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Loss ratio evolution may not be as bad as it seems

Result Highlights

* Net premiums earned: Net premiums earned grew by 4.5% QoQ, driven by Health (including PA) and Motor segments

* Loss ratios: Overall loss ratio has deteriorated by 10 bps QoQ to 72.1%, where Motor OD and Fire evolved negatively on sequential basis

* Expense control: Expense ratio contracted by -370bps QoQ at 27.8% where opex rose just 0.6% QoQ but commissions fell by -51.1% QoQ

Our view – Loss ratio evolution may not be as bad as it seems

Loss ratio inched up 10 bps QoQ as several moving parts served to roughly cancel each other out: The Motor OD loss ratio was 73.6%, up 70 bps QoQ as pricing discipline has not, as of yet, returned. In any case, the strategy has been to increase focus on high loss ratio but low sourcing cost Motor OD business. The company expects Motor OD pricing discipline to come back this year. The Motor TP loss ratio was 73.9%, down 440 bps QoQ, as rate hikes helped. Management stated that the rate hike is not in line with claims inflation. However, if the courts begin to adopt 6-month limit under the Motor Vehicle rules, it would be a positive. Overall Health, Travel & PA loss ratio for the quarter was 73.7%, down 290 bps QoQ. Within this, the Retail Indemnity loss ratio was 78% due to high Non-Covid claim intimations and the company will observe 2QFY23 before it is able to understand whether it is a case of claims bunching up or something structural. Fire segment loss ratio spiked 2750 bps QoQ to 58%.

Total Gross Direct Premium Income (GDPI) for the quarter was Rs 53.7bn, up 28% YoY, driven by Health, Travel & PA GDPI:

Motor OD GDPI grew 20% YoY to Rs 8.48bn for the quarter whereas Motor TP GDPI grew 34% YoY to Rs 9.34bn for the quarter. Health, Travel & PA GDPI grew 39% YoY to Rs 14.95bn. P&C GDPI grew 14% YoY to Rs 19.54bn.

We maintain ‘Buy’ rating on ICICIGI with a revised price target of Rs 1605:

We value ICICIGI at 30x FY24 P/E.

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