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    Star Health and Allied Insurance Company Q3 FY25 earnings call

    STARHEALTHGood
    Financial Services·29 Jan 2025
    Management Summary

    Star Health reported a quarter marked by strong top-line growth in fresh premiums and retail segments, despite significant regulatory accounting transitions (1/N framework). While loss ratios remain elevated due to medical inflation and increased surgical frequencies, management has aggressively re-priced 65% of its retail portfolio to mitigate these pressures. The company continues to dominate the retail health space with a 32.2% market share and is pivoting towards an IFRS-aligned reporting structure.

    Highlights

    8

    • Gross Written Premium (GWP) grew by 16% YoY on a 9M basis (excluding 1/N accounting impact), with fresh GWP up 27%.

    • Retail health market share maintained at 32.2%, approximately three times larger than the nearest competitor.

    • 9M FY25 PAT stood at ₹645 crores, with PBT at ₹862 crores.

    • Combined ratio for 9M FY25 was 101.8% (reported) vs 98.3% YoY; excluding 1/N impact, it stands at 101.3%.

    • Claim ratio increased to 70.7% for 9M FY25 from 67.3% YoY, driven by higher frequency and severity in claims.

    • Renewal persistency improved significantly to 87% (by number of policies) compared to 84% in FY24.

    • Investment income grew to ₹996 crores for 9M FY25, up from ₹790 crores in the previous year.

    • Solvency ratio remains robust at 2.22x, well above the regulatory requirement of 1.5x.

    Concerns

    1

    • Medical Inflation and Claim Severity

    What Changed1

    vs Q4 FY25

    Tone shiftWeak → Good
    Key financials

    Metrics

    6

    Periods

    3

    Headline

    1
    • Solvency Ratio
      2.22 x

    9M

    4
    • PAT
      ₹645 Cr
    • Combined Ratio
      101.8%
      YoY+3.5%
    • Claim Ratio
      70.7%
      YoY+3.4%
    • Investment Income
      ₹996 Cr
      YoY+26%

    9M without 1/N

    1
    • GWP
      ₹11,500 Cr
      YoY+16%

    Segment breakdown

    Retail Health
    32.2% Market Share22% Fresh GWP Growth69.2% Loss Ratio
    Agency
    80% Contribution to GWP7,61,000 count Agent Count
    Banca
    8% Contribution to GWP20% Growth
    Group/Corporate
    4% Contribution to GWP90.4% Loss Ratio
    List

    Guidance & targets

    4
    CategoryTargetPriority
    Revenue
    Top line growth
    Double top line from FY24
    		Medium
    Revenue
    GWP Growth Rate
    18%
    		Medium
    Margin
    Expense Ratio Benefit
    0.5% to 0.75%
    		High
    Profitability
    Price Hike Blended Impact
    8% to 9%
    		High

    Risks & concerns

    5
    RiskSeverity

    Medical Inflation and Claim Severity

    Consistent increase in frequency and severity driven by surgical preference and hospital reach-out. — Both acknowledged

    high

    Bancassurance Slowdown

    Regulatory interventions and oversight by the ministry on insurance sales in PSU banks have affected growth. — Management acknowledged

    medium

    Group Business Loss Ratios

    Group loss ratio stands at 90.4%, significantly higher than retail, necessitating corrective pricing measures. — Both acknowledged

    medium

    Areas of Evasion(2)

    • Specific PAT guidance for Q4 under the new 1/N reserves.
    • Detailed loss ratio targets for FY26-27.

    Q&A highlights

    3

    “Due to lower NWP, the expense ratio shows an increase. On a like-to-like basis, there is no increase. In fact, we are doing well on the expense ratio.”

    Clarifies that the spike in expense ratio is an accounting artifact of the new 1/N framework rather than a deterioration in operational efficiency.

    asked by Shreya Shivani (CLSA)

    2 min read5 chapters

    Detailed Narrative

    01

    1/N Accounting Framework Transition

    The company implemented the new 1/N reporting framework for long-term policies effective October 1, 2024. This shift annualizes premiums, leading to a reported reduction in Gross Written Premium (GWP) but not impacting Net Earned Premium (NEP). The accounting change artificially elevated the expense ratio by 1.6% for the quarter, though management maintains that on a like-to-like basis, the ratio remains flat at approximately 30.2%.

    02

    Retail Health Dominance and Market Share

    Star Health continues to lead the retail health segment with a 32.2% market share, which is three times larger than its nearest competitor. Fresh retail GWP grew by 22% in 9M FY25, supported by a 13% growth in the number of policies. The company's 'risk first, growth later' strategy is evident in its tighter underwriting standards despite robust volume growth.

    03

    Addressing Elevated Loss Ratios

    The 9M FY25 claim ratio rose to 70.7%, primarily due to increased frequency and severity of claims. Retail loss ratios stood at 69.2%, while the group segment was much higher at 90.4%. Management has responded by re-pricing 65% of the retail portfolio with blended hikes of 8-9%, expecting these measures to yield results over the next 18-24 months as the portfolio churns.

    04

    Distribution Engine Performance

    The agency channel remains the primary driver, contributing 80% of overall business with a net addition of 19,000 agents in Q3 alone. The Banca channel grew by 20% and now contributes 8% of GWP, bolstered by new partnerships with Bajaj Finance and NeoGrowth. Digital business also showed strong momentum, with fresh business growing by 58% and digital issuance reaching 70% of total premium collection.

    05

    Long-term Strategic Roadmap

    Management reiterated its goal to double the top line from FY24 levels by FY28, targeting an 18% CAGR. The company is also preparing for the adoption of IFRS standards in the coming years, which will further align revenue and acquisition cost recognition. Current solvency at 2.22x provides significant capital headroom to pursue this growth without immediate dilution.

    This is an AI-generated summary of a publicly available earnings call transcript.