institutional equity research icici lombard...

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker‐dealer unregistered in the USA. PHILLIPCAP researchis prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a‐6 of the Securities Exchange Act of 1934 solely byRosenblatt Securities Inc, an SEC registered and FINRA‐member broker‐dealer.

ICICI Lombard (ICICIGI) Near‐term challenges outweigh long‐term opportunities INDIA | Insurance | Initiating Coverage

11 Feb 2020

ICICI Lombard (ICICIGI) is the largest private insurer in India with a market share of 8.5% in FY19. While the company has demonstrated strong underwriting, reserving, and investment‐management practices in the past, intense competition and a slowing economy will remain near‐term headwinds. We expect its combined ratio remaining at c.100% in the near term and it continuing to make underwriting losses. While the stock has run up 50%+ over one year, mainly in anticipation of benefits from recent regulatory changes, we believe that any material benefits from these are still a few years away. We initiate coverage with a Sell rating and a 12‐month target of Rs 1,200. Insurers should focus on underwriting profitability: The Indian non‐life insurance industry works on a ‘cash before cover’ model, creating sizable investable assets called ‘float’. In the past, it has made underwriting losses and generated profits solely from investment returns on this float. A high interest‐rate environment could incentivise insurers to increase float, underwriting more business even with losses, as new assets can be invested at higher yields. But this reverses as interest rates fall and reinvestment risks increase. Competition is here to stay ‐ the number of private players doubled in the last 10 years after ‘de‐tariffication’: While the entry of new players has led to a shift in market share to private players from PSU insurers, smaller and newer players were the key beneficiaries of this shift. In the last 10 years, the market share of small/new players increased by 7% vs. by +4% for top‐four players. In a race to grab market share, insurers are resorting to predatory pricing, which is hurting margins. With the long‐term motor policy and standardised health products beginning, competitive intensity is likely to remain high. As a result, ICICIGI’s combined ratio should remain c.100% in the near term. Motor insurance ‐ benefits of regulatory changes still a long way off: The motor segment contributes to nearly half of ICICIGI’s premium. While recent regulatory changes are positive for the sector, it is too early to build these in, as: (1) Lower loss incidence rates and higher investment float from long‐term policies will be offset by increase in claims, as premiums are fixed for a longer period. (2) Any benefit in the TP (third‐party) segment could be offset by OD (own damage) segment, as competitive intensity has increased. (3) Time‐limit of six months for filing claims should lower claims frequency, but as this is only applicable for policies written after September 2019, any benefits are at least two years away. A reduction in reserves will cause lower investment float, leading to lower investment income. Health segment growth could hit a roadblock: Health is the second‐largest segment for ICICIGI, contributing 21% of total GDPI (9MFY20). The company has been particularly aggressive in retail health, with the premium for the individual indemnity segment growing at 92% yoy in 9MFY20. However, recent changes in individual income tax slabs could make health insurance slightly less attractive (c.30% sale of health insurance products are in 4Q). Also, IRDA has mandated insurers to offer a standard individual health insurance product from 1st April 2020, which could trigger a pricing war in the health segment, just like it did in motor OD. Investment performance to remain subdued in a low interest environment scenario: While ICICIGI has done an excellent job in investment management, generating yields of +9% over the last six years, lower interest rates would make it difficult to sustain this performance. We model yields moderating to 8.0%/7.5% in FY21/22. Valuation: We initiate coverage with a Sell rating and target of Rs 1,200, valuing the stock at 7.4x FY21 P/B, using a two‐stage Gordon Growth Model. At a CMP of 1,380, ICICIGI is trading at 8.5x FY21 BV, with RoE of 21%.

SELL (Initiate) CMP RS 1380 TARGET RS 1200 (‐13%)

SEBI CATEGORY: LARGE CAP

COMPANY DATA O/S SHARES (MN) : 454MARKET CAP (RSBN) : 599MARKET CAP (USDBN) : 8.452 ‐ WK HI/LO (RS) : 1440 / 354LIQUIDITY 3M (USDMN) : 10.3PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Dec 19 Sep 19 Jun 19PROMOTERS : 55.9 55.9 55.9FII / NRI : 26.4 23.2 20.2FI / MF : 10.2 8.5 4.4NON PRO : 3.2 8.0 15.7PUBLIC & OTHERS : 4.4 4.4 3.9 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS ‐5.1 ‐1.8 49.4REL TO BSE ‐3.8 ‐3.2 37.1 PRICE VS. SENSEX

KEY FINANCIALS Rs bn FY20E FY21E FY22EROE (%) 21.1% 21.6% 22.1%ROA (%) 3.4% 3.6% 3.8%Net Profit 12.3 14.9 18.3% growth 17% 21% 23%EPS (Rs) 27.0 32.7 40.4BVPS (Rs) 137.5 162.9 194.9Combined Ratio 100.2% 98.6% 98.8%P/E (x) 51.3 42.4 34.4P/BV (x) 10.1 8.5 7.1

Source: Phillip Capital India Research Sujal Kumar, Research Analyst (+ 9122 6246 4114) [email protected] Manish Agarwalla, Research Analyst (+ 9122 6246 4125)[email protected]

50

80

110

140

170

200

230

260

Apr‐16 Dec‐16 Aug‐17 Apr‐18 Dec‐18

ICICI Lom BSE Sensex


ICICI LOMBARD INITIATING COVERAGE

Non‐life insurance: Underpenetrated, but highly competitive • While India’s non‐life‐insurance CAGR was a decent 18% over the last 10 years,

penetration is still low compared to the world. • The entry of new players has led to intense competition, as every insurer is

targeting the same segments – chiefly motor and health – which contribute to c.2/3rd of gross direct premium.

• Near‐term challenges: Slowing demand for automobiles, high claims ratio, and tariff pricing for motor third‐party (TP) insurance.

Non‐life insurance penetration in India is low While the non‐life insurance industry CAGR over the last decade has been a decent c.18%, penetration is still only 0.98% – up from 0.56% in FY01. This is very low in the context of global penetration at 2.8%, including in emerging economies. However, given India’s favourable demographic dividend, the sector provides long‐term opportunities for growth. Gross direct premium income (GDPI) of non‐life insurers in India reached Rs 1.69tn in FY19 – up 13% yoy. Penetration and density have increased… ...but there is still significant scope

Source: IRDA, Swiss Re, PhillipCapital India Research General insurance GDPI structure – motor and health dominate • GDPI is largely skewed towards motor (38%) and health (30%) segments,

followed by crop insurance (17%). • Private players account for 48% of GDPI, while PSUs hold 41%; standalone health

insurers/specialised insurers have 7%/5% share. Insurance is clocking double‐digit premium growth

2/3rd premium is from motor and health insurance

Source: IRDA, PhillipCapital India Research

‐

0.2

0.4

0.6

0.8

1.0

1.2

0

2

4

6

8

10

12

14

16

18

20

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Density (USD) Penetration (%, RHS)

0

500

1000

1500

2000

2500

3000

0

1

2

3

4

5

North …

Advanced

…

Advanced

…

World

PR China

Thailand

Malaysia

Emerging

…

India

Vietnam

Indo

nesia

Sri Lanka

Penetration Density (rhs)

0%

5%

10%

15%

20%

25%

30%

35%

‐

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

GDPI YoY Growth (rhs)

38%

30%

2%17%

7%6%

41%

48%

7%

By Product By Insurer

Others

Health

Motor

Marine

Fire

Public

Private

StandaloneHealth

Specialized

Crop



Insurers are making underwriting losses… Over the last decade, the industry’s combined ratio has been +100, meaning companies have been making underwriting losses. This is largely due to: (1) conservative ‘reserving’ practices while accounting for claims inflation for long‐tail risks (Motor TP), as IRDAI (Insurance Regulatory and Development Authority of India) does not allow discounting, and (2) intense competition, resulting in a price war among players with an aim to grab market share. While companies have generated profits from investment income on investment float (investment asset created due to the difference in timing between premium collection and claims paid), declining interest rate is forcing companies to focus more on underwriting.

