Star Health & Allied Insurance Company - Leader In Retail Health

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Highlights of Star Health Q1 FY25 Earnings Call

Claims ratio 67.6% vs 65.4% QOQ (Increased, Management said this is due to more fever-related cases)

PAT up by 11% QOQ

Gross Written Premium (GWP) up by 18% QOQ , up by 18% YOY

7% of GWP contributed by Digital

Management Aims to Double GWP to 30000 cr (18.4% CAGR) and Triple PAT to 2500cr (31.15% CAGR)by FY 28

Fresh: Renewal Count is 25:75 vs 23:77

Investment Income is up by 18% QOQ

Average sum insured Up by 8%

Cashless Claims 74% vs 61% QOQ

There are spends on wellness, telemedicine, OPD in hope to make the customers heathy and decrease hospitalization in the long term

Plan to Increase premium in 2 to 3 products which contribute 30+% in the GWP by 10 to 15%, effectively benefit 4 to 4.5% in PAT

Management said they are careful in increasing the port in’s as they have no waiting period so they can dilute the profits

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Star Health and Allied Insurance processed over 100 claim transactions through the National Health Claims Exchange (NHCX), showcasing their dedication to efficient customer service and rapid claim settlement.

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Star Health Q1 FY25 Analysis: Key takeaways!!

Star Health continues to focus on growth with profitability while maintaining its leadership position in the standalone health insurance segment. The company reported 18% year-over-year growth in Gross Written Premium (GWP) to Rs. 3,476 crore in Q1 FY25. The management remains confident about the long-term growth potential of the health insurance industry in India, given low penetration levels and increasing awareness.

Strategic Initiatives:

  1. Digital transformation: Increasing focus on digital channels for policy issuance and claims processing. 72% of premium collection was through digital channels in Q1 FY25.

  2. Product innovation: Launch of home healthcare services at no extra premium to policyholders.

  3. Distribution expansion: Added 165 sales manager stations during the quarter to increase penetration in semi-urban and rural areas.

  4. Wellness and prevention: Significant increase in preventive health checks, telemedicine usage, and wellness program enrollments.

Trends and Themes:

  1. Shift towards higher sum insured policies: 81% of retail health portfolio now has sum insured of Rs. 5 lakhs and above.

  2. Increasing share of long-term policies: 7% of retail GWP in Q1 FY25 vs 5% in Q1 FY24.

  3. Focus on cashless claims: 90% of paid claims in Q1 FY25 were cashless vs 84% in Q1 FY24.

Industry Tailwinds:

  1. Low health insurance penetration in India provides significant growth opportunity.

  2. Increasing awareness about health insurance post-COVID.

  3. Regulatory push for “Insurance for All by 2047” initiative.

Industry Headwinds:

  1. Increasing healthcare costs putting pressure on claims ratios.

  2. Intense competition in the health insurance space.

  3. Regulatory changes requiring product modifications and potentially impacting pricing.

Analyst Concerns and Management Response:

  1. Concern: Increase in claims ratio to 67.6% in Q1 FY25 from 65.4% in Q1 FY24.
    Response: Management attributed this to higher than expected frequency of medical claims, particularly fevers. They are monitoring the situation and preparing strategies to address it.

  2. Concern: Decline in retail health renewal premium ratio to 93%.
    Response: Management clarified that policy-wise retention has improved, and the decline is due to changing business mix with higher growth in digital and bancassurance channels.

  3. Concern: Impact of regulatory changes on pricing and profitability.
    Response: Management is evaluating the impact of new regulations and will take necessary pricing actions if required.

Competitive Landscape:
Star Health maintains its leadership position with a 42% market share in the standalone health insurance industry. The company is focusing on differentiation through its distribution network, in-house claims processing, and digital initiatives.

Guidance and Outlook:
The company aims to double its GWP to Rs. 30,000 crore and triple its PAT to Rs. 2,500 crore by FY28. Management remains committed to improving combined ratio through better claims management and expense control.

Capital Allocation Strategy:
The company maintains a strong capital base with a solvency ratio of 2.29 times as of June 30, 2024, well above the regulatory requirement of 1.5 times. No specific details were provided on dividend policy or share buybacks.

