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Expense ratio beats estimates, Claim ratio higher than expectations

* In 4QFY23, underwriting loss amounted to INR2.5b compared to a loss of INR2.9b in 3QFY23 v/s. our estimates of INR3.7b. The beat was on account of lower-than-expected total expense ratio (commission + opex).

* The claims ratio in 4QFY23 increased to 74.2% from 70.3% in 3QFY23, due to higher loss ratio in Motor TP and other misc. commercial lines. The claims ratio increased ~223bp, on a YoY basis, which was higher than our expectations.

* Policyholders’ investment income stood at INR6.2b, which is in line with our expectations.

* The Combined ratio for the quarter stood at 104.2% v/s 103.2%/104.4% in 4QFY22/ 3QFY23. The solvency ratio stood was flat at 2.5x. ? PAT for the quarter grew 40% YoY to INR4.4b v/s our estimate of INR3.4b.

* In FY23, NEP grew 14% YoY, while the combined ratio stood at 104.2% v/s. 108.8%. PAT growth over the same period stood at 26% YoY. ? While our estimates for premium remains unchanged for FY24/FY25, our PAT estimates have been marginally lowered by 4% each for FY24/FY25. We retain our BUY rating and our target price of INR1,400 (29x FY25E).

Investment income led to growth in total income

* Total GWP grew 2%YoY to INR40b in 4QFY23, whereas NEP was flat YoY to INR37b, with NEP-to-GWP ratio at 92% v/s 66% in 4QFY22. NEP was broadly in line with our estimates.

* NEP for the Health/Motor/Marine/Crop business grew 24%/9%/14%/41%, whereas for the fire segment it declined 12% YoY.

* Total investment income (shareholders + policyholders) grew 3% QoQ and 13% YoY to INR7.9b (~10% lower than our estimates, on account of lowerthan-expected investment income on policyholders’ fund)

Loss ratio increases QoQ; lower OPEX ratio aids marginal improvement in combined ratio

* ICICIGI reported a loss ratio of 74.2% in 4QFY23 v/s 70.3% in 3QFY23. The increase in loss ratio is mainly due to a sharp increase in Motor TP (86.5% in 4QFY23 v/s. 61.9% in 3QFY23). The claims ratio increased 223bp YoY.

* Commission ratios declined 190bp sequentially to 2.3% (~57% lower than our estimates).

* The expense ratio declined to 27.7% in the quarter from 29.9% in 3QFY23. This is because of a sequential decline in employee cost, sales promotion activities, and other expenses. Overall operating expenses for the quarter came in 9% lower than our expectations.

Highlights from the management commentary

* Industry’s combined ratio for motor insurance is showing signs of improvement. ICICI Lombard has taken a price hike in Motor OD.

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