ICICI Lombard. Leader with strong growth prospects. Investments in technology driving efficiencies. Largest private non-life insurer in the country

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1 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 procedures in place Initiate with BUY and TP of INR 1,050

2 10 September 2018 INDIA INSURANCE COVERAGE INITIATION T ABL E OF CON T ENT S Introduction Key charts Largest private non-life insurer Retail lines to drive premium growth Multi-channel distribution network Disciplined underwriting paying off Superior investment performance Both profit engines firing up Strong solvency to support growth Valuation & Key risks Company background Financial tables Appendix I: Non-life insurance in India 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 9 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 FINANCE LIFE INSURANCE SECTOR UPDATE ADITYA BIRLA CAPITAL BANDHAN BANK RELIANCE NIPPON LIFE ASSET MANAGEMENT JM Financial Institutional Securities Limited Page 2

3 10 September 2018 INDIA INSURANCE COVERAGE INITIATION ICICI Lombard General Insurance Ltd Leader with strong growth prospects ICICI Lombard General Insurance Ltd (ICICIGI or ICICI Lombard) is the 4th largest non-life insurer (8.2% GDPI market share in FY18) and a leader among private players (18.9% share ex-standalone health). Over FY15-18, it has recorded a 23% GDPI CAGR, outperforming the industry (2) by leveraging its a) parent s brand equity, b) retail-focused, diversified product mix and c) strong, multi-channel distribution in 638 of 716 districts in India. Superior risk selection, micro-segmentation and the flexibility to opportunistically enter/exit business lines has resulted in significant improvement in the insurer s underwriting performance. Loss ratios have moved from 81% in FY15 to 77% in FY18. After pioneering online sales in FY05, digitisation and automation remain the key to its operating efficiencies as scale builds. ICICI Lombard is well-positioned to deliver 15% GDPI growth in line with the industry over FY18-20E,enabled by i) structural factors: a) non-life under-penetration and low density as well as b) urbanisation and rising asset ownership; ii) granular focus on niche segments within Motor and Health insurance and iii) a strong, productive distribution network. We value the stock at 28x Mar 21E EPS for a PAT CAGR of 24% over FY18-21E and ROE of 21% by FY21E. We initiate with a BUY rating and a TP of INR 1,050. Key risks to our call: disruptions in distribution and regulatory/government risks. Retail lines to drive growth and underwriting performance: ICICI Lombard s retail lines share rose to 61% in FY18 from under 5 in FY06. Most of this growth has come from less-riskier segments such as a) Motor: private cars, 2Ws, preferred commercial vehicles (CVs) like 3Ws, trucks, tractors & CE and b) Health: retail health indemnity, SME group health, etc. Corporate lines make up 2 of its premiums, with the rest coming from crop insurance. Focus on retail and exits from loss-making large corporate/mass health insurance segments resulted in loss ratios improving from 81% in FY15 to 76.9% in FY18. The insurer plans to cap exposure to crop insurance in light of unfavourable pricing. Going forward, it aims to focus on granular risks while opportunistically entering property/other CV segments as pricing and structural factors improve therein One of the most operationally efficient, digital-savvy insurers: ICICI Lombard s expense ratio (ex-commissions) was one of the lowest among peers at 27% in FY18 (vs. the peer average of 3). It has improved 440bps since FY15, led by continued investments in automation/ digitisation. These include: a) robotics for faster turnaround times, b) AI for risk management and speedy claims processing, c) assisted sales using chat bots, d) drones for crop surveys and e) plug-and-play infrastructure for seamless onboarding of distribution partners. High-quality investment book; no default since inception: The insurer s investment book reached INR 182bn in FY18 c.12% of total private sector AUM (incl. standalone health) - with 83% invested in sovereign and AAA securities. While the FI book has experienced zero defaults since inception, the equity book too, has posted robust annualised returns (incl. unrealised gains) of 3 since FY04 vs. 17% for the benchmark. Moreover, its cash-before-cover model implies zero asset quality risks. Recommendation and Price Target Current Reco. Previous Reco. Current Price Target (12M) Upside/(Downside) Previous Price Target Change Key Data ICICIGI IN Current Market Price Market cap (bn) BUY 1,050 21% NA NA INR876 INR397.5/US$5.5 Free Float 31% Shares in issue (mn) Diluted share (mn) 3-mon avg daily val (mn) INR184.9/US$ week range 889/619 Sensex/Nifty 38,390/11,589 INR/US$ 71.7 Financial Summary (INR mn) Y/E March FY17A FY18A FY19E FY20E FY21E Net Profit 6,418 8,618 11,049 13,657 16,588 Net Profit (YoY) (%) 27% 34% 28% 24% 21% Assets (YoY) (%) 36% 27% 16% 16% 16% ROA (%) 3.2% 3.3% 3.5% 3.7% 3.9% ROE (%) 15.8% 17.5% 19.3% 20.4% 21. EPS EPS (YoY) (%) 26% 33% 28% 24% 21% P/E (x) BV BV (YoY) (%) 23% 16% 17% 18% 19% P/BV (x) Source: Company data, JM Financial. Note: Valuations as of 07/Sep/2018 JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters S&P Capital IQ and FactSet. You can also access our portal: Please see Appendix I at the end of this report for Important Disclosures and Disclaimers and Research Analyst Certification. Price Performance % 1M 3M 6M Absolute Relative* * To the BSE Sensex Karan Singh CFA FRM karan.uberoi@jmfl.com Tel: (91 22) Sameer Bhise sameer.bhise@jmfl.com Tel: (91 22) Bunny Babjee bunny.babjee@jmfl.com Tel: (91 22) S Parameswaran s.parameswaran@jmfl.com Tel: (91 22) Nikhil Walecha nikhil.walecha@jmfl.com Tel: (91 22) JM Financial Institutional Securities Limited Page 3

4 ICICI Lombard Key charts Exhibit 1. Industry to clock double digit premiums growth 2,500 2,000 1,500 1, FY02 1 st phase: Growth phase during tariff regime FY03 FY04 Source: IRDA, JM Financial FY05 FY06 FY07 FY08 2 nd phase: Post de-tariffing and Motor Pool FY09 FY10 FY11 FY10 FY12 FY11 FY13 FY12 FY13 FY14 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E 3 rd phase: Dismantling Motor pool and Declined Risk Pool FY15 FY16 FY17 GDPI (INRbn) YoY (%) FY18 FY19E FY20E FY21E 35% 3 25% 2 15% 1 5% Exhibit 2. Significant under-penetration and low density 6% 4% 2% 5. South Korea Source: SwissRe 4.3% USA 3.4% 3.4% Taiwan Hong Kong Non life Insurance penetration 2.7% 2.4% 2.3% 1.9% South Africa 0.9% UK Japan China India Insurance Density (USD) 3,000 2,500 2,000 1,500 1, Exhibit 3. Rising incomes fuelling ownership of insurable assets 1,20,000 1,00,000 80,000 60,000 40,000 20,000 0 FY12 FY13 FY14 FY15 FY16 FY17 FY18E Per Capita NNI (INR) Source: CMIE Exhibit 4. Accelerated rate of urbanisation raising awareness % 0.8% % 1.8% Brazil UK USA Russia South Africa % 1.6% China Indonesia Thailand 2.4% India 2.5% % % Urban Population (as % of Total) Urbanisation Rate CAGR ( E) Source: UN database, CRISIL Exhibit 5. ICICIGI to benefit from industry growth % 29% % 19% 21% % 15% 15% 15%15% % -3% GWP (INR bn) Growth (YoY, %) 35% 3 25% 2 15% 1 5% -5% Exhibit 6. Consolidating its leadership position 3 25% 2 15% 1 5% 23.6% 24.4% 23.1% 21.9% 21.4% % 19.9% 18.9% 18.4% % 8.4% 8.8% 8.6% 8.6% 8.6% 7.7% 8.4% 8.4% 8.2% 8.1% 8.1% 8.1% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Market share (industry) Market share (pvt. ex standalone) Source: IRDA, Company, JM Financial Exhibit 7. Diversified product mix providing traction 10 15% 14% 15% 11.2% 6.9% 6.5% 7.3% 7.3% % 19.2% 6% 6% 7% 8.2% 7.8% % 26% 22% 19.7% 17.1% 6.9% 7.4% 15.5% % 44% 47% 51% 51% 42% 42% FY12 FY13 FY14 FY15 FY16 FY17 FY18 Motor Health Fire Marine Eng PA Crop Others Exhibit 8. Leveraging its strong multi-channel distribution network % 29% 32% 31% 34% 38% 42% 2% 2% 2% 2% 2% 2% 2% 53% 47% 43% 41% 4 41% 36% 6% 6% 7% 9% 7% 7% 7% 15% 17% 16% 17% 16% 12% 12% FY12 FY13 FY14 FY15 FY16 FY17 FY18 Agency Banca Direct Online Broker and others JM Financial Institutional Securities Limited Page 4

