Superior insurance franchise in India with long-term tailwinds

ICICI Lombard General Insurance, the leading private general insurer in India, is another example of a high-quality financial company in our portfolios. Established in 2001, ICICI Lombard is a relatively young company which started as a joint venture between ICICI Bank and Fairfax Financial Holdings. It quickly became the largest private player in the Indian insurance industry after the sector deregulated in 2000. Initially helped by the ICICI brand, the company established an early lead in building relationships with Auto Original Equipment Manufacturers (Auto OEMs) and their dealer networks to sell the company’s policies.

Today, the franchise remains as successful and profitable as before, thanks to its established relationships, distribution reach and brand. These moats have helped ICICI Lombard maintain its lead as the largest private player in the insurance industry with 7% market share.

We believe the management has shown evidence of strong risk-awareness and agility, only operating in segments which can generate attractive returns and thereby grow the business while avoiding excessive risks. As a result, ICICI Lombard has delivered a strong track record of growth, with book value per share compounding at 19% annually for the past 15 years (including dividends).

We believe there are several supportive factors for this to continue. Firstly, general insurance penetration in India is one of the lowest globally. Even among emerging markets, the country’s USD 20 premium per capita is a fraction compared to peers like Mexico (USD 122) and Thailand (USD 129), which suggests that the industry has significant long-term growth potential and visibility. Secondly, similar to the banking industry, private operators in the market have been consistently gaining share over state-owned enterprises (SOEs). While the latter still control a significant part of the market (over 40% premium share), years of underinvestment and mis-management have led to stretched balance sheets which restrict their ability to grow. We believe the SOEs will continue to be market share donors in the long run, benefitting the best private insurers like ICICI Lombard.