ICICI Lombard - Elevated opex drags CORs; pain in motor continues - HDFC Securities

ICICI Lombard (ICICIGI) reported NEP 2% below our estimates (+14% YoY); however, better-than-expected loss ratios in motor TP business were offset by continued investments into building the retail health agency business, driving calculated CORs to 105% and APAT to INR3.5bn (+11% YoY, -6% vs. estimates). Even as we remain wary of heightened competitive intensity in the motor OD segment, we expect loss ratios in the motor TP segment to inch up during FY24, and consequently cut our FY23E/24E earnings by 7/10% to build in slower than industry growth. However, given the strong demand outlook in the underlying autos segment, we argue that the pessimism is overdone and maintain our ADD rating, with a TP of INR1,270 (implied Sep-24E P/E of 31x and P/ABV of 5x).

Mixed bag: NEP clocked in at INR37.9bn (+14.5% YoY, -2% vs. estimate), owing to slower growth in motor segment (+10% YoY) partly offset by a sharp uptick in group health EE and group benefit based business. While loss ratios in the health segment improved 360bps QoQ due to moderation in monsoon-related claims, normalised road traffic and sustained pricing pressure kept loss ratios in the motor OD segment elevated at 73% (pre-pandemic levels around 62%-68%). Claims ratio in the motor TP segment improved 470bps QoQ to 62%, led by reserve releases and low-frequency court settlements. Opex ratio (including commissions) stayed elevated at 34.5% on the back of continued investments in the retail health agency channel, driving calculated COR to 105% (-68bps QoQ, +35bps vs. estimates). Lower investment yield at 7.5% drove APAT to INR3.5bn (+11% YoY; -6% vs. estimate).

Commentary: The management continues to pivot towards select profitable businesses in the highly competitive motor segment; PV remains a crowded segment and continues to bleed, whereas CV business is benefitting from improving discipline in the segment. Experience in motor TP claims from the changes in MV Act are yet to play out; the Company has not taken any reserve release benefits in motor TP on account of guidelines around 6-month settlement timelines. The company expects motor OD pricing to improve in the medium-term. ICICIGI remains upbeat on its ability to scale up its retail health business through continued investments in the agency channel.

Shares of ICICI Lombard General Insurance Company Limited was last trading in BSE at Rs. 1200.05 as compared to the previous close of Rs. 1250.15. The total number of shares traded during the day was 70048 in over 5509 trades.

The stock hit an intraday high of Rs. 1233.05 and intraday low of 1174.35. The net turnover during the day was Rs. 83854489.00.

Source : Equity Bulls

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ICICILombardGeneralInsuranceCompany INE765G01017 HDFCSecurities Q3FY23 ResultUpdate