Star Health and Allied Insurance Company Ltd

NSE:STARHEALTH

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Star Health and Allied Insurance Company Limited's Q1 FY 2024 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Pratik Patel from Adfactors PR. Investor Relations team. Thank you, and over to you, Mr. Pratik Patel.

[Unknown Attendee]

Thank you, Robin. Good evening, everyone. From the senior management, we have with us Mr. Anand Roy, Managing Director and Chief Executive Officer; Mr. Nilesh Kambli, Chief Financial Officer; Mr. Amitabh Jain, Chief Operating Officer; Mr. Aneesh Srivastava, Chief Investment Officer; Mr. Aditya Biyani, Chief Corporate Strategy and Investor Relations Officer.

Before we begin the conference call, I would like to mention that some of the statements made during the course of today's call may be forward-looking in nature, including those related to the future financial and operating performances, benefits and synergies of the company's strategies, future opportunities and growth of the market of the company's services.

Further, I would like to mention that some of the statements made in today's conference call may involve risks and uncertainties. Thank you, and over to you, Mr. Roy.

[Anand Roy, executive]

Thank you, and good evening to all of you. Thank you for joining Star Health's earnings call today. My name is Anand Roy. I'm the MD and CEO of the company. I will first give you a brief overview of the industry trends and the developments that we have witnessed in the last few months as well as walk you through the company's performance in terms of premium and distribution.

Later on, I will cover the financial performance and aspects related to claims, including the steps that are underway to manage them. In quarter 1 of 2024, the health insurance industry, including the personal accident business has grown by 21%, driven by 23% growth in group health and 18% growth in retail health.

Now we will talk about the growth and market share of Star Health. For 3 months 2024 at the quarter 1, our overall growth is 20%. Our retail growth rate is 19% versus the industry retail growth rate of 18% during Q1 of FY '24. In Q1 of FY '24, Star Health registered 32% market share in retail sales, which is more than [ 3 units ] the second largest player in the industry.

We aspire to grow higher than the market growth rates and increase our retail market share in the future. As far as our accretion share is concerned, Star Health has registered 33% retail accretion market share in Q1 of FY '24. Our agency business continues to contribute around 81% of the overall business. Our agency strength has increased to [ 6,42,588 ] agents with a net addition of 16,728 agents in the first quarter as compared to the previous year.

In Q1 of FY '24, our corporate agents, that is banks and other tie-ups continues to remain very strong and the premium has grown by more than 35% from this channel. Some of the highlights in first quarter for us were as follows: as far as premium and distribution is concerned, we have taken a price hike in the Family Health Optima plan, where the renewal pricing was effective from 1st May of 2023.

We are very happy to inform that the policy renewal in terms of both volume and value are in line with our expectations. We continue to focus on our digital initiatives, and we continue to make substantial strategic investment in the digital areas. The outcomes of our fresh digital business has grown by 26% in first quarter over the previous year first quarter. We have relaunched our Star Power app as the Star Health app.

The key features of the Star Health app differentiated journeys of policies for policyholders and non policyholders. Instant and scheduled call with our free telemedicine services, which we call as Talk To Star. The management of family members of the policyholders are also made very simple. The network hospital search and -- has been very simple for customers to access the nearest network hospital to them.

The organic traffic to the website grew by 48% in our first quarter over the same period last year. Our brand campaign Save The Savings was well received, and it has led to a 3.5% uptick in the buying consideration of the target segment. The dynamic QR code introduced on all our policy renewals and also on our digital platforms will ensure that the customers can now renew policies at this click of a budget, and it will also lead to cost savings in terms of collection costs.

We are tied up with AU Small Finance Bank, Bank of Maharashtra and Godrej Housing Finance during the quarter. This will further expand our reach and also strengthen sales of our higher commercial policies with the new expense of management guidelines provided by the IRDAI, this provides an immense growth opportunity for us. In order to reach many more geographies we have identified almost 1,000 sales manager [ patients], which are located in semi-urban and rural areas. These are small individual service centers, of which 410 have already become operational during the first quarter.

The expenses of management regulation gives us a lot of flexibility to gain in the Banca and alternate channel business areas, along with our agency channel. The average [ sum assured ] of our new policies has increased by 10% on a year-on-year basis. It now stands at INR 9.5 lakhs on an average, INR 5 lakhs and above sum insured now constitute 76% of the retail health portfolio versus 69% in the first quarter of last year.

