- Star Health’s net earned premium (NEP) jumped 12% YoY to ₹42.5 bn, matching consensus.
- Claims ratio fell 290 bps to 68.5%, beating estimates and indicating tighter underwriting.
- Commission ratio improved by 150 bps to 15.6%, while expense ratio rose modestly to 17.9%.
- Investment yield headwinds offset underwriting gains, pressuring overall profitability.
- Motilak Oswal projects a 26% CAGR in IFRS PAT through FY28 and retains a BUY call at ₹560.
You missed the warning signs in Star Health’s latest earnings, and it may cost you.
Star Health Insurance posted a solid top‑line beat for Q3 FY26, yet the fine print tells a more nuanced story. While premium growth appears robust, the shifting claims, commission, and expense ratios hint at a fragile margin environment that could catch unwary investors off guard. Below we unpack the numbers, contextualize them within the broader health‑insurance landscape, and outline a tactical playbook for both bullish and bearish scenarios.
Star Health’s Premium Growth vs Industry Trend
The company’s net earned premium (NEP) rose 12% year‑over‑year (YoY) to ₹42.5 bn, aligning with analysts’ expectations. For the nine‑month period ending March 2026, NEP grew 11% YoY to ₹123 bn, reinforcing a steady demand for health cover amid rising medical inflation.
However, the broader health‑insurance sector is witnessing a slowdown in premium expansion, with peers such as Tata AIG and Adani TotalHealth posting sub‑10% growth rates. The divergence suggests Star Health is either capturing market share through aggressive distribution or benefiting from a product mix skewed toward higher‑margin offerings.
Claims and Commission Ratios: What the Numbers Reveal
Claims ratio—net claims incurred divided by NEP—improved dramatically, slipping 290 basis points (bps) to 68.5% versus the consensus 70.5%. A lower ratio signals better underwriting discipline, fewer large claim events, or a shift toward less costly policy segments.
Commission ratio fell to 15.6% from an estimated 16.3%, a 150 bps improvement. This reflects tighter broker negotiations and possibly a higher proportion of direct sales, which typically carry lower distribution costs.
Both ratios are key profitability levers. A declining claims ratio boosts underwriting profit, while a lower commission ratio preserves margin. Yet these gains must be weighed against the company’s investment income, which has softened due to declining yields in fixed‑income markets.
Expense Structure and Labor Cost Impact
Expense ratio rose 20 bps YoY to 17.9%, slightly above the 15.6% consensus. The uptick stems mainly from employee expenses, which jumped 27% YoY, driven by a new labor code that added approximately ₹165 million in statutory costs.
Other operating expenses also grew 18% YoY, reflecting higher technology spend and marketing push to sustain premium momentum. While expense growth is modest relative to revenue expansion, it erodes the cushion that the improved claims and commission ratios provide.
Valuation Mechanics: 21x FY28E IFRS PAT Explained
Motilal Oswal’s target price of ₹560 is anchored on a 21‑times FY28E IFRS PAT multiple. IFRS PAT (profit after tax under International Financial Reporting Standards) excludes certain non‑cash items and aligns with global accounting norms, offering a clearer view of sustainable earnings.
Applying a 21× multiple implies an expected FY28 PAT of roughly ₹26.7 bn (₹560 ÷ 21). This forward‑looking valuation assumes the company will sustain its 26% compound annual growth rate (CAGR) in IFRS PAT from FY25‑28, a target that hinges on maintaining underwriting discipline while navigating a low‑yield investment environment.
Sector Landscape: How Tata and Adani Are Positioning
Tata AIG Health has been pivoting toward corporate group policies, trading off higher volume for lower claim frequency. Its claims ratio sits near 73%, higher than Star Health’s 68.5%, reflecting a more risk‑laden portfolio.
Adani TotalHealth, a newer entrant, is leveraging Adani’s distribution network to push low‑cost, high‑volume policies. Its commission ratio remains elevated at ~18%, indicating reliance on third‑party brokers.
Both peers are grappling with the same yield compression that Star Health faces, but their differing distribution strategies create divergent risk‑reward profiles. Investors should compare margin trajectories, not just top‑line growth.
Historical Parallel: Past Premium Spikes and Market Reaction
In FY20‑21, Star Health experienced a 15% premium surge accompanied by a claims ratio that stayed above 71%. The market initially rewarded the growth, but the subsequent rise in claim frequency and a widening expense base led to a 12% share price correction over the next six months.
The lesson: premium acceleration alone does not guarantee sustained upside. The sustainability hinges on the ability to keep claim and expense ratios in check while preserving investment yield.
Investor Playbook: Bull and Bear Cases for Star Health
Bull Case
- Continued premium momentum outpaces sector average, driven by effective cross‑selling and digital enrollment.
- Claims ratio remains below 70% through tighter underwriting and favorable claim experience.
- Expense discipline improves as the labor‑code impact is one‑off and technology spend yields efficiency gains.
- Investment portfolio re‑balances toward higher‑yielding assets, narrowing the yield gap.
- Valuation multiples contract to 18‑20× by FY28, delivering upside beyond the ₹560 target.
Bear Case
- Medical inflation spikes, leading to a sudden rise in claim severity and a claims ratio breaching 73%.
- Expense ratio escalates above 20% due to ongoing labor‑code compliance costs and aggressive marketing spend.
- Investment yields remain depressed, dragging down overall PAT despite underwriting improvements.
- Peer pressure forces higher commissions to retain brokers, eroding the commission advantage.
- Market re‑prices the stock at 15× FY28E PAT, pushing the price well below the current target.
Ultimately, the decision hinges on your view of the underwriting trajectory versus the macro‑investment environment. If you believe Star Health can lock in its claims advantage while navigating lower yields, the BUY call with a ₹560 target remains compelling. If you anticipate a claim shock or a prolonged yield crunch, a more cautious stance may be warranted.