Nuvama Institutional Equities has upgraded Star Health and Allied Insurance Co. to a 'buy' rating, citing significant improvements in the company's operational metrics and strategic recalibrations. This upgrade comes after a sharp 58.5% decline in the stock price over the past eight months, presenting a compelling buying opportunity.
Nuvama's analysis highlights several corrective actions taken by Star Health, including retail portfolio repricing and selective group business underwriting, which are expected to reduce loss ratios.
The brokerage also anticipates sustained growth in retail new business and enhanced operational efficiency to drive improvements in the company's combined ratio. Additionally, stricter enforcement of Expense of Management norms by regulatory authorities is likely to reduce competitive intensity in the market.
In its third quarter conference call, Star Health's management indicated price hikes on 65% of the retail portfolio by 8-12%, with the full impact expected over the next four quarters.
The company has also increased pricing for its Comprehensive Health Insurance plan by 8%, and for Family Health Optima, non-claimants faced a 6.5-7% increase while claimants saw a hike of 10-15%.
These measures are projected to improve loss ratios in the retail segment. In the group segment, which reported elevated claim ratios, management plans to recalibrate business and selectively underwrite group policies to achieve a 100 basis point improvement in overall loss ratios.
The brokerage also forecasts that the Insurance Regulatory and Development Authority of India will enforce stricter adherence to EoM regulations, which should reduce competitive intensity. Despite potential challenges from the composite license regime, Star Health's diversified channel mix, with over 80% of business coming from the agency channel, positions it well to maintain its market share amid high competition from private multi-line insurers.
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