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 '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Devyanshi Dave from Adfactors PR Investor Relations team. Thank you, and over to you, Ms. Dave.

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

Thank you very much, and very good morning to all of you, and thank you for joining the Star Health earnings call for the first quarter of the financial year '26-'27. Before we get into our quarterly performance highlights, let me acknowledge a very significant milestone in the journey of Star Health. On 18th May 2026, we completed 2 decades of service, helping more than 2.8 crore lives during the last 20 years navigate their health challenges with confidence and financial security. The work of evangelizing the concept of retail health insurance has not been easy. But eventually -- but also, eventually [indiscernible] for the Star Health team. I would like to take this opportunity to thank my team members of almost more than 19,000 employees for their sincerity and hard work over the last 20 years. For those who are interested, Star Health is also the largest employer in the entire general insurance space even while counting public sector companies. So we have a very dedicated and committed team. And when we started, retail health insurance was neither an established product nor a market. However, in the last 20 years, through the hard work of the team members, we are the country's largest retail health insurer. As a category leader, we regard deepening health insurance penetration as both a responsibility and, of course, a very multifaceted growth opportunity. The operating environment for retail health growth remains conducive. Health insurance is the fastest-growing segment within the nonlife space, supported by structural drivers and policy initiatives. The impact of enhanced affordability due to the GST waiver is very evident through category growth with majority of our fresh business emerging from first-time buyers. We report our statutory financials on Ind AS basis, following the regulators' guidelines on Ind AS transition. We have been reporting on this basis voluntarily for several quarters and have consistently maintained it to be the appropriate economic lens for the health insurance franchise and aligned to the global best practices. Coming to the quarterly performance highlights. On the operating performance, as we had communicated last quarter, we will state our business numbers on both reported 1/N and also on N basis. Following are the highlights of our performance for Q1 FY '27. On a 1/N basis, the gross written premium increased 19% Y-o-Y to INR 4,287 crores. On N basis, the gross written premium was INR 4,672 crores, an increase of 19% Y-o-Y again. Fresh retail health GWP increased 37% Y-o-Y to INR 730 crores. On N basis, the fresh retail health GWP was NR1,039 crores, an increase of 35% Y-o-Y. Our new insurance mix was 94% on fresh retail business compared to 90% in the Q1 FY '26. Underwriting results of the company for quarter 1 was INR 111 crores compared to INR 16 crores in quarter 1 FY '26. This marks the fourth successive quarter of improvement in core underwriting profitability, underscoring the consistency of performance. Combined insurance service ratio, CISR, improved by 1.7% from 98.7% in Q1 FY '26 to 97% in current quarter, Q1 FY '27. The investment income for the quarter increased 10% Y-o-Y to INR 644 crores. The profit after tax for the quarter increased 25% Y-o-Y to INR 550 crores. For a right perspective on profitability insulated from short-term mark-to-market volatility, we introduced the concept of normalized PAT from last quarter, pegged at a normalized annual investment yield of 8%. Under the normalized framework, our profit after tax increased 44% year-on-year to INR 386 crores with an annualized ROE increasing from 12.2% in Q1 FY '26 to 15.6% in Q1 of FY '27. On the business side of things, we continue to build a diversified and granular retail franchise. We remain focused on disciplined and prudent risk selection in geographies, segments, channels and products that meet our defined ROE thresholds. Our retail market share was 29% in Q1 of FY '27 compared to 31% in Q1 of last fiscal. This is partly impacted by share of long-term policies and consequent reporting implications on N and 1/N basis, and the like-for-like comparability will be restored only by FY '28. More meaningfully, it also reflects our strategy, a very disciplined focus on preferred segments, prudent underwriting and an avoidance of riskier pools. An update on the distribution network. Our proprietary channels, which is the agency and digital D2C, contributed 90% plus of overall retail business. This proprietary distribution gives us very good leverage over customer selection, quality of sales and economics of acquisition. We continue to scale our industry-leading agency network, adding around 20,000 new agents during this quarter to take the overall count to 8.5 lakh agents, along with 19% Y-o-Y improvement in agent product. Agency is deepening penetration where it matters the most. Fresh business growth from non-metro geographies is 3.5x that of growth in the metro geographies. Digital B2C continues to be our fastest-growing profitable channel. Within overall digital business, 74% of the fresh business now originates from our own B2C platform. B2C