ICICI Lombard's Q2 Paradox: Why Are Profits Soaring While Premiums Are Down?
Here’s a breakdown of ICICI Lombard’s Q2 FY26 results. At first glance, the numbers might seem confusing with a headline drop in premiums. But as we peel back the layers, a more nuanced picture of strategic patience and solid profitability emerges. Let’s dive in.
Executive Summary: A Tale of Two Narratives
ICICI Lombard’s second-quarter performance is a classic case of looking beyond the headlines. While the Gross Direct Premium Income (GDPI) showed a slight de-growth of 1.9% YoY, the Profit After Tax (PAT) surged by an impressive 18.1%.
So, what’s driving this divergence?
- The Premium Puzzle 🤔: An IRDAI-mandated accounting change for long-term policies is masking the true premium collection. The underlying growth is modest but positive.
- Profitability Shines ✨: Despite competitive pressures, the company delivered strong bottom-line growth, driven by a robust performance in its investment book and improved dynamics in the health segment.
- A Conscious Strategy: The company continues its strategy of choosing profitability over chasing aggressive, and potentially loss-making, market share, especially in the motor segment.
In short, while the top line seems sluggish, the foundation of profitability and capital strength remains rock-solid.
Understanding the Business
ICICI Lombard is one of India’s leading private-sector general insurance companies. Its business is primarily split into three core segments:
- Motor Insurance: Covering cars, two-wheelers, and commercial vehicles. This is their largest segment.
- Health Insurance: Offering individual, group, and mass health policies.
- Property & Casualty (P&C): Includes fire, marine, engineering, and crop insurance, often linked to the broader economic and infrastructure cycle.
The company uses a diversified distribution network, including direct sales, individual agents, brokers, and bancassurance partnerships to reach its customers.
Premium Growth: The Accounting Anomaly
The most striking number in the Q2 results is the -1.9% YoY decline in Gross Direct Premium Income (GDPI). However, this is primarily due to a new accounting norm effective October 1, 2024, where premiums for long-term policies are now recognized on a proportional (1/n) basis over the policy term, instead of upfront.
While this makes year-on-year comparisons tricky, the company’s management has indicated that on a like-for-like basis (n-basis), the growth is positive, albeit still lagging the overall industry. This “conscious call,” as mentioned in the previous quarter’s earnings call, reflects a deliberate strategy to sidestep the intense price wars plaguing the motor insurance space.
Let’s look at the half-yearly performance for a clearer picture.
GDPI Performance by Segment (H1 FY26 vs H1 FY25)
| Business Segment | H1 FY2025 (₹ bn) | H1 FY2026 (₹ bn) | Growth % | Key Insights |
|---|---|---|---|---|
| Motor | 48.51 | 49.54 | +2.2% | Muted growth, CV segment de-grew 6.7% due to prudent underwriting. September saw a 6.5% uptick on festive demand & GST cuts. |
| Health, Travel & PA | 43.35 | 44.30 | +2.2% | Headline number masked by a large de-growth in Group - Others. Stellar +29.9% growth in the high-margin Individual Health segment. |
| Property & Casualty (P&C) | 32.35 | 35.57 | +10.0% | Strong performance, led by Fire (+15.3%) and Engineering (+12.3%), benefiting from the domestic infra push. |
| Crop | 19.88 | 3.90 | -80.4% | De-growth due to re-tendering and reduced coverage in certain states. |
| Total GDPI | 144.09 | 143.31 | -0.5% | Overall de-growth driven by the Crop segment and accounting changes. |
Key Takeaway: The real story is in the segment mix. ICICI Lombard is firing on all cylinders in profitable retail health and P&C lines linked to India’s domestic growth story. The slowdown in Motor is a strategic choice, a point management has been consistent on for the past few quarters.
The Profitability Engine: Margins and Ratios
While premium growth was subdued, the company’s profitability metrics tell a different story.
Combined Ratio (CoR) ⚠️
The Combined Ratio is a key measure of an insurer’s underwriting profitability. A ratio below 100% means it’s making a profit from its core insurance operations.
