ICICI Lombard: Profit growth at healthy pace

ICICI Lombard General Insurance (ICICI Lombard) was formed as a joint venture between ICICI Bank and Fairfax Financial Holdings.

ICICI Lombard, Profit, ICICI Bank, Fairfax Financial Holdings, insurance 
ICICI Lombard General Insurance (ICICI Lombard) was formed as a joint venture between ICICI Bank and Fairfax Financial Holdings. (Reuters)

ICICI Lombard General Insurance (ICICI Lombard) was formed as a joint venture between ICICI Bank and Fairfax Financial Holdings. It is the largest private-sector non-life insurer in India based on gross direct premium income (GDPI) in FY17. The company has an extensive distribution reach through 51 corporate agents as on 30 Jun’17, including ICICI Bank, which provides as access to its 4,850 branches along with 20,775 individual agents. ICICI Lombard has a diversified composition of insurance products with major contribution coming from three major categories – motor insurance (36.5% of Q1FY18 GDPI), crop insurance (21.8%) and health insurance (18.2%). Over FY15-17, the GDPI witnessed 26.7% CAGR, thus exceeding the Rs 10,000-cr mark in FY17. According to Swiss Re, India is the 15th largest market in the world and the 4th largest in Asia in CY16 and has also been amongst the fastest growing non-life insurance markets over CY11-16, growing at 14.5%. However, despite its size and growth profile, India continues to be an underpenetrated market with a non-life insurance penetration of 0.77% as compared to a global average of 2.81% as on 31 Dec’16. As per CRISIL, over FY17-22, the GDPI is expected to grow 2-2.5x in India, thus providing a substantial growth opportunity for the company.Over FY13-17, the net premium earned witnessed a 12.3% CAGR to Rs 6,158 crore. The operating profit and profit before tax also grew at a healthy pace of 17.3% p.a. and 18.2% p.a., respectively. Net profit grew 5.2%. For Q1FY18, the net premium earned grew 10.1%. Operating profit and net profit grew 55.8% and 66.0%, respectively. The solvency ratio stood at 2.10x compared to Indian non-life private-sector average of 1.95x at the end of FY17. The same was stood at 2.13x as on 30 Jun’17.

Key risks: (1) High dependence on motor vehicle insurance and ICICI Bank for distribution; (2) Over 22% business comes from government contracts, which are subject to risks such as changes in policies or regulations, termination of contracts, restrictions on bidding, etc., (3) 67% of reinsurance is ceded to GIC Re, any change in this relationship may impact business.

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