Star Health and Allied Insurance Company Limited (STARHEALTH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Star Health and Allied Insurance Company Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Devanshi Dave from Adfactors PR Investor Relations team. Thank you, and over to you, Ms. Devanshi Dave.

Good morning, everyone. From the senior management, we have with us Mr. Anand Roy, Managing Director and Chief Executive Officer; Mr. Amitabh Jain, Chief Operating Officer; Mr. Himanshu Walia, Chief Marketing Officer; Mr. Nilesh Kambli, Chief Financial Officer; Mr. Aneesh Srivastava, Chief Investment Officer; and Mr. Aditya Biyani, Chief Strategy and Investor Relations Officer. Before we begin the conference call, I would like to mention that some of the statements made during the course of today's call may be forward-looking in nature, including those related to the future financial and operating performances, benefits and synergies of the company's strategy, future opportunities and growth of the market of the company's services. Further, I would like to mention that some of the statements made in today's conference call may involve risks and uncertainties. Thank you, and over to you, Mr. Roy.

Thank you so much, and a very good morning to everyone. Thank you for joining us for Star Health's earnings call for the first quarter of FY '26. Over the past 2 years, during my tenure as the CEO, our strategy has been grounded in 4 fundamental pillars: A risk-first approach; customer centricity; a digital-first mindset; and a steady ROE focus. All the measures that we have been implementing in the pursuit of long-term sustainable and profitable growth are now yielding results. The key pillars of the strategy has been emphasis on businesses and geographies and channels that meet our ROE thresholds. Our focus on improving claims and customer experience; various initiatives that we have taken are demonstrating better NPS trends. Product innovation and shift towards risk-based pricing with prudent underwriting; products such as Super Star Health Assured and corporate innovative features and have been very well received in the market. They constitute nearly 80% of our new business now. Our Super Star product is probably the first product in the industry to cross INR 1,000 crores of GWP within 10 months. Initiatives such as discount based on claims experiences, shift to zonal pricing from pan-Indian pricing. These are all the mark shift in our pricing strategy to ensure that we select and price risk appropriately. We would also like to reiterate here that our long-term competitive moat remain very much intact. We have the widest agency-led distribution with our agency base now at 7.89 lakhs, which is 2x of the next largest competitor. Our diversified distribution mix with our direct digital channel is now growing the fastest at 73% on new business. We have more than 11,300 crore agreed network hospitals which are supported by better negotiated pricing. Our lowest claims processing cost in the industry, less than 1% of our GWP also holds us in good stead in terms of operative advantage. And finally, the IFRS expense ratios have also reduced by 100 basis points to 30.1% from 31.1% in the previous year. I would like to reiterate here for the last 2 years, we have been reporting annual IFRS numbers. As mentioned in our last call, we are moving towards quarterly IFRS reporting. As the latest IRDAI guidelines probably, IFRS is expected to go live by 1st April 2027. We would like to emphasize that all our business and investment-related decisions are nowadays taken considering the IFRS reporting only. We have closed Q1 FY '26 with a gross written premium of INR 3,936 crores, a 13% year-on-year growth over the previous quarter. These numbers are on N basis. There are multiple reporting standards now. So we are -- for ease of understanding, we are reporting our premiums on N basis. Our retail health GWP grew 18% to INR 3,667 crores in Q1 FY '26, fueled by a 25% growth in fresh retail premiums and a strong renewal persistency 98% on premiums. Despite a very large base, we have successfully maintained our market share in retail health at 31%, which now contributes to -- retail now contributes to 94% of our overall portfolio, which used to be 90% in the last year. Retail fresh NOPs grew by 8%. Overall NOPs grew by 5%, reaffirming our strategy to drive business through both value and volume-led growth. We closed Q1 FY '26 with an IFRS PAT of INR 438 crores, marking a 44% Y-o-Y increase over the last quarter of the last financial year. Our net incurred claim ratio for quarter 1 stood at 69.5%. We will now cover our highlights on the strategy of our various channels and the steps we have taken for improving outcomes. And finally, we will close with an overview of the key financial metrics for this quarter. The growth updates of our various channels are on N basis for ease of understanding. Our agency channel, which is the largest channel for us, contributed 82% of our overall GWP with both fresh and overall growth standing at 16%. The agency fresh growth comes despite a very low share of portability