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Combined ratio misses estimate on higher opex

* ICICI Lombard’s (ICICIGI) NEP came in line with our estimate at INR43b (up 14% YoY). Investment income from policyholders and shareholders’ accounts came in lower than our estimates, which led to a miss in PAT in 3QFY24.

* The claims ratio came in at 70.0% vs. 70.7% in 2QFY24. It was broadly in line with our estimate of 70.5%. The combined ratio stood at 103.6% vs. 103.9% in 2QFY24.

* PAT grew 22% YoY but declined 25% QoQ to INR4.3b. PAT came in 27% lower than our estimate.

* For 9MFY24, NEP/PAT grew by 13%/20% to INR125b/INR14b.

* The company has maintained its guidance of a combined ratio of 102% by FY25. We have cut our estimates to factor in lower-than-estimated performance in 3Q, leading to an EPS cut of 4.5%/4.6% for FY24/FY25.

Reiterate BUY with a TP of INR1,650 (premised on 30x FY26E).

Low capital gains dent investment income

* Gross domestic premium income grew 15% YoY in 3QFY24 to INR64b. It was 4.5% above our estimate.

* ICICIGI’s NEP was broadly in line with our estimate at INR43b, up 14% YoY. NEP for Health business grew by 38% YoY, led by group health growth of 42% and retail health growth of 21%. Motor segment was flat YoY and Marine segment grew 21% YoY. NEP in Crop was higher by 52% YoY, while it was down 14% YoY in Fire.

* Underwriting loss stood at INR2.8b vs. a loss of INR1.5b in 2QFY24 and higher than our estimate of a loss of INR1.7b.

* Investment income was lower than our expectation (on policyholders account 10% miss and on shareholders account 13% miss), due to low capital gains in 3Q at INR 1.08b vs. INR1.64b in 2QFY24.

Claims ratio broadly in line

* Claims ratio came in at 70.0% vs. 70.7% in 2QFY24. It was broadly in line with our estimate of 70.5%. On YoY basis, the loss ratio for the Motor OD segment declined to 64.9% from 73%, whereas the loss ratio for the Motor TP was flat YoY at 61.6% in 3QFY24.

* Combined ratio came in at 103.6% vs. 103.9% in 2QFY24 and 104.4% in 3QFY23. (vs. our estimate of 102.2%). Excluding the impact of CAT losses of INR 1.37b, the combined ratio was 102.6% in 9MFY24.

* On a sequential basis, the commission ratio increased to 18% in 3QFY24 from 17.4% in 2QFY24 (our expectation of 14.7%).

* Expense ratio declined to 15.5% from 15.8% in 2QFY24 (vs. our expectation of 17.0%).

* Total expense ratio came in at 33.5% vs. 33.2% in 2QFY24 (vs. our expectation of 31.7%). ? Solvency ratio was at 2.57 vs. 2.59 in 2QFY24.

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