Is ICICI Lombard General Insurance Company Limited's (NSE:ICICIGI) Stock's Recent Performance A Reflection Of Its Financial Health?

ICICI Lombard General Insurance's (NSE:ICICIGI) stock is up by 5.6% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study ICICI Lombard General Insurance's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How To Calculate Return On Equity?

ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for ICICI Lombard General Insurance is:

17% = ₹28b ÷ ₹166b (Based on the trailing twelve months to September 2025).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every ₹1 worth of equity, the company was able to earn ₹0.17 in profit.

Check out our latest analysis for ICICI Lombard General Insurance

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of ICICI Lombard General Insurance's Earnings Growth And 17% ROE

To start with, ICICI Lombard General Insurance's ROE looks acceptable. On comparing with the average industry ROE of 8.9% the company's ROE looks pretty remarkable. This probably laid the ground for ICICI Lombard General Insurance's moderate 16% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that ICICI Lombard General Insurance's reported growth was lower than the industry growth of 32% over the last few years, which is not something we like to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if ICICI Lombard General Insurance is trading on a high P/E or a low P/E, relative to its industry.

Is ICICI Lombard General Insurance Efficiently Re-investing Its Profits?

With a three-year median payout ratio of 28% (implying that the company retains 72% of its profits), it seems that ICICI Lombard General Insurance is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Moreover, ICICI Lombard General Insurance is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 25% of its profits over the next three years. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 19%.

Conclusion

In total, we are pretty happy with ICICI Lombard General Insurance's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.