ICICI LombardLeader with strong growth prospects
10 September 2018
INDIA | INSURANCE| COVERAGE INITIATION
Largest private non-life insurer in the country
Initiate with BUY and TP of INR 1,050
Investments in technology driving efficiencies
Robust risk-selection procedures in place
JM Financial Institutional Securities Limited Page 2
RECENT INITIATIONS
We like the ICICIGI franchise given its granular retail portfolio, strong underwriting and robust return ratios. The 4th largest non-life insurer is on track to leverage its presence in 90% of the districts across India through on-boarding of experienced agents, scaling up of its digital assets and making further improvements to its “best-in-class” claims management process. Thus, ICICI Lombard is positioned to be a major beneficiary of the ongoing shift in market share towards service-oriented and efficient players.
BANDHAN BANK
3
4
6
7
16
19
27
29
31
32
34
RELIANCE NIPPON LIFE ASSET MANAGEMENT
T A B L E O F C O N T E N T S
Introduction
Key charts
Largest private non-life insurer
Retail lines to drive premium growth
Multi-channel distribution network
Disciplined underwriting paying off
Superior investment performance
Both profit engines firing up
Strong solvency to support growth
Valuation & Key risks
Company background
Financial tables
Appendix I: Non-life insurance in India
ADITYA BIRLACAPITAL
10 September 2018
INDIA | INSURANCE| COVERAGE INITIATION
INDOSTAR CAPITALFINANCE
38
39
LIFE INSURANCE SECTOR UPDATE
JM Financial Institutional Securities Limited Page 3
Retail lines to drive growth and underwriting performance: ICICI Lombard’s retail lines share rose to 61% in FY18 from under 50% in FY06. Most of this growth has come from less-riskier segments such as a) Motor: private cars, 2Ws, preferred commercial vehicles (CVs) like 3Ws, trucks, tractors & CE and b) Health: retail health indemnity, SME group health, etc. Corporate lines make up 20% of its premiums, with the rest coming from crop insurance. Focus on retail and exits from loss-making large corporate/mass health insurance segments resulted in loss ratios improving from 81% in FY15 to 76.9% in FY18. The insurer plans to cap exposure to crop insurance in light of unfavourable pricing. Going forward, it aims to focus on granular risks while opportunistically entering property/other CV segments as pricing and structural factors improve therein
One of the most operationally efficient, digital-savvy insurers: ICICI Lombard’s expense ratio (ex-commissions) was one of the lowest among peers at 27% in FY18 (vs. the peer average of 30%). It has improved 440bps since FY15, led by continued investments in automation/digitisation. These include: a) robotics for faster turnaround times, b) AI for risk management and speedy claims processing, c) assisted sales using chat bots, d) drones for crop surveys and e) plug-and-play infrastructure for seamless onboarding of distribution partners.
High-quality investment book; no default since inception: The insurer’s investment book reached INR 182bn in FY18 – c.12% of total private sector AUM (incl. standalone health) - with 83% invested in sovereign and AAA securities. While the FI book has experienced zero defaults since inception, the equity book too, has posted robust annualised returns (incl. unrealised gains) of 30% since FY04 vs. 17% for the benchmark. Moreover, its “cash-before-cover” model implies zero asset quality risks.
ICICI Lombard General Insurance Ltd (ICICIGI or ICICI
Lombard) is the 4th largest non-life insurer (8.2% GDPI market share in FY18) and a leader among private players (18.9% share ex-standalone health) . Over FY15-18, it has recorded a 23% GDPI CAGR, outperforming the industry (20%) by leveraging its a) parent’s brand equity, b) retail-focused, diversified product mix and c) strong, multi-channel distribution in 638 of 716 districts in India. Superior risk selection, micro-segmentation and the flexibility to opportunistically enter/exit business lines has resulted in significant improvement in the insurer’s underwriting performance. Loss ratios have moved from 81% in FY15 to 77% in FY18. After pioneering online sales in FY05, digitisation and automation remain the key to its operating efficiencies as scale builds.
ICICI Lombard is well-positioned to deliver 15% GDPI growth – in line with the industry – over FY18-20E ,enabled by i)structural factors: a) non-life under-penetration and lowdensity as well as b) urbanisation and rising asset ownership; ii)granular focus on niche segments within Motor and Healthinsurance and iii) a strong, productive distribution network.
We value the stock at 28x Mar’21E EPS for a PAT CAGR of 24% over FY18-21E and ROE of 21% by FY21E. We initiate with a BUY rating and a TP of INR 1,050. Key risks to our call: disruptions in distribution and regulatory/government risks.
ICICI Lombard General Insurance LtdLeader with strong growth prospects
10 September 2018
INDIA | INSURANCE| COVERAGE INITIATION
Sameer Bhise [email protected] Tel: (91 22) 6630 3489
S Parameswaran [email protected]: (91 22) 6630 3075
Karan Singh CFA FRM [email protected] Tel: (91 22) 6630 3082
Nikhil [email protected] Tel: (91 22) 6630 3027
Bunny Babjee [email protected] Tel: (91 22) 6630 3263
JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters S&P Capital IQ and FactSet. You can also access our portal: www.jmflresearch.com. Please see Appendix I at the end of this report for Important Disclosures and Disclaimers and Research Analyst Certification.
Recommendation and Price Target
BUY
1,050
21%
NA
Current Reco.
Previous Reco.
Current Price Target (12M)
Upside/(Downside)
Previous Price Target
Change NA
Key Data – ICICIGI IN
INR876
INR397.5/US$5.5
31%
454.1
INR184.9/US$2.6
889/619
38,390/11,589
Current Market Price
Market cap (bn)
Free Float
Shares in issue (mn)
Diluted share (mn)
3-mon avg daily val (mn)
52-week range
Sensex/Nifty
INR/US$ 71.7
Price Performance
% 1M 3M 6M
Absolute 14.3 20.0 10.8
Relative* 12.4 11.7 -5.4
* To the BSE Sensex
Financial Summary (INR mn)
Y/E March FY17A FY18A FY19E FY20E FY21E
Net Profit 6,418 8,618 11,049 13,657 16,588
Net Profit (YoY) (%) 27% 34% 28% 24% 21%
Assets (YoY) (%) 36% 27% 16% 16% 16%
ROA (%) 3.2% 3.3% 3.5% 3.7% 3.9%
ROE (%) 15.8% 17.5% 19.3% 20.4% 21.0%
EPS 14.2 19.0 24.3 30.1 36.5
EPS (YoY) (%) 26% 33% 28% 24% 21%
P/E (x) 61.2 45.9 35.8 28.9 23.8
BV 97.6 113.2 132.4 156.5 185.7
BV (YoY) (%) 23% 16% 17% 18% 19%
P/BV (x) 10.8 9.3 7.9 6.7 5.7
Source: Company data, JM Financial. Note: Valuations as of 07/Sep/2018
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 4
ICICI Lombard – Key charts
Industry to clock double digit premiums growth Exhibit 1.
0%
5%
10%
15%
20%
25%
30%
35%
0
500
1,000
1,500
2,000
2,500FY
02
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9E
FY2
0E
FY2
1E
GDPI (INRbn) YoY (%)
1st phase: Growth phase during tariff
regime
2nd phase: Post de-tariffing and
Motor Pool
3rd phase: Dismantling Motor pool and
Declined Risk Pool
Source: IRDA, JM Financial
Significant under-penetration and low density Exhibit 2.
5.0%
4.3%3.4% 3.4%
2.7%2.4% 2.3%
1.9%
0.9%
0
500
1,000
1,500
2,000
2,500
3,000
0%
2%
4%
6%
South
Korea
USA Taiwan Hong
Kong
South
Africa
UK Japan China India
Non life Insurance penetration Insurance Density (USD)
Source: SwissRe
Rising incomes fuelling ownership of insurable assets Exhibit 3.
0
20,000
40,000
60,000
80,000
1,00,000
1,20,000
FY12 FY13 FY14 FY15 FY16 FY17 FY18E
Per Capita NNI (INR)
Source: CMIE
Accelerated rate of urbanisation raising awareness Exhibit 4.
0.9% 0.8% 1.0%
0.1%
1.8%
2.0%2.1%
1.6%
2.4%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
0%
20%
40%
60%
80%
100%
Brazil UK USA Russia South
Africa
China Indon-
esia
Thai-
land
India
2016 Urban Population (as % of Total) Urbanisation Rate CAGR (2018-23E)
Source: UN database, CRISIL
ICICIGI to benefit from industry growth Exhibit 5.
-3%
29%
21%19%
12%
-3%
21%
33%
15%15%15%15%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
0
50
100
150
200
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
GWP (INR bn) Growth (YoY, %) Source: Company, JM Financial
Consolidating its leadership position Exhibit 6.
8.4
%
8.8
%
8.6
%
8.6
%
8.6
%
7.7
%
8.4
%
8.4
%
8.2
%
8.1
%
8.1
%
8.1
%
23.6
%
24.4
%
23.1
%
21.9
%
21.4
%
19.0
%
20.4
%
19.9
%
18.9
%
18.4
%
18.0
%
17.7
%
0%
5%
10%
15%
20%
25%
30%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Market share (industry) Market share (pvt. ex standalone)
Source: IRDA, Company, JM Financial
Diversified product mix providing traction Exhibit 7.
42% 44% 47% 51% 51%42% 42%
28% 26% 22% 19.7% 17.1%
15.5% 15.0%
6% 6% 7% 8.2% 7.8%
6.9% 7.4%
7.3%20.1% 19.2%
15% 14% 15% 11.2% 6.9% 6.5% 7.3%
0%
20%
40%
60%
80%
100%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Motor Health Fire Marine Eng PA Crop Others Source: Company, JM Financial
Leveraging its strong multi-channel distribution network Exhibit 8.
15% 17% 16% 17% 16% 12% 12%
6% 6% 7% 9% 7%7% 7%
53% 47% 43% 41% 40%41% 36%
2%2% 2% 2% 2%
2%2%
24% 29% 32% 31% 34% 38% 42%
0%
20%
40%
60%
80%
100%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Agency Banca Direct Online Broker and others
Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 5
Superior risk management keeping loss ratios low Exhibit 9.
89%
96%
101%
83% 83%81% 82% 81%
77% 76% 76%76%
60%
70%
80%
90%
100%
110%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: Company, JM Financial
Operating efficiencies capping expense ratios Exhibit 10.
25%21%
20% 20%
22%24%
25% 23% 23% 22% 22%22%
0%
10%
20%
30%
40%
50%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: Company, JM Financial
Underwriting quality visible in improving CORs trends Exhibit 11.
114%116%
121%
104%
105% 105%107%104%
100%98%
98% 97%
80%
90%
100%
110%
120%
130%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: Company, JM Financial
Tried and tested reserving policy keeping divergence low Exhibit 12.
17%21%
17%23%
26%
36% 34%
47% 49%-5.9%
0.0%
3.1%
6.3% 5.9%3.7%
2.7%0.6%
-20%
-15%
-10%
-5%
0%
5%
10%
0%
20%
40%
60%
80%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
IBNR reserves % of total reserves AY IBNR (deficit)/excess
Source: Company, JM Financial
Prudent investment management yielding good returns Exhibit 13.
15.7%
10.1%
7.6% 8.0%9.2% 9.8%
10.8%9.8% 9.2%
9.3%
7.2%5.8%
8.0%9.7% 10.1% 10.2% 9.9% 9.3%
0%
3%
5%
8%
10%
13%
15%
18%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Investment yield - policyholder (%) Investment yield - shareholder (%)
Source: Company, JM Financial
A well-balanced investment portfolio Exhibit 14.
37% 42% 36% 37% 40%30% 30%
9%7%
5%10% 13%
15% 15%
19% 14%16%
17%21%
16% 16%
11% 13% 26%22%
15% 26% 26%25% 23% 17% 11% 10% 8% 8%
0%
20%
40%
60%
80%
100%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
G-secs Other approved secs EquityBonds Real eatate Infrastructure & SocialOthers
Source: Company, JM Financial
Improving CORs and higher investment yields position Exhibit 15.ICICIGI to deliver best-in-class RoEs in the non-life space
5%
(8%)
(26%)
16%
22%19%
14% 16% 17% 19% 20%21%
(30%)
(20%)
(10%)
0%
10%
20%
30%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: Company, JM Financial
Strong solvency capable of supporting organic and Exhibit 16.inorganic growth
155% 172%195% 182% 182% 183% 183%
27% 22%
0%
50%
100%
150%
200%
250%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Core capital Other capital
Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 6
Largest private non-life insurer
GDPI CAGR of 23% over FY15-18 (ex-crop 14%); forecast 15% CAGR over FY18-21E
ICICI Lombard is the 4th largest insurer in the Indian non-life insurance industry, controlling
8.2% of the premium market as of FY18 (10% as of YTD-Jul’18). Among private insurers, it
is the leader, controlling 19% of the market (ex-standalone health) as of FY18 (21% as of
YTD-Jul’18). Promoted by one of India’s largest private banks – ICICI Bank – the insurer
commenced operations in 2002 and is currently active in 638 of 716 districts across India.
Over FY15-18, the insurer clocked-in premiums growth of 23% outperforming the industry’s
21% growth rate. Ex-crop insurance, the premiums growth is in line with the industry at a
14% CAGR over FY15-18. We expect ICICIGI to maintain steady growth, delivering a 15%
CAGR in gross premiums over FY18-21E on a) supportive structural factors such as i)
significant under-penetration and low density, ii) rising urbanisation, iii) the government’s
focus on motor TP/health/crop insurance and iv) public listing of peers that would bring
pricing discipline; b) a retail-oriented product mix; and c) a well-diversified distribution
network.
ICICIGI – GWP growth trends Exhibit 17.
-3%
29%
21%19%
12%
-3%
21%
33%
15%15%15%15%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
0
50
100
150
200
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
GWP (INR bn) Growth (YoY, %) Source: Company, JM Financial
To maintain market leadership going into FY21E Exhibit 18.
8.4
%
8.8
%
8.6
%
8.6
%
8.6
%
7.7
%
8.4
%
8.4
%
8.2
%
8.1
%
8.1
%
8.1
%
23.6
%
24.4
%
23.1
%
21.9
%
21.4
%
19.0
%
20.4
%
19.9
%
18.9
%
18.4
%
18.0
%
17.7
%
0%
5%
10%
15%
20%
25%
30%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Market share (industry) Market share (pvt. ex standalone)
Source: Company, JM Financial
Market leader across industry cycles leveraging parent’s brand equity, diversified product
suite and multi-channel reach into c.90% districts across India
The company has maintained its market leadership across industry cycles (#1 among private
insurers since 2004) by outperforming industry growth. In 1QFY19, the insurer recorded a
13.7% YoY growth (ex-crop, growth was 14.1% YoY) in premiums vs. 12.2% for the
industry. Regarding the product mix, after de-tariffication in 2007, the share of retail lines
(such as motor and health) rose to 64% in FY07 (vs. 48% in FY06) and has since remained
between 60-70%. Retention ratios have improved in recent years in light of better risk
underwriting capabilities and stricter fraud control. Overall retention rates stood at 62-67%
over FY15-18 with product lines such as motor OD (65-85%), motor TP (74-96%), health
(70-80%) and personal accident (72-75%) recording robust retention.
Diversified product suite Exhibit 19.
42% 44% 47% 51% 51%42% 42%
28% 26% 22% 19.7% 17.1%
15.5% 15.0%
6% 6% 7% 8.2% 7.8%
6.9% 7.4%
7.3%20.1% 19.2%
15% 14% 15% 11.2% 6.9% 6.5% 7.3%
0%
20%
40%
60%
80%
100%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Motor Health Fire Marine Eng PA Crop Others Source: Company, JM Financial
Retention ratio Exhibit 20.
70%
71%
80%
68%
66%
66% 67%
61%
63% 64% 64%63%
55%
60%
65%
70%
75%
80%
85%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 7
Retail lines to drive premiums growth
ICICI Lombard’s product portfolio comprises of motor (own damage and third party liability) –
42% of GDPI in FY18, health and personal accident (19%), crop (19%), fire (7%),
engineering (2%) and marine (3%) lines. Over the years, the company has reduced its
exposure to corporate lines (fire, marine, engineering, aviation and liability) from 52% in
FY06 to under 20% in FY18.
Given the insurer’s focus on profitability, the insurer has adopted a cautious view on a) crop
insurance, due to the volatile nature of the tender-based business and heightened
competition; seeks to cap share in product mix to less than 20% and b) mass health due to
adverse historical loss experience. Regarding future growth engines, the insurer plans to
focus on, i) participating in the resurgence in property/corporate lines, ii) health insurance, iii)
SME segment within both property and health insurance and iv) retail motor, select
commercial vehicle segments within motor insurance.
