ICICI Lombard - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2018/09/ICICIGI_110918.pdfICICI Lombard General Insurance Ltd (ICICIGI or ICICI Lombard) is the 4th largest

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


INDOSTAR CAPITALFINANCE

38

39

LIFE INSURANCE SECTOR UPDATE

http://www.jmflresearch.com/JMnew/JMCRM/analystreports/pdf/Indostar%20Coverage%20Initiation.pdf

http://www.jmflresearch.com/JMnew/JMCRM/analystreports/pdf/EV%20compounding%20to%20remain%20strong-attractive%20entry_July2018.pdf

http://www.jmflresearch.com/JMnew/JMCRM/analystreports/pdf/AB%20Capital_initiation_May_2018_Final.pdf

http://www.jmflresearch.com/JMnew/JMCRM/analystreports/pdf/BandhanBankIC-May2018.pdf

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/RNLAM _IC_09Jan2018.pdf


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


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


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%


Agency Banca Direct Online Broker and others

Source: Company, JM Financial



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


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


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


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


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 (%)


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%


G-secs Other approved secs EquityBonds Real eatate Infrastructure & SocialOthers


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


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%


Core capital Other capital




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)


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%



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




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.


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%


• 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%


• 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



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%


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.



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


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


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%


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%


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.



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


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%


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*



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



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



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


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


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



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


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.



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



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


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



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


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



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



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




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%


Agency Banca Direct Online Broker and others


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


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.



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 (#)


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)


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



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.



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


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%


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



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%


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


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


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


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%




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%)


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)


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.



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%


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%


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



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



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%


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.



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


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%


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



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


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%


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



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


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


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%


< 1 year 1-3 years 3-7 years 7-10 years > 10 years


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%


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.



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 (%)


Yield movement vs market yields Exhibit 80.

6%

7%

8%

9%

10%


Yield on total investment ex realised gains

Govt. secondary mkt yield - 5 years

Corp. AAA mkt yield - 5 years Source: CMIE, Company, JM Financial



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


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


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%


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.



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%


U/W P&L / Avg assets Invt income / Avg assets


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




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%


Core capital Other capital


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%




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


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.



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.



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


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%



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



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.


Organisation structure Exhibit 93.




Peer comparison

Market share – within industry Exhibit 94.


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%


Market share – within private (ex-standalone) Exhibit 95.


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%


Product mix – by premium (FY18) Exhibit 96.


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


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



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


Expense ratio trend Exhibit 99.

23%26%

23%

26%25%

0%

5%

10%

15%

20%

25%

30%

35%

40%


FY15 FY16 FY17 FY18


COR trend Exhibit 100.

100%92% 97%

111%

96%

0%

20%

40%

60%

80%

100%

120%

140%


FY15 FY16 FY17 FY18


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


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)


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


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


FY15 FY16 FY17 FY18


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




Financial Tables (Standalone)

Policyholders’ Account (INR mn)


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


Shareholders’ Account (INR mn)


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


Key Ratios


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%


Balance Sheet (INR mn)


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


Dupont Analysis


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%


Valuations


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%




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


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).



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%


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%


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:



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).



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.


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


Insurance density (USD) – global (2017) Exhibit 114.


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*



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.



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)*



Health premium growth Exhibit 122.


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



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%




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


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%


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


Public Private Standalone Health Speciali sed Public




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%



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



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



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.



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


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


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.



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

memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary

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,

brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing

offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies)

covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from

the company(ies) mentioned in this report for rendering any of the above services.

JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or

sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other

compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to,

or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged

in, it may have potential conflict of interest at the time of publication of this report on the subject company(ies).

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

more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.

The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling

debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report.

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.



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

or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject JM Financial

Institutional Securities and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may

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

Securities"), a U.S. registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") in order to conduct certain business in the

United States in reliance on the exemption from U.S. broker-dealer registration provided by Rule 15a-6, promulgated under the U.S. Securities Exchange Act of

1934 (the "Exchange Act"), as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission ("SEC") (together "Rule 15a-6").

This research report is distributed in the United States by JM Financial Securities in compliance with Rule 15a-6, and as a "third party research report" for

purposes of FINRA Rule 2241. In compliance with Rule 15a-6(a)(3) this research report is distributed only to "major U.S. institutional investors" as defined in

Rule 15a-6 and is not intended for use by any person or entity that is not a major U.S. institutional investor. If you have received a copy of this research report

and are not a major U.S. institutional investor, you are instructed not to read, rely on, or reproduce the contents hereof, and to destroy this research or return it

to JM Financial Institutional Securities or to JM Financial Securities.

This research report is a product of JM Financial Institutional Securities, which is the employer of the research analyst(s) solely responsible for its content. The

research analyst(s) preparing this research report is/are resident outside the United States and are not associated persons or employees of any U.S. registered

broker-dealer. Therefore, the analyst(s) are not subject to supervision by a U.S. broker-dealer, or otherwise required to satisfy the regulatory licensing

requirements of FINRA and may not be subject to the Rule 2241 restrictions on communications with a subject company, public appearances and trading

securities held by a research analyst account.

JM Financial Institutional Securities only accepts orders from major U.S. institutional investors. Pursuant to its agreement with JM Financial Institutional

Securities, JM Financial Securities effects the transactions for major U.S. institutional investors. Major U.S. institutional investors may place orders with JM

Financial Institutional Securities directly, or through JM Financial Securities, in the securities discussed in this research report.

Additional disclosure only for U.K. persons: Neither JM Financial Institutional Securities nor any of its affiliates is authorised in the United Kingdom (U.K.) by the

Financial Conduct Authority. As a result, this report is for distribution only to persons who (i) have professional experience in matters relating to investments

falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii)

are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, (iii) are

outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the

Financial Services and Markets Act 2000) in connection with the matters to which this report relates may otherwise lawfully be communicated or caused to be

communicated (all such persons together being referred to as "relevant persons"). This report is directed only at relevant persons and must not be acted on or

relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and

will be engaged in only with relevant persons.

Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of

the securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities

or as a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only

under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under

applicable securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which

such offer or sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities

commission or similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits

of the securities described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you

based on your representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a

“permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under

no circumstances is the information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as

being tailored to the needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their

affiliates and authorized agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of

this research report or the information contained herein.

Documents

ICICI Lombard - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2018/09/ICICIGI_110918.pdfICICI Lombard General Insurance Ltd (ICICIGI or ICICI Lombard) is the 4th largest