Star Health & Allied Insurance Company – Leader In Retail Health

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

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.