Diversified mix serving corporate, retail and rural customers Exhibit 21.
Source: Company, JM Financial
Produc t De sc riptionPortfo l io a s
of FY18Ke y Fe a ture s Loss ra tios Ta rge t Custome r Ba se
Fire 7.0%
• Market share increased from 7.8% in FY17 to 8.5% FY18
• Established presence in large risk segment
• Gaining share in mid-risk segment
43.1%
Corpora te So lutions Group -
serves large corporate
companies in variety of
industries
Marine 3.0%
• Market share increased from 11.7% in FY17 to 12.7% FY18
• Close monitoring of high-frequency accounts using Marine Loss
Control Engineering (MLCE)
54.2%
Spe c ia l i se d Industry Group
- caters to large clients in
specialised business segments
Engineering 2.0%
• Market share increased from 9.8% in FY17 to 11.2% FY18
• Strong relationship with large contractors
• Pickup in infrastructure activity
24.0%SME Group - focusses on
MSMEs across industries
Liability 0.2%• Market share increased from 12.9% in FY17 to 14.3% FY18
• Proven ability in structuring complex solutions117.1%
Inte rna tiona l Bus ine ss
Group - covers international
risks of Indian business interests
Cyber
Health & PA 6.5%• Pricing pressure continued for large corporates; focus on
increasing share of mid and small corporate policies88.0%
Motor 42.0%
• Motor OD Market share 11.6% in FY18
• Covers private cars, two-wheeler, three-wheelers, CE, tractors,
trucks
• Eff. Sep'18, IRDA has made it mandatory to offer a 3-yr Motor TP
policy for new cars and 5-yr motor TP policy for new 2Ws
Motor OD: 53.7%
Motor TP: 107.1%
Health & PA 11.8%
• Offers indemnity and benefits products
• Launched sachet products with dynamic pricing based on
transaction analytics
• Focusing on T2/T3 cities as loss ratios better vs. existing portfolio
Indemnity: 60%
Benefits: 46%
Home• Gross premiums grew 35% YoY in FY18; Company investing in
distribution
Travel
• Market share increased from 20.8% in FY17 to 24.9% in FY18
• 127.1 million lives insured in FY18, of which 95% were lives
under IRCTC e-ticketing platform
• Exploring insurance for adventure sports & pilgrimages via
aggregator tie-ups
Crop 19.0%
• Since its launch in FY16, it has enrolled 3.1 million farmers
across 8 states and 31 districts; Non loanee made up 10% of
total enrollments during FY18;
• Cattle insurance witnessed 5x YoY growth in GWP in FY18 with
22,715 animals insured across 14 states.
135.0%
Health, Personal
Accident0.3%
• Writes business under the RSBY scheme. The company offers
access to robust hospital network and speedy claims settlement 131.0%
State/ Central governments
or government-owned
enterprises and rural
customers
Re
tail
Gro
up
(6
2.0
%)
• Loss cost based micro-
segmentations
• Diversification
• Adequate pricing
Wh
ole
sa
le G
rou
p (
18
.7%
)
• Customised solutions;
• Beyond insurance
cover, offers risk
management and
mitigation solutions
Go
ve
rnm
en
t
Gro
up
(1
9.3
%)
Individuals
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 8
Development of product mix in recent years Exhibit 22.
(INR bn) FY15
FY16
FY17
FY18
FY15-18
Product GDPI % GDPI % GDPI % GDPI % CAGR
Motor 34.2 51% 41.5 51% 45.4 42% 52.5 42% 15%
Motor – OD 21.3 32% 25.2 31% 27.6 26% 30.6 25% 13%
Motor – TP 12.9 19% 16.3 20% 17.8 17% 21.9 18% 19%
Crop/Weather 2.8 4% 5.9 7% 21.5 20% 23.7 19% 105%
Health and PA 15.0 23% 16.1 21% 20.3 19% 23.0 19% 15%
Health 13.2 20% 13.9 17% 16.7 16% 18.5 15% 12%
PA 1.9 4% 2.2 3% 3.6 3% 4.5 4% 35%
Fire 5.5 8% 6.3 8% 7.5 7% 9.2 7% 19%
Marine 2.5 4% 3.0 4% 3.4 3% 3.7 3% 14%
Engineering 1.7 3% 2.0 3% 2.3 2% 2.5 2% 13%
Other 4.7 7% 5.6 7% 7.0 7% 9.0 7% 24%
Total 66.8 100% 80.9 100% 107.3 100% 123.6 100% 23%
Source: Company, JM Financial
Key product offerings:
Retail insurance: It includes motor, health and personal accident insurance.
Motor insurance (42% of GDPI as of FY18): The segment’s GDPI posted a 15% CAGR
over FY15-18, while its proportion in the overall portfolio declined from 51.2% in FY15 to
42.5% in FY18. The insurer consciously focuses on less risky, more granular segments
with 50% of the motor premiums coming from private cars, 17% from select CV
segments and 33% from two-wheelers. Versus this, the industry has roughly 40% and
45% of motor premiums coming from commercial vehicles and private cars respectively,
and c.15% from two wheelers. Further, motor insurance has two parts: own damage
(25% of total GDPI as of FY18) and third-party segment (18%). The introduction of
mandatory long-term insurance for private cars (policy period raised to 3-years) and 2Ws
(policy period raised to 5-years) should increase motor penetration and spur premiums
growth going forward.
Private car segment: The segment witnessed healthy premiums CAGR of 17% over
FY15-18 benefitting from tie-ups with various MVMs including Maruti, Hyundai and
Honda. It also offers add-ons such as comprehensive cover, zero depreciation
coverage, roadside assistance and engine protection coverage.
Two-wheeler segment: The segment saw premium CAGR of 20% over FY15-18
aided by the introduction of longer-tenure (two and three years) policies during
FY16. Further, it benefits from tie-ups with various MVMs including Hero
MotoCorp, Honda Motorcycle and Scooter India. Long-term two wheeler policy
penetration increased from 8.6% in FY17 to 9.1% in FY18.
IRDA mandates long-term insurance for private cars and 2Ws: Following a Supreme
Court Committee on Road Safety recommendations, the IRDA made it compulsory
to offer long-term motor TP insurance for all new private cars (policy period raised
to 3 years vs 1 year) and new 2Ws (policy period raised to 5 years vs 1 year)
effective Sep’18. The move will address poor renewals (number of registered but
uninsured vehicles currently stands at c.60% of total vehicles) which become
especially acute for private vehicles after three years on the road. Although positive
from a penetration/ compliance perspective, the price adequacy still needs to be
tested given the proposed tariffs are different from adjusted existing motor TP
tariffs in the range of +3% to – 51% for cars and 2Ws.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 9
Long-term motor TP for private cars – 3 years Exhibit 23.
Private car 1-yr (INR)
3-yr (INR)
3*(1-yr) (INR)
Diff %
Less than 1,000cc 1,850 5,286 5,550 -5%
1,000cc to 1,500cc 2,863 9,534 8,589 11%
Exceeding 1,500cc 7,890 24,305 23,670 3%
Source: IRDA
Long-term motor TP for 2Ws – 5 years Exhibit 24.
2Ws 1-yr (INR)
5-yr (INR)
5*(1-yr) (INR)
Diff %
Less than 75cc 427 1,045 2,135 -51%
75cc to 150cc 720 3,285 3,600 -9%
150cc to 350cc 985 5,453 4,925 11%
Exceeding 350cc 2,323 13,034 11,615 12%
Source: IRDA
Commercial vehicle segment: It consists of insurance products for goods carrying
vehicles, passenger carrying vehicles and construction equipment. The segment has
witnessed muted CAGR of 4% over FY15-18 as the company narrowed its focus to
the preferred/low-risk commercial vehicles such as three-wheelers, pick-up trucks,
construction equipment and tractors. Recently, the insurer turned positive on the
segment led by; a) consistent motor TP price increases primarily in medium and
heavy commercial vehicles, b) structural changes such as better vehicle design,
improved roads, mandatory speed governance for commercial vehicles and c) data
analytics to identify accident hotspots. All these developments are helping to reduce
claims frequency/severity thus making underwriting the business viable from an
ultimate loss ratio perspective.
Motor TP contribution increasing in light of “quota-Exhibit 25.based” underwriting and favourable claims/inflation linked pricing
68% 65% 62% 61% 61% 58%45%
32% 35% 38% 39% 39% 42%55%
0%
20%
40%
60%
80%
100%
FY13 FY14 FY15 FY16 FY17 FY18 Industry
Motor OD Motor TP
Source: Company, JM Financial
ICICIGI focusses on profitable segments within motor Exhibit 26.insurance - 2W and private cars
47.7% 47.3% 49.6% >50% 45%
29.3% 30.8% 32.3% 30-35%
15%
23.0% 21.9% 18.1% 15-17%
40%
0%
20%
40%
60%
80%
100%
FY15 FY16 FY17 FY18 Industry
Private car Two wheelers Commercial vechicle
Source: Company, JM Financial
ICICIGI maintained its industry market share in a highly Exhibit 27.competitive motor OD market
M. share % FY15 FY16 FY17 FY18
ICICI Lombard 11% 12% 12% 12%
HDFC Ergo 3% 3% 4% 5%
BAGIC 10% 10% 9% 8%
SBI Gen 2% 2% 2% 2%
Reliance Gen 4% 4% 4% 5%
Source: IRDA, JM Financial
Motor TP market share trend has remained fairly stable Exhibit 28.over recent years
M.share % FY15 FY16 FY17 FY18
ICICI Lombard 7% 8% 7% 7%
HDFC Ergo 2% 3% 3% 3%
BAGIC 5% 6% 6% 6%
SBI Gen 1% 1% 1% 1%
Reliance Gen 4% 4% 4% 4%
Source: IRDA, JM Financial
Industry motor premiums have significant headroom to grow given, a) low vehicle
penetration (19 cars & 127 2Ws per 1,000 vs. 70 cars / 1,000 for other “less-
developed” nations); b) stricter focus on renewals given only 60% of cars aged over
3 years and only 10% of 2Ws aged over 3 years have insurance in India vs. 90%
globally. This issue will be addressed as the industry prepares for mandatory long-
term Motor TP insurance for 2Ws (5 years) and cars (3 years) from Sep’18; c) the
Motor Vehicle Amendment Act, currently pending in Rajya Sabha, which aims to
introduce i) higher penalties for traffic violations, ii) stricter licensing norms, and iii)
reducing the number of registered but uninsured vehicles; d) robust growth outlook
for motor vehicle sales in India which will have a direct positive impact on motor TP
due to its compulsory nature.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 10
Motor sales mix to remain stable going into FY20E Exhibit 29.
80.5% 80.8% 81.2% 81.2% 13.3%
13.9% 13.2% 12.9% 12.6%
9.3%
11.6%
18.7%
17.3%
0%
20%
40%
60%
80%
100%
FY17 FY18 FY19E FY20E CAGR
MHCV LCV 3Ws PVs 2Ws
Source: SIAM, JM Financial
Car and 2W penetration in India (per 1,000) Exhibit 30.
5 6 6 7 7 8 9
10
11
12
13
15 17
17
19
38 40 45 49 54 59 62 66 72
79 86
96 107 111
122
0
20
40
60
80
100
120
140
0
5
10
15
20
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Cars (LHS) 2W (RHS) Source: Road Ministry, ExxonMobil Energy outlook report
Health & PA (19% of GDPI as of FY18): The segment’s GDPI posted a CAGR of 14% over
FY15-18 while its proportion in the overall portfolio declined from 23% in FY15 to 18.6%
in FY18 as the company reduced exposure to large corporate health and mass health
schemes on account of low profitability.
Retail Health: It is the dominant segment under Health GDPI consisting of benefit-
based (c.60% of retail health) and indemnity-based products (c.40%). Benefit-based
policies are sold through its banking partners/NBFCs and include lump-sum and
annuity-based accident related plans, critical illness plans and daily cash plans.
Indemnity-based policies are sold through the agency and banca-partner
distribution channels. Retail indemnity is a primary focus area for the company
especially in light of the Health Insurance 2016 regulation, which bars life insurance
companies from selling this product. The indemnity portfolio achieved 31% YoY
premiums growth in 1QFY19 vs. 3% growth in total retail health premiums.
Retail health GDPI achieved 18% CAGR over FY15-18 with its share of total health
portfolio increasing from 57% in FY15 to 63% in FY18. The company underwrites
its health insurance products based on various factors, including pre-existing
medical conditions and history of illness to mitigate the pricing risk and continually
monitors hospital networks, medical inflation and leakage by efficient network
management to reduce fraud instances.
Health & PA premium mix Exhibit 31.
57% 59% 59% 63%
<40%
30% 37% 30%35%
>50%
11% 4% 11%2% <10%
0%
20%
40%
60%
80%
100%
FY15 FY16 FY17 FY18 Industry
Retail Health Corporate Health Mass health
Source: Company, JM Financial
Health & PA market share movement Exhibit 32.
M.share % FY15 FY16 FY17 FY18
ICICI Lombard 6.8% 6.3% 6.3% 5.5%
HDFC Ergo 4.1% 3.9% 3.6% 3.8%
BAGIC 3.5% 3.4% 3.6% 4.0%
SBI General 1.7% 1.9% 2.3% 2.2%
Reliance General 2.4% 2.0% 1.1% 1.9%
Star Health (Standalone health) 6.4% 7.2% 8.6% 7.0%
Apollo Munich (Standalone health) 3.5% 3.7% 3.8% 3.1%
Other private insurers 13.2% 12.3% 11.2% 25.8%
PSU insurers 58.4% 59.2% 59.5% 46.7%
Total 100% 100% 100% 100%
Source: IRDA, JM Financial
Corporate health: The segment consists of policies purchased by corporations as
employee benefits. Corporate health for the insurer consists of 3 sections, 1) SME,
small corporates, 2) Mid-corporates and 3) Large corporates such as BFSI, IT
companies. While the all the sub-segments have witnessed price increases (both
new and renewal policies), given ICICI Lombard’s stringent underwriting standards,
the insurer still feels large corporate risks are under-priced and therefore continues
OECD32 car penetration: 570; Less-developed nation’s car penetration: 70*
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 11
to be cautious on the segment. It has de-focused from ticket sizes of more than INR
20mn and is targeting granular growth vs. lumpy accounts.
ICICI Lombard continues to remain bullish on the SME segment for both property
and group health underwriting in light of profitable claims experience and stickiness
of the business, given that it is sourced by agents, small brokers and is more
relationship/ service-based. The corporate health segment’s GDPI posted a CAGR of
16% over FY15-18 while its proportion in the total health mix has remained stable
at 33-35%. Combined ratios for corporate health have improved to 88% in FY18
vs. 104% last year driven by the rising share of profitable SME business. The insurer
continues to be selective and only underwrites appropriately priced risks.
Additionally, it offers value-added services such as wellness programmes, outpatient
coverage and provision of emergency services in collaboration with a global partner.
Mass Health: The segment consists of government health programmes such as the
Rashtriya Swasthya Bima Yojana (RSBY). In FY18, the scheme was extended to the
state of Odisha. Mass health has witnessed a decline in premiums of 36% over
FY15-18 with its proportion of health GDPI declining from 9% in FY15 to 2% in
FY18 owing to non-renewal of a mass health scheme (which accounted for 84% of
its Mass health GDPI in FY17) in Kerala due to inadequate pricing. Moreover, the
company is hesitant to grow this segment given adverse claims experience.
Personal Accident: Offerings include corporate (including mass personal accident,
c.18% of personal accident GDPI) and retail segments (c.82%). Retail PA insurance
policies are commonly bundled with other products. The company is focussed on
increasing share of retail PA segment by increasing the number of channel partners
and investing in the digital channel.
Public spending on health continues to remain c.1% Exhibit 33.
Source: MoH; *Estimates
Health insurance in India – key metrics Exhibit 34.
2015-16
Health insurance penetration
(% of total population under any
health scheme)
27%
o.w. covered by PSU insurers 77%
o.w. covered under Govt-sponsored schemes 80%
Private health insurance penetration
(% of total population) 2.3%*
Medical expenditure
as % of household income/savings
Urban: 74.9%
Rural: 67.8%
Source: CBHI, JM Financial; *As of 2014-15
Going forward, health insurance premiums growth will be driven by, a) low health
penetration, b) high out-of-pocket medical expenditure/medical inflation and c)
favourable regulation/government stance. The Health Insurance 2016 regulation
introduced various product-related changes. These include i) prohibiting life
companies from selling indemnity products; ii) allowing pilot products by non-life/
standalone health insurers with minimum 1-year policy term in new risk areas; iii)
introducing ‘entry-age’ pricing to lure younger individuals to purchase health plans;
vi) allowing 1-year group health insurance products (except credit-linked products
where the policy tenure will match the loan period (not exceeding 5 years)).
