ICICI Lombard Q3 Results: A Tale of Strong Growth and Profit Pressure
ICICI Lombard General Insurance Company reported its December quarter results for FY26, presenting investors with a mixed picture. The company's gross domestic premium income surged impressively, but this growth came alongside a decline in net profit, raising questions about the underlying performance.
Premium Growth Accelerates Beyond Industry Average
ICICI Lombard's gross domestic premium income grew by 13.3% year-on-year during the third quarter. This marks the first time in FY26 that the company's growth rate has surpassed the industry average of 11.5%. The acceleration signals a strong market position and effective business strategies.
The health insurance segment emerged as the primary growth driver. It contributed nearly 70% of the incremental premium income, recording a massive 41% increase. This surge largely stemmed from robust retail health insurance sales, which benefited from the removal of goods and services tax. The health segment's share of total premium income rose from 23% to 29%, while the motor segment's share declined from 50% to 48%.
Net Profit Declines Despite Top-Line Strength
Despite the strong premium growth, ICICI Lombard's normalized net profit fell by 3.3% to ₹700 crore. This decline occurred after adjusting for a ₹55 crore provision related to the new wage code effective from November 21. The profit drop highlights challenges in converting revenue growth into bottom-line performance.
The company's combined ratio worsened to 103.5% from 102.7% a year earlier. This ratio measures underwriting profitability, with values above 100% indicating losses. The loss ratio increased sharply from 65.8% to 68.7%, primarily due to deterioration in the motor segment. However, ICICI Lombard managed to reduce its expense ratio from 36.9% to 34.8%, partially offsetting the higher claims costs.
Underwriting Losses Widen Significantly
ICICI Lombard's underwriting loss expanded substantially during the quarter. The company reported an underwriting loss of ₹354 crore, compared to ₹152 crore in the same period last year. This increase reflects the pressure from higher claims, particularly in the motor insurance business.
The health segment shows promising signs for future improvement. Although its loss ratio remains elevated at 75%, this represents a 600 basis point improvement year-on-year. With retail health insurance growing by 90% in Q3, the company expects this segment's loss ratio to decline further as the mix shifts toward more profitable retail policies.
Management Provides Clarification on Health Segment
During the Q3 conference call, ICICI Lombard's management shared important details about the health insurance business. They revealed that retail health currently constitutes about 35% of total health premiums, with group health making up the remainder. The loss ratios differ significantly between these segments: 63% for retail health versus 91% for group health.
This disparity explains why the company remains optimistic about future profitability. As retail health continues to grow faster than group health, the overall loss ratio for the health segment should decline, potentially boosting overall profits.
Stock Performance and Valuation Context
ICICI Lombard's stock price has retreated from its September 2024 peak of ₹2,302 to around ₹1,885 currently. This decline has made valuations more reasonable, with the stock now trading at approximately 28 times estimated FY27 earnings according to Bloomberg consensus.
The general insurance sector continues to benefit from broader economic trends. Increasing purchases of vehicles, consumer durables, and expensive electronics drive demand for insurance coverage. While competition remains intense, the sector's growth prospects remain intact as lifestyles evolve and asset ownership increases.
For investors, the Q3 results present both opportunities and challenges. The strong premium growth, particularly in health insurance, demonstrates the company's ability to capture market share. However, the profit decline and widening underwriting losses highlight the need for improved claims management and cost control. The coming quarters will reveal whether ICICI Lombard can translate its top-line momentum into sustainable bottom-line growth.
