ICICI Lombard Hopes A Favourable Market To Yield Higher Profitability

ICICI Lombard is set to see higher profitability in future due to declining combined ratio backed by favourable market conditions, according to the general insurance company’s Chief Financial Officer Gopal Balachandran.

ICICI Lombard General Insurance Company’ net profit rose 68% year-on-year to Rs 724 crore during the three months ended December from Rs 431 crore in the same quarter a year ago. The combined ratio in the third quarter improved to 102.7% on a year-on-year basis as compared to 103.6% in the same period of a year ago.

The combined ratio is a key performance indicator of profitability and financial conditions of an insurance firm. It is calculated by dividing an insurance firm’s total losses and expenses with premium earnings in a financial year. The combined ratio below 100% indicates the company is profitable.

Talking to NDTV Profit, Balachandran said that the combined ratios of ICICI Lombard are on a downward trajectory and there will be a further improvement if the markets remain sensible.

“We are seeing a clearly declining combined ratio trajectory for ICICI Lombard. If you look at the half year, we have seen an adverse change in the overall combined ratio for the market. Assuming the market remains sensible, I think there's no reason why we should not be able to see an improvement in combined from the current numbers as well,” he said.

A combined ratio above 100 generally means that a company is paying more claims money than it is receiving in premiums. The reported combined ratio of Q3 has a “slight nuance” in terms of a regulatory change that one must consider, the ICICI Lombard CFO said. 

“Effective Oct. 1, 2024, all long-term products, as per the regulatory stipulations, have moved to recognition of revenue or premiums over the contract period. Similarly, whatever acquisition cost or cost of sourcing that companies incur, they will also be allowed to be amortised over the contract period,” he said.

“This is a favourable and enabling regulatory environment change for a longer-term perspective,” the top executive said.

The combined ratio that ICICI Lombard reported this quarter is inclusive of this regulatory change, having a 0.4% impact on the number.

“The combined of 102.7% for this quarter includes the effect of that particular change. If I were to take that effect and look at it on a business-as-usual basis, the combined ratio would have been reported at 102.3%. So it has had a 0.4% impact on the overall combined ratio,” Balachandran explained.

The CFO highlighted that his company is on track to achieve its targeted combined ratio.

“We have been able to possibly see a downward slope in the overall combined ratios for ICICI Lombard. We are pretty much on track in terms of the thought process or the gliding path that we have spoken about almost four years back in terms of where we want to see the combined ratios for ICICI Lombard play out,” he said.

Shares of ICICI Lombard General Insurance Ltd. were trading 0.33% higher at Rs 1,929 apiece on the NSE as of 10:29 a.m., coming from a high of Rs 1,952.90. The benchmark Nifty 50 was 0.81% lower at 23,155.30 after giving up early gains.