Moreover, the announcement of the “Universal Health Coverage” goal in the
Budget 2018-19 along with a National Health Protection Scheme covering over 100
million families (or close to 500 million beneficiaries) offering a sum assured of INR
1.18%
2.40%
1.60%
3.40%
7.40%
0%
1%
2%
3%
4%
5%
6%
7%
8%
2009-1
0
2010-1
1
2011-1
2
2012-1
3
2013-1
4
2014-1
5
2015-1
6*
2016-1
7*
Low
inco
me
countr
ies
Low
er m
iddle
inco
me
countr
ies
Upper
mid
dle
inco
me
countr
ies
Hig
her in
com
eco
untr
ies
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 12
0.5mn per family per year is a big positive for health insurance penetration and can
spur premiums growth. Given the substantial financial implications, states are
currently weighing between a trust model and an insurance model. Based on the
available bidding data, the winners have on average quoted 12-13% below the L2
bidder and almost 70-87% below the highest bidder. Going by historical loss
experience of these mass health schemes, the non-life insurance industry estimated
a premium of INR 2,500-3,000 per family per year. However, as a) the government
negotiates package rates with hospitals and b) private hospital participation
increases; the scheme should become viable at reasonably lower premiums.
Currently, ICICI Lombard has not participated in the bidding process.
Universal Health Coverage – key highlights Exhibit 35.
Scheme National Health Protection Scheme: Ayushman Bharat Programme; New India 2022
Coverage INR 0.5 million per family (no restrictions on size) per year for secondary and tertiary
hospitalization covering over 1,000 treatment packages
Target 40% of population / 107.4 million poor families ( ~500 million beneficiaries) across both
rural (76.29% of beneficiaries) and urban (22.19%) areas
Funding a) States and UT with legislation: 60:40 between centre and state; b) UT without
legislation: 100% centre and c) 8 NE, Himalayan states: 90:10 between centre and state
Bid price
(INR / family / year) Type of insurer
Pure
Insurance
model
Nagaland
Apollo Munich Health Insurance 444 Standalone Health
BAGIC 506 Private insurer
Reliance General Insurance 1,020 Private insurer
Religare Health 1,060 Standalone Health
National Insurance 1,944 PSU
United India 1,944 PSU
New India No bid PSU
ICICI Lombard No bid Private insurer
Jharkhand
Bidding details not out
Mizoram
Bidding details not out
Meghalaya Bidding details not out
Hybrid model -
Pvt insurer
only bears
claims upto
INR 50,000
Gujarat
Oriental Insurance 361 PSU
Religare Health 445 Standalone Health
IFFCO Tokio 2,712 Private insurer
Chhattisgarh
Religare Health 1,100 Standalone Health
BAGIC 1,270 Private insurer
United India 1,980 PSU
National Insurance 2,128 PSU
New India 3,750 PSU
Source: Media reports
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 13
Corporate insurance: It includes fire, marine, engineering, health and liability insurance.
The segment is witnessing faster growth across most property products. Key
differentiators for ICICI Lombard vs. peers are, a) risk selection, b) working with corporate
clients offering them risk mitigation/management strategies; as of Mar’18 the insurer has
worked with over 800 large, SME corporates and c) continued investment into digitisation
/ automation.
Fire Insurance as a % of total GDPI Exhibit 36.
8.2% 7.8%
6.9%
7.4%
9.5%9.0%
7.5%7.0%
FY15 FY16 FY17 FY18
ICICI Lombard Industry
Source: IRDA, JM Financial
Steadily increasing presence as pricing improves Exhibit 37.
7% 7%8%
9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
FY15 FY16 FY17 FY18
Fire - ICICI Lombard market share
Source: IRDA, JM Financial
Fire Insurance: The segment’s GDPI posted a CAGR of 19% over FY15-18 while its
proportion has declined from 8.2% in FY15 to 7.4% in FY18. It consists of, i) large
risks are risks with a sum insured of >INR 25 bn at one location and are generally
co-insured by multiple non-life insurers. These are typically better-managed risks,
are sold with favourable terms, and include deductibles in line with international
market standards, ii) mid-sized risks generally are underwritten by a single insurer
and are the most competitive and iii) small risks are distributed by bank partners and
agents, typically bundled with other products, and have attractive pricing. The
company uses granular risks to de-risk the concentration of exposures and diversify
its fire insurance portfolio. Regarding growth, the company plans to focus on
infrastructure projects and emerging sectors such as solar to drive growth.
Marine insurance a % of total GDPI Exhibit 38.
3.7% 3.7%
3.2% 3.0%
3.6%3.1%
2.3%
2.0%
FY15 FY16 FY17 FY18
ICICI Lombard Industry
Source: IRDA, JM Financial
Hands-on risk management and SME focus key Exhibit 39.
8%
10%
12% 13%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
FY15 FY16 FY17 FY18
Marine - ICICI Lombard market share
Source: IRDA, JM Financial
Marine Insurance: The segment GDPI posted a CAGR of 14% over FY15-18 while its
proportion declined from 3.7% in FY15 to 3.0% in FY18. The company underwrites
insurance for normal, bulk and project cargo for both large and mid-sized corporate
clients. Currently, the company is focussing on innovative solutions, including loss
control consulting and growing the SME business.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 14
Engineering as a % of total GDPI Exhibit 40.
2.6% 2.5%
2.1% 2.0%
2.8%
2.5%
1.8%
1.5%
FY15 FY16 FY17 FY18
ICICI Lombard Industry
Source: IRDA, JM Financial
Pick-up in infra activity + large contractor relationships Exhibit 41.lead to market share gain
6%
8%
10%
11%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
FY15 FY16 FY17 FY18
Engineering - ICICI Lombard market share
Source: IRDA, JM Financial
Engineering Insurance: The segment’s GDPI recorded a CAGR of 13% over FY15-
18, while its proportion in the overall portfolio declined from 2.6% in FY15 to 2.0%
in FY18. It offers long-term (including coverage for infrastructure and industrial
erection projects) and annual policies (consisting of contractor’s plant and
machinery insurance).
Government Business Group (19% of GDPI as of FY18): This group caters to rural India
and includes various government programmes such as PMFBY and RWBCIS (weather
insurance) and RSBY (health insurance). The company uses multiple technology initiatives
such as the use of drones and remote sensing technology for crop yield estimation which
enables it to achieve operating efficiency, scalability of the business, manage risks and
facilitate faster claims settlement.
Crop insurance as a % of total GDPI Exhibit 42.
4.1%
7.3%
20.1% 19.2%
5.0% 5.5%
16.1% 17.0%
FY15 FY16 FY17 FY18
ICICI Lombard Industry
Source: IRDA, JM Financial
High loss ratios + aggressive pricing driving caution Exhibit 43.
na
11%10%
9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
FY15 FY16 FY17 FY18
Crop/Weather - ICICI Lombard market share
Source: IRDA, JM Financial
Crop insurance: Crop/weather insurance is usually sold as an add-on to agricultural
loans. However, non-loanee sign-up is also promising with the segment making up
10% of total enrolments in FY18. The segment’s premiums posted a CAGR of
100% over FY16-18 with its proportion in the overall portfolio rising from 7% in
FY16 to 19% in FY18. This robust CAGR was primarily led by the implementation of
the PMFBY programme in 2016. In FY19 so far, the company has covered farmers in
4 states and 30 districts for the Kharif season. This number is down from the 7
states and 56 districts covered during Kharif in FY18 owing to a) rising competition
leading to aggressive pricing and b) reinsurance rates hardening. In line with the
cautious view on the product line, the insurer would continue to base its
underwriting on multiple criteria, including i) diversification across agro-climactic
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 15
zones, ii) avoidance of coastal areas, and iii) past yield data and premium payment
history. It aims to cap exposure to crop insurance to 15-20% of its total GDPI.
— Other Insurance: Other insurance refers to insurance products including travel
insurance, aviation, credit insurance, home insurance, liability insurance, fidelity
insurance, event insurance and art insurance. This segment posted a CAGR of 6%
over FY15-18 while its proportion in the overall portfolio declined from 11.2% in
FY15 to 7.3% in FY18.
Other insurance as a % of total GDPI Exhibit 44.
7.1% 6.9%6.5%
6.5%
9.2%
8.0%
6.5%7.0%
FY15 FY16 FY17 FY18
ICICI Lombard Industry
Source: Company, JM Financial
Selective risk-taking is key Exhibit 45.
7%
6%
7%
9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
FY15 FY16 FY17 FY18
Other insurance - ICICI Lombard market share
Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 16
Multi-channel distribution network
Distribution network complements a diverse product mix
ICICI Lombard has an extensive multi-channel sales network covering 638 of 716 districts
across India comprising direct, individual agents, bank partners and brokers. Other corporate
agents including over 27 NBFCs, three small finance banks, five other financial institutions,
and certain affiliates of manufacturers together contribute c.8% of GDPI. While the
Corporate Insurance Group relies on direct and broker channels, the Government Business
Group utilises direct channel for sourcing business. The Retail Group primarily utilises bank
partners, brokers, individual agents and the digital channel for its sales. The insurer is
currently investing in increasing its penetration into T3 and T4 cities primarily through the
agency and virtual office network. A large part of the growth strategy around SMEs depends
on adding experienced agents to its network (added 3,000+ agents YoY as of Jun’18) which
use relationship-based selling and service-quality to attract/retain SME clients.
Diversified distribution mix Exhibit 46.
15% 17% 16% 17% 16% 12% 12%
6% 6% 7% 9% 7%7% 7%
53% 47% 43% 41% 40%41% 36%
2%2% 2% 2% 2%
2%2%
24% 29% 32% 31% 34% 38% 42%
0%
20%
40%
60%
80%
100%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Agency Banca Direct Online Broker and others
Source: Company, JM Financial
Distribution by business groups Exhibit 47.
Retail (individual,
SME) Corporate Government
Direct
Online Channel
Broker
(non-loanee farmers)
Bank Partners
Other corporate agents
Individual Agents
Source: Company, JM Financial
Retail Insurance Group: caters to individual and SME customers offering motor, health,
home, travel and personal accident insurance. The company follows a location specific
strategy i.e. a) For top 20 cities, it follows a centralised vertical approach given the similar
demand patterns in these locations; b) For locations outside top 20 cities, it follows a
decentralised branch-level approach with focus on certain products and channels. The
company is currently present in over 200 cities (outside the top 20 cities) supported by
more than 5,000 individual agents. It also uses a network of 140+ virtual offices to cater
to small and remote locations.
Motor Vehicle Manufacturers (MVM): ICICI Lombard currently has agreements with over
85% of the MVMs (by vehicle sales in FY18) providing access to over 210 dealer locations
which play a key role in distributing insurance products. Such MVMs include Maruti
Suzuki India, Hyundai India, Hero MotoCorp and Honda Motorcycle and Scooter India. A
strong relationship with such dealers coupled with constant product innovation (support
solutions like roadside assistance) and various digitisation initiatives (such as mobile-based
cashless claims) has helped ICICI Lombard to achieve market leadership in the motor
insurance segment (18% market share in private motor OD; 13% market share in private
motor TP as of YTD Jul’18).
Recently implemented MISP guidelines has resulted in a) greater transparency in dealer-
insurer set-up, b) reduction in distribution costs (commissions capped at 22.5% for 2Ws
and 19.5% for four-wheelers and SUVs from the earlier 25-30%) a part of which will be
passed back to customers through discounts. Moreover, in terms of dealer market share,
the company expects minimal impact given the huge volumes generated by its insurance
policies and claims-servicing capabilities.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 17
MVMs + direct growing in importance Exhibit 48.
Source: Company as of latest disclosures, JM Financial
In-depth look into individual channels Exhibit 49.
Channel Description
OEM’s/Dealers 20 Motor Manufacturer’s & 6,000+ Distributors
Agents Brokers 23,800 + agents/brokers
Direct sales force Corporate: 1,000+ active customers
Government: Health, PA, Crop
Banks/FIs 30+ banks/FIs; Access to 6,211 branches
2,100+ active touch points
Website 8,00,000+ unique visitors/month
Call center 2,00,000 calls/month
Branches 253 branches pan India
140+ virtual offices
Source: RHP, JM Financial
SME channel: It has a specialised SME vertical with, i) focus on underpenetrated channels
such as individual agents in reaching them; ii) use of technological platforms such as
mobile based inspections; iii) increasing penetration into non-metro cities; iv) focus on
profitable products such as liability insurance and over-the-counter products and v) access
to value-added services such as MLCE (Marine Loss Control Engineering) and PLPE
(Property Loss Prevention Exercise).
Key Relationship Group (KRG): This group is responsible for collaborating with various
banks and financial institutions for distribution and has established partnerships with over
85 entities including 3 banks, +27 NBFCs, 3 small finance banks and 5 other financial
institutions. Currently, the insurer enjoys exclusive partnership with ICICI Bank through
which it sells motor, health, personal accident, property and liability insurance. The sales
utilise the branch network, direct physical sales, online sales, mobile apps and lead
management at PoS. Banca-channel (ICICI Bank) generated 7% of the total GDPI in FY18
which is one of the lowest among bank-promoted peers HDFC Ergo (20% premiums
from banca channel) and SBI General (46% premiums from banca channel).
Individual Agents: Has the 3rd largest individual agency forces at 23,811 among private
sector non-life companies in India. They exclusively sell to individual and SME customers.
The company continues to invest in its agency channel while leveraging technology to set
up virtual offices for its agents. Moreover, the insurer is witnessing in-ward migration of
experienced agents over the last year.
Individual agency growing since FY15 Exhibit 50.
16,075 17,848
20,383
23,395
0
5,000
10,000
15,000
20,000
25,000
FY15 FY16 FY17 FY18
Individual agents (#)
Source: Company, JM Financial
Premium per agent falls in line with granular focus Exhibit 51.
706 725
634 629
400
450
500
550
600
650
700
750
FY15 FY16 FY17 FY18
Avg. ticket sizes (INR' 000)
Source: Company, JM Financial
Corporate Insurance Group: Primarily focusses on fire, marine, engineering, health and
liability segments for corporate clients and includes: i) corporate solutions group that
provides insurance solutions to large corporations across industries; ii) specialised industry
group that caters to large clients in specialised business segments, including customers in
17% 19% 26% 23%
17% 16%12% 11%
41% 40% 41% 41%
9% 7% 7%6%
12% 13%5% 9%8%
7%
0%
20%
40%
60%
80%
100%
FY15 FY16 FY17 1Q18
MVMs Indiv. agents Banks Corp. agents Brokers Digital Direct
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 18
the oil & gas, aviation and construction sectors; iii) SME group which focusses on MSMEs
across industries and iv) international business group that covers international risks of
Indian corporate clients. Given the high competitive intensity in this segment, the
company has focused on providing customised risk management/mitigation solutions to
clients. As of Mar’18, the insurer has worked with over 800 large, SME corporates
Direct channel: ICICI Lombard has one of the largest direct sales forces for corporate
business in the industry consisting of c.200 experienced employees responsible for client
acquisition, retention, servicing and providing risk management solutions. The direct
engagement model helps to strengthen relationships, thereby enhancing retention rates.
Multi-segment channels include
Digital channel: Includes online sales and sales through mobile platform contributing
c.2.0% of its overall GDPI. The company has +10 years of experience in digital sales and
pioneered the online channel within the non-life insurance industry in FY05. Over the
years, it has built up expertise in search engine optimisation and search engine marketing
tools.
Brokers: Apart from catering to corporates, SME clients and MVMs, they are instrumental
in the enrolment of non-loanee farmers under the PMFBY programme.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 19
Disciplined underwriting paying-off
ICICI Lombard’s combined ratios have improved significantly from 105% in FY15 to 100% in
FY18. The improvement has been driven by two factors: a) its loss ratio declined to 77% in
FY18 vs. 81% in FY15 driven by superior risk selection within existing retail lines such as
motor/health and reducing exposure to loss-making wholesale lines such as commercial
motor and corporate health and b) its expense (ex-commissions) ratio improved to 27% in
FY18 vs. 31% in FY15 as the company continued to invest in automation and digitisation
initiatives to control costs. In 1QFY19, combined ratios further improved to 98.8% (102% in
1QFY18). Improving loss ratio trend ICICIGI’s loss ratio increased marginally to 81.6% in FY16 (from
81.4% in FY15) primarily due to the impact of adverse weather conditions on crop
insurance claims and the impact of the Chennai floods (0.84% impact on loss ratio). It
improved to 76.9% in FY18 due to better loss experience within the retail lines and
reduced exposure to loss-making large group health and mass health business. FY18 also
saw reserve strengthening in a) crop insurance as it faced adverse loss experience in the
Kharif book and b) dismantled motor TP business which together came to INR 710mn.
