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September 12,2017 Stallion Asset Blog

Last week we Attended the Analyst Meet of ICICI Lombard which will be India’s First listed General Insurance company.

The trade here is similar to the Private banks as Huge Opportunity size exist plus shift in share from public sector companies to private sector companies.

These are the 7 Most Important things you Need to Know About ICICI lombard & the General Insurance Industry.


Factor #1 – Opportunity Size – Industry Growth + Shift from Government companies to Private Companies. – The Total Premiums Collected by Non-Life general Insurance companies was 1.28 Lakh Crores in 2017. The Industry is Poised to Grow at 15-20% for the foreseeable future as penetration of Insurance is very low & Premium Collection for Non-Life Player as a Percentage of GDP in India is 0.77% v/s 2.75% as global average. The Non Life Insurance has grown at 17% for last 15 years, and the trend of 15-20% growth is expected to continue for the foreseeable future. The Market Share of Public Companies has been shrinking every year and this trend is expected to continue. Private Companies got License in 2000-01, and now command almost 50% of Market Share. The Trend of market share shift is expected to gain momentum as Government companies have started to post losses and incapable to invest further.


Factor #2 –  About the Company –  Market Share & Premiums – The Company is a clear cut leader in all Segments of the General Insurance Business. Its Rank 1 across segments like motor Business with 19% Private Market Share,  Health & Accident Insurance with 15.4% Private Market share, Crop Insurance with 22%Private market Share, Fire with 16.6% Market Share. Its is also Ranked 1 in Marine with 26% Market Share.  In Financial Year 2017 it sold a whopping 1.7 Cr policies with about 10% policies online, and commands an Overall Private General Insurance market share of 18%.


Factor #3 – Growth in Premiums – 2017 was a Golden year for the General Insurance Industry as premiums grew 32%, fastest in last 15 years as the share of Crop Insurance Increased from 6% to 16% due to Pradhan Mantri Fasal Bima yogana. Ex Crop Insurance the Growth was 18% for the Industry in FY2017. ICICI Lombard premiums have historically grown 1.2-1.5x faster than Industry as the leader in the Private sector takes market share from Government Insurance companies. We believe that 15-20% growth is sustainable in ICICI Lombard for the foreseeable future.



Factor #4 – Why Customers Love ICICI Lombard – The first thing a customer looks at before buying the Insurance is how fast is the claim settlement if a liability occurs. ICICI has broken all records as far as Fastest Claim settlement goes & its well above Industry Standards. The Claims Settled within 30 days for FY2017 stands at 94.4% for ICICI Lombard, 82.2% for Bajaj Allianze, 83% For HDFC Ergo, 42% For IFFCO Tokyo, 52% for SBI General.  ICICI has created high level of trust among its policy holders, whereas the Industry has lagged clearly suggesting high management efficiency.

The Claim Settlement  is better in Healthcare where ICICI Lombard settles 99.7% claims within 30 days, whereas the Industry is lagging behind at 80-95 days.


Factor #4 Profitability – Combined Ratio – Combined Ratio is the Most Important Ratio for Understanding Profitably of a Insurance Business. Combined Ratio is basically  Expenses Incurred for selling the Policy Plus Loss on claims divided by Revenue.  A ratio below 100% (Greater than 1) indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims that it is receiving from premiums. Even if the combined ratio is above 100%, a company can potentially still make a profit, because the ratio does not include the income received from investments.
For Example if a Company received Premium of 200, the cost of selling the policy is 30 and the claim which occur are 100, the combined Ratio Would be 65%.

We believe this is the Best Way to measure the success of an Insurance company because it does not include investment income and only includes profit that is earned through efficient management.

ICICI Lombard has a Combined ratio of 104.1% in FY2017, whereas private companies on average have combined ratio of 107.1%, whereas the whole industry including public sector companies had a Combined Ratio of 121.7%. Bajaj Allianz had the best Industry Combined Ratio of 97% in FY2017.


Factor #5 -Solvency Ratio – Risk Management-  A General Insurance business is like selling out of the money options, you make money most of the time, but there will be few large losses. To cover these loses companies need to maintain Minimum Solvency Ratio 150% as  per IRDA norms for General Insurance companies, the higher the Ratio, the better is the risk managed . The Solvency Ratio of ICICI Lombard was at 210%, whereas it was 171% for HDFC, 179% for Tata AIG & 160% with IFFCO-TOKIO. ICICI Lombard has a very comfortable Solvency ratio with 30.6% of its total investment assets in government securities, 43.5% in corporate bonds, 15.7% in equities, and the remaining in other investments.

Factor #6 – Valuation – 

ICICI Lombard IPO is coming at a valuation of 30,000 Crores, i.e. at 7x Price to Book, and 47x Price to Earnings, which may look expensive at first look but this is a consumer type business which will grow at 15-20% for the foreseeable future, generate ROE’s in the range of 15-20%, is the market leader and hence we believe the valuations are justified, though there isn’t much room for listing gains. We at Stallion Asset believe that the PE ratio will keep oscillating in the range of 40-50 for next many years.


Factor #7 Conclusion- We at Stallion Asset are positive on ICICI lombard, and believe that returns be will in the range of 12-18% for next 5-10 years in this stock. This is a great issue for genuine long term investors who are looking for a leader in a sector which has a business model which has been proven globally for decades with longevity of growth.


About the IPO –

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