business which we have maintained as a conscious decision in pursuit of quality growth. Our portability share is around 10% only. As Q1 FY '26, we added 14,000 new agents, taking our total agency base to 7.89 lakhs, which is the largest in the industry, and agency productivity also improved by 13%. Our preferred geographies are now growing at 1.5x faster than the overall business. These preferred geographies, obviously demonstrate better ROEs, and that's why we are focusing on these areas. Our digital business now contributes around 20% of our new business versus 12% in the last year first quarter. Our digital business, new fresh business is growing at an [indiscernible] 73%. We witnessed a 75% year-on-year growth in brand search volumes in quarter 1, a clear reflection of the rising brand equity of Star Health Insurance. Additionally, our organic rankings for long-tail keywords has also improved by 75%, significantly enhancing visibility amongst high intent customer segments. These gains have enabled us to meaningfully increase our digital leads. The quality and performance of the digital business is very promising, and we plan to create a digital SBU to accelerate this business. Details of this will be shared in due course. Our bancassurance channel contributed 7% to our GWP in quarter 1 of FY '26. We have made a significant shift towards our preferred product offerings, which is basically retail and benefit plans, which contributes now 92% of our fresh business versus 74% last year. With this improved mix in business, we envisaged the Banca margins will improve in the coming quarters. Our corporate business channel contributed 2% of our mix. This is a continuation of our strategic decision to focus on profitable SME segments, which now contributes 65% of our corporate channel versus 40% in the previous year. In the Corporate Group segment, as we have communicated earlier, we decided to exit from large markets and co-insurance segments, including both large and midsized group accounts, which were not viable. A few updates on the claims. The industry continues to witness very high health care cost escalation in the recent years. We have seen claim ratios increase across industry players, forging health insurance industry players to pass on a portion of this inflation to the end customers. On the retail side, we have implemented pricing corrections, covering nearly 65% of our book in the last fiscal year. This will be followed by an annual repricing strategy, which we have communicated earlier as well. On the group and bancassurance side, we've implemented price corrections in some of our low profitability accounts. Our vigilance and in-house fraud detection models, which are proprietary to Star Health have delivered great value. We continue to exist in our efforts to reduce fraud, waste and abuse. Our FWA savings improved by 30% in the last -- in the first quarter of FY '26 over the last year. Star Health Claims NPAs has improved consistently over the last quarters. We now have a Claims NPS of 57 from 46 in the last year of the same quarter. Our claims settlement ratio also now stands at 90% versus 85.7% in the first quarter of last financial year. Some of the key financial metrics for the quarter 1 under IFRS reporting standards. Our combined ratio for quarter 1 FY '26 stood at 99.6%, compared to 99.2% in the last year. Our claims ratio stood at 69.5% in Q1, compared to 68.1% in Q1 of last year. Our retail loss ratio stands at 68.5%, and group loss ratio stands at 85.1%. The investment income in quarter 1 of FY '26 has grown to INR 586 crores versus INR 388 crores in quarter 1 of FY '25. We accounted for INR 292 crores of mark-to-market gains in our investment income under IFRS accounting. Please note that the mark-to-market gains has been applied only to non-debt portfolio which is now 17.5% of our investment book. On the debt book, our MTM gain sales for the quarter is around INR 200 crores, which is not considered under IFRS reporting. Our PAT for Q1 FY '26 stood at INR 438 crores, compared to INR 304 crores in Q1 of FY '25. Our return on equity nonannualized for quarter 1 stood at 4.9% versus 3.8% of quarter 1 of last financial year. Our solvency as on June 30, 2025, was 2.22x versus the 1.5x minimum requirement. On the management side, I'm happy to announce and extremely pleased to welcome Mr. Rajeev Kher, the former Secretary as the new Chairperson of our Board. Mr. Kher's extensive experience in public policy and governance will bring invaluable support and guidance to our business. This appointment further reinforces our commitment to strong corporate governance. In addition to Mr. Kher's appointment, I'm very thrilled to announce the elevation of my colleague, Mr. Amitabh Jain, our COO; and Mr. Himanshu Walia, CMO, to the Board of Executive Directors, of course, subject to regulatory approvals. They have been instrumental in steering this company handling various business functions over the last few years. I, again, thank you all for your continued trust in Star Health Insurance. With that, I'm happy to now open the floor for your questions. Thank you very much.