Opportunities & Risks:

Opportunities:

  1. Potential expansion into life and non-life segments if composite licensing is introduced.
  2. Increasing penetration in semi-urban and rural markets.
  3. Cross-selling opportunities through bancassurance partnerships.

Risks:

  1. Increasing healthcare costs impacting claims ratios.
  2. Regulatory changes affecting product design and pricing.
  3. Intense competition in the health insurance space.

Regulatory Environment:
The insurance industry is experiencing multiple regulatory changes focused on customer centricity. Star Health is preparing to meet these changes and claims to be ahead of the curve in many areas.

Customer Sentiment:
The company reported a Net Promoter Score (NPS) of 60 for Q1 FY25, indicating positive customer sentiment. Increased engagement in preventive health checks and wellness programs also suggests growing customer interest in health management.

Top 3 Takeaways:

  1. Star Health maintains strong growth momentum with 18% YoY increase in GWP, focusing on profitable growth.

  2. The company is investing significantly in digital transformation and wellness initiatives to improve customer engagement and long-term profitability.

  3. While facing short-term headwinds in claims ratios, management remains confident about long-term growth prospects and is taking steps to address challenges.

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Hi @yrm91

Your points are valid and factual.
What do you think is the reason for relatively lower PE multiple for Star Health as compared to the Life Insurance companies. Are we all missing something here? The stock has stayed in the same vicinity forever.

Disc; Invested

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With Composite insurance bill on the verge of getting approved , there was news that LIC is interested to enter retail health insurance space. LIC will get cross sell opportunity with its retail life insurance policy. So market probably thinking it about a threat to Star Health. But execution will be the difference over long term. Star Health is also wants to diversify into Motor Insurance and Term Life.
But real point is Star Health to my best estimate is being fairly valued by market. Further increment to share price will be based on its business growth. Star Health’s capital raise and valuation in the past will give some idea.

  1. At current market cap of 36220 Cr and FY24 Gross Premium of 15254 cr. GWP to market Cap multiple stand at 2.54 times. Market share within general insurance industry stand at FY24 was 4.76%.
  2. GWP to Market Cap is a good measure compared to PE. Star has a float of around 15500 Cr. Investment income alone touching 900 cr per year and ever increasing.
  3. M&A on Indian Standalone health insurance space has track record of providing GWP to valuation multiple of 1.2 time to 1.5 times.
  4. in FY18 ttk Sold its entire stake in ttk Cigna. ttk Cigna Gross Premium was at 346 Cr at FY18. Valuation given is 500 Cr. TTK stake was taken over by Manipal group. GWP to valuation multiple given at 1.4 times.
  5. Before IPO in April-2018 Rakesh Jhunjhunwala and Icici Lombard was in race to pick up stake, Rakesh Jhunjhunwala and other picked up stake at a valuation of 6000 Cr . FY2018 Gross Premium was 4100 cr. So GWP to Valuation multiple of 1.5 times given. Star Health’s market share within general insurance space for FY18 was 2.75%.
  6. In Sept-2016 , Apis Partner and ICICI Venture bought 15% stake in Star Health. Star health valued at 2100 Cr that time . FY16 GWP was 2007 Cr. so GWP to Market Cap multiple given was 1 times. Market Share was around 2.3% that time.

Disc : Invested

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Given the sensitivity around privacy and client data, if it is true, then it reflects extremely poorly on the company and the management. The company should clarify.

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The stock has corrected from the highs by around 16%. Any views on the same?

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It’s not about the % drawdown u should focus, you should focus on perspective. Initially the issue of genuine claim rejections, and the current data leakage saga has continuously weighing down the sentiments. The Star brand value might be decreasing, as they are not able to gain market share since last two years.
The change in perception is the key for success in this company. This would be a good bet for constrain style, but might test patience. One more point, the composite insurance is also dragging this, as the Life insurance companies can takeaway their agent based competitive advantage.
All are my personal observations.
Disc: No holdings

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I bet that there won’t be much growth in this insurance as they are not at all ready to settle any claims. Lot of negativity among the existing policy holders and they are spreading this negativity by sharing their experience and saving their time.

They are offering policies at the cheap premium but there is no meaning of taking such policies when the claims are surely getting rejected.

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Any source on the data for both these?

The Policy Bazaar website shows a claim settlement ratio of 99.1% higher than HDFC Ergo’s 98+ % and Digit’s 96%. Data for ICICI Lombard wasn’t available.

