Star
Health and Allied Insurance Company is the largest private health insurer in
India with a market share of 15.8% in the Indian health insurance market in
FY2021 in terms of Gross Written Premium (GWP). The company was the first
standalone health insurance company established in India in 2006. With the
comprehensive health insurance product suite, the company insured 20.5 million
lives in FY2021 in retail health (89.3% of total health GWP) and group health
(10.7%).
The
company is strategically focused on the retail health market segment and had
retail health GWP of Rs 8215.09 crore in FY2021 and Rs 4339.92 crore in
H1FY2022 and consistently ranks first in the retail health insurance market in
India based on retail health GWP. In FY2021, retail health GWP was over three
times the retail health GWP of the next highest retail health insurance market
participant, positioning the company well to continue to grow business and
market share.
The
company offers a range of flexible and comprehensive coverage options primarily
for retail health accounting for 87.9% of total GWP in FY2021, group health
10.5%, personal accident 1.6% and overseas travel 0.01%. The products target a
variety of customer segments, including individuals, families, students, senior
citizens, as well as persons with preexisting medical conditions across the
broader middle market customer segment.
The
products include family floater products, in which the sum insured covers the
entire family on the payment of a single annual premium; individual products,
which are tailored to the needs of the individual; and specialized products,
which focus on customers with pre-existing conditions after accounting for
associated risks. From FY2018 to September 2021, the company has launched 56
new products.
The
senior management team includes founders, Venkatasamy Jagannathan (Chairman and
CEO), Subbarayan Prakash (Managing Director) and Anand Shankar Roy (Managing
Director), who have been with the company since the first year after inception.
Venkatasamy Jagannathan has over 47 years of experience in the insurance
industry and prior to founding the Company, served as Chairman and Managing
Director of United India Insurance Company and is currently serving on the
Insurance Regulatory and Development Authority of India (IRDAI) advisory
council, a position which he has held since its inception. Subbarayan Prakash
has many years of experience in the health insurance industry and prior to
founding the company, was a practicing general surgeon and has been instrumental
in creating large health insurance hospital network. Anand Shankar Roy is an
expert in the health insurance business with over 21 years of experience in the
health, non-life insurance and banking sectors and manages sales, distribution,
and marketing.
The
company distributes its health insurance policies primarily through individual
agents, which accounted for 78.9% of GWP in FY2021. Individual agents are the
primary method of distribution in the health insurance industry, since health
insurance is largely an assisted product in which customers often require help
in selecting the policy best suited to their needs and during the claims
process. The total number of individual agents grew at a CAGR of 27.3% from
0.29 million end March 2019 to 0.46 million end March 2021 and rose to 0.51
million end September 2021.
The
agency distribution channel also includes corporate agent banks, which
accounted for Rs 220.92 crore of GWP in FY2021 and Rs 141.54 crore in H1FY2022.
Other corporate agents accounted for Rs 19.1crore of GWP in FY2021 and Rs
31.8crore in H1FY2022.
The
company has led the non-public health insurance market in terms of number of
new branch openings since FY2018. Its distribution network had grown to 779
health insurance branches spread across 25 states and 5 union territories in
India. The existing branches are also supplemented by an extensive network of
over 562 Sales Managers Stations (SMS), which are small individual service
centres, and over 6,892 in-house sales managers end September 2021. The other
origination channels include distribution by direct online sales through
telemarketing and website, brokers, insurance marketing firms and web
aggregators.
The
claims process is the most sensitive part of a customer experience with health
insurance and entirely in-house claims management capabilities of the company
are a key part of its customer service proposition. It enables to reduce the
costs associated with the claims process, improve the accuracy and
cost-efficiency of the actual claim amounts, and better detect fraudulent
claims.
The
company employs technologies during the claims process, which proactively
assists customers through every stage of a cashless claim. The investments in
digital technologies, data platform and automation will continue to be key
drivers that improve the effectiveness, efficiencies and innovations within
business. The company has invested in advanced technologies to develop a
flexible and integrated information technology platform across business
processes. It has also actively focused on streamlining the underwriting and
claims processes for customers through proprietary information systems.
