10 September 2018

INDIA | INSURANCE| COVERAGE INITIATION

ICICI Lombard
Leader with strong growth prospects

Investments in technology
driving efficiencies

Largest private non-life

insurer in the country

Robust risk-selection Initiate with BUY and

procedures in place TP of INR 1,050
10 September 2018

INDIA | INSURANCE| COVERAGE INITIATION

T ABL E OF CON T ENT S

Introduction 3
Key charts 4
Largest private non-life insurer 6
Retail lines to drive premium growth 7
Multi-channel distribution network 16
Disciplined underwriting paying off 19
Superior investment performance 27
Both profit engines firing up 29
Strong solvency to support growth 31
Valuation & Key risks 32
Company background 34
Financial tables 38
Appendix I: Non-life insurance in India 39

We like the ICICIGI franchise given its granular retail portfolio, strong
underwriting and robust return ratios. The 4th largest non-life insurer is on
track to leverage its presence in 90% of the districts across India through
on-boarding of experienced agents, scaling up of its digital assets and
making further improvements to its “best-in-class” claims management
process. Thus, ICICI Lombard is positioned to be a major beneficiary of the
ongoing shift in market share towards service-oriented and efficient
players.

RECENT INITIATIONS

INDOSTAR CAPITAL LIFE INSURANCE ADITYA BIRLA BANDHAN BANK RELIANCE NIPPON LIFE
FINANCE SECTOR UPDATE CAPITAL ASSET MANAGEMENT

JM Financial Institutional Securities Limited Page 2

10 September 2018

INDIA | INSURANCE| COVERAGE INITIATION

ICICI Lombard General Insurance Ltd

Leader with strong growth prospects
Retail lines to drive growth and underwriting performance: ICICI
ICICI Lombard General Insurance Ltd (ICICIGI or ICICI Lombard’s retail lines share rose to 61% in FY18 from under 50% in FY06.
Lombard) is the 4th largest non-life insurer (8.2% GDPI market Most of this growth has come from less-riskier segments such as a) Motor:
share in FY18) and a leader among private players (18.9% private cars, 2Ws, preferred commercial vehicles (CVs) like 3Ws, trucks,
share ex-standalone health) . Over FY15-18, it has recorded a tractors & CE and b) Health: retail health indemnity, SME group health,
23% GDPI CAGR, outperforming the industry (20%) by etc. Corporate lines make up 20% of its premiums, with the rest coming
leveraging its a) parent’s brand equity, b) retail-focused, from crop insurance. Focus on retail and exits from loss-making large
diversified product mix and c) strong, multi-channel corporate/mass health insurance segments resulted in loss ratios improving
distribution in 638 of 716 districts in India. Superior risk from 81% in FY15 to 76.9% in FY18. The insurer plans to cap exposure to
selection, micro-segmentation and the flexibility to crop insurance in light of unfavourable pricing. Going forward, it aims to
opportunistically enter/exit business lines has resulted in focus on granular risks while opportunistically entering property/other CV
significant improvement in the insurer’s underwriting segments as pricing and structural factors improve therein
performance. Loss ratios have moved from 81% in FY15 to
77% in FY18. After pioneering online sales in FY05, One of the most operationally efficient, digital-savvy insurers: ICICI
digitisation and automation remain the key to its operating Lombard’s expense ratio (ex-commissions) was one of the lowest among
efficiencies as scale builds. peers at 27% in FY18 (vs. the peer average of 30%). It has improved
440bps since FY15, led by continued investments in automation/
ICICI Lombard is well-positioned to deliver 15% GDPI growth digitisation. These include: a) robotics for faster turnaround times, b) AI for
– in line with the industry – over FY18-20E ,enabled by i) risk management and speedy claims processing, c) assisted sales using chat
structural factors: a) non-life under-penetration and low bots, d) drones for crop surveys and e) plug-and-play infrastructure for
density as well as b) urbanisation and rising asset ownership; ii) seamless onboarding of distribution partners.
granular focus on niche segments within Motor and Health
insurance and iii) a strong, productive distribution network. High-quality investment book; no default since inception: The insurer’s
investment book reached INR 182bn in FY18 – c.12% of total private
We value the stock at 28x Mar’21E EPS for a PAT CAGR of sector AUM (incl. standalone health) - with 83% invested in sovereign and
24% over FY18-21E and ROE of 21% by FY21E. We initiate AAA securities. While the FI book has experienced zero defaults since
with a BUY rating and a TP of INR 1,050. Key risks to our call: inception, the equity book too, has posted robust annualised returns (incl.
disruptions in distribution and regulatory/government risks. unrealised gains) of 30% since FY04 vs. 17% for the benchmark.
Moreover, its “cash-before-cover” model implies zero asset quality risks.

Recommendation and Price Target Financial Summary (INR mn)

Current Reco. BUY Y/E March FY17A FY18A FY19E FY20E FY21E
Previous Reco. Net Profit 6,418 8,618 11,049 13,657 16,588
Current Price Target (12M) 1,050 Net Profit (YoY) (%) 27% 34% 28% 24% 21%
Upside/(Downside) 21%
Assets (YoY) (%) 36% 27% 16% 16% 16%
Previous Price Target NA
ROA (%) 3.2% 3.3% 3.5% 3.7% 3.9%
Change NA
ROE (%) 15.8% 17.5% 19.3% 20.4% 21.0%
EPS 14.2 19.0 24.3 30.1 36.5
Key Data – ICICIGI IN EPS (YoY) (%) 26% 33% 28% 24% 21%
Current Market Price INR876 P/E (x) 61.2 45.9 35.8 28.9 23.8
Market cap (bn) INR397.5/US$5.5 BV 97.6 113.2 132.4 156.5 185.7
Free Float 31% BV (YoY) (%) 23% 16% 17% 18% 19%
Shares in issue (mn) 454.1 P/BV (x) 10.8 9.3 7.9 6.7 5.7
Diluted share (mn) Source: Company data, JM Financial. Note: Valuations as of 07/Sep/2018
3-mon avg daily val (mn) INR184.9/US$2.6
52-week range 889/619 JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters S&P Capital IQ
Sensex/Nifty 38,390/11,589 and FactSet. You can also access our portal: www.jmflresearch.com. Please see Appendix I at the end of this report
INR/US$ 71.7 for Important Disclosures and Disclaimers and Research Analyst Certification.

Karan Singh CFA FRM Bunny Babjee Nikhil Walecha

karan.uberoi@jmfl.com bunny.babjee@jmfl.com nikhil.walecha@jmfl.com
Price Performance Tel: (91 22) 6630 3082 Tel: (91 22) 6630 3263 Tel: (91 22) 6630 3027
% 1M 3M 6M
Absolute 14.3 20.0 10.8 Sameer Bhise S Parameswaran
Relative* 12.4 11.7 -5.4 sameer.bhise@jmfl.com s.parameswaran@jmfl.com
* To the BSE Sensex Tel: (91 22) 6630 3489 Tel: (91 22) 6630 3075

JM Financial Institutional Securities Limited Page 3

ICICI Lombard 10 September 2018

ICICI Lombard – Key charts

Exhibit 1. Industry to clock double digit premiums growth Exhibit 2. Significant under-penetration and low density
1st phase: Growth 2nd phase: Post 3 phase: Dismantling
rd
6% 3,000
2,500 phase during tariff de-tariffing and
35%
Motor pool and 5.0%
regime Motor Pool Declined Risk Pool 30% 2,500
2,000 4.3%
25% 4% 3.4% 3.4% 2,000
1,500 20% 2.7%
2.4% 2.3% 1,500
1.9%
1,000 15% 2% 1,000
0.9%
10% 500
500
5%
0% 0
South USA Taiw an Hon g South UK Japan Chin a Indi a
0 0% Korea Kong Afri ca
FY02

FY04

FY06

FY08

FY10

FY12

FY14

FY16
FY17
FY18
FY03

FY05

FY07

FY09

FY11

FY13

FY15

FY19E
FY20E
FY21E
Non life Insurance penetration Insurance D en sity (USD)
GDPI (INRb n) YoY (%)
Source: IRDA, JM Financial Source: SwissRe

Exhibit 3. Rising incomes fuelling ownership of insurable assets Exhibit 4. Accelerated rate of urbanisation raising awareness
1,20,000 100 % 2.5%
2.4%
1,00,000 80% 2.1% 2.0%
2.0%
80,000 1.8%
60% 1.5%
1.6%
60,000 0.9% 0.8% 1.0%
40% 1.0%
40,000
20% 0.5%
0.1%
20,000
0% 0.0%
0 Brazil UK USA Russia South Chin a Indo n- Thai- Indi a
FY12 FY13 FY14 FY15 FY16 FY17 FY18E Afri ca esia land

Per Capita NNI (IN R) 201 6 U rban Popu latio n (as % of To tal) Urb anisation Rate CA GR (2018- 23E)
Source: CMIE Source: UN database, CRISIL

Exhibit 5. ICICIGI to benefit from industry growth Exhibit 6. Consolidating its leadership position
200 35% 30%
33%
29% 30%
25%
150 25%
24.4%

21%
23.6%

19% 20%
23.1%

20%
21.9%

21.4%
21%

20.4%

19.9%
19.0%

18.9%
100 15%

18.4%
15%

18.0%

17.7%
12% 15%15%
15%15% 10%
10%
50 5%
8.4%

8.8%

8.6%

8.6%

8.6%

7.7%

8.4%

8.4%

8.2%

8.1%

8.1%

8.1%
0% 5%
-3% -3%
0 -5% 0%
FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

GWP (INR bn) Growth (YoY, %) Market share (industry) Market share (pvt. ex standalone)
Source: Company, JM Financial Source: IRDA, Company, JM Financial

Exhibit 7. Diversified product mix providing traction Exhibit 8. Leveraging its strong multi-channel distribution network
100% 6.9% 6.5% 100%
15% 14% 11.2% 7.3%
15% 7.3% 24% 29% 32% 31%
80% 20.1% 19.2% 80% 34% 38% 42%
6% 6% 7% 8.2% 7.8% 2%
2% 2% 2% 2%
60% 22% 19.7% 17.1% 6.9% 7.4% 60% 2%
28% 26% 2%
15.5% 15.0% 53% 47% 41%
43% 40%
40% 40% 41% 36%

44% 47% 51% 51% 9%

20% 42% 42% 42% 20% 6% 6% 7% 7%
7% 7%
15% 17% 16% 17% 16% 12% 12%
0% 0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Motor Health Fire Marine Eng PA Crop Others Agency Banca Direct Online Broker and others
Source: Company, JM Financial Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 4

ICICI Lombard 10 September 2018

Exhibit 9. Superior risk management keeping loss ratios low Exhibit 10. Operating efficiencies capping expense ratios
110% 50%
101%
100% 96% 40%
89%
30% 25%
90% 83% 83%
81% 82% 81% 21% 24% 25% 23% 23% 22% 22%22%
22%
77% 76% 76%76% 20%
80%
20% 20%
70% 10%

60% 0%

FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY15

FY16

FY17

FY18
FY14
FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY15

FY16

FY17

FY18
FY14

Source: Company, JM Financial Source: Company, JM Financial

Exhibit 11. Underwriting quality visible in improving CORs trends Exhibit 12. Tried and tested reserving policy keeping divergence low
80% 80% 10%
6.3% 5.9%
3.7% 5%
90% 3.1% 2.7%
98% 97% 60% 0.6%
98% 0%
100%
100% 0.0%
104%
40% 47% 49% -5%
-5.9%
110% 105% 105% 107% 104% 36% 34% -10%
20% 26%
21% 23% -15%
120% 114% 17% 17%
116%
121% 0% -20%
130% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

IBNR reserves % of total reserves AY IBNR (deficit)/excess

Source: Company, JM Financial Source: Company, JM Financial

Exhibit 13. Prudent investment management yielding good returns Exhibit 14. A well-balanced investment portfolio
18% 15.7% 100%
11% 10% 8% 8%
15% 25% 23% 17%
80% 15% 26% 26%
13% 10.1% 10.8% 22%
9.2% 9.8% 9.8% 9.2% 11% 13% 26%
10% 7.6% 8.0% 60% 21%
19% 14% 17% 16% 16%
8% 9.3% 9.7% 10.1% 10.2% 9.9% 9.3% 7% 16% 13%
40% 9% 10% 15% 15%
5% 8.0% 5%
7.2%
5.8%
3% 20% 37% 42% 36% 37% 40%
30% 30%
0%
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Investment yield - policyh older (%) Investment yield - shareholder (% ) G-secs Other appr oved secs Equity
Bon ds Real eatate Infrastructu re & So cial
Source: Company, JM Financial Others
Source: Company, JM Financial

Exhibit 15. Improving CORs and higher investment yields position Exhibit 16. Strong solvency capable of supporting organic and
ICICIGI to deliver best-in-class RoEs in the non-life space inorganic growth
250%

30% 22% 21% 200%

19% 17% 19% 20% 27% 22%
20% 16% 14% 16%
5% 150%
10%
0% 100% 195%
172% 182% 182% 183% 183%
(10%) 155%
(8%) 50%
(20%)
(30%) (26%) 0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

Core capital Other capital

Source: Company, JM Financial Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 5

ICICI Lombard 10 September 2018

Largest private non-life insurer

 GDPI CAGR of 23% over FY15-18 (ex-crop 14%); forecast 15% CAGR over FY18-21E
ICICI Lombard is the 4th largest insurer in the Indian non-life insurance industry, controlling
8.2% of the premium market as of FY18 (10% as of YTD-Jul’18). Among private insurers, it
is the leader, controlling 19% of the market (ex-standalone health) as of FY18 (21% as of
YTD-Jul’18). Promoted by one of India’s largest private banks – ICICI Bank – the insurer
commenced operations in 2002 and is currently active in 638 of 716 districts across India.
Over FY15-18, the insurer clocked-in premiums growth of 23% outperforming the industry’s
21% growth rate. Ex-crop insurance, the premiums growth is in line with the industry at a
14% CAGR over FY15-18. We expect ICICIGI to maintain steady growth, delivering a 15%
CAGR in gross premiums over FY18-21E on a) supportive structural factors such as i)
significant under-penetration and low density, ii) rising urbanisation, iii) the government’s
focus on motor TP/health/crop insurance and iv) public listing of peers that would bring
pricing discipline; b) a retail-oriented product mix; and c) a well-diversified distribution
network.

Exhibit 17. ICICIGI – GWP growth trends Exhibit 18. To maintain market leadership going into FY21E
200 35% 30%
33%
29% 30%
25%
150 25%

24.4%
21%

23.6%
19% 20%

23.1%
20%

21.9%

21.4%
21%

20.4%

19.9%
19.0%

18.9%
100 15%

18.4%
15%

18.0%

17.7%
12% 15%15%
15%15% 10%
10%
50 5%

8.4%

8.8%

8.6%

8.6%

8.6%

7.7%

8.4%

8.4%

8.2%

8.1%

8.1%

8.1%
0% 5%
-3% -3%
0 -5% 0%
FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18
GWP (INR bn) Growth (YoY, %) Market share (industry) Market share (pvt. ex standalone)
Source: Company, JM Financial Source: Company, JM Financial

 Market leader across industry cycles leveraging parent’s brand equity, diversified product
suite and multi-channel reach into c.90% districts across India
The company has maintained its market leadership across industry cycles (#1 among private
insurers since 2004) by outperforming industry growth. In 1QFY19, the insurer recorded a
13.7% YoY growth (ex-crop, growth was 14.1% YoY) in premiums vs. 12.2% for the
industry. Regarding the product mix, after de-tariffication in 2007, the share of retail lines
(such as motor and health) rose to 64% in FY07 (vs. 48% in FY06) and has since remained
between 60-70%. Retention ratios have improved in recent years in light of better risk
underwriting capabilities and stricter fraud control. Overall retention rates stood at 62-67%
over FY15-18 with product lines such as motor OD (65-85%), motor TP (74-96%), health
(70-80%) and personal accident (72-75%) recording robust retention.

Exhibit 19. Diversified product suite Exhibit 20. Retention ratio

100% 85%
11.2% 6.9% 6.5% 7.3%
15% 14% 15% 7.3% 80%
20.1% 19.2% 80%
80%
6% 6% 7% 8.2% 7.8%
75%
60% 19.7% 17.1% 6.9% 7.4% 71%
28% 26% 22%
15.5% 15.0% 70%
70% 66% 67%
40% 68%
65% 63% 64% 64% 63%
66%
44% 47% 51% 51% 61%
20% 42% 42% 42% 60%

0% 55%
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19E

FY20E

FY21E

FY12 FY13 FY14 FY15 FY16 FY17 FY18

Motor Health Fire Marine Eng PA Crop Others
Source: Company, JM Financial Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 6

ICICI Lombard 10 September 2018

Retail lines to drive premiums growth

ICICI Lombard’s product portfolio comprises of motor (own damage and third party liability) –
42% of GDPI in FY18, health and personal accident (19%), crop (19%), fire (7%),
engineering (2%) and marine (3%) lines. Over the years, the company has reduced its
exposure to corporate lines (fire, marine, engineering, aviation and liability) from 52% in
FY06 to under 20% in FY18.

Given the insurer’s focus on profitability, the insurer has adopted a cautious view on a) crop
insurance, due to the volatile nature of the tender-based business and heightened
competition; seeks to cap share in product mix to less than 20% and b) mass health due to
adverse historical loss experience. Regarding future growth engines, the insurer plans to
focus on, i) participating in the resurgence in property/corporate lines, ii) health insurance, iii)
SME segment within both property and health insurance and iv) retail motor, select
commercial vehicle segments within motor insurance.