The premium of benefit plans has grown by 29% in the first quarter. The share of such products within the overall GWD has increased by 17 bps to 2.5% in the first quarter of FY '24. I will now talk about the claims initiatives and the outcomes. 61% of number of paid claims in the first quarter are through cashless versus 56% in the last year of first quarter of last year.

In terms of claims amount, 84% of the base claims in Q1 of FY '24 was cashless versus 80%. Cashless [ AET-claim ] settle within 2 hours came in at around 94%. Auto adjudication of claims through our investment intake has helped in drastically improving turnaround times and thereby improving the customer satisfaction. 28% of our agreed network hospitals, representing 67% of cashless claims have been onboarded under these initiatives.

The number of such claims settle has risen to 60,000 in Q1 of FY '24, a growth of 34% versus Q4 of FY '23. So on a sequential basis, it has grown by 34%. We continue to improve on the claims-related milestones. Within overall cashless claims, the share of hospitals with pricing arrangements that is agreed network hospitals. Cashless claim is 61% versus 56% in the Q1 of FY '23.

As you will be aware, fraud control is one of the critical factors to address in our health insurance business, especially in a retail Health Insurance business like ours. Our anti-fraud digital initiatives have started to produce savings in claims out go. There's a 0.9% incremental benefit in terms of lower claims ratio in the Q1 FY '24. And our SaaS investments in SaaS has assisted in 80% of those cases.

Claims initiatives planned to bring an efficiency reduction in re-admission, home health care initiative, which is a very innovative initiative that we have taken, first notice of loss initiatives through app for remote and virtual surveys, which will help us to advise customers on appropriate hospitals nearest to their homes. Our financial performance, we are focused on sustainable profitable growth and taking decisions to achieve that goal. Our combined ratio for Q1 FY '21 has improved to 97.8% versus 98.24% in Q1 of FY '23.

Improvement in combined ratios achieved through claims ratio improvement. Claims ratio for Q1 FY '24 has improved by around 1% to 65.4% versus 66.3% in Q1 FY '23. Expense ratio has slightly increased in Q1 FY '24 to 32.4% versus 32% in Q1 FY '23, mainly on account of the fixed cost, fixed cost vis-a-vis Q1 FY '24 being a smaller quarter in terms of gross premium.

Our investment assets have grown to INR 13,303 crores in Q1 FY '24 versus INR 11,463 crores in Q1 FY '23. With the rise in interest rates, fresh investments are deployed at a higher yield and realization of profits on ETFs, the yield for Q1 FY '24 was rising to 7.45% versus 7.11% in Q1 of FY '23. We continue to invest in equity portfolio of the GTS. The investment income in Q1 FY '24 grew by 23% to INR 250 crores over Q1 of FY '23 of INR 204 crores.

Q1 FY '24 recorded a profit before tax of INR 384 crores versus INR 288 crores reported in the Q1 of FY '23. Our profit after tax in the first quarter of FY '24 came in at INR 288 crores versus INR 213 crores in the first quarter of FY '23, representing a growth of 35% in our PAT numbers. Total and non-annualized ROE for the quarter has increased to 5.2% compared to 4.6% in Q1 of '23. Solvency as on 30th June is 2.18x compared to the regulatory requirement of 1.5x. This solvency has been achieved despite availing only the 4% mandatory reinsurance.

To conclude, we at Star Health continue to invest in the profitable and sustainable growth opportunities available in the Health Insurance segment, and we are on our desired half of realizing the same. Thank you so much. And now we are happy to take your questions.

[Operator]

[Operator Instructions] The first question is from the line of Swarnabha Mukherjee from B&K Securities.

[Swarnabha Mukherjee, analyst]

Congrats on a good set of numbers. So I have 2 quick questions. First, on the new business side, new business numbers has not firmed up yet. So I just wanted to understand whether we are facing any kind of challenges in terms of new business or whether it is just in terms of where the pricing of our policies are? Or is there any other kind of headwinds that are there, if you could explain that? And what are the steps you are taking regarding that?

Also, the second question is in terms of the renewal rate. So while you have given the renewal rate number in the presentation, I wanted to understand that in numbers -- in terms of number of policies, how should we see it? Or if you could give us the growth in the number of -- overall number of provisions could be also very helpful.

Also, thirdly, in terms of the cost side, so I see that there has been a jump in the advertising cost. As you have mentioned that you have -- that the increase in the cost ratio is primarily due to the fixed cost base. So should we then expect that, while advertising cost run rate to be similar for the remaining part of the year?

