ICICI Lombard - Quality franchise in under penetrated industry

ok… got it … its commonly known as guaranteed products. Regulator could ask also the insurers to hold more solvency capital for such products.

defined benefits is usually referred to group pension products such as gratuity. Where the insurer might manage the gratuity funds and provide protection cover or term assurance but other risks are borne by the scheme trustees.

I meant if interest rate is the key, which certainly looks the case as per @zygo23554 and I agree with him on its importance, US life insurers should be onverge of collapse paying annuity at even 2% if prevailing rates are 0% and also protection business. How is the life insurance business still viable there. I feel knowing this point is one of they key to understand longevity of life insurance business in a 0 or even negative interest rate enviornment.

I hope now you understand what I mean.

ICICI Lombard Gen Ins says
“Industry has contracted,we as a company have also contracted”

No sale happening in 2,4 wheelers (50% of Lombards book)

Interest Rates have gone down (so less income on float)

All this and stock is 10% away from life highs at 50PE, and 12 times book


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This thread is related to general insurance/non-life or P&C insurance. Please post life insurance related discussion in other thread (HDFC Life/ICICI Pru). Those are different businesses.

Longevity risk: life expectancy of annuitants increasing. Longevity risk is uncorrelated to interest rates.



Stock is not cheap for sure, how expensive is it comes down to a very subjective analysis.

Within motor product line they have the new vehicles book and the renewal book. Renewal book accounts for ~60% and the rest coming in from new vehicle sales. With nil new vehicle sales for April and May, the motor premium will get affected for sure, that is a given. 2020 even before COVID-19 was an average year at best for the auto industry, impact on the motor premium growth is a given for 2021. However lock down also means close to nil claims during April and May on the motor book, claims maybe lower for the entire year as well YoY. At the PAT level impact might get mitigated to some extent due to this.

Lower interest rates are here to stay for the medium term, no doubt about that. But this is relatively easier to quantify, just model for lower interest rates on the incremental float. Existing float that was already deployed at higher coupon rates will continue as it till maturity. From what I can see they have deployed into equity through the fall of March, equity allocation as of end of March 2020 is at 11%, it was at 10% 1 year ago. The existing equity book would have fallen 15-17%% from 10% to 8.8% which means they had to deploy more money to get the equity allocation to actually increase by 1% year to year. The numbers are pretty much available in the Q4 conf call to do this math.

Does the company have enough levers to manage the current situation? This is pretty much the crux of the thesis here, else it is a simple decision to look at the P/E and P/B and sit out


Hi guys,

To add to this very informative discussion, I have started a new thread on Markel (link) which might aid in improving our understanding of general/specialty/P&C insurance businesses. I will encourage you to go through that thread (sorry its a bit long as I have summarized their shareholder letters from 1987) and we can then try to draw comparables with the Indian context.
@vivek_mashrani @pramodblr @zygo23554 @ashwinidamani


Long Term motor policies for 2W and PC will not be mandatory

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The removal is only for Own Damage long term policies. Long term policies for Third Party insurance will continue.

ICICI stake sales in lombard

Merger finalized

From the merger presentation, we see that new shares to be issued for for this acquisition is 35,756,194.
The Total number of equity share outstanding at year ended March 31, 2020: 454,466,000.
Does this mean that equity dilution of ~8% will happen? Is it correct to infer that the acquired entity is valued at ~ 4700 Crs, considering current market cap of ICICI Lombard?
How should an investor consider this valuation and dilution?


While comparing premiums for vehicle insurance I find Lombard n Allianz costly

I like HDFC ergo more
Twice renewed from HDFC Ergo

HDFC ergo I think as a great competitor to Lombard

Bharati Axa has got corp protection business which is riskier and combined ratio is high compared to lombard, valuation of axa is high i guess. This transaction will take atleast 1 year to complete after all approvals and synergies comes in to play after that . As of now lombard seems to best play in listed companies

Disc: Invested a small portion and doing SIP every month

Key conference call takeaways(regarding merger of Bharti AXA)

 ICICI Lombard believes the transaction makes a compelling case due to: a) a company that is well regarded, with strong management and cultural fit, b) a credible distribution engine, with nascent large bancassurance tie-ups that offer a significant runway for growth, c) a sizeable investment book of Rs47.6bn, and d) an opportunity to partner with Bharti and
Axa groups.