Exhibit 21. Diversified mix serving corporate, retail and rural customers
Po rtfo l i o a s
Pro d u c t De s c ri p ti o n Ke y Fe a tu re s Lo s s ra ti o s Ta rg e t Cu s to me r B a s e
o f FY1 8
Co rp o ra te So l u ti o n s Gro u p -
• Market share increased from 7.8% in FY17 to 8.5% FY18
serves large corporate
Fire 7.0% • Established presence in large risk segment 43.1%
companies in variety of
• Gaining share in mid-risk segment
industries
Wh o l es al e G ro u p (1 8 .7 %)

• Market share increased from 11.7% in FY17 to 12.7% FY18 Sp e c i a l i s e d I n d u s try Gro u p
Marine 3.0% • Close monitoring of high-frequency accounts using Marine Loss 54.2% - caters to large clients in
• Customised solutions; Control Engineering (MLCE) specialised business segments
• Beyond insurance • Market share increased from 9.8% in FY17 to 11.2% FY18
cover, offers risk SM E Gro u p - focusses on
Engineering 2.0% • Strong relationship with large contractors 24.0%
management and MSMEs across industries
• Pickup in infrastructure activity
mitigation solutions
I n te rn a ti o n a l B u s i n e s s
• Market share increased from 12.9% in FY17 to 14.3% FY18
Liability 0.2% 117.1% Gro u p - covers international
• Proven ability in structuring complex solutions
risks of Indian business interests

Cyber
• Pricing pressure continued for large corporates; focus on
Health & PA 6.5% 88.0%
increasing share of mid and small corporate policies
• Motor OD Market share 11.6% in FY18
• Covers private cars, two-wheeler, three-wheelers, CE, tractors,
Motor OD: 53.7%
Motor 42.0% trucks
Motor TP: 107.1%
• Eff. Sep'18, IRDA has made it mandatory to offer a 3-yr Motor TP
policy for new cars and 5-yr motor TP policy for new 2Ws
R etai l G ro u p (6 2 .0 %)

• Offers indemnity and benefits products

• Launched sachet products with dynamic pricing based on Indemnity: 60%
Health & PA 11.8%
• Loss cost based micro- transaction analytics Benefits: 46%
Individuals
segmentations • Focusing on T2/T3 cities as loss ratios better vs. existing portfolio
• Gross premiums grew 35% YoY in FY18; Company investing in
Home
distribution
• Market share increased from 20.8% in FY17 to 24.9% in FY18
• 127.1 million lives insured in FY18, of which 95% were lives
Travel under IRCTC e-ticketing platform
• Exploring insurance for adventure sports & pilgrimages via
aggregator tie-ups
• Since its launch in FY16, it has enrolled 3.1 million farmers
G ro u p (1 9 .3 %)

across 8 states and 31 districts; Non loanee made up 10% of

G o vern men t

State/ Central governments

Crop 19.0% total enrollments during FY18; 135.0%
• Diversification or government-owned
• Cattle insurance witnessed 5x YoY growth in GWP in FY18 with
• Adequate pricing enterprises and rural
22,715 animals insured across 14 states.
customers
Health, Personal • Writes business under the RSBY scheme. The company offers
0.3% 131.0%
Accident access to robust hospital network and speedy claims settlement
Source: Company, JM Financial

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ICICI Lombard 10 September 2018

Exhibit 22. Development of product mix in recent years

(INR bn) FY15 FY16 FY17 FY18 FY15-18
Product GDPI % GDPI % GDPI % GDPI % CAGR
Motor 34.2 51% 41.5 51% 45.4 42% 52.5 42% 15%
Motor – OD 21.3 32% 25.2 31% 27.6 26% 30.6 25% 13%
Motor – TP 12.9 19% 16.3 20% 17.8 17% 21.9 18% 19%
Crop/Weather 2.8 4% 5.9 7% 21.5 20% 23.7 19% 105%
Health and PA 15.0 23% 16.1 21% 20.3 19% 23.0 19% 15%
Health 13.2 20% 13.9 17% 16.7 16% 18.5 15% 12%
PA 1.9 4% 2.2 3% 3.6 3% 4.5 4% 35%
Fire 5.5 8% 6.3 8% 7.5 7% 9.2 7% 19%
Marine 2.5 4% 3.0 4% 3.4 3% 3.7 3% 14%
Engineering 1.7 3% 2.0 3% 2.3 2% 2.5 2% 13%
Other 4.7 7% 5.6 7% 7.0 7% 9.0 7% 24%
Total 66.8 100% 80.9 100% 107.3 100% 123.6 100% 23%
Source: Company, JM Financial

Key product offerings:

 Retail insurance: It includes motor, health and personal accident insurance.

 Motor insurance (42% of GDPI as of FY18): The segment’s GDPI posted a 15% CAGR
over FY15-18, while its proportion in the overall portfolio declined from 51.2% in FY15 to
42.5% in FY18. The insurer consciously focuses on less risky, more granular segments
with 50% of the motor premiums coming from private cars, 17% from select CV
segments and 33% from two-wheelers. Versus this, the industry has roughly 40% and
45% of motor premiums coming from commercial vehicles and private cars respectively,
and c.15% from two wheelers. Further, motor insurance has two parts: own damage
(25% of total GDPI as of FY18) and third-party segment (18%). The introduction of
mandatory long-term insurance for private cars (policy period raised to 3-years) and 2Ws
(policy period raised to 5-years) should increase motor penetration and spur premiums
growth going forward.

Private car segment: The segment witnessed healthy premiums CAGR of 17% over
FY15-18 benefitting from tie-ups with various MVMs including Maruti, Hyundai and
Honda. It also offers add-ons such as comprehensive cover, zero depreciation
coverage, roadside assistance and engine protection coverage.
Two-wheeler segment: The segment saw premium CAGR of 20% over FY15-18
aided by the introduction of longer-tenure (two and three years) policies during
FY16. Further, it benefits from tie-ups with various MVMs including Hero
MotoCorp, Honda Motorcycle and Scooter India. Long-term two wheeler policy
penetration increased from 8.6% in FY17 to 9.1% in FY18.
IRDA mandates long-term insurance for private cars and 2Ws: Following a Supreme
Court Committee on Road Safety recommendations, the IRDA made it compulsory
to offer long-term motor TP insurance for all new private cars (policy period raised
to 3 years vs 1 year) and new 2Ws (policy period raised to 5 years vs 1 year)
effective Sep’18. The move will address poor renewals (number of registered but
uninsured vehicles currently stands at c.60% of total vehicles) which become
especially acute for private vehicles after three years on the road. Although positive
from a penetration/ compliance perspective, the price adequacy still needs to be
tested given the proposed tariffs are different from adjusted existing motor TP
tariffs in the range of +3% to – 51% for cars and 2Ws.

JM Financial Institutional Securities Limited Page 8

ICICI Lombard 10 September 2018

Exhibit 23. Long-term motor TP for private cars – 3 years Exhibit 24. Long-term motor TP for 2Ws – 5 years
1-yr 3-yr 3*(1-yr) 1-yr 5-yr 5*(1-yr)
Private car Diff % 2Ws Diff %
(INR) (INR) (INR) (INR) (INR) (INR)
Less than 1,000cc 1,850 5,286 5,550 -5% Less than 75cc 427 1,045 2,135 -51%
75cc to 150cc 720 3,285 3,600 -9%
1,000cc to 1,500cc 2,863 9,534 8,589 11%
150cc to 350cc 985 5,453 4,925 11%
Exceeding 1,500cc 7,890 24,305 23,670 3% Exceeding 350cc 2,323 13,034 11,615 12%
Source: IRDA Source: IRDA

Commercial vehicle segment: It consists of insurance products for goods carrying

vehicles, passenger carrying vehicles and construction equipment. The segment has
witnessed muted CAGR of 4% over FY15-18 as the company narrowed its focus to
the preferred/low-risk commercial vehicles such as three-wheelers, pick-up trucks,
construction equipment and tractors. Recently, the insurer turned positive on the
segment led by; a) consistent motor TP price increases primarily in medium and
heavy commercial vehicles, b) structural changes such as better vehicle design,
improved roads, mandatory speed governance for commercial vehicles and c) data
analytics to identify accident hotspots. All these developments are helping to reduce
claims frequency/severity thus making underwriting the business viable from an
ultimate loss ratio perspective.

Exhibit 25. Motor TP contribution increasing in light of “quota- Exhibit 26. ICICIGI focusses on profitable segments within motor
based” underwriting and favourable claims/inflation linked pricing insurance - 2W and private cars
100% 100%
23.0% 21.9% 18.1% 15-17%
80% 32% 35% 38% 39% 39% 80% 40%
42%
55%
30.8% 32.3% 30-35%
60% 60% 29.3%
15%
40% 40%
68% 65% 62% 61% 61% 58% 49.6% >50%
45% 20% 47.7% 47.3% 45%
20%

0% 0%
FY13 FY14 FY15 FY16 FY17 FY18 Industry FY15 FY16 FY17 FY18 Industry
Motor OD Motor TP Private car Two wheelers Commercial vechicle
Source: Company, JM Financial Source: Company, JM Financial

Exhibit 27. ICICIGI maintained its industry market share in a highly Exhibit 28. Motor TP market share trend has remained fairly stable
competitive motor OD market over recent years
M. share % FY15 FY16 FY17 FY18 M.share % FY15 FY16 FY17 FY18
ICICI Lombard 11% 12% 12% 12% ICICI Lombard 7% 8% 7% 7%
HDFC Ergo 3% 3% 4% 5% HDFC Ergo 2% 3% 3% 3%
BAGIC 10% 10% 9% 8% BAGIC 5% 6% 6% 6%
SBI Gen 2% 2% 2% 2% SBI Gen 1% 1% 1% 1%
Reliance Gen 4% 4% 4% 5% Reliance Gen 4% 4% 4% 4%
Source: IRDA, JM Financial Source: IRDA, JM Financial

Industry motor premiums have significant headroom to grow given, a) low vehicle
penetration (19 cars & 127 2Ws per 1,000 vs. 70 cars / 1,000 for other “less-
developed” nations); b) stricter focus on renewals given only 60% of cars aged over
3 years and only 10% of 2Ws aged over 3 years have insurance in India vs. 90%
globally. This issue will be addressed as the industry prepares for mandatory long-
term Motor TP insurance for 2Ws (5 years) and cars (3 years) from Sep’18; c) the
Motor Vehicle Amendment Act, currently pending in Rajya Sabha, which aims to
introduce i) higher penalties for traffic violations, ii) stricter licensing norms, and iii)
reducing the number of registered but uninsured vehicles; d) robust growth outlook
for motor vehicle sales in India which will have a direct positive impact on motor TP
due to its compulsory nature.

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ICICI Lombard 10 September 2018

Exhibit 29. Motor sales mix to remain stable going into FY20E Exhibit 30. Car and 2W penetration in India (per 1,000)
20 122 140
MHCV LCV 3Ws PVs 2Ws
100% OECD32 car penetration: 570; 107 111 120
Less-developed nation’s car penetration: 70* 96
15 86 100
80% 79
72
59 62 66 80
10 54

19
13.3% 45 49

17
60% 80.5% 80.8% 81.2% 81.2% 60

17
38 40

15
13
12
40

11
10
40% 9.3% 5

9
8
7
7
20

6
6
5
17.3%
20% 18.7% 0 0
13.9% 13.2% 12.6%

2001
2002
2003
2004
2005
2006
2007

2009
2010
2011
2012
2013
2014
2015
2008
12.9%
11.6%
0%
FY17 FY18 FY19E FY20E CAGR Cars (LHS) 2W (RHS)
Source: SIAM, JM Financial Source: Road Ministry, ExxonMobil Energy outlook report

 Health & PA (19% of GDPI as of FY18): The segment’s GDPI posted a CAGR of 14% over
FY15-18 while its proportion in the overall portfolio declined from 23% in FY15 to 18.6%
in FY18 as the company reduced exposure to large corporate health and mass health
schemes on account of low profitability.
Retail Health: It is the dominant segment under Health GDPI consisting of benefit-
based (c.60% of retail health) and indemnity-based products (c.40%). Benefit-based
policies are sold through its banking partners/NBFCs and include lump-sum and
annuity-based accident related plans, critical illness plans and daily cash plans.
Indemnity-based policies are sold through the agency and banca-partner
distribution channels. Retail indemnity is a primary focus area for the company
especially in light of the Health Insurance 2016 regulation, which bars life insurance
companies from selling this product. The indemnity portfolio achieved 31% YoY
premiums growth in 1QFY19 vs. 3% growth in total retail health premiums.

Retail health GDPI achieved 18% CAGR over FY15-18 with its share of total health
portfolio increasing from 57% in FY15 to 63% in FY18. The company underwrites
its health insurance products based on various factors, including pre-existing
medical conditions and history of illness to mitigate the pricing risk and continually
monitors hospital networks, medical inflation and leakage by efficient network
management to reduce fraud instances.

Exhibit 31. Health & PA premium mix Exhibit 32. Health & PA market share movement
100% 4% 2% <10%
11% 11% M.share % FY15 FY16 FY17 FY18
80% 37% 35% ICICI Lombard 6.8% 6.3% 6.3% 5.5%
30% 30%
>50% HDFC Ergo 4.1% 3.9% 3.6% 3.8%
60%
BAGIC 3.5% 3.4% 3.6% 4.0%

40% SBI General 1.7% 1.9% 2.3% 2.2%

57% 59% 59% 63% Reliance General 2.4% 2.0% 1.1% 1.9%
20% <40% Star Health (Standalone health) 6.4% 7.2% 8.6% 7.0%
Apollo Munich (Standalone health) 3.5% 3.7% 3.8% 3.1%
0%
FY15 FY16 FY17 FY18 Industry Other private insurers 13.2% 12.3% 11.2% 25.8%
PSU insurers 58.4% 59.2% 59.5% 46.7%
Retail Health Corporate Health Mass health
Total 100% 100% 100% 100%
Source: Company, JM Financial
Source: IRDA, JM Financial

Corporate health: The segment consists of policies purchased by corporations as

employee benefits. Corporate health for the insurer consists of 3 sections, 1) SME,
small corporates, 2) Mid-corporates and 3) Large corporates such as BFSI, IT
companies. While the all the sub-segments have witnessed price increases (both
new and renewal policies), given ICICI Lombard’s stringent underwriting standards,
the insurer still feels large corporate risks are under-priced and therefore continues

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ICICI Lombard 10 September 2018

to be cautious on the segment. It has de-focused from ticket sizes of more than INR
20mn and is targeting granular growth vs. lumpy accounts.

ICICI Lombard continues to remain bullish on the SME segment for both property
and group health underwriting in light of profitable claims experience and stickiness
of the business, given that it is sourced by agents, small brokers and is more
relationship/ service-based. The corporate health segment’s GDPI posted a CAGR of
16% over FY15-18 while its proportion in the total health mix has remained stable
at 33-35%. Combined ratios for corporate health have improved to 88% in FY18
vs. 104% last year driven by the rising share of profitable SME business. The insurer
continues to be selective and only underwrites appropriately priced risks.
Additionally, it offers value-added services such as wellness programmes, outpatient
coverage and provision of emergency services in collaboration with a global partner.

Mass Health: The segment consists of government health programmes such as the
Rashtriya Swasthya Bima Yojana (RSBY). In FY18, the scheme was extended to the
state of Odisha. Mass health has witnessed a decline in premiums of 36% over
FY15-18 with its proportion of health GDPI declining from 9% in FY15 to 2% in
FY18 owing to non-renewal of a mass health scheme (which accounted for 84% of
its Mass health GDPI in FY17) in Kerala due to inadequate pricing. Moreover, the
company is hesitant to grow this segment given adverse claims experience.

Personal Accident: Offerings include corporate (including mass personal accident,

c.18% of personal accident GDPI) and retail segments (c.82%). Retail PA insurance
policies are commonly bundled with other products. The company is focussed on
increasing share of retail PA segment by increasing the number of channel partners
and investing in the digital channel.

Exhibit 33. Public spending on health continues to remain c.1% Exhibit 34. Health insurance in India – key metrics
8% 7.40% 2015-16
7% Health insurance penetration
(% of total population under any 27%
6% health scheme)
5% o.w. covered by PSU insurers 77%
4% 3.40%
o.w. covered under Govt-sponsored schemes 80%
3% 2.40%
2% 1.60% Private health insurance penetration
1.18% 2.3%*
(% of total population)
1%
Medical expenditure Urban: 74.9%
0% as % of household income/savings Rural: 67.8%
Low income

Higher income
2015-16*

2016-17*
2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

income countries

income countries
countries
Lower middle

Upper middle

Source: CBHI, JM Financial; *As of 2014-15

countries

Source: MoH; *Estimates

Going forward, health insurance premiums growth will be driven by, a) low health
penetration, b) high out-of-pocket medical expenditure/medical inflation and c)
favourable regulation/government stance. The Health Insurance 2016 regulation
introduced various product-related changes. These include i) prohibiting life
companies from selling indemnity products; ii) allowing pilot products by non-life/
standalone health insurers with minimum 1-year policy term in new risk areas; iii)
introducing ‘entry-age’ pricing to lure younger individuals to purchase health plans;
vi) allowing 1-year group health insurance products (except credit-linked products
where the policy tenure will match the loan period (not exceeding 5 years)).
Moreover, the announcement of the “Universal Health Coverage” goal in the
Budget 2018-19 along with a National Health Protection Scheme covering over 100
million families (or close to 500 million beneficiaries) offering a sum assured of INR
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ICICI Lombard 10 September 2018

0.5mn per family per year is a big positive for health insurance penetration and can
spur premiums growth. Given the substantial financial implications, states are
currently weighing between a trust model and an insurance model. Based on the
available bidding data, the winners have on average quoted 12-13% below the L2
bidder and almost 70-87% below the highest bidder. Going by historical loss
experience of these mass health schemes, the non-life insurance industry estimated
a premium of INR 2,500-3,000 per family per year. However, as a) the government
negotiates package rates with hospitals and b) private hospital participation
increases; the scheme should become viable at reasonably lower premiums.
Currently, ICICI Lombard has not participated in the bidding process.

