ICICI Lombard slips 5%; stock hits lowest level since May 2020

Shares of ICICI Lombard General Insurance Company hit two-year low of Rs 1,144 and slipped 5 per cent on the BSE in Tuesday’s intra-day trade, on concerns of further waves of COVID-led claims. The stock of general insurance company traded at its lowest level since May 2020 and underperformed the market due to disappointing earnings.

In the past one week, the stock declined 9 per cent, as compared to 0.81 per cent fall in the S&P BSE Sensex. It slipped 20 per cent in a year, as against 5 per cent rise in the benchmark index. Further, in three years, the stock fell 4 per cent, while the Sensex rallied 39 per cent, during the same period.

Muted business growth in two years coupled with higher claims led by covid-19 resulted in the recent underperformance.

According to a report by Business Standard, India on June 7, reported an increase of 1,194 active coronavirus cases to take national count to 26,976. The country is fourty-seventh among the most affected countries by active cases. CLICK HERE FOR FULL REPORT

ICICI Lombard is India’s second largest non-life insurance player and one of the largest within the private sector with an overall market share of 8.1 per cent and 12.9 per cent market share in private general insurance space. Motor insurance remains the largest contributor to its premium at 46 per cent as of FY22.

For January-March 2022 quarter (Q4FY22), ICICI Lombard had reported a 9.53 per cent year-on-year (YoY) drop in net profit at Rs 313 crore, due to decline in third wave of Covid-19 and accounting principles that required the company to take the cost upfront. Meanwhile, the company had posted profit of Rs 346 crore in a year ago quarter.

That apart, underwriting losses of the insurer also widened in the quarter to Rs 309 crore from Rs 91 crore, a year ago.

The company paid claims to the tune of Rs 1,915 crore in Q4FY22, up 15 per cent from Rs 1,665 crore, in the year ago period. In the preceding quarter (Q3FY22), it had paid claims of Rs 2,083 crore.

According to analysts at Ashika Stock Broking, the company is a natural beneficiary of pick-up in non-life insurance space given huge under penetration. "Traditionally, the company has concentrated into business segments with lower loss ratios like motor own damage (OD) and third party (TP). However, loss ratios have been higher off -late due to Motor TP losses as well as higher expenses and higher investment for expansion of retail health network," the brokerage firm said.

The company's combined ratio stood at 103.2 per cent in Q4FY22 versus 99.8 per cent in FY21. The management expects COR to remain above 100 per cent as they on growth and expansion of market share. However, a strong investment book of Rs 38,786 crore in FY22 and realized return of 8.45 per cent is expected to aid earnings.

Moreover, with ~81 per cent of investments in debt, analysts believe that there is a scope for higher realized returns, with turn in interest rate cycle. Besides, synergy benefits from Bharti Axa’s product profile would flow in terms of operating efficiency coupled with pick-up in the industry volume.