fresh business grew 142% year-on-year with 98% of customers being new to insurance. Beyond our proprietary channels, partnerships, bancassurance and alternate channels also stay focused on profitable segments. Within the corporate groups, SME business through agency remains the priority for the company. An update on the underwriting claims and customer-focused metrics. The improvement trajectory in our underwriting profitability is an accumulation of several layers applied consistently: strengthened underwriting, portfolio optimization towards preferred segments, risk-based pricing, reduction of fraud, waste and abuse, and institutionalization of a wellness-based consumer ecosystem. Our home health care and telemedicine capabilities saw significant traction, extending our ability to manage fever and infection-related cases very efficiently, thereby improving customer convenience. As we enter quarter 2, we remain watchful of dengue, malaria, fever and infectious disease outbreaks with our telemedicine services on hand to support the customers at a call. Our consumer-focused metrics continue to demonstrate improvement trends. Our retail claim settlement ratio increased by 1% over quarter 1 FY '26, which now stands at 91% for quarter 1 FY '27. Our renewal ratio increased by 3% Y-o-Y to 102% for quarter 1 of FY '27. Our company-level NPS improved by 12 points to 65 points at June 2026. We settled over 9.5 lakh claims during this quarter, of which more than 80% of claims were cashless through our network of hospitals. Cashless settlement delivers more predictable outcomes for the customers and build a more constructive long-term relationship with our health care provider partners as well. As a responsible retail health insurer, we believe that provider partners and payers jointly share the responsibility to shape a health care ecosystem that is more effective, more efficient and most importantly, more affordable to the customers. The digital and AI investments remains a key strategic initiative for us, and we continue to embed digital across the insurance value chain with clear focus on 3 outcomes: superior risk selection, faster customer service and a structurally lower cost to serve our customers. Our greatest advantage is the proprietary data we have built over the last 20 years. This is a unique asset that is difficult to replicate and provides a significant competitive advantage. Our longitudinal data and in-house analytical expertise are further strengthened through our technology partnerships, bringing global capability to bear on the India data that we have at scale. The intent remains similar, conversion of a few decades of our experience into a durable underwriting and service advantage. On claims, for example, we are processing -- we are in the process of layering generative AI over and above our existing AI/ML analytical layers to drive greater decision of claims operations. Our AI/ML-driven analytics is already showing encouraging results with respect to mitigation of fraud, waste and abuse. Our distribution app, ATOM Pro, was recognized by the Economic Times in the BFSI and FinNext Awards 2026 under the Insurtech Product Excellence of the Year. 97% of our new applications are now digitally sourced. And an always-on work stream continues to enhance the app capabilities. On the customer side, our customer app has scaled to close to 16 million downloads and over 1.5 million monthly active users with wellness initiatives are anchoring the engagement of our customers across the ecosystem. The adoption of self-service features such as renewals, claim submission and also multiple service requests on our app continues to build steadily. In conclusion, before I close, let me place this quarter in context. 18 months ago, we set out on a course correction without recourse to short-term optical measures. FY '26 demonstrated the result through a INR 350 crore upswing in the underwriting profit, and this quarter's result is further evidence that this is being sustained. The results over the trailing 4 quarters are accumulation of a disciplined model built for long-term sustainable and value-driven outcomes. As we look ahead, our strategy rests on 3 priorities: driving sustainable growth and expanding the health insurance penetration by deepening our proprietary distribution channels where we have greater control over customer acquisition, engagement and quality of portfolio. Second, we have to enhance the core underwriting profitability through rigorous portfolio management, leveraging the data and analytics across the risk life cycle to improve our risk selection and claims outcomes. And third, we remain committed to customer centricity, investing in technology-led capabilities to deliver a faster, simpler and more seamless experience across the customer touch points. Together, these priorities will keep us on a path of profitable, sustainable growth, reinforcing our leadership position in India's health insurance market. I have begun by noting that we completed 20 years this year. We believe that retail health in India over the next 20 years will be much larger and more consequential than the last 20. We at Star Health intend to remain the company that families turn to on the day it matters. Thank you for your continued trust in Star Health. With that, we will open the floor for questions. Thank you very much.