And on the employee cost base also, if you could explain what the run rate could be going ahead or how the variable cost is accounted for? So whether it is both apportioned over the year or it is taken in the fourth quarter? And lastly, on the commission ratio, it has come down. So how should we read this if you could highlight whether this is the reason of the mix of group versus one-time?

[Anand Roy, executive]

Okay. That's a lot of questions. Let me try to answer this one by one. As far as new business is concerned, the company has registered a growth of 15% in our new business, 15%. We have taken some strategic shifts in our new business and are in business planning. We have kind of tightened our underwriting standards in certain areas. We have also, as you know, we have taken a risk-based price hike in our FHO product.

And also, we are incentivizing our channels for better outcomes. So that will be the long-term strategic shift that the company has taken. But having said that, the new business continues to grow fairly for us, and we are very confident that we will continue to grow at a good rate. As far as our renewal rates are concerned, we have seen very good retention rates, as I mentioned already in my opening remarks.

The FHO price hike, which we have taken and we had anticipated a drop of 4% to 5% in our number of policies, which typically used to happen when we do some price hike earlier in FY '17. But we are seeing the initial results are very encouraging, and the drop of rates are much lower than what we had anticipated. So in that context, it seems to be a good beginning.

Our advertisement cost, Nilesh if you can add on that.

[Nilesh Kambli, executive]

Yes. So basically, as Anand had mentioned, we are doing strategic investment in people and technology, and this is part of the digital initiatives that we're taking. This advertisement publicity got in part of the digital initiatives. And we continue to invest in this channel. The absolute amount of fixed cost, it's on a sequential basis, the investment in people that we have done and the salary increments little bit happens as a new year begin, that is related to an absolute cost increase compared to last year, one needs to compare Q4 versus Q1 because fixed cost is sequential. And we are well on target versus the full year fixed cost margin. So it's more a temporary Q1 phenomenon because the [indiscernible] is lower, when we start the year.

[Swarnabha Mukherjee, analyst]

Understood. And in terms of the commission ratio.

[Nilesh Kambli, executive]

I think, commission ratio, again, the digital business also picking up now. It will slightly trend over.

[Swarnabha Mukherjee, analyst]

Okay. So this -- can this be the run rate that we assume for the rest of the year?

[Nilesh Kambli, executive]

See, what is happening here, this is [ Q1 ] regulations coming in. We are looking at the new structure. So while overall expense ratio has been similar, while we continue to invest, they can do structure shift between OpEx and commissions, which -- but the overall cost structure will be in line with our targets.

[Operator]

[Operator Instructions] We have the next question from the line of Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

A couple of questions. First one is on the [ PH ] ratio given that from May you took price hike in renewal as well and for new you had already increased by [indiscernible]. So with some kind of adjustment in prices, why is still the sort of a claims ratio again, it's not the way off. But [ 1 direct for 15 ] so ratios mean to compete better on a little bit, because the price hike is also coming into picture and then, of course, whatever I mean you are more or less normalization in claims or where we normally are now coming into picture. So can you main, I mean, despite the price hike, I mean, claims ratios that is still a bit on the sort of ventilated side? That's one.

Second, on the retail health, of course, you have REIT price, but can you sort of comment on competitive intensity in the market whether either it's the pricing of the payouts are concerned because now, of course, other new [indiscernible] of course, earlier also there were certain practicing, but now you're obviously the commission cap is now moved to the overall gap, and also, everybody is changing, I mean, from [indiscernible] to multiline everybody is changing the retail health. So how is the pricing environment as well as the competitive environment in terms of the auto distributors. We will have 2 questions.

[Nilesh Kambli, executive]

Okay. I'll answer the first question, Avinash, in terms of claims ratio, while we have taken the price increase, which is effective 1, May, the benefits in terms of earnings, these are -- we are [indiscernible] is my approach. So the earnings benefit will come only second half onwards. So while we are -- in fact, we are very happy that in spite, right, thinking only in 1, May, we are able to reduce the loss ratio by almost 1% compared to last year. The whole inflation has moved by move 1 year, but still we are able to reduce the loss ratio, which is a good estimate we got to believe.

[Anand Roy, executive]

Yes. As far as the competitive intensity is concerned in retail health, we have been seeing extremely intense competition in this business for the last 2 to 3 years. It's not something new. Of course, now with the new EOL structure kicking in, I think Star Health has a benefit because we are -- we have the levers now to enter into segments, where we were not very active earlier.