Exhibit 35. Universal Health Coverage – key highlights

Scheme National Health Protection Scheme: Ayushman Bharat Programme; New India 2022
INR 0.5 million per family (no restrictions on size) per year for secondary and tertiary
Coverage
hospitalization covering over 1,000 treatment packages
40% of population / 107.4 million poor families ( ~500 million beneficiaries) across both
Target
rural (76.29% of beneficiaries) and urban (22.19%) areas
a) States and UT with legislation: 60:40 between centre and state; b) UT without
Funding
legislation: 100% centre and c) 8 NE, Himalayan states: 90:10 between centre and state
Bid price
(INR / family / year) Type of insurer
Nagaland
Apollo Munich Health Insurance 444 Standalone Health
BAGIC 506 Private insurer
Reliance General Insurance 1,020 Private insurer
Religare Health 1,060 Standalone Health
Pure
National Insurance 1,944 PSU
Insurance
United India 1,944 PSU
model
New India No bid PSU
ICICI Lombard No bid Private insurer
Jharkhand Bidding details not out
Mizoram Bidding details not out
Meghalaya Bidding details not out
Gujarat
Oriental Insurance 361 PSU
Religare Health 445 Standalone Health
Hybrid model - IFFCO Tokio 2,712 Private insurer
Pvt insurer
Chhattisgarh
only bears
Religare Health 1,100 Standalone Health
claims upto
INR 50,000 BAGIC 1,270 Private insurer
United India 1,980 PSU
National Insurance 2,128 PSU
New India 3,750 PSU
Source: Media reports

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ICICI Lombard 10 September 2018

 Corporate insurance: It includes fire, marine, engineering, health and liability insurance.
The segment is witnessing faster growth across most property products. Key
differentiators for ICICI Lombard vs. peers are, a) risk selection, b) working with corporate
clients offering them risk mitigation/management strategies; as of Mar’18 the insurer has
worked with over 800 large, SME corporates and c) continued investment into digitisation
/ automation.

Exhibit 36. Fire Insurance as a % of total GDPI Exhibit 37. Steadily increasing presence as pricing improves
ICICI Lombard Industry
Fire - ICICI Lombard market share
9.5% 10.0%
9.0% 9%
8.2% 7.8% 7.5% 8%
7.4% 8.0% 7%
7.0% 7%
6.9%
6.0%

4.0%

2.0%

0.0%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18

Source: IRDA, JM Financial Source: IRDA, JM Financial

Fire Insurance: The segment’s GDPI posted a CAGR of 19% over FY15-18 while its
proportion has declined from 8.2% in FY15 to 7.4% in FY18. It consists of, i) large
risks are risks with a sum insured of >INR 25 bn at one location and are generally
co-insured by multiple non-life insurers. These are typically better-managed risks,
are sold with favourable terms, and include deductibles in line with international
market standards, ii) mid-sized risks generally are underwritten by a single insurer
and are the most competitive and iii) small risks are distributed by bank partners and
agents, typically bundled with other products, and have attractive pricing. The
company uses granular risks to de-risk the concentration of exposures and diversify
its fire insurance portfolio. Regarding growth, the company plans to focus on
infrastructure projects and emerging sectors such as solar to drive growth.

Exhibit 38. Marine insurance a % of total GDPI Exhibit 39. Hands-on risk management and SME focus key
ICICI Lombard Industry
Marine - ICICI Lombard market share
3.7% 3.6% 3.7% 14.0% 12% 13%
3.1% 3.2% 3.0% 12.0% 10%
10.0% 8%
2.3%
2.0% 8.0%
6.0%
4.0%
2.0%
0.0%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18

Source: IRDA, JM Financial Source: IRDA, JM Financial

Marine Insurance: The segment GDPI posted a CAGR of 14% over FY15-18 while its
proportion declined from 3.7% in FY15 to 3.0% in FY18. The company underwrites
insurance for normal, bulk and project cargo for both large and mid-sized corporate
clients. Currently, the company is focussing on innovative solutions, including loss
control consulting and growing the SME business.

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Exhibit 40. Engineering as a % of total GDPI Exhibit 41. Pick-up in infra activity + large contractor relationships
ICICI Lombard Industry lead to market share gain

2.8% Engineering - ICICI Lombard market share

2.6% 12.0% 11%
2.5% 2.5%
10%
2.0% 10.0% 8%
2.1%
1.8% 8.0%
6%
1.5%
6.0%
4.0%
2.0%
0.0%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18

Source: IRDA, JM Financial Source: IRDA, JM Financial

Engineering Insurance: The segment’s GDPI recorded a CAGR of 13% over FY15-
18, while its proportion in the overall portfolio declined from 2.6% in FY15 to 2.0%
in FY18. It offers long-term (including coverage for infrastructure and industrial
erection projects) and annual policies (consisting of contractor’s plant and
machinery insurance).

 Government Business Group (19% of GDPI as of FY18): This group caters to rural India
and includes various government programmes such as PMFBY and RWBCIS (weather
insurance) and RSBY (health insurance). The company uses multiple technology initiatives
such as the use of drones and remote sensing technology for crop yield estimation which
enables it to achieve operating efficiency, scalability of the business, manage risks and
facilitate faster claims settlement.

Exhibit 42. Crop insurance as a % of total GDPI Exhibit 43. High loss ratios + aggressive pricing driving caution
ICICI Lombard Industry Crop/Weather - ICICI Lombard market share
12.0% 11%
10%
20.1% 19.2% 10.0% 9%

16.1% 17.0%
8.0%
6.0%
7.3% 4.0%
5.5%
4.1% 5.0% 2.0%
na
0.0%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18

Source: IRDA, JM Financial Source: IRDA, JM Financial

Crop insurance: Crop/weather insurance is usually sold as an add-on to agricultural

loans. However, non-loanee sign-up is also promising with the segment making up
10% of total enrolments in FY18. The segment’s premiums posted a CAGR of
100% over FY16-18 with its proportion in the overall portfolio rising from 7% in
FY16 to 19% in FY18. This robust CAGR was primarily led by the implementation of
the PMFBY programme in 2016. In FY19 so far, the company has covered farmers in
4 states and 30 districts for the Kharif season. This number is down from the 7
states and 56 districts covered during Kharif in FY18 owing to a) rising competition
leading to aggressive pricing and b) reinsurance rates hardening. In line with the
cautious view on the product line, the insurer would continue to base its
underwriting on multiple criteria, including i) diversification across agro-climactic

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ICICI Lombard 10 September 2018

zones, ii) avoidance of coastal areas, and iii) past yield data and premium payment
history. It aims to cap exposure to crop insurance to 15-20% of its total GDPI.

— Other Insurance: Other insurance refers to insurance products including travel

insurance, aviation, credit insurance, home insurance, liability insurance, fidelity
insurance, event insurance and art insurance. This segment posted a CAGR of 6%
over FY15-18 while its proportion in the overall portfolio declined from 11.2% in
FY15 to 7.3% in FY18.

Exhibit 44. Other insurance as a % of total GDPI Exhibit 45. Selective risk-taking is key
ICICI Lombard Industry
Other insurance - ICICI Lombard market share
9.2% 10.0%
9%
8.0% 7% 7%
7.1% 8.0%
6.9% 6.5% 7.0% 6%
6.5% 6.5%
6.0%

4.0%

2.0%

0.0%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18

Source: Company, JM Financial Source: Company, JM Financial

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ICICI Lombard 10 September 2018

Multi-channel distribution network

 Distribution network complements a diverse product mix

ICICI Lombard has an extensive multi-channel sales network covering 638 of 716 districts
across India comprising direct, individual agents, bank partners and brokers. Other corporate
agents including over 27 NBFCs, three small finance banks, five other financial institutions,
and certain affiliates of manufacturers together contribute c.8% of GDPI. While the
Corporate Insurance Group relies on direct and broker channels, the Government Business
Group utilises direct channel for sourcing business. The Retail Group primarily utilises bank
partners, brokers, individual agents and the digital channel for its sales. The insurer is
currently investing in increasing its penetration into T3 and T4 cities primarily through the
agency and virtual office network. A large part of the growth strategy around SMEs depends
on adding experienced agents to its network (added 3,000+ agents YoY as of Jun’18) which
use relationship-based selling and service-quality to attract/retain SME clients.

Exhibit 46. Diversified distribution mix Exhibit 47. Distribution by business groups
100% Retail (individual,
Corporate Government
24% SME)
29% 32% 31% 34%
80% 38% 42%
2% Direct   
2% 2% 2% 2%
60% 2% Online Channel 
2%
53% 47% 43% 41% 
40% 40%
41% 36% Broker   (non-loanee
farmers)
20% 6% 6% 7% 9% 7%
7% 7% Bank Partners  
15% 17% 16% 17% 16% 12% 12%
0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 Other corporate agents 
Agency Banca Direct Online Broker and others
Individual Agents 
Source: Company, JM Financial
Source: Company, JM Financial

 Retail Insurance Group: caters to individual and SME customers offering motor, health,
home, travel and personal accident insurance. The company follows a location specific
strategy i.e. a) For top 20 cities, it follows a centralised vertical approach given the similar
demand patterns in these locations; b) For locations outside top 20 cities, it follows a
decentralised branch-level approach with focus on certain products and channels. The
company is currently present in over 200 cities (outside the top 20 cities) supported by
more than 5,000 individual agents. It also uses a network of 140+ virtual offices to cater
to small and remote locations.
Motor Vehicle Manufacturers (MVM): ICICI Lombard currently has agreements with over
85% of the MVMs (by vehicle sales in FY18) providing access to over 210 dealer locations
which play a key role in distributing insurance products. Such MVMs include Maruti
Suzuki India, Hyundai India, Hero MotoCorp and Honda Motorcycle and Scooter India. A
strong relationship with such dealers coupled with constant product innovation (support
solutions like roadside assistance) and various digitisation initiatives (such as mobile-based
cashless claims) has helped ICICI Lombard to achieve market leadership in the motor
insurance segment (18% market share in private motor OD; 13% market share in private
motor TP as of YTD Jul’18).

Recently implemented MISP guidelines has resulted in a) greater transparency in dealer-

insurer set-up, b) reduction in distribution costs (commissions capped at 22.5% for 2Ws
and 19.5% for four-wheelers and SUVs from the earlier 25-30%) a part of which will be
passed back to customers through discounts. Moreover, in terms of dealer market share,
the company expects minimal impact given the huge volumes generated by its insurance
policies and claims-servicing capabilities.

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Exhibit 48. MVMs + direct growing in importance Exhibit 49. In-depth look into individual channels
100% Channel Description
OEM’s/Dealers 20 Motor Manufacturer’s & 6,000+ Distributors
80% 41% 40% 41% 41%
Agents Brokers 23,800 + agents/brokers
60% Direct sales force Corporate: 1,000+ active customers
13% 5% 9%
12% 8% Government: Health, PA, Crop
40% 7% 7%
9% 7% 6% Banks/FIs 30+ banks/FIs; Access to 6,211 branches
12% 11%
17% 16% 2,100+ active touch points
20%
26% 23% Website 8,00,000+ unique visitors/month
17% 19%
0% Call center 2,00,000 calls/month
FY15 FY16 FY17 1Q18 Branches 253 branches pan India
MVMs Indiv. agents Banks Corp. agents Brokers Digital Direct 140+ virtual offices
Source: Company as of latest disclosures, JM Financial Source: RHP, JM Financial

SME channel: It has a specialised SME vertical with, i) focus on underpenetrated channels
such as individual agents in reaching them; ii) use of technological platforms such as
mobile based inspections; iii) increasing penetration into non-metro cities; iv) focus on
profitable products such as liability insurance and over-the-counter products and v) access
to value-added services such as MLCE (Marine Loss Control Engineering) and PLPE
(Property Loss Prevention Exercise).

Key Relationship Group (KRG): This group is responsible for collaborating with various
banks and financial institutions for distribution and has established partnerships with over
85 entities including 3 banks, +27 NBFCs, 3 small finance banks and 5 other financial
institutions. Currently, the insurer enjoys exclusive partnership with ICICI Bank through
which it sells motor, health, personal accident, property and liability insurance. The sales
utilise the branch network, direct physical sales, online sales, mobile apps and lead
management at PoS. Banca-channel (ICICI Bank) generated 7% of the total GDPI in FY18
which is one of the lowest among bank-promoted peers HDFC Ergo (20% premiums
from banca channel) and SBI General (46% premiums from banca channel).

Individual Agents: Has the 3rd largest individual agency forces at 23,811 among private
sector non-life companies in India. They exclusively sell to individual and SME customers.
The company continues to invest in its agency channel while leveraging technology to set
up virtual offices for its agents. Moreover, the insurer is witnessing in-ward migration of
experienced agents over the last year.

Exhibit 50. Individual agency growing since FY15 Exhibit 51. Premium per agent falls in line with granular focus
Avg. ticket sizes (INR' 000)
Individual agents (#)
25,000 23,395 750 725
706
20,383
700
20,000 17,848
16,075 634 629
650
15,000 600

10,000 550
500
5,000
450
0 400
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18

Source: Company, JM Financial Source: Company, JM Financial

 Corporate Insurance Group: Primarily focusses on fire, marine, engineering, health and
liability segments for corporate clients and includes: i) corporate solutions group that
provides insurance solutions to large corporations across industries; ii) specialised industry
group that caters to large clients in specialised business segments, including customers in

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ICICI Lombard 10 September 2018

the oil & gas, aviation and construction sectors; iii) SME group which focusses on MSMEs
across industries and iv) international business group that covers international risks of
Indian corporate clients. Given the high competitive intensity in this segment, the
company has focused on providing customised risk management/mitigation solutions to
clients. As of Mar’18, the insurer has worked with over 800 large, SME corporates

Direct channel: ICICI Lombard has one of the largest direct sales forces for corporate
business in the industry consisting of c.200 experienced employees responsible for client
acquisition, retention, servicing and providing risk management solutions. The direct
engagement model helps to strengthen relationships, thereby enhancing retention rates.

 Multi-segment channels include

Digital channel: Includes online sales and sales through mobile platform contributing
c.2.0% of its overall GDPI. The company has +10 years of experience in digital sales and
pioneered the online channel within the non-life insurance industry in FY05. Over the
years, it has built up expertise in search engine optimisation and search engine marketing
tools.

Brokers: Apart from catering to corporates, SME clients and MVMs, they are instrumental
in the enrolment of non-loanee farmers under the PMFBY programme.

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Disciplined underwriting paying-off

ICICI Lombard’s combined ratios have improved significantly from 105% in FY15 to 100% in
FY18. The improvement has been driven by two factors: a) its loss ratio declined to 77% in
FY18 vs. 81% in FY15 driven by superior risk selection within existing retail lines such as
motor/health and reducing exposure to loss-making wholesale lines such as commercial
motor and corporate health and b) its expense (ex-commissions) ratio improved to 27% in
FY18 vs. 31% in FY15 as the company continued to invest in automation and digitisation
initiatives to control costs. In 1QFY19, combined ratios further improved to 98.8% (102% in
1QFY18).

 Improving loss ratio trend ICICIGI’s loss ratio increased marginally to 81.6% in FY16 (from
81.4% in FY15) primarily due to the impact of adverse weather conditions on crop
insurance claims and the impact of the Chennai floods (0.84% impact on loss ratio). It
improved to 76.9% in FY18 due to better loss experience within the retail lines and
reduced exposure to loss-making large group health and mass health business. FY18 also
saw reserve strengthening in a) crop insurance as it faced adverse loss experience in the
Kharif book and b) dismantled motor TP business which together came to INR 710mn.

Exhibit 52. Loss ratio trend Exhibit 53. Loss ratio mix
110% 100 %
101%

25%

39%
18%

12%

12%
80%
96%

25%

27%
28%
100%

30%

30%

30%
60%
89%

96%
71%

71%
71%

71%
90% 40%

63%
83% 83%

57%

53%
81% 82% 81%

50%

47%

46%

46%
20%
77% 76% 76%76%
80% 0%

-14%
(20%)
70%
(40%)
FY10

FY12

FY14

FY16
FY11

FY13

FY15

FY17

FY18E

FY20E
FY19E

FY21E
60%
FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY15

FY16

FY17

FY18
FY14

Claims paid Change in clai ms reserves

Source: Company, JM Financial Source: Company, JM Financial

Exhibit 54. Product-wise loss ratios

Segment FY15 FY16 FY17 FY18
Own Damage 62% 66% 64% 54%
Third-party 106% 98% 97% 107%
Overall Motor 80% 80% 79% 77%
Health 88% 85% 98% 78%
Personal Accident 80% 64% 41% 24%
Health and PA 87% 82% 90% 68%
Crop/weather 140% 84% 135%
Fire 95% 64% 68% 43%
Marine 99% 95% 86% 54%
Engineering 78% 69% 53% 24%
Other 75% 70% 62% 57%
Total loss ratio 81% 82% 80% 77%
Source: Company, JM Financial

 Motor insurance: Motor OD has historically been a profitable product line with CORs at
80-97% over FY15-18. This is in line with the insurer’s product mix, which has a higher
share of profitable private car and two-wheeler insurance. While Motor TP combined
ratios continued to be at 130-135%. In terms of loss ratios, Motor TP posted a healthy
improvement during 1QFY19 to 91% loss ratio vs. 98% last year primarily given the
selective and controlled participation in CV segment. Regarding annual motor TP tariff
hike, average rate hike for the industry came down in FY19 to c.6.1% as against an
average hike of 15.3% for FY18 making risk-selection very important. Moreover, the
company does not benefit from this given that the hikes are primarily in the large CV
segment where ICICI Lombard is not present. Given the company’s TP mix, the portfolio
only saw a price increase of 1.8% for FY19. Going forward, the insurer may
opportunistically look to enter the commercial vehicles space given improved pricing and

JM Financial Institutional Securities Limited Page 19

ICICI Lombard 10 September 2018

supportive structural factors like better vehicle design, improved roads, mandatory speed
governance for commercial vehicles and data analytics to identify accident hotspots.