The industry has lost money in underwriting … ...because of higher combined ratios


….due to intense competition…. The four public‐sector general insurers hold 40% market share as of FY19, but this has declined from 51% in FY13. This shift in market share to private insurers was largely due to the entry of new players, differentiated product offerings, focus on retail segments, and expansion of distribution channels. However, the gains by private players were largely fragmented (see chart below). While the market share of top‐4 private players increased by 4% to 24.7% in FY19 from 20.7% in FY13, the share of smaller players increased by a higher 7% to 35%. India: General insurance market share

Source: GIC, Company disclosures, PhillipCapital India Research Smaller players appear to have gained market share mainly because the last decade saw the entry of many new players. The number of private non‐life insurers (including standalone health insurers) doubled to 28 in 2019 from 14 in 2008. However, this influx did not result in increasing national penetration. The number of offices of private players saw a CAGR of only 8% over the last six years, and their presence has been limited to the top‐40% of districts in India since 2013.

‐25

‐20

‐15

‐10

‐5

‐2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

121%

122% 129%

121%

115%

113%

116% 120%

121%

115% 119%

0%

20%

40%

60%

80%

100%

120%

140%

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Net Incurred Claim ratio Expenses Ratio Net Comission Rate

6% 6% 6% 6% 6%6%

7%

3% 4% 4% 4% 5% 5%5%

3% 3% 3% 3% 3% 4% 5%

28% 26% 26% 26% 29% 32% 35%

8.6% 8.8% 7.9% 8.4% 8.4% 8.2% 8.5%

0%

20%

40%

60%

80%

100%

2013 2014 2015 2016 2017 2018 2019

New India United India National Oriental Bajaj Allianz HDFC ERGO Tata‐AIG Others ICICI ‐Lombard

PSU insureres have lost 9% market share post detarrifiing

Market share is captured by other Private players such as Bajaj, HDFC and TATA

Marketshare of ICICI Lombard has remaind stable

Declining interest rate is forcing companies to focus more on underwriting



Number of players in the industry Number of offices

Source: GIC, PhillipCapital India Research

Because a significant part of India’s non‐life insurance premium comes from only two segments, motor and health, every insurer is chasing the same customers, making the industry highly competitive – something that intensifies every time a new player enters. The number of new product approvals has also amplified over the last few years; a spike in FY18/19 was largely due to new products in the motor third‐party segment (liability only and long‐term policy). Number of new products/add‐ons approved by IRDA New approved products (ex add‐on) by the insurer


…with limited pricing power Given this intense competition and large number of players, non‐life insurers enjoy limited pricing power. While pricing for motor third‐party insurance is tariffed, motor own‐damage/health segment (26%/21% of non‐life GDPI) face high competition. Corporate businesses (fire and marine) are largely ceded to re‐insurers, hence their pricing largely depends on these re‐insurer’s rates. The government business (crop and health) is largely tender‐based and lumpy, which also makes it highly competitive.

Segment‐wise pricing factor Segment Contribution to GDPI Pricing factor Fire 9% Largely ceded to re‐insurance, hence pricing is dependent on the re‐insurance rate Marine 2% Largely ceded to re‐insurance, hence pricing is dependent on the re‐insurance rate Motor‐OD 14% High competition; OEMs have more bargaining power Motor‐TP 22% Tariffed‐decided by IRDA Health‐Retail 10% High competition Health‐Gov 3% Tender‐based Health‐Group 13% High competition; corporates have more bargaining power PA 3% High competition Crop 18% Tender‐based


12 13 13 15 17 17 17 17 18 1721 21

2 2 33

4 4 5 5 5 6

6 720 21 2224

27 27 28 28 29 29

33 34

0

5

10

15

20

25

30

35

40

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Private Players Standalone Health Public Specialised

1,394 1,4661,608

1,742 1,869 1,946 2,043

2,459

0%

10%

20%

30%

40%

50%

0

500

1,000

1,500

2,000

2,500

3,000

2012 2013 2014 2015 2016 2017 2018 2019

No of Office % of District Covered (rhs)

80 85 53167

29109 101

165

796

989

0

200

400

600

800

1000

1200

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

New products in Motor TP segment (Liability only and long term)

0

4

8

12

16

20

Kotak Bajaj Allianz

HDFC ERGO

Tata AIG SBI General

Future Generali

ICICI Lombard

2013 2014 2015 2016 2017 2018 2019 9M20

Among private players, Kotak General, Bajaj Allianz, HDFC Ergo, and Tata AIG have been most aggressive in terms of new product launches



ICICI Lombard: Granular focus to trim losses • ICICIGI is the largest private player in non‐life insurance, with a market share of

8.5% in FY19. • It has maintained its leadership position among private non‐life insurers across

products. • It has adopted a cautious view on tender‐based lumpy segments (such as crop

and mass health) and instead focused on its underwriting profitability. • Recent regulatory changes are expected to improve renewal rates for motor

insurance. Largest private player, but its growth lags the industry’s ICICI Lombard’s gross direct premiums were Rs 144.9bn in FY19, a 14% CAGR since FY08. After ‘de‐tariffication’ in FY08, its growth has lagged behind the industry, as new players grabbed market share (see chart below).

ICICI Lombard GDPI (Rs bn) After de‐tariff, ICICI Lombard’s growth lagged the industry’s

Source: Company, PhillipCapital India Research

Optimal product mix ICICGI offers a broad range of insurance products through a network of agents, brokers, bancassurance channels, and online platforms: • Retail group: c.62% of its premiums come from this segment, which provides

insurance to individuals and small enterprises in the health, home, motor, travel, cyber and personal accident space.

• Corporate solutions group: This contributes 33% of its premium, providing integrated solutions to corporates, small, micro and medium enterprises in fire, marine, engineering, liability and group‐health segments.

• Government Business Group (GBG): This segment provides solutions in crop, cattle and motor insurance to rural India and contributes 5% of its premium.

Product mix Market share movement across products


0%

2%

4%

6%

8%

10%

12%

‐

20,000

40,000

60,000

80,000

1,00,000

1,20,000

1,40,000

1,60,000

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

ICICI Lombard Market Share (rhs)

101 295

1,701

020040060080010001200140016001800

FY2001 FY2008 FY2019

Industry CAGR ICICIGI CAGR Industry GDPI

17%

73%

17%

14%

Tariff era Non‐Tariff era

Health

Fire

Liability

Marine

Engineering

Motor‐OD

Motor‐TP

Health

Crop Others

Retail

Wholesale

0%

2%

4%

6%

8%

10%

12%

14%

16%

2013 2014 2015 2016 2017 2018 2019 9M20

Motor ‐OD Motor ‐TP Health & PA Fire



ICICIGI has maintained its leadership among private non‐life insurers in India across motor (own‐damage and third‐party), health and personal accident, crop/weather, fire, engineering, and marine segments. It has increased its market share in motor OD to 14% as of November 2019 from 10% in FY13 (see chart above). However, it lost share in health, given its cautious approach toward mass health. It continues to remain focused on indemnity, which grew 14% yoy in FY19 to Rs 4.83bn. Focused on profitability ICICIGI has been carefully selecting its product portfolio in order to improve its underwriting profitability and hence it has adopted a cautious view on crop insurance (as tender‐based pricing and heightened competition have led to high loss ratios) and mass health (due to an adverse historical experience of loss). Going forward, the company plans to focus on more profitable sub segments such as: • Motor: Focused on the retail motor segment, with select commercial vehicle

segments such as goods carriers. • Health: Retail indemnity health products and more granular risks in the

corporate segment with a focus on small‐ and mid‐corporate segments with a premium ticket size of >Rs 50‐100mn.

• SME segment within both property and health insurance. Motor segment: Beneficiary of recent regulatory changes The motor insurance segment is ICICIGI’s most dominant one, contributing c.46% of its premiums; within this, motor OD contributed 25% and motor TP 21%. Gross direct premiums for motors grew 22% yoy in FY19 to Rs 6.4bn (motor OD‐Rs 3.4bn and motor TP‐Rs 3bn) mainly due to: (1) Premium rate hike in motor third‐party segment, (2) increased volume of policy, (3) change in product mix, and (4) enhancement in capital sum insured to Rs 1.5mn for Compulsory Personal Accident (CPA). Motor insurance premium (Rs bn) Motor portfolio breakup

Source: Company, PhillipCapital India Research Motor portfolio has shifted towards motor TP in recent years, largely due to long‐term policy as mandated by the IRDA. Within OD, ICICGI is targeting higher share of GDPI from profitable segments such as private cars and two‐wheelers, while being selective about commercial vehicles – where loss ratios could be higher. Private cars and two wheelers contributed c.84% of GDPI in 1HFY20 vs. 77% in FY13. Underwriting profitability was impacted by higher losses in TP: While motor OD has been a profitable product for insurers over the years, TP has been loss‐mainly, due to regulatory reasons such as tariff‐based price and provision for unlimited liability.

