ICICI Lombard claims surge drives earnings cut despite health insurance growth
ICICI Lombard General Insurance Company Ltd.
Neutral
₹1,788
₹1,585.95
₹1,960
9.62%
Investment View and Valuation
Motilal Oswal Financial Services downgraded ICICI Lombard to Neutral following a significant 1QFY27 miss in profitability and the combined ratio. The broker set a target price of Rs 1,960, valuing the company at 28 times FY28E earnings per share.
The downgrade reflects limited visibility on the measures required to offset the higher combined ratio, including a motor third-party tariff increase, changes in commissions across motor insurance and a realignment of motor own-damage profitability.
1QFY27 Operating Performance
ICICI Lombard reported gross written premium growth of 10 per cent year on year to Rs 88.6 billion in 1QFY27, broadly in line with MOFSL estimates. Net earned premium increased 16 per cent year on year to Rs 59.5 billion, also in line with estimates.
| Metric | 1QFY27 | Comparison |
|---|---|---|
| Gross written premium growth | 10% year on year | Rs 88.6 billion; broadly in line with estimate |
| Net earned premium growth | 16% year on year | Rs 59.5 billion; in line with estimate |
| Claims ratio | 76.4% | 72.4% estimate; 73.0% in 1QFY26 |
| Combined ratio | 107.2% | 101.9% estimate; 102.9% in 1QFY26 |
| Underwriting loss | Rs 6.3 billion | Rs 2.9 billion in 1QFY26; Rs 3.1 billion estimate |
| Reported profit after tax | Rs 4.0 billion | Down 46% year on year; 45% below estimate |
Premium Growth and Business Trends
Growth was supported by health insurance, including personal accident, where net earned premium grew 31 per cent year on year. Marine net earned premium increased 16 per cent, while motor net earned premium grew 8 per cent.
MOFSL expects an improved growth trajectory from the recovery in motor insurance following GST cuts and market-share gains in retail health, aided by GST exemption. The Elevate product has shown significant traction in retail health.
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Profitability Pressure and Exceptional Losses
Profitability was materially weaker than expected. The claims ratio increased to 76.4 per cent, while the combined ratio rose to 107.2 per cent. The underwriting loss widened to Rs 6.3 billion from Rs 2.9 billion in 1QFY26 and was substantially above the broker’s Rs 3.1 billion estimate.
Reported profit after tax fell 46 per cent year on year to Rs 4.0 billion, reflecting weak underwriting and lower-than-expected investment income. Policyholder investment income was Rs 8.6 billion, 12 per cent below estimate, while shareholder investment income of Rs 2.9 billion was 14 per cent below estimate.
The quarter included two large fire-segment losses of about Rs 0.63 billion, which added around 1.0 percentage point to the combined ratio. A Rs 1.65 billion increase in motor third-party claim reserves following a Supreme Court judgement added 2.8 percentage points.
Excluding the fire losses and incremental motor third-party reserving, MOFSL estimates that the combined ratio would have been 102.3 per cent and profit after tax would have been about Rs 5.8 billion. Management stated that the fire portfolio should revert to historical loss-ratio trends. It also said that the motor third-party reserve covers both existing claims and future obligations from business already underwritten.
Revised Earnings Estimates
MOFSL retained its net earned premium estimates but reduced its FY27E and FY28E profit after tax estimates by 14 per cent and 11 per cent, respectively. The broker increased its combined-ratio estimates by 80 basis points for FY27E and 20 basis points for FY28E.
| Metric | FY27E | FY28E |
|---|---|---|
| Profit after tax | Rs 28.0 billion; broadly flat year on year | Rs 34.5 billion |
| Combined ratio | 103.3% | 102.2% |
Capital Position and Investment Book
ICICI Lombard’s investment book grew 9 per cent year on year to Rs 605.8 billion. Investment leverage stood at 3.6 times and solvency was 2.71 times.
Key Risks
- Sustained competitive intensity in motor own-damage and commercial lines.
- Elevated claims experience.
- Limited visibility on the pricing, commission and profitability actions required to restore underwriting performance.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
