The shares of ICICI Lombard General Insurance recorded their second-steepest fall since listing on Thursday, ending 10.5 per cent lower at Rs 1,623 on the BSE after weak earnings in the first quarter of FY27 (Q1 FY27).
The stock’s steepest-ever decline was 17.7 per cent in March 2020 during the Covid-19 pandemic.
The country’s largest private sector general insurer posted a 46 per cent year-on-year (YoY) decline in net profit due to large claims and additional reserves following a Supreme Court order on compensation under the Motor Vehicles Act.
During the day, the company’s shares fell nearly 15 per cent to a 52-week low of Rs 1,544.40 on the BSE before settling 10.5 per cent lower.
The insurer lost nearly Rs 9,500 crore in market capitalisation.
During the quarter, the company’s combined ratio expanded to 107.2 per cent from 102.9 per cent. For a general insurer, a combined ratio below 100 per cent indicates underwriting profitability.
Analysts at Emkay Global said that, with a reported claims ratio of 76.4 per cent and a combined ratio of 107.2 per cent, ICICI Lombard’s underwriting performance in Q1 FY27 “was its worst since the Covid-19 Delta wave affected Q1 FY22”.
Furthermore, in the absence of a motor third-party (TP) tariff hike and amid intense competition driving pricing declines in the fire segment, the quarter was impacted by two one-off items, including additional provisioning and large claims in the fire insurance segment. In addition, the insurer’s investment income was lower than expected.
“Amid a difficult operating environment—with no motor TP tariff hike for yet another year and intensified competition in commercial lines—a couple of negative one-offs made the quarter worse,” Emkay analysts said in their report.
“ICICI Lombard remains among the best franchises in the sector, with far superior operating and financial metrics. However, we see the competitive dynamics and regulatory scenario as less favourable for profitability in the near term,” the analysts added.
The company incurred two large fire losses amounting to Rs 63 crore, which impacted its combined ratio by 1 percentage point. Separately, a Supreme Court judgment had an additional impact of 2.8 percentage points on the combined ratio. Furthermore, following the Supreme Court’s judgment recognising the economic value of homemakers while determining compensation under the Motor Vehicles Act, the insurer assessed the impact and created claim reserves of Rs 165 crore on the premium earned during the quarter.
“The Supreme Court judgment affects the entire industry and is likely to raise loss ratios significantly. However, we believe ICICI Lombard has the wherewithal to manage this and has historically navigated similar challenges through conservative reserve buffers, which have supported consistent reserve releases. A potential motor third-party tariff hike could also provide relief. Key risks: a sharp increase in the combined ratio and further growth issues,” Macquarie Research said in a report.
Sneha Podar, vice-president (research) at Motilal Oswal, said, “Looking ahead, management’s ability to improve profitability will depend on measures such as an increase in the tariff for motor TP or adjusting commission payouts in the overall motor business. This uncertainty over the company’s ability to restore margins and improve profitability has weighed on investor sentiment, leading Motilal Oswal to downgrade the stock,” she added.
In its report, Motilal Oswal said it had cut its net profit estimates for the insurer by 14 per cent and 11 per cent for FY27 and FY28, respectively, and increased its combined ratio estimates by 80 basis points and 20 basis points, respectively, considering the quarterly claims performance.
Furthermore, analysts at HDFC Securities noted that the insurer continues to witness market share erosion in most of its core businesses (motor and commercial). However, the company gained 26 basis points of market share in the group health business.