Loss ratio trend Exhibit 52.
89%
96%
101%
83% 83%81% 82% 81%
77% 76% 76%76%
60%
70%
80%
90%
100%
110%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: Company, JM Financial
Loss ratio mix Exhibit 53.
71
%
71
%
63
%
71
%
71
% 96
%
57
%
53
%
50%
47
%
46
%
46
%
18
%
25
%
39
%
12
%
12%
-14
%
25
%
28
%
27
%
30
%
30
%
30
%
(40%)
(20%)
0%
20%
40%
60%
80%
100%
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8E
FY1
9E
FY2
0E
FY2
1E
Claims paid Change in claims reserves Source: Company, JM Financial
Product-wise loss ratios Exhibit 54.Segment FY15 FY16 FY17 FY18
Own Damage 62% 66% 64% 54%
Third-party 106% 98% 97% 107%
Overall Motor 80% 80% 79% 77%
Health 88% 85% 98% 78%
Personal Accident 80% 64% 41% 24%
Health and PA 87% 82% 90% 68%
Crop/weather 140% 84% 135%
Fire 95% 64% 68% 43%
Marine 99% 95% 86% 54%
Engineering 78% 69% 53% 24%
Other 75% 70% 62% 57%
Total loss ratio 81% 82% 80% 77%
Source: Company, JM Financial
Motor insurance: Motor OD has historically been a profitable product line with CORs at
80-97% over FY15-18. This is in line with the insurer’s product mix, which has a higher
share of profitable private car and two-wheeler insurance. While Motor TP combined
ratios continued to be at 130-135%. In terms of loss ratios, Motor TP posted a healthy
improvement during 1QFY19 to 91% loss ratio vs. 98% last year primarily given the
selective and controlled participation in CV segment. Regarding annual motor TP tariff
hike, average rate hike for the industry came down in FY19 to c.6.1% as against an
average hike of 15.3% for FY18 making risk-selection very important. Moreover, the
company does not benefit from this given that the hikes are primarily in the large CV
segment where ICICI Lombard is not present. Given the company’s TP mix, the portfolio
only saw a price increase of 1.8% for FY19. Going forward, the insurer may
opportunistically look to enter the commercial vehicles space given improved pricing and
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 20
supportive structural factors like better vehicle design, improved roads, mandatory speed
governance for commercial vehicles and data analytics to identify accident hotspots.
Motor TP has seen meaningful price increases Exhibit 55.
0
5
10
15
20
25
30
35
FY15 FY16 FY17 FY18
Motor OD - GDPI (INRbn) Motor TP - GDPI
18%
9%11%
27%10% 23%
Source: Company, JM Financial
Divergence in CORs of motor OD and motor TP Exhibit 56.
84%97% 97%
87%
137% 131% 130% 135%
0%
20%
40%
60%
80%
100%
120%
140%
160%
FY15 FY16 FY17 FY18
Motor OD - COR Motor TP - COR
Source: Company, JM Financial
Favourable loss experience in Motor OD keeps COR low Exhibit 57.
60% 62% 63%
51%
1% 3% 1% 2%
0%
10%
20%
30%
40%
50%
60%
70%
FY15 FY16 FY17 FY18
Loss ratio - Claims paid Loss ratio - Chg in reserves
Source: Company, JM Financial
Motor TP COR remain high in line with long-tail reserving Exhibit 58.
167%
26% 30% 30%
-62%
72% 67% 77%
-100%
-50%
0%
50%
100%
150%
200%
FY15 FY16 FY17 FY18
Loss ratio - Claims paid Loss ratio - Chg in reserves
Source: Company, JM Financial
After robust price increases of FY17-18, the regulator reduced rates for select Exhibit 59.categories of private cars, private carriers and 2Ws for FY19
Motor TP Premium (in INR) FY17 FY18 FY19
YoY%
FY17 FY18 FY19
Private Cars
less than 1,000cc 2,055 2,055 1,850
40% 0% (10%)
> 1,000cc and not exceeding 1,500c 2,237 2,863 2,863
40% 28% 0%
> 1,500cc 6,164 7,890 7,890
25% 28% 0%
Goods carrying vehicle public carriers A1
Not exceeding 7,500kg 14,390 14,390 14,390
0% 0% 0%
> 7,500 kg but not exceeding 12,000kg 15,365 19,667 24,190
0% 28% 23%
> 12,000kgs but not exceeding 20,000 kg 22,577 28,899 32,367
15% 28% 12%
> 20,000kg but not exceeding 40,000 kg 24,708 31,626 39,849
25% 28% 26%
> 40,000 kgs 25,800 33,024 38,308
30% 28% 16%
Goods carrying vehicle private carriers A2
Not exceeding 7,500 kg 7,849 7,938 7,144
(10%) 1% (10%)
> 7,500 kg but not exceeding 12,000 kg 11,528 14,330 15,620
30% 24% 9%
> 12,000kgs but not exceeding 20,000 kg 9,390 9,871 9,871
5% 5% 0%
> 20,000 kg but not exceeding 40,000 kg 12,821 14,805 15,397
15% 15% 4%
> 40,000 kgs 16,655 21,318 21,318
20% 28% 0%
Two Wheelers
Not exceeding 75cc 569 569 427
10% 0% (25%)
> 75 cc but not exceeding 150 cc 619 720 720
15% 16% 0%
> 150cc but not exceeding 350 cc 693 887 985
25% 28% 11%
> 350cc 796 1,019 2,323
(10%) 28% 128%
Source: IRDA, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 21
Positive catalysts for an improvement in Motor TP underwriting performance are a)
passage of the Motor Vehicle Amendment Act, currently pending in Rajya Sabha, which
aims to introduce a 6-month time limit for claim filing to aid faster, more accurate claims
processing, thus reducing uncertainty and capping claims inflation and b) improving
expense ratios following MISP guidelines (effective from Nov’17) that bring erstwhile un-
regulated motor dealers selling policies within IRDA supervision. This will aid in i) reducing
dealer pay-outs as historically non-life insurers were paying dealers infrastructure and/or
outsourcing expenses with resulting commission rates at 25-30%. After MISP, they will be
capped at 22.5% for 2Ws and 19.5% for four-wheelers and SUVs, ii) better claims
management especially at the dealer-end; c) robust outlook for new motor sales given
low personal vehicle penetration (19 cars / 1,000; 127 two-wheelers/1,000); d) other
provisions of the Motor Vehicle Amendment Act such as, i) higher penalties for traffic
violations, ii) stricter licensing norms; and e) Supreme Court Committee on Road Safety
recommendation resulted in a mandatory 3-year motor TP policy for cars and 5-year
policy for motorbikes at the time of sale and registration to tackle poor renewals (number
of registered but uninsured vehicles currently stands at c.60% of total vehicles). Although
positive from a penetration/ compliance viewpoint, the price adequacy still needs to be
tested given that the proposed tariffs vary from adjusted existing prices in the range of
+3% to –51% for cars and 2Ws.
Long-term motor TP for private cars – 3 years Exhibit 60.
Private car 1-yr (INR)
3-yr (INR)
3*(1-yr) (INR)
Diff %
Less than 1,000cc 1,850 5,286 5,550 -5%
1,000cc to 1,500cc 2,863 9,534 8,589 11%
Exceeding 1,500cc 7,890 24,305 23,670 3%
Source: IRDA
Long-term motor TP for 2Ws – 5 years Exhibit 61.
2Ws 1-yr (INR)
5-yr (INR)
5*(1-yr) (INR)
Diff %
Less than 75cc 427 1,045 2,135 -51%
75cc to 150cc 720 3,285 3,600 -9%
150cc to 350cc 985 5,453 4,925 11%
Exceeding 350cc 2,323 13,034 11,615 12%
Source: IRDA
Health insurance: Retail heath continues to be the largest sub-sector (>60% of total
health GDPI) and is also most profitable in terms of underwriting performance. Within
retail health, both indemnity portfolio (60% loss ratio as of Dec’18) and benefit portfolio
(45.7% loss ratio) have been profitable. Problematic corporate/group health premiums
have witnessed 20% YoY growth in FY18 driven by price corrections initiated in the
industry for both retail and corporate/group lines. Loss ratios in the group health segment
improved to 88% in FY18 vs. 104% last year driven by, a) change in expense allocation
method and b) higher share of SME business. Mass health segment premiums should
continue to shrink as the insurer is very cautious on the whole government segment. As
such, loss ratios for this product would continue to improve.
Total health GDPI YoY growth Exhibit 62.
0
2
4
6
8
10
12
14
FY15 FY16 FY17 FY18
Retail Health - GDPI (INRbn) Corporate - GDPI Mass - GDPI
8%19%
29%
18% (2%) 20%
(50%)197% (86%)
Source: Company, JM Financial
Total health – quarterly underwriting performance Exhibit 63.
U/W result (INRmn) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19
Retail Health 957 1,228 1,285 969 939
Corporate Health (12) (316) (204) (437) (1,029)
Mass/Govt. Health (186) 36 (127) 136 (40)
Source: Company, JM Financial
ICICIGI is sourcing the business at a viable
loss ratio as tracked internally. U/W loss is
optically higher as bulk of business sourced
at quarter-end thus requiring up-fronting
of acquisition costs.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 22
Corporate/group health insurance witnessed meaningful price correction
The corporate health segment, which represents 35% of health GDPI has historically
impacted profitability due to the lack of pricing discipline among insurers given strong
bargaining power of corporate customers. Insurers have historically used the more
profitable retail health to offset losses in the corporate health portfolio. However, since
the Sep’17 public listing of industry leaders, ICICI Lombard (#1 in private sector) followed
by New India Assurance (NIA) (#1 in public sector), the non-life industry has benefitted
from the price correction initiated by them in the group/corporate health portfolio. From
exhibit 64/65, it is evident that premiums growth is stronger in recent quarters vs. last
year.
Listed public peer, New India Assurance, witnessed group health (24% market share as of
YTD-Jul’18) loss ratios falling to 110% in FY18 vs. 125% last year largely due to price
corrections. The management expects this ratio to further decline to c.100% by FY19.
Moreover, even the retail health (14% market share as of YTD-Jul’18) loss ratio has
declined to c.78% vs. 85% last year largely owing to price increases effected for both
new policies (effective Apr’17) and for renewal policies (effective Aug’17). The full benefit
of retail price increases is expected over 2018-19. Price corrections have ranged from 20-
40% depending on the claims experience of the individual corporate/group accounts.
Using its dominant position in government/mass health (34% market share as of YTD-
Jul’18) business, New India has been able to push some price correction even in those
accounts. Overall, the management is targeting a total health portfolio loss ratio of
c.95% by FY19 vs. 103% in FY18. Moreover, NIA along with other PSU insurers invested
in a captive TPA which has in-house doctors to curb medical costs inflation and improve
health claims management. All this augurs well for private players in general and ICICIGI
in particular.
Contribution of health premiums is higher for public Exhibit 64.insurers given higher participation in group/mass health schemes Total Health GDPI share %
1Q18 2Q18 3Q18 4Q18 1Q19
ICICI Lombard 15% 13% 14% 18% 17%
HDFC Ergo 12% 12% 14% 39% 18%
BAGIC 19% 12% 18% 17% 30%
SBI Gen 12% 10% 13% 17% 12%
Reliance Gen 25% 15% 9% 11% 30%
New India Assurance 33% 25% 30% 27% 36%
Source: IRDA, JM Financial
Premiums YoY growth is coming from both higher no. of Exhibit 65.policies and higher pricing in the corporate/group policies Total Health GDPI YoY %
1Q18 2Q18 3Q18 4Q18 1Q19
ICICI Lombard -18% 18% 29% 34% 26%
HDFC Ergo 16% >100% >100% 56% 39%
BAGIC 44% 7% 41% 63% 103%
SBI Gen 71% 46% 35% 3% 44%
Reliance Gen >100% >100% 82% 47% 45%
New India Assurance 21% 6% 26% 18% 23%
Source: Company, JM Financial
Crop insurance dynamics changing with rising competition and hardening reinsurance
commissions rates
For ICICI Lombard, growth in crop insurance premiums (10% YoY growth in FY18) has
been slower than the overall company (15% YoY growth) and the industry (19% YoY
growth) in keeping with the cautious stance adopted by the management. The business
line has become less attractive as increasing competition erodes pricing and the largest
reinsurer, GIC Re tones down commission rates and introduced EOL clauses. In FY18,
adverse loss experience in Kharif underwriting in Tamil Nadu resulted in 8% escalation in
loss ratio to 78.5% in 4QFY18 (ex-crop, loss ratio was 70.5%). For FY18, crop loss ratio
increased to 135% vs. 84.2% last year. Going forward, the company plans to cap
contribution of crop insurance at 15-20% and as such premiums growth is set to be
muted for this segment.
ICICI Lombard Market share:
7% - Retail Health;
6% - Corporate/Group Health;
1% - Government/Mass Health
New India Market share:
14% - Retail Health;
24% - Corporate/Group Health;
34% - Government/Mass Health
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 23
Crop insurance: contribution to total GDPI & retention Exhibit 66.
19%
23% 23%
7%
20% 19%
0%
5%
10%
15%
20%
25%
FY16 FY17 FY18
Crop insurance - GDPI % Crop insurance - Retention % Source: Company, JM Financial
Crop insurance: Loss ratios and Commissions ratio Exhibit 67.
140%
84%
135%
(43%)(30%) (25%)
-100%
-50%
0%
50%
100%
150%
FY16 FY17 FY18
Loss ratios Commission ratio Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 24
Conservative reserving policy
ICICI Lombard became the first Indian insurer to disclose reserving triangles. As we can
see, the insurer has faced no reserve shortages in 7 / 10 accident years indicative of its
prudent approach to reserving. A substantial share of the company’s reserves relate to
motor third-party liabilities which typically have a longer claims reporting / settlement
cycle vs. other products. Since FY17 another long-tail business, crop insurance was added
to the IBNR reserving (was 42% of total IBNR reserves on gross basis; net would be lower
due to high reinsurance). Apart from inflation, other specific factors such as medical cost
trends, wage rate development and changes in legislation and social attitudes impact
claims reporting, magnitude of court awards and thereby claims reserving.
In FY18, total reserves recorded a 35% YoY growth (vs. 44% YoY growth in FY17) led by
43% YoY growth in IBNR reserves on account of i) reserve strengthening in crop
insurance owing to adverse loss experience in Tamil Nadu (Kharif), ii) dismantled motor TP
pool reserve strengthening. Total reserve strengthening amounted to INR 710mn in FY18.
Accident year – ultimate loss development (INR bn) Exhibit 68.
AY 08 AY 09 AY 10 AY 11 AY 12 AY 13 AY 14 AY 15 AY 16 AY 17 AY 18
End of 1st year 25.23 12.85 15.13 20.66 22.53 27.97 35.96 34.16 39.13 49.49 52.41
1 year later 26.15 13.24 15.23 20.44 21.97 27.02 34.63 33.95 38.58 49.20
2 years later 26.62 13.03 15.39 20.41 21.74 26.52 34.37 33.53 38.07
3 years later 26.84 13.21 15.52 20.36 21.85 26.40 34.29 32.91
4 years later 27.28 13.35 15.55 20.47 21.83 26.46 33.85
5 years later 27.84 13.39 15.66 20.48 21.81 26.21
6 years later 27.92 13.46 15.91 20.53 21.83
7 years later 28.42 13.53 15.96 20.67
8 years later 28.58 13.50 16.02
9 years later 28.74 13.62
10 years later 28.76
10.25 years later
Deficiency/ (Redundancy) (%) 14.0% 6.0% 5.9% 0.0% -3.1% -6.3% -5.9% -3.7% -2.7% -0.6%
Source: Company, JM Financial
Among major non-life insurers, only ICICI Lombard (motor TP market share: 7%) and
Reliance General (motor TP market share: 4.4%) have disclosed accident year reserving
triangles. As is evident, during the motor TP “pooling” phase, both ICICI Lombard and
Reliance General faced significant reserves shortfall due to uncertainty of the policies
being underwritten by pool members. Since the changes in the Motor TP rules for
commercial vehicles, insurers have witnessed better reserve adequacy.
Reliance General: Accident year wise – ultimate loss development (INR bn) Exhibit 69.