[Operator Instructions] The first questions comes from the line of Supratim Datta with Jefferies.

I have 3 questions. Starting with the growth piece. The insurance revenue growth for this quarter was 13.4% versus a GWP growth of 19%. Just wanted to understand that how should one think about the GWP growth translating into the insurance revenue growth over a period of time? If you could give us some color by when this could start converging, that would be helpful. Two, on the loss ratio side, this is the fourth quarter where you have shown a Y-o-Y improvement in loss ratio. Just wanted to understand that what are the levers for loss ratio improvement from here that one could use? And two, if you could give us some color around the telemedicine piece? This is something that you have been championing over the last 2, 3 years. Just wanted to understand how many claims are now settled through this telemedicine versus 2 years back? And lastly, the other key driver of your combined ratio improvement has been expenses. On a 2-year stack basis, it has improved by around 100 basis points. Should one think about further expense ratio improvement from here? Or should it largely stabilize? Those would be my 3 questions.

On the insurance revenue, the growth for the quarter is 13.4%. We believe, is should gradually increase because the growth has an element of long-term policies as well. We believe, we should start touching 15%, 16% as we keep on moving ahead through the quarters. That's one part of it. On the expense ratio, we have continued to maintain that the investment that we are doing in tech and digitization, the focus on efficiency and productivity will ensure that 30 to 40 basis points improvement in the expense ratio is something which we'll get consistently over the year, and that is what we work towards. On the loss ratio and telemedicine...

Yes. So, on the loss ratio, the levers are the same that we've been talking about over the last 1.5 years that it's a combined 360-degree approach that we've taken of improving the portfolio quality, the pricing and on the initiatives on claims, starting from network management to wellness, and like you put, in the teleconsultation piece. So all of this is contributing a bit to the improvement in the loss ratio, and this is what we want to do on a sustained basis. As far as the teleconsultations are concerned, this quarter, we could do about 50,000 of them compared to about 9,000-odd last year. So that's a huge scale-up that we've been able to achieve quarter-to-quarter. Last quarter also, we told you about a significant number. So all of this is coming together now and starting to give us some good results.

That's very clear. Just one follow-up on that. Now that we are getting into a seasonally higher claim period because of vector-borne diseases, just wanted to understand what are the trends that you are seeing. And if you could give us some color, that would be helpful.

Yes. So, as you rightly said, this is a season where these medical infectious diseases go up, and that's happening this year as well. So it's going to be seen. But as I said, given our focus on wellness and especially teleconsultation and home health care, we seem to be on track in terms of whatever we expected as outcomes.

Next question comes from the line of Avinash Singh with Emkay.

Good set of numbers. A few questions. The first one is, the new fresh premium growth looks pretty impressive. Now, probably from H2, as the GST thing comes into base, how do you see this to play out? I'm asking this because probably fresh premium growth is also one piece that is kind of helping in terms of the claims ratio because the fresh premium growth typically comes at a lower claims ratio. So that's -- I mean, how do you see this fresh premium growth trend to continue in H2? So that's one. Second piece is on pricing. Now, things are kind of looking on track. So, of course, there will be typically your action depending upon age cohort and all. But now, as the regulator anyway has permitted to take pricing action on an annual basis as and when we feel kind of necessary, so are you kind of taking that pricing action in some of the cohorts? Or is it like right now, pricing is adequate and just like age band-led cohort pricing changing? And thirdly, typically, I mean, what would be the kind of ballpark number for losses or claims ratio share from this dengue, malaria, chikungunya in, say, Q2 and on an FY basis, typical?

