Article

ICICI Lombard General Insurance Company Ltd - Information Note

12 Sep 2017 Nikita Bhoota

Untitled Document

This document summarizes a few key points related to the issue and should not be treated as a comprehensive summary. Investors are requested to refer the Red Hearing Prospectus for further details regarding the issue, the issuer company and the risk factors before taking any investment decision. Please note that investment in securities is subject to risks including loss of principal amount and past performance is not indicative of future performance. Nothing herein constitutes an offer of securities for sale in any jurisdiction where it is unlawful to do so.

This document is not intended to be an advertisement and does not constitute an invitation or form any part of any issue for sale or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever.

Issue Opens: September 15, 2017
Issue Closes: September 19, 2017
Face Value: Rs 10
Price Band: Rs 651- Rs 661
Issue Size: ~Rs 5,701 cr (8.62 cr shares)
Bid Lot: 22 Equity shares       
Post Issue Market Cap: ~Rs 30,006 cr (at upper band)
Issue Type: 100% Book Building

% shareholding

Pre IPO

Post IPO

Promoter

62.92

55.92

Public

37.08

44.08

Source: RHP

Company Background

ICICI Lombard General Insurance Company Ltd was founded as a joint venture between ICICI Bank Ltd, and Fairfax Financial Holdings Ltd (a Canadian based holding company). The company was the largest private-sector non-life insurer in India based on gross direct premium income (GDPI) in FY17. ICICI Lombard offers well-diversified range of products, including motor, health, crop/weather, fire, personal accident, marine, engineering and liability insurance, through multiple distribution channels to its customers. It has 8.4% market share on GDPI basis among all non-life insurers in India and 18% among private sector non-life insurers in India. In FY17, the company issued 17.7 million policies and its gross direct premium income was Rs 10,725 cr.

Objective of the Offer

The purpose of the offer is to sale of up to ~8.62 cr equity shares by the selling shareholders. The listing of the equity shares will enhance the ICICI Lombard brand name and provide liquidity to the existing shareholders. The company will not receive any proceeds from the offer.

Key Points

ICICI Lombard has diversified range of insurance products with motor, health and personal accident, crop/weather, fire, marine, and engineering insurance contributing 42.3%, 18.9%, 20.1%, 6.9%, 3.2% and 2.1%, respectively, of their GDPI in FY17. It also has  diversified channel mix enables them to reach customers in 618 out of 716 districts across India and provides them with a competitive edge over its competitors.

The company has a strong capital position with a solvency ratio of 2.1x as at March 31, 2017 compared to the IRDAI prescribed control level of 1.5x and an Indian non-life private-sector average of 1.95x. Their combined ratio has been generally stable, improving from 104.9% to 104.1% over FY15-17. During the same time period, their loss ratio improved from 81.4% to 80.6%.

The company was the largest private-sector non-life insurer in India, by GDPI in FY17 and continues to grow faster than the industry. Their GDPI has grown at a CAGR of 26.7% over FY15-17 against 22.8% CAGR for the Indian non-life insurance industry over the similar period. This has helped the company to improve its market share in GDPI term, which has increased from 7.9% to 8.4% over FY15-17.

India continues to be under-penetrated with a non-life insurance penetration of 0.8% of the gross domestic product, compared with a global average of 2.8% of the gross domestic product as of 31st Dec 2016. Thus, non-life insurance sector in India holds significant growth potential going forward.

Key Risks

The company derives significant proportion of its GDPI from motor vehicle insurance products led by demand from motor vehicles in India. Any adverse changes in consumer demand for motor vehicles may affect its GDPI from vehicle insurance products.

At the end of Q1FY18, ~83% of their total investment assets were invested in fixed income assets. Any significant change in interest rates could materially affect their investment returns.

Our View

The company’s diverse product line, consistent market leadership and superior operating and financial performance give them a competitive advantage. We believe that the non-life insurance sector in India holds significant growth potential because of its under-penetration and low insurance density.

*For additional information and risk factors please refer to the Red Herring Prospectus. Please note that this document is for information purpose only.

