Buy ICICI Lombard Ltd For Target Rs.2,300 by Motilal Oswal Financial Services Ltd
Strong beat in profitability, premium growth in line
* ICICIGI’s gross domestic premium income (GDPI) was flat YoY in 3QFY25 at INR65b (in line), impacted by 1/n regulation implementation for longterm products. Sans the impact of the regulation, GDPI would have grown 4.8% YoY. NEP grew 17% YoY to INR51b (in line). For 9MFY25, NEP grew 17% YoY to INR146b.
* The claims ratio was significantly lower than our estimate at 65.8% (vs. 70% in 3QFY24). On a sequential basis, the commission ratio increased ~540bp to 22.9% (our est. 17%). The expense ratio declined to 14% from 15.6% in 2QFY25 (est. 16%).
* A lower-than-expected loss ratio led to a beat in the combined ratio at 102.7% (est. 104.7%) compared to 103.6% in 3QFY24.
* PAT grew 68% YoY to INR7.2b (14% beat). For 9MFY25, PAT grew 43% YoY to INR20b.
* While growth in the commercial and auto segments remained weak on the back of a weak economic backdrop, the health segment continued to do well for ICICIGI. Even in the motor segment, the company continued to gain market share.
* We have raised our FY25/FY26 earnings estimates by 7% each on the back of better-than-expected performance in 3QFY25. Reiterate BUY with a TP of INR2,300 (based on 35x Sep’26E EPS)
Lower-than-expected loss ratio in motor TP drives profit growth
* GDP income was flat YoY at INR65b in 3Q. For 9MFY25, GDP came in at INR214b (+10% YoY).The growth was impacted by the implementation of 1/n regulation for long-term policies. Sans the impact, GDPI growth would have been 4.8%/11.9% for 3QFY25/9MFY25.
* NEP growth of 17% YoY was driven by 17% YoY growth in motor segment (including PA) and healthy growth of 21%/27% in fire/marine segments. Health segment growth was at 14.6% YoY.
* Underwriting losses stood at INR1.5b vs. losses of INR2.8b in 3QFY24 (vs. est. loss of INR2.6b). Total investment income rose 23% YoY to INR11b, a tad lower than our estimate.
* Claims ratio came in at 65.8% vs. 71.4% in 2QFY25 (our est. 70%). The loss ratio for the Motor OD segment declined to 62% from 64.9% in 3QFY24, and for the Motor TP segment, it fell to 51.3% from 61.6% in 3QFY24. The Health segment’s loss ratio was 81.3% vs. 79.2% in 3QFY24.
* Combined ratio stood at 102.7% vs 103.6% in 3QFY24. For 9MFY25, it was at 102.9% vs. 103.7% for 9MFY24. Excluding the NATCAT impact of INR0.94b in 9MFY25 and INR1.37b in 9MFY24, the combined ratio stood at 102.3% and 102.6%, respectively.
* In 9MFY25, NEP/PAT stood at INR146b/INR20b, up 17%/43% YoY.
* Solvency ratio was 2.36 vs. 2.65 in 2QFY25. The decline was led by revised calculations implemented by IRDAI.
Highlights from the management commentary
* ICICIGI will continue to evaluate a price hike in the health segment but is comfortable with the retail indemnity loss ratio of 65-70%
* Company continues to follow a calibrated approach with respect to the employer employee segment given the pricing pressure. It expect the pricing to improve in the fire segment as companies adjust to new reality of higher catastrophic events
* ICICIGI continues to operate within the EOM regulations, and management alluded that it will choose to let go of the business rather than breaching EOM limits. Given the pressure on certain players, ICICIGI expects pricing correction in due course.
Valuation and view
The general insurance industry’s growth rate is currently on a slow trajectory, due to 1) weak infrastructure investments, 2) slow credit growth, and 3) weak trends in motor sales growth. In the motor segment, ICICIGI has been able to gain market share through its strategy of picking profitable businesses and thanks to easing competitive intensity. Profitability has been strong due to conservative reserving in the past, which will bode well in future as well. ICICIGI’s retail health segment saw strong growth due to new product launches, while its group segment posted weak growth due to lower credit growth and walking away from the employer-employee business due to rising competitive intensity. Overall, we expect a growth recovery in FY26 and stable improvement in profitability, with combined ratio improving to 101.8% by FY27. PAT is likely to grow ~15% in FY26 and FY27. We have raised FY25/FY26 earnings estimates by 7% to factor in strong performance in the combined ratio. We cut our FY27 estimate by 6% as we lower our investment yield forecast. We maintain BUY with a one-year TP of INR2,300 (35x Sep’26E EPS).
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