Star Health and Allied Insurance Co. Ltd has chosen a distinct path compared to its rivals in the general insurance business by focusing on profitability rather than chasing market share gains at any cost.
Just like any other business, the general insurance business can also earn profit if its revenue, which is premium earned exceeds its total cost that includes commission paid to agents, other expenses and claims made by policyholders. This profit is called underwriting profit.
Note that Star Health is the only listed general insurance company that has made an underwriting profit every year since FY19, except in FY21 and FY22, largely owing to the covid-19 claims that consumed 94% and 87% of premium for the two years, respectively.
Being a standalone health insurance provider, the company was impacted the most by the pandemic. Covid-19 not only hurt the financial performance, but also brought down the market capitalization (mcap) from the listing day high of about ₹52,000 crore on 10 December 2021 to an all-time low of ₹27,277 crore in July 2022.
However, FY23 and FY24 results show that the company is back on track as covid related claims reduced. Plus, price hike in the flagship health product Family Health Optima, helped. The company’s current mcap stands at about ₹33,600 crore.
Going ahead, Star Health has set ambitious targets for itself. By FY28, it expects doubling of premium income to ₹30,000 crore and tripling the profit after tax (PAT) to ₹2,500 crore. The CAGR needed to achieve the target over the four years is 18% in premium income and just over 30% in PAT. For perspective, in FY24, year-on-year growth rate in the premium income and PAT was 18% and 36%, respectively.
However, the challenge for Star Health could be in terms of innovative products launched by competitors such as Niva Bupa Health Insurance Company. Some of Niva Bupa’s products include unchanged premium facility if no claim is made as against the increasing age bracket wise premium and carry forward of unutilized sum insured to the subsequent years.
There has been talk of issuance of composite insurance licences, which allows existing and new companies to do life and non-life business under one umbrella. LIC has already expressed its intention of entering the health insurance business.
Star Health share trades at about 30x the Bloomberg consensus earnings per share estimate for FY25. The positive reaction of the stock price following the analyst meet is not without reason given the standalone health insurance industry's growth of 26% in FY24 was almost twice the growth rate of the general insurance industry.
