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