The
company has successfully built one of the largest health insurance hospital
networks in India, with 11,778 hospitals end September 2021. It has entered
pre-agreed arrangements with 7,741 hospitals, or 65.7%, of the total number of
hospitals. The agreed hospital network enables to monitor the quality of
medical service provided to customers and provides access to competitive pricing
at attractive, pre-negotiated rates, which lowers claims costs and increases
customer engagement. These agreed network hospitals typically offer better
negotiated package-based pricing and the average claims amount in these
hospitals is typically lower than average claims amount in non-agreed network
hospitals, which has a positive impact on claims ratio and profitability.
The
company had a solvency ratio of 1.52x end September 2021, compared to the IRDAI
prescribed control level of 1.50x.
The
Offer and the Objects
The
initial public offer (IPO) consists of a fresh issue to raise Rs 2000 crore
issuing 2.30 crore shares at lower price band of Rs 870 per share and 2.22
crore shares at the upper band of Rs 900 per share.
Further,
the offer of sale (OFS) comprises issuing 5.83 crore equity share to raise Rs
5074.21 crore at lower price and Rs 5249.18 crore at upper price band.
The
issue is to be made through the book-building process and will open on 30
November 2021 and will close on 02 December 2021.
The
company proposes to utilize the net proceeds towards augmentation of its
capital base and maintenance of solvency levels. Further, the company expects
to receive the benefits of listing of the Equity Shares, including to enhance
visibility and brand image among existing and potential customers.
Among
the promoter group, Safecrop Investments India LLP (offered 3.07 crore equity
shares for sale), Konark Trust (0.01 crore shares), MMPL Trust (9518 shares)
are looking to dilute their stake in the company. Other investors selling their
stake include Apis Growth 6 (0.77 crore shares), Mio IV Star (0.41 crore
shares), University of Notre Dame Du Lac (0.74 crore shares), Mio Star (0.41
crore shares), ROC Capital Pty (0.25 crore shares), V Jagannathan (0.10 crore shares),
Sai Satish (0.05 crore shares) and Berjis Minoo Desai (0.01 crore shares).
The
promoters and promoter group shareholding at 66.22% would decline post issue to
58.3%.
Strengths
The
company is the largest private health insurance company in India with
leadership in the attractive retail health segment. The company has overall
health insurance market share at 15.8% and strong retail health insurance
market share at 31.3% in FY2021. The company has issued highest health
insurance policies during last three years.
The
overall retail health insurance market share by GWP, increased from 28.6% in
Fiscal 2019 to 31.3% in FY2021.
The
company has the largest number of individual agents among standalone health
insurance companies.
The
retail health segment in India is expected to emerge as a key growth driver for
the overall health insurance market due to its lower claims ratio of 73%, as
compared to government health and group health with claims ratios of 92% and
99%, making the retail health segment more attractive from a profitability
perspective, since lower claims results in higher profitability.
The
retail health insurance segment, which accounted for 9% of the total number of
lives covered by health insurance in India in Fiscal 2020, contributed 45% of
the total health GWP generated in the overall health insurance market in
FY2021. This was primarily due to higher premium per person for retail health
compared to other health insurance segments.
The
low penetration of health insurance, high out-of-pocket expenses for healthcare
costs and only 10% of the population having insurance policies outside of
government plans, provides growth opportunities.
The
Indian health insurance market penetration is only 0.36% of GDP in 2019, compared
to the global average of approximately 2.0% of GDP. India has one of the lowest
health insurance densities globally, based on per capita premium, at US$5 in
2019. A number of demographic factors, including increasing life expectancy and
population growth in India, as well as the high portion of out-of-pocket
expenses as a percentage of total healthcare expenditure by patients in India
(62.67% in 2018), are driving the need of healthcare services and the growth in
the health insurance industry in India.
The
company has recorded strong growth in retail health GWP at a CAGR of 32.5% from
FY2019 to FY2021. It well positioned to continue to capitalize on ongoing
market dynamics in the retail health insurance sector with size and established
market share.