5 Exhibit 9. Superior risk management keeping loss ratios low % 10 96% 89% 9 83% 83% 81% 82% 81% 77% 8 76% 76%76% 7 Exhibit 10. Operating efficiencies capping expense ratios % 21% % 24% 25% 23% 23% 22% 22%22% 6 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY10 FY20E FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY21E FY18 FY19E FY20E FY21E FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Exhibit 11. Underwriting quality visible in improving CORs trends % 98% 97% 104% 105% 105% 104% 107% 114% 116% 121% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Exhibit 13. Prudent investment management yielding good returns 18% 15.7% 15% 13% 10.1% 1 7.6% % 9.8% 10.8% 9.8% 9.2% 8% 5% 3% % 9.7% 10.1% 10.2% 9.9% 9.3% 7.2% 5.8% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Investment yield - policyholder (%) Investment yield - shareholder (%) Exhibit 12. Tried and tested reserving policy keeping divergence low % 0. 17% 21% 17% 6.3% 5.9% 3.7% 3.1% 2.7% 0.6% 23% 26% 36% 34% 47% 49% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 IBNR reserves % of total reserves AY IBNR (deficit)/excess 5% -5% -1-15% -2 Exhibit 14. A well-balanced investment portfolio 10 25% 23% 17% 11% 1 8% 8% 8 11% 13% 26% 22% 15% 26% 26% 6 19% 14% 17% 21% 16% 16% 9% 7% 16% 4 1 5% 13% 15% 15% 2 37% 42% 36% 37% FY12 FY13 FY14 FY15 FY16 FY17 FY18 G-secs Other approved secs Equity Bonds Real eatate Infrastructure & Social Others Exhibit 15. Improving CORs and higher investment yields position ICICIGI to deliver best-in-class RoEs in the non-life space (1) (2) (3) 5% (8%) 16% (26%) 22% 19% 14% 16% 17% 19% 221% Exhibit 16. Strong solvency capable of supporting organic and inorganic growth % 22% 155% 172% 195% 182% 182% 183% 183% FY12 FY13 FY14 FY15 FY16 FY17 FY18 Core capital Other capital JM Financial Institutional Securities Limited Page 5

6 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E 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 4 th largest insurer in the Indian non-life insurance industry, controlling 8.2% of the premium market as of FY18 (1 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 FY 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 % 29% % 19% 21% % 15% 15% 15%15% 50 0 FY10-3% FY11 FY12 FY13-3% FY14 FY15 FY16 FY17 FY18 FY19E FY20E GWP (INR bn) Growth (YoY, %) FY21E 35% 3 25% 2 15% 1 5% -5% Exhibit 18. To maintain market leadership going into FY21E 3 25% 2 15% 1 5% 23.6% 24.4% 23.1% 21.9% 21.4% % 19.9% 18.9% 18.4% % 8.4% 8.8% 8.6% 8.6% 8.6% 7.7% 8.4% 8.4% 8.2% 8.1% 8.1% 8.1% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Market share (industry) Market share (pvt. ex standalone) Market leader across industry cycles leveraging parent s brand equity, diversified product suite and multi-channel reach into c.9 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 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 (70-8) and personal accident (72-75%) recording robust retention. Exhibit 19. Diversified product suite 10 15% 14% 15% 11.2% 6.9% 6.5% 7.3% 7.3% % 19.2% 6% 6% 7% 8.2% 7.8% 6 28% 26% 22% 19.7% 17.1% 6.9% 7.4% 15.5% % 44% 47% 51% 51% 42% 42% Exhibit 20. Retention ratio 85% % 71% % 68% 67% 65% 66% 61% 6 63% 64% 64%63% FY12 FY13 FY14 FY15 FY16 FY17 FY18 Motor Health Fire Marine Eng PA Crop Others 55% JM Financial Institutional Securities Limited Page 6

7 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 2 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 2 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 Wholesale Group (18.7%) Product De scription Portfolio a s of FY18 Fire 7. Marine 3. Customised solutions; Beyond insurance Engineering cover, offers risk 2. management and mitigation solutions Liability 0.2% Ke y Fe a ture s Loss ra tios Ta rge t Custome r Ba se Market share increased from 7.8% in FY17 to 8.5% FY18 Established presence in large risk segment Gaining share in mid-risk segment Market share increased from 11.7% in FY17 to 12.7% FY18 Close monitoring of high-frequency accounts using Marine Loss Control Engineering (MLCE) Market share increased from 9.8% in FY17 to 11.2% FY18 Strong relationship with large contractors Pickup in infrastructure activity Market share increased from 12.9% in FY17 to 14.3% FY18 Proven ability in structuring complex solutions 43.1% 54.2% % Corpora te Solutions Group - serves large corporate companies in variety of industries Spe c ia lise d Industry Group - caters to large clients in specialised business segments SME Group - focusses on MSMEs across industries Inte rna tiona l Busine ss Group - covers international risks of Indian business interests Retail Group (62.) Government Group (19.3%) Cyber Health & PA 6.5% Motor 42. Health & PA Loss cost based microsegmentations 11.8% Home Travel Crop Diversification 19. Adequate pricing Health, Personal Accident 0.3% Pricing pressure continued for large corporates; focus on 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, trucks 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 Offers indemnity and benefits products Launched sachet products with dynamic pricing based on transaction analytics Focusing on T2/T3 cities as loss ratios better vs. existing portfolio Gross premiums grew 35% YoY in FY18; Company investing in distribution Market share increased from 20.8% in FY17 to 24.9% in FY million lives insured in FY18, of which 95% were lives 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 across 8 states and 31 districts; Non loanee made up 1 of total enrollments during FY18; Cattle insurance witnessed 5x YoY growth in GWP in FY18 with 22,715 animals insured across 14 states. Writes business under the RSBY scheme. The company offers access to robust hospital network and speedy claims settlement 88. Motor OD: 53.7% Motor TP: 107.1% Indemnity: 6 Benefits: 46% Individuals State/ Central governments or government-owned enterprises and rural customers JM Financial Institutional Securities Limited Page 7

8 Exhibit 22. Development of product mix in recent years (INR bn) FY15 FY16 FY17 FY18 FY15-18 Product GDPI % GDPI % GDPI % GDPI % CAGR Motor % % % % 15% Motor OD % % % % 13% Motor TP % % % 19% Crop/Weather 2.8 4% 5.9 7% % 105% Health and PA % % % % 15% Health % % % 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 % 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 5 of the motor premiums coming from private cars, 17% from select CV segments and 33% from two-wheelers. Versus this, the industry has roughly 4 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 2 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.6 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

