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ICICIGI reported a mixed Q2FY25 result, where the operating performance at 10.8% YoY GWP growth and the combined ratio at 104.5% came in lower than our estimates; however, buoyant equity market-led capital gains at Rs2.37bn drove PAT to Rs6.9bn, which is 8.5% above our estimates. The management remains committed to its profitable growth strategy by targeting selected business and customer segments. The growth outlook looks challenging for the General Insurance sector due to factors such as no hike in Motor TP, muted new PV sales growth, and competitive pricing environment in Group Health and Commercial Lines. The profitability environment is also likely to remain tough as the competitive intensity in distributor’s payout stays high. To reflect the Q2 and external developments, we have adjusted our FY25-27 estimates leading to a slight increase in CoR, minor reduction in GWP, and ~3% cut in FY26-27E EPS (FY25E EPS increases by ~4% on higher capital gains). We reiterate our REDUCE rating on the stock with an unchanged Sep-25E TP of Rs1,900

Results are a mixed bag

ICICIGI reported a mixed Q2FY25 result with the combined ratio (CoR) of 104.5% (driven by higher NATCAT losses and higher commission and OpEx) coming lower than our estimate of 103.2%; helped by stronger capital gains (Rs2.37bn), the PAT at Rs6.9bn came ~9% above our estimates of Rs6.4bn. The premium growth in Q2 slowed materially with new Motor PV sales slowing and the pricing environment in Commercial Lines and Group Health turning adverse. The elevated CoR in Q2 had many sides to it including: i) Higher net commission and Opex Ratio at 17.5% and 15.6% in Q2FY25 vs our expectation of 17% and 15.2%, respectively; ii) Higher NATCAT losses at Rs0.94bn vs Rs0.48bn in Q2FY24; however, the claims ratio in Fire remained much lower; iii) Motor TP claims ratio of ~60% in Q2FY25 (~65% in H1FY25) appears to be supported by some favorable prior year reserve movements, as the sustained claims inflation and no tariff hike for 2 years do not support these numbers.

Growth and profitability outlook remains challenging

The management reaffirmed its strategy of chasing profitable growth opportunity by focusing on its preferred business and customer segments. The strategy seems to be an appropriate one seeking to capitalize on brand, distribution, tech and data capabilities, and balance sheet strength. However, a likely no tariff hike in Motor TP in FY26 (more so for PVs or even a risk of tariff cut), slowing new PV sales, and sustained muted pricing environment in Group Health and Commercial Lines mean that the growth for General Insurance is likely going to be led by volumes rather than pricing. Amid this muted pricing environment, the heightened competitive intensity in distributor's payout is likely going to add pressure on profitability, in addition to a probable increase in claims ratio. Unlike other private peers, ICICIGI had not taken any reserve releases from its FY21, FY22, and FY23 Motor TP Ultimate Loss Reserves, and that reserve buffer can put ICICGI in a relatively better shape.

Minor changes to our estimates; reiterate REDUCE

To reflect the Q2FY25 developments (higher CoR, slower premium growth, and higher capital gains) and the external developments, we have tweaked our FY25-27 estimates leading to: i) Slight reduction in FY25-27E GDPI/GWP; ii) Minor increase in CoR for FY25- 27E; and iii) ~4% increase in FY25E EPS (led by higher capital gains) and ~3% cut in FY26-27E EPS. We reiterate our REDUCE rating on the stock with an unchanged Sep-25E TP of Rs1,900 reflecting FY26E P/E of 32.5x and P/B of 5.9x. While we appreciate the franchise strength of ICICIGI, the difficult operating environment clouds its growth and profitability outlook, leading to our lower fair value TP reflecting downside in ICICIGI shares from the current level.

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