ICICI Lombard’s Q3FY26 performance reflects a quarter of optical weakness driven by accounting mechanics and one-off costs, rather than a deterioration in business fundamentals. While reported profitability fell short of expectations due to higher unearned premium reserves and a wage-code related charge, demand momentum across motor and health insurance strengthened meaningfully following GST reforms. The insurer continues to gain market share, maintain industry-leading solvency, and generate returns that remain well above peers over the cycle. Motilal Oswal reiterates a BUY rating, viewing the recent earnings miss as transitory, not structural, and valuing the stock at 28x FY28E earnings, implying a target of Rs 2,260.

Headline Performance: Growth Delivered, Profits Deferred

Gross Written Premium rose 15% YoY to Rs 74.3 billion.
Premium growth remained in line with expectations, supported by strong traction in both motor and health segments, even as the marine segment softened modestly.

Net Earned Premium increased 13% YoY to Rs 56.9 billion.
The shortfall versus estimates stemmed from higher unearned premium reserve creation, particularly in fast-growing segments, effectively deferring revenue recognition rather than eroding value.

Reported PAT declined 9% YoY to Rs 6.6 billion.
This translated into a 23% miss versus estimates, largely due to a one-time wage code impact of Rs 0.55 billion. Excluding this, normalized profit would have grown 6.3% YoY.

Combined Ratio: Elevated, but Not Alarming

The combined ratio widened to 104.5%.
This compared with 102.7% a year ago and reflected higher claims intensity and commission costs during a quarter of accelerated business acquisition.

Normalized combined ratio stood at a healthier 102.2%.
Once one-off wage adjustments are excluded, underwriting discipline remains intact and broadly consistent with management’s long-term targets.

Motor Insurance: Volume Recovery, Margin Pressure

Motor insurance staged a sharp recovery.
Industry vehicle volumes grew nearly 20% YoY—the strongest in three years—supported by festive demand and GST rationalization.

ICICI Lombard retained leadership despite pricing pressure.
New business contributed 35% of motor premiums, while renewals grew steadily. However, higher competition in own-damage policies compressed near-term margins.

Loss ratios spiked but remain manageable.
Motor own-damage and third-party loss ratios rose sharply YoY, a function of competitive pricing rather than adverse risk selection.

Health Insurance: The Core Growth Engine

Retail health premium surged 86% YoY.
GST exemption materially improved affordability, unlocking demand from first-time buyers, particularly in Tier-2 and Tier-3 cities.

Market share gains accelerated.
Retail health market share climbed to 4.5%, reinforcing ICICI Lombard’s positioning as one of the fastest-scaling private insurers in the segment.

Loss ratios improved even as scale expanded.
Retail health loss ratio moderated to 63.1%, while group health loss ratio improved to 90.7%, underscoring pricing discipline and underwriting control.

Investment Income: Stability Amid Market Noise

Policyholder investment income remained steady at Rs 9.2 billion.
Returns tracked expectations despite a marginal decline in yields.

Shareholder investment income came in slightly lower.
At Rs 3.1 billion, income was modestly below estimates but not a material concern given the insurer’s conservative portfolio mix.

Balance Sheet Strength: A Strategic Advantage

Solvency ratio improved to 2.69x.
This remains comfortably above regulatory requirements and provides ample capacity to pursue growth without dilutive capital raising.

Investment leverage stood at 3.6x.
The investment book expanded 13% YoY to Rs 583 billion, reinforcing long-term earnings visibility.

Key Financial Snapshot

Valuation: Premium Justified by Consistency

The stock trades at 31x FY26E and 23.5x FY28E earnings.
While valuations appear elevated versus the broader market, they remain justified by ICICI Lombard’s superior return profile, balance sheet strength, and execution consistency.

Motilal Oswal values the stock at 28x FY28E EPS.
This yields a target price of Rs 2,260, implying 20% upside from current levels.

Investment View: Buy Through the Noise

Short-term volatility should not distract from long-term value creation.
The Q3FY26 earnings miss reflects timing issues and one-off costs, not erosion in franchise strength.

Structural tailwinds remain firmly in place.
Motor recovery, health insurance formalization, and sustained underwriting discipline position ICICI Lombard for mid-teens earnings growth over the next three years.

Recommendation: BUY
Target Price: Rs 2,260
Suitable for investors seeking a high-quality compounder in India’s insurance space.