9 Exhibit 23. Long-term motor TP for private cars 3 years 1-yr 3-yr 3*(1-yr) Private car Diff % (INR) (INR) (INR) Source: IRDA Less than 1,000cc 1,850 5,286 5,550-5% 1,000cc to 1,500cc 2,863 9,534 8,589 11% Exceeding 1,500cc 7,890 24,305 23,670 3% Exhibit 24. Long-term motor TP for 2Ws 5 years 1-yr 5-yr 5*(1-yr) 2Ws Diff % (INR) (INR) (INR) Less than 75cc 427 1,045 2,135-51% Source: IRDA 75cc to 150cc 720 3,285 3,600-9% 150cc to 350cc 985 5,453 4,925 11% Exceeding 350cc 2,323 13,034 11,615 12% 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 quotabased underwriting and favourable claims/inflation linked pricing % 35% 38% 39% 39% 42% 55% Exhibit 26. ICICIGI focusses on profitable segments within motor insurance - 2W and private cars % 18.1% 15-17% % 65% 62% 61% 61% 58% 45% % 30.8% 32.3% 30-35% 15% % 47.3% 49.6% >5 45% FY13 FY14 FY15 FY16 FY17 FY18 Industry Motor OD Motor TP Exhibit 27. ICICIGI maintained its industry market share in a highly competitive motor OD market M. share % FY15 FY16 FY17 FY18 ICICI Lombard 11% 12% 12% 12% HDFC Ergo 3% 3% 4% 5% BAGIC 1 1 9% 8% SBI Gen 2% 2% 2% 2% Reliance Gen 4% 4% 4% 5% Source: IRDA, JM Financial FY15 FY16 FY17 FY18 Industry Private car Two wheelers Commercial vechicle Exhibit 28. Motor TP market share trend has remained fairly stable over recent years M.share % FY15 FY16 FY17 FY18 ICICI Lombard 7% 8% 7% 7% HDFC Ergo 2% 3% 3% 3% BAGIC 5% 6% 6% 6% SBI Gen 1% 1% 1% 1% Reliance Gen 4% 4% 4% 4% 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 lessdeveloped nations); b) stricter focus on renewals given only 6 of cars aged over 3 years and only 1 of 2Ws aged over 3 years have insurance in India vs. 9 globally. This issue will be addressed as the industry prepares for mandatory longterm 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. JM Financial Institutional Securities Limited Page 9

10 Exhibit 29. Motor sales mix to remain stable going into FY20E Source: SIAM, JM Financial MHCV LCV 3Ws PVs 2Ws 80.5% 80.8% 81.2% 81.2% 13.9% 13.2% 12.9% 12.6% 13.3% 9.3% 17.3% 18.7% 11.6% FY17 FY18 FY19E FY20E CAGR Exhibit 30. Car and 2W penetration in India (per 1,000) OECD32 car penetration: 570; Less-developed nation s car penetration: 70* Cars (LHS) 2W (RHS) 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 benefitbased (c.6 of retail health) and indemnity-based products (c.4). 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 10 11% 4% 11% 2% < % 3 35% 6 >5 4 57% 59% 59% 63% 2 <4 FY15 FY16 FY17 FY18 Industry Retail Health Corporate Health Mass health Exhibit 32. Health & PA market share movement M.share % FY15 FY16 FY17 FY18 ICICI Lombard 6.8% 6.3% 6.3% 5.5% HDFC Ergo 4.1% 3.9% 3.6% 3.8% BAGIC 3.5% 3.4% 3.6% 4. SBI General 1.7% 1.9% 2.3% 2.2% Reliance General 2.4% % 1.9% Star Health (Standalone health) 6.4% 7.2% 8.6% 7. Apollo Munich (Standalone health) 3.5% 3.7% 3.8% 3.1% Other private insurers 13.2% 12.3% 11.2% 25.8% PSU insurers 58.4% 59.2% 59.5% 46.7% Total 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 JM Financial Institutional Securities Limited Page 10

11 * * Low income countries Lower middle income countries Upper middle income countries Higher income countries 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% 8% 7.4 7% 6% Exhibit 34. Health insurance in India key metrics Health insurance penetration (% of total population under any health scheme) % 5% o.w. covered by PSU insurers 77% 4% 3% o.w. covered under Govt-sponsored schemes 8 2% 1% % Private health insurance penetration (% of total population) Medical expenditure as % of household income/savings 2.3%* Urban: 74.9% Rural: 67.8% Source: CBHI, JM Financial; *As of 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 along with a National Health Protection Scheme covering over 100 million families (or close to 500 million beneficiaries) offering a sum assured of INR JM Financial Institutional Securities Limited Page 11

12 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 Coverage Target Funding Pure Insurance model Hybrid model - Pvt insurer only bears claims upto INR 50,000 Source: Media reports INR 0.5 million per family (no restrictions on size) per year for secondary and tertiary hospitalization covering over 1,000 treatment packages 4 of population / million poor families ( ~500 million beneficiaries) across both 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 legislation: 10 centre and c) 8 NE, Himalayan states: 90:10 between centre and state Nagaland Bid price (INR / family / year) Type of insurer Apollo Munich Health Insurance 444 Standalone Health BAGIC 506 Private insurer Reliance General Insurance 1,020 Private insurer Religare Health 1,060 Standalone Health National Insurance 1,944 PSU United India 1,944 PSU New India No bid PSU ICICI Lombard No bid Private insurer Jharkhand Mizoram Meghalaya Gujarat Bidding details not out Bidding details not out Bidding details not out Oriental Insurance 361 PSU Religare Health 445 Standalone Health IFFCO Tokio 2,712 Private insurer Chhattisgarh Religare Health 1,100 Standalone Health BAGIC 1,270 Private insurer United India 1,980 PSU National Insurance 2,128 PSU New India 3,750 PSU JM Financial Institutional Securities Limited Page 12

13 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 8.2% 9.5% 7.8% ICICI Lombard 9. Industry 7.5% 6.9% 7.4% % Fire - ICICI Lombard market share 7% 8% 9% FY15 FY16 FY17 FY18 0. 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 ICICI Lombard 3.7% 3.6% 3.7% 3.1% Industry 3.2% % FY15 FY16 FY17 FY18 2. Exhibit 39. Hands-on risk management and SME focus key % Marine - ICICI Lombard market share 12% 1 13% 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. 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. JM Financial Institutional Securities Limited Page 13

14 Exhibit 40. Engineering as a % of total GDPI 2.6% 2.8% 2.5% ICICI Lombard 2.5% Industry 2.1% % 1.5% FY15 FY16 FY17 FY18 Source: IRDA, JM Financial Exhibit 41. Pick-up in infra activity + large contractor relationships lead to market share gain Engineering - ICICI Lombard market share 6% Source: IRDA, JM Financial 8% 1 11% FY15 FY16 FY17 FY18 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. 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 4.1% ICICI Lombard 7.3% % Industry 20.1% 19.2% 16.1% 17. FY15 FY16 FY17 FY18 Source: IRDA, JM Financial Exhibit 43. High loss ratios + aggressive pricing driving caution Crop/Weather - ICICI Lombard market share 11% 1 na Source: IRDA, JM Financial 9% FY15 FY16 FY17 FY18 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 1 of total enrolments in FY18. The segment s premiums posted a CAGR of 10 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 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 JM Financial Institutional Securities Limited Page 14

15 zones, ii) avoidance of coastal areas, and iii) past yield data and premium payment history. It aims to cap exposure to crop insurance to 15-2 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 9.2% 7.1% 6.9% ICICI Lombard 8. Industry 6.5% 6.5% 6.5% Other insurance - ICICI Lombard market share 7% 6% 7% 9% FY15 FY16 FY17 FY18 0. FY15 FY16 FY17 FY18 JM Financial Institutional Securities Limited Page 15