So Avinash, yes, post the GST waivers, definitely, there was jump in the growth rates for the entire industry and for us as well in H2 of last year. So we do see some moderation in growth, which will happen. But I think our strategy of focusing on acquiring business with certain set objectives in certain markets will continue. So share of fresh business, hopefully, we will be able to sustain even after that. Maybe the growth rate optically may definitely moderate for everyone, including for Star Health. As far as the pricing strategy is concerned, we continue to focus on an annual price strategy wherever it is required. Obviously, it has to be justified product by product in terms of actuarial evaluation and stuff. So, that will continue. And while we do the pricing strategy, we will try to give benefits to non-claimants through some discounts, which we are trying to bring in. And as far as the loss ratio is concerned, Q2 generally is a higher loss ratio for health insurance business, as you are aware. So we expect the same trends to continue this year as well.

Next question comes from the line of Swarnabha Mukherjee with 360 ONE Capital.

Congrats on a good set of numbers. So sir, I just wanted to understand the comment you made related to the 30, 40 basis point continued improvement on the loss ratio. So just if you could highlight what are the levers that you have because we have already seen like, I think, over the last 4 quarters, between 100 to 300 bps kind of improvement on a year-on-year basis. So, over and above this 30, 40 bps, which levers are you pressing to get that? And previously, also -- if you could maybe give us some indication that of the drop, how much has been impact of -- some ballpark contribution of, say, severity reducing, frequency reducing, FWA reducing and new-to-insurance customers coming in, all these parameters, which has been a larger contributor, if you can give some color. So that is one. Second is, the acquisition expense, if I were to look at as a percentage of insurance revenue, that has remained fairly stable. Now, I mean, how should we think about it? Is there any efficiency that can be generated from this side in terms of combined ratio, if you could highlight? And in light of any impending regulatory action that is there on the commission side, do we expect to see any benefit coming out of this? This is the second. And thirdly, sir, I also wanted your view that at a steady state, I mean, excluding any kind of seasonality that is there, on this Ind AS basis, how should we think about the ROE profile of our business? Yes, these will be my questions, sir.

Swarnabha, let me clarify. I think the comment made by Nilesh was not about loss ratio improvement. It was about expense ratio improvement through the investments we are making in technology. We are not giving any guidance for loss ratio improvement. That's point one. As far as acquisition costs are concerned, Star Health is probably the only company in the SAHI space which is already operating within the expense of management limits set out by the regulator. And we keep improving that. But we will await and see what the regulatory guidelines are. Then, we will be able to maybe give you better clarity on our strategy as far as acquisition expenses is concerned. Ind AS ROE, we are already declaring it very transparently in our investor deck, both on the investment piece, as well as on the underwriting piece. Any particular clarification you have on that, you can reach out to us separately. We'll try to give you that.

Okay, sir. Got it. If you could -- I mean, on the component of loss ratio improvement, if you can give some broad color on which are the major levers, that would be helpful.

So like I said in the earlier question that it's a 360-degree approach, right? So there are bits of all of them coming together, so whether it's repricing of our portfolio that we started 2 years ago, then the portfolio selection, the mix of business, the geographies that we're focusing, the efficient claims management in terms of better cost control and overall governance on claims, and of course, the big piece on wellness and telemedicine, the way we have executed. So all of that is coming together now, and it's showing up in the loss ratio improvement. Specifically for this quarter, obviously, it will be the impact of telemedicine that will be there because we do see an increased incidence of infectious disease that happen. So, that component might play out more.

To avoid the impact of mark-to-market, that is why we are talking about normalized PAT, to avoid this volatility in our PAT numbers, and we will consistently follow it. We started this March '26.

Right. No, I mean, sir, what I wanted to understand was that, I mean, given that our -- the actions on the portfolio and the business are now visible, and our profitability levels have materially turned out to be positive, given that there is a seasonality also in profitability across quarter, that's why I wanted your view on ROE. I understand the 1Q numbers that you have put in. But on a steady state basis, that was my query.

On a steady state basis, Swarnabha, we have articulated clearly that all the efforts that the organization is taking to deliver a mid- to high-teens ROE. And structurally, you can see that moving in that direction over the last 3 to 4 quarters. I think that would be our strategy going forward as well. We don't want to give any number in particular, but that is the glide path that we are going towards.

