Neutral ICICI Lombard Ltd for the Target Rs.1,730 by Motilal Oswal Financial Services Ltd
Miss on CoR; investment income drives PAT beat
* ICICI Lombard’s (ICICIGI) gross written premium grew 9% YoY in 2QFY27 to INR77b (7% beat). For 1HFY27, GWP grew ~10% YoY.
* Claims ratio for the quarter stood at 72.7% (vs our est. 72.3%) vs 72.1% in 2QFY26. Expense ratio came in at 13.9%, declining 10bp YoY (vs. our expectation of 13.5%). Commission ratio came in at 20.4% vs 19.1% in 2QFY26 (vs. our expectation of 19%).
* The combined ratio stood at 107% (vs our expectation of 104.8%), compared to 105.1% in 2QFY26. Excluding the impact of CAT losses of INR1.18b, combined ratio was at 105.3%.
* PAT at INR9.5b grew 15% YoY (35% beat), hit by weak underwriting performance, which was offset by higher-than-expected investment income. For 1HFY27, PAT declined 14% YoY.
* No further incremental motor reserves are currently anticipated. Management intends to maintain group health loss ratio in the mid-90s, retail indemnity loss ratio at 65–70%, and overall motor loss ratio at 65- 67%.
* We have slightly increased our NEP estimates but revised our PAT estimates upwards by 7%/5% for FY27/28, considering strong investment performance in 2QFY27. We reiterate our Neutral rating on the stock with a TP of INR1,730 (based on 25x FY28E EPS). There remains uncertainty around growth, with the final distribution regulations yet to be implemented. TP rate adjustments, IFRS implementation, and riskbased solvency are additional monitorables for the company’s operating performance
Health remains the top contributor to NEP growth
* ICICIGI’s NEP grew 17% YoY to INR66.5b (18% beat), fueled by 48% YoY growth in the health (including PA) segment. The marine segment grew 22% YoY, while the motor segment grew 9% YoY. The fire segment continues to witness a decline, with NEP falling 30% YoY.
* Underwriting loss stood at INR3.2b, compared to INR1.8b in 2QFY26. While the expense ratio was largely stable, the commission ratio increased YoY, driven by strong growth in the retail business, and the claims ratio witnessed a slight increase YoY due to higher CAT frequency compared to last year.
* Total investment income on policyholders' accounts was 31% above our estimate at INR11.9b, while investment income from shareholders’ accounts was 31% above our estimate at INR4.1b. Investment yield for the quarter stood at 2.47% (2.19% in 2QFY26) on an investment book of INR643b. Investment leverage stood at 3.6%. The investment portfolio mix for 1HFY27 stood at 36.9%/35.5%/18.0% for corporate bonds/GSec/equity (incl. equity ETF).
* The claims ratio worsened by 65bp YoY to 72.7% due to an 800bp deterioration in the health segment’s loss ratio. In the motor segment, the loss ratio for motor OD weakened by 210bp, while the loss ratio for motor TP improved by 930bp. Any subsequent reserving or reserve release following the impact of the SC judgement remains a key monitorable for motor TP loss ratios.
* Return on Average Equity (RoAE) stood at 23.7% in 2QFY27, compared to 21.3% in 2QFY26.
* The solvency ratio stood at 2.75x (vs. 2.73x in 2QFY26).
Valuation and view
* ICICIGI’s growth trajectory has improved on the back of a recovery in motor insurance (owing to GST cuts), strong market share gains in retail health (additional boost from GST exemption), and rising market share in commercial lines over the past few months.
* The company's retail health segment maintains its strong momentum, gaining market share with significant traction in its ‘Elevate’ product. Competitive intensity remained high in the motor OD segment, while motor TP segment saw significant improvement in claims ratio following the impact of SC judgement last quarter. With deteriorating industry ratios, ICICIGI is well positioned within the industry, given the regulator’s stance on improving affordability for the customer.
* We have slightly increased our NEP estimates but revised our PAT estimates upwards by 7%/5% for FY27/28, considering strong investment performance in 2QFY27. The final distribution regulations could have a significant impact on growth if implemented as proposed, and hence remain a key monitorable. Additionally, TP hike adjustments, IFRS, and RBC implementation could impact the company’s operating performance. We reiterate our Neutral rating on the stock with a TP of INR1,730 (based on 25x FY28E EPS).
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