16 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 % 29% 32% 31% 34% 38% 42% 2% 2% 2% 2% 2% 2% 2% 53% 47% 43% 41% 4 41% 36% 6% 6% 7% 9% 7% 7% 7% 15% 17% 16% 17% 16% 12% 12% FY12 FY13 FY14 FY15 FY16 FY17 FY18 Agency Banca Direct Online Broker and others Exhibit 47. Distribution by business groups Retail (individual, Corporate SME) Government Direct Online Channel Broker Bank Partners Other corporate agents Individual Agents (non-loanee farmers) 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 dealerinsurer 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 25-3) 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. JM Financial Institutional Securities Limited Page 16

17 Exhibit 48. MVMs + direct growing in importance % 4 41% 41% 6 12% 13% 5% 9% 8% 4 9% 7% 7% 7% 6% 12% 17% 16% 11% 2 17% 19% 26% 23% FY15 FY16 FY17 1Q18 MVMs Indiv. agents Banks Corp. agents Brokers Digital Direct Source: Company as of latest disclosures, JM Financial Exhibit 49. In-depth look into individual channels Channel OEM s/dealers Agents Brokers Direct sales force Banks/FIs Website Call center Branches Source: RHP, JM Financial Description 20 Motor Manufacturer s & 6,000+ Distributors 23,800 + agents/brokers Corporate: 1,000+ active customers Government: Health, PA, Crop 30+ banks/fis; Access to 6,211 branches 2,100+ active touch points 8,00,000+ unique visitors/month 2,00,000 calls/month 253 branches pan India 140+ virtual offices 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 (2 premiums from banca channel) and SBI General (46% premiums from banca channel). Individual Agents: Has the 3 rd 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 ,000 20,000 15,000 Individual agency growing since FY15 Individual agents (#) 20,383 17,848 16,075 23,395 Exhibit Premium per agent falls in line with granular focus Avg. ticket sizes (INR' 000) ,000 5, FY15 FY16 FY17 FY FY15 FY16 FY17 FY18 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 JM Financial Institutional Securities Limited Page 17

18 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. 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. JM Financial Institutional Securities Limited Page 18

19 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E ICICI Lombard 10 September 2018 Disciplined underwriting paying-off ICICI Lombard s combined ratios have improved significantly from 105% in FY15 to 10 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 % 10 96% 89% 9 83% 83% 81% 82% 81% 77% 8 76% 76%76% 7 6 Exhibit 53. Loss ratio mix (2) (4) 18% 25% 39% 12% 71% 71% 63% 71% FY10 FY11 FY12 FY13 12% 71% FY14 96% -14% FY15 25% 57% FY16 28% 53% FY17 27% 5 FY18E 3 47% FY19E 3 46% FY20E 3 46% FY21E Claims paid Change in claims reserves 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 % 77% Health 88% 85% 98% 78% Personal Accident 8 64% 41% 24% Health and PA 87% 82% 9 68% Crop/weather 14 84% 135% Fire 95% 64% 68% 43% Marine 99% 95% 86% 54% Engineering 78% 69% 53% 24% Other 75% 7 62% 57% Total loss ratio 81% 82% 8 77% Motor insurance: Motor OD has historically been a profitable product line with CORs at 80-97% over FY 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 %. 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

20 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 % 27% 9% 1 FY15 FY16 FY17 FY18 Motor OD - GDPI (INRbn) 11% 23% Motor TP - GDPI Exhibit 56. Divergence in CORs of motor OD and motor TP % 131% % % 97% 10 84% 87% FY15 FY16 FY17 FY18 Motor OD - COR Motor TP - COR Exhibit Favourable loss experience in Motor OD keeps COR low 6 62% 63% 51% 1% 3% 1% 2% FY15 FY16 FY17 FY18 Exhibit 58. Motor TP COR remain high in line with long-tail reserving % % 67% 77% 5 26% % FY15 FY16 FY17 FY18 Loss ratio - Claims paid Loss ratio - Chg in reserves Loss ratio - Claims paid Loss ratio - Chg in reserves 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 Motor TP Premium (in INR) FY17 FY18 FY19 Private Cars YoY% FY17 FY18 FY19 less than 1,000cc 2,055 2,055 1,850 4 (1) > 1,000cc and not exceeding 1,500c 2,237 2,863 2, % > 1,500cc 6,164 7,890 7,890 25% 28% Goods carrying vehicle public carriers A1 Not exceeding 7,500kg 14,390 14,390 14,390 > 7,500 kg but not exceeding 12,000kg 15,365 19,667 24,190 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, % 16% Goods carrying vehicle private carriers A2 Not exceeding 7,500 kg 7,849 7,938 7,144 (1) 1% (1) > 7,500 kg but not exceeding 12,000 kg 11,528 14,330 15, % 9% > 12,000kgs but not exceeding 20,000 kg 9,390 9,871 9,871 5% 5% > 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, % Two Wheelers Not exceeding 75cc (25%) > 75 cc but not exceeding 150 cc % 16% > 150cc but not exceeding 350 cc % 28% 11% > 350cc 796 1,019 2,323 (1) 28% 128% Source: IRDA, JM Financial JM Financial Institutional Securities Limited Page 20

21 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 unregulated 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 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.6 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 1-yr 3-yr 3*(1-yr) Private car Diff % (INR) (INR) (INR) Source: IRDA Less than 1,000cc 1,850 5,286 5,550-5% 1,000cc to 1,500cc 2,863 9,534 8,589 11% Exceeding 1,500cc 7,890 24,305 23,670 3% Exhibit 61. Long-term motor TP for 2Ws 5 years 1-yr 5-yr 5*(1-yr) 2Ws Diff % (INR) (INR) (INR) Less than 75cc 427 1,045 2,135-51% Source: IRDA 75cc to 150cc 720 3,285 3,600-9% 150cc to 350cc 985 5,453 4,925 11% Exceeding 350cc 2,323 13,034 11,615 12% Health insurance: Retail heath continues to be the largest sub-sector (>6 of total health GDPI) and is also most profitable in terms of underwriting performance. Within retail health, both indemnity portfolio (6 loss ratio as of Dec 18) and benefit portfolio (45.7% loss ratio) have been profitable. Problematic corporate/group health premiums have witnessed 2 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 % 8% 29% 18% (2%) 2 (5) 197% (86%) FY15 FY16 FY17 FY18 Retail Health - GDPI (INRbn) Corporate - GDPI Mass - GDPI Exhibit 63. Total health quarterly underwriting performance U/W result (INRmn) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 Retail Health 957 1,228 1, Corporate Health (12) (316) (204) (437) (1,029) Mass/Govt. Health (186) 36 (127) 136 (40) ICICIGI is sourcing the business at a viable loss ratio as tracked internally. U/W loss is optically higher as bulk of business sourced at quarter-end thus requiring up-fronting of acquisition costs. JM Financial Institutional Securities Limited Page 21