The
company has one of the largest and well spread distribution networks in the
health insurance industry and an integrated ecosystem that enables to continue
to access the growing retail health insurance market.
The
company has a pan-India distribution network and maintains diversified channels
of distribution to complement agency network, which include distribution by
direct online sales through telemarketing, website and interactive
applications, brokers, insurance marketing firms and web aggregators.
The
company has a diversified product suite with a focus on innovative and
specialized products.
The
company has successfully built one of the largest health insurance hospital
networks in India, which plays an important role in loss ratio performance and
efficient service delivery. The hospital network includes 11,778 hospitals,
65.7% of which had agreed packages.
The
company has made substantial investment in technology and innovative business
processes. Investments in information technology in digital technologies, data
platform and automation are key drivers that have improved the effectiveness,
efficiencies, and innovations within the business.
Combined
Ratio has historically been stable, amounting to 94.3% in FY2019 and 93.2% in
FY2020. In FY2021, Combined Ratio increased to 114.8% primarily due to certain
exceptional accounting adjustments primarily related to withdrawal from a
reinsurance treaty in FY2021, and the exceptional impact of the COVID-19 crisis
in FY2021.
The
company is supported by Promoters, which include Rakesh Jhunjhunwala, Safecrop
Investments India LLP, and WestBridge AIF I.
Weaknesses
The
recent global COVID-19 outbreak has significantly affected business with an
increase in claims across network, most recentlyduring the resurgence in
COVID-19 cases in April and May 2021.
The
company has incurred losses in FY2021 and H1FY2022.
The
increase in net paid claims due to the COVID-19 accounted for 30.0% of total
net paid claims by value in FY2021, primarily due to the increase in COVID-19-related
claims and the decrease in non-COVID-19-relatedclaims due to lockdowns and
other restrictions. Net paid claims due to the COVID-19 accounted for 41.0% of
total net paid claims by value in H1FY2022.
The
business depends on the accuracy and completeness of information provided by
customers and counter-parties for pricing and underwriting insurance policies,
handling claims and maximizing automation, the unavailability or inaccuracy of
which could limit the functionality of products and disrupt business.
Health
insurance business is exposed to the risk of catastrophes such as a pandemics
or other catastrophic events that cause many hospitalizations.
The
discontinuance of the voluntary quota-share treaty reinsurance treaty and the
change in method of accounting for Unearned Premium Reserves has materially
impacted financials in FY2021.
The
health insurance industry in India is undergoing rapid and significant
technological change. Any failure to continue to adapt to technological change
and the evolving use of data in the health insurance industry in India, could
adversely affect ability to maintain or increase business volumes,
profitability, and market share.
The
solvency ratio was 1.52x, which is slightly above the regulatory requirement of
1.5x.
Failure
to accurately estimate incurred medical expenses or the frequency of claims as
compared to the assumptions and estimates used in the pricing of products, or
failure to effectively manage the medical costs or related administrative
costs, could have a material adverse effect on the business.
A
significant portion of business is generated from the retail health insurance
sector accounting for 87.9% of GWP in FY2021 and any adverse trends and other
developments that may affect the sale of retail health and other insurance
products may hurt business.
The
retail health insurance sector only accounts for 9% of the total number of
lives covered by health insurance in India in FY2020, and the continued growth
of the retail health insurance market could be affected by government
regulations or changes in consumers preferences towards government health and
group health insurance products.
Credit
risks related to investments may expose to losses.Investment portfolio is
subject to liquidity risk which could decrease its value. About 98.4% of total
investment assets were invested in fixed income assets and mutual funds.
Insurers
are obligated to invest a minimum of 30% of total investment assets in central
and state government securities and other approved securities, including a
minimum of 20% in central government securities.
The
business is subject to extensive application of laws and is under active
supervision of the IRDAI and other regulatory and/or statutory authorities of
India.
The
business is vulnerable to misconduct and fraudulent activities by employees,
customersand third parties.