0%

5%

10%

15%

20%

25%

‐

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2013 2014 2015 2016 2017 2018 2019

Motor OD Motor TP yoy growth (rhs)

68% 65% 62% 61% 61% 58% 53%

32% 35% 38% 39% 39% 42% 47%

0%

20%

40%

60%

80%

100%

2013 2014 2015 2016 2017 2018 2019

Motor OD Motor TP

It has expanded its distribution network to increase penetration in tier‐3 and 4 cities, in order to harness the potential of these segments



Increasing exposure to profitable segments ICICIGI motor insurance underwriting profit/loss

Source: Company, PhillipCapital India Research Beneficiary of regulatory changes: Several regulatory changes have happened in motor insurance in the past few years. These have had a direct impact ICICIG’s motor‐insurance portfolio. • Long‐term third‐party insurance policy: From September 2018, long‐term third‐

party insurance was made compulsory for all new four‐wheelers and two‐wheelers. The coverage is applicable for three years for new four‐wheelers and five years for new two‐wheelers. While this will help address the under‐insurance problem, it will also change the product structure and economics of motor insurance. Although a larger insured pool is likely to result in lower loss‐incidence rates, fixed premium for a longer period could lead to higher claims ratios, as claims inflation plays through. However, any increase in claims cost is expected to be partially compensated by investment income due to a higher investment float.

As of FY18, the number of uninsured vehicles was 56%, with c.57% of insured vehicles being less‐than five years old (see chart below) % of policies written based on year of registration % of TP reported claims by lag in days for private cars

Source: IIB, PhillipCapital India Research

• Compulsory personal accident cover: The minimum sum insured under Compulsory Personal Accident cover (CPA) for owner‐driver liability was enhanced to Rs 1.5mn (from only Rs 100,000 earlier), resulting in an increase in premium. The tariff for compulsory personal accident cover was also de‐tariffed, effective 1 January 2019.

• The Motor Vehicles Act: The new Motor Vehicles (Amendment) Act, 2019 was passed by the parliament and a few of the provision and their impact are below:

48% 47% 50% 51% 50% 56%

29% 31% 32% 31% 27%30%

23% 22% 18% 18% 23%15%

0%

20%

40%

60%

80%

100%

FY15 FY16 FY17 FY18 FY19 9M20

Private Car Two Wheeler Commercial Vehicle

‐8,000

‐6,000

‐4,000

‐2,000

‐

2,000

4,000

2013 2014 2015 2016 2017 2018 2019

Motor ‐OD Motor ‐TP

0%

5%

10%

15%

20%

25%

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

Before 2000

0%

20%

40%

60%

80%

100%

120%

0‐30

31‐60

61‐90

91‐120

121‐150

151‐180

181‐210

211‐240

241‐270

271‐365

366‐396

2yr

3yr

5yr

10yr

20yr

Above 20

yr

2017 2018Only 35% of cases are reported within 6 months and 60% within 1 year

As of FY18, the number of uninsured vehicles was 56%, with c.57% of insured vehicles being less‐than five years old



Key provisions of the Motor Vehicles (Amendment) Act 2019 Key provision Impact Time‐limit of six months for filing a claim The claim petition must be filed within six months of the

date of accident. This will bring down fraudulent cases substantially.

For third‐party insurance related to either death of a person or grievous hurt, the central government shall prescribe a base premium and the liability of an insurer in relation to such premium.

Concept of third‐party liability has been linked with TP premium from being unlimited earlier. The insurance liability may reduce and for higher liability limits, the premium will also be higher, thereby improving loss ratio to an extent.

The insurance company will have to appoint an officer to settle the claims relating accident, who shall offer to the claimant the settlement. If the claimant accepts it, the decree shall be recorded to that effect.

Lower burden on courts, by avoiding unnecessary litigations; also, lower burden on insurers as it will reduce the interest burden. Will lead to shortening of the claims‐settlement cycle.

The police officer during the investigation will prepare an accident information report to facilitate the settlement of a claim in such a form and manner, within 3 months, and containing such particulars, and submit it to the Claims Tribunal.

Probability of foul play involving planting of vehicles/driver etc. will be reduced, effecting some savings for insurers.

Drunk driving curbed Will facilitate insurance companies to contest cases on the grounds of drunken driving, as a major statutory defence.

Source: PhillipCapital India Research Motor insurance claims ratio: Benefits from TP could be offset by OD We expect claims frequency to decline, as the New Motor Vehicle Act has made it mandatory to report a claim within six months vs. no time limit earlier. However, given that new regulation is applicable for policies sold after September 2019, any material reduction in reserves is still 18‐24 months away. Further, fixed premiums for a longer period could have an offsetting effect, leading to higher claims ratios as claims inflation plays through. ICICIGI’s own‐damage (OD) portfolio has performed better than its third‐party (TP) portfolio historically, largely because of its strategy to build a motor portfolio that is driven by loss‐cost‐based micro‐segmentations, resulting in a profitable business. Compared to its peers, ICICIGI has a proportionally higher TP loss ratio than OD loss ratio (see chart below), mainly because it maintains a high reserve. Competitive intensity in the motor OD segment has also increased significantly, as insurers have reduced premiums for OD policies, resulting in a higher loss ratio for this segment. Claims ratio for motor ODs has increased to 71% as of 1HFY20 (see chart below) from 54% in FY18 – as the full impact of the long‐term policy is playing through. Motor OD vs. TP loss ratio (FY19) Motor loss ratio

Source: Company disclosures, PhillipCapital India Research

BajajChola

HDFC Ergo

ICICI

Iffco Tokio

NationalOrientalNew India

RelianceTata

United INdia

40%

50%

60%

70%

80%

90%

100%

40% 60% 80% 100% 120% 140% 160%TP Loss Ratio ‐>

OD Loss Ratio ‐>

40%

50%

60%

70%

80%

90%

100%

110%

120%

FY14 FY15 FY16 FY17 FY18 FY19 9M20

Third Party Own Damage Total Motor



ICICIGI has the lowest proportion of third‐party risk in its books vs. its peers, but TATA AIG, Bajaj Allianz, and Shriram general have better loss ratio

Motor loss ratio vs. average ticket size (FY19) Motor loss ratio vs. proportion of TP (FY19)

Source: Company disclosures, PhillipCapital India Research Is premium for long‐term policy accounting for adequate claims inflation? Third‐party insurance premium is tariffed and determined by IRDAI every year. While premiums for private cars have remained relatively flat over the last three years, for higher‐segments two wheelers (>150 cc) they have seen a 17‐21% CAGR over the last five years. Annualised premium for three‐ and five‐year policy of private cars and two wheelers, as shown in the table below, are lower than one‐year premiums for these segments. We believe these long‐term premium rates are in fact accounting for negative claims inflation for private cars (<1,000 cc), two‐wheelers (less than 150 cc), and small claims inflation for private cars (1,000‐1,500cc), but average ticket size per claim for ICICIGI has seen 11% CAGR over the last three years (as of September 2019). We believe there is a key risk of higher claims inflation compared to implied inflation, so reserve requirements may not decline materially. Long‐term pricing of TP (Rs) Private Care FY16 FY17 FY18 FY19 FY20 3 Yr. CAGR FY20* 3 Years Long term Rate Long Term rate vs 1 Yr. *3 Private cars (<1000cc) 1,468 2,055 2,055 1,850 2,072 0% 6,216 5,286 ‐15% Private cars (1000‐1500cc) 1,598 2,237 3,132 2,863 3,221 4% 9,663 9,534 ‐1% Private cars (>1500cc) 4,931 6,164 8,630 7,890 7,890 0% 23,670 24,305 3%

Two‐Wheeler FY16 FY17 FY18 FY19 FY20 5 Yr. CAGR FY20*5 Years Long term Rate Long Term rate vs 1 Yr. *5 2 wheelers (<75cc) 519 569 569 427 482 ‐1% 2,410 1,045 ‐57% 2 wheelers (75‐150cc) 538 619 720 720 752 7% 3,760 3,285 ‐13% 2 wheelers (150‐300cc) 554 693 970 985 1193 17% 5,965 5,453 ‐9% 2 wheelers (>300cc) 884 796 1,114 2,323 2,323 21% 11,615 13,034 12%

Source: IRDA, PhillipCapital India Research Own damage: Intense competition exerting pressure on pricing: While premium rates for own damage policy are de‐tariffed and determined by the insurer, intense competition continues to put pressure on pricing. Players, in order to grab market share, have become more aggressive in recent months after long term TP policy was made mandatory as this is expected to result in higher renewal rates for OD policies. Our channel checks suggest that OD premiums have declined by 10‐15% over the last 6 months. OD premium/IDV ratios of few insurers is as low as 0.8% vs. 1.5% charged by ICICIGI and 1.9%/2.1% charged by Oriental/United India Insurance (see table below).