Next question comes from the line of Shreya Shivani with Nomura.

Congrats on a good quarter. My first question is on the reinsurance bit. We don't have the Schedule 6 disclosure. I just wanted to understand the biggest change in our expense ratio that we have seen, the delta on Y-o-Y basis has actually come from reinsurance. So how will that as a percentage move through the quarter, given that if you write more group, probably you'll be reinsuring more? Or are we -- should we take the first quarter reinsurance expense and that should be the steady state for the remaining 3 quarters? Sir, and my second question is on the growth outlook in terms of -- you repriced -- now you're repricing your products annually. So how much portion of your products get repriced in the first quarter? Or is it fair to say that through the year -- given that you have a larger retail book, through the year, your policies keep getting repriced? Those would be my 2 questions.

On the reinsurance piece, if you remember, we had done voluntary [indiscernible] treaty in '23-'24 and '24-'25, which was a 3-year long-term -- I mean, treaty for long-term business. The impact of the treaty is fading out, and we are getting some benefits. And hence, this impact should keep on going down. On the obligatory side also, we are trying to negotiate with GIC Re. And we believe there should be some benefits coming out of it during the year as well. So reinsurance costs, as a business, will keep on coming down for us.

So pricing, basically, we have a set calendar on which we work. This is the last pricing that we took in a particular product, and that is something that works out during the year. And that is what will happen in this year as well. So I mean, it's very well done in terms of actuarially finding out which are the products to take up and the ones which are already done basis the annual pricing getting over, that's when we take it up.

Right. So it is fair to say, right, through the year, you will have a repricing -- some portion of your book will keep repricing through all the 4 quarters, right?

See, whatever pricing impact we take, for example, something we did in Q4, okay, the earned premiums will anyway show up during the subsequent quarters. So the impact of a price change plays out any which way during the year. But specifically, on a product that we take up, most of our pricing action of late has been in Q4 over the last couple of years.

Right. Because the customer gets a grace period, so it will happen through the coming quarters, but most of the actions you're taking is in 4Q. Okay.

Next question comes from the line of Nidhesh Jain with Investec.

The first question is on acquisition cost and trying to understand the acquisition cost better. So in the acquisition cost, I see 3 parts. One is employee expense, commission expense and other expenses. So do we allocate entire employee expense in the acquisition cost? And what is the rationale for that, if that is true?

See, employee expenses now are in 3 parts. The claims-related employee cost is part of the claims. The sales-related employee cost is part of acquisition cost. And all the support services, which are not directly related to sales or claims is part of the other expenses. So it is not that entire employee expense is going there. It is split into 3 parts. That's how we are doing it, and...

Yes. This other expense is below the acquisition cost, the line item, which is other revenue and expense. And that also, there's employee cost, right?

Yes.

Sure. And how do you see insurance revenue growth for FY '27-'28? I think GDPI growth is quite healthy at [indiscernible], but insurance revenue growth is at around 13% for the quarter. So how do you see the trend for FY '27 and FY '28 in terms of insurance revenue growth?

As we mentioned, the growth in business includes a portion of long term also. So the insurance revenue growth is nothing but the GEP on 1/365 basis, which will keep on following the growth in the top line. So we'll see a 15%, 16% growth going forward throughout the year, and it will keep on increasing in '28 as well.

Okay. Sure. And third question is, what is the share of fresh in insurance revenue for quarter 1 FY '27 and versus full year FY '26?

So we have maintained that the share of fresh and renewal is around 20/80. So that is what -- it reflects in the insurance revenue as well.

I believe the share of fresh would have been increasing, right, because fresh growth is very strong for last many quarters.

Yes, the fresh growth is strong. As I mentioned, it's a portion of long term also which is coming through. That's not immediately recognized. It will recognize over a 2-, 3-year period. So it's gradually [indiscernible].

Okay. And the loss ratio improvement that we are seeing, almost 100 basis points loss ratio improvement, how you divide that in terms of loss ratio improvement in the fresh business versus the renewal business? Are we seeing similar 100 basis points in both? Or one segment is driving more? And if you can give some color on that?