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Buy ICICI Lombard General Insurance Company, target Rs 1,050: JM Financial

Buy ICICI Lombard General Insurance Company Ltd. at a price target of Rs 1,050.

Sep 13, 2018, 10.22 AM IST
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ICICI Lombard General Insurance Company
The current market price of ICICI Lombard General Insurance Company is Rs 898.35.
JM Financial has a buy call on ICICI Lombard General Insurance Company with a target price of Rs 1050.

The current market price of ICICI Lombard General Insurance Company is Rs 898.35.

Time period given by the brokerage is one year when ICICI Lombard General Insurance Company price can reach the defined target.

View of the brokerage on the company
Retail lines to drive growth and underwriting performance: ICICI Lombard’s retail lines share rose to 61 per cent in FY18 from under 50 per cent 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 per cent 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 per cent in FY15 to 76.9 per cent 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 per cent in FY18 (vs. the peer average of 30 per cent). 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 Rs 182bn in FY18 – c.12 per cent of total private sector AUM (incl. standalone health) - with 83 per cent 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 per cent since FY04 vs. 17 per cent for the benchmark. Moreover, its “cash-before-cover” model implies zero asset quality risks.
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