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Elevated claims and commission ratio impact profitability

* Gross written premium at INR51.4b grew 35% YoY (in line), driven by a 37% YoY growth in retail health premium and a 6% YoY decline in group health premium.

* Net earned premium grew 12% YoY to INR38b (in line). For FY25, net earned premium grew 15% YoY to INR148b.

* Claims ratio at 69.2% (vs our est. of 68.1%) grew 510bp YoY, driven by a 21% YoY increase in net claims incurred, which amounted to INR26.3b (in line).

* Commission ratio at 15.8% (vs our est. of 14%) grew 150bp YoY, while net commission grew 17% YoY to INR7.6b (11% above est.)

* Expense ratio at 14.2% (vs our est. of 15.2%) declined 20bp YoY on account of a 3% YoY decline in employee expenses, while other expenses grew 22% YoY.

* The rise in claims and commission ratio led to a combined ratio of 99.2% (vs our est. of 97.3%), up 640bp YoY.

* Total investment income stood at INR2.9b (24% below est.), flattish YoY.

* The rise in claims and commission resulted in a PAT of INR5.2m. For FY25, PAT declined 24% YoY to INR6.5b.

* The solvency ratio for 4QFY25 stood flat at 2.21x on a YoY basis.

Valuation and view

Regulatory changes in the accounting of long-term health policies impacted the expense and combined ratio during 4QFY25. We remain optimistic about the overall prospects for Star Health, backed by: a) consistent growth in retail health, given its under-penetration, b) a strong push from the Banca channel, and c) sustained growth in specialized products and deepening presence. We believe that Star Health can deliver long-term growth with the investments made in profitable channels and products. We may review our estimates and TP after the concall on 30th Apr’25.

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