Star Health and Allied Insurance files DRHP for IPO of fresh shares-cum-OFS

Net proceeds from fresh issue amounting to Rs 2,000 cr will be used to boost company's solvency levels and capital

The country’s largest standalone health insurer, Star Health and Allied Insurance, promoted by Safecrop Investments India, ace investor Rakesh Jhunjhunwala, and WestBridge AIF, has filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) to raise funds through an initial public offering (IPO).

The public offering will consist of a fresh issue of shares aggregating to Rs 2,000 crore and an offer for sale of 60.1 million shares by existing shareholders. Safecrop Investments India is looking to sell 30.68 million shares, followed by Apis Growth which is looking to sell 7.68 million shares. Other investors such as the University of Notre Dame DU LAC, MIO Star, ROC Capital Pty, Sai Satish, Venkatasamy Jagannathan, Konark Trust, Bejris Minoo Desai, and MMPL Trust are also selling shares through the OFS.

The net proceeds from the fresh issue will be used to augment the company’s solvency levels and boost capital. As of March 31, 2021, the company’s solvency ratio stood at 2.23x, much higher than the regulatory requirement of 1.5.  

In FY21, the insurer’s total income stood at Rs 7,568.77 crore, up 36.2 per cent from Rs 5,554.9 crore in FY20. While it earned a net profit of Rs 268 crore in FY20, in FY21, the company posted a loss of Rs 825.5 crore.

Kotak Mahindra Capital, Axis Capital, BofA Securities India, Citigroup Global Markets India, and ICICI Securities are the global co-coordinators and book running lead managers to the issue.

Star Health will be the first standalone health insurer to get listed on the bourses and the third non-life insurance company, after ICICI Lombard and New India Assurance. There are four other standalone health insurers in the ecosystem.  Overall, it will be the seventh insurer to go public. In the life insurance space, HDFC Life, ICICI Prudential Life insurance, and SBI Life insurance are listed. State-owned reinsurer, GIC Re is also listed on the bourses.

The company has said in its DRHP that although awareness around health insurance products by prospective customers has increased due to Covid, resulting in greater engagement online and with their agents, there is, however, no guarantee that this will continue and the long-term effects of the pandemic on society and customer engagement are highly uncertain.

Due to the second wave, the company expects its net incurred claims (NIC) ratio and solvency ratio to take a hit. in FY21, its NIC ratio rose to 87 per cent from 64.2 per cent and 65.8 per cent in FY19 and FY20, respectively. In FY21, the company has settled and paid 0.15 million claims due to Covid, amounting to gross paid claims of Rs 1,528.63 crore.

“Overall gross incurred claims amounted to Rs 1,639,98 crore on account of covid19 and net incurred claims after reinsurance amounted to Rs 1,206.06 crore in FY21”, the insurer said in its DRHP.

Its combined ratio also took a hit on account of Covid and withdrawal from a reinsurance treaty as in FY21 the ratio increase to 114.8 per cent, compared to 94.3 per cent and 93.2 per cent in FY19 and FY20, respectively. A combined ratio of below 100 implies that the company is making underwriting profits.

On the other hand, its gross written premium has Rs 5,415.35 crore in FY19 to Rs 9, 3,48. 9 crore in FY21.

Star Health Insurance has a market share of approximately 16 per cent in FY21 and is one of the top five health insurers in the country. In the retail health business, it has a 31 per cent market share in FY21. The company offers a range of products such as retail health, group health, personal accident and overseas travel, accounting for 87.9 per cent, 10.5 per cent, 1.6 per cent, and 0.01 per cent, respectively, of its total gross written premium in FY21.