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Loss ratio evolves somewhat negatively on sequential basis

Result Highlights

* Net premiums earned: Net premiums earned grew by 10.6% QoQ, driven by Fire, Miscellaneous and Crop segments

* Loss ratios: Overall loss ratio has deteriorated by 70 bps QoQ to 72.8%, where Motor OD and Health, Travel, PA have evolved negatively on sequential basis

* Expense control: Expense ratio rose 10bps QoQ at 27.9% where opex fell - 1.5% QoQ but commissions rose by 64% QoQ

Our view – Loss ratio evolves somewhat negatively on sequential basis

While Motor OD loss ratio worsened somewhat, Motor TP loss ratio improved materially but management remained cautious with commentary: The Motor OD loss ratio rose 70 bps QoQ to 74.3%. The competitive intensity is high in the OD segment but the management remains optimistic about the pricing environment improving. The combined ratio of TP is better than that of OD since the competition in the Motor segment gets played out in the OD segment as TP prices are regulated. The loss ratio in TP for 1HFY23 is 70.1% compared with 74% in FY22 but it is better to look at the full year number to help arrive at a sustainable number. While the Motor Vehicle Act is in place, it is too early to say that is it going benefit on a national level. For the quarter, the Motor TP loss ratio declined 730 bps to 66.6%.

The Health, Travel and PA loss ratio jumped 810 bps to 81.8% but management alluded to improvement going forward: The corporate health loss ratio for 99.1% for the quarter but management stated that it would revert to the mid 90s for the full year. The retail indemnity loss ratio was 64.4%. The sequential rise in health loss ratio was partly explained by seasonality aspects pertaining to the monsoon (mosquito-related) and the number is not going to be as high for the full year, as per management.

We maintain ‘Buy’ rating on ICICIGI with a revised price target of Rs 1500: We value ICICIGI at 30x FY24 P/E.

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