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With a combined ratio of 107.2% and PAT of Rs4.03bn, ICICIGI reported a weak set of numbers—worse yoy and a big miss vs our and consensus estimates. Amid a difficult operating environment with no motor TP tariff hike in yet another year and intensified competition in commercial lines a couple of negative oneoffs made the quarter worse: Rs1.65bn of prudential provisions due to the recent Supreme Court rulings on Motor TP compensation for homemaker victims and Rs0.63bn of losses in the fire segment. ICICIGI remains among the best franchises in the sector, with far superior operating and financial metrics. However, we see the competitive dynamics and regulatory scenario as less favorable for profitability in the near term. To reflect 1Q developments and management commentary, we change our FY27-29E estimates, leading to ~110-180bps increase in combined ratio and ~9-12% cut in PAT. We cut our Jun-27E TP by ~10% to Rs1,900 (from Rs2,100) and maintain ADD.

A weak quarter

With a reported claims ratio of 76.4% and combined ratio of 107.2%, ICICIGI’s underwriting performance in 1QFY27 was its worst since the Covid-19 Delta wave affected 1QFY22. In the absence of Motor TP Tariff hike, and with expectedly intense competition driving pricing declines in the fire segment, the quarter was impacted by two one-offs: 1) Rs1.65bn of prudential provision in response to the Supreme Court ruling (read: https://tinyurl.com/SCHomeMaker) of 11 June, setting a minimum threshold of Rs30k per month when determining the compensation of a Motor accident victim where the victim is a homemaker and 2) Rs0.63bn of losses from 2 large claims in the fire segment. In addition, capital gains declined more than 50% yoy in the quarter to Rs1.88bn, leading to a PAT of Rs4.03bn vs Rs7.47bn last year and consensus estimate of Rs7.8bn. GDPI growth in the quarter was at ~8% yoy, in line with the industry. The quarter saw fire segment premium decline 32% vs 27% yoy for the industry.

Competitive dynamics and regulatory developments to weigh on growth and profitability

Despite unhealthy and further-deteriorating industry financial metrics, competitive dynamics show no signs of improvement, remaining unhealthy in Motor OD (and even Motor TP, given higher distributor payouts in profitable vehicle categories) and commercial lines. The ongoing impact of the recent Supreme Court ruling on Motor TP will drive a material deterioration in claims ratio in the segment, and prospectively a Motor TP tariff hike will offset this impact rather than improve profitability. In the absence of an immediate Motor TP tariff hike, the claims ratio in Motor TP will worsen in FY27. Powered by its brand, distribution, balance sheet, and prudent reserving, ICICIGI is among the best in the industry, but the industry environment remains unhealthy.

We cut our earnings estimates; maintain ADD with reduced TP of Rs1,900

To reflect 1Q developments and management commentary, we have changed our FY27- 29 estimates, leading to:

1) COR increase by 1.1-1.8ppts

2) PAT cut by 9-12%

3) ROE reduction by 1-2ppts. We cut our Jun-27E TP by ~10% to Rs1,900 (from Rs2,100) implying an FY28E PER of 29x, and maintain ADD. A Motor TP tariff hike, the NSE IPO, and Ind-AS-led earnings could drive a stock re-rating.

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