Bajaj Allianz

Chola MSHDFC Ergo

ICICI

Iffco‐TokioNew India

Oriental

Reliance

Shriram

Tata‐AIG

United India

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

2,000 4,000 6,000 8,000

Avrage Ticket Size‐>

Loss Ratio‐>

Bajaj

CholaHDFC Ergo

ICICI

Iffco‐Tokio

National

New India

Oriental

Reliance Gen

ShriramTata

United

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

40% 50% 60% 70% 80%Proportion of TP ‐>

Loss Ratio‐>



Context: Motor OD/IDV ratio for passenger cars in Maharashtra was c.1.56%/1.95% in FY17/18.

Premium for car MARUTI DZIRE VXI; 1,197cc; Mumbai; 2016 make

Insurers Mkt Share

IDV (Rs)

Comprehensive OD Premium /IDV

Total Premium /IDVOD TP NCB Discount

PA Cover + Other Liability

Other Total

Premium Magma HDI 1.5% 2,75,825 2,265 3,221 1,019 800 ‐ 5,267 0.8% 1.9% Kotak General 0.3% 2,83,475 2,324 3,221 1,046 375 ‐ 4,874 0.8% 1.7% Future Generali 1.9% 2,76,500 2,522 3,221 1,135 380 ‐ 4,988 0.9% 1.8% Shriram 3.4% 2,68,098 2,640 3,221 1,188 365 ‐ 5,038 1.0% 1.9% Edelweiss 0.1% 2,79,617 2,755 3,221 1,240 270 ‐ 5,006 1.0% 1.8% Digit 2.7% 2,96,073 3,113 3,221 1,401 380 ‐ 5,313 1.1% 1.8% Bajaj Allianz 7.8% 2,95,578 3,882 3,221 1,747 381 105 5,842 1.3% 2.0% Universal Sompo 1.0% 2,50,201 3,696 3,221 1,663 275 5,529 1.5% 2.2% SBI General 1.6% 2,83,753 4,191 3,221 1,886 375 ‐ 5,901 1.5% 2.1% Reliance General 4.9% 2,89,800 4,282 3,221 1,927 425 ‐ 6,001 1.5% 2.1% HDFC Ergo 4.8% 3,22,003 4,756 3,221 2,140 375 ‐ 6,212 1.5% 1.9% IFFICO‐TOKIO 5.0% 3,69,835 5,464 3,221 2,459 375 ‐ 6,601 1.5% 1.8% ICICI Lombard 9.9% 3,00,642 4,442 3,221 1,999 375 199 6,238 1.5% 2.1% Tata AIG 6.0% 2,88,450 4,736 3,221 2,131 500 ‐ 6,326 1.6% 2.2% Oriental 6.1% 2,82,150 5,465 3,221 2,459 370 ‐ 6,597 1.9% 2.3% United India 9.6% 2,25,720 4,816 3,221 2,167 325 ‐ 6,195 2.1% 2.7%

Source: PolicyBazar, PhillipCapital India Research

Declining auto sales volumes could impact growth Sales of private vehicles and two‐wheelers continue to remain weak. While sales had increased in Oct/Nov due to festive season, they declined in December 2019 on weak consumer sentiment. Retail auto sales fell 15% in December and commercial vehicle sales recorded the highest drop across categories, followed by two‐wheelers. Declining auto sales data is likely to result in moderate GDPI (gross direct premium) growth in the motor segment.

Auto sales volume growth Commission ratio for motor OD

Source: Company, SIAM, PhillipCapital India Research

Commission expenses inching up: Commission expenses have increased to 18% as of 1HFY20 from 6% in FY17, as players have become aggressive in capturing market share in an environment where auto sales growth has moderated. Heath: Retail indemnity products to drive growth The health‐insurance business has two types of products – benefit‐based and indemnity‐based. Benefit‐based policies are sold through ICICIGI’s banking partners and NBFCs and include lump‐sum and annuity‐based accident‐related plans. With 2016 regulations barring life insurance companies from selling indemnity‐based

(50.0)(40.0)(30.0)(20.0)

(10.0)0.0

10.0

20.0 30.0 40.0

50.0

Apr‐18

May‐18

Jun‐18

Jul‐1

8Au

g‐18

Sep‐18

Oct‐18

Nov

‐18

Dec‐18

Jan‐19

Feb‐19

Mar‐19

Apr‐19

May‐19

Jun‐19

Jul‐1

9Au

g‐19

Sep‐19

Oct‐19

Nov

‐19

PVs 2Ws LCV ‐ Goods

0%

5%

10%

15%

20%

25%

2013 2014 2015 2016 2017 2018 2019 9M20



health insurance products, ICICIGI’s prime focus is to grow its retail indemnity business, where it has low market share.

Health insurance contributed to 20% of ICICIGI’s GDPI in FY19 and while this segment’s CAGR over FY15‐19 was 15%, its proportion in the overall portfolio declined to 20% in FY19 from 22% in FY15. This was primarily because of the company’s cautious approach in underwriting the lumpy tender driven businesses. Health insurance premium growth (Rs bn) ICICIGI health insurance underwriting profit/loss

Source: Company, PhillipCapital India Research The company is focusing on retail and granular risks where loss ratios are lower. In the group business, it is targeting the SME segment, which comprises of very small corporate and mid‐market segments, as it provides a favourable pricing environment. The insurer is cautious about ticket size of Rs 50mn or more, given the high loss ratio in this segment. A change in business mix to lead to a decline in claims ratio: The claims ratio for the health segment has declined to 82% in 2QFY20 from 98% in 4QFY17, largely because of a changing portfolio mix – the company consciously moved away from large‐ticket corporate and mass segments (that have a higher loss ratio) towards the granular retail and mid‐sized corporates (that have a lower loss ratio). Within health, corporate health (employer – employee) have higher loss ratios of around 98%. Within retail, ‘retail – benefit’ operates at a loss ratio of 70‐75% and ‘retail – indemnity’ operates at c.65%. ‘Retailisation’ of health portfolio to bring down loss ratio Declining medical‐care inflation to benefit loss ratio


‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

25%

‐

500

1,000

1,500

2,000

2,500

2013 2014 2015 2016 2017 2018 2019

Health yoy growth (rhs)

‐1,000

‐500

‐

500

1,000

1,500

2,000

2,500

2013 2014 2015 2016 2017 2018 2019

53% 55% 54% 51.6%38.3%

22.0%

37.0%

36% 40%33%

46.6%61.3%

40.9%

0%

20%

40%

60%

80%

100%

FY15 FY16 FY17 FY18 FY19 9M20

Individual Group – B2B2C CorporateGroup – Corporate Mass

Retail

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

70%

75%

80%

85%

90%

95%

100%Health Loss Ratio Medical Inflation (RHS)

Medical inflation has started easing of late, which should help ICICIGI to bring down its loss ratio



Arogya Sanjeevani Policy: Standardised health plan could intensify price war In order to make health insurance comparable across different insurers, IRDA has mandated all general and health insurers to offer standard individual health insurance products from 1st April 2020. The insurers are to decide the pricing themselves.

