Star Health Insurance struggles continue; What’s up and What do you need to know? 🤦♀️
A detailed🧵⬇️
A detailed🧵⬇️
1/
Financial Performance:
Star Health Insurance reported a weak set of numbers in Q3FY22 (again!), with a claim ratio of ~105%, a combined ratio (money flowing out of the company, including dividends, expenses, claims) of ~135% and a net loss of INR 5.7 Bn
Financial Performance:
Star Health Insurance reported a weak set of numbers in Q3FY22 (again!), with a claim ratio of ~105%, a combined ratio (money flowing out of the company, including dividends, expenses, claims) of ~135% and a net loss of INR 5.7 Bn
2/
India’s OG Health only Insurer saw ~27% GWP (gross written premium) growth in 9MFY22 vs 9MFY21, to INR 77.7 Bn; agency led channel contributed ~78%, and now has 534,000 agents, an addition of 77,000 in 9MFY22
India’s OG Health only Insurer saw ~27% GWP (gross written premium) growth in 9MFY22 vs 9MFY21, to INR 77.7 Bn; agency led channel contributed ~78%, and now has 534,000 agents, an addition of 77,000 in 9MFY22
3/
In addition, the losses in Q3 reduced the available solvency margin, reflecting material decrease in the solvency margins (only 180% in Dec’21, despite a INR 20 Bn capital fund-raise)
In addition, the losses in Q3 reduced the available solvency margin, reflecting material decrease in the solvency margins (only 180% in Dec’21, despite a INR 20 Bn capital fund-raise)
4/
Solvency margins are key (obviously), in case of claims continue to rise; however, the company is in a healthy position, with the expectation of claims normalizing in FY23, the RSM will likely move back up to net-premium based factor
Solvency margins are key (obviously), in case of claims continue to rise; however, the company is in a healthy position, with the expectation of claims normalizing in FY23, the RSM will likely move back up to net-premium based factor
5/
Biz Performance:
Poor Q3 numbers were primarily on account of -
*Overall higher frequency of claims, with Covid-19 wave adding to more normalized non-Covid claims
*Higher severity of claims on account of covid-19 eave led to precautionary measures in hospitals
Biz Performance:
Poor Q3 numbers were primarily on account of -
*Overall higher frequency of claims, with Covid-19 wave adding to more normalized non-Covid claims
*Higher severity of claims on account of covid-19 eave led to precautionary measures in hospitals
6/
The company entered into tie ups with several banks & NBFCs including Federal, South Indian Bank and LIC Housing Finance; management said several digital initiatives led to >1.2 Mn app downloads, with 61% digital policy insurances in 9MFY22 vs 56% in 9MFY21
The company entered into tie ups with several banks & NBFCs including Federal, South Indian Bank and LIC Housing Finance; management said several digital initiatives led to >1.2 Mn app downloads, with 61% digital policy insurances in 9MFY22 vs 56% in 9MFY21
7/
On the distribution front (company strong points), the management indicated that agency led channel continues to remain the largest avenue (~25% growth), with Bianca, digital & online aggregators growing at a faster pace (albeit on a small base)
On the distribution front (company strong points), the management indicated that agency led channel continues to remain the largest avenue (~25% growth), with Bianca, digital & online aggregators growing at a faster pace (albeit on a small base)
8/
Interesting? Going forward?
On a 9MFY22 basis, Star Health’s claim ratio of 94% in Health was marginally better when compared to larger general insurance peers; the company expects claims to normalise in FY23, with RSM expected to touch 183% from 175% in FY22
Interesting? Going forward?
On a 9MFY22 basis, Star Health’s claim ratio of 94% in Health was marginally better when compared to larger general insurance peers; the company expects claims to normalise in FY23, with RSM expected to touch 183% from 175% in FY22
9/
Likewise, the company has the option to utilise reinsurance and issue subordinated debt to shore up RSM, which gives enough levers before the company needs to look for an equity fund-raise
Likewise, the company has the option to utilise reinsurance and issue subordinated debt to shore up RSM, which gives enough levers before the company needs to look for an equity fund-raise
10/
Star Health has the advantage of being present in the health insurance industry, which is likely to throw >20% in the next decade (led by volumes & prices);
Star Health has the advantage of being present in the health insurance industry, which is likely to throw >20% in the next decade (led by volumes & prices);
11/
From a profitability perspective, returning to Pre-Covid claim ratio of ~66%, leading to a ~95% combined ratio are real possibilities, especially given the outlook post the most recent wave
From a profitability perspective, returning to Pre-Covid claim ratio of ~66%, leading to a ~95% combined ratio are real possibilities, especially given the outlook post the most recent wave
12/
Okay! Final thoughts? Valuations, stock price?
Star Health has built out a strong MOAT (Warren term :P) in a highlighly attractive retail health market, and is well poised to grow profitably over the medium to long term (we believe)
Okay! Final thoughts? Valuations, stock price?
Star Health has built out a strong MOAT (Warren term :P) in a highlighly attractive retail health market, and is well poised to grow profitably over the medium to long term (we believe)
13/
With Omicron turning out to be less impactful as initially expected, and with the management indicating increased momentum in economic activities amid better vaccination coverage & re opening, the company recorded ~17% growth in 9MFY22
With Omicron turning out to be less impactful as initially expected, and with the management indicating increased momentum in economic activities amid better vaccination coverage & re opening, the company recorded ~17% growth in 9MFY22
14/
The stocks is down ~19% since listing, with the market clearly not valuing the current growth/business dynamics; the proof in the pudding will be performance post-Covid-19 business normalization
The stocks is down ~19% since listing, with the market clearly not valuing the current growth/business dynamics; the proof in the pudding will be performance post-Covid-19 business normalization
15/
Keep track of FY23 business play out?
Tell us your thoughts in the comments section.
#sharemarket #stockstowatch
Keep track of FY23 business play out?
Tell us your thoughts in the comments section.
#sharemarket #stockstowatch
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