The
business is a highly competitive and subject to intense competition from
non-life as well as standalone health insurers. Competition in the health
insurance industry in India is affected by many factors, including brand
recognition, customer satisfaction, distribution network, pricing, product
design, financial strength, a professional team and information technology
capabilities.
The
insurers have an obligation to underwrite business in rural and social sectors
with at least 3.5% of the total Gross Direct Premium Income for each financial
year must be from the rural sector and 5% of the total number of human lives
underwritten in each financial year in the social sector must be from rural
sector.
The
company has Rs 650 crore of outstanding debt liabilities end September 2021.
Promoters
do not have adequate experience and have not actively participated in the
business activities undertaken by the company. Promoters are financial
investors and only became promoters in FY2019.
Valuation
Star
Health and Allied Insurance Company is the largest private health insurer with
15.8% market share in the overall healthy industry. The company has strong
retail health insurance market share at 31.3% in FY2021. The company has issued
highest health insurance policies during last three years. The company has been
consistently improving its overall health insurance industry market share from
10.9% in FY2018.
The
company has posted net of loss of Rs 825.58 crore in FY2021 and Rs 380.27 crore
in H1FY2022. In FY2021, the company incurred certain exceptional expenses in
relation to the discontinuance of a voluntary quota share treaty (VQST) for
health on a clean-cut basis with effect from 1 April, 2021 resulting in an
additional reserve of Rs 437.12 crore with a corresponding increase in loss
before tax and reduction in reserves and surplus as of 31 March 2021 in
accordance with IRDAI regulations. The impact of withdrawal from the treaty
resulted in an impact of reinsurance – portfolio entry on revenue account of Rs
483.27 crore in FY2021. In addition, as a result of the COVID-19 crisis, the
company has seen an increase in COVID-19-related claims across its network amounting
to gross paid claims of Rs 1528.64 crore in FY2021 and Rs 1786.47 crore in
H1FY2022.
Net
Incurred Claims Ratio increased to 87.0% in FY2021 compared to 64.2% in FY2019
and 65.8% in FY2020, while it remained higher at 88.2% in H1FY2022. Combined
Ratio galloped to 114.8% in FY2021, compared to 94.3% in FY2019 and 93.2% in
FY2020. Combined Ratio increased to 119.2% in H1FY2022.
The
company had conducted preferential allotment of shares amounting to 2.88 crore
share at an issue price of Rs 488.96 per share raising Rs 1407 crore on 30
December 2020 and another 2.49 crore share at a same issue price of Rs 488.96
raising Rs 1216 crore on 31 March 2021.
In
December 2020 preferential allotment, the promoter Safecrop Investments India
LLP was issued 1.66 crore share, while it has offered 3.07 crore equity share
for sale in the IPO through OFS. Among the promoters group, Konark Trust was
issued 1.14 lakh shares and it is offering 1.38 lakh shares for sale. Among
selling shareholders, Apis Growth 15 was issued 28.30 lakh shares, while Apis
Growth 6 is offering 76.8 lakh equity shares for sale. Another selling
shareholder, MIO IV Star was issued 12.78 lakh shares, while its offering 41.11
lakh equity share for sale though OFS.
The
post issue book value (BV) of Star Health and Allied Insurance Company
including shareholders fair value change account is Rs 109.8. P/BV works out to
8.2 times at the upper price band of Rs 900 per share.
There
is no directly comparable listed player in the standalone health insurance
industry, though the company compares itself with ICICI Lombard General
Insurance Company which is trading at 8.2 times its book value and New India
Assurance is trading at 0.7 times its book value. ICICI Lombard General
Insurance Company and New India Assurance are multiline full-service insurers.