Key features of Arogya Sanjeevani Policy Particulars Key Norms Product Type Individual/Floater Category of Cover Indemnity Sum Insured Minimum: Rs 100,000

Maximum: Rs 500,000 Policy Period One year Co‐Payment Fixed 5% co‐pay Sub limits Limit on Cataract Surgery up to 25% of sum insured or Rs 40,000, whichever is

lower Hospitalisation Expense

Expense of hospitalisation for a minimum period of 24 consecutive hours Time limit of 24 hours shall not apply for day care treatment

Pre‐Hospitalisation For 30 day prior to hospitalisation Post‐ Hospitalisation For 60 days from date of discharge Sub limit for rooms/Doctors

Room rent, boarding, nursing expense up to Rs 2% of Sum insured subject to maximum of Rs 5000 per day ICU/ ICCU charges up to 5% of sum insured subject to maximum of Rs 10,000 per day

AYUSH Expenses incurred for inpatient treatment under Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homeopathy shall be covered up to sum insured

Cumulative bonus Increase in the sum insured by 5% in respect to each claim free year subject to maximum of 50% of SI

Source: IRDA, PhillipCapital India Research Impact for insurers: While standard health policy will make it easier for individuals to compare health policies across general and health insurers, it could significantly change the way insurers conduct their business. Here is what we believe will happen: • Increased penetration in tier 2/3 cities: Health insurance penetration is still very

low in tier‐2 and 3 cities due to low awareness levels. Standard products could present an opportunity to cater to this market, as it will be easier to increase awareness level about the product.

• Product innovation could take a backseat: We believe this will curtail innovation in products, as insurers would not be able to differentiate themselves through product design.

• Operating function to become critical: In the absence of creating differentiation through product design, operational functions – such as underwriting, pricing, claims settlement and policy servicing – will become a differentiating factor.

• Pricing could go lower on high competition: We believe this will put pricing pressure on insurers as they all will make a grab for market share; underwriting will become a key criterion for profitability.



We have compared features and pricing of few health insurance products that have similar features to those of the standardised health insurance products recommended by the IRDA Insurers Star Health Oriental ICICI

LombardBajaj Apollo

MunichMax BUPA HDFC Ergo Tata AIG Aditya Birla

Market Share 11% 9% 6% 5% 4% 2% 2% 2% 1%Plan Medi Assist Individual

Mediclaim iHealth Budget

Health Ensure

Easy Health Individual Standard

Health Companion

Health Suraksha

Silver Smart

Medicare protect

Active Assure ‐Diamond

Cover (Rs) 0.5 mn 0.5 mn 0.5 mn 0.5 mn 0.5 mn 0.5 mn 0.5 mn 0.5 mn 0.5 mnPremium (Rs) 7,432 7775 6827 6,402 7,218 8,752 8,744 6,347 6,366Premium/Sum Assured 1.49% 1.56% 1.37% 1.28% 1.44% 1.75% 1.75% 1.27% 1.27%Network Hospital 8200+ 2300+ 5025+ 4600+ 4105+ 3474+ 9500+ 5000+Claims Settlement 90% 89% 98% 92% 96% 97% 96% 94%Hospital Room Up to Rs 5K Up to Rs 5K All Category Up to Rs 5K All Category All category

ex SuitAll Category As per Policy Single

PrivateCo‐Payment 0% 10% 0% 0% 0% 0% 10% 0%Pre‐Existing Condition 4 Years 4 Years 4 Years 2 Years 3 Years 3 Years 3 Years 4 Years 4 YearsNo Claim Bonus Yes Yes Yes Yes Yes Yes YesAlternative Medicine <Rs 25k Yes Yes Yes >Rs 20k Yes Yes Yes >Rs 20 kDay Care Treatments 101 116 150 399 All 586 541 586Before Hospitalization 30 Days 30 Days 30 Days 30 days 60 days 30 days 60 days 30 days 30 daysPost Hospitalization 60 Days 60 Days 60 Days 60 Days 90 days 60 Days 180 days 60 Days 60 DaysAmbulance Charges (Rs) 750 2000 1500 1000 2000 3000 2000 Yes 2000

Source: PolicyBazar, PhillipCapital India Research Conservative reserving policy and strong capital position Insurers need to adequately provide for outstanding claims, especially for motor TP, which has a long tail. A review of ICICIGI’s loss triangle shows that the company has been making adequate provisioning. As a result, it has been releasing reserves over the past few years.

In the absence of comparable disclosures by other insurers, we looked at the ratio of claims outstanding to NEP for the last three years – ICICIGI seems to be the most conservative in terms of provisioning (see chart below). ICICIGI reserve release (Rs bn) Claims outstanding‐to‐three‐year NEP


(0.85)

(0.12)

(0.55)(0.23)

1.08 0.92

0.12

0.79

1.74

2.22

‐1.5

‐1.0

‐0.5

‐

0.5

1.0

1.5

2.0

2.5

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY190%

10%

20%

30%

40%

50%

60%

2017 2018 2019

ICICIGI SBI General New India Bajaj



ICICIGI: Incurred losses and allocated expenses (ultimate movement) Rs bn Prior AY 10 AY 11 AY 12 AY 13 AY 14 AY 15 AY 16 AY 17 AY 18 AY 19

End of First Year 39.01 15.13 20.66 22.53 27.97 35.96 34.16 39.13 49.49 52.41 65.27One year later 39.86 15.23 20.44 21.97 27.02 34.63 33.95 38.58 49.2 51.1Two years later 39.88 15.39 20.41 21.74 26.52 34.37 33.53 38.07 48.84 Three years later 40.49 15.52 20.36 21.85 26.4 34.29 32.91 37.78 Four years later 41.18 15.55 20.47 21.83 26.46 33.85 32.73Five years later 41.3 15.66 20.48 21.81 26.21 33.73Six years later 41.88 15.91 20.53 21.83 26.18Seven Years later 42.11 15.96 20.67 21.83Eight Years later 42.23 16.02 20.67Nine Years later 42.38 16.05Ten Years later 42.42 Deficiency/ (Redundancy) (%) 8.8% 6.1% 0.1% ‐3.1% ‐6.4% ‐6.2% ‐4.2% ‐3.5% ‐1.3% ‐2.5%


ICICGI has one of the highest solvency ratios in the industry. It has increased its solvency ratio from 1.5x in FY13 to 2.2x as of FY19

Solvency ratio among highest in industry (March 2019) Solvency ratio


Retention strategy – focus on profitability ICICIGI’s retention rate has increased to 70% as of March 2019 from 60% in March 2017; this increase is due to better risk‐underwriting capabilities and stricter fraud control. The company has been retaining risks in segments that have lower loss rates – such as motor and retail health and personal accident. Fire, crop and group health, which have higher loss ratios, it has largely ceded to reinsurance. Retention ratios have increased Retention rate vs. loss rate

2.62.3 2.2 2.1 2.0

1.8 1.7 1.6 1.6 1.6 1.6 1.5

1.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1.61.7

1.91.8

2.1 2.12.2

0.0

0.5

1.0

1.5

2.0

2.5

FY13 FY14 FY15 FY16 FY17 FY18 FY19

65%63%

64%66%

60%62%

64%

70%

50%

55%

60%

65%

70%

75%

2013 2014 2015 2016 2017 2018 2019 2020e

Fire

Marine

Motor OD

Motor TP

PA

Health Group

Health Retail

Crop

Other

0%

20%

40%

60%

80%

100%

120%

0% 20% 40% 60% 80% 100%

Loss Rate ‐>>

Retention Rate‐>>




Underwriting losses will continue to be a drag on profits • ICICI Lombard, like most players in the non‐life‐insurance industry, has been

making underwriting losses. • Underlying losses are largely from the motor TP segment due to conservative

reserving practice to account for claims inflation for long‐tail risks. • Increasing competitive intensity will continue to remain a headwind for the

industry and we expect ICICIGI to continue reporting underwriting losses in the medium term.