[Operator Instructions] The first question is from the line of Shreya Shivani from CLSA.

I have 3 questions. Sorry, I missed the part on fresh and renewal growth. Did you say 98% persistency in renewal and retail business? Can you give the breakup of your premium growth into fresh and renewal once again? My second question is on reinsurance treaty. It seems like your reinsurance ceded is down to 4%. So this number has been quite volatile over the past couple of quarters. So can you help us understand what is the new treaty that started from this quarter because probably this is one of the reasons why your commission expense has also been slightly higher. And my last question is the basis your public disclosure data. It's on your claim rejection ratio that I was seeing. So there has been quite a significant improvement over there. It's down to about 11% on volume basis in FY '25. I don't have the 1Q '26 numbers. So can you help us with 1Q '26? And how much more improvement can possibly come over here because while you guys have improved, this is still slightly higher than some of the other players in the industry. So these are my 3 questions.

Thank you, Shivani. Let me just reiterate. New business has grown in retail for us by 25% on an end basis. And our GWP persistency is 98% on a value basis, as you rightly put it. So we continue to have a very strong performance on new business, and we hope to maintain this momentum in the months forward as well. As far as our claims rejections are concerned, see, as a principle, we have been always quite clear that all genuine claims will be paid, and we have been doing that. Our business mix is quite different from rest of the players in the industry. So we are a 95% retail-oriented business, which has its terms and condition, which is different. So we are continuing to see good traction in our claim settlement ratios, and also our rejection rates are going down. And we hope to improve as we go forward with the multiple measures we are taking. As far as the reinsurance is concerned, lastly, the obligatory session that is available right now, we used to have a treaty last year, which we have exited, or Nilesh, you want to add anything more?

Yes. So, Shreya, a long-term treaty, basically now the reporting is on 1/N basis, we have not [indiscernible] the long-term treaty. But here again, I'd like to reiterate that, that is where IFRS cuts important because with any 1 time reporting, the last results are not comparable to the current year. That's the reason we have moved to IFRS basis where both the commission paid and the reinsurance commissions are based on the policy period basis. All the decisions that we are taking are based on IFRS financials.

Got it. Yes. Okay. Okay. I understood. So on the long-term policies, we don't have any reinsurance treaties, only the only obligatory part is there? Is that the correct way to understand this? Only the obligatory 4%, 5%?

Yes.

The next question is from the line of Madhukar Ladha from Nuvama Wealth Management Limited.

Sir, our loss ratios continue to sort of remain elevated despite we've taken a lot of price corrections on the retail portfolio, yet on a lower over-year basis also, our claim ratio continues to be on the higher side. So I wanted to get some sense of is there any sort of abnormality in this quarter? Or are we being more on the conservative side given what we saw last year happen over here. Second question. On the digital side, how much of the business that you've acquired is through your own digital channel and how much is it from partners like PolicyBazaar, et cetera? And third, our underwriting profit under IFRS is lower than our [indiscernible] IGAAP underwriting profit. Is that mainly because in the previous quarter, we have written a lot of business and the amortization of acquisition cost is happening right now? Yes, these would be my 3 questions.

