ICICI Lombard: Should investors rejoice over faster Q3 premium growth or worry about the net profit decline?
Gross domestic premium income rises 13.3%, driven by retail health, while underwriting losses push net profit down 3.3%.
ICICI Lombard General Insurance Co. Ltd’s shares fell on Wednesday, despite the sharp acceleration in its gross domestic premium income (GDPI) growth rate to 13.3% in the December quarter (Q3FY26). This is the first time in FY26 that the company’s growth rate exceeded the industry’s 11.5% growth.
Nearly 70% of the incremental GDPI came from the health segment (including personal accident and travel), which increased 41%, largely due to a pickup in retail health that benefited from the removal of goods and services tax (GST). The health segment’s share in GDPI increased from 23% a year ago to 29% in Q3, whereas the motor segment’s share decreased from 50% to 48%.
Profit dips
Despite strong GDPI growth, normalized net profit (on 1/n basis) fell 3.3% year-on-year to ₹700 crore after adjusting for ₹55 crore provision towards the impact of the wage code that became effective from 21 November. 1/n basis is the accounting practice of spreading the premium equally over the years in case a policy is issued for a tenure of more than a year.
The net profit decline may be attributed to the worsening of the combined ratio, which is the sum of loss ratio (claims paid as a percentage of net premium) and expense ratio (expenses as a percentage of net premium). Q3 combined ratio was 103.5% (excluding the wage code impact) versus 102.7% a year ago, with the loss ratio rising sharply from 65.8% to 68.7% as the motor segment loss ratio deteriorated from 56% to 65% (sum of own damage and third party).
ICICI Lombard was able to mitigate the impact of a higher loss ratio by bringing down the expense ratio from 36.9% to 34.8%. This was aided by a tight leash on other operating expenses that stayed largely flat even as commission costs increased. A combined ratio of over 100% indicates that an insurance company is making an underwriting loss from the core insurance activity. ICICI Lombard’s Q3 underwriting loss increased to ₹354 crore from ₹152 crore a year ago.
To be sure, the health segment could well play a bigger role in driving GDPI growth ahead. This also means an improved health segment loss ratio, which, although elevated compared to the motor segment at 75% in Q3, dropped 600 basis points on-year. With incremental growth coming primarily from retail health, which grew by a massive 90% in Q3, the health mix is expected to continue tilting towards retail, and consequently, the loss ratio should also decline.
Currently, retail is about 35% of total health, and the rest comes from group. In its Q3 conference call, the management said the loss ratios of retail health and group health are 63% and 91%, respectively.
But nothing to worry
If the overall loss ratio declines, it would aid profit growth, too—the main reason why investors must cheer Q3 GDPI growth rather than worry about a small dip in net profit.
ICICI Lombard stock peaked in September 2024 at ₹2,302 and is currently at ₹1,885. The valuation seems more palatable now at a price-to-earnings multiple of 28 times based on a Bloomberg consensus for FY27. The valuation can be seen in the context of the expanding scope of general insurance that has become a proxy play on changing lifestyles. As more vehicles, consumer durables, and expensive mobile phones are being bought, the demand for general insurance also increases, even though it is a fiercely competitive sector.
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