ICICI Lombard General Insurance Co Ltd

ICICI Lombard General Insurance (ICICIGI) is the 4th largest non-life insurer in India (on Gross Direct Premium Income (GDPI) basis as of FY19) and the leader among private non-life insurers. Promoted by ICICI Bank, one of India’s largest private sector banks, the insurer commenced operations in 2002. It offers a range of products across non-life categories, including motor, health, crop/weather, fire, personal accident, marine, engineering and liability insurance, through multiple distribution channels. It currently operates through 265 branches and 910 virtual offices across India.

Product Offerings:
Motor Insurance: Motor Insurance is the biggest product category for ILGI constituting 45% of GDPI in FY19. Under Motor Insurance, the company insures third party liabilities (i.e. injury or loss of life of a third party in the event of an accident) and own damages for private cars, 2-wheelers and commercial vehicles (CVs).

Health and Personal Accident: ICICIGI is one of the country’s leading health insurers providing a range of benefit and indemnity-based policies. Under benefit-based policies, the insurer pays a fixed amount when the event occurs. Under indemnity-based policies, the insurer pays the actual expenses incurred by the insured. Most of the health policies fall under the indemnity category.

Corporate health: This segment consists of policies purchased by corporations for their employees. These policies are further categorized based on the size of the corporate. Premiums are charged differently to small, mid and large sized corporates.

Mass Health: Under this segment, the company participates in government health programs. These plans are not very rewarding and are not the focus area of the company.

Personal Accident (PA) Includes corporate and retail personal accident insurance. Health and PA formed 19% of the company’s GDPI in FY19.

Government Business Group: The company serves rural India under this category and includes various government programs such as Pradhan Mantri Bima Fasal Yojna (PMFBY) (crop insurance), RWBCIS - Restructured Weather Based Crop Insurance Scheme (weather insurance) and RSBY - Rashtriya Swasthya Bima Yojana (health insurance).

Crop insurance: The major growth driver for this segment has been the government’s focus on crop insurance through its flagship scheme PMFBY. Contributing 17% to the company’s business. The company has since started following a cautious approach due to rising competition and hardening reinsurance prices in this category.

Corporate Insurance: Corporate insurance includes fire, marine, engineering, health and liability insurance. The insurer derived 19% of its GDPI from corporate insurance in FY19.

Management Team:
Bhargav Dasgupta, aged 52, is the MD & CEO of ICICIGI. He holds a bachelor’s degree in Mechanical Engineering from Jadavpur University and a post graduate diploma in business administration from IIM Bangalore. He has experience in project finance, corporate banking, e-commerce, technology management, international banking and life insurance. Previously, he worked with ICICI Prudential Life Insurance Company as executive director.

Gopal Balachandran, aged 43, is the Chief Financial Officer and Chief Risk Officer of the company. He holds a bachelor’s degree in commerce from University of Mumbai and is an associate member of the Institute of Chartered Accountants of India. He has work experience in the field of finance and taxation, secretarial compliance and enterprise risk. Previously, he worked with ICICI Bank, prior to which he worked with N. A. Shah Associates LLP, Chartered Accountants as the assistant manager - direct tax.

Investment thesis

Low Insurance Penetration in India:
India’s non-life insurance is significantly lower at 0.93% (premium as % of GDP) against a world average of 2.80%. The reasons for low penetration are low awareness and low propensity to spend on something like insurance, which does not deliver immediate benefit. However, due to aggressive campaigning by insurance companies and online aggregators, government’s focus on different insurance schemes, deregulation of the sector, easy payment options and higher incomes have led to increased adoption of non-life insurance. With only 10% of the economic losses being insured in India, we believe that the sector will continue to grow going forward led by the structural changes like rapid urbanization, high GDP growth, favorable dynamics, rising incomes and higher loss aversion. Private insurers will grow even faster as they will keep taking market share away from public insurers.

Market Leader with a Strong Brand:
We believe that ICICIGI is a good long-term play given its strong leadership position. ICICIGI’s market share stood at 8.5% overall and 15.6% amongst private sector in FY19. The leadership position has been strengthened by its strong brand and partnerships, robust and diversified product profile, strong promoter pedigree and decent underwriting track record.

Diverse Product Portfolio with robust Distribution Network:
ICICIGI operates through 265 branches and 910 virtual offices across India. The diverse distribution has helped the company reach a diverse set of customers, including large and mid-sized corporates, SMEs, central and state governments, and individuals. With its distribution strength, the company can reach out to a diverse mix of prospective customers in urban as well as rural India.

Strong risk management framework:
The insurer, helped by its huge data, has managed its risk in an efficient manner over the past decade and a half. This data has helped the company get into profitable segments and close down or avoid loss-making segments. It also has a high-quality panel of reinsurers including GIC Re, Scor Re, Munich Re, Hannover Re, Swiss Re, Lloyds, Fm Global, and XLCatlin, which it uses to comply with the reinsurance requirements and also transfer risk to maintain product-wise retention limits on a per-risk and per-event basis.

Investment in Technology
Keeping pace with advanced solutions, ICICIGI have been leveraging IoT technology to continuously monitor the efficacy of critical fire-fighting systems in manufacturing units. ICICIGI offer advanced drone-based technology for inspection of wind turbines and solar PV modules. ICICIGI is using several AI-based solutions which are reducing costs and improving settlement times dramatically.

Increased market share across product line:
ICICIGI has been gaining market share across product lines

Risks
Market Risks: As ICICIGI derives almost all its profits from investment income, factors that affect the financial markets may impact the company’s profitability.

Regulatory Risks: Any adverse change in regulation affecting the industry as a whole or the company, may impact the company’s performance.

Catastrophic Events including natural disasters increase ICICIGI’s liabilities for claims and could have a significant adverse effect on its business and financial condition.