Thanks, Madhukar. And as far as the loss ratios are concerned, let me answer that. If you look at the trend in our loss ratios, we are seeing some improvements quarter-on-quarter. But all the measures that we have taken in terms of price corrections, in terms of our underwriting strategies and also in terms of recalculating certain businesses that probably there were some mistakes in the past, which we have exited. So I think these are the corrections that will flow over a period of time into the books, and I'm very, very confident that the loss ratios will improve going forward. But having said that, the focus of the business is not only on the loss ratios, but also to grow profitably and also to ensure that the customer experience becomes better and better. So I hope that we will be able to deliver all the 3 areas consistently. To answer your second question on the share of business between digital, direct and partners, it's around 70-30, 70% of our business is digital direct and 30% is coming through our partners. And as far as the underwriting profits are concerned, you are right, I mean, you kind of answered the question. The growth of business, new business, which has been demonstrated in the last few quarters, will flow into the earned premiums in the quarters ahead. And definitely, the underwriting profits should get better. So it's a function of both the premium growth as well as the improvement in loss ratios, which will help us improve our underwriting profits.

The next question is from the line of Dipanjan Ghosh from Citibank.

Am I audible?

Yes, sir, you are.

Yes. Sir, just 3 questions from my side. First, in terms of the persistency number that you have given, would it be possible to give some clarity of the persistency across customer behavior or cohorts for the segments where you have taken price hikes over the past 6 to 9 months? I just wanted to get a sense of the quality of persistency out here. Second question is on the claims ratio part. While you've given the retail health claims ratio number, and I know that your price hikes normally take around a year or more to flow through to the NEP, but even just for the first 6 to 9 months, if you can give the claims ratio or some quality to understand the claims ratio increased on Y-o-Y basis for the cohorts where price hikes have taken versus others and a similar reference for FY 2025. And lastly, on the claims part, in terms of the rise on a Y-o-Y basis, how much would it be driven by medical cost inflation? And how much would we by claims frequency or intensity? So those are 3 questions.

Okay. Thanks for the question. Let me just answer the persistency part, and I will request my colleague, Amitabh, to answer the other 2 questions. On the persistency, I would say that given my knowledge of the industry, Star Health has probably the best persistency in the business as we have always demonstrated very high persistency rates in terms of value and both volumes. As far as value is concerned, we have 98% persistency on value. But in terms of -- even on volume, we have seen high levels of persistency upwards of 84%, 85% in terms of volume. So given a large base, I think this kind of speaks very highly about how customers perceive our services and the trust in the brand that they have. And we take persistency very seriously. And we are also seeing good traction in our various cohorts of customers in terms of R1, R2, we track them, obviously, a different cohorts, claimants, non-claimants, geography-wise, channel-wise. And in all the parameters, we are seeing an upward trend. We can have a separate discussion on one-to-one basis with you in case you want to get more deeper into it. Amitabh?

Yes. So your point on loss ratio movements. So if you look at last year, Q1 was higher by more than 350 basis points over Q4 of the previous year, whereas this year, the increase has been less than 100 basis points in quarter 1 over quarter 4. So if you look at the last few quarters, we are getting more stable, and the trend is improving, and we hope to continue that trend, and we expect to improve further. As far as combination of what has caused the increase, that is always a mix of frequency and severity. The good part is that we are seeing better trends on frequency. Severity also is more or less in line with our expectations. So we hope to be controlling the portfolio going forward more and more on expected lines.

Got it. Sir, just one small follow-up on the second part. In terms of the claims ratio, between products where price hikes have been taken versus products where price hikes have not been incurred. Any color on the trajectory of claims issue in these 2 different product baskets?

Yes. So see, as you, yourself, mentioned, that it takes time for the earned premium to start showing and bringing the LRs under the targeted numbers. What is also very important to look at is that the granular underwriting approach that we've taken in terms of focusing on various profitable cohorts and micro segmentation of the market. On those cohorts, we are seeing very healthy growth in our business mix as well as the growth of some of the unprofitable segments. So that is also driving the loss ratio, and full effect of that will come over a period of time.