AY 08 AY 09 AY 10 AY 11 AY 12 AY 13 AY 14 AY 15 AY 16 AY 17
End of 1st year 6.52 8.69 9.24 8.85 7.67 9.60 14.15 16.64 16.30 16.54
1 year later 6.53 8.97 9.50 8.85 7.29 9.02 13.64 16.18 15.98 16.28
2 years later 6.76 9.17 9.99 8.94 7.41 8.96 13.85 15.78 15.92
3 years later 7.27 9.60 10.32 9.14 7.47 9.39 13.71 15.85
4 years later 7.58 9.84 10.65 9.33 7.83 9.68 13.72
5 years later 7.78 9.99 10.89 9.64 7.93 9.70
6 years later 7.91 10.13 11.33 9.77 7.94
7 years later 7.99 10.23 11.53 9.78
8 years later 8.03 10.39 11.56
9 years later 8.11 10.41
10 years later 8.15
10.25 years later
Deficiency/ (Redundancy) (%) 25.0% 19.8% 25.1% 10.6% 3.4% 1.1% -3.1% -4.8% -2.3% -1.6%
Source: DRHP
IRDA dismantled all pooling arrangement. Market share
based formula to decide min. commercial motor
TP to underwrite
Started “Declined” Motor Pool. Higher Motor TP
prices - linked to inflation + claims experience.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 25
One of the lowest net expense ratios among private insurers
ICICI Lombard has the lowest expense ratio in the industry at 23.3% for FY18 vs. private
peers’ average of 30%. For 1QFY19, the net expense ratio was 22% vs. 24.3% last year.
This improvement is due to, a) favourable regulations: MISP guidelines capping
distribution commissions, b) higher productivity: inward migration of experienced agents
who are premium accretive from Day1 and c) continued investment into
automation/digitisation. The support of crop reinsurance commissions reduced YoY with
net crop commissions/net crop premium at 25% in FY18 vs. 30% in FY17. However, this
gap is being filled by better reinsurance rates in the group health business (net health
commissions/ net heath premiums increased to 22% in FY18 vs. 20% last year). As the
insurer focusses on better quality business within SME and select corporate/commercial
vehicle business, the expense ratio may trend upward but the loss ratios will be superior.
Moreover, as competition increases market share is shifting to insurers such as ICICI
Lombard who are service-oriented and more efficient.
The company has leveraged technology to improve its operational efficiency and has
implemented various processes including: i) migration to cloud technology platform, ii)
introducing mobile app for motor service centres to quicken claims inspection and
processing, iii) virtual risk inspections for fire and engineering policies issued to SMEs
without any intermediary, iv) telematics-based insurance for motor insurance customers
to help them obtain information on their vehicle’s performance, monitor fuel efficiency
and benefit from road travel safety features, v) mobile app for customers to facilitate self-
inspection and policy renewal, vi) investment into drone technology to inspect wind
turbine and solar photovoltaic modules in order to identify defects and improve efficiency,
and vii) automating various internal processes through the use of robotics and invested in
technologies like AI to reduce human intervention in the policy issuing process. This has
resulted in faster turnaround times with c.90% of new business applications initiated
through digital platform. Consequently, number of policies issued has increased by c.20%
over FY15-18 while employee productivity (GDPI per employee per annum) has improved
from INR 8.86mn in FY15 to INR 15.3mn in FY18 at a CAGR of 20%.
Expense ratio trends Exhibit 70.
25%21%
20% 20%
22%24%
25% 23% 23% 22% 22%22%
0%
10%
20%
30%
40%
50%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: Company, JM Financial
Expense ratio - composition Exhibit 71.Segment FY15 FY16 FY17 FY18
Own Damage 25.7% 31.7% 33.0% 32.8%
Third-party 33.8% 33.5% 33.0% 27.7%
Overall Motor 29.5% 32.5% 33.0% 30.6%
Health 7.9% 6.4% 5.7% 3.8%
Personal Accident 16.8% 22.7% 23.1% 26.6%
Health and PA 9.3% 9.3% 8.9% 8.4%
Crop/Weather (25.5%) (19.8%) (12.1%) (11.7%)
Fire 1.0% (25.3%) (10.0%) 1.7%
Marine 31.2% 32.1% 34.2% 30.9%
Engineering (10.1%) (1.8%) 4.1% 23.0%
Other 43.0% 41.0% 40.3% 44.6%
Total Expense ratio 23.5% 25.5% 23.5% 23.3%
Source: Company, JM Financial
Combined ratio among the lowest in the industry
ICICI Lombard benefits from its superior risk underwriting and operating efficiency which
helps keep both loss and expense ratios in check. Its combined ratio has increased from
104.9% in FY15 to 107.1% in FY16 primarily due to the impact of adverse weather
conditions on crop insurance claims and the impact of the Chennai floods in FY16. It
however improved from 107.1% in FY16 to 104.1% in FY17 due to the improvement in
the loss experience in the motor and crop insurance portfolios. In FY18, the combined
ratio improved to 100.2% driven by focus on profitable retail segments and exiting loss
making large corporate health/mass health business. This improvement carried into
1QFY19 with combined ratio of 98.8% vs. 102.4% last year.
The recent Kerala floods are expected to have minimal impact on the combined ratio as
ICICIGI generates only 0.70% of FY18 gross premiums from the state. This is 1.57% of
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 26
the total non-life premiums for Kerala in FY18. In 1QFY19, the insurer underwrote 0.51%
of total gross premiums in Kerala. Most of the premiums are from motor, property and
health insurance (exited mass health scheme in Kerala in FY16) lines which have
historically been adequately reinsured and reserved.
Combined ratio trend Exhibit 72.
114%116%
121%
104%
105% 105%107%104%
100%98%
98% 97%
80%
90%
100%
110%
120%
130%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: Company, JM Financial
Segment-wise combined ratio Exhibit 73.
Segment FY15 FY16 FY17 FY18
Own Damage 87.4% 97.1% 97.7% 86.5%
Third-party 139.6% 131.2% 130.4% 134.9%
Overall Motor 109.6% 112.7% 112.2% 108.0%
Health 96.8% 92.5% 103.5% 81.4%
Personal Accident 96.4% 87.0% 64.5% 50.4%
Health and PA 97.1% 92.5% 99.1% 76.7%
Crop/Weather 54.5% 120.1% 72.1% 123.4%
Fire 97.0% 39.0% 58.4% 41.4%
Marine 129.9% 127.0% 120.5% 85.1%
Engineering 64.2% 69.6% 57.4% 47.0%
Other 98.3% 110.2% 102.5% 101.9%
Combined ratio 104.9% 107.1% 104.1% 100.4%
Source: Company, JM Financial
Comparison to global non-life insurance players
Combined ratios for Indian insurers seem slightly higher than developed countries' peers
due to a combination of both regulatory (allows claims reserve discounting; “cash before
cover”) and market (better discipline; higher awareness) factors.
Combined ratios for Indian insurers vs. global peers Exhibit 74.
100%
92
% 97% 1
11
%
96%
96
%
99%
104%
10
2%
103%
90%
90%
94%
95
%
11
7%
98%
94%
93%
10
0%
10
5%
94
%
88
%
92% 99%
101%
95%
0%
20%
40%
60%
80%
100%
120%
140%
ICIC
I Lo
mb
ard
Baja
j Allia
nz
HD
FC
Erg
o
Relia
nce
SB
I G
en
PIC
C P
&C
Chin
a Re
Sam
sung F
&M
Don
gbu
Hyu
nd
ai M
ar.
To
kio
Mar
ine
MS
&A
D
Som
po
Chu
bb
AIG
Tra
vel
ers
Alls
tate
Pro
gre
ssiv
e
Hart
ford
Mark
el
RSA
Adm
iral
Direct
Lin
e
Mapfr
e S
A
Zu
rich
In
s.
Alli
anz
India China/HK Korea Japan USA UK & Europe
Source: Company, JM Financial; Combined ratios for global peers taken on “as-reported” basis
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 27
Superior investment performance
In keeping with the nature of the business, majority of the investments are into fixed income
followed by equities, mutual funds and real estate. IRDAI as per the Investment Regulations,
2016 stipulates investment limits in central/state government securities, other approved
securities and housing/infra investment thereby controlling around 45-50% of the investible
funds.
Within the fixed income portfolio (83% of the total investments are into sovereign and AAA
rated securities), the company has experienced zero instance of default and only 6 ratings
downgrades in the insurer’s over 10 years of operations. Moreover, equity investments
accounted for 15% of the investments – highest share vs under 10% for peers.
Investment mix Exhibit 75.
77.1%87.9% 84.7% 81.4% 78.5% 82.3%
22.9%12.1% 15.3% 18.6% 21.5% 17.7%
0%
20%
40%
60%
80%
100%
FY13 FY14 FY15 FY16 FY17 FY18
Fixed income Others
Source: Company, JM Financial
Investment leverage to remain stable Exhibit 76.
2.1
2.4
4.0 4.0
3.7
3.23.3
3.4 3.43.6 3.6 3.5
1.50
2.00
2.50
3.00
3.50
4.00
4.50
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: Company, JM Financial
From a solvency perspective, fixed income securities are not subject to MTM through P&L
account which allows the company to take a medium to long-term view in terms of duration.
The company has a fairly balanced fixed income portfolio with 46% of funds invested in
securities with a maturity greater than 7 years.
Fixed income by maturity Exhibit 77.
16% 20% 24%12% 14% 12% 9% 10% 7%
9%
26% 24%
16% 16%12%
6% 9% 11%
47%
27%12%
26% 21%
9%
10%12%
36%
17% 11%
10%8%
5%
13% 26%
36%
26%
11% 16%
31%38% 43%
54% 50%
33%20%
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
< 1 year 1-3 years 3-7 years 7-10 years > 10 years
Source: Company, JM Financial
Fixed income by credit ratings Exhibit 78.
26% 29%45%
54%41% 44% 49%
39% 37%
68% 66%51%
40%51% 48% 42%
50%45%
5% 5% 5% 5% 8% 7% 8% 10% 17%
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Sovereign AAA AA or above AA –
Source: Company, JM Financial Strong investment performance; Higher yields bodes well for fixed income book
Historically, healthy investment performance has boosted bottom-line profitability. Using
S&P NIFTY as a benchmark, since FY04, its listed equity portfolio has generated a total
annualised return (including unrealised gains) of 29.8% vs. 17.0% for the benchmark. On
the fixed income side, yields (ex- equity, real estate) were 7.7% in FY18 vs 8.2% over the
last 5 years.
Higher rate environment bodes well for ICICI Lombard: The insurer should benefit in the
current rising interest rate environment as can be seen in Exhibit 80 where the book yield
(ex-capital gains) moves in tandem with market yields.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 28
Investment yield movement Exhibit 79.15.7%
10.1%
7.6% 8.0%9.2%
9.8%10.8%
9.8%9.2%
9.3%
7.2%5.8%
8.0%
9.7% 10.1% 10.2% 9.9% 9.3%
0%
3%
5%
8%
10%
13%
15%
18%
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
Invt yield - P/H (%) Invt yield - S/H (%)
Source: Company, JM Financial
Yield movement vs market yields Exhibit 80.
6%
7%
8%
9%
10%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Yield on total investment ex realised gains
Govt. secondary mkt yield - 5 years
Corp. AAA mkt yield - 5 years Source: CMIE, Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 29
Both profit engines firing-up
Historically, investment performance has been a key driver of PAT as combined ratios
remained meaningfully above 100% over FY12-17. RoEs averaged 10% during this period.
Now, with underwriting performance turning positive, the insurer is on track to deliver 21%
ROE by FY21E led by improvement in underwriting profitability, strong investment
performance and operating efficiency. We forecast earnings CAGR of 24% over FY18-21E
with ROE of 21% in FY21E.
Underwriting contribution to PAT turns positive Exhibit 81.
(15)
(5)
5
15
25
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Underwriting profit (loss) Investment income PBT
Source: Company, JM Financial
ROE trends Exhibit 82.
5%
(8%)
(26%)
16%
22%19%
14% 16% 17% 19% 20%21%
(30%)
(20%)
(10%)
0%
10%
20%
30%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: Company, JM Financial
Dupont Analysis Exhibit 83.
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
NEP/Avg assets 29% 30% 30% 26% 26% 26% 25%
Claims paid/Avg assets (28%) (17%) (16%) (13%) (12%) (12%) (12%)
Change in reserves/Avg assets 4% (7%) (8%) (7%) (8%) (8%) (7%)
Total claims/Avg assets (23%) (25%) (24%) (20%) (20%) (19%) (19%)
Loss ratio 81% 81% 80% 77% 76% 76% 76%
Total expenses/Avg assets (7%) (9%) (8%) (7%) (6%) (6%) (6%)
Expense ratio (on NEP) 25% 29% 25% 26% 24% 24% 24%
Underwriting profit/Avg assets (2%) (3%) (2%) (1%) (0.1%) 0.1% 0.2%
Investment income/Avg assets 7% 7% 6% 6% 5% 6% 6%
Other income/Avg assets 0% 0% (1%) (1%) (1%) (1%) (1%)
PBT/Avg assets 5% 4% 4% 4% 5% 5% 5%
Tax/Avg assets (1%) (1%) (1%) (1%) (1%) (2%) (2%)
PAT/Avg assets (ROA) 4% 3% 3% 3% 3% 4% 4%
ROE 19% 14% 16% 17% 19% 20% 21%
Source: Company, JM Financial
Negative drag from underwriting to come down driven by lower loss ratios
ICICI Lombard’s underwriting performance has improved in line with IRDA’s efforts such
as de-tariffication, dismantling pooling arrangements and shifting to annual, inflation
linked pricing for Motor TP. Loss ratios have improved from 96% in FY11 to 76.9% for
FY18 – driven by increasing retailisation of the product mix and superior risk-selection
using the company’s loss experience across product lines accumulated over last 15 years.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 30
Underwriting profit has improved significantly even as Exhibit 84.ICICIGI continues investing into retail lines
-2% -2% -2%-3%
-2% -1%
5% 6% 7% 7% 6% 6%
-4%
-2%
0%
2%
4%
6%
8%
FY13 FY14 FY15 FY16 FY17 FY18
U/W P&L / Avg assets Invt income / Avg assets
Source: Company, JM Financial
Peer trend for contribution of investment and Exhibit 85.underwriting income to total profitability
-1%
2%
0%-5%
2%6%
7%
7% 7%7%
-10%
-5%
0%
5%
10%
ICICILombard
BAGIC HDFCErgo
RelianceGen
SBIGeneral
U/W P&L / Avg assets Invt income / Avg assets
Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 31
Strong solvency to support growth
Healthy solvency margin of 205% as of Mar’18; 4-year average dividend pay-out of 26%
Currently, solvency ratio stands at 205% as of Mar’18 vs. IRDA requirement of 150%.
The company strengthened its solvency in FY17 to 210% from 182% in FY16 becoming
the first Indian non-life insurance company to raise non-convertible debentures
amounting to INR 4.85bn. This amount is available to be included as tier I capital.
Regarding dividend policy, a dip in payout ratio in FY18 signals the investment phase for
the insurer as it builds its distribution network and incurs acquisition costs to on-board
SME clients to prepare for profitable growth.
ICICIGI: Solvency ratio Exhibit 86.
155% 172%195% 182% 182% 183% 183%
27% 22%
0%
50%
100%
150%
200%
250%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Core capital Other capital
Source: Company, JM Financial
Dividend pay-out ratio Exhibit 87.
FY14 FY15 FY16 FY17 FY18
ICICI Lombard
0% 18% 32% 29% 27%
BAGIC 0% 0% 0% 0% 12%
HDFC Ergo 16% 47% 54% 33% 36%
Reliance General
0% 0% 0% 0% 0%
SBI General 0% 0% 0% 0% 0%
Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 32
Initiate with BUY and a TP of INR 1,050
We have valued ICICIGI using P/E approach. We expect ICICIGI to generate GWP CAGR of
15% over FY18-21E, with a market share of 8% in the industry and 18% amongst private
insurers (ex. standalone health). With COR of 97% by FY21E and PAT CAGR 24% over FY18-
21E, we value ICICIGI at 28x Mar’21E EPS, implying a value of c.INR 475bn and per share
value of INR 1,050. We initiate coverage on the stock with a BUY rating.
ICICIGI – valuation summary Exhibit 88.
FY17 FY18 FY19E FY20E FY21E
EPS (INR) 14.2 19.0 24.3 30.1 36.5
EPS (YoY) (%) 26% 33% 28% 24% 21%
P/E (x) 73.8 55.3 43.1 34.9 28.7
BV (INR) 97.6 113.2 132.4 156.5 185.7
BV (YoY) (%) 23% 16% 17% 18% 19%
P/BV (x) 10.8 9.3 7.9 6.7 5.7
P/BV (ex FV chg a/c) 12.7 10.8 9.0 7.5 6.2
Source: Company, JM Financial
Key risks
Any disruption in key motor vehicle relationships, bank distribution partnerships could adversely impact the motor portfolio and overall business of the company: One big broker (sourced 8.1% premiums in FY17) and one big corporate agent (sourced 5.9% premiums in FY17) make a significant contribution to gross premiums. Similarly, the
insurer has a key distribution partnership with ICICI Bank (7% of gross premiums). Any
disruption or adverse change in relation to such key distribution partners could
adversely impact the company’s business.
