We expect the premium growth to recover to ~14% CAGR (vs ~7% CAGR over FY19-22), led by an improvement in motor growth (to +12% vs 4%) with pick-up in auto sales, reducing pricing pressures and improving market share in CV segment and the continued strength in health premiums (+17%) as agency network scales up over FY23. The merged entity growth (+11% in 4Q22) has held up in April-May 2023.
RoE recovery will be gradual: FY23E loss ratio will improve ~200bp to ~73% as health claims normalise after Covid and could improve another ~100bp by FY25E as the share of health climbs up in the mix. Opex ratios improvement will be slower, given continuing investments in retail health franchise and digital, and the high cost base of Bharti AXA (adjusted for synergies). We expect a combined ratio of 101% by FY25 (vs 109% in FY22). As investments in new growth drivers start yielding gains, we expect RoEs to recover gradually to 19% by FY25E and stay on a normalisation path (>20%)
Company offers a resilient business model: After the Bharti AXA acquisition, ICICI Lombard’s (ILGI) leadership further strengthened (200bp ahead of the next player). It has among the most diversified portfolio across products and claims outcomes have been consistently ahead of the industry. ILGI’s strategy to target specific profit pools have consistently yielded superior market share in private-sector profit (~45% in FY22) vs its share in premium (~14%).We initiate with an ‘Outperform’ rating and value ILGI at 32x 24-month forward earnings (20% discount to long term mean) to arrive at our target price of Rs 1,400.