Niva Bupa to benefit from premium hike, lower expense ratio

Niva Bupa Health Insurance Co. Ltd’s first earnings post listing show its performance is significantly better than that of the Indian health insurance industry in the first half of FY25 (H1FY25). Gross written premium at ₹3,241 crore grew by 33% year-on-year, far ahead of the industry’s nearly 10% growth.

New business growth of 40% is split into price growth of 7-8%, and the rest coming from volume growth, i.e., from new lives covered under health insurance. Nive Bupa’s management attributes the industry-leading growth to almost 4x increase in agency and own sales headcount over the last four to five years, apart from bancassurance.

H1FY25 profit after tax jumped to ₹59.5 crore from ₹27.6 crore a year ago as per International Financial Reporting Standards. A factor that aided profitability is better investment returns through prudent fund management. The annualized yield on investments rose to 7.5% from 7% as Niva Bupa focused on higher-duration investments. The rise in yield is sizeable given that it has no equity investments. This number is not expected to drop significantly ahead.

Lower combined ratio (claims ratio plus expense ratio) also helped profit. The combined ratio improved to 103.5% from 104.7% as claims ratio was lower at 62.5% from 63.8%.

Though flat year-on-year, management expenses stood at 40% of gross written premium versus the regulatory limit of about 36%. Since the ratio is derived by expenses as a percentage of gross written premium, Niva Bupa will follow a two-pronged strategy of correcting the numerator and denominator both.

During the earnings call, the management stated that the ratio will be gradually brought down in future through reduction in fixed costs (numerator). Hiking premium income (denominator) should also help. The company has hiked premium by 10% on 35% of its retail health product portfolio to boost premium income.

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The ability to do more business or undertaking more insurance business, as measured by solvency ratio, rose to 2.25x (minimum regulatory requirement: 1.5x) as the proceeds from public issue boosted the capital.

Niva Bupa’s shares listed on 14 November and are trading near its issue price of ₹74. Its market capitalization of ₹13,800 crore is 3x of annualized H1FY25 net earned premium (NEP) compared to 1.9x of bigger rival Star Health and Allied Insurance Co. Notwithstanding Niva Bupa’s higher NEP growth of 36% in H1FY25 vis-à-vis Star Health’s 16%, the former’s valuation premium adequately captures the higher growth, thus limiting sharp near-term upsides.

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