When the GST Notice Knocks at ICICI Lombard General Insurance’s Door

ICICI Lombard General Insurance Co. Ltd stands as a prominent and well-established private sector general insurance company in India. It offers a wide array of insurance products and risk management solutions through various distribution channels.

Recently, the company received a Show Cause Cum Demand Notice from the Directorate General of GST Intelligence, Pune Zonal Unit, dated September 27, 2023. This notice asserts a tax liability of Rs 17,28,86,10,803 under Section 73(1) of the Central Goods and Services Tax Act, 2017 (“the Act”). This alleged demand is related to two specific issues:

1. Non-payment of GST on co-insurance premiums received when ICICI Lombard acts as the follower in co-insurance transactions.
2. Non-payment of GST on reinsurance commissions earned from various Indian and foreign reinsurance companies for the period spanning from July 2017 to March 2022.

It’s worth noting that these matters are industry-wide concerns, and the company, guided by its tax advisors, intends to provide a formal response to the Show Cause Cum Demand Notice within the stipulated timeframe.

Despite these challenges, ICICI Lombard continues to thrive in the market. As of fiscal year 2023, it maintains a market share of 8.2% based on gross direct premium income. This position reinforces its leadership among private general insurers in India and secures its rank as the second-largest non-life insurer in the country. In fiscal year 2023, ICICI Lombard recorded a total gross direct premium income of Rs 21,025 crore, with a noteworthy 18.9% year-on-year growth in gross direct premium income for Q1 2024, which amounted to Rs 6,387 crore.

Regarding premium income composition, the motor insurance segment remains the largest contributor at 29.4% (compared to 33.2% in June 2022). The health insurance segment’s share has increased to 28.5% (up from 24.1% in June 2022), making it the second-largest segment for the company, followed by fire insurance, contributing 19.7% (down from 21.3% in June 2022) to the overall premiums.

The financial health of ICICI Lombard remains robust, characterized by a substantial net worth of Rs 10,778 crore, a comfortable solvency ratio of 2.53 times, and an unrealized gain of Rs. 668.4 crore on its equity portfolio as of June 30, 2023. This stability is further supported by consistent internal accruals generated over the years and timely capital infusions from its parent company, ICICI Bank, in times of need.

ICICI Lombard’s solvency position continues to exceed regulatory requirements, consistently maintaining a comfortable margin over the mandated 1.5 times solvency ratio. Over the medium term, the company anticipates that its solvency ratio will remain comfortably above regulatory thresholds, with steadfast support from its parent company, ICICI Bank.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.