Star Health & Allied Insurance’s September quarter showed signs of operating recovery after loss ratios eased and premium momentum held, prompting Jefferies to keep a Buy call on the stock. They believe that a sustained premium growth and a cleaner claims cycle can support earnings recovery and multiple re-rating.
Jefferies said the underwriting performance notably a 130 basis-point year-on-year improvement in loss ratio to 71.5% was the main positive, while like-for-like combined ratio (excluding 1/n accounting) improved to 101.8%, broadly in line with expectations.
Jefferies on Star Health: Profit impacted by upfront costs
Jefferies reported that Star Health’s reported profit for the quarter was Rs 54.9 crore, lower than about Rs 109.4 crore a year earlier, as the company front-loaded costs of roughly Rs 150 crore tied to about 30% sequential growth in long-term policies.
The brokerage noted that while reported PAT undershot prior-year levels, the core underwriting trends were healthier: gross written premium (GWP) rose to Rs 4,371 crore from Rs 4,238 crore in the prior quarter, and net earned premium (NEP) climbed to Rs 3,704 crore.
Jefferies called out that investment income of Rs 320.6 crore missed expectations modestly, but that the core insurance metrics loss ratio, commission and operating costs showed the kind of improvement the market wanted to see before revisiting valuations. “We await more details on the earnings call,” Jefferies added.
Jefferies on Star Health: Tracking claims
Star Health’s loss ratio fell to 71.5% from 72.8% in the year-ago quarter, a 130 basis-point improvement, and combined operating costs (commissions plus opex) were about 32.3% of earned premium for the quarter.
On a like-for-like basis (ex. 1/n), the combined ratio improved by 120 basis points year-on-year to 101.8%, which Jefferies said confirmed the firm’s ability to move closer to underwriting breakeven even after the adverse GST impact on some premium streams.
Jefferies emphasised that the claims profile while volatile month to month had settled enough in the quarter for loss ratios to trend down, and that this was a necessary step before profitability could sustainably recover.
Jefferies on Star Health: Premium momentum
GWP for the quarter was Rs 4,371 crore and NEP was Rs 3,704 crore, indicating continued retail traction in Star Health’s dominant segment.
Jefferies noted a notable uptick in long-term policy sales, which drove a 30% quarter-on-quarter jump in related costs as the company recognised expenses upfront under accounting norms. That accounting effect weighed on reported profit despite healthier underwriting ratios.
The brokerage noted that retail health remains Star Health’s strength the company held roughly one-third of the retail health market and that premium growth was broadly consistent with management’s stated objectives.
Jefferies on Star Health: Expense and commission trends
Operating expenses were Rs 654 crore for the quarter, while commission expense stood at about Rs 549 crore. Jefferies said commission and opex together represented about 32.3% of NEP, up versus some prior quarters but consistent with the company’s higher sales of long-term products and investments in distribution.
The report observed that expense front-loading can depress near-term profit but supports future premium and persistency, and that management appeared willing to prioritise growth and market share in selected channels.
Jefferies on Star Health: Outlook and forecasts
Jefferies expects premium growth to continue, driven by retail health penetration, product mix shifts, and recovery in pricing where required. The brokerage model assumes gradual recovery in combined ratios as the present quarter’s front-loaded costs normalise and loss ratios sustain the improving trend.
Jefferies kept a Buy rating and a price target of Rs 650, indicating roughly 34% upside from current levels. The firm valued Star Health on a discounted cash-flow basis and emphasised that the company’s dominant retail franchise and scale in health insurance underpin a premium relative to some peers.
Jefferies on Star Health: Risks and what to watch
Jefferies flagged several near-term items for investors to monitor: the Q&A on the earnings call for detail on the composition of long-term policies and the sustainability of higher commission spend; commentary on claim trends for the hospitalisation book; and clarity on how GST impacts were being absorbed across product lines.
The report also warned that volatile investment returns or an uptick in large claims could push combined ratio worse again, and that earnings could remain bumpy while the portfolio rebalances and while the company grows long-term products.
The brokerage’s valuation assumes execution on premium growth without material deterioration in claims or investment income; downside scenarios include weaker-than-expected investment returns or a renewed spike in claim severity.
