ICICI Lombard General Insurance Company IPO to open on Sept 15: A sneak peak into the insurer and its financials

The Mumbai-based firm has Reliance General Insurance Company, Agriculture Insurance Company, Tata AIG General Insurance Company, Bajaj Allianz General Insurance Company, New India Insurance and National Insurance Company as its competitors.

By Aseem Thapliyal  
Friday, September 8, 2017

When Rs 5,700-crore ICICI Lombard General Insurance Company initial public offer (IPO) hits the market on September 15, it will become the first general insurer to do so.

The company was founded in 2001 and is a joint venture between two firms-ICICI Bank and Fairfax Financial Holdings. The firm is among the largest general insurance companies in India.

Also read: ICICI Lombard sets IPO price band, to raise up to Rs 5,700 crore

The Mumbai-based firm has Reliance General Insurance Company, Agriculture Insurance Company, Tata AIG General Insurance Company, Bajaj Allianz General Insurance Company, New India Insurance and National Insurance Company as its competitors.

General insurance covers insurance of property against fire, burglary, theft; personal insurance covering health, travel and accidents; and liability insurance covering legal liabilities.

Also read: Bharat Road Network IPO subscribed 70% on Day 2

This category of insurance virtually covers all forms of insurance except life. Most common forms of general insurance are motor, fire, home, marine, health, travel, accident and other miscellaneous forms of non-life insurance.

Most of the general insurance products are based on annual contracts. They normally do not cover lifetime of individuals and insured property.

The company had gross direct premium income (GDPI) of Rs 10,725 crore in fiscal 2017, according to Crisil Research. In fiscal 2017, motor insurance, crop and weather insurance and health insurance accounted for 42.3%, 20.1% and 15.5% for its GDPI, respectively. The firm primarily deals in motor, health, crop/weather, fire and engineering insurance products.

The insurer's promoter ICICI Bank is also key distribution partner for its products. The distribution agreement entered into with ICICI Bank is valid until March 31, 2019.

Premium receivableAs of March 31, 2017, the outstanding premium receivable for a period greater than three years from the central or state governments was Rs 164 crore, out of which Rs 108 crore and Rs 45 crore pertain to Bihar and Uttar Pradesh, respectively. Investment As of March 31, 2017, 81.8 per cent of the insurer's total investment assets, by carrying value, were invested in fixed income assets (including mutual funds).  Changes in prevailing interest rates (including parallel and non-parallel changes in the difference between the levels of prevailing short-term and long-term rates) could materially affect its investment returns, which in turn could have a material effect on investment income, financial condition, results of operations and prospects.

 Key Financials For 2016-17, the insurer logged operating profit of Rs 667 crore compared with Rs 481.9 crore in 2015-16. This is the highest operating profit of the insurer since 2012-13 (Rs 302.6 crore in operating profit).

The firm reported a 23 percent rise in net profit to Rs 622.1 crore in 2016-17 compared with Rs 504.0-crore profit after tax in 2015-16.

The firm's return on equity has exceeded 15.5% for each fiscal year since fiscal 2015.

Return on equity in fiscal 2017 was 16.7%, respectively.

The insurer has a solvency ratio of 2.10x as at March 31, 2017 compared to the IRDAI-prescribed control level of 1.50x, and an Indian non-life private-sector average of 1.96x.

It has paid cumulative dividends (exclusive of dividend distribution tax) of  Rs 380 crore since fiscal 2015.

Between fiscal 2015-2017, number of policies grew at a cumulative annual growth rate of 13.1%, employee productivity, measured in terms of gross direct premium income per employee, increased from Rs 1.14 crore in fiscal 2015 to Rs 1.66 crore in fiscal 2017, representing a cumulative annual growth rate of 20.7%.

The firm's combined ratio has been generally stable, improving from 104.9% in fiscal 2015 to 104.1% in fiscal 2017. During the same time period, our loss ratio improved from 81.4% to 80.6%. The combined ratio which is a measure of profitability of a non-life insurance company's underwriting business. The combined ratio is the sum of the loss ratio and the net expense ratio.

Its net expense ratio was 23.5% in fiscal 2017.

The firm paid out 18%, 32% and 30.4% of its profit after taxes in the form of dividends (including dividend distribution tax) in fiscal 2015, 2016 and 2017, respectively.

It raised Rs 485 crore through the issue of debentures in fiscal 2017, which are rated AAA (domestic credit rating) by CRISIL Ltd and ICRA Limited. The amount is available for the purpose of solvency calculations.

Shareholding ICICI BANK (62.95 percent), FAL (21.92 percent), Red Bloom investment (9.01 percent) and Tamarind Capital Pte (1.59 percent) were the top four shareholders on the date (July 14,2017) of filing draft red herring prospectus.

Industry The Indian non-life insurance sector has been regulated by the Insurance Regulatory and Development Authority of India (IRDAI). The size of the Indian non-life insurance sector was Rs 1.28 trillion on a GDPI basis as of March 31 2017.

Indian non-life insurance sector GDPI grew at a compounded annual growth rate (CAGR) of 17.4% between fiscal 2001 and fiscal 2017. According to Swiss Re, India was fifteenth largest market in the world and the fourth largest market in Asia in 2016, behind China, Japan and South Korea. India was also among the fastest growing non-life insurance markets over 2011-2016, growing at 14.5% (as per Swiss Re).

Despite its size and growth profile, India continues to be an underpenetrated market with a non-life insurance penetration of 0.77% in 2016, as compared to 1.81% in China, 1.70% in Thailand, 1.67% in Singapore and 1.62% in Malaysia and a global average of 2.81% in 2016. At US$13.2 in 2016, insurance density also remains significantly lower as compared to other developed and emerging market economies.

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