Star Health and Allied Insurance
Company: Issue highlights
|
For Fresh Issue Offer size (in no.
of shares crore)
|
|
- On lower price band
|
2.30
|
- On upper price band
|
2.22
|
Offer size (in Rs crore)
|
2000
|
For Offer for Sale Offer size (in
Rs crore)
|
|
- On lower price band
|
5074.21
|
- On upper price band
|
5249.18
|
Offer size (in no. of shares
crore)
|
5.83
|
Price band (Rs)*
|
870-900
|
Minimum Bid Lot (in no. of shares
)
|
16
|
Post issue capital (Rs crore)
|
|
- On lower price band
|
576.28
|
- On upper price band
|
575.51
|
Post-issue Promoter & Group
shareholding (%)
|
58.3
|
Issue open date
|
30-11-2021
|
Issue closed date
|
02-12-2021
|
Listing
|
BSE, NSE
|
Rating
|
43/100
|
Star Health and Allied Insurance
Company: Results Statement of Revenue Accounts
|
|
1903 (12)
|
2003 (12)
|
2103 (12)
|
2009 (6)
|
2109 (6)
|
1. Premiums earned (net)
|
3579.51
|
4692.99
|
5022.82
|
2712.17
|
4659.68
|
2. Profit / Loss on sale/
redemption of investments
|
0.56
|
4.26
|
2.07
|
0.37
|
86.11
|
3. Others -
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
4. Interest, Dividend & Rent
Gross
|
133.45
|
188.13
|
258.51
|
125.67
|
184.14
|
Total (A)
|
3713.52
|
4885.37
|
5283.39
|
2838.21
|
4929.94
|
|
|
|
|
|
|
1. Claims Incurred (net)
|
2297.59
|
3087.43
|
4369.45
|
1634.30
|
4110.99
|
2. Commission (net)
|
263.77
|
340.90
|
583.78
|
301.96
|
626.19
|
3. Operating expenses related to
insurance business
|
982.67
|
1102.02
|
1401.37
|
631.27
|
854.42
|
4. Premium deficiency
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
5. Others
|
4.76
|
-5.75
|
0.00
|
0.00
|
0.00
|
Total Expenses (B)
|
3548.80
|
4524.59
|
6354.60
|
2567.54
|
5591.59
|
|
|
|
|
|
|
Operating Profit/ Loss C=(A -B)
|
164.72
|
360.78
|
-1071.21
|
270.67
|
-661.66
|
APPROPRIATIONS
|
|
|
|
|
|
Transfer to P&L Account
|
164.72
|
360.78
|
-1071.21
|
270.67
|
-661.66
|
Transfer to Other Reserves
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
Star Health and Allied Insurance Company:
Results Statement of Profit & Loss Account
|
|
1903 (12)
|
2003 (12)
|
2103 (12)
|
2009 (6)
|
2109 (6)
|
1. Operating profit/(loss)
|
164.72
|
360.78
|
-1071.21
|
270.67
|
-661.66
|
2. Income from investments
|
61.42
|
101.14
|
163.11
|
61.70
|
160.08
|
3. Other income
|
0.11
|
0.03
|
0.32
|
1.94
|
6.89
|
Total Income (A)
|
226.25
|
461.96
|
-907.78
|
334.31
|
-494.68
|
|
|
|
|
|
|
4. Provisions (Other than
taxation)
|
4.00
|
-3.49
|
34.35
|
0.07
|
0.06
|
5. Other expenses
|
40.01
|
52.02
|
103.82
|
17.67
|
17.90
|
|
|
|
|
|
|
Total Expenses (B)
|
44.01
|
48.54
|
138.17
|
17.73
|
17.95
|
|
|
|
|
|
|
Profit before tax (A-B)
|
182.25
|
413.43
|
-1045.95
|
316.57
|
-512.63
|
Provision for taxation
|
54.02
|
145.42
|
-220.37
|
117.28
|
-132.37
|
Profit after tax
|
128.23
|
268.00
|
-825.58
|
199.29
|
-380.27
|
EPS (Rs) *
|
2.2
|
4.7
|
-
|
#
|
#
|
* Annualized on post issue equity
of Rs 575.51 crore of face value of Rs 10 each, Figures in crore,
# EPS is not annualized due to
seasonality of business
Source: Star Health and Allied
Insurance Company Issue Prospectus
|
|