Source is IRDA as mentioned in the website disclaimer.

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There is no sensitivity around data in India. Our Adhaar data is floating on the Interwebs freely.

This is looks like a planned campaign. If you look at the language on Twitter, everyone talking about Star Health has the same language. Classic hallmark of a pre-planned event.

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It’s real ground data of policy holders and hospitals.

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Star Health’s Key Earnings Growth and Profitability Indicators (Including Q2 FY 25 results)

Key Indicator FY 2022-23 FY 2023-24 H1 FY25
Gross Written Premium (GWP) (INR Cr) 12,952 15,254 7,847
GWP Growth (%) 13% 18% 17.5%
Combined Ratio 95.3% 96.7% 101.1%
Underwriting Profit/(Loss) (INR Cr) 205 90 -55
Investment Income (INR Cr) 835 1,084 650
Investment Yield (%) 6.90% 7.70% 8.14%
Profit After Tax (PAT) (INR Cr) 619 845 430
PAT Growth (%) - 37% -
Return on Equity (ROE) (%) 12.40% 14.40% 6.54%

Key Insights on Earnings Growth

  • Strong GWP Growth: Star Health has shown strong growth in its GWP, with 13% growth in FY23 and 18% in FY24. The company continued its growth trajectory in the first half of FY25, achieving a 17.5% increase in GWP. This growth is driven by a combination of factors, including its leading market position, a growing customer base, and the introduction of new products.
  • Shifting Focus: Star Health is shifting its focus to specialized products, with a notable increase in the retail premium mix for specialized products over the past three years. The company has also launched six new products in FY24, demonstrating its commitment to innovation and addressing evolving customer needs.
  • Digital Channel Growth: The company’s digital channels are playing an increasingly important role in its growth, with a 15% year-on-year increase in digital premium in FY24.

Key Insights on Profitability

  • Profitability Improvement in FY23 and FY24: Star Health’s profitability improved significantly in FY23, driven by underwriting profits and a strong investment income. The company’s profitability continued to improve in FY24, with a 37% growth in PAT. However, profitability declined in the first half of FY25, with the company reporting an underwriting loss.
  • Combined Ratio Fluctuations: The combined ratio, which measures underwriting profitability, has fluctuated over the years. While it remained stable in FY23 and FY24, it increased to 101.1% in the first half of FY25, indicating an underwriting loss. This increase is likely due to a higher claims ratio.
  • Strong Investment Performance: Star Health consistently generates strong investment income, contributing to its overall profitability. The company’s investment yield has shown an upward trend in recent years.
  • Cost Management Efforts: Star Health focuses on cost optimization, as evidenced by its stable expense ratio over the years.

Latest Quarter Results (H1 FY25)

  • The latest quarter results show a decline in profitability, with the company reporting an underwriting loss and a higher combined ratio.
  • However, the company continues to experience robust GWP growth, supported by strong retail health renewal premium ratios.
  • Investment income continues to be a key contributor to profitability.

It’s important to note that the ROE in H1 FY25 is non-annualized.

These insights highlight the key factors influencing Star Health’s financial performance. While the company has demonstrated strong earnings growth and improving profitability in recent years, the latest quarter results suggest that there are challenges to maintain this performance, particularly in underwriting profitability. The company’s focus on profitable growth, risk management, and strategic initiatives will be crucial in navigating these challenges and delivering sustainable value to shareholders.

Insights from the Q2 & H1 FY25 Star Health Earnings Call

The Q2 & H1 FY25 earnings call for Star Health and Allied Insurance Company Limited provided valuable insights into the business challenges and strategic considerations facing the company. Analysts raised several critical questions, prompting management to shed light on key aspects impacting their operations. Here are some of the most insightful exchanges from the call:

Challenge: Rising Loss Ratios

  • Several analysts, including Sarna Mukharji from BNK Securities and Praise Jen from Motil Financial Services, expressed concerns over the increasing loss ratios, both sequentially and year-on-year.
  • Management Response: Attributed the elevated loss ratios primarily to seasonal factors, but acknowledged that medical inflation and potential shifts in consumer behavior post-COVID are also contributing factors. They emphasized the need for further price corrections, with plans to re-price 50-60% of their products in the coming months.