The next question is from the line of Avinash Singh from Emkay Global.

A few questions. The first one would be, again, on a trend, the trend that, I mean, anecdotally and some commentaries from some of the lenders and all. It seems like there is a kind of a divergence in terms of how things patients flow are whereas large corporate hospitals continue to see good kind of growth across all the parameters, whereas the smaller nursing home or the shops are seeing challenges now. In terms of, of course, you have been taking price hikes, but if this trend continue in terms of your continuous sort of incremental flow going towards the bigger corporate like hospital, I mean, do you think -- or do you see like some of the trend is stable, so that your current price hike to be taking care of that? Or there could -- and what else could be your kind of incremental move? If this trend continues because that will kind of going to have impact on the average claims cost, a similar kind of problems going to a smaller nursing home versus going to large corporate hospital. So what are kind of your measures that can kind of address this -- if at all that? And of course, you can also tell that the trend is there or not because, I mean, I will have a limited any total point on what I seeing, that's one. Second, in terms of the first versus the renewal this year more of, I would say, data keeping request this fres and the renewal retail premiums, if you can help, I mean, separately in touch, the absolute numbers in terms of the quarterly trends, these premiums because many of the because this 1/N has come into picture, and then there are certain other things mixed up. The actual number looks a bit difficult because for the quarter, the number says 25% fresh retail growth despite a 97.7% kind of a premium persistency. But based on that, because the last year same quarter, your premium persistency were lower. So I mean, what I'm getting is the higher base number for the fresh last year. So if you can just help with the absolute number kind of if you can provide.

Yes, Avinash, thank you. Definitely, we can provide that off-line to you. As far as your first question is concerned on the trends in utilization of services of large corporates versus regular hospitals, let us accept that people buy insurance so that they can go for higher quality of treatment than they would have otherwise been able to afford from their pockets, okay? So that is one of the main reasons why people buy health insurance. And so I think that is -- to be fair to the consumers, we do look for the options. But having said that, how are we mitigating our business outcomes with this trend? We see that -- as I spoke in my speech, the company has very, very granular risk-based pricing now. All our products are based on zones pricing. So customers in higher zones obviously pay higher premiums to match that trend. And similarly, there are now products which are also having facilities like network-based discount. If customers so choose that they want to have an affordable premium, they can opt out of certain network of hospitals and take a lower premium, which is more affordable. So all these options are available to consumers. Ultimately, it is what the consumers want that we have to solve for. And we are making our products and pricing strategies to reflect that trends.

Yes. And just a quick follow-up on this,I mean, so how are you seeing the traction of that product or other rider that kind of allows the premium to reduce by excluding a certain set of hospitals? Is that traction? I mean, if you can quantify, I mean, how has been that traction, where I mean a customer can choose to sort of buy and add the rider that excludes certain hospital and premium become affordable because there have been kind of, I would say, again here, a bit of a divergent commentary, some of the large distributors saying that there's a good traction, whereas some insurers saying that no, that is not really seen, so what is your experience on that front.

So see, we launched this Flexi rider only about a couple of months ago. So we still don't want -- I mean, still it's too early to comment as far as our business is concerned. But what we are doing is we are obviously promoting that as a concept. And if the customers will choose it, he or she can opt for it. While we do that, you are aware that there are multiple other efforts going on at a larger level, both at the company side as well as on the industry side to create some kind of discipline in hospital in terms of the pricing and in terms of protocols and so on and so forth. I hope that as the days go by, things will become better in that management as well.

The next question is from the line of Aditi Joshi from JPMorgan.