While at the same time, our competitors may have to bring down their cost structures to comply with the regulations. So I think we are already operating in a very highly competitive environment, and we are able to grow faster than the industry and maintain our market share and in fact, improve upon it. So we don't see that as any particular challenge right now. In fact, I think it will be beneficial for us.

[Avinash Singh, analyst]

Sir, one quick follow-up. I mean you have a lot of large public sector bank and your Banca partner. Do you see sort of potential of higher growth in that because that will be generally under penetrated channel, but at the same time, the channel performance is somewhat lower. And do you sort of offer just a retail product or sort of offer certain kind of a group product for their customer that is basically kind of -- in major retail, but offered as a group, so do you see any sort of growth improving there by some sort of in increasing product channels?

[Anand Roy, executive]

Yes, Avinash, that's a good question. We are very lucky to have some of the leading public sector banks with us as our partner. And there's a lot of opportunity to engage with them even closely and increase our book size there. The strategy for us is mostly on the branch banking on these banks, and it is largely retail products, but offered as on a group platform.

So individual customers buy it, but the product is constructed on a group platform. I think that will continue. What we are seeing is very high levels of engagement with all of these banks. The management of the banks are extremely happy. We are the largest player in all these bank relationships as far as health business is concerned.

Most of the banks have renewed their contracts with us for 3 years or even 6 years Punjab National Bank. So this will be a good avenue of growth for us as we go forward.

[Operator]

The next question is from the line of Shreya Shivani from CLSA.

[Shreya Shivani, analyst]

I have 3 questions. First is on the loss ratios, and I'm sort of repeating this question over here. So apart from the price hike, the way I was trying to understand was that last quarter, we had a loss ratio of 62%. First quarter generally doesn't have any seasonal diseases, et cetera, right? In second quarter, third quarter, we will have some impact of seasonal diseases.

So what one would expect would -- that the loss ratio should have been higher in second quarter and third quarter. And this quarter should have been a much more normalized, if not as close to fourth quarter because I understand the reserve accounting the weight functions, it shouldn't have been significantly higher than fourth quarter. So that is one question. And I also want to understand why the IBNR reserve has also increased much more than what you've generally seen in the previous 1Q.

Second question is on the growth rate. So the retail book last year, not the overall book, just the retail book last year was growing at 18%, right, without any price hike, only the new business got a price hike last year. So now this year, when you are growing retail book, the retail book is only growing at 19% or 20% in spite of the price hike that we have taken. So shouldn't the price hike have added a few more percentage points to the -- to the growth rate?

And I mean, I'm just not able to match the numbers between the growth that is coming in and the better improved renewal ratios that you're talking about are the improved retention ratio that you're talking about? And the third question is simply 1 of the pure private general insurer reported the result and for them, the commission ratios and the other OpEx ratio has sort of switched places. And it seems like that the impact of EUM guidelines have finally come in and the commission ratios are re-basing everywhere. So I was just wondering whether that didn't happen for health insurance segment because your commission ratios are largely in line with what we've seen historically? And since when do we expect that commission ratio to start reflecting the change?

[Nilesh Kambli, executive]

So Shreya to answer this one by one. In terms of loss ratio, we have always mentioned that Q4 is our best quarter because of the exams non existence of any epidemics, the loss ratio is better. When it comes to Q1 typically there is no epidemic, but there are elective surgeries which take place. And why the frequency is lower, the feasibility is higher. And we have seen that loss ratio is typically higher compared to Q4, but that's the primary reason of Q1 loss ratio, which is higher. But if you see for us, it's an improvement compared to last year in this, which is a good sign.

In terms of IBNR and outstanding results, IBNR we have a reduction this time because the cashless claims have proportionally increased. We had mentioned in the [ credit ] from 80% to 84%. On an overall basis, claim outstanding is a function of cash settlements in the hospital, so that's an ongoing number depends upon when the due date for this hospital payments come through.

In terms of the commission ratios, we are an agency/hedge business. So while other [indiscernible] for motor it can shift between OpEx and commission. But for us, it's an agency/hedge business, which is always -- commissions were always great. So for us, there's been not much of an impact going forward as weIl. There's a slight movement between OpEx and commissions, but nothing major that will kick in it.

