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Informist, Wednesday, Jan. 15, 2025

By Sourabh Kumar 

MUMBAI – Certain changes introduced by the Insurance Regulator and Development Authority of India in the accounting of long-term health insurance policies, in addition to a slowdown in the motor segment, are expected to drag the net profit of ICICI Lombard General Insurance Co. Ltd. down sequentially. On a yearly basis, however, the bottom line is seen rising, largely due to a steady growth in the net premium income. 

The net profit of the insurance company is expected to be in the range of INR 5.57 billion-INR 6.50 billion for the quarter ended December. The net premium income is expected to rise and is seen in the range of INR 42.12 billion-INR 49.00 billion. Sequentially, it is expected to fall.

The Insurance Regulatory and Development Authority of India had announced a change in accounting norms mandating non-life insurers to report premiums on an annual basis for all policies underwritten after Oct. 1. While non-life insurers can underwrite long-term policies, annually, premiums for only one year will be recorded, the guidelines said. Brokerage firms said new accounting norms are likely to hurt premium growth of ICICI Lombard in Oct-Dec on a quarter-on-quarter basis.

"For ICICI Lombard General Insurance, the on-year premium growth in Oct. and Nov. was below the industry average of 3% and (-)3%, respectively," Motilal Oswal Financial Services said. While the retail health segment grew in the high teens, weak motor growth and a decline in the group health segment resulted in a tepid performance."

In Jul-Sept, the general insurance company had reported net premium earned of INR 50.26 bln rupees, up 16.7% on year, and 11.6% on quarter. 

Motilal Oswal further said the change in accounting will result in a rise in expense ratio. It estimates the expense ratio to increase to 16% in Oct-Dec, up 4 basis points on quarter and 5 bps on year.

According to Motilal Oswal, the combined ratio of the insurance company is expected to rise to 104.7% as on Dec. 31, up from 104.5% a quarter ago and 103.6% a year ago. A combined ratio above 100% indicates that the company is making an underwriting loss. YES Securities (India) Ltd. too expects the underwriting loss of ICICI Lombard to widen sequentially.

Both YES Securities and Motilal Oswal expect the insurance firm's loss ratio to improve on a quarterly basis. "Loss ratio would be lower sequentially due to CAT (catastrophe) losses in Q2 (Jul-Sept) and seasonality," YES Securities said. Sharekhan, on other hand, expects the loss ratio to remain stable.

Commenting on the sector, Motilal Oswal said that though there was no change in operational efficiency of insurers, "the change in accounting for long-term health policies will result in elevated opex ratios (Operating expenditure ratio)." 

On Wednesday, shares of ICICI Lombard General Insurance ended 3.5% higher at INR 1,894.55 on the National Stock Exchange. ICICI Lombard General Insurance will announce its quarterly earnings on Friday. 

Following are the Oct-Dec earnings estimates for ICICI Lombard General Insurance based on reports from three brokerage firms in descending order by the estimate of net profit:

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Akul Nishant Akhoury

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