ICICI Lombard Report - Not in the pink: spike in health claims affects loss ratio - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

ICICI Lombard disappointed expectations as claims of health insurance spiked abnormally (46k in Q1FY22 vs. 49k in FY21), resulting in an all-time high loss ratio of 91%. However, we reckon this as a one-off event - given the exigencies of the COVID pandemic. For the rest of FY22, we expect loss ratios in the company's health segment to improve, given the rapid pace of vaccination. We have reduced our full-year estimates to factor in higher loss ratios from the second wave, although a potential third wave poses a downside risk to our forecasts. We expect a motor TP price hike in FY22E, which could be a positive catalyst for growth. Given the rich valuations and uncertainties ahead, we rate ICICIGI a REDUCE with a target price of INR 1,250 (implying a Mar-23E PE of 27.3x and a P/ABV of 5.1x).

Q1FY22 highlights: ICICIGI reported NEP 6% ahead of estimates at INR 27bn (+16.4% YoY on weak base), driven by strong growth in the fire and health segments. Claims in the health segment witnessed a huge spike (46k in Q1FY22 vs. 49k in FY21), pushing the loss ratio in the segment to 153%. The nature of claims was optically different compared to FY21 as they included (1) affluent customers with high sums assured and (2) moderate and critical cases. Overall, Q1 CoR (calculated) was at an all-time high of 122.5%; however, this remains a one-off event. Heavy underwriting losses (INR 539mn) were offset by higher-than-estimated investment income of INR 708mn, leading to INR 152mn APAT (significantly below the estimate).

Given the adverse claims experience, ICICIGI has raised its pricing on selective renewals and in group health business (~15-20%). It on-boarded 1k employees for scaling up retail health, an extremely valuable proposition. COVID-related health claims shot up to INR 6bn (vs. 3.4bn FY21) with INR 2.18bn of closing reserves. The company continues to maintain its defensive stance on motor OD, given the competitive pricing environment.

Shares of ICICI Lombard General Insurance Company Ltd was last trading in BSE at Rs. 1491 as compared to the previous close of Rs. 1543.95. The total number of shares traded during the day was 43772 in over 5369 trades.

The stock hit an intraday high of Rs. 1516.15 and intraday low of 1469. The net turnover during the day was Rs. 65220493.

Source : Equity Bulls

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