[Operator]

The next question is from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

Firstly, on the OpEx front, while you mentioned that you are making investments. So whether this kind of run rate will sustain through [indiscernible]. Even if you look at the employee cost, on a Y-o-Y basis, it's higher by around 29%, right? And that's a significantly high number, a 29% jump in employee cost, could you break it down for us in the sense that how many employees you would have added over this period? And what kind of hikes that you would have given? And what is the variable cost jump that you would have given in this period, that will help us actually understand better as to what could we expect going ahead from here on?

Second is, with regards to the network hospital agreed rate, what would be the trend that you would have seen with regards to all these changes or surgery cost that would have happened -- and the increase that would have been say, last 1 -- in the last couple of quarters, particularly. And would you say that whatever increase that would have happened would have been adequately priced in by you guys? And lastly, with all the movements in like growth possibly being on a slightly on the lower side than what we are working with expenses on the higher side, would you still maintain your guidance of 20% Y-o-Y growth in premiums and combined loss ratio of 63% to 65% and a combined of 93% to 95%?

[Anand Roy, executive]

As far as the employee cost is concerned, we have invested a lot in our digital business and digital when I say digital, it's not only about the digital marketing or -- it's also about the digital operations of the company. We are -- we have onboarded close to 30 engineers and very senior leaders on the technology side.

So I think these are investments that are being made for the long-term structuralship, which the company is going through in terms of digitizing its processes to improve the customer experience and also lower cost. But if you look at it sequentially, I don't think the employee cost has gone up so much. It is only the quarter -- if you look at it quarter-on-quarter, to previous year, definitely, it looks higher.

But having said that, we are very confident on the growth which we have committed in terms of 20% Y-o-Y growth for this year. In fact -- and on the 63% to 65% and combined ratio of 93% to 95%, we believe that we should definitely deliver on the lower side of both of these brands. So the business is on track, and we are very confident of achieving those numbers.

[Prayesh Jain, analyst]

On the network hospitals?

[Anand Roy, executive]

What was the question on the network hospital?

[Prayesh Jain, analyst]

What has been the agreed rates, to paying the agreed rate on the -- out there in the past 6 months? And would that have been because the [ timeline ] suggest that has been anywhere between 10% to 12% for private insurance, the increase in the agreed rates. So whether that would have been adequately pricing in your price hike or you would say that would not really be pricing?

[Anand Roy, executive]

I think, it is definitely pricing -- adequately in our price hike. And to be very frank, the rate agreement that Star Health has with its network of hospitals is very different to what probably other companies are able to command or demand. And I think our agreements are very proprietary in nature and definitely better than what most industry players are able to attain. So -- but to answer your question, yes the price hike has been priced. I mean the rate hike has been priced in.

[Prayesh Jain, analyst]

What will be the quantum of pricing?

[Anand Roy, executive]

See one more thing, I think what you're referring to is only big listed players. The proportion of those players in our overall portfolio is still lower. So that impact will not flow in the way, you're talking about.

[Operator]

The next question is from the line of Supratim Datta from Ambit Capital.

Sir, sorry to interrupt, but the line for you is not very clear. We request you to please use the handset and speak closer to the mic, please? It's still breaking up, sir. Sir, you are not clear at the moment. May I request you to please rejoin the queue after you establish a better connection, sir. We will take the next question Sahej Mittal from 3P Investment Managers.

[Sahej Mittal, analyst]

So first is on the number of policies. So if you could quantify the number of policies in Q1 -- at the end of Q1 FY '24 versus Q4 FY '23, yes, that would be helpful, then I'll take my second question.

[Nilesh Kambli, executive]

You're talking about the number of policy growth...

[Sahej Mittal, analyst]

The number of retail policies, the number of retail policies?

[Nilesh Kambli, executive]

Count of policies sales, we'll get back to you on one-to-one basis.

[Sahej Mittal, analyst]

Got it. Got it. And the second one is, I mean, just following up on one of the previous participant question. So have we -- so have you taken -- has there been a price revision with the agreed network hospital chain?

[Nilesh Kambli, executive]

It's been ongoing process, Sahej. We are not seeing any -- see price increases in our network in fact, we are able to better negotiate prices with some of the larger hospitals.

[Sahej Mittal, analyst]

Right. So nothing in the last 3-odd months or maybe in last 6 months audit? Nothing material.

[Nilesh Kambli, executive]

Nothing material.

[Sahej Mittal, analyst]

Got it. And the last one is on the OpEx, rise? So once this IFRS gets implemented, so if you can quantify what proportion of our OpEx is fixed in nature in a sense that what proportion of OpEx then will not get upfronted and then will get appropriately recorded in terms of the premiums being recorded for that particular year. If you could quantify that number. So for the last year, the OpEx was close to about INR 2,000-odd crores. If you can just give out that number?

