The IPO includes an issue of fresh shares worth up to ₹2,000 crore and an offer for sale of shares worth ₹5,249 crore by existing shareholders.
Proceeds to the company from the issue of fresh shares will help Star Health improve its solvency ratio, which was 1.52 times at the end of September, just above the insurance regulator’s prescribed control level of 1.50 times.
The company is planning to cash in on strong investor sentiment and ability to attract investors with its growth prospects due to increased awareness about health insurance after the Covid pandemic.
Star Health’s loss ratio – the ratio of insurance claims paid and expenses against total premium earned – deteriorated to 88% post Covid from an average of 65% before the pandemic.
As much as 41% of claims, worth ₹1,750 crore, settled by the company in the first half of the current fiscal year were related to Covid.
Managing director S Prakash said the company is confident that the loss ratio will come down by the fourth quarter of this fiscal year.
“As more and more people get vaccinated and there is no third wave, the loss ratio will come down to its historical average,” Prakash said.
While the company is confident about growth prospects, there is no clear comparison of the valuation of the company since there are only two listed general insurance companies in India, ICICI Lombard and New India Assurance, which also provide other products like motor and fire insurance.
“This is the first pure-play health insurance company, so in that sense comparison is difficult. But before ICICI Lombard too it was difficult to find a comparison. Star Health could benefit from the increased awareness in the insurance market post Covid and that is what investors will buy the stock for assuming there is no third wave,” said Asutosh Mishra, head of research at Ashika Securities.
Star Health’s IPO will open for subscription on November 30.
The company had a 15.8% market share in health insurance and 11,778 network hospitals as on September 30, 2021.
Prakash said health insurance continues to be the fastest growing segment in general insurance and its specialised nature gives the company an edge over full-fledged general insurance companies.