22 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 by New India Assurance (NIA) (#1 in public sector), the non-life industry has benefitted from the price correction initiated by them in the group/corporate health portfolio. From exhibit 64/65, it is evident that premiums growth is stronger in recent quarters vs. last year. Listed public peer, New India Assurance, witnessed group health (24% market share as of YTD-Jul 18) loss ratios falling to 11 in FY18 vs. 125% last year largely due to price corrections. The management expects this ratio to further decline to c.10 by FY19. 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 Price corrections have ranged from 20-4 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. ICICI Lombard Market share: 7% - Retail Health; 6% - Corporate/Group Health; 1% - Government/Mass Health New India Market share: 14% - Retail Health; 24% - Corporate/Group Health; 34% - Government/Mass Health Exhibit 64. Contribution of health premiums is higher for public insurers given higher participation in group/mass health schemes Total Health GDPI 1Q18 2Q18 3Q18 4Q18 1Q19 share % ICICI Lombard 15% 13% 14% 18% 17% HDFC Ergo 12% 12% 14% 39% 18% BAGIC 19% 12% 18% 17% 3 SBI Gen 12% 1 13% 17% 12% Reliance Gen 25% 15% 9% 11% 3 Exhibit 65. Premiums YoY growth is coming from both higher no. of policies and higher pricing in the corporate/group policies Total Health GDPI 1Q18 2Q18 3Q18 4Q18 1Q19 YoY % ICICI Lombard -18% 18% 29% 34% 26% HDFC Ergo 16% >10 >10 56% 39% BAGIC 44% 7% 41% 63% 103% SBI Gen 71% 46% 35% 3% 44% Reliance Gen >10 >10 82% 47% 45% New India Assurance 33% 25% 3 27% 36% Source: IRDA, JM Financial New India Assurance 21% 6% 26% 18% 23% Crop insurance dynamics changing with rising competition and hardening reinsurance commissions rates For ICICI Lombard, growth in crop insurance premiums (1 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 15-2 and as such premiums growth is set to be muted for this segment. JM Financial Institutional Securities Limited Page 22

23 Exhibit 66. Crop insurance: contribution to total GDPI & retention 25% 23% 23% 2 19% 19% 2 15% 1 7% 5% FY16 FY17 FY18 Crop insurance - GDPI % Crop insurance - Retention % Exhibit 67. Crop insurance: Loss ratios and Commissions ratio (43%) 84% 135% (3) (25%) FY16 FY17 FY18 Loss ratios Commission ratio JM Financial Institutional Securities Limited Page 23

24 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. 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 year later years later years later years later years later years later years later years later years later years later years later Deficiency/ (Redundancy) (%) % % -6.3% -5.9% -3.7% -2.7% -0.6% 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 year later years later years later years later years later years later years later years later years later years later years later Deficiency/ (Redundancy) (%) % 25.1% 10.6% 3.4% 1.1% -3.1% -4.8% -2.3% -1.6% Source: DRHP Started Declined Motor Pool. Higher Motor TP prices - linked to inflation + claims experience. IRDA dismantled all pooling arrangement. Market share based formula to decide min. commercial motor TP to underwrite JM Financial Institutional Securities Limited Page 24

25 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 3. 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. 3 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. 2 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 selfinspection 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.9 of new business applications initiated through digital platform. Consequently, number of policies issued has increased by c.2 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 2. Exhibit 70. Expense ratio trends % 21% FY10 FY FY12 FY13 22% 24% 25% 23% 23% 22% 22%22% FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Exhibit 71. Expense ratio - composition Segment FY15 FY16 FY17 FY18 Own Damage 25.7% 31.7% % Third-party 33.8% 33.5% % Overall Motor 29.5% 32.5% % Health 7.9% 6.4% 5.7% 3.8% Personal Accident 16.8% 22.7% 23.1% 26.6% Health and PA 9.3% 9.3% 8.9% 8.4% Crop/Weather (25.5%) (19.8%) (12.1%) (11.7%) Fire 1. (25.3%) (10.) 1.7% Marine 31.2% 32.1% 34.2% 30.9% Engineering (10.1%) (1.8%) 4.1% 23. Other % 44.6% Total Expense ratio 23.5% 25.5% 23.5% 23.3% 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 % last year. The recent Kerala floods are expected to have minimal impact on the combined ratio as ICICIGI generates only 0.7 of FY18 gross premiums from the state. This is 1.57% of JM Financial Institutional Securities Limited Page 25

26 ICICI Lombard Bajaj Allianz HDFC Ergo Reliance SBI Gen PICC P&C China Re Samsung F&M Dongbu Hyundai Mar. Tokio Marine MS&AD Sompo Chubb AIG Travelers Allstate Progressive Hartford Markel RSA Admiral Direct Line Mapfre SA Zurich Ins. Allianz 10 92% 97% 96% 96% % 111% 104% 102% 103% 94% 95% 98% 94% 93% 10 94% 88% 92% 105% 99% 101% 95% 117% 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 % 98% 97% % % 105% 104% 107% % 116% 121% 13 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Exhibit 73. Segment-wise combined ratio Segment FY15 FY16 FY17 FY18 Own Damage 87.4% 97.1% 97.7% 86.5% Third-party 139.6% 131.2% 130.4% 134.9% Overall Motor 109.6% 112.7% 112.2% 108. Health 96.8% 92.5% 103.5% 81.4% Personal Accident 96.4% % 50.4% Health and PA 97.1% 92.5% 99.1% 76.7% Crop/Weather 54.5% 120.1% 72.1% 123.4% Fire % 41.4% Marine 129.9% % 85.1% Engineering 64.2% 69.6% 57.4% 47. Other 98.3% 110.2% 102.5% 101.9% Combined ratio 104.9% 107.1% 104.1% 100.4% 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 India China/HK Korea Japan USA UK & Europe ; Combined ratios for global peers taken on as-reported basis JM Financial Institutional Securities Limited Page 26

27 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 45-5 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 1 for peers. Exhibit 75. Investment mix % 12.1% 15.3% 18.6% 21.5% 17.7% % 87.9% 84.7% 81.4% 78.5% 82.3% 2 Exhibit 76. Investment leverage to remain stable FY13 FY14 FY15 FY16 FY17 FY18 Fixed income Others 1.50 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E 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 % 16% 31% 17% 11% 38% 43% 54% 5 33% 2 Exhibit 78. Fixed income by credit ratings 10 5% 5% 5% 5% 8% 7% 8% 1 17% % 1 27% 8% 12% 5% 47% 36% 26% 24% 26% 21% 13% 26% 36% 9% 16% 16% 9% 16% 2 24% 12% 1 12% 6% 9% 11% 12% 14% 12% 9% 1 7% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 < 1 year 1-3 years 3-7 years 7-10 years > 10 years Strong investment performance; Higher yields bodes well for fixed income book 68% 66% 26% 29% 51% 4 51% 48% 42% 5 45% 45% 54% 41% 44% 49% 39% 37% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 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. 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. Sovereign AAA AA or above AA JM Financial Institutional Securities Limited Page 27

28 Exhibit 79. Investment yield movement 18% 15% 13% 1 8% 5% 3% 15.7% 10.8% 10.1% 9.8% 9.8% 9.2% 9.2% 7.6% % 9.7% 10.1% 10.2% 9.9% 9.3% % 5.8% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Invt yield - P/H (%) Invt yield - S/H (%) Exhibit 80. Yield movement vs market yields 1 9% 8% 7% 6% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Yield on total investment ex realised gains Govt. secondary mkt yield - 5 years Corp. AAA mkt yield - 5 years Source: CMIE, Company, JM Financial JM Financial Institutional Securities Limited Page 28

29 Both profit engines firing-up Historically, investment performance has been a key driver of PAT as combined ratios remained meaningfully above 10 over FY RoEs averaged 1 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 (5) (15) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Underwriting profit (loss) Investment income PBT Exhibit 82. ROE trends (1) (2) (3) 5% (8%) FY10 FY11 16% FY12 (26%) FY13 22% 19% 14% 16% 17% 19% 221% FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Exhibit 83. Dupont Analysis FY15 FY16 FY17 FY18 FY19E FY20E FY21E NEP/Avg assets 29% % 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%) (2) (2) (19%) (19%) Loss ratio 81% 81% 8 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 (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% 2 21% 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