[Nilesh Kambli, executive]

Yes. So Sahej, one thing is the insurance industry, especially the listed players, the regulators looking at implementing IFRS effective April 1, '25. I talk in terms of ratios, last year, our ratio -- OpEx ratio was 30%, out of which around 7.5% to 8% is fixed cost. Balance is variable cost, which will be deferred over the policy period. Roughly 22% to 23% of cost. And that will be article both for the commission as well as the reinsurance commission received.

[Operator]

The next question is from the line of Nischint Chawathe from Kotak.

[Nischint Chawathe, analyst]

Just a small questions on the group business. Have you finally sort of kind of said the group business starts growing from here on. And given the fact that the employer-employee segment have seen significant price hike. Is this kind of more accretive at the combined ratio?

[Nilesh Kambli, executive]

So Nischint, the group business strategy continues to remain focused on the SME segment, and that's our sweet spot. We have taken a very, very steep target of increasing our group business this year, right? Last year, it was constituting -- I'm talking purely on the employer-employee corporate business, not on the Banca Groups.

So we expect that this year, we should be able to double what we did last year. 2x is what we are planning to do. Let's see how that pans out. As far as large corporates are concerned, we continue to remain very, very selective. We are not very bullish about that, but we will evaluate as we go along.

[Nischint Chawathe, analyst]

So your 20% premium growth target includes Group 2 estimate and then the rest of it retail, is that [indiscernible]?

[Nilesh Kambli, executive]

20% growth target includes the group business, yes.

[Nischint Chawathe, analyst]

Okay. And just one clarification, the Banca Group business or the group business that you are doing under the Banca fund, the Banca business you're doing under the group design that in your presentation gets reflected in the retail also?

[Anand Roy, executive]

No, if it gets retail as per -- it gets reported as per the product filing, which is under groups.

[Operator]

The next question is from the line of Supratim Datta from Ambit Capital.

[Supratim Dutta, analyst]

So the first question is on the renewal premium ratio. So just wanted to understand whether it's a customer shifts from Family Health Optima to a lower [indiscernible] with starters, when we are seeing spending considered in that provisional premium basket? Or will that be considered as a new policy? So that's one.

The next question was on the Banca side, you laid out your strategy. Just wanted to understand what proportion of your premium is currently coming from the Banca channel alone. And I understand that you had a target of increasing back to 10% over the medium term, does that strategy still remain in place? Or you have revised those targets -- so those are my 2 questions.

[Nilesh Kambli, executive]

Yes. Actually, good question. The renewal of FHO customers, if they migrate to any of our other products within the Star Health franchise. We count them under renewal itself. We do not count them as new business.

And the second question is Banca, I have guided for maybe 10% sometime back, but now we are already clocking at 15% of our fresh business, and we hope that we will end the year with even better numbers than that.

[Supratim Dutta, analyst]

Got it. So just 1 follow-up on that. So could you give us the breakdown that how many people have actually shifted from Family Health Optima to some other products? Is that something that even will be...

[Anand Roy, executive]

No, unfortunately, I'm not able to disclose that number. But what I can tell you is our retention ratios are better than what we had thought about.

[Operator]

The next question is from the line of Sanketh Godha from Avendus Spark.

[Sanketh Godha, analyst]

I think my simple question is that if you look at [ JNS ] contribution has increased from 56% to 61%, which should improve your loss ratio. And we have a price hike, which everyone has alluded to. But still, the quantum of improvement, which happened in the loss ratio has not happened.

So in my view, is it because your specialized policies contribution has come up a bit compared to previous quarter. And then also the mix, even if you're growing 15% kind of in new then the mix is more moving in the favor of renewal rather than new in the entire GWP of retail, and that is dragging down the -- since, still the loss ratio. So just wanted to understand that part little in a better way, how it will play out?

[Anand Roy, executive]

So Sanketh, as already mentioned that our improvement in loss ratio as compared to the last year itself showcases strategies that we are following is working out well for us. Now what you are talking about the price hike, the price hike will take some time to eventually derive the benefit for us. So it will play out over the next 2 to 3 months. So I think it will only get better from here. So as far as the renewal to fresh mixes and concern, we keep tracking that very closely. As we continue to invest in our distribution channels, we are opening another [ 200 ] more than 1,000 locations in the semi-global and global markets. We expect that our fresh to renewal mix will continue to be similar or better.