Exhibit 55. Motor TP has seen meaningful price increases Exhibit 56. Divergence in CORs of motor OD and motor TP
160%
35 137% 131% 135%
140% 130%
9%
30 11%
18% 120%
97% 97%
25 100% 87%
23% 84%
10%
20 27% 80%
15 60%
10 40%
5 20%
0 0%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18
Motor OD - GDPI (INRbn) Motor TP - GDPI Motor OD - COR Motor TP - COR
Source: Company, JM Financial Source: Company, JM Financial

Exhibit 57. Favourable loss experience in Motor OD keeps COR low Exhibit 58. Motor TP COR remain high in line with long-tail reserving
70% 62% 63% 200%
60% 167%
60% 150%
51%
50%
100% 72% 67% 77%
40%
50% 30% 30%
26%
30%
0%
20%
10% -50%
1% 3% 1% 2%
0% -100% -62%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18

Loss ratio - Claims paid Loss ratio - Chg in reserves Loss ratio - Claims paid Loss ratio - Chg in reserves
Source: Company, JM Financial Source: Company, JM Financial

Exhibit 59. After robust price increases of FY17-18, the regulator reduced rates for select
categories of private cars, private carriers and 2Ws for FY19
YoY%
Motor TP Premium (in INR) FY17 FY18 FY19 FY17 FY18 FY19
Private Cars
less than 1,000cc 2,055 2,055 1,850 40% 0% (10%)
> 1,000cc and not exceeding 1,500c 2,237 2,863 2,863 40% 28% 0%
> 1,500cc 6,164 7,890 7,890 25% 28% 0%
Goods carrying vehicle public carriers A1
Not exceeding 7,500kg 14,390 14,390 14,390 0% 0% 0%
> 7,500 kg but not exceeding 12,000kg 15,365 19,667 24,190 0% 28% 23%
> 12,000kgs but not exceeding 20,000 kg 22,577 28,899 32,367 15% 28% 12%
> 20,000kg but not exceeding 40,000 kg 24,708 31,626 39,849 25% 28% 26%
> 40,000 kgs 25,800 33,024 38,308 30% 28% 16%
Goods carrying vehicle private carriers A2
Not exceeding 7,500 kg 7,849 7,938 7,144 (10%) 1% (10%)
> 7,500 kg but not exceeding 12,000 kg 11,528 14,330 15,620 30% 24% 9%
> 12,000kgs but not exceeding 20,000 kg 9,390 9,871 9,871 5% 5% 0%
> 20,000 kg but not exceeding 40,000 kg 12,821 14,805 15,397 15% 15% 4%
> 40,000 kgs 16,655 21,318 21,318 20% 28% 0%
Two Wheelers
Not exceeding 75cc 569 569 427 10% 0% (25%)
> 75 cc but not exceeding 150 cc 619 720 720 15% 16% 0%
> 150cc but not exceeding 350 cc 693 887 985 25% 28% 11%
> 350cc 796 1,019 2,323 (10%) 28% 128%
Source: IRDA, JM Financial

JM Financial Institutional Securities Limited Page 20

ICICI Lombard 10 September 2018

Positive catalysts for an improvement in Motor TP underwriting performance are a)

passage of the Motor Vehicle Amendment Act, currently pending in Rajya Sabha, which
aims to introduce a 6-month time limit for claim filing to aid faster, more accurate claims
processing, thus reducing uncertainty and capping claims inflation and b) improving
expense ratios following MISP guidelines (effective from Nov’17) that bring erstwhile un-
regulated motor dealers selling policies within IRDA supervision. This will aid in i) reducing
dealer pay-outs as historically non-life insurers were paying dealers infrastructure and/or
outsourcing expenses with resulting commission rates at 25-30%. After MISP, they will be
capped at 22.5% for 2Ws and 19.5% for four-wheelers and SUVs, ii) better claims
management especially at the dealer-end; c) robust outlook for new motor sales given
low personal vehicle penetration (19 cars / 1,000; 127 two-wheelers/1,000); d) other
provisions of the Motor Vehicle Amendment Act such as, i) higher penalties for traffic
violations, ii) stricter licensing norms; and e) Supreme Court Committee on Road Safety
recommendation resulted in a mandatory 3-year motor TP policy for cars and 5-year
policy for motorbikes at the time of sale and registration to tackle poor renewals (number
of registered but uninsured vehicles currently stands at c.60% of total vehicles). Although
positive from a penetration/ compliance viewpoint, the price adequacy still needs to be
tested given that the proposed tariffs vary from adjusted existing prices in the range of
+3% to –51% for cars and 2Ws.

Exhibit 60. Long-term motor TP for private cars – 3 years Exhibit 61. Long-term motor TP for 2Ws – 5 years
1-yr 3-yr 3*(1-yr) 1-yr 5-yr 5*(1-yr)
Private car Diff % 2Ws Diff %
(INR) (INR) (INR) (INR) (INR) (INR)
Less than 1,000cc 1,850 5,286 5,550 -5% Less than 75cc 427 1,045 2,135 -51%
75cc to 150cc 720 3,285 3,600 -9%
1,000cc to 1,500cc 2,863 9,534 8,589 11%
150cc to 350cc 985 5,453 4,925 11%
Exceeding 1,500cc 7,890 24,305 23,670 3% Exceeding 350cc 2,323 13,034 11,615 12%
Source: IRDA Source: IRDA

 Health insurance: Retail heath continues to be the largest sub-sector (>60% of total
health GDPI) and is also most profitable in terms of underwriting performance. Within
retail health, both indemnity portfolio (60% loss ratio as of Dec’18) and benefit portfolio
(45.7% loss ratio) have been profitable. Problematic corporate/group health premiums
have witnessed 20% YoY growth in FY18 driven by price corrections initiated in the
industry for both retail and corporate/group lines. Loss ratios in the group health segment
improved to 88% in FY18 vs. 104% last year driven by, a) change in expense allocation
method and b) higher share of SME business. Mass health segment premiums should
continue to shrink as the insurer is very cautious on the whole government segment. As
such, loss ratios for this product would continue to improve.

Exhibit 62. Total health GDPI YoY growth Exhibit 63. Total health – quarterly underwriting performance
14 U/W result (INRmn) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19

12 Retail Health 957 1,228 1,285 969 939

29% Corporate Health (12) (316) (204) (437) (1,029)
10 19%
8% Mass/Govt. Health (186) 36 (127) 136 (40)
8 Source: Company, JM Financial
18% (2%) 20%
6 ICICIGI is sourcing the business at a viable
loss ratio as tracked internally. U/W loss is
4 (86%)
197% optically higher as bulk of business sourced
(50%)
2 at quarter-end thus requiring up-fronting
0 of acquisition costs.
FY15 FY16 FY17 FY18
Retail Health - GDPI (INRbn) Corporate - GDPI Mass - GDPI
Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 21

ICICI Lombard 10 September 2018

 Corporate/group health insurance witnessed meaningful price correction

The corporate health segment, which represents 35% of health GDPI has historically
impacted profitability due to the lack of pricing discipline among insurers given strong
bargaining power of corporate customers. Insurers have historically used the more
profitable retail health to offset losses in the corporate health portfolio. However, since
the Sep’17 public listing of industry leaders, ICICI Lombard (#1 in private sector) followed ICICI Lombard Market share:
by New India Assurance (NIA) (#1 in public sector), the non-life industry has benefitted 7% - Retail Health;
from the price correction initiated by them in the group/corporate health portfolio. From 6% - Corporate/Group Health;
exhibit 64/65, it is evident that premiums growth is stronger in recent quarters vs. last 1% - Government/Mass Health
year.
New India Market share:
Listed public peer, New India Assurance, witnessed group health (24% market share as of
14% - Retail Health;
YTD-Jul’18) loss ratios falling to 110% in FY18 vs. 125% last year largely due to price
24% - Corporate/Group Health;
corrections. The management expects this ratio to further decline to c.100% by FY19.
34% - Government/Mass Health
Moreover, even the retail health (14% market share as of YTD-Jul’18) loss ratio has
declined to c.78% vs. 85% last year largely owing to price increases effected for both
new policies (effective Apr’17) and for renewal policies (effective Aug’17). The full benefit
of retail price increases is expected over 2018-19. Price corrections have ranged from 20-
40% depending on the claims experience of the individual corporate/group accounts.
Using its dominant position in government/mass health (34% market share as of YTD-
Jul’18) business, New India has been able to push some price correction even in those
accounts. Overall, the management is targeting a total health portfolio loss ratio of
c.95% by FY19 vs. 103% in FY18. Moreover, NIA along with other PSU insurers invested
in a captive TPA which has in-house doctors to curb medical costs inflation and improve
health claims management. All this augurs well for private players in general and ICICIGI
in particular.

Exhibit 64. Contribution of health premiums is higher for public Exhibit 65. Premiums YoY growth is coming from both higher no. of
insurers given higher participation in group/mass health schemes policies and higher pricing in the corporate/group policies
Total Health GDPI Total Health GDPI
1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19
share % YoY %
ICICI Lombard 15% 13% 14% 18% 17% ICICI Lombard -18% 18% 29% 34% 26%
HDFC Ergo 12% 12% 14% 39% 18% HDFC Ergo 16% >100% >100% 56% 39%
BAGIC 19% 12% 18% 17% 30% BAGIC 44% 7% 41% 63% 103%
SBI Gen 12% 10% 13% 17% 12% SBI Gen 71% 46% 35% 3% 44%
Reliance Gen 25% 15% 9% 11% 30% Reliance Gen >100% >100% 82% 47% 45%

New India Assurance 33% 25% 30% 27% 36% New India Assurance 21% 6% 26% 18% 23%
Source: IRDA, JM Financial Source: Company, JM Financial

 Crop insurance dynamics changing with rising competition and hardening reinsurance
commissions rates

For ICICI Lombard, growth in crop insurance premiums (10% YoY growth in FY18) has
been slower than the overall company (15% YoY growth) and the industry (19% YoY
growth) in keeping with the cautious stance adopted by the management. The business
line has become less attractive as increasing competition erodes pricing and the largest
reinsurer, GIC Re tones down commission rates and introduced EOL clauses. In FY18,
adverse loss experience in Kharif underwriting in Tamil Nadu resulted in 8% escalation in
loss ratio to 78.5% in 4QFY18 (ex-crop, loss ratio was 70.5%). For FY18, crop loss ratio
increased to 135% vs. 84.2% last year. Going forward, the company plans to cap
contribution of crop insurance at 15-20% and as such premiums growth is set to be
muted for this segment.

JM Financial Institutional Securities Limited Page 22

ICICI Lombard 10 September 2018

Exhibit 66. Crop insurance: contribution to total GDPI & retention Exhibit 67. Crop insurance: Loss ratios and Commissions ratio
25% 23% 23% 140%
150% 135%
20% 19%
20% 19%
100% 84%
15%
50%
10% 7% 0%
5% (25%)
-50% (30%)
(43%)
0% -100%
FY16 FY17 FY18 FY16 FY17 FY18
Crop insurance - GDPI % Crop insurance - Retention % Loss ratios Commission ratio
Source: Company, JM Financial Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 23

ICICI Lombard 10 September 2018

 Conservative reserving policy

ICICI Lombard became the first Indian insurer to disclose reserving triangles. As we can
see, the insurer has faced no reserve shortages in 7 / 10 accident years indicative of its
prudent approach to reserving. A substantial share of the company’s reserves relate to
motor third-party liabilities which typically have a longer claims reporting / settlement
cycle vs. other products. Since FY17 another long-tail business, crop insurance was added
to the IBNR reserving (was 42% of total IBNR reserves on gross basis; net would be lower
due to high reinsurance). Apart from inflation, other specific factors such as medical cost
trends, wage rate development and changes in legislation and social attitudes impact
claims reporting, magnitude of court awards and thereby claims reserving.

In FY18, total reserves recorded a 35% YoY growth (vs. 44% YoY growth in FY17) led by
43% YoY growth in IBNR reserves on account of i) reserve strengthening in crop
insurance owing to adverse loss experience in Tamil Nadu (Kharif), ii) dismantled motor TP
pool reserve strengthening. Total reserve strengthening amounted to INR 710mn in FY18.
Started “Declined” Motor IRDA dismantled all pooling
Pool. Higher Motor TP arrangement. Market share
prices - linked to inflation + based formula to decide
claims experience. min. commercial motor
TP to underwrite
Exhibit 68. Accident year – ultimate loss development (INR bn)
AY 08 AY 09 AY 10 AY 11 AY 12 AY 13 AY 14 AY 15 AY 16 AY 17 AY 18
End of 1st year 25.23 12.85 15.13 20.66 22.53 27.97 35.96 34.16 39.13 49.49 52.41
1 year later 26.15 13.24 15.23 20.44 21.97 27.02 34.63 33.95 38.58 49.20
2 years later 26.62 13.03 15.39 20.41 21.74 26.52 34.37 33.53 38.07
3 years later 26.84 13.21 15.52 20.36 21.85 26.40 34.29 32.91
4 years later 27.28 13.35 15.55 20.47 21.83 26.46 33.85
5 years later 27.84 13.39 15.66 20.48 21.81 26.21
6 years later 27.92 13.46 15.91 20.53 21.83
7 years later 28.42 13.53 15.96 20.67
8 years later 28.58 13.50 16.02
9 years later 28.74 13.62
10 years later 28.76
10.25 years later
Deficiency/ (Redundancy) (%) 14.0% 6.0% 5.9% 0.0% -3.1% -6.3% -5.9% -3.7% -2.7% -0.6%
Source: Company, JM Financial

Among major non-life insurers, only ICICI Lombard (motor TP market share: 7%) and
Reliance General (motor TP market share: 4.4%) have disclosed accident year reserving
triangles. As is evident, during the motor TP “pooling” phase, both ICICI Lombard and
Reliance General faced significant reserves shortfall due to uncertainty of the policies
being underwritten by pool members. Since the changes in the Motor TP rules for
commercial vehicles, insurers have witnessed better reserve adequacy.

Exhibit 69. Reliance General: Accident year wise – ultimate loss development (INR bn)
AY 08 AY 09 AY 10 AY 11 AY 12 AY 13 AY 14 AY 15 AY 16 AY 17
End of 1st year 6.52 8.69 9.24 8.85 7.67 9.60 14.15 16.64 16.30 16.54
1 year later 6.53 8.97 9.50 8.85 7.29 9.02 13.64 16.18 15.98 16.28
2 years later 6.76 9.17 9.99 8.94 7.41 8.96 13.85 15.78 15.92
3 years later 7.27 9.60 10.32 9.14 7.47 9.39 13.71 15.85
4 years later 7.58 9.84 10.65 9.33 7.83 9.68 13.72
5 years later 7.78 9.99 10.89 9.64 7.93 9.70
6 years later 7.91 10.13 11.33 9.77 7.94
7 years later 7.99 10.23 11.53 9.78
8 years later 8.03 10.39 11.56
9 years later 8.11 10.41
10 years later 8.15
10.25 years later
Deficiency/ (Redundancy) (%) 25.0% 19.8% 25.1% 10.6% 3.4% 1.1% -3.1% -4.8% -2.3% -1.6%
Source: DRHP

JM Financial Institutional Securities Limited Page 24

ICICI Lombard 10 September 2018

 One of the lowest net expense ratios among private insurers

ICICI Lombard has the lowest expense ratio in the industry at 23.3% for FY18 vs. private
peers’ average of 30%. For 1QFY19, the net expense ratio was 22% vs. 24.3% last year.
This improvement is due to, a) favourable regulations: MISP guidelines capping
distribution commissions, b) higher productivity: inward migration of experienced agents
who are premium accretive from Day1 and c) continued investment into
automation/digitisation. The support of crop reinsurance commissions reduced YoY with
net crop commissions/net crop premium at 25% in FY18 vs. 30% in FY17. However, this
gap is being filled by better reinsurance rates in the group health business (net health
commissions/ net heath premiums increased to 22% in FY18 vs. 20% last year). As the
insurer focusses on better quality business within SME and select corporate/commercial
vehicle business, the expense ratio may trend upward but the loss ratios will be superior.
Moreover, as competition increases market share is shifting to insurers such as ICICI
Lombard who are service-oriented and more efficient.