Risks to crop insurance business: i) reduction in government support: In India, crop insurance is experiencing growth due to significant subsidies recently offered by the central and state governments, as such any reduction in support towards this program could adversely impact growth of crop insurance. ii) selection and pricing of risks: since crop insurance is a relatively new product line for the private general insurance industry, there is a limited data-set to substantiate assumptions based on which the company selects and prices risk consequently if ICICI Lombard misprices risk or is unable to select better risks then this could result in significantly higher claims. iii) Reinsurance risk: a major portion of crop reinsurance is available from GIC Re and this portfolio is unavailable for reinsurance at a suitable price from other reinsurers consequently any change in the terms of reinsurance provided by GIC Re could impact ICICI Lombard. Further, there is increased amount of credit risk in this portfolio due to concentration of reinsurance with one entity. iv) non-payment / delay in payments: a major part of the crop insurance premiums are borne by the central and state governments consequently any delay / non-
payment due to dispute or political headwinds can adversely impact the company.
If loss reserves which are based on estimates as to future claims liabilities prove inadequate, it could lead to further reserve additions and have an adverse impact on the company’s financial position.
Catastrophe risks: Any heightened incidence of catastrophic events, including natural disasters, could materially increase the company’s claim liabilities and have a material adverse effect on its business.
Reinsurance risk: Any negative development in company’s relationship with its major reinsurance partner, GIC Re can have an adverse effect on the company’s business.
Any adverse change in interest rates or adverse movements in the Indian equity markets could potentially impair the company’s investment portfolio value and have a material adverse effect on the company’s business, financial condition and results of operations.
Credit risks related to the investment portfolio may expose the company to significant losses: As of Mar’18, over 80% of the total debt portfolio was invested in sovereign and domestic AAA rated securities. As such, any negative development in the issuer’s credit rating can adversely impact the company’s results.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 33
Any change in the regulatory framework of motor insurance in India could have a
material adverse effect on the company’s business: From Apr’16, both motor pools have
been dismantled by IRDAI which put an end to loss-sharing within the segment. Any
attempt by IRDAI to again set up a third-party insurance pool may force the company to
assume some of the shared risk, which could have a material adverse effect on its
financial condition and operating results.
Changes in the regulatory environment: Any change in policies issued by the IRDAI,
including foreign investment, interest rates, liquidity, capital adequacy, investments,
marketing and selling practices may adversely impact the company.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 34
Company background
ICICI Lombard is the 4th largest non-life insurer in India (on GDPI basis as of FY18) and the
leader among private non-life insurers. The insurer commenced operations in 2002 and is
promoted by ICICI Bank, one of India’s largest private sector banks. It offers a comprehensive
and well-diversified range of products, including motor, health, crop/weather, fire, personal
accident, marine, engineering and liability insurance, through multiple distribution channels.
It currently operates in 638 of 716 districts across India.
Shareholding pattern Exhibit 89.
55.91%
9.91%
9.01%
1.59%
1.68%
21.9%
ICICI Bank
Fairfax
Warburg Pincus
Clermont Group
MOSL Asset Management
Public
Source: Company, JM Financial
Product mix Exhibit 90.
42% 44% 47% 51% 51%42% 42%
28% 26% 22% 19.7% 17.1%
15.5% 15.0%
6% 6% 7% 8.2% 7.8%
6.9% 7.4%
7.3%20.1% 19.2%
15% 14% 15% 11.2% 6.9% 6.5% 7.3%
0%
20%
40%
60%
80%
100%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Motor Health Fire Marine Eng PA Crop Others Source: Company, JM Financial
Market share Exhibit 91.
8.4
%
8.8
%
8.6
%
8.6
%
8.6
%
7.7
%
8.4
%
8.4
%
8.2
%
8.1
%
8.1
%
8.1
%
23.6
%
24.4
%
23.1
%
21.9
%
21.4
%
19.0
%
20.4
%
19.9
%
18.9
%
18.4
%
18.0
%
17.7
%
0%
5%
10%
15%
20%
25%
30%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Market share (industry) Market share (pvt.) Source: IRDA, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 35
Experienced senior management team
Management profile Exhibit 92.
Person Designation Profile
Chanda Deepak
Kochhar Chairperson
She is the Non-Executive Chairperson and Nominee Director of ICICI Bank on the Board. She has obtained a
bachelor’s degree in Arts from the University of Mumbai and a master’s degree in Management Studies from
Jamnalal Bajaj Institute of Management Studies, Mumbai. In addition, she has received an honorary doctorate
of law from Carleton University, Canada. She has been associated with ICICI Lombard since 1 Sep’08. She has
been the managing director and chief executive officer of ICICI Bank since 2009 and has experience in the
fields of corporate credit, infrastructure financing, e-commerce strategy and retail business. She is the recipient
of the Padma Bhushan Award, 2011, the third highest civilian honour awarded by the Government of India
and has been a member of the Prime Minister’s Council of Trade and Industry and High-Level Committee on
Financing Infrastructure. Currently, she is a member of the Board of Trade.
Bhargav Dasgupta Managing Director and
Chief Executive Officer
He has been serving as Managing Director and Chief Executive Officer of the company since 2009. He holds a
bachelor’s degree in Mechanical Engineering from Jadavpur University and a post graduate diploma in
Business Administration from the Indian Institute of Management, Bengaluru. He has been associated with the
ICICI Group since 1992 with stints in project finance and corporate banking, e-commerce & technology
management, international banking and life insurance. Prior to ICICI, he worked with TATA Motors.
Alok Kumar Agarwal
Executive Director and
Chief Marketing Officer,
Wholesale
He holds a bachelor’s degree in Chemical Engineering from Jadavpur University and a post graduate diploma
in Business Administration from the Indian Institute of Management, Calcutta. He has been associated with
ICICI group since 1993, spending close to 9 years within the project finance division. Previously, he worked
with Reliance Industries Ltd as an engineer from Jul’89 to Apr’91.
Sanjeev Radheyshyam
Mantri
Executive Director and
Chief Marketing Officer,
Retail
He has over 20 years of experience in the BFSI sector and joined ICICI group in 2003 with stints across
corporate banking and the SME space. He spearheaded the group’s expansion into rural markets. Prior to
joining ICICI, he has spent over 7 years with BNP Paribas, Mumbai handling diverse responsibilities in the
corporate banking space. He is a qualified CA and Cost Accountant.
Sanjay Datta Chief Underwriting,
Reinsurance & Claims
He has over 24 years of experience in general insurance and was a part of the start-up team at ICICI Lombard
in 2001.
Gopal Balachandran Chief Financial Officer &
Chief Risk Officer
He has over 15 years of experience in general insurance and joined ICICI Lombard in 2002. He is a qualified
CA, CS and CPA.
Gopalakrishnan S Chief Investment Officer He has over 16 years of experience in general insurance and joined ICICI Lombard in 2001.
JV Prasad Appointed Actuary
He holds a master’s in actuarial science from the University of Waterloo and an MBA from the Faculty of
Management Studies, Delhi University. Prior to joining ICICI Lombard in 2005, he was Manager, Structured
Finance Ratings at CRISIL.
Source: Company, JM Financial
Organisation structure Exhibit 93.
Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 36
Peer comparison
Market share – within industry Exhibit 94.
FY13 FY14 FY15 FY16 FY17 FY18
ICICI Lombard 8.6% 8.6% 7.7% 8.1% 8.4% 8.2%
BAGIC 5.6% 5.7% 6.0% 5.9% 6.0% 6.3%
HDFC Ergo 3.4% 3.6% 3.7% 3.4% 4.6% 4.8%
Reliance General 2.8% 3.0% 3.1% 2.8% 3.1% 3.4%
SBI General 1.1% 1.5% 1.8% 2.1% 2.0% 2.4%
Other private insurers 17.7% 17.7% 18.0% 17.7% 18.0% 18.4%
Standalone health 2.4% 2.8% 3.4% 4.2% 4.6% 5.5%
Total private insurers 41.7% 42.9% 43.6% 44.1% 46.7% 48.9%
Total public insurers 58.3% 57.1% 56.4% 55.9% 53.3% 45.1%
Source: IRDA, JM Financial
Market share – within private (ex-standalone) Exhibit 95.
FY13 FY14 FY15 FY16 FY17 FY18
ICICI Lombard 21.9% 21.4% 19.0% 20.4% 19.9% 18.9%
BAGIC 14.3% 14.1% 14.9% 14.7% 14.2% 14.4%
HDFC Ergo 8.8% 9.1% 9.1% 9.7% 11.5% 11.1%
Reliance General 7.2% 7.5% 7.7% 7.0% 7.3% 7.7%
SBI General 2.8% 3.7% 4.5% 5.1% 4.8% 5.4%
Source: Company, JM Financial
Product mix – by premium (FY18) Exhibit 96.
Source: Company, JM Financial
Distribution mix – by premium (FY18) Exhibit 97.
12% 20%11%
26%6%
7%8% 20%
46%8%
9% 5% 6%
34%32%
22% 21%
24%
38% 31%42% 42%
24%
0%
20%
40%
60%
80%
100%
ICICILombard
BAGIC HDFCErgo
RelianceGen
SBIGeneral
Agents BancassuranceOther corporate agents BrokersDirect Others
Source: Company, JM Financial
42% 47%
27%
50%
26%
16% 14%
13%
9%
14%
7% 7%
9%
8% 28% 8%
16% 20% 19%
34% 28%
12% 6% 8%
0%
20%
40%
60%
80%
100%
ICICI
Lombard
BAGIC HDFC
Ergo
Reliance
Gen
SBI
General
Motor Health Fire Marine Eng PA Crop Others
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 37
Loss ratio trend Exhibit 98.
77%
67%74%
85%
71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen.
FY15 FY16 FY17 FY18
Source: Company, JM Financial
Expense ratio trend Exhibit 99.
23%26%
23%
26%25%
0%
5%
10%
15%
20%
25%
30%
35%
40%
ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen.
FY15 FY16 FY17 FY18
Source: Company, JM Financial
COR trend Exhibit 100.
100%92% 97%
111%
96%
0%
20%
40%
60%
80%
100%
120%
140%
ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen.
FY15 FY16 FY17 FY18
Source: Company, JM Financial
Investment mix (FY18) Exhibit 101.
30%42%
33% 35% 29%
5%10% 10%
14%16%
16% 13%
40%
19%15%
8% 5%
2%
1%
27% 32% 34%
9%
30%
8% 3% 5% 5% 7%
0%
20%
40%
60%
80%
100%
ICIC I
Lombard
BAGIC HDFC
Ergo
Reliance
Gen.
SBI
Gen.
G-Secs Other Approv secs Bonds Equity Real Estate + Infra Others
Source: Company, JM Financial
Investment leverage (FY18) Exhibit 102.
3.4 3.2
4.6
5.8
3.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
ICIC I
Lombard
BAGIC HDFC
Ergo
Reliance
Gen.
SBI
Gen.
Investment leverage (x)
Source: Company, JM Financial
Solvency (Mar’18) Exhibit 103.
205%
276%
206%
168%
254%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
ICIC I
Lombard
BAGIC HDFC
Ergo
Reliance
Gen.
SBI
Gen.
Solvency
Source: Company, JM Financial
PAT trend (INR bn) Exhibit 104.
8.6 9.2
4.0
1.7
4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen.
FY15 FY16 FY17 FY18
Source: Company, JM Financial
RoE trend Exhibit 105.
17%
23% 22%
12%
31%
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
ICIC I Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen.
FY15 FY16 FY17 FY18
Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 38
Financial Tables (Standalone)
Policyholders’ Account (INR mn)
Y/E March FY17A FY18A FY19E FY20E FY21E
Gross premiums 1,07,252 1,23,569 1,42,190 1,63,616 1,88,221
Net written premiums 65,948 78,448 90,450 1,04,051 1,19,444
Net Earned Premiums 61,578 69,117 82,349 94,761 1,08,796
Investment income 9,958 11,268 13,140 15,696 18,557
Total revenue 71,805 80,663 95,771 1,10,743 1,27,643
Claims Incurred (net) (49,656) (53,147) (62,834) (71,903) (82,289)
Commission (net) 4,341 2,840 4,561 5,164 5,854
Operating expenses (19,820) (21,119) (24,276) (27,707) (31,593)
Total expenses (65,135) (71,426) (82,548) (94,446) (1,08,028)
Operating Profit 6,670 9,237 13,223 16,297 19,615
o.w. Underwriting Profit (3,557) (2,309) (199) 315 768
Source: Company, JM Financial
Shareholders’ Account (INR mn)
Y/E March FY17A FY18A FY19E FY20E FY21E
Operating profit/(loss) 6,670 9,237 13,223 16,297 19,615
Income from investments 3,146 4,059 4,007 4,833 5,903
Total revenue 9,837 13,378 17,312 21,212 25,599
Total expenses (1,035) (1,415) (1,750) (1,977) (2,235)
Profit / (Loss) before tax 8,801 11,962 15,562 19,235 23,364
Taxes (2,383) (3,345) (4,513) (5,578) (6,775)
Profit / (Loss) after tax 6,418 8,618 11,049 13,657 16,588
Dividends paid 1,891 2,288 2,210 2,731 3,318
Source: Company, JM Financial
Key Ratios
Y/E March FY17A FY18A FY19E FY20E FY21E
Growth (YoY) (%)
GWP growth 32.6% 15.2% 15.1% 15.1% 15.0%
NPE growth 27.6% 12.2% 19.1% 15.1% 14.8%
Total Income 36% 36% 29% 23% 21%
Operating Profits 38% 38% 43% 23% 20%
Reported PAT 27% 34% 28% 24% 21% Product Mix (%)
Motor 42% 42%
Health 16% 15%
Fire 7% 7%
Marine 3% 3%
Engineering 2% 2%
Personal Accident 3% 4%
Crop 20% 19%
Others 6% 7%
Underwriting performance (%)
Incurred claims ratio 80.6% 76.9% 76.3% 75.9% 75.6%
Net commission ratios (6.6%) (3.6%) (5.0%) (5.0%) (4.9%)
Net operating exp ratio 30.1% 26.9% 26.8% 26.6% 26.4%
Combined ratio – NEP 104.1% 100.2% 98.1% 97.5% 97.2%
Profitability (%)
ROA 3.2% 3.2% 3.5% 3.7% 3.9%
ROE 15.8% 17.5% 19.3% 20.4% 21.0%
Investment yield (%)
Yield on policyholder a/c 9.8% 9.2%
Yield on shareholders a/c 9.9% 9.3%
Capital Adequacy (%)
Solvency 210% 205%
Source: Company, JM Financial
Balance Sheet (INR mn)
Y/E March FY17A FY18A FY19E FY20E FY21E
Equity Capital 4,512 4,539 4,539 4,539 4,539
Reserves & Surplus 32,754 39,404 48,243 59,169 72,439
FV change account 6,772 7,339 7,339 7,339 7,339
Shareholders’ equity 44,038 51,385 60,122 71,047 84,317
Borrowings 4,850 4,850 4,850 4,850 4,850
Current liabilities 1,49,136 1,95,112 2,24,930 2,59,216 2,98,520
- C/O (gross) 1,18,051 1,59,160 1,83,586 2,11,669 2,43,842
o.w reserve for c/ outstanding 46,360 56,997 60,061 69,528 80,647
o.w. IBNR reserves 71,691 1,02,163 1,23,524 1,42,142 1,63,195
Provisions 35,485 44,784 52,946 62,305 73,034
- Reserve for unexpired risk 35,048 44,378 52,479 61,768 72,416
Total Liabilities 1,89,471 2,44,746 2,82,726 3,26,371 3,76,404
Investments 1,50,789 1,81,927 2,21,609 2,56,882 2,97,799
Fixed assets 3,827 4,060 5,486 6,359 7,372
Deferred tax assets 872 2,114 1,200 1,391 1,613
Cash and bank balances 1,940 4,553 2,849 3,302 3,828
Advances and other assets 76,080 1,03,478 1,11,705 1,29,484 1,50,110
Total Assets 2,33,509 2,96,132 3,42,848 3,97,418 4,60,721
Source: Company, JM Financial
Dupont Analysis
Y/E March FY17A FY18A FY19E FY20E FY21E
NPE/Average assets 30.4% 26.1% 25.8% 25.6% 25.4%
Claims paid/Avg assets (16.1%) (13.1%) (12.0%) (11.8%) (11.7%)
Change in reserves/Avg assets (8.4%) (7.0%) (7.6%) (7.6%) (7.5%)
Total claims/Avg assets (24.5%) (20.1%) (19.7%) (19.4%) (19.2%)
Loss ratio (80.5%) (76.9%) (76.3%) (75.9%) (75.6%)
Total expenses/Average assets (7.7%) (6.9%) (6.2%) (6.1%) (6.0%)
Expense ratio (25.1%) (26.4%) (23.9%) (23.8%) (23.7%)
Underwriting profit/Avg assets (1.7%) (0.9%) (0.1%) 0.1% 0.2%
Investment income/Avg assets 6.5% 5.8% 5.4% 5.5% 5.7%
Other income/Avg assets (0.5%) (0.5%) (0.5%) (0.5%) (0.5%)
PBT/Avg assets 4.3% 4.4% 4.8% 5.1% 5.4%
Tax/Avg assets (1.2%) (1.3%) (1.4%) (1.5%) (1.6%)
PAT/Avg assets (ROA) 3.1% 3.1% 3.4% 3.6% 3.8%
ROE 15.8% 17.5% 19.3% 20.4% 21.0%
Source: Company, JM Financial
Valuations
Y/E March FY17A FY18A FY19E FY20E FY21E
EPS (INR) 14.2 19.0 24.3 30.1 36.5
EPS (YoY) (%) 26% 33% 28% 24% 21%
P/E (x) 61.2 46.0 35.8 29.0 24.0
BV (INR) 88 104 135 160 189
BV (YoY) (%) 23% 16% 17% 18% 19%
P/BV (x) 8.9 7.7 6.6 5.6 4.7
P/BV (ex FV chg a/c) 10.5 9.0 7.5 6.2 5.1
DPS (INR) 3.48 4.00 4.87 6.02 7.31
Div. yield (%) 0.4% 0.5% 0.6% 0.7% 0.8%
Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 39
Appendix I: Non-life insurance in India
The Indian non-life insurance sector is the 11th largest non-life insurance market in the world
and the 4th largest in Asia in terms of gross premiums (SwissRe 2017). Long-term structural
factors such as strong economic growth, rising financial savings, favourable demographic
profile, rising income, rapid urbanisation and increasing awareness should lead to healthy
growth for the industry going forward.