[Sanketh Godha, analyst]

Got it. But Anand, in the call, you have been saying that we are investing into people and the channels. You give the distribution mix on the total premium. Maybe if you can allude to something on distribution mix with respect to new business it moved away from agency more Banca or more direct or more digital is contributing more because just to understand that part a little better, the investments is even getting reflected into the diversification of the distribution mix.

[Anand Roy, executive]

Yes, sure. So one number I can give you today is that our non-Agency new business is now more than 30% contribution. And this includes banker, digital and these are the 2 main channels. We are seeing a very fast growth in both of these channels. And now with the new guidelines under expense of management, which we have got, I think we are going to go very aggressive in these 2 channels. [indiscernible].

[Sanketh Godha, analyst]

Anand, this number, 30% is how -- and if you can disclose -- how it was last year and how it has -- I just wanted to understand the trajectory?

[Anand Roy, executive]

Sanketh we'll take that offline. Maybe you can talk to us separately...

[Sanketh Godha, analyst]

And the last one from my side. We started the year or in the fourth quarter call, you guided that the group might go back to 10% to 11% of GWP, which was before 2023. But still, if I look that number is around 6% to 7%. This is just -- and then, it is believed that group has been seasonally strong in first quarter I just wanted to understand still that 10% to 11% guidance remains or that number might turn down EBITDA for the entire year?

[Anand Roy, executive]

So the group has -- the number that we have taken will be somewhere around 10% to 11%, but that will include the bank assurance group, right?

[Nilesh Kambli, executive]

See, Sanketh [ capital ] business is typically large corporate as mentioned, we are focusing more on SME businesses and Banca Group. The group business for us has grown by 30%. And this is only first quarter. So we're confident as we move along. The overall mix will keep on increasing.

[Operator]

The next question is from the line of Dipanjan Ghosh from Citi.

[Dipanjan Ghosh, analyst]

Two questions from my side. First, you mentioned in terms of strategic shift for your new business towards non-agency. And you gave some color on 30% coming from that channel. Just wanted to get some idea of how the payout structure on these non-agency channels differs from the agencies, especially for the new business and how the trajectory is shaping up incrementally from a comparative pay-off prospects.

And secondly, if you can give some color on how the claims frequency differs between your metros versus other markets or basis from assured I mean, if you can give some color on that?

[Anand Roy, executive]

Okay. So first thing is we are not shifting our business from agency to non-agency it is just that the contribution of non-agency business is increasing because of our renewed aggression in that segment. So agency continues to be the largest contributor for us, around 70% of new business and 30% plus comes from the non-agency channels. As far as the frequency and all is concerned, these are data that we are not able to disclose. These are very proprietary to us. So unfortunately, we cannot do that.

[Dipanjan Ghosh, analyst]

Just the follow-up on the first one. I was asking more from the perspective of how the distribution payouts on the new business vary between your agency versus non-agency some qualitive color on that?

[Anand Roy, executive]

Yes. See, we are incentivizing our channels based on outcomes. We look at the overall profitability of the business, the product segment that the channel is contributing. So it's a mix of loss ratio and expense ratio and what we look at is a combined ratio. We don't look at payout ratio separately. We consider the combined issue in terms of profitability of the channel.

[Operator]

We have the next question from the line of Devansh Nigotia from SIMPL.

[Devansh Nigotia, analyst]

Verification of NDIS application, it is -- you mentioned post April '25.

[Nilesh Kambli, executive]

Yes, for district, it will be possibly '25. The [ ID ] segment [indiscernible] had conducted a process all the listed players and large life insurance players, I mean, here mandatary threats, prepare yourself and to be ready by possibly '25.

[Devansh Nigotia, analyst]

Okay. So is it still a directional guidance that you have given. It's not a formal announcement yet?

[Anand Roy, executive]

No, there is no formal announcement, but there is a weekly update from the regulator in terms of where are you in terms of the impact analysis, the technology, we conducted a call last week with a technology partner, they have given mandate that's the first impact analysis should be done by 30, September for all the players. So there are very specific directions that are coming in.

[Devansh Nigotia, analyst]

Okay. And what is the MTM gains booked in our investment book?

[Nilesh Kambli, executive]

MTM gains. So there are overall book, there are no gains as such.

[Devansh Nigotia, analyst]

So 7.4%is the yield we should work with for the year?