- Q2 FY26 CoR: 105.1%
- Q2 FY25 CoR: 104.5%
The CoR has worsened slightly, indicating higher claims and expenses relative to premiums. Excluding one-off catastrophe (CAT) losses, the ratio stood at 103.8% vs 102.6% a year ago. This suggests that underlying competitive and inflationary pressures are impacting underwriting results.
Let’s look at the Loss Ratios to see where the pressure is coming from.
Loss Ratio by Segment (Q2 FY26 vs Q2 FY25)
| Segment | Q2 FY2025 | Q2 FY2026 | Direction | Analysis |
|---|---|---|---|---|
| Motor OD | 65.9% | 70.1% | worsened | Significant increase, reflecting pricing pressure and claims inflation in the motor own-damage space. |
| Motor TP | 60.2% | 60.6% | ↔️ Stable | Relatively stable, but the industry is still awaiting a much-needed TP price hike. |
| Health, Travel & PA | 82.8% | 77.3% | ✅ Improved | Excellent improvement! This is a huge positive and validates the company’s focus on quality growth in this segment. |
| Fire | 39.2% | 54.2% | worsened | Worsened, but can be lumpy due to the nature of large claims. |
| Marine | 91.1% | 102.1% | worsened | Worsened significantly. |
The key takeaway here is the divergence between Motor and Health. While the competitive motor market is hurting loss ratios, the Health segment is showing remarkable improvement, which is crucial for long-term profitability.
Earnings Growth ✅
Despite a weaker CoR, the bottom line was strong.
| Metric (₹ billion) | Q1 FY26 | Q2 FY26 | Q2 FY25 | YoY Growth (Q2) |
|---|---|---|---|---|
| PBT | 9.94 | 10.77 | 9.19 | +17.2% |
| PAT | 7.47 | 8.20 | 6.94 | +18.1% |
| ROAE (Annualised) | 20.5% | 21.4% | 21.8% | ~Stable |
The robust 18.1% PAT growth was primarily fueled by higher investment income from a growing investment book (₹562 billion) and efficient capital management. The Return on Average Equity (ROAE) remains healthy at over 21%, a hallmark of a high-quality franchise. Based on this performance, ICICI Lombard firmly fits the profile of a stalwart in the Indian insurance space.
Capital Position: A Fortress Balance Sheet
- Solvency Ratio: At 2.73x, the solvency ratio is extremely comfortable, well above the regulatory requirement of 1.50x. This provides a massive cushion to absorb shocks and fund future growth without needing to raise external capital.
- Dividend: The board declared an interim dividend of ₹6.50 per share, an increase from ₹5.50 last year. This signals management’s confidence in the company’s earnings trajectory and commitment to rewarding shareholders.
Final View: Patience is a Virtue
ICICI Lombard’s Q2 results require a discerning eye. The company is navigating a tough competitive environment in the motor segment by choosing to protect its profitability rather than chasing growth for growth’s sake.
The Green Flags ✅
- Strong PAT growth of over 18%.
- Excellent execution in the Retail Health segment, with strong growth and improving loss ratios.
- Robust performance in commercial P&C lines, capitalizing on the domestic capex cycle.
- A fortress balance sheet with a 2.73x solvency ratio and an increased interim dividend.
The Red Flags ⚠️
- Lagging the industry in overall premium growth.
- Deteriorating underwriting performance, as seen in the rising Combined Ratio.
- Worsening loss ratios in the crucial Motor OD segment, highlighting intense competition.
The Road Ahead: The market will be closely watching for two things:
- A turnaround in the motor segment: A potential industry-wide price hike in Motor Third-Party (TP) insurance could be a major catalyst.
- Sustaining momentum in Health: Continuing the strong, profitable growth in the retail health portfolio will be key to driving future earnings.
For now, ICICI Lombard is playing the long game. The strategy might test investor patience on the growth front, but the consistent delivery on profitability and a strong balance sheet make it a compelling story for those focused on quality and long-term value creation.
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