Capitaline

Analyst Meet / AGM 19-Oct-19

Conference Call

ICICI Lombard General Insurance Company

Maintains guidance for RoE of above 20%

ICICI Lombard General Insurance Company conducted a conference call on 18 October 2019 to discuss its financial results for the quarter ended September 2019. Bhargav Dasgupta, Managing Director & CEO and Gopal Balachandran, Chief Financial Officer of the Company addressed the call:
Highlights:

The gross direct premium income (GDPI) of the company declined 11.8% to Rs 6440 crore in H1FY2020, but excluding crop segment the GDPI increased 16.2% to Rs 6386 crore compared to the industry growth rate of 14.4%.
On a quarterly basis, the GDPI de-grew in Q2FY2020 by 16.4% over Q2FY2019. Excluding crop segment, the GDPI growth for Q2FY2020 was 14.5% over Q2FY2019 as compared to industry growth of 15.4% for the same period.
GDPI growth was primarily driven by focus on preferred segments such as Fire, Marine, Motor, Liability and Health. Consequent to the increase in minimum prescribed rates for certain occupancies under fire segments, this segment registered a robust GDPI growth of 69.5% in H1FY2020, thereby aiding the GDPI growth of property & casualty segment by 28.9% in H1FY2020 over H1FY2019.
On the Retail side of business, SME & Agency channel and Health indemnity continued to grow faster & remain areas of focus. To harness the potential of these segments, the company has been expanding distribution network so as to increase penetration in tier 3 and tier 4 cities.
Individual agents (including POS) were 41,113 end September 2019 as against 28,718 end September 2018.
The company has also entered into a bancassurance tie-up with Standard Chartered Bank in Q2FY2020.
The company continues to aim growing business by creating long-term value for all the stakeholders through focus on sustained profitability and prudent risk selection.
Combined ratio stood at 101.5% in H1FY2020 as compared to 100.1% in H1FY2019 primarily on account of long-term motor policies and losses from catastrophic events (estimated at Rs 61 crore). Combined ratio was 100.1% in H1FY2020 excluding the impact of catastrophes.
Combined ratio was 102.6% in Q2FY2020 as compared to 101.1% in Q2FY2019. Combined ratio was 100.6% in Q2FY2020, excluding the impact of catastrophes.
Investment assets increased to Rs 23999 crore end September 2019 as compared to Rs 23711 crore at end June 2019. Investment leverage (net of borrowings) was 4.09x end September 2019 as compared to 4.27x end June 2019 which was calculated post dividend.
Investment income increased to Rs 1014 crore in H1FY2020 as compared to Rs 954 crore in H1FY2019. On a quarterly basis, investment income increased to Rs 487 crore in Q2FY2020 as compared to Rs 447 crore in Q2FY2019.
Capital gains were lower at Rs 207 crore in H1FY2020 as compared to Rs 321 crore in H1FY2019, while it declined to Rs 69 crore in Q2FY2020 as compared to Rs 125 crore in Q2FY2019.
PBT grew 4.9% in H1FY2020 and 2.7% in Q2FY2020. Excluding the one off impact benefit of one off reinsurance recovery of Rs 58 crore for H1 and Q2 of the previous year, PBT grew by 12.2% in H1FY2020 and 17.9% in Q2FY2020.
The cut in the corporate tax rate as announced by the government has reduced provision for taxation by Rs 7 crore net of one time charge of Rs 84 crore on account of reversal of deferred tax assets as on 1 April 2019. Consequently, the effective tax rate was 34.0% in H1FY2020 and 33.2% in Q2FY2020.
The company expects the tax rate at around 25% ahead, while the tax saving would be partially invested back into business.
The company continues to maintain RoE guidance of above 20%.

Industry update

General Insurance Industry registered a 16.7% growth in GDPI to Rs 95533 crore in H1FY2020 from Rs 81874 crore in H1FY2019. Excluding the crop segment, this growth would be at 14.4%. The overall growth and growth excluding crop segment was 22.3% and 15.4% respectively in Q2FY2020 as compared to Q2FY2019.
The combined ratio of the Industry was 113.1% in Q1FY2020 as compared to 108.9% in Q1FY2019 based on available information from public disclosure.
Further, the overall combined ratio of the private multi-line general insurers was 107.7% in Q1FY2020 as compared to 101.8% in Q1FY2019.
The Motor Vehicles (Amendment) Act, 2019 came into effect from 9 August 2019. This Act is expected to bring a positive impact in increasing penetration in Motor Third Party segment. The imposition of heftier penalties is expected to bring discipline among the motor vehicle owners, thereby leading to lower accident incidences. For insurers, we envisage that the introduction of time limit for claim intimation may reduce claims incidence. Overall, the Act is positive both for the insurers and the insured.
The quarter witnessed significant disruption on account of widespread floods in many states. These floods have been reported to claim several lives and cause severe damage to property. The economic losses and insured losses on account of these floods are estimated to be Rs 28000 crore and Rs 2000 crore respectively. As for the company, the gross loss from these floods are estimated to be Rs 74 crore whereas the net loss (net of reinsurance) is estimated to be Rs 49 crore in this quarter.

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