Non-life insurance premiums have posted a 17% CAGR over the past 17 years
Since 2002, after the insurance sector opened to private players, the non-life insurance
industry has recorded a 17% CAGR in premiums with the industry GDPI reaching INR
1.5trn in FY18. The growth story of the Indian general insurance can be divided into three
phases: a) before de-tariffing, b) after de-tariffing and establishment of the Indian Motor
Third Party Insurance Pool (IMTPIP), and c) dismantling of the motor pool.
Gross premiums trend (LHS) and growth (RHS) Exhibit 106.
0%
5%
10%
15%
20%
25%
30%
35%
0
200
400
600
800
1,000
1,200
1,400
1,600
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
GDPI (INRbn) YoY (%)
1st phase:
Growth phase
during tarif f
2nd phase: Post
de-tarif f ing and
beginning of
Motor Pool
3rd phase:
Dismantling Motor
pool and beginning
Declined R isk Pool
Source: IRDA, JM Financial
Phase 1: Before de-tariffing (2001-07): High growth phase
Over 2001-07, private players witnessed robust growth momentum and gained
significant market share (from 9% in FY03 to 33% as of FY07 on a GWP basis). During
this period, rates were regulated by tariffs for three major lines of business – Motor, Fire
and Engineering – which accounted for nearly two-thirds of the market premiums.
Further, pricing of different classifications of risk was done in an ad-hoc manner due to
lack of complete and reliable data. This resulted in cross subsidisation among different
classes of risk and also within a class with the good risks subsidising the loss making risks.
Insurance companies were generating profits on fire and engineering portfolios and cross
subsidising their marine and corporate health portfolio through these policies. During this
period, private non-life insurance companies’ premiums recorded robust growth, coming
in at an 80% CAGR, outperforming the industry CAGR of 17%. At the same time,
market share for private non-life insurers improved to 32% (on a GWP basis).
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 40
Private insurers market share (GWP) is increasing Exhibit 107.
22% 21% 20% 22% 22% 22% 23% 24% 25%
14% 15% 17% 18% 18% 18% 18% 18% 18%
56% 55% 54% 52% 51% 52% 50% 47% 45%
6% 6% 6% 6% 6% 5% 5% 6% 6%
3% 3% 3% 2% 3% 3% 4% 5% 6%
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Private- top 5 Other private insurers Standalone HealthPublic Speciali sed insurers
Source: IRDA, JM Financial; Private Top 5 include ICICI Lombard, BAGIC, HDFC ERGO, Reliance General and SBI General
Industry-wise premium mix Exhibit 108.
17% 17% 16% 15% 17% 16% 14%27% 24%
23% 26% 25% 24% 25% 27% 29%
24% 28%
42% 41% 44% 46% 44% 44% 45%39% 39%
11% 10% 10% 10% 10% 10% 9% 7% 7%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Fire Marine Motor Health & PA Others
Source: Company, JM Financial; Others includes crop insurance
Phase 2: Consolidation in growth after de-tariffing and establishment of the Indian Motor
Third Party Insurance Pool (IMTPIP) (FY08-11)
While the tariff regime helped non-life insurers improve their growth and gain market
share, the industry was facing challenges related to pricing flexibility, product innovation
and lack of private players’ participation in commercial third party motor policies due to
adverse claims histories. IRDA, in 2007, decided to de-tariff most of the policies, except
the motor third-party pool. There was a significant correction in the prices of Fire,
Engineering and Motor products as insurers dropped their prices in order to gain market
share. The prices dropped by as much as 50% as the IRDA intervened and capped
maximum discounts at 51.25% in Sep’07. After the regulatory changes to tariffs, the
industry experienced structural changes as companies realigned their business models in
response to the regulatory changes.
The second major development was the introduction of the IMTPIP (India Motor Third
Party Insurance Pool) for commercial vehicles in Apr’07. This was done to induce private
insurers to underwrite commercial TP policies as losses will be shared amongst the pool
based on market share, and not on the basis of actually business underwritten. The
introduction of IMTPIP led to increase in combined ratios as the presence of the IMTPIP
encouraged insurers to settle claims without implementing adequate controls.
During this period, gross premiums posted a CAGR of 15.7% over FY07-11 while private
insurers’ market increased to 39% (on GWP basis) in FY11.
Mix of motor TP policies - Private Exhibit 109.
80%
64% 60% 62% 63%56%
63% 60% 59% 57% 55%
20%
36% 40% 38% 37%44%
37% 40% 41% 43% 45%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Motor OD Motor TP Source: GIC, JM Financial
Mix of motor TP policies - Public Exhibit 110.
65%
50% 48% 49% 50%44%
54% 51% 48% 46% 42%
35%
50% 52% 51% 50%56%
46% 49% 52% 54% 58%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Motor OD Motor TP Source: GIC, JM Financial
Phase 3: Improvement in growth led by relaxation in regulatory norms (FY12 onwards)
This was the most encouraging phase for the non-life insurance industry with some
relaxation in regulations norms and introduction of some new schemes like crop
insurance scheme that positively impacted the growth in this industry:
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 41
i) IRDA decided to index any future increase in Motor TP insurance premium to reduce
mounting pool losses for the industry. While third party motor insurance tariffs continued
to be regulated, the IRDAI began reviewing and revising the tariffs on an annual basis
from 2011 as against the earlier practice of revising tariffs once every five years.
ii) IRDA replaced IMTPIP with new Indian Motor Third Party Declined Risk Insurance Pool
(IMTPDRIP) which provided the option to insurers to transfer policies that they had
underwritten to the Declined Risk Pool (DRP), which were not as per the insurers’
underwriting guidelines. The dismantling of the IMTPIP resulted led to the improvement in
combined ratios for the industry. Effective Apr’16, IRDA dismantled all motor pooling
arrangements. Instead a formula will be used to calculate the minimum motor TP business
non-life insurance companies need to underwrite in any given year. This will be
proportional to their industry and motor market share.
iii) This period also saw the introduction of Insurance Laws (Amendment) Bill, 2015,
increasing the maximum permissible shareholding of foreign investors in Indian non-life
insurance companies from 26% of paid-up equity capital to 49%.
iii) In Jan’15, the IRDAI mandated that the lower of a company’s own risk experience or
industry-wide losses (also known as burning costs) should be factored into pricing,
starting with the property and group health insurance segments. This was done to ensure
better pricing of risk by insurers.
iv) To increase the insurance coverage of cropped area, the Indian government has
launched two major crop-related government schemes – the Pradhan Mantri Fasal Bima
Yojana (PMFBY) and the Restructured Weather Based Crop Insurance Scheme (RWBCIS).
The PMFBY, which was launched in Apr’16 replaced the older crop insurance government
schemes, subsidises yield-based crop insurance for farmers. It provides coverage of all
food crops, oilseeds, commercial and horticultural crops. It is based on tender process
covering different geographies through which insurance companies submit their premium
quotes based on their individual actuarial assumptions. While total premiums are based
on the actuarial premium estimated, farmers have to pay uniform premiums that are
determined on the basis of the type of their crop. The difference between the actuarial
premium and the premium paid by farmers is being borne equally by Central and state
governments. Claims are paid based on the yield for a group of farms, as measured by a
government authorised surveyor.
The RWBCIS subsidises weather based crop insurance for farmers. The insurance provides
an index-based cover which provides protection against variation in specified weather
indices such as rainfall, humidity, temperature or a combination of these factors.
Threshold levels are defined for the weather indices in the policy and a claim is payable
when the actual weather index breaches the predefined threshold level. The crop
insurance schemes contributed to significant growth in industry premiums in FY17
(32.4%), led by 288% increase in crop insurance premiums in FY17.
These favourable regulatory changes aided the growth of the industry. During this period
(2011-17), gross premiums increased at a CAGR of 18.1% over FY11-17 while private
insurer’s market share increased to 47% in FY17 driven by ease in regulations in existing
product lines and opening up of new channels of growth such as crop insurance.
During FY18, the industry witnessed steady premiums growth of 17.5% YoY driven by
motor TP (+24% YoY), retail health (+27% YoY) and crop insurance (+19% YoY).
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 42
Key growth drivers
Penetration ratio is amongst the lowest in the world
Despite being the second largest populous country in the world, India is the 4th largest
non-life insurance market in Asia by premium following Japan, Korea and China. The
non-life insurance penetration, after remaining stable for close to 10 years at 0.7-0.8%
until 2016, recently jumped to 0.93% in 2017 – still one of the lowest in the world. India
trails behind its Asian peers such as Korea (5.0%), Taiwan (3.4%), Japan (2.3%), China
(1.9%), and global peers like US (4.3%). India's insurance density is also very low at USD
18 compared with the US (USD 2,542), Japan (USD 901) and China (USD 159).
Non-Life Insurance penetration - India Exhibit 111.
Source: Swiss Re, IRDA, JM Financial
Non-Life Insurance penetration – global (2017) Exhibit 112.
Source: Swiss Re, IRDA, JM Financial
Insurance density (USD) - India Exhibit 113.
6 6 7
9
10 11 11 11 12
13
18
0
2
4
6
8
10
12
14
16
18
20
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Swiss Re, IRDA, JM Financial
Insurance density (USD) – global (2017) Exhibit 114.
Source: Swiss Re, IRDA, JM Financial
Cars and 2W penetration in India (per 1000) Exhibit 115.
5 6 6 7 7 8 9
10
11
12
13
15
17
17
19
38 40 45 49 54 59 62 66 72
79 86
96 109
115 127
0
20
40
60
80
100
120
140
0
5
10
15
20
25
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Cars (LHS) 2W (RHS) Source: UN data, CMIE, JM Financial; *ExxonMobil Energy outlook report 2016
Health insurance penetration Exhibit 116.
0.15% 0.16%0.17% 0.18%
0.20% 0.20%
0.0%
0.1%
0.1%
0.2%
0.2%
0.3%
FY12 FY13 FY14 FY15 FY16 FY17 Source: IRDA, CMIE, JM Financial
0.6
0%
0.6
0%
0.6
0%
0.7
0%
0.7
0%
0.7
8%
0.8
0%
0.7
0%
0.7
2%
0.7
7%
0.9
3%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
5.0
0%
4.2
8%
3.4
2%
3.3
6%
2.7
4%
2.3
6%
2.3
4%
1.8
9%
0.9
3%
0%
2%
4%
6%
SouthKorea
USA Taiwan HongKong
SouthAfrica
UK Japan China India
2,542
1,557 1,523
938 901 803
167 159 18
0
500
1,000
1,500
2,000
2,500
3,000
USA HongKong
SouthKorea
UK Japan Taiwan SouthAfrica
China India
OECD32 car penetration: 570; Less-developed nation’s car penetration: 70*
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 43
Non-life insurance market Asia (GWP, USD bn) – 2017 Exhibit 117.
204
117
73
20 17 11 7 7 5 4 2 2 1 0
50
100
150
200
250PR
Chin
a
Japan
S. K
ore
a
India
Taiw
an
HK
Singap
ore
Thaila
nd
Mala
ysia
Indones
ia
Vie
tnam
Phili
ppin
es
Sri L
anka
Source: SwissRe
Strong long-term structural growth drivers remain intact
This situation reflects the fact that India’s insurance market is still in its infancy, implying
robust growth potential. Against the backdrop of: i) strong long-term structural growth
term drivers such as high household savings, rising income levels, strong economic
growth, favourable demographic profiles and increasing urbanisation as well as ii) low
penetration for most consumer products such as cars; 2W - only 60% of cars older than 3
years are insured in India as against the global benchmark of 90% and that only around
25% of two wheelers are insured as against a global benchmark of over 90%; iii)
changes in lifestyles/aspirations; iv) stabilisation/improvement in penetration ratio which
has remained stable at 0.7-0.8% in the last decade and v) major regulatory risks a thing
of the past for the industry, India’s long-term structural non-life insurance growth story of
remains intact.
Favourable macroeconomic factors including propitious regulations have resulted in the
non-life insurance premiums recording a CAGR of 17% over the last 17 years. A rejig of
the government crop/weather insurance under Pradhan Mantri Fasal Bima Yojana allowed
the industry to report a strong 32.4% growth for FY17 and 17.5% in FY18.
Favourable demographic profile and rising urbanisation
India is leading with the highest young population across the globe - with a median age
of 28 years. 90% of the Indians are expected to be below the age of 60 by year 2020;
and 63% of the people are expected to be between the age of 15-59. The number of
individuals in the age of 25-49, which is the target population for the industry, is
increasing in India and would boost industry growth. A high share of working population,
coupled with rapid urbanisation and rising affluence, is expected to propel the Indian
non-life insurance sector growth. India has a very low urbanisation rate as compared with
Asian peers such as China, Japan and Thailand. The share of urban population rose
steadily from 28.8% in 2004 to 31.2% in 2016. The increase in urbanisation would lead
to improved financial literacy among the consumers, eventually supporting the growth of
non-life insurance industry.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 44
India’s demographic dividend Exhibit 118.
Source: CRISIL
Rising portion of financial savings Exhibit 119.
Source: CRISIL
Population growth rates Exhibit 120.
55 68
126146
206
258
3241,327
1,366
S. A
fric
a
Thai
-la
nd
Japa
n
Russ
ia
Braz
il
Indo
-ne
sia
USA
Indi
a
Chi
na
1.0%
-0.1
%
0.3%
0.2%
0.9%
1.0%
0.8%
1.3%
0.4%
Source: EIU,CRISIL, JM Financial; *Labels on top depict population CAGR 2008-18
Urbanisation rate Exhibit 121.
0.3%0.6%
1.0%1.2%
1.9%
2.4% 2.4% 2.5%
3.1%
74.1
%
94
.1%
81.8
%
86.0
%
65.3
%
56.2
%
56.2
%
54
.5%
51
.7%
Russ
ia
Japan
USA
Bra
zil
S.A
fric
a
Chin
a
India
Indones
ia
Thaila
nd
Source: EIU, CRISIL, JM Financial; *Labels on top depict urbanisation rate CAGR 2008-18
Favourable regulatory stance to support growth:
1. Health Insurance regulations in 2016 brought several positive changes to the product
line for non-life insurers including i) prohibiting life insurance companies from offering
indemnity based products, which would bring greater clarity between life-health vs. non-
life-health products. ii) Pilot products may be offered by non-life insurers and health
insurers for a policy term of at least one year, for a maximum of five years. This will allow
non-life insurers to cover risks, which have not been covered by insurers until now. iii)
Defined benefit products are allowed to offer a bonus in terms of an increase in the sum
assured based on the claims experience. iv) the concept of ‘entry-age’ pricing was
introduced, which means insurers will now be able to provide attractive pricing to lure
younger individuals into health insurance plans. v) Insurers can offer group health
insurance products for a one-year term, except in the case of credit-linked products, for
which the term can be extended up to the loan period (not exceeding five years).
