Superior insurance franchise in India with long-term tailwinds

ICICI Lombard General Insurance is leading private general insurer in India. Established in 2001, ICICI Lombard started as a joint venture between ICICI Bank and Fairfax Financial Holdings. Initially helped by the ICICI brand, the company built good relationships with Auto Original Equipment Manufacturers (Auto OEMs) and their dealer networks, and it quickly became the largest private player in the Indian insurance industry.

Today, the franchise remains as successful and profitable as ever, thanks to its established relationships, distribution reach and strong brand. The management has operated with risk-awareness and agility, and has grown the business without excessive risks, in our view. As a result, ICICI Lombard has delivered a strong track record of growth, with book value per share^* compounding at 16% annually for the past 10 years.

We believe there are several supportive factors for this to continue. First, general insurance penetration in India is one of the lowest globally, which suggests that the industry has significant long-term growth potential. Developed markets like Switzerland and the US spend significantly more on insurance; but even amongst emerging market peers, India’s insurance premium per capita (USD 20), is relatively small compared to Mexico (USD 122) and Thailand (USD 129), Second, similar to the banking industry, private insurance operators have been consistently gaining share over state-owned enterprises (SOEs). While the latter still control a significant part of the market, years of underinvestment and mis-management have led to stretched balance sheets which restrict their ability to grow. We believe SOEs will continue to be market share donors in the long run, which should benefit the best private insurers like ICICI Lombard.