The Q2 results of ICICI Lombard General Insurance Company stated underwriting loss and it stood at Rs 1.5 bn in Q2 as against Rs 1.9 bn in Q1FY23, as operating expense (OPEX) grew at 9% as compared to a 11% growth in NEP. Claims ratio grew to 72.8% in Q2 v/s 72.1% in Q1FY23 as the benefits of a lower loss ratio in Motor TP (third party) and Fire were offset by higher claims in Motor OD (own damage) and the health segment. Claims ratio grew 300bp y-o-y. The investment income, at Rs 8.7 bn, was higher than our expectation of Rs7.4 bn owing to better yields. The combined ratio stood at 105.1% v/s 105.3%/ 104.1% in Q2FY22/Q1FY23. The solvency ratio stood at 2.5x v/s 2.6x in Q1FY23. Adjusted for a tax reversal of Rs 1.3 bn, PAT stood at Rs 4.6 bn. Reported PAT stood at Rs 5.9 bn.
Healthy premium growth of 18%, strong growth in investment income: The total gross written premium (GWP) grew 18% y-o-y, but fell 4% q-o-q to Rs 53 bn. However, net earned premium (NEP) grew 18% y-o-y and 11% q-o-q to Rs 38.4 bn, with NEP-to-GWP ratio at 72% v/s 63% in Q1FY23. NEP grew 18% y-o-y and 11% q-o-q to Rs 38.4 bn, but was 3% lower than our estimate. NEP for the health/motor/crop/fire business grew 32%/6%/ 4x/8% y-o-y. Total investment income grew 27% q-o-q and 19% y-o-y to Rs 8.7 bn. The jump was driven by higher interest accrual income on the back of rising interest rates in the economy.
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Loss ratio rises q-o-q, lower OPEX ratio restricts rise in the combined ratio: ICICIGI reported a loss ratio of 72.8% in Q2 v/s 72.1% in Q1FY23. The benefit of a lower loss ratio in Motor TP/Fire was offset by higher claims in Motor OD/Health. Claims ratio increased by 300bp y-o-y. Commission ratios increased by 130bp q-o-q to 3.5% owing to a higher share of the retail business, where commission ratios are higher.
Management commentary highlights
Loss ratio in the Motor OD is higher than Motor TP due to pricing pressures. However, the management expects pricing to improve over the next few quarters. ICICIBC has also restarted to distribute indemnity-based products. The profitability of this product is lesser than the erstwhile credit linked benefit based product. Around 70-75% of investment income is accrual and the balance is capital gains. A higher interest environment is favourable.
We expect strong premium growth for ICICIGI, led by strength in new Auto sales, investments in the health distribution channel, and expected results from past investments in technology. Earnings growth will accrue from synergies from its merger with BAXA and improvement in the loss ratios for the health segment. We raise our FY23/FY24 earnings estimate by 11%/4%, led by higher investment income, offset by a higher underwriting loss.