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We recently met Anand Roy (MD & CEO) and the senior management team of Star Health for an update on Company’s strategy and the overall developments in the Health Insurance sector. Key views: 1) Company continues to drive profitable growth with premium growing ~1.1x that of the industry, and it aims to improve Combined ratio by ~1ppts YoY in FY25. 2) The recently-issued Master Circular is more about operational aspects of Health Insurance and from a financial standpoint, the reduction of Pre-existing disease (PED) exclusion phase to 3 years from the current 4 years will require re-pricing of some products, where the PED wait is more than 3 years. 3) Regulatory developments such as last year’s EOM regulations and recent initiatives such as Bima Sugam and National Health Claims Exchange are positive for the sector and the company; Star Health is well positioned to benefit from the composite licensing, if it were to become reality. 4) In the medium term, the company aims to double its premium in 4 years, with continued improving profitability.

Continue to walk on the profitable growth path

Management is deeply committed to delivering profitable growth and they are progressing well on that path. For FY25, the management is confident of delivering premium growth that is ~1.1x that of the industry, and improving its combined ratio by 1 ppts YoY (with equal contributions from claims and Opex ratio) from last year’s 96.7%. From the medium-term perspective, the company aims to double its premium in the next four years, while improving profitability consistently. For FY25, the growth will likely come in both, the retail and the group business. However, owing to the smaller base and productivity gains in multiple banca partnership, the growth in group segment will be higher than the retail. Management maintained that it is possible to achieve under 65% claims ratio in Health Insurance on sustainable basis, but this requires complete focus on the segment and saving on every aspect. This would include robust underwriting to smart negotiations with hospitals to foolproof fraud detection, which is why a multi-liner or life insurers (if they come in composite license era) will find it difficult to achieve this.

Master Circular on Health Insurance largely touches operational aspects

The recently-issued ‘Master Circular on Health Insurance’ largely deals with the operational aspects of Health Insurance including Waiting period, inclusion, claims settlement process, etc. As far as the financial impact of this circular is concerned, there are very few provisions like reducing PED waiting period to 3 years from the current 4 years, which can have some bearing. However, the circular is applicable prospectively, therefore, only products where the PED waiting period is >3 years can be re-priced; in many products the PED waiting period is already 3 years or even lower. On achieving 100% cashless claims settlement or limiting claims settlement post-hospital discharge to 3 hours, it’s always the company’s endeavor to achieve these to improve customer satisfaction. The regulatory developments such as EOM regulations and initiatives like Bima Sugam and National Health Claims Exchange are positive for the sector and the company. The company is well positioned to grow and capture opportunities in adjacency areas, if the composite license were to become a reality.

Following the material underperformance, the valuation has turned attractive

After ~25% underperformance relative to NIFTY, STARHEAL valuations (FY26E P/E: 23x) have turned attractive, given its pole position in the promising health insurance market and Management’s confidence in profitable growth. From the shareholding perspective too, the promoter appears committed and a large part of the Private Equity investors have exited. We currently have a REDUCE rating; however, after the underperformance, STARHEAL shares are trading below our TP. We shall review our estimates in due course.

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