Yes. In the comments, I think you have shared that the share of Super Health Assure, in the new business is roughly around 80%. But are you also able to share the portion of those policies in the already written business? And in the existing book of policy, if you're able to share the portion of other products, let's say, Family Health Optima, if that's possible? And the second question is, again, if you're able to share the number of multiyear policies in the new business as well as the already existing business, that will be helpful. Yes, that's all for me.

Yes. Thanks, Aditi, for that question. In my speech, I said that Assure and Super Star combined contribute 80% of our new business. If you want product level data, we are one of the few companies that is publishing product level data on our public disclosures. We can share it with you. So that is not a problem. As far as multiyear policies numbers are concerned, multiyear policies on the retail side now contributes 8% of our overall volume. In terms of value, it is obviously higher.

So just to follow up. On the multiyear 8% share, is it the new business you're referring to?

Yes, yes. Sorry, what did you ask?

In the new business or in the fresh business, what is the share of multiyear policy? Is it 8% based on the fresh data?

No, no, no. That is our total business. New business is around 30% in terms of number of policies.

The next question is from the line of Sanketh Godha from Avendus Spark.

Anand, we have been following IFRS profit. But if I exclude, obviously, mark-to-market gains from IFRS, then we see that actually in your IFRS, the profit has deteriorated a little higher compared to what you have reported in the accounting profit because it has slowly declined by 18 percentage. If I exclude mark-to-market, it has declined by 31 percentage. So given you are getting that benefit, still the pain point seems to be claims. So obviously, again, it circles back to the same point, but that on claims, any respite we can see in foreseeable future? And if it is, how it will play out?

I'll ask Nilesh to answer, Sanketh, but before that, I just want to again reaffirm that we are as an organization now tracking only IFRS reporting numbers because we believe that is a true reflection of our business, but I'm requesting Nilesh to answer more.

So Sanketh, Q1, you are excluding MTM gain, for Q1 '25 also have exclude MTM gains to have a better comparison. One more point to stress is, if you see our portfolio mix, it has moved 17.5% when it comes to equity, ETF, AIF.. So there is a lot of interest income also on that. You cannot completely exclude the MTM gains. So even if you had 2.5% as the income of that, you will clearly see that there is a good improvement in the IFRS results like-for-like compared to last year. So you'll have to consider all the factors.

Sir, actually -- but when I did that math, I excluded MTM gain in 1Q FY '25, too. But I understand that if you are structurally moving towards more equity, and then benefit is real, then you can factor in the gain. But the reason I'm asking is that typically, MTM is not appreciated by TheStreet, it profit is driven by MTM. Excluding MTM, it seems to be still weak. That's the reason I kept -- I asked that question in the sense.

So excluding MTM also, we have an underwriting profit. The drop is marginal while the claim ratio has been higher. We have seen a 100 basis point reduction in the expense ratio, which is quite substantial. And all the measures, be it the procurement cost, be it the CAC for digital businesses, be it our manpower cost, we have taken a good reduction over the year, which is helping us in terms of production expense ratio.

Yes. And my second question is, Anand, on discount-based pricing to our portfolio. Just wanted to understand the 2, 3 colors there. Basically, today, have you taken any price hike on any other product in the current quarter? If it is, whether it has been on discount based pricing approach? And can you tell me today how much portion of the book is already more to discount this pricing? And by subsequently, when you take price hikes for other products, if you follow the same approach, by when you feel the entire book will move to discount-based pricing?

So Sanketh, just let me give you the principal here before I get into the numbers. As an organization, we believe that we have to be fair to two populations and insurance. We spoke about this when you met me in person. There are 2 populations? Claimants and non claimants. We have to be fair to both of them, okay, while we are doing our pricing and strategy. And that's why this model of discount based pricing, which is now allowed under the regulations, is also something that we are pursuing. Specifically to your question, have we introduced this and any other product in this quarter, not yet. We are looking at, as I told you an annual price increase. So when the pricing comes up for reconstitution. At that point, we will probably move most of our products into this model. And we are happy to tell you that this model is well accepted in the market and also giving us a desired results in terms of yields and customer retention.