Niva Bupa Health Insurance Company: Strong positioning in secular Health segment

20 Mar 2023 , 11:05 AM

Recommendation: Unrated

 

The company has shown impressive growth with Gross Written Premium growing at 44% CAGR over FY19-22. The company is strategically focused on the attractive Retail Health Insurance segment (~75%) that has lower claims ratio and higher premium per person, and is expected to grow at ~23% CAGR over FY22-25. Niva Bupa aims to drive growth by ongoing investments in building distribution strength, especially the Agency channel, as well as by making investments to improve digital capabilities and analytics on the operations and sales front. Although FY22 was impacted by COVID-19, Niva Bupa is on track to deliver sub-100% combined ratio in FY23. Its distribution, pricing, claim settlement and technology are key competitive advantages, helping it drive superior growth and quality customer service.

Indian Health Insurance market has huge scope for growth

A number of factors are expected to drive growth in the Health Insurance industry in India, with the Retail Health segment being particularly attractive due to its lower penetration, lower claims ratio, and higher premium per person (CRISIL). The gross direct premium for health insurers is expected to grow at ~18% CAGR over FY22-25 and reach Rs1.1 trillion. Retail segment is expected to grow faster, at 23% CAGR, due to increasing focus by SAHI and private insurers.

Drivers of growth

Niva Bupa aims to enhance market leadership in the Retail segment: 

• Through its robust Agency and Banca channel, and by investing in the Direct and online Digital channels.
• By charging right premium for undertaking appropriate level of risk, having drawn capabilities from Bupa. 
• Through prudent and timely claims settlements, and application of technology for fraud mitigation.
• By further building on its technological capabilities.

Healthy loss ratios even through the pandemic

Loss ratio has remained healthy for Niva Bupa over the years, ranging between ~54%-60% since FY19; attributed to better risk selection and provider network management. In FY21/FY22, despite COVID-19, loss ratio was not impacted much, unlike peers. Operating expense ratio (% of net earned premium) is elevated, at 45.7%/48.9% as of 9MFY23 and FY22, respectively. Management believes that possible revision of EOM limit to 35% of GWP for SAHIs would aid the company in managing EOM ratio. Pickup in renewals would also reduce operating expenses to more sustainable levels.

Outlook

Management expects to reach Rs40 billion of Gross Written Premium in FY23. This implies growth of 41%/42% in Q4FY23 and FY23, respectively. The company could deliver 25-30% growth in retail premium over the medium term. For FY23, management expects combined ratio to range close to 98%. It desires to bring down combined ratio by 100-150 basis points per annum, and believes that over the long term, it could stabilize at levels of 92-93%. Niva Bupa could achieve full-year profitability for FY23 (9MFY23 loss of Rs265 million). The company has a solvency ratio of 1.81x, as of 9MFY23.