ICICI Lombard General Insurance Company Ltd. expects the intense price competition that hit the fire insurance business during the first quarter to ease over the rest of the financial year, with management saying the April renewal season marked the peak of pricing pressure.
The insurer’s fire insurance premiums fell 32% in the June quarter after it chose not to match aggressive pricing in the market. The company said the industry witnessed exceptional price cuts during April renewals, but conditions had started improving by June and were unlikely to remain at first-quarter levels.
The comments came after it reported a 46% decline in first-quarter net profit, which was also affected by higher claims provisions and two large fire losses.
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Price War Peaks
Chief Financial Officer Gopal Balachandran said the April renewal cycle saw unprecedented pricing pressure in the fire insurance market, forcing insurers to compete aggressively for business.
“Whether we will see a similar kind of a price aggression for the rest of the year? Honestly, we don’t think the same level of price aggression will subsist,” Balachandran said during the company’s post-earnings conference call.
He added that pricing discipline had already started returning.
“What we are seeing is maybe a relative reduction to the extent of price aggression that one has seen in Q1,” he said.
The company said the fire insurance industry contracted about 27% during the first quarter as insurers lowered prices sharply. The decline eased to about 22% in June, while ICICI Lombard’s contraction narrowed to about 18% during the month.
Balachandran said the April-to-June period remains the biggest renewal season for commercial insurance. While pricing is unlikely to recover immediately, he said the company does not expect the same level of competitive pressure through the remainder of the year.
Signs Of Recovery
ICICI Lombard said it deliberately prioritised underwriting discipline over market share during the quarter instead of matching lower prices.
Management indicated that the industry’s pricing environment is becoming more balanced after the first-quarter renewal season. It also said insurers would find it difficult to sustain loss-making business over an extended period as capital comes under pressure.
Managing Director and Chief Executive Officer Sanjeev Mantri said additional reinsurance capacity had contributed to the competitive pricing environment, but market conditions should eventually normalise.
“But anything which is superfluously way above the normal or way below will have a tendency to correct, and eventually efficiencies of the organisation will drive where they are,” Mantri said.
Market Reset
Management also outlined expectations for two other key businesses.
The company said the recent Supreme Court ruling on motor accident compensation makes an increase in motor third-party premium rates “necessary and urgent” to restore pricing adequacy across the industry.
It also said health insurance claims, which were elevated during the first quarter, are expected to improve in the coming quarters.
“We are very hopeful that it should get better in the progressive quarter,” Mantri said.
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