30 Exhibit 84. Underwriting profit has improved significantly even as ICICIGI continues investing into retail lines 8% Exhibit 85. Peer trend for contribution of investment and underwriting income to total profitability 1 6% 4% 2% -2% -4% 5% 6% -2% -2% -2% 7% 7% -3% 6% 6% -2% -1% FY13 FY14 FY15 FY16 FY17 FY18 U/W P&L / Avg assets Invt income / Avg assets 5% -5% -1 6% -1% ICICI Lombard 7% 2% BAGIC U/W P&L / Avg assets 7% 7% HDFC Ergo -5% Reliance Gen Invt income / Avg assets 7% 2% SBI General JM Financial Institutional Securities Limited Page 30

31 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 15. The company strengthened its solvency in FY17 to 21 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 % 22% 155% 172% 195% 182% 182% 183% 183% FY12 FY13 FY14 FY15 FY16 FY17 FY18 Core capital Other capital Exhibit 87. Dividend pay-out ratio ICICI Lombard FY14 FY15 FY16 FY17 FY18 18% 32% 29% 27% BAGIC 12% HDFC Ergo 16% 47% 54% 33% 36% Reliance General SBI General JM Financial Institutional Securities Limited Page 31

32 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) EPS (YoY) (%) 26% 33% 28% 24% 21% P/E (x) BV (INR) BV (YoY) (%) 23% 16% 17% 18% 19% P/BV (x) P/BV (ex FV chg a/c) 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 / nonpayment 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 8 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

33 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

34 Company background ICICI Lombard is the 4 th 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 1.68% 1.59% 9.01% 55.91% Fairfax Warburg Pincus Clermont Group MOSL Asset Management Public 9.91% Exhibit 90. Product mix 10 15% 14% 15% % 6% 7% 8.2% 7.8% 28% 26% 22% 19.7% 17.1% 11.2% 6.9% 6.5% 7.3% 7.3% 20.1% 19.2% 6.9% 7.4% 15.5% % 44% 47% 51% 51% 42% 42% FY12 FY13 FY14 FY15 FY16 FY17 FY18 Motor Health Fire Marine Eng PA Crop Others Exhibit 91. Market share 3 25% 2 15% 1 5% 23.6% 24.4% 23.1% 21.9% 21.4% % 19.9% 18.9% 18.4% % 8.4% 8.8% 8.6% 8.6% 8.6% 7.7% 8.4% 8.4% 8.2% 8.1% 8.1% 8.1% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Source: IRDA, JM Financial Market share (industry) Market share (pvt.) JM Financial Institutional Securities Limited Page 34

35 Experienced senior management team Exhibit 92. Management profile Person Designation Profile Chanda Deepak Kochhar Bhargav Dasgupta Alok Kumar Agarwal Sanjeev Radheyshyam Mantri Sanjay Datta Gopal Balachandran Chairperson Managing Director and Chief Executive Officer Executive Director and Chief Marketing Officer, Wholesale Executive Director and Chief Marketing Officer, Retail Chief Underwriting, Reinsurance & Claims Chief Financial Officer & Chief Risk Officer 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 been the managing director and chief executive officer of ICICI Bank since 2009 and has experience in the 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 He holds a bachelor s degree in Mechanical Engineering from Jadavpur University and a post graduate diploma in Business Administration from the Indian Institute of Management, Bengaluru. He has been associated with the 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 in Business Administration from the Indian Institute of Management, Calcutta. He has been associated with ICICI group since 1993, spending close to 9 years within the project finance division. Previously, he worked 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 corporate banking and the SME space. He spearheaded the group s expansion into rural markets. Prior to joining ICICI, he has spent over 7 years with BNP Paribas, Mumbai handling diverse responsibilities in the corporate banking space. He is a qualified CA and Cost Accountant. He has over 24 years of experience in general insurance and was a part of the start-up team at ICICI Lombard in He has over 15 years of experience in general insurance and joined ICICI Lombard in He is a qualified CA, CS and CPA. Gopalakrishnan S Chief Investment Officer He has over 16 years of experience in general insurance and joined ICICI Lombard in JV Prasad Appointed Actuary He holds a master s in actuarial science from the University of Waterloo and an MBA from the Faculty of Management Studies, Delhi University. Prior to joining ICICI Lombard in 2005, he was Manager, Structured Finance Ratings at CRISIL. Exhibit 93. Organisation structure JM Financial Institutional Securities Limited Page 35

36 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% % % HDFC Ergo 3.4% 3.6% 3.7% 3.4% 4.6% 4.8% Reliance General 2.8% % 2.8% 3.1% 3.4% SBI General 1.1% 1.5% 1.8% 2.1% % Other private insurers 17.7% 17.7% % % 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% % 19.9% 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% % 7.7% SBI General 2.8% 3.7% 4.5% 5.1% 4.8% 5.4% Exhibit 96. Product mix by premium (FY18) 10 6% 8% % 7% 16% 42% 47% ICICI Lombard 7% 14% BAGIC 34% 8% 9% 13% 27% HDFC Ergo 28% 8% 9% 5 Reliance Gen 12% 16% 28% 14% 26% SBI General Motor Health Fire Marine Eng PA Crop Others Exhibit 97. Distribution mix by premium (FY18) % 31% 42% 42% 6 32% 34% 22% 21% 4 9% 5% 6% 2 8% 8% 2 7% 12% 2 26% 11% ICICI BAGIC HDFC Reliance Lombard Ergo Gen Agents Bancassurance Other corporate agents Brokers Direct Others 24% 24% 46% 6% SBI General JM Financial Institutional Securities Limited Page 36

37 Exhibit 98. Loss ratio trend % FY15 FY16 FY17 FY18 67% 74% 85% ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen. 71% Exhibit 99. Expense ratio trend 4 35% 3 25% 2 15% 1 5% 23% FY15 FY16 FY17 FY18 26% 23% 26% ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen. 25% Exhibit 100. COR trend FY15 FY16 FY17 FY % 10 92% 97% 10 96% ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen. Exhibit 102. Investment leverage (FY18) Exhibit 101. Investment mix (FY18) G-Secs Other Approv secs Bonds Equity Real Estate + Infra Others 8% 3% 5% 5% 7% 9% 2% 27% 32% 34% 3 15% 16% 5% 3 ICICI Lombard 8% 5% 16% 13% 42% BAGIC Exhibit 103. Solvency (Mar 18) % 19% 14% 33% 35% 29% HDFC Ergo Reliance Gen. SBI Gen Investment leverage (x) % 276% Solvency 206% 168% 254% 0.0 ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen. 0.0 ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen. Exhibit 104. PAT trend (INR bn) Exhibit 105. RoE trend FY15 FY16 FY17 FY % FY15 FY16 FY17 FY18 23% 22% 12% 31% ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen ICICI Lombard BAGIC HDFC Ergo Reliance Gen. SBI Gen. JM Financial Institutional Securities Limited Page 37