ICICIGI, like most players in the non‐life‐insurance industry, generates operating profits from investment income. However, if we look closely, underwriting losses for ICICIGI are largely from its motor TP business. Most other products (excluding crop, marine, and motor TP) are making small underwriting profits. For ICICIGI to make underwriting profits, it needs to trim its losses in the motor third‐party business. Operating profits driven by investment income (Rs bn) Underwriting losses are largely from motor TP (Rs bn)

Source: Company, PhillipCapital India Research ICICIGI’s loss ratio has declined to 75% in FY19 from 83% in FY13 (see chart below), largely due to a decline in motor TP loss ratio to 91% from 145%. The insurer has also done an excellent job in bringing down its expense ratio to 21% in FY19 from 31% in FY16. As a result, its combined ratio declined to 99% in FY19 from 104% in FY13, but a further fall in this ratio will be difficult to achieve because of: (1) Increasing loss ratio in motor OD business. (2) Higher commission rates. And (3) Higher expense ratio. ICICIGI combined ratio has improved… …largely due to a decline in loss ratio of motor TP

‐10

‐5

0

5

10

15

2013 2014 2015 2016 2017 2018 2019

Underwriting Profit Income from Investment Other Income

‐10

‐5

‐

5

10

2013 2014 2015 2016 2017 2018 2019

Motor ‐OD Motor ‐TPHealth Personal AccidentFire MarineCrop MiscellaneousTotal

83% 83% 81% 82% 80% 77% 75%

‐4% ‐5% ‐8% ‐6% ‐7% ‐4%

2%

25% 27% 31% 31% 30% 27% 21%

‐20%

0%

20%

40%

60%

80%

100%

120%

2013 2014 2015 2016 2017 2018 2019

Claim Ratio Commission Ratio Expense Ratio

0%

20%

40%

60%

80%

100%

120%

140%

160%

2013 2014 2015 2016 2017 2018 2019 9M20

Motor‐OD Motor‐TP Health

Increasing competitive intensity and pricing pressure will remain headwinds for the industry in the medium term. In the medium term, ICICIGI will continue reporting underwriting losses



Source: Company, PhillipCapital India Research Increasing loss ratio in the motor business: Long‐term third‐party insurance was made compulsory for all new four‐wheelers and two‐wheelers from September 2018. While this should help higher compliance, as only 45‐50% of vehicles are insured, it will also mean higher claims – as claims inflation plays through and premiums remain fixed for a longer period. We expect loss ratio to inch up from here. While premium rate for long‐term policies accounts for a decent amount of claims inflation, actual experience could overshoot implied inflation, resulting in a higher claims ratio from here. Claims frequency (claims reported/policy issued over the last 12 months) increased to 2.6% in Q1FY20 from 2.0‐2.2% in FY17. This, however, has declined to 2.2% as of 3QFY20, largely due to strong growth in the number of policies which we believe will also lead to higher growth in claims reported in coming quarters. Claims frequency has come‐off from the peak… ….largely due to strong growth in number of policies…

Source: Company, PhillipCapital India Research Meanwhile, claims severity (net claims incurred/number of claims settled) continues to rise. For motor TP, it has increased at a CAGR of 11% over the last three years. For motor ODs, it declined from September 2016, but started picking up after a bottom in March 2018. Loss severity continues to rise

Commission rates have increased as players become more aggressive: As long‐term policy ensures better renewal rates, insurers have jumped to capture market share by lowering motor OD pricing and shelling out higher commissions. Commission rates for all three large private players have increased since FY17, largely driven by higher commissions in the motor OD segment

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

2.6%

2.8%

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

70%

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

1Q18

3Q18

1Q19

3Q19

1Q20

3Q20

1Q21e

Claim Reported Growth No of Policy Growth (2Q Lag)

50%

70%

90%

110%

130%

150%

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

Motor OD Motor TP



Direct commission as a % of NWP

Commission rate for motor OD

Source: Company, PhillipCapital India Research * HDFC Ergo is till 1H20

Commission rates, while rising for most of the channel, are steeper for brokers. As ICICIGI largely generates business from broker channel compared to Bajaj and HDFC Ergo, its commission expense is expected to rise further. Business by distribution channel Commission rate by channel


Acquisition cost to drive expense ratio higher: ICICIGI has managed to reduce its expense ratio to 23.6% in 1HFY20 from 35.5% in FY16. The decline was largely attributable to lower advertisement and marketing/sales promotion expense. However, we believe these costs are set to rise, given increasing competitive intensity (see chart below). Bajaj Allianz and HDFC Ergo have already started increasing their spending on marketing costs. ICICIGI – expense ratio Advertisement, marketing & sales expense / NWP

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2013 2014 2015 2016 2017 2018 2019 9M20

ICICIGI Bajaj Insurance HDFC Ergo*

0%

5%

10%

15%

20%

25%

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

ICICIGI Bajaj Insurance HDFC Ergo

49%32% 28%

11%

18%8%

10%10%

14%

19% 35%39%

0%

20%

40%

60%

80%

100%

ICICI Bajaj HDFC Ergo

Brokers Individual AgentsCorporate Agents‐Banks Corporate Agents ‐OthersDirect Others

0%

2%

4%

6%

8%

10%

12%

14%

16%

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

Agents Corporate AgencyBrokers Others

7.2% 7.0% 7.3% 6.6% 6.8% 6.3% 6.0% 7.0%

7.5% 8.7% 10.2%17.0% 15.5% 12.3%

7.5%9.1%

8.5%9.4%

11.7%5.9% 6.1%

6.0%

5.4%5.7%

24.6%27.0%

31.3% 31.5% 30.1%26.9%

20.9%24.0%

0%

5%

10%

15%

20%

25%

30%

35%

2013 2014 2015 2016 2017 2018 2019 9M20

Staff Cost AdvertisementBusiness and Sales promotion Others

0%

5%

10%

15%

20%

25%

2013 2014 2015 2016 2017 2018 2019 9M20

ICICI Lombard Bajaj Allanz HDFC Ergo*



Source: Company, PhillipCapital India Research * HDFC Ergo is till 1H20

Investment income: It’s all about float • ICICI Lombard’s investment float has increased at a CAR of 27% over the last 10

years to Rs 176bn as of December 2019. • It generated an investment yield of 7.6‐13.0% over the last 10 years, largely

supported by higher capital gains. • A lower interest‐rate environment would make it difficult for ICICIGI to

replicate its past performance. With a lower FV account, capital gains are also likely to remain muted.

The Indian non‐life‐insurance industry operates under a “cash before cover” model. Insurers assume underwriting risks only after receiving premium. The receipt of upfront premiums and the payment of claims at a later stage create significant investable assets – the investment float. As of March 2019, ICICI Lombard’s investment float reached Rs 161bn from just Rs 15bn in FY09 – 27% CAGR over the decade (see charts below). Major components of this float: • Reserves for outstanding claims: Estimated liability for claims incurred but not

reported (IBNR) and claims incurred but not enough reported (IBNER). Around 50% of these outstanding claims were reserves created for the motor TP business and another 20% were for crop insurance

• Reserve for unexpired risk: Premium written that is attributable to and is to be allocated to succeeding accounting periods; 75% of these reserves are from motor and health segments.

• Advance premium: Upfront premium received in the form of advance premium on long‐term motor policies. Advance premium increased to Rs 23bn as of September 2019, up from just Rs 295mn in March 2018.

Above components are adjusted for outstanding premium (crop segment) and reinsurance receivable and deferred acquisition costs. Simplistically, investment float is net current liability. Investment floats (Rs bn) Components of investment floats (Rs bn)

Source: Company, PhillipCapital India Research An investment asset for a non‐life insurer is float + capital (equity and debt). ICICIGI’s investment assets touched Rs 222bn in March 2019, 22% CAGR from FY10, while investment leverage increased to 4.0x from 2.2x.

15 17 27

41

58 68 70

81

102

124

161

0%

20%

40%

60%

80%

‐

20

40

60

80

100

120

140

160

180

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total float yoy growth (rhs)

(120)

(70)

(20)

30

80

130

180

230

280

Claims Outstanding Reserve for Unexpired RiskBalances due to other insurance companies Advance premiumOutstanding Premium Due from other Insurance business



Investment asset (Rs bn) and leverage Investment asset growth vs. premium growth

Source: Company, PhillipCapital India Research As shown in the chart below, debt securities account for 86% of total investment assets, largely investment into government securities and infra and housing. Of these, 62% of debt securities are invested in corporate securities. Securities are largely concentrated towards AA and above credit ratings. Investment assets by asset class

Debt securities breakup


ICICIGI has done an excellent job in investment management and generated investment yields of 7.6‐13.0% over the last 10 years. However, investment income comprises of two components. 1) Income from interest and dividend 2) Income from profit on sale ICICIGI’s income from interest and dividend has been range‐bound at 6.0‐7.6%. Its investment yield outperformance or excess return has mainly come from profit on sale. Capital gain supported its yields when income from interest and dividend was low.