Insight: Star Health is facing a significant challenge in controlling its loss ratios. While seasonal factors are playing a role, underlying trends like medical inflation and changing healthcare consumption patterns require a proactive and strategic response from management.

Challenge: Effectiveness of Price Hikes

  • Analysts questioned whether the recent price hikes were sufficient to offset rising claims costs and why earned premium growth remained modest at 15-16%.
  • Management Response: Highlighted that they had already revised prices for some products (senior citizen and young star plans) and were actively evaluating further increases for other products, including their flagship Family Health Optima plan.

Insight: The pricing strategy of Star Health is under scrutiny as analysts assess whether the company can strike a balance between premium increases to improve profitability and maintaining competitive pricing to attract and retain customers.

Challenge: Negotiating with Hospitals

  • Analysts raised the issue of rising healthcare costs and the need for better negotiation practices with hospitals.
  • Management Response: Acknowledged that persistently high medical inflation was a concern and confirmed their participation in discussions with regulatory bodies and industry groups, including the General Insurance Council, to address this challenge.

Insight: The dynamics between insurers and healthcare providers are crucial to controlling healthcare costs. Star Health’s active involvement in industry-level discussions suggests a recognition of the need for collective action to address this complex issue.

Challenge: Balancing Growth and Profitability

  • Analysts questioned the feasibility of achieving Star Health’s medium-term target of doubling premiums and tripling profits, given the current headwinds and potential trade-offs between growth and profitability.
  • Management Response: Reiterated their confidence in the company’s long-term growth prospects, emphasizing the significant opportunity to increase insurance penetration in India. They highlighted their investments in wellness and preventive care as a key strategy to manage healthcare utilization in the long run.

Insight: Star Health is navigating a delicate balance between pursuing ambitious growth targets and ensuring sustainable profitability. Their success will hinge on effectively managing claims costs, optimizing pricing, and leveraging technology and preventive care initiatives to influence healthcare consumption patterns.

Disclosure: Not invested. Post purely for study purposes. thanks.

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Star Health and allied insurance company ltd -

Q2 and H1 Concall and results highlights -

Health Insurance is the largest segment in the general insurance industry, contributing to 39 pc of Gross Written Premiums ( GWPs ) for the Industry

H1 - Key performance indicators -

GWP - 7847 vs 6680 cr, up 17 pc
Retail health insurance renewal ratio - 94 vs 99 pc
No of agents - 7.42 lakh vs 66.6 lakh
No of hospitals covered - 14.4k vs 14.2k
No of branches - 902 vs 881
Combined ratio - 101.1 vs 98.5 pc
Underwriting profit / loss - (-) 55 vs (+) 66 cr
Investment assets @ 16.4 k vs 14 k cr
Investment income - 650 vs 505 cr, up 29 pc
Investment yield @ 8.14 vs 7.38 pc
PAT - 430 vs 413 cr

Breakup of combined ratio in H1 -

Expense ratio @ 30.8 vs 31.4 pc
Claims ratio @ 70.2 vs 67.1 pc

Breakup of GWP in H1 -

Retail health + Retail travel + Personal accident GWP @ 7.1k vs 6.7k cr
Group health GWP @ 700 vs 500 cr

Company has bancassurance tie-ups with the likes of - KVB, PNB, UCO bank, IDFC First, BoB, Federal Bank, BoI

Other channel partners include - IIFL, Policy Bazaar, Tata Capital

Fresh to Renewal policies ratio for H1 stood @ 25:75

Avg sum insured for the company increased by 6 pc to 10.3 lakh per policy. 5 lakh and above sum insured policies now constitute 82 pc of company’s retail portfolio vs 77 pc at the end of H1 LY

Company has taken price hikes in H1 and those have been absorbed well by the Mkt

Channel wise contribution to business -

Agency - 80 pc, grew by 17 pc
Bancassurance - 8 pc, grew by 25 pc
Corporate - 4 pc, grew by 231 pc
Digital - 8 pc ( includes both - third party aggregators + company’s own digital channel )

15 pc of company’s premium is collected via specialised policies. These specialised policies include -

Star cancer care
Star senior citizens
Star cardiac care
Young star
Women care
Star Diabetes safe

Company has a whopping 31 pc mkt share in retail Health Insurance space in India. It’s a fast growing, under-penetrated industry. Company is the largest health Insurance company in India