38 Financial Tables (Standalone) Policyholders Account (INR mn) 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 Net written premiums 65,948 78,448 90,450 1,04,051 1,19,444 Net Earned Premiums 61,578 69,117 82,349 94,761 1,08,796 Investment income 9,958 11,268 13,140 15,696 18,557 Total revenue 71,805 80,663 95,771 1,10,743 1,27,643 Claims Incurred (net) (49,656) (53,147) (62,834) (71,903) (82,289) Commission (net) 4,341 2,840 4,561 5,164 5,854 Operating expenses (19,820) (21,119) (24,276) (27,707) (31,593) Total expenses (65,135) (71,426) (82,548) (94,446) (1,08,028) Operating Profit 6,670 9,237 13,223 16,297 19,615 o.w. Underwriting Profit (3,557) (2,309) (199) Shareholders Account (INR mn) Y/E March FY17A FY18A FY19E FY20E FY21E Operating profit/(loss) 6,670 9,237 13,223 16,297 19,615 Income from investments 3,146 4,059 4,007 4,833 5,903 Total revenue 9,837 13,378 17,312 21,212 25,599 Total expenses (1,035) (1,415) (1,750) (1,977) (2,235) 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) Profit / (Loss) after tax 6,418 8,618 11,049 13,657 16,588 Dividends paid 1,891 2,288 2,210 2,731 3,318 Key Ratios Y/E March FY17A FY18A FY19E FY20E FY21E Growth (YoY) (%) GWP growth 32.6% 15.2% 15.1% 15.1% 15. NPE growth 27.6% 12.2% 19.1% 15.1% 14.8% Total Income 36% 36% 29% 23% 21% Operating Profits 38% 38% 43% 23% 2 Reported PAT 27% 34% 28% 24% 21% Product Mix (%) Motor 42% 42% Health 16% 15% Fire 7% 7% Marine 3% 3% Engineering 2% 2% Personal Accident 3% 4% Crop 2 19% Others 6% 7% Underwriting performance (%) Incurred claims ratio 80.6% 76.9% 76.3% 75.9% 75.6% Net commission ratios (6.6%) (3.6%) (5.) (5.) (4.9%) Net operating exp ratio 30.1% 26.9% 26.8% 26.6% 26.4% Combined ratio NEP 104.1% 100.2% 98.1% 97.5% 97.2% Profitability (%) ROA 3.2% 3.2% 3.5% 3.7% 3.9% ROE 15.8% 17.5% 19.3% 20.4% 21. Investment yield (%) Yield on policyholder a/c 9.8% 9.2% Yield on shareholders a/c 9.9% 9.3% Balance Sheet (INR mn) Y/E March FY17A FY18A FY19E FY20E FY21E Equity Capital 4,512 4,539 4,539 4,539 4,539 Reserves & Surplus 32,754 39,404 48,243 59,169 72,439 FV change account 6,772 7,339 7,339 7,339 7,339 Shareholders equity 44,038 51,385 60,122 71,047 84,317 Borrowings 4,850 4,850 4,850 4,850 4,850 Current liabilities 1,49,136 1,95,112 2,24,930 2,59,216 2,98,520 - C/O (gross) 1,18,051 1,59,160 1,83,586 2,11,669 2,43,842 o.w reserve for c/ outstanding 46,360 56,997 60,061 69,528 80,647 o.w. IBNR reserves 71,691 1,02,163 1,23,524 1,42,142 1,63,195 Provisions 35,485 44,784 52,946 62,305 73,034 - Reserve for unexpired risk 35,048 44,378 52,479 61,768 72,416 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 Fixed assets 3,827 4,060 5,486 6,359 7,372 Deferred tax assets 872 2,114 1,200 1,391 1,613 Cash and bank balances 1,940 4,553 2,849 3,302 3,828 Advances and other assets 76,080 1,03,478 1,11,705 1,29,484 1,50,110 Total Assets 2,33,509 2,96,132 3,42,848 3,97,418 4,60,721 Dupont Analysis Y/E March FY17A FY18A FY19E FY20E FY21E NPE/Average assets 30.4% 26.1% 25.8% 25.6% 25.4% Claims paid/avg assets (16.1%) (13.1%) (12.) (11.8%) (11.7%) Change in reserves/avg assets (8.4%) (7.) (7.6%) (7.6%) (7.5%) Total claims/avg assets (24.5%) (20.1%) (19.7%) (19.4%) (19.2%) Loss ratio (80.5%) (76.9%) (76.3%) (75.9%) (75.6%) Total expenses/average assets (7.7%) (6.9%) (6.2%) (6.1%) (6.) Expense ratio (25.1%) (26.4%) (23.9%) (23.8%) (23.7%) Underwriting profit/avg assets (1.7%) (0.9%) (0.1%) 0.1% 0.2% Investment income/avg assets 6.5% 5.8% 5.4% 5.5% 5.7% Other income/avg assets (0.5%) (0.5%) (0.5%) (0.5%) (0.5%) PBT/Avg assets 4.3% 4.4% 4.8% 5.1% 5.4% Tax/Avg assets (1.2%) (1.3%) (1.4%) (1.5%) (1.6%) PAT/Avg assets (ROA) 3.1% 3.1% 3.4% 3.6% 3.8% ROE 15.8% 17.5% 19.3% 20.4% 21. Valuations Y/E March FY17A FY18A FY19E FY20E FY21E EPS (INR) EPS (YoY) (%) 26% 33% 28% 24% 21% P/E (x) BV (INR) BV (YoY) (%) 23% 16% 17% 18% 19% P/BV (x) P/BV (ex FV chg a/c) DPS (INR) Div. yield (%) 0.4% 0.5% 0.6% 0.7% 0.8% Capital Adequacy (%) Solvency % JM Financial Institutional Securities Limited Page 38

39 Appendix I: Non-life insurance in India The Indian non-life insurance sector is the 11 th largest non-life insurance market in the world and the 4 th 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 1,400 1,200 1, st phase: Growth phase during tariff 2 nd phase: Post de-tariffing and beginning of Motor Pool 3 rd phase: Dismantling Motor pool and beginning Declined Risk Pool 35% 3 25% 2 15% 1 5% 0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 GDPI (INRbn) YoY (%) Source: IRDA, JM Financial Phase 1: Before de-tariffing ( ): High growth phase Over , 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 8 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). JM Financial Institutional Securities Limited Page 39

40 Exhibit 107. Private insurers market share (GWP) is increasing Private-top 5 Other private insurers Standalone Health Public Specialised insurers 6% 6% 6% 6% 6% 5% 5% 6% 6% 56% 55% 54% 52% 51% 52% 5 47% 45% 3% 3% 3% 2% 3% 3% 4% 5% 6% 14% 15% 17% 18% 18% 18% 18% 18% 18% 22% 21% 2 22% 22% 22% 23% 24% 25% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Source: IRDA, JM Financial; Private Top 5 include ICICI Lombard, BAGIC, HDFC ERGO, Reliance General and SBI General Exhibit 108. Industry-wise premium mix Fire Marine Motor Health & PA Others 17% 17% 16% 15% 17% 16% 14% 27% 24% 23% 26% 25% 24% 25% 27% 29% 24% 28% 42% 41% 44% 46% 44% 44% 45% 39% 39% 11% % 7% 7% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 ; Others includes crop insurance 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 5 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 % 4 38% 37% 44% 37% 4 41% 43% 45% % 6 62% 63% 56% 63% 6 59% 57% 55% 2 1 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Motor OD Motor TP Source: GIC, JM Financial Exhibit 110. Mix of motor TP policies - Public % 5 52% 51% 5 46% 49% 56% 52% 7 54% 58% % 5 48% 49% 5 54% 51% 44% 48% 2 46% 42% 1 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Motor OD Motor TP 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: JM Financial Institutional Securities Limited Page 40

41 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 ( ), 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). JM Financial Institutional Securities Limited Page 41

42 % % 2.36% 2.34% 1.89% % % 0.77% 3.42% 3.36% 0.93% % 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 4 th 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 % 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.), 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% % 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% Source: Swiss Re, IRDA, JM Financial 4% 2% South Korea USA Taiwan Hong Kong Source: Swiss Re, IRDA, JM Financial South Africa UK Japan China India Exhibit 113. Insurance density (USD) - India Source: Swiss Re, IRDA, JM Financial Exhibit 114. Insurance density (USD) global (2017) 3,000 2,500 2,000 1,500 1, ,542 USA 1,557 1,523 Hong Kong South Korea Source: Swiss Re, IRDA, JM Financial UK 803 Japan Taiwan South Africa China 18 India Exhibit 115. Cars and 2W penetration in India (per 1000) OECD32 car penetration: 570; Less-developed nation s car penetration: 70* Exhibit 116. Health insurance penetration 0.3% 0.2% 0.2% 0.1% 0.15% 0.16% 0.17% 0.18% 0.1% Cars (LHS) 2W (RHS) Source: UN data, CMIE, JM Financial; *ExxonMobil Energy outlook report FY12 FY13 FY14 FY15 FY16 FY17 Source: IRDA, CMIE, JM Financial JM Financial Institutional Securities Limited Page 42