3847

6075

93102

116

150

182

222

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

0

50

100

150

200

250

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Investment Asset Investment Leverage

‐5%

0%

5%

10%

15%

20%

25%

30%

35%

2011 2012 2013 2014 2015 2016 2017 2018 2019

GDPI Growth Investment asset growth

31%

3%8%

0%

4%20%1%

6%

27%

Gov Sec & Bonds

Other Aproved SecuritiesEquity

Preference Shares

Mutual Funds

Debentures/ Bonds

Real Estate

Other Securities

Infra and Housing

48%

15%

37%

30%

7%

63%

0%

25%

50%

75%

100%

By Rating By Issuer

AAA AA or better Soverign Central Gov State Gov Corporate



Consistent investment yield... …as profit on sale supported yield

Source: Company, PhillipCapital India Research As shown in the chart below, during higher‐interest‐rate cycles, ICICIGI’s debt portfolio was largely concentrated towards higher maturity (+10 years) assets, which slowly shifted towards lower duration ones as interest rates began declining. This not only led to higher profit on sale, but also made portfolios less susceptible to an increase in interest rates. With interest rate at a bottom, ICICI’s debt portfolio is largely concentrated towards 3‐7‐year maturities. With declining interest rates, ICICIGI moved its debt portfolio to lower durations


Capital gains to remain moderate: ICICIGI earned handsome gains on its investment assets in a declining interest‐rate period. Fair value account also increased in the same period. However, with interest rate mostly at the bottom of a cycle and lower fair‐value amount, we would expect income from profit in sale to remain moderate in the medium term and could result in losses as interest rates start increasing.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Industry ICICIGI Bajaj Allianze

0%

2%

4%

6%

8%

10%

12%

14%

4Q10

2Q11

4Q11

2Q12

4Q12

2Q13

4Q13

2Q14

4Q14

2Q15

4Q15

2Q16

4Q16

2Q17

4Q17

2Q18

4Q18

2Q19

4Q19

2Q20

Interest yield Profit on sale/Total Investment

5%

6%

7%

8%

9%

10%

11%

0%

20%

40%

60%

80%

100%

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

Up to 1 year More than 1 year and upto 3 years More than 3 years and up to 7 yearsMore than 7 years and up to 10 years Above 10 years Interest Rate (rhs)



Fair value account is at its lowest level

Source: Company, PhillipCapital India Research Interest income to remain subdued: With interest rates at the bottom of a cycle, we would expect income from interest and dividend to move to a lower range of around 6.25%‐6.75%. We blended yield for ICICIGI’s debt portfolio based on its maturity profile and coupon rate within that bracket (see chart below). With interest rates declining across maturities in recent months, yield on income from interest for ICICIGI should moderate even more. Due to ongoing stress in the economy, ICICIGI has increased its exposure towards AAA‐rated instruments; while this is a prudent strategy, it will put pressure on yields. Blended yield vs. actual yield

Rating profile of corporate debt securities


6%

7%

8%

9%

10%

0%

1%

2%

3%

4%

5%

6%

7%

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

Fair Value/Total Investment Profit on sale/Total InvestmentCorp bond Yield (AAA‐5 Yrs)

5%

6%

7%

8%

9%

10%

11%

4Q11

2Q

12

4Q12

2Q

13

4Q13

2Q

14

4Q14

2Q

15

4Q15

2Q

16

4Q16

2Q

17

4Q17

2Q

18

4Q18

2Q

19

4Q19

2Q

20

4Q20e

2Q21e

Blended Yield‐4Q LagActual Yield (Interest, Dividend and Rent)

50% 44% 48%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

AAA AA or Better Soverign



Valuation and risk At a CMP of Rs 1,380, ICICI Lombard is trading at 8.5x FY21 BV, with a RoE of 21%. We initiate coverage with a Sell rating and target price of Rs 1,200, valuing the stock at FY21 P/B multiple of 7.4x using a two‐stage Gordon Growth Model (risk‐free rate: 6.75%; market risk premium: 4.5%; beta: 1.0 and steady‐state growth of 7%). ICICI Lombard’s stock performance vs. Nifty ICICI Lombard: 1‐year P/BV

Source: Company, PhillipCapital India Research Key risks Market risk: ICICI Lombard makes profits from investment income (including capital gains). As a result, its earnings are significantly exposed to market risks, including changes in interest rates or adverse movements in equity markets. A 25bps movement in investment yield impacts EPS by 3.5‐3.7% (see table below). Base Case 25 bps lower yield 25 bps higher yield

Yield EPS Yield EPS Impact Yield EPS Impact FY20 7.9% 27.0 7.6% 26.1 ‐3.5% 8.2% 28.0 3.5% FY21 7.6% 32.7 7.4% 31.5 ‐3.7% 7.9% 33.9 3.8% FY22 8.0% 40.4 7.9% 39.0 ‐3.5% 8.3% 41.8 3.7%

Source: PhillipCapital India Research

Better underwriting: Our base‐case assumption is that ICICI Lombard continues to make underlying losses in the medium term due to elevated claims ratio and higher expenses. Any improvement in this ratio could result in underlying profits, leading to improvement in profitability. Contingent liability: As of March 2019, company has contingent liabilities of Rs 4.3bn (7.1% of its net worth), primarily due to a demand (including interest and penalty) of Rs 4bn from service tax authorities/goods and services tax authorities. Appeals regarding this demand are pending. Any unfavourable judgements could impact ICICIGI’s projected profitability and solvency.

0.0

0.5

1.0

1.5

2.0

2.5

Sep‐17

Nov

‐17

Jan‐18

Mar‐18

May‐18

Jul‐1

8

Sep‐18

Nov

‐18

Jan‐19

Mar‐19

May‐19

Jul‐1

9

Sep‐19

Nov

‐19

ICICI Lombard Nifty

4

5

6

7

8

9

10



Comparison table: Indian general insurance

Rs bn (FY19) Public Insurer Private General Insurer Standalone‐Health

New India

United India

National Insurance

Oriental Insurance

ICICI Lombard

Bajaj Allianz

HDFC Ergo

Tata AIG

SBI General

Chola MS

Start Health

Apollo Munich

GDPI 226 164 152 135 145 111 86 77 47 44 54 22NEP 215 131 104 106 84 70 38 46 24 30 37 17Underwriting Profit/Loss ‐52.4 ‐50.2 ‐44.5 ‐38.0 ‐1.45 0.22 ‐0.78 ‐4.85 0.82 ‐2.25 1.20 1.88Underwriting balance Ratio ‐24.4% ‐38.4% ‐42.7% ‐35.9% ‐1.7% 0.3% ‐2.0% ‐10.6% 3.4% ‐7.4% 3.3% 1.4%Operating Profit Ratio ‐6.8% ‐16.3% ‐17% 5.3% 15% 14% 13% 1% 15.1% 8.4% 6.4% 7%Claims Ratio 95% 109% 110% 106% 75% 69% 76% 78% 72% 77% 63% 63%Commission Ratio 10% 5% 8% 6% 2% 5% ‐3% 1% 0% 0% 6% 7%Expense Ratio 18% 22% 27% 23% 21% 23% 26% 29% 23% 28% 24% 25%Combined Ratio 124% 137% 145% 135% 99% 97% 99% 108% 95% 105% 93% 100%Retention Ratio 79% 83% 63% 79% 64% 70% 50% 64% 54% 76% 76% 85%Return on Networth 4% ‐64% NA ‐10.3% 20% 15% 19% 6% 18% 12% 12% 3%Solvency Ratio 2.13 1.52 1.04 1.57 2.24 2.55 1.75 1.63 2.34 1.55 2.01 1.64 GDPI Growth 5.76% ‐5.79% ‐6.55% 14.9% 17% 17% 18% 42% 33% 8% 29% 28%Reserves to NEP 1.53 1.82 2.14 1.64 2.31 1.44 1.46 1.33 1.63 1.93 0.58 0.58Claim Paid in <3 Month 89% 92% 71% 90% 97% 98% 99% 95% 97% 88% Investment Leverage 1.55 4.8 8.2 2.3 3.8 3.2 4.5 4.8 3.5 5.1 1.9 2.1