The company has leveraged technology to improve its operational efficiency and has
implemented various processes including: i) migration to cloud technology platform, ii)
introducing mobile app for motor service centres to quicken claims inspection and
processing, iii) virtual risk inspections for fire and engineering policies issued to SMEs
without any intermediary, iv) telematics-based insurance for motor insurance customers
to help them obtain information on their vehicle’s performance, monitor fuel efficiency
and benefit from road travel safety features, v) mobile app for customers to facilitate self-
inspection and policy renewal, vi) investment into drone technology to inspect wind
turbine and solar photovoltaic modules in order to identify defects and improve efficiency,
and vii) automating various internal processes through the use of robotics and invested in
technologies like AI to reduce human intervention in the policy issuing process. This has
resulted in faster turnaround times with c.90% of new business applications initiated
through digital platform. Consequently, number of policies issued has increased by c.20%
over FY15-18 while employee productivity (GDPI per employee per annum) has improved
from INR 8.86mn in FY15 to INR 15.3mn in FY18 at a CAGR of 20%.

Exhibit 70. Expense ratio trends Exhibit 71. Expense ratio - composition
50% Segment FY15 FY16 FY17 FY18
Own Damage 25.7% 31.7% 33.0% 32.8%
40% Third-party 33.8% 33.5% 33.0% 27.7%
Overall Motor 29.5% 32.5% 33.0% 30.6%
30% 25%
21% 24% 25% 23% 23% 22% 22%22% Health 7.9% 6.4% 5.7% 3.8%
22%
Personal Accident 16.8% 22.7% 23.1% 26.6%
20% Health and PA 9.3% 9.3% 8.9% 8.4%
20% 20%
Crop/Weather (25.5%) (19.8%) (12.1%) (11.7%)
10%
Fire 1.0% (25.3%) (10.0%) 1.7%
Marine 31.2% 32.1% 34.2% 30.9%
0%
Engineering (10.1%) (1.8%) 4.1% 23.0%
FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY15

FY16

FY17

FY18
FY14

Other 43.0% 41.0% 40.3% 44.6%

Total Expense ratio 23.5% 25.5% 23.5% 23.3%
Source: Company, JM Financial
Source: Company, JM Financial

 Combined ratio among the lowest in the industry

ICICI Lombard benefits from its superior risk underwriting and operating efficiency which
helps keep both loss and expense ratios in check. Its combined ratio has increased from
104.9% in FY15 to 107.1% in FY16 primarily due to the impact of adverse weather
conditions on crop insurance claims and the impact of the Chennai floods in FY16. It
however improved from 107.1% in FY16 to 104.1% in FY17 due to the improvement in
the loss experience in the motor and crop insurance portfolios. In FY18, the combined
ratio improved to 100.2% driven by focus on profitable retail segments and exiting loss
making large corporate health/mass health business. This improvement carried into
1QFY19 with combined ratio of 98.8% vs. 102.4% last year.

The recent Kerala floods are expected to have minimal impact on the combined ratio as
ICICIGI generates only 0.70% of FY18 gross premiums from the state. This is 1.57% of
JM Financial Institutional Securities Limited Page 25
ICICI Lombard 10 September 2018

the total non-life premiums for Kerala in FY18. In 1QFY19, the insurer underwrote 0.51%
of total gross premiums in Kerala. Most of the premiums are from motor, property and
health insurance (exited mass health scheme in Kerala in FY16) lines which have
historically been adequately reinsured and reserved.

Exhibit 72. Combined ratio trend Exhibit 73. Segment-wise combined ratio
80% Segment FY15 FY16 FY17 FY18
Own Damage 87.4% 97.1% 97.7% 86.5%
90%
98% 97% Third-party 139.6% 131.2% 130.4% 134.9%
98%
100% Overall Motor 109.6% 112.7% 112.2% 108.0%
100%
104% Health 96.8% 92.5% 103.5% 81.4%
110% 105% 105% 107% 104% Personal Accident 96.4% 87.0% 64.5% 50.4%
Health and PA 97.1% 92.5% 99.1% 76.7%
120% 114% Crop/Weather 54.5% 120.1% 72.1% 123.4%
116%
121% Fire 97.0% 39.0% 58.4% 41.4%
130%
Marine 129.9% 127.0% 120.5% 85.1%

FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18
Engineering 64.2% 69.6% 57.4% 47.0%
Source: Company, JM Financial Other 98.3% 110.2% 102.5% 101.9%
Combined ratio 104.9% 107.1% 104.1% 100.4%
Source: Company, JM Financial

 Comparison to global non-life insurance players

Combined ratios for Indian insurers seem slightly higher than developed countries' peers
due to a combination of both regulatory (allows claims reserve discounting; “cash before
cover”) and market (better discipline; higher awareness) factors.

Exhibit 74. Combined ratios for Indian insurers vs. global peers
140 %

120 %
117%
111%

100 %
105%
104%

103%
102%

101%
100%

100%
99%

99%
98%
97%

96%
96%

95%
95%

94%
94%
94%

93%
92%

92%

80%
90%
90%

88%

60%

40%

20%

0%
Hartfor d
Tokio M ari ne

Zurich Ins.
Bajaj Al lian z

Sompo
Chu bb
PICC P& C

Allstate
SBI Gen

RSA
Trav elers

Admiral
Don gbu
Reliance

Hyu ndai M ar.

Chin a Re
ICIC I Lo mb ard

HDF C Ergo

AIG

Markel

Allianz
Progressive

Direct Line
MS&AD

Mapfre SA
Samsung F&M

I ndia China/HK Korea Japan USA UK & Europe

Source: Company, JM Financial; Combined ratios for global peers taken on “as-reported” basis

JM Financial Institutional Securities Limited Page 26

ICICI Lombard 10 September 2018

Superior investment performance

In keeping with the nature of the business, majority of the investments are into fixed income
followed by equities, mutual funds and real estate. IRDAI as per the Investment Regulations,
2016 stipulates investment limits in central/state government securities, other approved
securities and housing/infra investment thereby controlling around 45-50% of the investible
funds.

Within the fixed income portfolio (83% of the total investments are into sovereign and AAA
rated securities), the company has experienced zero instance of default and only 6 ratings
downgrades in the insurer’s over 10 years of operations. Moreover, equity investments
accounted for 15% of the investments – highest share vs under 10% for peers.

Exhibit 75. Investment mix Exhibit 76. Investment leverage to remain stable
100% 4.50
12.1% 15.3% 18.6% 17.7% 4.0 4.0
22.9% 21.5%
80% 4.00 3.7 3.6 3.6
3.4 3.4 3.5
60%
3.50 3.2 3.3
3.00
87.9% 84.7% 81.4% 82.3%
40% 77.1% 78.5% 2.4
2.50
2.1
20% 2.00

0% 1.50
FY13 FY14 FY15 FY16 FY17 FY18

FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18
Fixed income Others
Source: Company, JM Financial Source: Company, JM Financial

From a solvency perspective, fixed income securities are not subject to MTM through P&L
account which allows the company to take a medium to long-term view in terms of duration.
The company has a fairly balanced fixed income portfolio with 46% of funds invested in
securities with a maturity greater than 7 years.

Exhibit 77. Fixed income by maturity Exhibit 78. Fixed income by credit ratings
100% 100% 5% 5% 5% 5%
11% 8% 7% 8% 10%
16% 20% 17%
31% 33%
80% 17% 11% 38% 43% 80%
54% 50% 40%
51% 48% 42%
10%
26% 51% 50%
60% 27% 60% 68% 66% 45%
8%
12% 5%
47% 36%
40% 26% 21% 13% 26%
40%
26% 24% 36%
9%
12% 54% 49%
20% 9% 16% 16%
10% 20% 45% 41% 44% 39% 37%
12% 29%
20% 24% 6% 9% 11% 26%
16% 12% 14% 12% 9% 10% 7%
0% 0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
< 1 year 1-3 years 3-7 years 7-10 years > 10 years Sovereign AAA AA or above AA –
Source: Company, JM Financial Source: Company, JM Financial

 Strong investment performance; Higher yields bodes well for fixed income book

Historically, healthy investment performance has boosted bottom-line profitability. Using

S&P NIFTY as a benchmark, since FY04, its listed equity portfolio has generated a total
annualised return (including unrealised gains) of 29.8% vs. 17.0% for the benchmark. On
the fixed income side, yields (ex- equity, real estate) were 7.7% in FY18 vs 8.2% over the
last 5 years.

Higher rate environment bodes well for ICICI Lombard: The insurer should benefit in the
current rising interest rate environment as can be seen in Exhibit 80 where the book yield
(ex-capital gains) moves in tandem with market yields.

JM Financial Institutional Securities Limited Page 27

ICICI Lombard 10 September 2018

Exhibit 79. Investment yield movement Exhibit 80. Yield movement vs market yields
18% 15.7%
10%
15%
13% 10.8%
10.1% 9.8% 9.8% 9%
9.2% 9.2%
10% 7.6% 8.0%
10.1% 10.2% 8%
8% 9.3% 9.7% 9.9% 9.3%
8.0%
5% 7.2% 7%
5.8%
3%
6%
0% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
FY10

FY12

FY13

FY14

FY16

FY17

FY18
FY11

FY15
Yiel d on to tal investment ex realised gains
Govt. secondary mkt yield - 5 years
Invt yield - P/H (% ) Invt yield - S/H (% ) Cor p. AAA mkt yi eld - 5 years
Source: Company, JM Financial Source: CMIE, Company, JM Financial

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ICICI Lombard 10 September 2018

Both profit engines firing-up

Historically, investment performance has been a key driver of PAT as combined ratios
remained meaningfully above 100% over FY12-17. RoEs averaged 10% during this period.
Now, with underwriting performance turning positive, the insurer is on track to deliver 21%
ROE by FY21E led by improvement in underwriting profitability, strong investment
performance and operating efficiency. We forecast earnings CAGR of 24% over FY18-21E
with ROE of 21% in FY21E.

Exhibit 81. Underwriting contribution to PAT turns positive Exhibit 82. ROE trends
25

30% 22% 21%

15 19% 17% 19% 20%
20% 16% 14% 16%
5 5%
10%
0%
(5)
(10%)
(8%)
(15) (20%)
FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

(30%) (26%)

FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18
Underwriting profit (loss) Investment income PBT
Source: Company, JM Financial Source: Company, JM Financial

Exhibit 83. Dupont Analysis

FY15 FY16 FY17 FY18 FY19E FY20E FY21E
NEP/Avg assets 29% 30% 30% 26% 26% 26% 25%
Claims paid/Avg assets (28%) (17%) (16%) (13%) (12%) (12%) (12%)
Change in reserves/Avg assets 4% (7%) (8%) (7%) (8%) (8%) (7%)
Total claims/Avg assets (23%) (25%) (24%) (20%) (20%) (19%) (19%)
Loss ratio 81% 81% 80% 77% 76% 76% 76%
Total expenses/Avg assets (7%) (9%) (8%) (7%) (6%) (6%) (6%)
Expense ratio (on NEP) 25% 29% 25% 26% 24% 24% 24%
Underwriting profit/Avg assets (2%) (3%) (2%) (1%) (0.1%) 0.1% 0.2%
Investment income/Avg assets 7% 7% 6% 6% 5% 6% 6%
Other income/Avg assets 0% 0% (1%) (1%) (1%) (1%) (1%)
PBT/Avg assets 5% 4% 4% 4% 5% 5% 5%
Tax/Avg assets (1%) (1%) (1%) (1%) (1%) (2%) (2%)
PAT/Avg assets (ROA) 4% 3% 3% 3% 3% 4% 4%
ROE 19% 14% 16% 17% 19% 20% 21%
Source: Company, JM Financial

 Negative drag from underwriting to come down driven by lower loss ratios
ICICI Lombard’s underwriting performance has improved in line with IRDA’s efforts such
as de-tariffication, dismantling pooling arrangements and shifting to annual, inflation
linked pricing for Motor TP. Loss ratios have improved from 96% in FY11 to 76.9% for
FY18 – driven by increasing retailisation of the product mix and superior risk-selection
using the company’s loss experience across product lines accumulated over last 15 years.

JM Financial Institutional Securities Limited Page 29

ICICI Lombard 10 September 2018

Exhibit 84. Underwriting profit has improved significantly even as Exhibit 85. Peer trend for contribution of investment and
ICICIGI continues investing into retail lines underwriting income to total profitability
8% 10%

6% 7%
5% 7%
6% 7% 7%
4% 7%
6% 7% 6% 6% 2% 2%
5% 0%
2% -1% 0%
-5%
0% -5%
-2% -2% -2% -1%
-2%
-2% -3%
-10%
-4% ICICI BAGIC HDFC Reliance SBI
FY13 FY14 FY15 FY16 FY17 FY18 Lombard Ergo Gen General
U/W P&L / Avg assets Invt income / Avg assets U/W P&L / Avg assets Invt income / Avg assets
Source: Company, JM Financial Source: Company, JM Financial

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ICICI Lombard 10 September 2018

Strong solvency to support growth

 Healthy solvency margin of 205% as of Mar’18; 4-year average dividend pay-out of 26%

Currently, solvency ratio stands at 205% as of Mar’18 vs. IRDA requirement of 150%.
The company strengthened its solvency in FY17 to 210% from 182% in FY16 becoming
the first Indian non-life insurance company to raise non-convertible debentures
amounting to INR 4.85bn. This amount is available to be included as tier I capital.
Regarding dividend policy, a dip in payout ratio in FY18 signals the investment phase for
the insurer as it builds its distribution network and incurs acquisition costs to on-board
SME clients to prepare for profitable growth.

Exhibit 86. ICICIGI: Solvency ratio Exhibit 87. Dividend pay-out ratio
250%
FY14 FY15 FY16 FY17 FY18

200% 27% 22% ICICI

0% 18% 32% 29% 27%
Lombard
150%
BAGIC 0% 0% 0% 0% 12%

100% 195% 182% 182% 183% 183%

155% 172% HDFC Ergo 16% 47% 54% 33% 36%

50% Reliance
0% 0% 0% 0% 0%
General
0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 SBI General 0% 0% 0% 0% 0%
Core capital Other capital Source: Company, JM Financial
Source: Company, JM Financial

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ICICI Lombard 10 September 2018

Initiate with BUY and a TP of INR 1,050

We have valued ICICIGI using P/E approach. We expect ICICIGI to generate GWP CAGR of
15% over FY18-21E, with a market share of 8% in the industry and 18% amongst private
insurers (ex. standalone health). With COR of 97% by FY21E and PAT CAGR 24% over FY18-
21E, we value ICICIGI at 28x Mar’21E EPS, implying a value of c.INR 475bn and per share
value of INR 1,050. We initiate coverage on the stock with a BUY rating.

Exhibit 88. ICICIGI – valuation summary

FY17 FY18 FY19E FY20E FY21E
EPS (INR) 14.2 19.0 24.3 30.1 36.5
EPS (YoY) (%) 26% 33% 28% 24% 21%
P/E (x) 73.8 55.3 43.1 34.9 28.7
BV (INR) 97.6 113.2 132.4 156.5 185.7
BV (YoY) (%) 23% 16% 17% 18% 19%
P/BV (x) 10.8 9.3 7.9 6.7 5.7
P/BV (ex FV chg a/c) 12.7 10.8 9.0 7.5 6.2
Source: Company, JM Financial

Key risks
 Any disruption in key motor vehicle relationships, bank distribution partnerships could
adversely impact the motor portfolio and overall business of the company: One big
broker (sourced 8.1% premiums in FY17) and one big corporate agent (sourced 5.9%
premiums in FY17) make a significant contribution to gross premiums. Similarly, the
insurer has a key distribution partnership with ICICI Bank (7% of gross premiums). Any
disruption or adverse change in relation to such key distribution partners could
adversely impact the company’s business.

 Risks to crop insurance business: i) reduction in government support: In India, crop

insurance is experiencing growth due to significant subsidies recently offered by the
central and state governments, as such any reduction in support towards this program
could adversely impact growth of crop insurance. ii) selection and pricing of risks: since
crop insurance is a relatively new product line for the private general insurance industry,
there is a limited data-set to substantiate assumptions based on which the company
selects and prices risk consequently if ICICI Lombard misprices risk or is unable to select
better risks then this could result in significantly higher claims. iii) Reinsurance risk: a
major portion of crop reinsurance is available from GIC Re and this portfolio is unavailable
for reinsurance at a suitable price from other reinsurers consequently any change in the
terms of reinsurance provided by GIC Re could impact ICICI Lombard. Further, there is
increased amount of credit risk in this portfolio due to concentration of reinsurance with
one entity. iv) non-payment / delay in payments: a major part of the crop insurance
premiums are borne by the central and state governments consequently any delay / non-
payment due to dispute or political headwinds can adversely impact the company.

 If loss reserves which are based on estimates as to future claims liabilities prove
inadequate, it could lead to further reserve additions and have an adverse impact on the
company’s financial position.

 Catastrophe risks: Any heightened incidence of catastrophic events, including natural

disasters, could materially increase the company’s claim liabilities and have a material
adverse effect on its business.

 Reinsurance risk: Any negative development in company’s relationship with its major
reinsurance partner, GIC Re can have an adverse effect on the company’s business.

 Any adverse change in interest rates or adverse movements in the Indian equity markets
could potentially impair the company’s investment portfolio value and have a material
adverse effect on the company’s business, financial condition and results of operations.

 Credit risks related to the investment portfolio may expose the company to significant
losses: As of Mar’18, over 80% of the total debt portfolio was invested in sovereign and
domestic AAA rated securities. As such, any negative development in the issuer’s credit
rating can adversely impact the company’s results.

