Why standalone health insurers may outshine ICICI Lombard after Q1
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ICICI Lombard General Insurance Co. reported disappointing Q1FY27 results, with a 10% stock drop despite strong growth in its retail health segment. The overall GDPI growth was muted at 7.5% y-o-y, and net profit fell 23% due to a worsening combined ratio, indicating underwriting losses. Investors may find standalone health insurance companies more appealing given their lower risk profile and better performance metrics compared to diversified insurers like ICICI Lombard.
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Investors looking to bet on the growing demand for retail health insurance products, might prefer standalone health insurance (SAHI) companies over ICICI Lombard General Insurance Co., going by the latter’s dismal June quarter (Q1FY27) results that dragged the stock down over 10% to ₹1,610.
To be sure, ICICI Lombard's retail health business delivered a standout performance. Gross direct premium income (GDPI) from retail health under its flagship Elevate product surged 69.5% year-on-year (y-o-y) to ₹718 crore in Q1FY27, comfortably outpacing the industry's 31.6% growth.
Still, the company’s overall GDPI growth was muted at 7.5% y-o-y to ₹8,318 crore, thanks to a steep 32% drop in fire insurance premium to ₹997 crore.
The bigger disappointment came on profitability.
The combined ratio—a key underwriting metric that adds the loss ratio (claims paid as a percentage of net premium) and the expense ratio (expenses as a percentage of net premium)—came in weaker than expected. A combined ratio above 100 indicates underwriting losses.
Even after excluding one-off impacts from two large fire claims worth ₹63 crore and the 11 June Supreme Court ruling on motor third-party claims that resulted in an additional ₹165 crore provision, the combined ratio worsened to 103.4% from 102.9% a year ago.
As a result, net profit declined 23% y-o-y to ₹575 crore.
The challenge with such one-off events is that they tend to recur across different business segments.
Going ahead, motor third-party premiums will likely need to be increased to absorb the impact of the Supreme Court ruling, as the industry's motor third-party loss ratio is expected to rise by 12-15%. The loss ratio measures claims paid as a percentage of net premium earned. ICICI Lombard's motor third-party loss ratio stood at 70.6% in Q1FY27.
Compared to general insurance companies such as ICICI Lombard, SAHI companies don’t have to deal with risks from non-health segments including huge catastrophes, crop loss claims etc. Health segment rarely has exceptional losses such as those occurring during pandemic, making SAHIs a better investment choice versus diversified general insurance companies.
Even after Thursday's 10% drop, ICICI Lombard trades at a price-to-earnings multiple of 27 times based on Bloomberg consensus FY27 estimates.
This parameter for India’s largest SAHI, Star Health and Allied Insurance Co., is 35. The gap could perhaps narrow once the Street starts to factor in the cuts analysts made in ICICI Lombard’s FY27 earnings estimates after Q1FY27.
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