Source: PhillipCapital India Research



Financials

Income Statement Y/E Mar, Rs bn FY19 FY20e FY21e FY22eGross written premium 147.9 139.4 163.3 192.7Net written premium 95.4 97.9 116.4 137.3Net Earned Premium 83.8 94.7 105.5 125.1Net Claims Incurred 63.1 69.9 78.2 93.5Commission Expense 2.2 2.7 2.8 2.7Operating Expenses 19.9 23.1 25.6 30.4Underwriting Surplus/(Deficit) ‐1.5 ‐1.0 ‐1.2 ‐1.5Investment income 18.0 19.5 22.2 27.2Other Income 0.6 0.5 0.5 0.5Provision and other expenses 1.07 1.51 1.60 1.77Profit Before Tax 16.0 17.5 19.8 24.5Income tax 5.5 5.2 5.0 6.1Net Profit 10.5 12.3 14.9 18.3 Balance Sheet Y/E Mar, Rs bn FY19 FY20e FY21e FY22eShare capital 4.5 4.5 4.5 4.5Reserves and Surplus 48.7 57.9 69.5 84.0Networth 53.2 62.5 74.0 88.6Total Fair value change account 3.4 2.7 3.4 4.0Borrowing 4.9 4.9 4.9 4.9Current Liabilities 216.2 256.7 295.8 333.8O/W Premiums received in advance 13.4 33.6 41.9 45.0O/W Claims Outstanding 164.3 180.7 207.3 237.5Provisions 56.4 59.4 70.4 82.6Total Liabilities + Shareholder Equity 334.0 386.1 448.4 513.8

Investments ‐ Shareholders 53.4 61.8 72.3 84.3 Investments ‐ Policyholders 168.9 206.9 242.0 282.3Total Investments 222.3 268.7 314.3 366.7Fixed Asset 4.7 6.9 6.9 6.9Deferred Asset 3.0 3.7 3.7 3.7Cash and bank balances 4.0 0.8 1.0 0.8Advances and other assets 100.0 106.0 122.5 135.6Total Asset 334.0 386.1 448.4 513.8

Source: Company, PhillipCapital India Research Estimates

Valuation Ratios FY19 FY20e FY21e FY22e

EPS (Rs.) 23.1 27.0 32.7 40.4Dividend per share (Rs.) 5.0 5.5 6.1 6.9Book Value (Rs.) 117.1 137.5 162.9 194.9P/E (x) 60 51 42 34P/B (x) 11.8 10.1 8.5 7.1

Analytical ratio Claim loss ratio 75.3% 73.8% 74.2% 74.7%Expense ratio 20.9% 23.6% 22.0% 22.2%Net Commission Ratio 2.3% 2.7% 2.4% 1.9%Combined ratio 98.5% 100.2% 98.6% 98.8%Retention ratio 64.5% 70.2% 71.3% 71.3%Solvency margin 2.2 2.2 2.3 2.3

DuPont analysis (%) Premium earned 26.5% 26.3% 25.3% 26.0%Claims incurred 20.0% 19.4% 18.7% 19.4%Commission paid 0.7% 0.7% 0.7% 0.6%Investments 5.9% 5.5% 5.4% 5.8%Operating and other expense 6.3% 6.4% 6.1% 6.3%Provisions 0.3% 0.4% 0.4% 0.4%Tax expense 1.7% 1.4% 1.2% 1.3%RoA 3.3% 3.4% 3.6% 3.8%Leverage 6.3 6.2 6.1 5.8RoE 20.9% 21.1% 21.6% 22.1%Growth rates Gross premium 17% ‐6% 17% 18%Net Written premium 22% 3% 19% 18%Net premium earned 21% 13% 11% 19%Net claims incurred 19% 11% 12% 20%Commission paid ‐179% 19% 7% ‐6%Operating expenses ‐6% 16% 11% 19%Investment Income 17% 9% 14% 23%PBT 34% 9% 14% 23%PAT 22% 17% 21% 23%


FINANCIALS INITIATING COVERAGE

Company overview and management ICICI Lombard GIC Ltd. is the largest private‐sector general insurance company in India. As of 31 March 2019, it has a Gross Written Premium (GWP) of Rs 148bn, had issued over 26.5mn policies, and settled +1.6mn claims. It offers comprehensive products covering motor, health, crop/weather, fire, personal accident, marine, engineering and liability insurance, through multiple distribution channels. Key management Bhargav Dasgupta (MD and CEO) • Mechanical engineering from Jadavpur University; post‐graduate diploma in business

administration from the Indian Institute of Management, Bengaluru. • Associated with the company since May 2009 as Managing Director and Chief Executive

Officer. • Experience in project finance and corporate banking, e‐commerce and technology

management, international banking and life insurance. • Previously worked with ICICI Ltd and ICICI Prudential Life Insurance Company Ltd. Sanjeev Mantri Executive Director (Chief Marketing Officer – Retail) • Commerce graduate from Sydenham College of Commerce and Economics; Member of

the Institute of Chartered Accountants of India and the Institute of Cost and Works Accountants of India.

• Associated with the company since May 2015. • Experience in strategy, products, analytics, pricing, marketing and corporate

communication. • Worked with ICICI Bank from October 2003 to May 2015. Alok Kumar Agarwal Executive Director (Chief Marketing Officer ‐ Wholesale) • Chemical engineer from Jadavpur University; post‐graduate diploma in management

from the Indian Institute of Management, Calcutta. • Executive Director of the company from 2011. • Experience in banking and insurance. • Previously worked with Reliance Petrochemicals Ltd, and ICICI Bank. Gopal Balachandran (Chief Finance Officer & Chief Risk Officer) • Bachelor’s degree in commerce from University of Mumbai; associate member of the

Institute of Chartered Accountants of India. • With the company since March 2002. • Work experience in finance and taxation, secretarial compliance and enterprise risk. • Worked with ICICI Bank and N. A. Shah Associates LLP, Chartered Accountants. Girish Nayak (Chief Customer Service, Operations & Technology) • Bachelor’s degree in chemical engineering from Indian Institute of Technology, Bombay. • Post‐graduate diploma in business management from Indian Institute of Management,

Ahmedabad. • Associated with the company since April 2013. • Work experience in sales, corporate banking, project finance, wealth management,

technology, customer service, operations strategy and administration. Sanjay Datta (Chief U/W, Reinsurance & Claims) • Bachelor’s degree in science from University of Calcutta; Master’s in business

administration from Jadavpur University; associate of the Insurance Institute of India. • With the company since December 2001. • Work experience in the field of claims, underwriting, product development and pricing. • Previously worked with Royal Sundaram Alliance Insurance Company and Oriental

Insurance Company.



Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. We have different threshold for large market capitalisation stock and Mid/small market capitalisation stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement. Large cap stocks Rating Criteria Definition

BUY >= +10% Target price is equal to or more than 10% of current market price

NEUTRAL ‐10% > to < +10% Target price is less than +10% but more than ‐10%

SELL <= ‐10% Target price is less than or equal to ‐10%. Mid cap and Small cap stocks Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL ‐15% > to < +15% Target price is less than +15% but more than ‐15%

SELL <= ‐15% Target price is less than or equal to ‐15%.

Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No



1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

For Detailed Disclaimer: Please visit our website www.phillipcapital.in IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report is a product of PhillipCapital (India) Pvt. Ltd. which is the employer of the research analyst(s) who has prepared the research report. PhillipCapital (India) Pvt Ltd. is authorized to engage in securities activities in India. PHILLIPCAP is not a registered broker‐dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a‐6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.

Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through PHILLIPCAP. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor.

The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication Compensation and Investment Banking Activities



Rosenblatt Securities Inc. or any affiliate has not managed or co‐managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months. Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither PHILLIPCAP nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report.

PHILLIPCAP may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of PHILLIPCAP.

Investing in any non‐U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non‐U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non‐U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States.

The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments.

Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by PHILLIPCAP with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein.

No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior written consent of PHILLIPCAP and PHILLIPCAP accepts no liability whatsoever for the actions of third parties in this respect.

PhillipCapital (India) Pvt. Ltd. Registered office: 18th floor, Urmi Estate, Ganpatrao Kadam Marg, Lower Parel (West), Mumbai – 400013, India.

institutional equity research icici lombard...

Documents