79 pc of claims processed by the company were cashless in Q2

Company is investing aggressively in Preventive Health checkups, digital initiatives to detect and prevent online frauds. The preventive health check ups are costing the company @ 0.6 pc on the claims ratio - but they strongly believe that its an investment for the future and should yield good results

Company’s app downloads stand @ 74 vs 44 lakh YoY

Q2 - key performance indicators -

Combined ratio @ 103 vs 99.2 pc
Claims ratio @ 72.8 vs 68.7 pc
Expense ratio @ 30.2 vs 30.6 pc
Investment income @ 354 vs 255 cr
PAT - 111 vs 125 cr

Company reiterated their aspiration to reach GWP of 30k cr and PAT of 2500 cr by FY 28

Company was a victim of a cyber attack in Q2 which led to data leak iro its customers. They have responded swiftly, engaged cyber security experts and have taken down the stolen data from open sources

Q2 this FY saw an increased loss ratio due increased severity of seasonal disease outbreaks vs LY. Also, company’s Group insurance business share is increasing. Group insurance business always has higher Loss ratios vs retail business. Third factor behind increased loss ratio was medical inflation

Loss ratios typically moderate in Q3 and Q4. Company is hoping for a similar trend to play out in H2

Seeing the trend of elevated loss ratios, company has taken price hikes some of their products and is contemplating price hikes in some other products in near future. Despite the price hikes, company is seeing good business momentum across its products

Company aims to bring its expenses ratio down by 100 bps ( ie 1 pc ) for full FY 25 vs FY 24. On the claims side, it ll be challenging to bring down the claims ratio by 100 bps but they are trying to manage it by taking price hikes

Porting-in remains @ 10-12 pc of their new business

By end of FY 25, company believes almost 50-60 pc of their business will be re-priced upwards

Q1 and Q2 are always heavy on the claims ratio ( specially Q2 ). Claims ratios generally taper off in Q3, Q4. Company is hoping for the same to play out in current FY as well

Company intends to reach 18k cr of GWP for the current FY and they think that they r on track to achieve the same

The digital distribution channel is the fastest growing channel for the company and they r investing heavily behind the same

Company feels the premiums in Mid Corporates and Big Corporates are becoming unattractive and company intends to scale down this portion of their group health business. However, the premiums in small corporates and MSME group health insurance business are attractive

The total quantum of price hikes that the company intends to take before the end of current FY ( on 50-60 pc of their portfolio ) is expected to be around 10 pc

On way to counter medical inflation is to direct more people towards their preferred network of Hospitals ( the ones that don’t over-charge )

The medium term objective for the company is to reach a combined ratio of 96-97 pc

As an industry leader in Health Insurance, they continue to expand the market by investing behind field force, branches in the tier - 2,3,4 towns. This is what is driving the volume growth for the company

Disc: hold a tracking position, may add more if the business performance improves, not SEBI registered, biased, not a buy/sell recommendation

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Here, they have mentioned claims paid within 3 months.
Claims settlement ratio is different.
Here is the claim settlement ratio from past 7 years

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Thanks for the infor.
Its clearly evident that only HDFC has higher claim settlement ratio, if we add ICICI Lombard also then we will see their settlement ration also equal or > HDFC.

Remaining all 3 players are lagging in this, This is the ratio policy holders looking at before purchasing policy. People prefer to buy Lombard or HDFC Ergo policy with some higher premium rather than paying less premium to other 3 players and ending up in the situation where entire claim is rejected.

This will drag the growth rate of both listed entities Star & Niva Bupa also. CARE has worst customer/hospital satisfaction index. People who are still believing in the discounted premium will realize the importance of this ratio and slowly move away from these 3 entities.

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LIC to enter health insurance. Slightly dated news. Came across it today.

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LIC is all about corruption, for every life insurance claim officers expects some amount from the claimants.
In my opinion PSU’s can’t earn any market shared in health insurance, as it require exceptional customer satisfaction results. I don’t prefer to buy any health insurance policy from PSU’s

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I think we cannot compare the CSR of HDFC Ergo (which has multiple insurance verticals like Life, Health, Travel, etc.) with standalone health insurance companies. As far as I know, each company publish overall CSR and not for each category of insurance. Correct me if I am wrong.