Research Disclaimer

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ICICI Lombard General Insurance Company Ltd - Information Note

12 Sep 2017 Nikita Bhoota

Untitled Document

This document summarizes a few key points related to the issue and should not be treated as a comprehensive summary. Investors are requested to refer the Red Hearing Prospectus for further details regarding the issue, the issuer company and the risk factors before taking any investment decision. Please note that investment in securities is subject to risks including loss of principal amount and past performance is not indicative of future performance. Nothing herein constitutes an offer of securities for sale in any jurisdiction where it is unlawful to do so.

This document is not intended to be an advertisement and does not constitute an invitation or form any part of any issue for sale or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever.

Issue Opens: September 15, 2017
Issue Closes: September 19, 2017
Face Value: Rs 10
Price Band: Rs 651- Rs 661
Issue Size: ~Rs 5,701 cr (8.62 cr shares)
Bid Lot: 22 Equity shares       
Post Issue Market Cap: ~Rs 30,006 cr (at upper band)
Issue Type: 100% Book Building

% shareholding

Pre IPO

Post IPO

Promoter

62.92

55.92

Public

37.08

44.08

Source: RHP

Company Background

ICICI Lombard General Insurance Company Ltd was founded as a joint venture between ICICI Bank Ltd, and Fairfax Financial Holdings Ltd (a Canadian based holding company). The company was the largest private-sector non-life insurer in India based on gross direct premium income (GDPI) in FY17. ICICI Lombard offers well-diversified range of products, including motor, health, crop/weather, fire, personal accident, marine, engineering and liability insurance, through multiple distribution channels to its customers. It has 8.4% market share on GDPI basis among all non-life insurers in India and 18% among private sector non-life insurers in India. In FY17, the company issued 17.7 million policies and its gross direct premium income was Rs 10,725 cr.

Objective of the Offer

The purpose of the offer is to sale of up to ~8.62 cr equity shares by the selling shareholders. The listing of the equity shares will enhance the ICICI Lombard brand name and provide liquidity to the existing shareholders. The company will not receive any proceeds from the offer.

Key Points

ICICI Lombard has diversified range of insurance products with motor, health and personal accident, crop/weather, fire, marine, and engineering insurance contributing 42.3%, 18.9%, 20.1%, 6.9%, 3.2% and 2.1%, respectively, of their GDPI in FY17. It also has  diversified channel mix enables them to reach customers in 618 out of 716 districts across India and provides them with a competitive edge over its competitors.

The company has a strong capital position with a solvency ratio of 2.1x as at March 31, 2017 compared to the IRDAI prescribed control level of 1.5x and an Indian non-life private-sector average of 1.95x. Their combined ratio has been generally stable, improving from 104.9% to 104.1% over FY15-17. During the same time period, their loss ratio improved from 81.4% to 80.6%.

The company was the largest private-sector non-life insurer in India, by GDPI in FY17 and continues to grow faster than the industry. Their GDPI has grown at a CAGR of 26.7% over FY15-17 against 22.8% CAGR for the Indian non-life insurance industry over the similar period. This has helped the company to improve its market share in GDPI term, which has increased from 7.9% to 8.4% over FY15-17.

India continues to be under-penetrated with a non-life insurance penetration of 0.8% of the gross domestic product, compared with a global average of 2.8% of the gross domestic product as of 31st Dec 2016. Thus, non-life insurance sector in India holds significant growth potential going forward.

Key Risks

The company derives significant proportion of its GDPI from motor vehicle insurance products led by demand from motor vehicles in India. Any adverse changes in consumer demand for motor vehicles may affect its GDPI from vehicle insurance products.

At the end of Q1FY18, ~83% of their total investment assets were invested in fixed income assets. Any significant change in interest rates could materially affect their investment returns.

Our View

The company’s diverse product line, consistent market leadership and superior operating and financial performance give them a competitive advantage. We believe that the non-life insurance sector in India holds significant growth potential because of its under-penetration and low insurance density.

*For additional information and risk factors please refer to the Red Herring Prospectus. Please note that this document is for information purpose only.

Research Disclaimer