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In-line performance on NEP and PAT; combined ratio at 103.3%

* Gross written premium at INR37.9b grew 5%YoY (6% lower than est.), driven by 7% YoY growth in retail health premium while group health premium declined 15% YoY.

* Net earned premium grew 15% YoY to INR38b (in line with est.). For 9MFY25, the net earned premium grew 16% YoY.

* The claims ratio at 71.4% (vs. our est. of 71%) increased 375bp YoY, driven by a 22% YoY rise in net claims incurred to INR27b (in line).

* The commission ratio at 14.1% (vs. our est. of 13.8%) increased 303bp YoY, while net commission grew 44% YoY to INR5b (in line).

* The expense ratio at 17.7% (vs. our est. of 17.6%) declined 130bp YoY on account of a 4%/6% YoY increase in other expenses/ employee expenses. Operating expenses were in line with our estimates.

* The combined ratio was at 103.3% largely led by a miss in GDPI/NWP of 6%/3%. The combined ratio was higher by 550bp YoY. For 9MFY25 the combined ratio was at 101.8% vs 98.2% YoY.

* Total investment income stood at INR3.5b (3% lower than est.), growing by 22% YoY.

* PAT was at INR2.2b (in line), declining 26% YoY. For 9MFY25, PAT was down 8% YoY.

* The solvency ratio for 3QFY25 stood flat at 2.2x on a YoY basis.

Valuation and view

Regulatory changes in the accounting of long-term health policies hurt the expense and combined ratio during 3QFY25. 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 29th Jan’25.

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