Stock of ICICI Lombard General Insurance Company (ICICI Lombard) has risen 4.6 per cent to Rs 836.35 since August 30, even though the broader markets and Nifty Financial Services index are under pressure.
Expected benefits from the revised motor third-party insurance policy have been the reason for the upward move of the sole listed general insurance company.
While the motor segment accounts for over 40 per cent of the company’s product mix, third-party segment’s share is 17-18 per cent and own-damage policies comprise 25-26 per cent. Under the revised policy, effective from September 1, insurance premium for cars and two-wheelers was revised by 2.4-5.6 times and they now come with an extended tenure.
This improves the earnings potential of ICICI Lombard, with a gradual improvement in top line as well persistency ratio.
This indicates customer stickiness.
ICICI Lombard (within the motor segment) has a higher share of more-profitable private car (51 per cent) and two-wheeler (31 per cent) as compared to the industry levels of 40-45 per cent and 15 per cent, respectively.
“Though 2018-19 (FY19) top line may not see a significant jump with this revised policy (premiums received for multiple years but accounted for specific periods), it will boost the cash accrual and investment income. In 2019-20, however, we think this will improve the premium accretion at least for third-party policies. We expect gross written premium for the industry to grow by 15-20 per cent in next five years, and for ICICI Lombard it would be more, given the strong distribution,” says Gopal Balachandran, chief financial officer of ICICI Lombard.
He adds that with higher expected premium growth, return on equity would be more than 20 per cent.
According to analysts at CLSA, ICICI Lombard being a larger player with stronger tie-up with manufacturers and dealers, it should be able to better leverage this opportunity. They expect 17 per cent growth in net premiums over FY18-21 and 23 per cent compounded annual growth rate in profits.