JM Financial Institutional Securities Limited Page 32

ICICI Lombard 10 September 2018

 Any change in the regulatory framework of motor insurance in India could have a
material adverse effect on the company’s business: From Apr’16, both motor pools have
been dismantled by IRDAI which put an end to loss-sharing within the segment. Any
attempt by IRDAI to again set up a third-party insurance pool may force the company to
assume some of the shared risk, which could have a material adverse effect on its
financial condition and operating results.

 Changes in the regulatory environment: Any change in policies issued by the IRDAI,
including foreign investment, interest rates, liquidity, capital adequacy, investments,
marketing and selling practices may adversely impact the company.

JM Financial Institutional Securities Limited Page 33

ICICI Lombard 10 September 2018

Company background
ICICI Lombard is the 4th largest non-life insurer in India (on GDPI basis as of FY18) and the
leader among private non-life insurers. The insurer commenced operations in 2002 and is
promoted by ICICI Bank, one of India’s largest private sector banks. It offers a comprehensive
and well-diversified range of products, including motor, health, crop/weather, fire, personal
accident, marine, engineering and liability insurance, through multiple distribution channels.
It currently operates in 638 of 716 districts across India.

Exhibit 89. Shareholding pattern

21.9%
ICICI Bank
Fairfax
1.68% 55.91%
Warburg Pincus
1.59%
Clermont Group
9.01%
MOSL Asset Management
Public
9.91%

Source: Company, JM Financial

Exhibit 90. Product mix Exhibit 91. Market share

100% 6.9% 6.5% 30%
15% 14% 11.2% 7.3%
15% 7.3%
20.1% 19.2% 25%
80%
8.2%
24.4%

6% 6% 7% 7.8%
23.6%

20%
23.1%

21.9%

21.4%

20.4%
19.7% 17.1% 6.9% 7.4%

19.9%
60% 19.0%

18.9%
26% 22%

18.4%
28% 15%

18.0%

17.7%
15.5% 15.0%
40% 10%
8.4%

8.8%

8.6%

8.6%

8.6%

7.7%

8.4%

8.4%

8.2%

8.1%

8.1%

8.1%
47% 51% 51% 5%
20% 42% 44% 42% 42%
0%
FY19E

FY20E

FY21E
FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Motor Health Fire Marine Eng PA Crop Others Market share (industry) Market share (pvt.)
Source: Company, JM Financial
Source: IRDA, JM Financial

JM Financial Institutional Securities Limited Page 34

ICICI Lombard 10 September 2018

Experienced senior management team

Exhibit 92. Management profile
Person Designation Profile

She is the Non-Executive Chairperson and Nominee Director of ICICI Bank on the Board. She has obtained a
bachelor’s degree in Arts from the University of Mumbai and a master’s degree in Management Studies from
Jamnalal Bajaj Institute of Management Studies, Mumbai. In addition, she has received an honorary doctorate
of law from Carleton University, Canada. She has been associated with ICICI Lombard since 1 Sep’08. She has
Chanda Deepak
Chairperson been the managing director and chief executive officer of ICICI Bank since 2009 and has experience in the
Kochhar
fields of corporate credit, infrastructure financing, e-commerce strategy and retail business. She is the recipient
of the Padma Bhushan Award, 2011, the third highest civilian honour awarded by the Government of India
and has been a member of the Prime Minister’s Council of Trade and Industry and High-Level Committee on
Financing Infrastructure. Currently, she is a member of the Board of Trade.

He has been serving as Managing Director and Chief Executive Officer of the company since 2009. He holds a
bachelor’s degree in Mechanical Engineering from Jadavpur University and a post graduate diploma in
Managing Director and
Bhargav Dasgupta Business Administration from the Indian Institute of Management, Bengaluru. He has been associated with the
Chief Executive Officer
ICICI Group since 1992 with stints in project finance and corporate banking, e-commerce & technology
management, international banking and life insurance. Prior to ICICI, he worked with TATA Motors.

He holds a bachelor’s degree in Chemical Engineering from Jadavpur University and a post graduate diploma
Executive Director and
in Business Administration from the Indian Institute of Management, Calcutta. He has been associated with
Alok Kumar Agarwal Chief Marketing Officer,
ICICI group since 1993, spending close to 9 years within the project finance division. Previously, he worked
Wholesale
with Reliance Industries Ltd as an engineer from Jul’89 to Apr’91.

He has over 20 years of experience in the BFSI sector and joined ICICI group in 2003 with stints across
Executive Director and
Sanjeev Radheyshyam corporate banking and the SME space. He spearheaded the group’s expansion into rural markets. Prior to
Chief Marketing Officer,
Mantri joining ICICI, he has spent over 7 years with BNP Paribas, Mumbai handling diverse responsibilities in the
Retail
corporate banking space. He is a qualified CA and Cost Accountant.

Chief Underwriting, He has over 24 years of experience in general insurance and was a part of the start-up team at ICICI Lombard
Sanjay Datta
Reinsurance & Claims in 2001.

Chief Financial Officer & He has over 15 years of experience in general insurance and joined ICICI Lombard in 2002. He is a qualified
Gopal Balachandran
Chief Risk Officer CA, CS and CPA.

Gopalakrishnan S Chief Investment Officer He has over 16 years of experience in general insurance and joined ICICI Lombard in 2001.

He holds a master’s in actuarial science from the University of Waterloo and an MBA from the Faculty of
JV Prasad Appointed Actuary Management Studies, Delhi University. Prior to joining ICICI Lombard in 2005, he was Manager, Structured
Finance Ratings at CRISIL.
Source: Company, JM Financial

Exhibit 93. Organisation structure

Source: Company, JM Financial

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ICICI Lombard 10 September 2018

Peer comparison
Exhibit 94. Market share – within industry
FY13 FY14 FY15 FY16 FY17 FY18
ICICI Lombard 8.6% 8.6% 7.7% 8.1% 8.4% 8.2%
BAGIC 5.6% 5.7% 6.0% 5.9% 6.0% 6.3%
HDFC Ergo 3.4% 3.6% 3.7% 3.4% 4.6% 4.8%
Reliance General 2.8% 3.0% 3.1% 2.8% 3.1% 3.4%
SBI General 1.1% 1.5% 1.8% 2.1% 2.0% 2.4%
Other private insurers 17.7% 17.7% 18.0% 17.7% 18.0% 18.4%

Standalone health 2.4% 2.8% 3.4% 4.2% 4.6% 5.5%

Total private insurers 41.7% 42.9% 43.6% 44.1% 46.7% 48.9%

Total public insurers 58.3% 57.1% 56.4% 55.9% 53.3% 45.1%
Source: IRDA, JM Financial

Exhibit 95. Market share – within private (ex-standalone)

FY13 FY14 FY15 FY16 FY17 FY18
ICICI Lombard 21.9% 21.4% 19.0% 20.4% 19.9% 18.9%
BAGIC 14.3% 14.1% 14.9% 14.7% 14.2% 14.4%
HDFC Ergo 8.8% 9.1% 9.1% 9.7% 11.5% 11.1%
Reliance General 7.2% 7.5% 7.7% 7.0% 7.3% 7.7%
SBI General 2.8% 3.7% 4.5% 5.1% 4.8% 5.4%
Source: Company, JM Financial

Exhibit 96. Product mix – by premium (FY18) Exhibit 97. Distribution mix – by premium (FY18)
100% 6% 100%
8%
12% 24%
20% 28% 80% 38% 31%
80% 19% 42% 42%
34% 16%
60% 24%
7% 7% 8%
60% 8% 32%
14% 9% 28% 34% 22% 21%
16% 40%
9% 9% 5% 6%
40% 46%
13% 14% 20% 8% 8% 20%
50% 7% 26%
20% 42% 47% 20%
12% 11% 6%
27% 26% 0%
ICICI BAGIC HDFC Reliance SBI
0% Lombard Ergo Gen General
ICICI BAGIC HDFC Reliance SBI
Lombard Ergo Gen General Agents Bancassurance
Other corporate agents Brokers
Motor Health Fire Marine Eng PA Crop Others Direct Others
Source: Company, JM Financial Source: Company, JM Financial

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ICICI Lombard 10 September 2018

Exhibit 98. Loss ratio trend Exhibit 99. Expense ratio trend
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18
100 % 40%
85%
90% 35%
77% 74%
80% 71%
67% 30% 26% 26%
70% 23% 25%
25% 23%
60%
50% 20%
40% 15%
30%
10%
20%
10% 5%
0% 0%
ICIC I Lo mb ard BAGIC HDF C Ergo Reliance Gen. SBI Gen. ICIC I Lo mb ard BAGIC HDF C Ergo Reliance Gen. SBI Gen.

Source: Company, JM Financial Source: Company, JM Financial

Exhibit 100. COR trend Exhibit 101. Investment mix (FY18)

FY15 FY16 FY17 FY18 G-Secs Other A pprov secs Bon ds Equity Real Est ate + Infra Others

140 % 100 % 3% 5% 5% 7%
8%
111% 9%
120 % 2%
100% 97% 80% 27% 32% 34% 30%
92% 96%
100 %
8% 40% 1%
80% 60% 15% 5%
16% 19%
13%
60% 40% 16% 10%
10% 14%
40% 5%
20% 42% 35%
20% 30% 33% 29%

0% 0%
ICIC I Lo mb ard BAGIC HDF C Ergo Reliance Gen. SBI Gen. ICIC I BAGIC HDF C Reliance SBI
Lombard Ergo Gen . Gen .

Source: Company, JM Financial Source: Company, JM Financial

Exhibit 102. Investment leverage (FY18) Exhibit 103. Solvency (Mar’18)

Investment leverag e (x) Solvency
7.0 3.0 276%
5.8 254%
6.0 2.5
4.6 205% 206%
5.0
2.0 168%
4.0 3.4 3.6
3.2
1.5
3.0
1.0
2.0

1.0 0.5

0.0 0.0
ICIC I BAGIC HDF C Reliance SBI ICIC I BAGIC HDF C Reliance SBI
Lombard Ergo Gen . Gen . Lombard Ergo Gen . Gen .

Source: Company, JM Financial Source: Company, JM Financial

Exhibit 104. PAT trend (INR bn) Exhibit 105. RoE trend
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18
10.0 9.2 0.4
8.6
31%
8.0 0.3 23% 22%
17%
6.0 0.2 12%
4.0 4.0
4.0 0.1
1.7
2.0 0.0

0.0 -0.1

-2.0 -0.2
ICIC I Lo mb ard BAGIC HDF C Ergo Reliance Gen. SBI Gen. ICIC I Lo mb ard BAGIC HDF C Ergo Reliance Gen. SBI Gen.

Source: Company, JM Financial Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 37

ICICI Lombard 10 September 2018

Financial Tables (Standalone)

Policyholders’ Account (INR mn) Balance Sheet (INR mn)
Y/E March FY17A FY18A FY19E FY20E FY21E Y/E March FY17A FY18A FY19E FY20E FY21E

Gross premiums 1,07,252 1,23,569 1,42,190 1,63,616 1,88,221 Equity Capital 4,512 4,539 4,539 4,539 4,539
Net written premiums 65,948 78,448 90,450 1,04,051 1,19,444 Reserves & Surplus 32,754 39,404 48,243 59,169 72,439
Net Earned Premiums 61,578 69,117 82,349 94,761 1,08,796 FV change account 6,772 7,339 7,339 7,339 7,339
Investment income 9,958 11,268 13,140 15,696 18,557 Shareholders’ equity 44,038 51,385 60,122 71,047 84,317
Total revenue 71,805 80,663 95,771 1,10,743 1,27,643 Borrowings 4,850 4,850 4,850 4,850 4,850
Claims Incurred (net) (49,656) (53,147) (62,834) (71,903) (82,289) Current liabilities 1,49,136 1,95,112 2,24,930 2,59,216 2,98,520
Commission (net) 4,341 2,840 4,561 5,164 5,854 - C/O (gross) 1,18,051 1,59,160 1,83,586 2,11,669 2,43,842
Operating expenses (19,820) (21,119) (24,276) (27,707) (31,593) o.w reserve for c/ outstanding 46,360 56,997 60,061 69,528 80,647
Total expenses (65,135) (71,426) (82,548) (94,446) (1,08,028) o.w. IBNR reserves 71,691 1,02,163 1,23,524 1,42,142 1,63,195
Operating Profit 6,670 9,237 13,223 16,297 19,615 Provisions 35,485 44,784 52,946 62,305 73,034
o.w. Underwriting Profit (3,557) (2,309) (199) 315 768 - Reserve for unexpired risk 35,048 44,378 52,479 61,768 72,416
Source: Company, JM Financial
Total Liabilities 1,89,471 2,44,746 2,82,726 3,26,371 3,76,404
Investments 1,50,789 1,81,927 2,21,609 2,56,882 2,97,799
Shareholders’ Account (INR mn) Fixed assets 3,827 4,060 5,486 6,359 7,372
Y/E March FY17A FY18A FY19E FY20E FY21E
Deferred tax assets 872 2,114 1,200 1,391 1,613
Operating profit/(loss) 6,670 9,237 13,223 16,297 19,615 Cash and bank balances 1,940 4,553 2,849 3,302 3,828
Income from investments 3,146 4,059 4,007 4,833 5,903 Advances and other assets 76,080 1,03,478 1,11,705 1,29,484 1,50,110
Total revenue 9,837 13,378 17,312 21,212 25,599 Total Assets 2,33,509 2,96,132 3,42,848 3,97,418 4,60,721
Total expenses (1,035) (1,415) (1,750) (1,977) (2,235) Source: Company, JM Financial

Profit / (Loss) before tax 8,801 11,962 15,562 19,235 23,364

Taxes (2,383) (3,345) (4,513) (5,578) (6,775) Dupont Analysis
Profit / (Loss) after tax 6,418 8,618 11,049 13,657 16,588 Y/E March FY17A FY18A FY19E FY20E FY21E

Dividends paid 1,891 2,288 2,210 2,731 3,318 NPE/Average assets 30.4% 26.1% 25.8% 25.6% 25.4%
Source: Company, JM Financial Claims paid/Avg assets (16.1%) (13.1%) (12.0%) (11.8%) (11.7%)
Change in reserves/Avg assets (8.4%) (7.0%) (7.6%) (7.6%) (7.5%)
Key Ratios Total claims/Avg assets (24.5%) (20.1%) (19.7%) (19.4%) (19.2%)
Y/E March FY17A FY18A FY19E FY20E FY21E Loss ratio (80.5%) (76.9%) (76.3%) (75.9%) (75.6%)
Growth (YoY) (%) Total expenses/Average assets (7.7%) (6.9%) (6.2%) (6.1%) (6.0%)
GWP growth 32.6% 15.2% 15.1% 15.1% 15.0%
Expense ratio (25.1%) (26.4%) (23.9%) (23.8%) (23.7%)
NPE growth 27.6% 12.2% 19.1% 15.1% 14.8%
Total Income 36% 36% 29% 23% 21% Underwriting profit/Avg assets (1.7%) (0.9%) (0.1%) 0.1% 0.2%
Operating Profits 38% 38% 43% 23% 20% Investment income/Avg assets 6.5% 5.8% 5.4% 5.5% 5.7%
Reported PAT 27% 34% 28% 24% 21%
Other income/Avg assets (0.5%) (0.5%) (0.5%) (0.5%) (0.5%)
Product Mix (%) PBT/Avg assets 4.3% 4.4% 4.8% 5.1% 5.4%
Motor 42% 42%
Tax/Avg assets (1.2%) (1.3%) (1.4%) (1.5%) (1.6%)
Health 16% 15%
Fire 7% 7% PAT/Avg assets (ROA) 3.1% 3.1% 3.4% 3.6% 3.8%
Marine 3% 3% ROE 15.8% 17.5% 19.3% 20.4% 21.0%
Engineering 2% 2% Source: Company, JM Financial
Personal Accident 3% 4%
Crop 20% 19%
Others 6% 7%
Valuations
Underwriting performance (%)
Incurred claims ratio Y/E March FY17A FY18A FY19E FY20E FY21E
80.6% 76.9% 76.3% 75.9% 75.6%
Net commission ratios (6.6%) (3.6%) (5.0%) (5.0%) (4.9%) EPS (INR) 14.2 19.0 24.3 30.1 36.5
Net operating exp ratio 30.1% 26.9% 26.8% 26.6% 26.4% EPS (YoY) (%) 26% 33% 28% 24% 21%
Combined ratio – NEP 104.1% 100.2% 98.1% 97.5% 97.2% P/E (x) 61.2 46.0 35.8 29.0 24.0
BV (INR) 88 104 135 160 189
BV (YoY) (%) 23% 16% 17% 18% 19%
Profitability (%)
ROA 3.2% 3.2% 3.5% 3.7% 3.9% P/BV (x) 8.9 7.7 6.6 5.6 4.7
ROE 15.8% 17.5% 19.3% 20.4% 21.0% P/BV (ex FV chg a/c) 10.5 9.0 7.5 6.2 5.1
DPS (INR) 3.48 4.00 4.87 6.02 7.31
Investment yield (%)
Yield on policyholder a/c 9.8% 9.2% Div. yield (%) 0.4% 0.5% 0.6% 0.7% 0.8%
Yield on shareholders a/c Source: Company, JM Financial
9.9% 9.3%

Capital Adequacy (%)

Solvency 210% 205%
Source: Company, JM Financial

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ICICI Lombard 10 September 2018

Appendix I: Non-life insurance in India

The Indian non-life insurance sector is the 11th largest non-life insurance market in the world
and the 4th largest in Asia in terms of gross premiums (SwissRe 2017). Long-term structural
factors such as strong economic growth, rising financial savings, favourable demographic
profile, rising income, rapid urbanisation and increasing awareness should lead to healthy
growth for the industry going forward.

