Star Health firm on profitability path amid rising competition In the two years to FY24, Niva Bupa clocked a CAGR of 47% in NEP compared to 15% for Star Health. Its claims ratio (indicating NEP spent on paying claims) stood at 59% in FY24 against 66% for Star Health. In fact, Niva Bupa’s claims ratio was the lowest in the industry.
A lower claims ratio indicates better risk assessment of insured persons, or underwriting standards in insurance parlance. Given this, Niva Bupa may well fetch a valuation premium over Star Health on listing. Star Health shares trade at a market capitalisation (mcap)-to-NEP multiple of 2.6x based on FY24 financials.
Assigning a 25% premium to the multiple means the potential mcap of Niva Bupa could be around ₹12,000 crore. At this mcap, the total issue size, including the offer for sale component of ₹3,000 crore, works out to about 25% – the minimum public shareholding or non-promoter shareholding required for listed companies. Also read: Centre directs states to link patient records with Ayushman Bharat health account to maximize benefits Niva Bupa seems to be adequately capitalised with an solvency ratio of 2.5 as against the regulatory requirement of 1.5 for insurance companies.
The solvency ratio is similar to the capital adequacy ratio for banks. SAHI companies have an edge within general insurance as the industry is growing relatively faster. In FY24, growth in premiums for the SAHI industry was 26% year-on-year as against 13% for general insurance.
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