43 Exhibit 117. Non-life insurance market Asia (GWP, USD bn) PR China Japan S. Korea India Taiwan HK Singapore Thailand Malaysia Indonesia Vietnam Philippines Sri Lanka 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 6 of cars older than 3 years are insured in India as against the global benchmark of 9 and that only around 25% of two wheelers are insured as against a global benchmark of over 9; iii) changes in lifestyles/aspirations; iv) stabilisation/improvement in penetration ratio which has remained stable at % 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. 9 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 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 The increase in urbanisation would lead to improved financial literacy among the consumers, eventually supporting the growth of non-life insurance industry. JM Financial Institutional Securities Limited Page 43

44 S. Africa Japan Russia Brazil Thailand Indonesia USA India China % -0.1% 0.2% 0.9% % 1.3% 0.4% ICICI Lombard 10 September 2018 Exhibit 118. India s demographic dividend % 7.8% 9.5% % 33.7% % 27.6% % 30.9% 27.5% E Source: CRISIL Exhibit 119. Rising portion of financial savings Source: CRISIL FY02 Exhibit 120. Population growth rates Exhibit 121. Urbanisation rate 74.1% 94.1% 81.8% 86. FY % FY % FY % FY % FY % FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Financial Savings (INR bn) Financial Savings as % of Total Household Savings ,327 1, % 0.6% % 1.9% 2.4% 2.4% 2.5% 3.1% 2016 Population (mn)* Source: EIU,CRISIL, JM Financial; *Labels on top depict population CAGR Russia Japan USA Brazil S.Africa China India 2016 Urban population (% of total)* Indonesia Thailand Source: EIU, CRISIL, JM Financial; *Labels on top depict urbanisation rate CAGR 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. nonlife-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 iv) life insurance companies are not permitted to engage in coinsurance reinsurance known as original terms reinsurance), unlike non-life and standalone health insurers. JM Financial Institutional Securities Limited Page 44

45 Exhibit 122. Health premium growth (2) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Private Public Standalone Exhibit 123. Health gross incurred claims ratio Source: GIC, JM Financial FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Private Public Standalone 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 nonreceipt 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 post de-tariffng 6 and beginning of 5 motor pool (1) Source: IRDA FY07 FY08 FY09 FY10 Private FY11 FY12 Dismantling motor pool and beginning declined risk pool FY13 FY14 Public FY15 FY16 FY17 Exhibit 125. Motor Premium CAGR FY % ICICI Lom 19% BAGIC 25% HDFC Ergo 46% Rel Gen, *SBI Gen premium is from CAGR % SBI Gen Exhibit 126. Motor TP tariff table Motor TP Premium (in INR) FY07-11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 CAGR Private Cars less than 1,000cc ,129 1,468 2,055 2,055 1,850 14% Exceeding 1,000cc and not exceeding 1,500c ,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 JM Financial Institutional Securities Limited Page 45

46 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 % Exceeding 75 cc but not exceeding 150 cc % Exceeding 150cc but not exceeding 350 cc % Exceeding 350cc ,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 1 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 Exhibit 127. Commission table 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% 7.5 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) Paid up Capital Agent Direct brokers Agent Brokerage Agent Other intermediary Fire-Retail Individuals % % 15% 16.5% Fire-Corporate (Risks with S.I. < INR 25bn) P/u capital <INR30mn Upto 1 Upto 12.5% % % Fire-Corporate (Risks with S.I. > INR 25bn) P/u capital >INR30mn; <INR250mn Upto 6.25% Upto 7.5% 5% 6.3% 5% 6.3% Marine-Cargo P/u capital >INR250mn Upto 5% Upto 6.25% 15% 17.5% 15% 16.5% Marine-Hull % % Miscellaneous Retail Upto 15% Upto 17.5% 15% 17.5% 15% 16.5% Miscellaneous Corporate/ Group Upto 1 Upto % Miscellaneous Corporate (Eng Risks with S.I. > INR 25bn) Upto 1 Upto 1 5% 6.25% 5% 6.25% Motor Insurance Agent Direct brokers Agent Brokerage Agent / Intermediary Motor (Comprehensive)* Upto 1 Upto % Motor (Stand-alone TP) Upto 1 Upto 1 Nil Nil 2.5 Source: IRDA, JM Financial JM Financial Institutional Securities Limited Page 46

47 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 Line of Business Factor A (applied to premiums) Factor B (applied to claims) Factor A (applied to premiums) Factor B (applied to claims) Fire Marine Cargo Marine Hull Motor Engineering Aviation Liability Rural insurance Others Health Crop insurance 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) Private-top 5 Other private insurers Standalone Health Public Specialised insurers 6% 6% 6% 6% 6% 5% 5% 6% 6% 56% 55% 54% 52% 51% 52% 5 47% 45% 3% 3% 3% 2% 3% 3% 4% 5% 6% 14% 15% 17% 18% 18% 18% 18% 18% 18% 22% 21% 2 22% 22% 22% 23% 24% 25% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 ; Private Top 5 includes ICICI Lombard, BAGIC, HDFC Ergo, Reliance General and SBI General Exhibit 130. Number of players Public Private Standalone Health Specialised Public FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 JM Financial Institutional Securities Limited Page 47

48 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 2 (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 % 17% 16% 15% 17% 16% 14% 23% 26% 25% 24% 25% 27% 29% 27% 24% 24% 28% % 41% 44% 46% 44% 44% 45% 39% 39% 6% 6% 5% 5% 4% 4% 3% 2% 2% 11% % 7% 7% 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 Fire Marine Motor Health & PA Others Exhibit 133. Premium mix (segment wise) public insurers Fire Marine Motor Health & PA Others % 16% 15% 15% 12% 13% 9% 26% 17% 23% 24% 22% 21% 24% 24% 26% 2 29% 49% 49% 52% 53% 53% 52% 53% 45% 42% 9% 8% 8% 8% 9% 9% 9% 8% 1 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Latest % 17% 17% 15% 22% 19% 18% 27% 14% 24% 27% 27% 27% 27% 29% 31% 28% 35% 37% 36% 38% 4 36% 38% 38% 35% 39% 12% 12% 12% 12% 1 1 9% 7% 9% 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. JM Financial Institutional Securities Limited Page 48

49 Exhibit 134. Industry distribution mix (premium wise) 10 Exhibit 135. Total agents (in 000s) private vs. public % 31% 32% 29% 27% 27% 26% 31% 15% 2 17% 21% 22% 23% 24% 24% 8% 9% 6% 6% 7% 7% 7% 6% % 31% 36% 36% 37% 36% 35% 29% 100 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Agents Bancassurance Corporate agents Brokers Direct Others Source: IRDA, JM Financial 0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Private Public 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. JM Financial Institutional Securities Limited Page 49

50 APPENDIX I JM Financial Institutional Securities Limited ( f o r m erly known as J M F inancial Securities Limited) Corporate Identity Number: U67100MH2017PLC Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd. SEBI Registration Nos.: Stock Broker - INZ , Research Analyst INH Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai , India. Board: Fax: jmfinancial.research@jmfl.com Compliance Officer: Mr. Sunny Shah Tel: 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 1 downside to 15% upside from the current market price. Sell Price expected to move downwards by more than 1 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, 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. JM Financial Institutional Securities Limited Page 50