JM Financial initiates coverage on 2 general insurance stocks, signalling upside potential up to 32%

With a positive stance, domestic brokerage firm JM Financial has initiated coverage on 2 general insurers, ICICI Lombard and Star Health, with buy ratings and target price of Rs 2,400 and Rs 750 respectively.

The target prices indicate an upside potential of 15% for ICICI Lombard and 32% for Star Health.

“ICICI Lombard and Star Health are market leaders in the largest general insurance segments of motor and health, respectively. They have strong moats to consistently grow at a 17%+ CAGR with 17%+ RoEs. Their track record and calibrated growth provides comfort on underwriting, and the government’s push for penetration and transparency should aid return ratios,” said the domestic brokerage firm in its report.

Here are the brokerage comments on the stocks:

ICICI Lombard

JM Financial believes that ICICI Lombard is well-positioned for growth in health insurance with a strong product lineup, expanding partnerships, and digital capabilities. It also maintains leadership in motor insurance and commercial lines, backed by a solid balance sheet, effective reinsurance, and strong distribution.

After a peak combined ratio (COR) of 108.8% in FY22, the insurer is expected to achieve a sub-102% COR by FY25, with further improvement likely as EOM norms take effect. Investment returns remain steady, supported by a robust 256% solvency.

With the insurer holding Rs 1,740 crore in unrealized gains and potential rate cuts on the horizon, there is upside potential to JM Financial’s return estimates.

“A smooth management transition after a CEO at the helm for 14 years indicates depth in leadership, visible also in consistent growth and 15%+ returns, even as it toggles segments in response to customer demand and competition,” adds the domestic brokerage firm.

Shares of ICICI Lombard closed flat at Rs 2,085 on BSE on Thursday.

Star Health

Star Health has seen the segment grow at a 23% CAGR from FY19-FY24. Since FY22, the company has shifted focus from rapid growth to profitability.

The company’s book is highly granular, with 92% of FY24 premiums from retail business and 82% sourced through individual agents, minimizing downside growth risks.

“The company is steadily building its banca relationships and digital sales (own website and aggregators), which are growing at 2x its growth, on a low base, adding almost 0.1mn individual agents annually. With customer acquisition through all three channels, a normalised base in the group business and ticket size increase with improving benefits and price hikes, we expect the company to grow at a steady 17%+ in the medium term,” said analysts at JM Financial.

The claims ratio was seasonally weak in 1QFY25 and is expected to remain similar in 2Q, before improving to <66% in 2HFY25. On opex, the company benefits from operating leverage in claims processing and fixed costs.

“The company is targeting 2x FY24 premiums and 3x FY24 PAT (based on IFRS accounting) by FY28, which looks comfortable. We see weakness in growth and claims ratio as a buying opportunity and see good value for a 17%+ growth/17%+ RoE business,” added JM Financial.

Shares of Star Health closed 2% lower at Rs 566.65 on BSE on Thursday.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)