Non-life and health insurers have advantages over life insurers. i) Non-life insurers are
allowed to re-price premium rates every year. Life insurers are required to fix their
premiums for three years. ii) Non-life and standalone health insurers sell indemnity-type
products that are cheaper than the defined benefit products offered by life insurers. Life
insurers have been barred from selling indemnity-type health products. iii) Non-life
insurers had a head start (going back to the 1980s) over life insurers, which started selling
health insurance in 2005. iv) life insurance companies are not permitted to engage in
coinsurance reinsurance known as original terms reinsurance), unlike non-life and
standalone health insurers.
34.7% 30.9% 27.5%
27.5%27.6%
26.0%
30.8% 33.7% 37.0%
6.9% 7.8% 9.5%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2000 2010 2020E
0-14 15-29 30-59 60+
2.5 2.53.1 3.3
4.4 4.85.8 5.7
7.7 7.56.8
7.78.7
9.611.3
0%
10%
20%
30%
40%
50%
60%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Financial Savings (INR bn)Financial Savings as % of Total Household Savings
2016 Urban population (% of total)* 2016 Population (mn)*
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 45
Health premium growth Exhibit 122.
Source: Company, JM Financial
Health gross incurred claims ratio Exhibit 123.
Source: GIC, JM Financial
2. Introduction of formula based writing for third-party auto insurance: IRDAI in Apr’16,
removed any kind of pooling arrangement for commercial motor TP with the onus of
writing motor TP business shifting to individual companies based on a formula that takes
into account their market shares both within the industry and within motor lines. Lack of
visibility of risk within motor TP and especially within commercial motor TP resulting from
a pooled arrangement was a major downside risk for the underwriting performance of
the sector. Going forward, company level underwriting along with healthy growth in
motor TP tariffs (CAGR of 1% to 22% across various lines) augurs well for the
underwriting health of the industry.
3. The passage of the Motor Vehicles (Amendment) Bill, a legislation which is currently
pending in Rajya Sabha is expected to improve profitability of the motor segment in the
long term for the following reasons i) 6-month timeline to file claims, ii) In case of non-
receipt of premium insurers can take measures to protect the corresponding claim liability
of the company, and iii) higher penalties for violations.
Motor premium growth Exhibit 124.
(10%)0%
10%20%30%40%50%60%70%80%90%
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Private Public
post de-tariffngand beginning of motor pool
Dismantling motor pool and beginning declined risk pool
Source: IRDA
Motor Premium CAGR FY06-18 Exhibit 125.
23%19%
25%
46%
74%
0%
10%
20%
30%
40%
50%
60%
70%
80%
ICIC
I Lom
BA
GIC
HD
FC E
rgo
Rel
Gen
SBI G
en
Source: Company, JM Financial, *SBI Gen premium is from CAGR 2012-17
Motor TP tariff table Exhibit 126.
Motor TP Premium (in INR) FY07-11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 CAGR
12-19
Private Cars
less than 1,000cc 670 740 784 941 1,129 1,468 2,055 2,055 1,850 14%
Exceeding 1,000cc and not exceeding 1,500c 800 880 925 1,110 1,332 1,598 2,237 2,863 2,863 18%
Exceeding 1,500cc 2,500 2,750 2,853 3,424 4,109 4,931 6,164 7,890 7,890 16%
Goods carrying vehicle public carriers A1
Not exceeding 7,500kg 5,580 9,400 10,902 13,082 14,390 14,390 14,390 14,390 14,390 6%
Exceeding 7,500 kg but not exceeding 12,000kg 5,920 9,970 11,640 13,968 15,365 15,365 15,365 19,667 24,190 13%
Exceeding 12,000kgs but not exceeding 20,000 kg 6,090 10,260 12,394 14,873 16,360 19,632 22,577 28,899 32,367 18%
Exceeding 20,000kg but not exceeding 40,000 kg 6,260 10,550 12,478 14,974 16,471 19,766 24,708 31,626 39,849 21%
Exceeding 40,000 kgs 6,770 11,410 12,529 15,035 16,539 19,846 25,800 33,024 38,308 19%
Goods carrying vehicle private carriers A2
(20%)
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Private Public Standalone
20%
40%
60%
80%
100%
120%
140%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Private Public Standalone
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 46
Not exceeding 7,500 kg 5,000 8,420 9,818 9,690 8,721 8,721 7,849 7,938 7,144 -2%
Exceeding 7,500 kg but not exceeding 12,000 kg 5,300 8,930 11,344 11,197 10,077 8,868 11,528 14,330 15,620 8%
Exceeding 12,000kgs but not exceeding 20,000 kg 5,440 9,170 10,100 9,969 8,972 8,972 9,390 9,871 9,871 1%
Exceeding 20,000 kg but not exceeding 40,000 kg 5,610 9,450 11,621 11,470 10,323 11,149 12,821 14,805 15,397 7%
Exceeding 40,000 kgs 6,050 10,190 13,020 12,851 11,566 13,879 16,655 21,318 21,318 11%
Two Wheelers
Not exceeding 75cc 300 330 350 414 455 519 569 569 427 4%
Exceeding 75 cc but not exceeding 150 cc 300 330 357 422 464 538 619 720 720 12%
Exceeding 150cc but not exceeding 350 cc 300 330 355 420 462 554 693 887 985 17%
Exceeding 350cc 620 680 680 804 884 884 796 1,019 2,323 19%
Source: IRDA
Alongside baptising new channels of distribution such as micro agents, web aggregators,
insurance marketing firms, POS, to increase insurance penetration in the country, IRDA in
2016 has increased the maximum remuneration payable to intermediary from 15% to 16.5%
for certain segments such as Fire-retail, Marine cargo to improve the renewal rate. The
commission rate for comprehensive auto insurance policies rate was increased from 10% to
15% and also introduced commissions in third-party motor insurance policies at 2.5% of the
annual premium. Additionally, the regulator introduced a new “rewards-based” payment to
align incentives for the channel partners and boost the distribution network. Moreover, in
2017 the IRDA passed the MISP regulations which cap dealer commissions at 22.5% for 2Ws
and 19.5% for four-wheelers and SUVs from the earlier 25-30%.
Commission table Exhibit 127.
2004 2008 2016
Health Insurance (General and Standalone)
Agent Direct brokers Agent Brokerage Agent / Intermediary
Health - Individual* Upto 15% Upto 17.5% 15% 17.5% 15%
Health - Group (Employer-Employee only) - Annual Upto 15% Upto 17.5% 15% 17.5% 7.50%
Health - Group (Non Employer-Employee groups) -
Annual Upto 15% Upto 17.5% 15% 17.5% 15%
Health - Group (credit linked upto 5 years) Upto 15% Upto 17.5% 15% 17.5% 15%
Health - Govt Scheme
Govt. decided
General Insurance (other than motor)
Paid up Capital Agent Direct brokers Agent Brokerage Agent
Other
intermediary
Fire-Retail Individuals 10% 12.5% 10% 12.5% 15% 16.5%
Fire-Corporate (Risks with S.I. < INR 25bn) P/u capital <INR30mn Upto 10% Upto 12.5% 10% 12.5% 10% 11.5%
Fire-Corporate (Risks with S.I. > INR 25bn) P/u capital >INR30mn;
<INR250mn Upto 6.25% Upto 7.5% 5% 6.3% 5% 6.3%
Marine-Cargo P/u capital >INR250mn Upto 5% Upto 6.25% 15% 17.5% 15% 16.5%
Marine-Hull
10% 12.5% 10% 11.5%
Miscellaneous – Retail Upto 15% Upto 17.5% 15% 17.5% 15% 16.5%
Miscellaneous – Corporate/ Group Upto 10% Upto 10% 10% 10% 10% 12.5%
Miscellaneous – Corporate (Eng Risks with S.I. > INR
25bn) Upto 10% Upto 10% 5% 6.25% 5% 6.25%
Motor Insurance
Agent Direct brokers Agent Brokerage Agent / Intermediary
Motor (Comprehensive)* Upto 10% Upto 10% 10% 10% 15%
Motor (Stand-alone TP) Upto 10% Upto 10% Nil Nil 2.50%
Source: IRDA, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 47
In 2016, the IRDA revised the factor loadings assigned to the various products lines thus
freeing up capital to underwrite more business. For the retail segments - Motor and
Health - factor decreased from 0.85 to 0.75 from 2000 to 2016, implying the industry’s
rising maturity level.
Solvency factors prescribed by the IRDA Exhibit 128.
2000 2016
Line of Business
Factor A
(applied to premiums)
Factor B
(applied to
claims)
Factor A
(applied to premiums)
Factor B
(applied to
claims)
Fire 0.50 0.50 0.50 0.50
Marine Cargo 0.70 0.70 0.60 0.60
Marine Hull 0.50 0.50 0.50 0.50
Motor 0.85 0.85 0.75 0.75
Engineering 0.50 0.50 0.50 0.50
Aviation 0.90 0.90 0.50 0.50
Liability 0.85 0.85 0.75 0.75
Rural insurance 0.50 0.50 − −
Others 0.70 0.70 0.70 0.70
Health 0.85 0.85 0.75 0.75
Crop insurance − − 0.50 0.50
Source: IRDA, JM Financial
Market structure – private players gaining market share
India’s non-life insurance sector comprises 30 public and private sector companies. The
four Public sector insurers – New India, National, Oriental and United have focused on top
line and market share rather than underwriting profitability. They have cut premiums,
especially in the group health insurance category where buyers have strong bargaining
power. In the last 3 years, public sector insurers have lost their market share (45% market
share in FY18 vs. 52% in FY15) most of which accrued to the private sector insurers
especially the top-5 private insurers and standalone health players. In addition, the sector
consists of mono-line insurance companies such as AIC, Star Health, Apollo Munich. Top-
5 private insurers – ICICI Lombard, BAGIC, HDFC Ergo, Reliance General and SBI General,
have been gaining market share (22% in FY15 vs. 25% in FY18) due to their niche focus.
Industry market share (by premiums) Exhibit 129.
22% 21% 20% 22% 22% 22% 23% 24% 25%
14% 15% 17% 18% 18% 18% 18% 18% 18%3% 3% 3% 2% 3% 3% 4% 5% 6%
56% 55% 54% 52% 51% 52% 50% 47% 45%
6% 6% 6% 6% 6% 5% 5% 6% 6%
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Private- top 5 Other private insurers Standalone HealthPublic Speciali sed insurers
Source: Company, JM Financial; Private Top 5 includes ICICI Lombard, BAGIC, HDFC Ergo, Reliance
General and SBI General
Number of players Exhibit 130.
4 4 4 4 4 4 4 4 4
15 15 1518 18 18 18 18 18
3 3 3
6 6 6 6 6 62 2 2
2 2 2 2 2 224 24 24
30 30 30 30 30 30
0
5
10
15
20
25
30
35
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Public Private Standalone Health Speciali sed Public
Source: Company, JM Financial
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 48
Product mix shifting to retail and crop insurance: Since 2007, product the non-life
insurance industry’s product mix has been dominated by retail products including Motor
and Health and their proportion has broadly remained stable at 60-65%. The share of
corporate products such as Marine and Fire declined from 16% in FY10 to 9% in FY18
due to the increase in competitive scenario. Recently, rejig of the government crop
insurance scheme under PMFBY has allowed the industry to report a healthy 32.4%
growth for FY17 while the proportion of the crop insurance segment has increased to
20% (vs. 12% in FY07). In FY18 however, share of crop insurance stood at 17%.
Industry product mix by premium Exhibit 131.
11% 10% 10% 10% 10% 10% 9% 7% 7%
6% 6% 5% 5% 4% 4% 3% 2% 2%
42% 41% 44% 46%44% 44% 45%
39% 39%
23% 26% 25% 24%25% 27% 29%
24% 28%
17% 17% 16% 15% 17% 16% 14%
27% 24%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Fire Marine Motor Health & PA Others
Source: IRDA, JM Financial; Others includes crop insurance
Premium mix (segment wise)- private insurers Exhibit 132.
9% 8% 8% 8% 9% 9% 9% 8% 10%
49% 49% 52% 53% 53% 52% 53%45% 42%
23% 24% 22% 21% 24% 24% 26%
20%29%
16% 16% 15% 15% 12% 13% 9%26%
17%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Latest
Fire Marine Motor Health & PA Others
Source: IRDA, JM Financial
Premium mix (segment wise) – public insurers Exhibit 133.
12% 12% 12% 12% 10% 10% 9% 7% 9%
37% 36% 38% 40%36% 38% 38%
35%39%
24% 27% 27% 27%27% 29% 31%
28%
35%
19% 17% 17% 15% 22% 19% 18%27%
14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Latest
Fire Marine Motor Health & PA Others
Source: IRDA, JM Financial
Diversified channel mix dominated by agency and direct channel
Non-life insurers employ a multi-channel approach to sell their products, including
individual agents, bank partners, other corporate agents, brokers, direct sales and online
channels. The distribution mix has broadly remained stable over the years with agency
network and direct channel driving retail lines while brokers are more attuned towards
wholesale segment. The online channel has started gaining traction in recent years while
offering various benefits including higher cross-selling, better renewals, lower commission
rates and improved access to customer data and behaviour patterns. The standardisation
of policies – especially in Motor and Health – should aid the online distribution channel’s
growth.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 49
Industry distribution mix (premium wise) Exhibit 134.
36% 31% 36% 36% 37% 36% 35% 29%
8%9% 6% 6% 7% 7% 7%
6%
15% 20%17% 21% 22% 23% 24%
24%
31% 31%32% 29% 27% 27% 26% 31%
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Agents Bancassurance Corporate agentsBrokers Direct Others
Source: IRDA, JM Financial
Total agents (in 000s) – private vs. public Exhibit 135.
134 1
81 2
37 2
87 320
303 3
60
439
158 2
11
224
241
253 287
240
226
0
100
200
300
400
500
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Private Public
Source: Company, JM Financial
Increase in competitive pricing and CAT events has resulted in an elevated combined
ratio: While growth has remained healthy for the industry, intense competition, coupled
with several large catastrophic events such as Cyclone Phailin (2013), Uttarakhand floods
(2013), J&K floods (2014), Cyclone Hudhud (2014) and Chennai floods (2015) in recent
years has adversely impacted the profitability of non-life insurers. The impact has been
more severe for public sector insurers given their high exposure to property/government
insurance. Recent steps taken towards the public listing of these insures are expected to
benefit the industry, bringing about improved underwriting discipline, risk management,
disclosure and corporate governance. In FY17, the pressure on profitability was primarily
driven by reserve strengthening by PSUs and heightened competition in the motor
segment.
The Kerala floods in Aug’18 are expected to result in claims amounting to INR 5bn
(according to media reports) primarily for property, motor and health insurance policies.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 50
APPENDIX I
JM Financial Inst itut ional Securit ies Limited ( fo rmer l y known as JM F inanc i a l Secu r i t i e s L im i ted )
Corporate Identity Number: U67100MH2017PLC296081 Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: –Stock Broker - INZ000163434, Research Analyst – INH000000610 Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: [email protected] | www.jmfl.com Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: [email protected]
Definition of ratings
Rating Meaning
Buy Total expected returns of more than 15%. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.
Sell Price expected to move downwards by more than 10%
Research Analyst(s) Certification
The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:
All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and
No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
Important Disclosures
This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select
recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written
consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.
JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst and a Stock Broker having trading
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action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of
the investor.
JM Financial Institutional Securities renders stock broking services primarily to institutional investors and provides the research services to its institutional
clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management,
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Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or
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The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling
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The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts)
Regulations, 2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the
company(ies) covered under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the
time of publication of this report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.
While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or
developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities
may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.
ICICI Lombard 10 September 2018
JM Financial Institutional Securities Limited Page 51
The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk
of any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the
right to make modifications and alterations to this statement as they may deem fit from time to time.
This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any
transaction.
This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country
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or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform
themselves of and to observe such restrictions.
Persons who receive this report from JM Financial Singapore Pte Ltd may contact Mr. Ruchir Jhunjhunwala ([email protected]) on +65 6422 1888
in respect of any matters arising from, or in connection with, this report.
Additional disclosure only for U.S. persons: JM Financial Institutional Securities has entered into an agreement with JM Financial Securities, Inc. ("JM Financial
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