ICICI Lombard IPO: Here’s All You Need To Know

ICICI Lombard General Insurance Company will become India’s first general insurer to sell shares in an initial public offering that opens on Friday.

The private insurer is among at least five insurers looking to go public, riding on a stock market rally and an increasing demand for financial assets in Asia’s third largest economy. State-run general insurers – General Insurance Corp of India and New India Assurance Company – and private life insurance firms SBI Life and HDFC Standard Life have also lined up primary market offers.

Here’s all you need to know about ICICI Lombard’s offer and its business...

IPO Highlights

ICICI Lombard, a joint venture between private lender ICICI Bank Ltd. and Canada’s Fairfax Financial Holdings, will sell 8.6 crore shares through an offer for sale at Rs 651-661 apiece to raise up to Rs 5,700 crore. At the upper band, the company would be valued at around Rs 30,000 crore. The proceeds will not go to the company as it’s an offer by shareholders to part-sell their stake.

• ICICI Bank will sell 3.1 crore shares.
• An indirect subsidiary of Fairfax Financial Holdings will offload 5.6 crore shares.
• ICICI Bank’s holding will fall to 55.95 percent from 62.95 percent.
• Fairfax’s stake will come down to 9.91 percent from 21.9 percent.
• Of the total 8.6 crore equity shares, 5 percent will be reserved for ICICI Bank shareholders, reducing the net offer to 8.2 crore equity shares.

ICICI Lombard will be the second insurance subsidiary of ICICI Bank to go public after its life insurance arm ICICI Prudential Life Insurance Company listed last year after a Rs 6,057-crore IPO.

Company’s Business

ICICI Lombard is the largest private non‐life insurer in India by gross direct premium income of Rs 10,725 crore. Motor, crop and health plans contribute the most to its business.

The company sells insurance plans directly to individuals, corporates and the government through agents, bank partners, corporate agents, brokers and online. It’s present in 618 out of 716 districts across India. The insurer sold about 17.7 million policies in the year to March, with less than a tenth of it online.

Financial Highlights

ICICI Lombard was the first private-sector non-life insurer in India clock Rs 10,000 crore gross direct premium income in the year to March.

The loss ratio, or the proportion of claims paid out of gross premium, improved to 80.6 percent in year to March.

Net expense ratio, the proportion of operating expenses and agent commissions to the net earned premium, fell from 25.5 percent to 23.5 percent in the year to March. That’s lower than its large private peers, the company said in its draft prospectus.

The combined ratio – or the aggregate of loss ratio and net expense ratio that measures profitability of a non-life insurance company’s underwriting business – has improved from 104.9 percent to 104.1 percent in the last three financial years. A number above 100 percent indicates that an insurer does not make any money from premium and relies on investment income.

ICICI Lombard has been paying dividends for the last three years.

Peer Comparison

ICICI Lombard has an 8.4 percent share of the under-penetrated non-life insurance market and competes with 30 companies. Among private general insurers, it has a market share of 18 percent. Four public sector general insurers together command more than half of the overall market.

ICICI Lombard invests nearly 15 percent of its investment assets into equities, compared to the peer average of 4 percent.

Crop Risks

ICICI Lombard’s premium due for crop and weather plans rose five-fold to nearly Rs 1,800 crore in the year to March, according to its draft prospectus. Outstanding crop claims, or the amount payable to policyholders, nearly tripled to Rs 2,239 crore during the period, its prospectus said.

The increase is driven by “a dramatic jump in the crop portfolio” of insurers as business swelled on a push from the Pradhan Mantri Fasal Bima Yojana scheme, Shashwat Sharma, head-insurance at KPMG, had told BloombergQuint earlier.

ICICI Lombard also has Rs 164 crore outstanding premium receivable from the central or state governments for an earlier Rashtriya Swasthya Bima Yojna implemented in the year to March 2014. Of this, Rs 108 crore and Rs 45 crore is pending from Bihar and Uttar Pradesh, respectively, according to the draft prospectus. The company may require to make provisions in the case of default, according to the DRHP.