 Management believes this transaction will enable long-term value creation for shareholders through both, revenue and cost synergies. One such opportunity is through Bharti AXA’s (BAX’)
banca tie-ups, which it has recently entered into and which are in nascent stage (5.3% of FY20 GDPI mix). With this transaction, ILOM would have a tie-up with most large banking partners
across countries. While this channel currently focusses on motor insurance, ILOM will look to gradually increase the share of health insurance penetration in this channel.

 The Motor segment contributes to 47% of BAX’ tie-ups; BAX has relationships with and healthy market share in several OEMs. ILOM indicated Bharti AXA was even ahead of them in an OEM.
Given ILOM’s investments and focus on the motor segment, Bharti AXA, a relatively stronger motor player, will help ILOM increase its penetration in the motor segment.

 Bharti AXA had ~4,000 agents in 2017 which it has rapidly scaled up to 6,700. ILOM has internally sharpened its own focus on this
channel and would focus on improving the productivity of the combined agency workforce.

 Given that BAX operates with an opex + commission ratio of 42.1%, ILOM sees significant headroom for operating leverage and cost synergies over time. Key areas that ILOM will
focus on include branch infrastructure costs, technology costs and branding costs.

 ILOM’s focus will be on bringing the combined entity back to the operating levels of ~100% combined ratio.

 Management commented that the combined entity would have a solvency margin well above the regulatory threshold, eliminating the need for any additional fund raise.

 Bharti AXA had accumulated losses of Rs8.47bn as of FY20. ILOM indicated that the extent to which the combined entity could utilise such losses would be contingent on future profits it would generate and could be governed by income tax laws.

 BAX has exposure to IL&FS, DHFL and Yes Bank and provided for Rs.1.57bn against the same in FY20. ILOM commented that Rs1.12bn of book value was still to be provided for, and ILOM had factored that into its valuations.

 BAX’ reserving policies have been checked by Willis Towers Watson and by an independent actuary. ILOM’s own actuarial team has also analysed the reserving policies and believes they
have one of the better reserving policies.

 Crop insurance contributed to 26% of BAX’ GDPI in FY20 and their FY21 crop mandate could be similar to that of FY20. While ILOM’s cautious view on the crop business has not materially
changed, it will honour all existing crop contracts, as some of these could have a duration of 2-3 years. Its tactical approach to the crop segment remains unchanged.

 With a smaller exposure to the health segment (12% of GDPI mix), Bharti AXA currently works with a TPA to process its health insurance claims. ILOM indicated that the endeavour
would be to process them in-house.

 ILOM has contractually agreed upon continuity of the existing banca tie-ups. Over the past few years, whenever ILOM has signed up as a smaller partner, it has provided significant value and grown to become the largest insurer within that partner.

 Post successful completion of the transaction, ICICI Bank’s shareholding will drop to 48.1% and RBI regulations could entail further reduction to <30%. But ILOM indicated past precedents, when the parent bank was given dispensation.


Overall from the concall I got a feeling that Analysts were bearish about the deal. Most of them thought that the price paid by icici lombard is higher than the market justified multiples. Also on the combined ratio - it will take a hit .

In this business, market share has limited meaning as most policies are annual and next year, the customer may not renew with you.

  • 25% of Bharti Axa’s business is crop insurance, a segment ICICI Lombard just exited because it was not profitable.
  • Bharti Axa’s bancassurance partners HDFC Bank & Axis Bank will not be willing to sell ICICI Lombard policies with as much enthusiasm as they did for Bharti Axa.
  • ICICI Bank stake will reduce to around 47%. Due to some strange regulatory reason, they have to either raise it back above 50% or bring it down to 30%. Mr. Dasgupta said they will gradually bring it down to 30.
  • Doubts about asset quality issues remain. Bharti Axa’s investments in Zee, DHFL, etc. are known cases but what else remains under the hood is not known (at least to outsiders).
  • Bharti & Axa will hold around 7% post-merger. There is no lock in, and the threat of their selling this stake will remain a hangover on the stock.

ICICI Lombard’s whole argument to make the deal beneficial is based on cutting operational costs, which they say are currently very high for Bharti Axa. But even here, Mr. Dasgupta did not lay out any concrete roadmap in terms of timelines and numbers.

For most of the negatives that the analysts pointed out, Mr.Dasgupta said it has been already factored into the deal.


I don’t think he said that the bank would reduce stake to 30%. Icici bank will make appeal to the respective regulators to hold the current stake.

Curious if HDFC Bank has an ergo and still used to sell the AXA policies, why will it not sell Lombard with same enthusiasm? Thanks

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Bharti AXA’s Crop business is a profitable one. Loss ratios are near 40% only; compared to what ICICI Lombard had.