ICICI Lombard slips 6% on disappointing Q3 results

ICICI Lombard delivered weaker-than-expected performance in Q3FY23 on all counts - weaker premium, lower investment income, and higher expense ratio, Motilal Oswal Financial Services said

Shares of ICICI Lombard General Insurance Company slipped 6 per cent to Rs 1,174.35 on the BSE in Wednesday's intra-day trade after the company reported a disappointing set of earnings for the third quarter of financial year 2022-23 (Q3FY23).

The insurer reported a 9 per cent increase in underwriting losses in the period under review to Rs 293.46 crore.

"Q3 is a seasonal quarter in so far as retail lines of businesses are concerned. Given the fact that the mix of retail is higher in Q3, any cost of distribution that a company incurs has to be shelled out upfront. However, the benefit in terms of premiums accrues over a period of time. Hence, the underwriting losses have widened. And, Q3 has historically seen higher underwriting losses because of the festive season months," the management said in the earnings call.

Meanwhile, the company's net profit for Q3FY23 increased by 11 per cent year-on-year (YoY) to Rs 353 crore, aided by a healthy rise in gross premiums underwritten. Gross premiums earned by the insurer rose 17 per cent YoY to Rs 5,600 crore. Its gross direct premium income (GDPI) stood at Rs 5,493 crore, up 17 per cent from the year-ago period.

ICICI Lombard delivered weaker-than-expected performance in Q3FY23 on all counts - weaker premium, lower investment income, and higher expense ratio, Motilal Oswal Financial Services (MOFSL) said in its result update.

"Going ahead, growth in the motor segment is likely to be back ended with the company waiting for the rationalization of pricing in the OD segment. On the health segment, the investments in the hiring of agency managers will continue to keep expense ratio elevated," the brokerage firm said.

However, synergy benefits from Bharti AXA merger (technology related), scale benefits and improvement in mix on health business (higher share of retail health) should aid in improving the combined ratio and RoE over the next couple of years, MOFSL added.

The brokerage firm has cut its earnings estimate by 14 per cent/11 per cent/10 per cent for FY23/FY24/FY25. However, it retained 'BUY' rating with a one-year target price of Rs 1,500 as it rolled forward valuations from 35x FY24 to 32x FY25.

"ICICI Lombard’s healthy premium growth coupled with marginal improvement in market share remains encouraging. Combined ratio continued to improve QoQ but sustainability of the trend remains key. Thus, long term growth opportunity, market leadership with diversified product mix remain positives," ICICI Securities said in a note.

At 09:37 AM, the stock was trading 4 per cent lower at Rs 1,200, as compared to 0.07 per cent rise in the S&P BSE Sensex. In the past six months, ICICI Lombard has underperformed the market by falling 6 per cent, as against 11 per cent rally in the benchmark index. In the past one year, it has slipped 17 per cent, as compared to 0.12 per cent decline in the Sensex.