CS initiates coverage on general insurance and expects premium growth to resume in FY23E

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HIGHLIGHTS

  • CS expects premium growth to resume in FY23E
  • CS thinks ICICI Lombard’s execution on strong growth and earnings will cause shares to reprice
  • CS expects profits to rebound as claims ratio improves sharply post-Covid
New Delhi: Credit Suisse launches general insurance coverage in India and expects premium growth to resume in FY23E. Premium growth was mainly driven by a recovery in auto premiums as auto sales normalized and pricing pressure moderated. Motor premiums up 12% vs. 3% in FY19-22.
He believes the normalization of car use after covid is driving up loss ratios for aggressive players. Given the current market dynamics, CS expects these players to control losses and reduce pricing pressure to the benefit of larger players.

Even with lower premium market share, large private players have still maintained their share of industry profits through selective profit pool targeting, superior underwriting and strong investment results. Credit Suisse initiates hedge on ICICI Lombard with ‘OUTPERFORM’ rating and target price of Rs 1400 with 9% upside from CMP Rs 1280. Brokerage believes execution on growth and earnings strengths will lead to a revaluation of the shares.

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Star Health continues to remain a focus. Star Health management recently interacted with ET NOW to help us understand the path forward and the big picture for Retail Health. The company is on a downward trend from April, Covid claims to normalize. He believes that the impact of covid will not happen again.
In terms of the combined ratio, management expects it to be below 95% to return to the pre-covid level. “Investors with medium to long-term horizons will understand the outlook for the company, going forward, shares will rise as the company continues to perform better,” said Anand Roy, chief executive of Star Health.
Credit Suisse initiates coverage with an “outperform” rating on Star Health Insurance with a target price of Rs 600/share. He expects growth to outpace the industry (~22% CAGR on FY22-25E). The brokerage expects profits to rebound as the claims ratio improves sharply after Covid. He believes Premium’s growth will be driven by the continued expansion of the agent network.

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