 Non-life insurance premiums have posted a 17% CAGR over the past 17 years

Since 2002, after the insurance sector opened to private players, the non-life insurance
industry has recorded a 17% CAGR in premiums with the industry GDPI reaching INR
1.5trn in FY18. The growth story of the Indian general insurance can be divided into three
phases: a) before de-tariffing, b) after de-tariffing and establishment of the Indian Motor
Third Party Insurance Pool (IMTPIP), and c) dismantling of the motor pool.

Exhibit 106. Gross premiums trend (LHS) and growth (RHS)

1,600 35%
1st phase: 2nd phase: Post 3rd phase:
1,400 Growth phase de-tarif f ing and Dismantling M otor 30%
during tarif f beginning of pool and beginning
1,200 M otor Pool Declined R isk Pool
25%
1,000
20%
800
15%
600
10%
400

200 5%

0 0%
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09

FY11

FY13

FY15

FY17
FY18
FY10

FY12

FY14

FY16

GDPI (INRbn) YoY (%)

Source: IRDA, JM Financial

 Phase 1: Before de-tariffing (2001-07): High growth phase

Over 2001-07, private players witnessed robust growth momentum and gained
significant market share (from 9% in FY03 to 33% as of FY07 on a GWP basis). During
this period, rates were regulated by tariffs for three major lines of business – Motor, Fire
and Engineering – which accounted for nearly two-thirds of the market premiums.
Further, pricing of different classifications of risk was done in an ad-hoc manner due to
lack of complete and reliable data. This resulted in cross subsidisation among different
classes of risk and also within a class with the good risks subsidising the loss making risks.
Insurance companies were generating profits on fire and engineering portfolios and cross
subsidising their marine and corporate health portfolio through these policies. During this
period, private non-life insurance companies’ premiums recorded robust growth, coming
in at an 80% CAGR, outperforming the industry CAGR of 17%. At the same time,
market share for private non-life insurers improved to 32% (on a GWP basis).

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ICICI Lombard 10 September 2018

Exhibit 107. Private insurers market share (GWP) is increasing Exhibit 108. Industry-wise premium mix
Private- top 5 Other p rivate insurers Stan dal one Health
Public Speciali sed insurer s Fire Marine Mot or Health & PA Others
100 % 6% 6% 6% 6% 5% 5% 6%
6% 6% 100 %
90% 17% 17% 16% 15% 17% 16% 14%
80% 27% 24%
80%
51% 52% 50% 47% 45% 25% 24%
56% 55% 54% 52% 70% 23% 26% 25% 27% 29%
60% 60% 24% 28%

6% 50%
3% 3% 4% 5%
40% 3% 3% 2% 40% 42% 44% 46%
3% 18% 41% 44% 44% 45%
18% 18% 18% 18% 18% 30% 39% 39%
14% 15% 17%
20% 20%
22% 21% 22% 22% 22% 23% 24% 25% 10%
20% 11% 10% 10% 10% 10% 10% 9% 7% 7%
0%
0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: IRDA, JM Financial; Private Top 5 include ICICI Lombard, BAGIC, HDFC ERGO, Reliance General Source: Company, JM Financial; Others includes crop insurance
and SBI General

 Phase 2: Consolidation in growth after de-tariffing and establishment of the Indian Motor
Third Party Insurance Pool (IMTPIP) (FY08-11)

While the tariff regime helped non-life insurers improve their growth and gain market
share, the industry was facing challenges related to pricing flexibility, product innovation
and lack of private players’ participation in commercial third party motor policies due to
adverse claims histories. IRDA, in 2007, decided to de-tariff most of the policies, except
the motor third-party pool. There was a significant correction in the prices of Fire,
Engineering and Motor products as insurers dropped their prices in order to gain market
share. The prices dropped by as much as 50% as the IRDA intervened and capped
maximum discounts at 51.25% in Sep’07. After the regulatory changes to tariffs, the
industry experienced structural changes as companies realigned their business models in
response to the regulatory changes.

The second major development was the introduction of the IMTPIP (India Motor Third
Party Insurance Pool) for commercial vehicles in Apr’07. This was done to induce private
insurers to underwrite commercial TP policies as losses will be shared amongst the pool
based on market share, and not on the basis of actually business underwritten. The
introduction of IMTPIP led to increase in combined ratios as the presence of the IMTPIP
encouraged insurers to settle claims without implementing adequate controls.

During this period, gross premiums posted a CAGR of 15.7% over FY07-11 while private
insurers’ market increased to 39% (on GWP basis) in FY11.

Exhibit 109. Mix of motor TP policies - Private Exhibit 110. Mix of motor TP policies - Public
100 % 100 %
90% 20% 90%
80% 36% 40% 38% 37% 37% 40% 41% 43% 80% 35%
44% 45% 50% 52% 51% 50% 46% 49% 52%
70% 70% 56% 54% 58%

60% 60%
50% 50%
40% 80% 40%
30% 64% 60% 62% 63% 63% 60% 59% 57% 30% 65%
56% 55% 50% 48% 49% 50% 54% 51% 48%
20% 20% 44% 46% 42%

10% 10%
0% 0%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Mot or OD Mot or TP Mot or OD Mot or TP
Source: GIC, JM Financial Source: GIC, JM Financial

 Phase 3: Improvement in growth led by relaxation in regulatory norms (FY12 onwards)

This was the most encouraging phase for the non-life insurance industry with some
relaxation in regulations norms and introduction of some new schemes like crop
insurance scheme that positively impacted the growth in this industry:

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ICICI Lombard 10 September 2018

i) IRDA decided to index any future increase in Motor TP insurance premium to reduce
mounting pool losses for the industry. While third party motor insurance tariffs continued
to be regulated, the IRDAI began reviewing and revising the tariffs on an annual basis
from 2011 as against the earlier practice of revising tariffs once every five years.

ii) IRDA replaced IMTPIP with new Indian Motor Third Party Declined Risk Insurance Pool
(IMTPDRIP) which provided the option to insurers to transfer policies that they had
underwritten to the Declined Risk Pool (DRP), which were not as per the insurers’
underwriting guidelines. The dismantling of the IMTPIP resulted led to the improvement in
combined ratios for the industry. Effective Apr’16, IRDA dismantled all motor pooling
arrangements. Instead a formula will be used to calculate the minimum motor TP business
non-life insurance companies need to underwrite in any given year. This will be
proportional to their industry and motor market share.

iii) This period also saw the introduction of Insurance Laws (Amendment) Bill, 2015,
increasing the maximum permissible shareholding of foreign investors in Indian non-life
insurance companies from 26% of paid-up equity capital to 49%.

iii) In Jan’15, the IRDAI mandated that the lower of a company’s own risk experience or
industry-wide losses (also known as burning costs) should be factored into pricing,
starting with the property and group health insurance segments. This was done to ensure
better pricing of risk by insurers.

iv) To increase the insurance coverage of cropped area, the Indian government has
launched two major crop-related government schemes – the Pradhan Mantri Fasal Bima
Yojana (PMFBY) and the Restructured Weather Based Crop Insurance Scheme (RWBCIS).
The PMFBY, which was launched in Apr’16 replaced the older crop insurance government
schemes, subsidises yield-based crop insurance for farmers. It provides coverage of all
food crops, oilseeds, commercial and horticultural crops. It is based on tender process
covering different geographies through which insurance companies submit their premium
quotes based on their individual actuarial assumptions. While total premiums are based
on the actuarial premium estimated, farmers have to pay uniform premiums that are
determined on the basis of the type of their crop. The difference between the actuarial
premium and the premium paid by farmers is being borne equally by Central and state
governments. Claims are paid based on the yield for a group of farms, as measured by a
government authorised surveyor.

The RWBCIS subsidises weather based crop insurance for farmers. The insurance provides
an index-based cover which provides protection against variation in specified weather
indices such as rainfall, humidity, temperature or a combination of these factors.
Threshold levels are defined for the weather indices in the policy and a claim is payable
when the actual weather index breaches the predefined threshold level. The crop
insurance schemes contributed to significant growth in industry premiums in FY17
(32.4%), led by 288% increase in crop insurance premiums in FY17.
These favourable regulatory changes aided the growth of the industry. During this period
(2011-17), gross premiums increased at a CAGR of 18.1% over FY11-17 while private
insurer’s market share increased to 47% in FY17 driven by ease in regulations in existing
product lines and opening up of new channels of growth such as crop insurance.

During FY18, the industry witnessed steady premiums growth of 17.5% YoY driven by
motor TP (+24% YoY), retail health (+27% YoY) and crop insurance (+19% YoY).

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ICICI Lombard 10 September 2018

Key growth drivers

 Penetration ratio is amongst the lowest in the world

Despite being the second largest populous country in the world, India is the 4th largest
non-life insurance market in Asia by premium following Japan, Korea and China. The
non-life insurance penetration, after remaining stable for close to 10 years at 0.7-0.8%
until 2016, recently jumped to 0.93% in 2017 – still one of the lowest in the world. India
trails behind its Asian peers such as Korea (5.0%), Taiwan (3.4%), Japan (2.3%), China
(1.9%), and global peers like US (4.3%). India's insurance density is also very low at USD
18 compared with the US (USD 2,542), Japan (USD 901) and China (USD 159).

Exhibit 111. Non-Life Insurance penetration - India Exhibit 112. Non-Life Insurance penetration – global (2017)
6%

0.93%

5.00%

4.28%
0.80%
1.0%
0.78%

0.77%
0.72%
0.70%

0.70%

0.70%
0.9%

3.42%

3.36%
0.60%

0.60%

0.60%

0.8% 4%

2.74%

2.36%
0.7%

2.34%

1.89%
0.6%
0.5%

0.93%
2%
0.4%
0.3%
0.2%
0.1% 0%
0.0% South USA Taiwan Hong South UK Japan China India
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Korea Kong Africa
Source: Swiss Re, IRDA, JM Financial
Source: Swiss Re, IRDA, JM Financial

Exhibit 113. Insurance density (USD) - India Exhibit 114. Insurance density (USD) – global (2017)
3,000
20 2,542
18
18 2,500
16
13 2,000
14
12 1,557 1,523
12 11 11 11
10 1,500
10 9 938 901
1,000 803
8 6 6 7
6
500
167 159
4 18
2 0
USA Hong South UK Japan Taiwan South China India
0 Kong Korea Africa
200 7 200 8 200 9 201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7
Source: Swiss Re, IRDA, JM Financial
Source: Swiss Re, IRDA, JM Financial

Exhibit 115. Cars and 2W penetration in India (per 1000) Exhibit 116. Health insurance penetration
25 127 140 0.3%
115
OECD32 car penetration: 570; 109 120
20 Less-developed nation’s car penetration: 70* 96
86 0.2%
79 100
15 72
59 62 66 80
54 0.2%
45 49 60
10 38 40
19
17
17
15

40 0.1% 0.20% 0.20%

13
12

0.18%
11

0.17%
10

5 0.16%
9

0.15%
8

20
7
7
6
6
5

0 0 0.1%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

0.0%
Cars (LHS) 2W (RHS) FY12 FY13 FY14 FY15 FY16 FY17
Source: UN data, CMIE, JM Financial; *ExxonMobil Energy outlook report 2016 Source: IRDA, CMIE, JM Financial

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ICICI Lombard 10 September 2018

Exhibit 117. Non-life insurance market Asia (GWP, USD bn) – 2017
250
204
200

150 117
100 73

50 20 17 11 7 7 5 4 2 2 1
0
S. Korea

India
PR China

Thailand

Sri Lanka
Taiwan

Malaysia

Indonesia

Vietnam

Philippines
HK
Japan

Singapore
Source: SwissRe

 Strong long-term structural growth drivers remain intact

This situation reflects the fact that India’s insurance market is still in its infancy, implying
robust growth potential. Against the backdrop of: i) strong long-term structural growth
term drivers such as high household savings, rising income levels, strong economic
growth, favourable demographic profiles and increasing urbanisation as well as ii) low
penetration for most consumer products such as cars; 2W - only 60% of cars older than 3
years are insured in India as against the global benchmark of 90% and that only around
25% of two wheelers are insured as against a global benchmark of over 90%; iii)
changes in lifestyles/aspirations; iv) stabilisation/improvement in penetration ratio which
has remained stable at 0.7-0.8% in the last decade and v) major regulatory risks a thing
of the past for the industry, India’s long-term structural non-life insurance growth story of
remains intact.

Favourable macroeconomic factors including propitious regulations have resulted in the

non-life insurance premiums recording a CAGR of 17% over the last 17 years. A rejig of
the government crop/weather insurance under Pradhan Mantri Fasal Bima Yojana allowed
the industry to report a strong 32.4% growth for FY17 and 17.5% in FY18.

 Favourable demographic profile and rising urbanisation

India is leading with the highest young population across the globe - with a median age
of 28 years. 90% of the Indians are expected to be below the age of 60 by year 2020;
and 63% of the people are expected to be between the age of 15-59. The number of
individuals in the age of 25-49, which is the target population for the industry, is
increasing in India and would boost industry growth. A high share of working population,
coupled with rapid urbanisation and rising affluence, is expected to propel the Indian
non-life insurance sector growth. India has a very low urbanisation rate as compared with
Asian peers such as China, Japan and Thailand. The share of urban population rose
steadily from 28.8% in 2004 to 31.2% in 2016. The increase in urbanisation would lead
to improved financial literacy among the consumers, eventually supporting the growth of
non-life insurance industry.

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ICICI Lombard 10 September 2018

Exhibit 118. India’s demographic dividend Exhibit 119. Rising portion of financial savings
100.0% 12.0 11.3 60%
6.9% 7.8% 9.5% 9.6
10.0 8.7 50%
80.0% 30.8% 7.7 7.5 7.7
33.7% 37.0% 8.0 6.8 40%
5.8 5.7
60.0% 6.0 4.4 4.8 30%
27.5% 27.6% 3.1 3.3
40.0% 26.0% 4.0 2.5 2.5 20%
2.0 10%
20.0% 34.7% 30.9% 27.5% 0.0 0%

FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
0.0%
2000 2010 2020E
Financial Savings (INR bn)
0-14 15-29 30-59 60+
Financial Savings as % of Total Household Savings
Source: CRISIL Source: CRISIL

Exhibit 120. Population growth rates Exhibit 121. Urbanisation rate

74.1%

81.8%

86.0%

65.3%

56.2%

56.2%
94.1%

54.5%

51.7%
-0.1%
0.3%

0.9%

1.0%

1.3%

0.4%
1.0%

0.2%

0.8%

1,366
1,327 3.1%
324
2.4% 2.4% 2.5%
258
206 1.9%
146 1.2%
126 1.0%
55 68 0.6%
0.3%
S. Africa

Russia

India
Thai-

Brazil
Japan

Indo-
nesia

China
USA
land

Russia

S.Africa

India

Thailand
Indonesia
Brazil
Japan

China
USA
2016 Population (mn)* 2016 Urban population (% of total)*
Source: EIU,CRISIL, JM Financial; *Labels on top depict population CAGR 2008-18 Source: EIU, CRISIL, JM Financial; *Labels on top depict urbanisation rate CAGR 2008-18

 Favourable regulatory stance to support growth:

1. Health Insurance regulations in 2016 brought several positive changes to the product
line for non-life insurers including i) prohibiting life insurance companies from offering
indemnity based products, which would bring greater clarity between life-health vs. non-
life-health products. ii) Pilot products may be offered by non-life insurers and health
insurers for a policy term of at least one year, for a maximum of five years. This will allow
non-life insurers to cover risks, which have not been covered by insurers until now. iii)
Defined benefit products are allowed to offer a bonus in terms of an increase in the sum
assured based on the claims experience. iv) the concept of ‘entry-age’ pricing was
introduced, which means insurers will now be able to provide attractive pricing to lure
younger individuals into health insurance plans. v) Insurers can offer group health
insurance products for a one-year term, except in the case of credit-linked products, for
which the term can be extended up to the loan period (not exceeding five years).

Non-life and health insurers have advantages over life insurers. i) Non-life insurers are
allowed to re-price premium rates every year. Life insurers are required to fix their
premiums for three years. ii) Non-life and standalone health insurers sell indemnity-type
products that are cheaper than the defined benefit products offered by life insurers. Life
insurers have been barred from selling indemnity-type health products. iii) Non-life
insurers had a head start (going back to the 1980s) over life insurers, which started selling
health insurance in 2005. iv) life insurance companies are not permitted to engage in
coinsurance reinsurance known as original terms reinsurance), unlike non-life and
standalone health insurers.

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Exhibit 122. Health premium growth Exhibit 123. Health gross incurred claims ratio
100% 140%

80% 120%

60% 100%

40% 80%

20% 60%

0% 40%

(20%) 20%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Private Public Standalone Private Public Standalone
Source: Company, JM Financial Source: GIC, JM Financial

2. Introduction of formula based writing for third-party auto insurance: IRDAI in Apr’16,
removed any kind of pooling arrangement for commercial motor TP with the onus of
writing motor TP business shifting to individual companies based on a formula that takes
into account their market shares both within the industry and within motor lines. Lack of
visibility of risk within motor TP and especially within commercial motor TP resulting from
a pooled arrangement was a major downside risk for the underwriting performance of
the sector. Going forward, company level underwriting along with healthy growth in
motor TP tariffs (CAGR of 1% to 22% across various lines) augurs well for the
underwriting health of the industry.

