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Combined ratio higher than estimates by ~200bp

* ICICIGI’s GDP grew 11% YoY in 2QFY25 to INR69b (3% miss). NEP grew 17% YoY to INR50b (3% ahead of our estimates).

* Claims ratio was largely in line with our estimate at 71.4% (vs. 70.7% in 2QFY24). On a sequential basis, the commission ratio increased ~50bp to 17.5% in 2QFY25 from 15% in 1QFY25 (our est. 17%). The expense ratio increased to 15.6% from 13.3% in 1QFY25 (est. 14%).

* A higher-than-expected expense ratio led to a miss in the combined ratio at 104.5% (est. 102.5%) compared to 103.9% in 2QFY24.

* PAT grew 20% YoY to INR6.9b (2% miss).

* The management expects the momentum in the auto segment to pick up during the festive season and investments in the health business to yield results over the medium term. Combined ratio guidance of 101.5% in 4QFY25 is maintained.

* We have cut our FY25/FY26 earnings estimates by 4% each on the back of weaker-than-expected performance in 2QFY25. Reiterate BUY with a TP of INR2,400 (based on 36x Sept’26E EPS).

Higher-than-expected underwriting losses offset by total income

* Gross domestic premium income grew 11% YoY in 2QFY25 to INR69b. For 1HFY25, GDP came in at INR148.8b (+15% YoY). For 2HFY25, we expect GDP of INR149.9b (+18% YoY).

* NEP growth of 17% YoY was driven by 22% YoY growth in health (including PA) and marine NEP, followed by 18% YoY growth in crop NEP and 14% YoY growth in motor NEP.

* Underwriting losses stood at INR1.6b vs. losses of INR1.5b in 2QFY24 (vs. est. loss of INR1.2b). Total investment income rose 14% YoY to INR11b, in line with our estimate.

* Claims ratio came in at 71.4% vs. 74% in 1QFY25 (our est. 71.5%). The loss ratio for the Motor OD segment rose to 65.9% from 64.1% in 2QFY24, and for the Motor TP segment, it increased to 60.2% from 60% in 2QFY24. The Health segment’s loss ratio was 83.8% vs. 82.3% in 2QFY24.

* Combined ratio stood at 103.2% for 1HFY25 vs. 103.8% for 1HFY24. Excluding the NATCAT impact of INR0.94b in 1HFY25 and INR0.83b in 1HFY24, the combined ratio stood at 102.2% and 102.7%, respectively.

* Total investment income rose 14% YoY to INR11b (in line).

* In 1HFY25, NEP/PAT stood at INR95.3b/INR12.7b, up 16%/32% YoY. For 2HFY25, we expect NEP/PAT of INR105.9b/INR11.3b, up 22%/19% YoY.

* Solvency ratio was 2.65 vs. 2.56 in 1QFY25.

Highlights from the management commentary

* The net commission ratio was elevated on account of the business mix, a cautious approach to the commercial lines segment, and unfavorable reinsurance commission rates. Focus is to maintain EoM within 30%. 

* Auto sales for the quarter remained muted. On the PV side (50%+ of the book), growth was impacted by a higher base, whereas 2Ws witnessed a recovery (still at pre-Covid level of ~80-85%). CV growth will depend on the industry growth. The management expects single-digit growth in auto sales in 2HFY25 amid the festive season.

* The Retail health segment’s market share grew to 3.5% from 2.1%, led by a good response to the retail product ‘Elevate’, while the group business moderated due to pricing pressure.

Valuation and view:

Reiterate BUY Going forward, the festival season is expected to drive a pickup in auto sales, with expectations of single-digit growth. The health segment, especially retail health, continues to gain traction and garner market share after the new product launch. ICICIGI continues to focus on cautious selection of business pools, especially in the commercial segment, to achieve profitable growth. The management continues to guide for market-leading performance and also maintains combined ratio guidance of 101.5% for 4QFY25. We have cut our FY25/FY26 earnings estimates by 4% each on the back of weaker-than-expected performance in 2QFY25. Reiterate BUY with a TP of INR2,400 (based on 36x Sept’26E EPS).

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