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Focus remains on COR improvement over growth

ICICI Lombard’s (ICICIGI) strategy remains that of profitable growth. This can entail profits over market share in motor (YoY 400/146bps lower loss ratio/market share in motor in Q1FY24) with higher-than-industry growth in health (12/131bps gain in retail/group health market share YoY in Q1FY24). However, COR improvement is notable (102.9%) adjusted for Catastrophic losses in Q1FY24). Maintain BUY with a target price of INR 1,633 based on 35x FY25E EPS of INR 46.6 (all unchanged).

We maintain earnings valuation multiple of 35x for ICICIGI and expect COR to decline to 103.6/102.7% by FY24E/FY25E

This should lead to underwriting losses of INR 8.2bn/7.7bn in FY24E/FY25E while investment income could be INR 37bn/40bn during the same period. We estimate INR 20.9bn/22.9bn PAT for FY24E/FY25E, respectively.

Health segment growth showing promise (both retail and group); traction continues in IL Take Care

Retail health agency vertical grew 25.6% YoY in Q1FY24. For Q1FY24, loss ratio in group health (employer-employee) has been around 92.6% (95% in FY23), while retail indemnity loss ratio has been 64.2% (largely in line with FY23 levels). Total downloads for IL Take Care app are now at >5.6mn (1mn added in Q1FY24). Overall health loss ratios have increased from 75.5% in Q4FY23 to 78.7% in Q1FY24.

Improvement in loss ratios in motor segment is encouraging, but this has come with lower volume growth

ICICIGI motor GDPI mix has increased in favour of 2W segment while CV mix has declined. PV/2W/CV mix as of Q1FY24 stood at 48.7%/30%/21% vs 47.7/27.7/24.6% in Q1FY23 respectively. CV mix is likely to stay at 20% levels. Overall motor loss ratio has improved from 74% in Q1FY23 to 70% in Q1FY24. Motor OD loss ratio has improved from 73.6% in Q1FY23 to 67% while motor TP loss ratio improved from 74% to 72% in the same period. Prudent selection of portfolio and claim management through data analytics are notable steps for improving the loss ratio. Motor premium growth for ICICIGI has been muted at ~5% YoY in Q1FY24 vs 21% for the industry.

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