REDUCE on ICICI Lombard General Insurance Company Ltd - COR continues to improve - HDFC Securities

Mr. Madhukar Ladha, Institutional Research Analyst, HDFC SecuritiesWhile FY21E is expected to be a muted year in topline growth, ICICIGI is expected to deliver lower CORs. Lower COVID-19 cases and vaccination make us incrementally positive on the health segment. Additionally, changing motor regulations are expected to drive down both claims and tariffs, creating supernormal profitability in the short term. We believe that this period (of supernormal profitability) will be shortlived, as we expect IRDAI to restrict TP pricing growth, thereby limiting profitability. We believe the market is not factoring in this risk; accordingly, we rate ICICIGI a REDUCE with a revised target price of Rs 1,230 (DDM derived Sep-22E P/E of 27.9x and a P/ABV of 5.4x).

3QFY21 highlights: NEP was 2.3% below estimates at Rs 26.1bn (6.3/6.0% YoY/QoQ) as 3Q saw strong growth in new business, which yet needs to be earned. Overall loss ratios improved to 65.9% (-579/-127bps bps YoY/QoQ) as the company saw reserve releases in motor TP (9MFY21: 65.7%, -10bps vs. 1HFY21) and health segments (9MFY21: 77.3%, -150bps vs. 1HFY21). Management stated that non-COVID claims were below pre-COVID levels. Loss ratios were also down for P&C segments, e.g. Property (9MFY21: 73.9%, -1,060bps vs. 1HFY21). Overall, 3QFY21 CoR (calculated) was at 98.6% (-92/-210bps YoY/QoQ), as lower claims ratio was offset by higher commission ratio (7.0%, +409/37bps YoY/QoQ) and expense ratios (25.7%, +78/-119bps YoY/QoQ). Commission and expense ratios were higher on account of 20.7/28.8% YoY/QoQ growth seen in NWP. The company has grown motor OD business selectively. Within health, credit-linked business declined 34.4% YoY due to ICICI Bank's reduced focus. Investment yield (including unrealised MTM) was 13.1% (+393/102bps YoY/QoQ). ICICIGI posted an APAT of Rs 3.17bn +7.9/-27.7% YoY/QoQ.

Outlook: We expect FY21E to be a muted year in terms of NEP growth; however, lower loss ratios should result in higher margins.

Shares of ICICI Lombard General Insurance Company Ltd was last trading in BSE at Rs.1495.05 as compared to the previous close of Rs. 1509.45. The total number of shares traded during the day was 83399 in over 6069 trades.

The stock hit an intraday high of Rs. 1505 and intraday low of 1452.8. The net turnover during the day was Rs. 122677868.

Source : Equity Bulls

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