non-Covid claim intimations and the company will observe Q2FY23 before it is able
to understand whether it is a case of claims bunching up or something structural.
Management expenses growth was 28% year-on-year. The key areas of ongoing investment are healthy agency, digital channel and claims servicing.