3. The passage of the Motor Vehicles (Amendment) Bill, a legislation which is currently
pending in Rajya Sabha is expected to improve profitability of the motor segment in the
long term for the following reasons i) 6-month timeline to file claims, ii) In case of non-
receipt of premium insurers can take measures to protect the corresponding claim liability
of the company, and iii) higher penalties for violations.

Exhibit 124. Motor premium growth Exhibit 125. Motor Premium CAGR FY06-18
90%
80% Dismantling 80% 74%
70% post de-tariffng motor pool and 70%
60% and beginning of beginning 60%
50% motor pool declined risk pool 46%
50%
40%
40%
30% 25%
30% 23%
20% 19%
10% 20%
0% 10%
(10%) 0%
FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Rel Gen

SBI Gen
HDFC Ergo
ICICI Lom

BAGIC

Private Public
Source: IRDA
Source: Company, JM Financial, *SBI Gen premium is from CAGR 2012-17

Exhibit 126. Motor TP tariff table

CAGR
Motor TP Premium (in INR) FY07-11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
12-19
Private Cars
less than 1,000cc 670 740 784 941 1,129 1,468 2,055 2,055 1,850 14%
Exceeding 1,000cc and not exceeding 1,500c 800 880 925 1,110 1,332 1,598 2,237 2,863 2,863 18%
Exceeding 1,500cc 2,500 2,750 2,853 3,424 4,109 4,931 6,164 7,890 7,890 16%
Goods carrying vehicle public carriers A1
Not exceeding 7,500kg 5,580 9,400 10,902 13,082 14,390 14,390 14,390 14,390 14,390 6%
Exceeding 7,500 kg but not exceeding 12,000kg 5,920 9,970 11,640 13,968 15,365 15,365 15,365 19,667 24,190 13%
Exceeding 12,000kgs but not exceeding 20,000 kg 6,090 10,260 12,394 14,873 16,360 19,632 22,577 28,899 32,367 18%
Exceeding 20,000kg but not exceeding 40,000 kg 6,260 10,550 12,478 14,974 16,471 19,766 24,708 31,626 39,849 21%
Exceeding 40,000 kgs 6,770 11,410 12,529 15,035 16,539 19,846 25,800 33,024 38,308 19%
Goods carrying vehicle private carriers A2

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ICICI Lombard 10 September 2018

Not exceeding 7,500 kg 5,000 8,420 9,818 9,690 8,721 8,721 7,849 7,938 7,144 -2%
Exceeding 7,500 kg but not exceeding 12,000 kg 5,300 8,930 11,344 11,197 10,077 8,868 11,528 14,330 15,620 8%
Exceeding 12,000kgs but not exceeding 20,000 kg 5,440 9,170 10,100 9,969 8,972 8,972 9,390 9,871 9,871 1%
Exceeding 20,000 kg but not exceeding 40,000 kg 5,610 9,450 11,621 11,470 10,323 11,149 12,821 14,805 15,397 7%
Exceeding 40,000 kgs 6,050 10,190 13,020 12,851 11,566 13,879 16,655 21,318 21,318 11%
Two Wheelers
Not exceeding 75cc 300 330 350 414 455 519 569 569 427 4%
Exceeding 75 cc but not exceeding 150 cc 300 330 357 422 464 538 619 720 720 12%
Exceeding 150cc but not exceeding 350 cc 300 330 355 420 462 554 693 887 985 17%
Exceeding 350cc 620 680 680 804 884 884 796 1,019 2,323 19%
Source: IRDA

Alongside baptising new channels of distribution such as micro agents, web aggregators,
insurance marketing firms, POS, to increase insurance penetration in the country, IRDA in
2016 has increased the maximum remuneration payable to intermediary from 15% to 16.5%
for certain segments such as Fire-retail, Marine cargo to improve the renewal rate. The
commission rate for comprehensive auto insurance policies rate was increased from 10% to
15% and also introduced commissions in third-party motor insurance policies at 2.5% of the
annual premium. Additionally, the regulator introduced a new “rewards-based” payment to
align incentives for the channel partners and boost the distribution network. Moreover, in
2017 the IRDA passed the MISP regulations which cap dealer commissions at 22.5% for 2Ws
and 19.5% for four-wheelers and SUVs from the earlier 25-30%.

Exhibit 127. Commission table

2004 2008 2016
Health Insurance (General and Standalone)
Agent Direct brokers Agent Brokerage Agent / Intermediary
Health - Individual* Upto 15% Upto 17.5% 15% 17.5% 15%
Health - Group (Employer-Employee only) - Annual Upto 15% Upto 17.5% 15% 17.5% 7.50%
Health - Group (Non Employer-Employee groups) -
Annual Upto 15% Upto 17.5% 15% 17.5% 15%
Health - Group (credit linked upto 5 years) Upto 15% Upto 17.5% 15% 17.5% 15%
Health - Govt Scheme Govt. decided

General Insurance (other than motor)

Other
Agent
Paid up Capital Agent Direct brokers Agent Brokerage intermediary
Fire-Retail Individuals 10% 12.5% 10% 12.5% 15% 16.5%
Fire-Corporate (Risks with S.I. < INR 25bn) P/u capital <INR30mn Upto 10% Upto 12.5% 10% 12.5% 10% 11.5%
P/u capital >INR30mn;
Fire-Corporate (Risks with S.I. > INR 25bn) Upto 6.25% Upto 7.5% 5% 6.3% 5% 6.3%
<INR250mn
Marine-Cargo P/u capital >INR250mn Upto 5% Upto 6.25% 15% 17.5% 15% 16.5%
Marine-Hull 10% 12.5% 10% 11.5%
Miscellaneous – Retail Upto 15% Upto 17.5% 15% 17.5% 15% 16.5%
Miscellaneous – Corporate/ Group Upto 10% Upto 10% 10% 10% 10% 12.5%
Miscellaneous – Corporate (Eng Risks with S.I. > INR
Upto 10% Upto 10% 5% 6.25% 5% 6.25%
25bn)

Motor Insurance
Agent Direct brokers Agent Brokerage Agent / Intermediary
Motor (Comprehensive)* Upto 10% Upto 10% 10% 10% 15%
Motor (Stand-alone TP) Upto 10% Upto 10% Nil Nil 2.50%
Source: IRDA, JM Financial

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ICICI Lombard 10 September 2018

In 2016, the IRDA revised the factor loadings assigned to the various products lines thus
freeing up capital to underwrite more business. For the retail segments - Motor and
Health - factor decreased from 0.85 to 0.75 from 2000 to 2016, implying the industry’s
rising maturity level.

Exhibit 128. Solvency factors prescribed by the IRDA

2000 2016

Factor B Factor B
Factor A (applied to Factor A (applied to
Line of Business (applied to premiums) claims) (applied to premiums) claims)
Fire 0.50 0.50 0.50 0.50
Marine Cargo 0.70 0.70 0.60 0.60
Marine Hull 0.50 0.50 0.50 0.50
Motor 0.85 0.85 0.75 0.75
Engineering 0.50 0.50 0.50 0.50
Aviation 0.90 0.90 0.50 0.50
Liability 0.85 0.85 0.75 0.75
Rural insurance 0.50 0.50 − −
Others 0.70 0.70 0.70 0.70
Health 0.85 0.85 0.75 0.75
Crop insurance − − 0.50 0.50
Source: IRDA, JM Financial

 Market structure – private players gaining market share

India’s non-life insurance sector comprises 30 public and private sector companies. The
four Public sector insurers – New India, National, Oriental and United have focused on top
line and market share rather than underwriting profitability. They have cut premiums,
especially in the group health insurance category where buyers have strong bargaining
power. In the last 3 years, public sector insurers have lost their market share (45% market
share in FY18 vs. 52% in FY15) most of which accrued to the private sector insurers
especially the top-5 private insurers and standalone health players. In addition, the sector
consists of mono-line insurance companies such as AIC, Star Health, Apollo Munich. Top-
5 private insurers – ICICI Lombard, BAGIC, HDFC Ergo, Reliance General and SBI General,
have been gaining market share (22% in FY15 vs. 25% in FY18) due to their niche focus.

Exhibit 129. Industry market share (by premiums) Exhibit 130. Number of players
Private- top 5 Other p rivate insurers Stan dal one Health Public Private Stan dal one Health Speciali sed Pub lic
Public Speciali sed insurer s
100 % 6% 6% 6% 6% 5% 5% 6% 35
6% 6%
30 30 30 30 30 30
30 2 2 2 2 2 2
80%
24 24 24
51% 52% 50% 47% 45% 25 6 6 6 6 6 6
56% 55% 54% 52% 2 2 2
60% 3 3 3
20
4% 5% 6%
40% 2% 3% 3% 15
3% 3% 3%
18% 18% 18% 18 18 18 18 18 18
14% 15% 17% 18% 18% 18% 15 15 15
10
20%
22% 21% 20% 22% 22% 22% 23% 24% 25% 5
0% 4 4 4 4 4 4 4 4 4
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: Company, JM Financial; Private Top 5 includes ICICI Lombard, BAGIC, HDFC Ergo, Reliance
Source: Company, JM Financial
General and SBI General

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ICICI Lombard 10 September 2018

 Product mix shifting to retail and crop insurance: Since 2007, product the non-life
insurance industry’s product mix has been dominated by retail products including Motor
and Health and their proportion has broadly remained stable at 60-65%. The share of
corporate products such as Marine and Fire declined from 16% in FY10 to 9% in FY18
due to the increase in competitive scenario. Recently, rejig of the government crop
insurance scheme under PMFBY has allowed the industry to report a healthy 32.4%
growth for FY17 while the proportion of the crop insurance segment has increased to
20% (vs. 12% in FY07). In FY18 however, share of crop insurance stood at 17%.

Exhibit 131. Industry product mix by premium

Fire Marine Motor Health & PA Others

100%
17% 17% 16% 15% 17% 16% 14%
90% 24%
27%
80%
23% 25% 24% 27% 29%
70% 26% 25%
60% 24% 28%

50%
40% 42% 46%
41% 44% 44% 44% 45%
30% 39% 39%
20%
6% 6% 5% 5% 4%
10% 4% 3% 2% 2%
11% 10% 10% 10% 10% 10% 9% 7% 7%
0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: IRDA, JM Financial; Others includes crop insurance

Exhibit 132. Premium mix (segment wise)- private insurers Exhibit 133. Premium mix (segment wise) – public insurers
Fire Marine Mot or Health & PA Others Fire Marine Mot or Health & PA Others

100 % 100 %
16% 16% 15% 15% 12% 13% 9% 15% 14%
90% 17% 90% 19% 17% 17% 22% 19% 18%
26% 27%
80% 26% 80%
23% 22% 21% 24% 24%
70% 24% 70% 24% 27% 27% 27%
29% 27% 29% 31% 35%
20%
60% 60% 28%
50% 50%
40% 49% 52% 53% 53% 52% 53% 40% 37% 36% 38% 40%
49% 42% 36% 38%
30% 45% 30% 38% 39%
35%
20% 20%
10% 10%
9% 8% 8% 8% 9% 9% 9% 8% 10% 12% 12% 12% 12% 10% 10% 9% 7% 9%
0% 0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Latest FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Latest

Source: IRDA, JM Financial Source: IRDA, JM Financial

 Diversified channel mix dominated by agency and direct channel

Non-life insurers employ a multi-channel approach to sell their products, including

individual agents, bank partners, other corporate agents, brokers, direct sales and online
channels. The distribution mix has broadly remained stable over the years with agency
network and direct channel driving retail lines while brokers are more attuned towards
wholesale segment. The online channel has started gaining traction in recent years while
offering various benefits including higher cross-selling, better renewals, lower commission
rates and improved access to customer data and behaviour patterns. The standardisation
of policies – especially in Motor and Health – should aid the online distribution channel’s
growth.

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ICICI Lombard 10 September 2018

Exhibit 134. Industry distribution mix (premium wise) Exhibit 135. Total agents (in 000s) – private vs. public
100% 500

439
360
80% 31% 31% 29% 27% 27% 26% 31% 400
32%

320

303
287
287

253
241

240
60%

237
15% 23% 24% 300

226
22%

224
20% 21%

211
17% 24%

181
158
40% 8% 6% 6% 7% 7% 200

134
9% 7%
6%
20% 36% 36% 36% 37% 36% 35% 100
31% 29%
0% 0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Agents Bancassurance Corporate agents
Brokers Direct Others Private Public
Source: IRDA, JM Financial Source: Company, JM Financial

Increase in competitive pricing and CAT events has resulted in an elevated combined
ratio: While growth has remained healthy for the industry, intense competition, coupled
with several large catastrophic events such as Cyclone Phailin (2013), Uttarakhand floods
(2013), J&K floods (2014), Cyclone Hudhud (2014) and Chennai floods (2015) in recent
years has adversely impacted the profitability of non-life insurers. The impact has been
more severe for public sector insurers given their high exposure to property/government
insurance. Recent steps taken towards the public listing of these insures are expected to
benefit the industry, bringing about improved underwriting discipline, risk management,
disclosure and corporate governance. In FY17, the pressure on profitability was primarily
driven by reserve strengthening by PSUs and heightened competition in the motor
segment.

The Kerala floods in Aug’18 are expected to result in claims amounting to INR 5bn
(according to media reports) primarily for property, motor and health insurance policies.

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ICICI Lombard 10 September 2018
APPENDIX I

JM Financial Institutional Securities Limited

(formerly known as JM Financial Securities Limited)
Corporate Identity Number: U67100MH2017PLC296081
Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: –Stock Broker - INZ000163434, Research Analyst – INH000000610
Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: jmfinancial.research@jmfl.com | www.jmfl.com
Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: sunny.shah@jmfl.com

Definition of ratings
Rating Meaning
Buy Total expected returns of more than 15%. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.
Sell Price expected to move downwards by more than 10%

Research Analyst(s) Certification

The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:

All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and

No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research
report.

Important Disclosures

This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select
recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written
consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.

JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst and a Stock Broker having trading
memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary
action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of
the investor.

JM Financial Institutional Securities renders stock broking services primarily to institutional investors and provides the research services to its institutional
clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management,
brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing
offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies)
covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from
the company(ies) mentioned in this report for rendering any of the above services.

JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or
sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to,
or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged
in, it may have potential conflict of interest at the time of publication of this report on the subject company(ies).

Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or
more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.

The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling
debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report.
The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts)
Regulations, 2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the
company(ies) covered under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the
time of publication of this report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or
developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities
may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.

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ICICI Lombard 10 September 2018

The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk
of any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the
right to make modifications and alterations to this statement as they may deem fit from time to time.

This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any
transaction.

This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country
or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject JM Financial
Institutional Securities and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may
or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform
themselves of and to observe such restrictions.

Persons who receive this report from JM Financial Singapore Pte Ltd may contact Mr. Ruchir Jhunjhunwala (ruchir.jhunjhunwala@jmfl.com) on +65 6422 1888
in respect of any matters arising from, or in connection with, this report.

Additional disclosure only for U.S. persons: JM Financial Institutional Securities has entered into an agreement with JM Financial Securities, Inc. ("JM Financial
Securities"), a U.S. registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") in order to conduct certain business in the
United States in reliance on the exemption from U.S. broker-dealer registration provided by Rule 15a-6, promulgated under the U.S. Securities Exchange Act of
1934 (the "Exchange Act"), as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission ("SEC") (together "Rule 15a-6").

This research report is distributed in the United States by JM Financial Securities in compliance with Rule 15a-6, and as a "third party research report" for
purposes of FINRA Rule 2241. In compliance with Rule 15a-6(a)(3) this research report is distributed only to "major U.S. institutional investors" as defined in
Rule 15a-6 and is not intended for use by any person or entity that is not a major U.S. institutional investor. If you have received a copy of this research report
and are not a major U.S. institutional investor, you are instructed not to read, rely on, or reproduce the contents hereof, and to destroy this research or return it
to JM Financial Institutional Securities or to JM Financial Securities.

This research report is a product of JM Financial Institutional Securities, which is the employer of the research analyst(s) solely responsible for its content. The
research analyst(s) preparing this research report is/are resident outside the United States and are not associated persons or employees of any U.S. registered
broker-dealer. Therefore, the analyst(s) are not subject to supervision by a U.S. broker-dealer, or otherwise required to satisfy the regulatory licensing
requirements of FINRA and may not be subject to the Rule 2241 restrictions on communications with a subject company, public appearances and trading
securities held by a research analyst account.

JM Financial Institutional Securities only accepts orders from major U.S. institutional investors. Pursuant to its agreement with JM Financial Institutional
Securities, JM Financial Securities effects the transactions for major U.S. institutional investors. Major U.S. institutional investors may place orders with JM
Financial Institutional Securities directly, or through JM Financial Securities, in the securities discussed in this research report.

Additional disclosure only for U.K. persons: Neither JM Financial Institutional Securities nor any of its affiliates is authorised in the United Kingdom (U.K.) by the
Financial Conduct Authority. As a result, this report is for distribution only to persons who (i) have professional experience in matters relating to investments
falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii)
are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, (iii) are
outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the
Financial Services and Markets Act 2000) in connection with the matters to which this report relates may otherwise lawfully be communicated or caused to be
communicated (all such persons together being referred to as "relevant persons"). This report is directed only at relevant persons and must not be acted on or
relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and
will be engaged in only with relevant persons.

Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of
the securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities
or as a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only
under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under
applicable securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which
such offer or sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities
commission or similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits
of the securities described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you
based on your representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a
“permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under
no circumstances is the information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as
being tailored to the needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their
affiliates and authorized agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of
this research report or the information contained herein.

JM Financial Institutional Securities Limited Page 51