ICICI Lombard flags unsustainable fire insurance premium after Q1 profit drops

Aggressive pricing in India's fire insurance market is unlikely to last as mounting underwriting losses and weakening capital force insurers to pull back, ICICI Lombard's management said on Wednesday, arguing that long-term growth cannot be built on uneconomic pricing.

Managing director and chief executive Sanjeev Mantri of the insurer said pricing that moves too far above or below sustainable levels eventually corrects. "Anything which is superfluously way above the normal or way below will have a tendency to correct," he told analysts in a post-earnings call. Operational efficiency, rather than aggressive pricing, would determine long-term winners, Mantri added.

Chief financial officer Gopal Balachandran said insurers' ability to sustain underwriting losses was "purely a function of the extent to which they would want to continue to keep writing business growth", adding that the industry was reaching its limit.

He pointed to industry solvency falling to 1.56 times in March 2026 from about 1.75 times a year earlier, while the industry combined ratio worsened by about 500 basis points to roughly 117%. A combined ratio above 100% means claims and expenses exceed premium income.

"Some of the companies which went very aggressive, you can clearly see... they're starting to pull back," Balachandran said.

ICICI Lombard chose to cede business rather than match uneconomic pricing. Fire premiums fell 32% during the June quarter, compared with an industry decline of about 28%. Management said the gap narrowed by June, with the company's fire premium decline improving to about 18% compared with the industry's 22%, suggesting pricing discipline was beginning to return.

The strategy, however, did not prevent a weak quarter. Net profit fell 46% year-on-year to ₹403 crore in the June quarter, while the combined ratio rose to 107.2% from 102.9% a year earlier.

Two large fire claims added ₹63 crore to losses, increasing the combined ratio by one percentage point. The fire segment's loss ratio rose to 118.3% from 80.6% a year earlier.

A bigger hit came from a Supreme Court ruling that expanded compensation for homemakers' unpaid domestic work in motor accident claims. ICICI Lombard created an additional reserve of ₹165 crore, adding 2.8 percentage points to the combined ratio.

Management estimated the judgment could increase the industry's motor third-party loss ratio by 12-15% and said premium rates need urgent revision. The General Insurance Council has filed a review petition.

Analysts in their research reports broadly viewed the weak quarter as driven by exceptional events rather than a deterioration in ICICI Lombard's underlying business, saying the results were distorted by one-off provisions and claims while the insurer's core franchise remained intact.

Nuvama described the higher combined ratio as an "industry-wide threat" and said underwriting constraints in motor third-party insurance could persist, while Emkay called it "a difficult quarter with multiple negative one-offs" and said competitive dynamics and the regulatory environment are likely to weigh on profitability in the near term.

Excluding both one-off items, the company's combined ratio stood at 102.3%, largely unchanged from 102.2% a year earlier.

The core business continued to grow despite the pressure on profitability. Gross direct premium income rose 7.5%, led by 14% growth in motor insurance, where ICICI Lombard retained its market-leading 10.5% share.

Health insurance premiums increased by 24.9%, outpacing industry growth, lifting the company's market share to 4.5% from 3.5% a year earlier. Retail health premiums surged 69.5%.

The insurer's solvency ratio improved to 2.71 times, well above the regulatory requirement of 1.5 times. The board also declared an interim dividend of ₹7 per share.