[Nilesh Kambli, executive]

Sorry?

[Devansh Nigotia, analyst]

7.4% is the yield we should work for the year?

[Anand Roy, executive]

As we have disclosed that there were some profits booked in ETS. So this quarter's yield is marginally higher, but there is a continuous optimization of a set of location, keeping in mind the relative valuations. So let's see. I mean it would be certainly reasonably higher than the previous year. So this is what we expect. But let's see, it depends on the opportunities that we get.

[Devansh Nigotia, analyst]

Sir, what is the employee cost we should work with for the year? What we should work for the year for FY '23?

[Anand Roy, executive]

See, employee cost has 2 components the fixed cost and the variable cost, the feels value, your salaries are variable and there is incentive based on the growth in business. So very difficult to give a number to it.

[Devansh Nigotia, analyst]

Okay. But I mean -- so just a little confused here because -- do you mentioned that we've added just few 30 engineers, but the step-up that we see for the base quarter, June also, there was a INR 56 crore ESOP cost. Adjusting for that, the run rate was INR 220 crores, INR 230 crores, and this quarter is INR 350,000. And June is actually a null quarter with lower variable cost. So considering that the employee cost increase, excluding is actually 62% Y-o-Y June-on-June. That is my...

[Anand Roy, executive]

ESOP cost is not part of the employee cost. ESOP cost is part of the P&L. The INR 55 crores ESOP cost is not part of the plan last year. We cannot exclude that from the employees. The employee cost is compared to the last year and current year. I just hope we have that investment in people, [indiscernible] analysis is growing, there are relationship managers we have deployed.

The sales manager has incentive based on the fresh business. So all this will lead to increase in variable cost. And fixed cost for the first quarter will be higher, we got it sequential. The people we have deployed in digital technology that will come -- that's the fixed costs, which will come month-on-month. And there is an increment element also effective 1, April.

[Devansh Nigotia, analyst]

And sir, while the variable cost and the employee cost, are we not classified it under commissions, unlike insurance company general insurance company?

[Anand Roy, executive]

No. See the commission is purely highly registered intermediaries. The sales managers are internal employees of the company.

[Devansh Nigotia, analyst]

So in case of NDIS implementation, will that -- how will that number play out there or the variable cost for an employee, it will stay as adjective or it will be then apportioned over the year? How will that work?

[Anand Roy, executive]

The sales management cost because it is variable and it is linked to the business that it will be apportioned over the conflict. The fixed cost of business, the accounts, the claims teams are fixed in nature, that will not be apportioned. But the base weighted variable costs will be apportioned.

[Operator]

[Operator Instructions] The next question is from the line of Prakash Kapadia from Anived Portfolio Managers Private Limited.

[Prakash Kapadia, analyst]

I have 2 questions. If I were to look at the GDPI of Star Health, could you give us some sense how much of that is in the top 10 cities as of now? And directionally, as we are trying to penetrate and go deeper, what kind of trends we see for us and the industry in terms of health insurance?

And secondly, what is our stated investment policy in terms of debt equity, in terms of percentage of net worth? Or how do we assess to optimize returns between debt and equity?

[Anand Roy, executive]

So from the perspective of optimizing some returns between debt and equity, the large part of investment patterns are as per the regulation. So regulation defines that minimum what we have to do. So if you look at it, minimum 65% has to be in government securities, state government securities and regulatory-related papers.

So now beyond that, 35% of the portfolio is there, which can be allocated in various asset classes where we feel that by investing there, depending upon relative valuations, how we can maximize sales. And you would also like to -- you would also see that most of the insurance concerning companies do not take very aggressive risk -- so in our case, for example, non-fixed income book as of now would be around 6%. And our intent is that we would increase it to say 10% or so. Going beyond 10% perhaps would be a very gradual and very opportunistic kind of thing if we get a very interesting opportunity, perhaps then we can do it. So this is what the broad thought process is.

[Prakash Kapadia, analyst]

And this book, say, when markets were low, has it ever crossed 10% or no?

[Anand Roy, executive]

No, no, no. We are building this non-fixed income book. And we are not in a hurry to really just go ahead and very actively do this...

[Operator]

The next question is from the line of Manish Gupta from Solidarity Investment Managers.

[Unknown Analyst]

Sir, I just wanted to understand that as you go deeper into rural India or Tier 3, Tier 4 India, would your combined ratio would you be able to share what your combined ratio by geography is?

[Anand Roy, executive]

No, the combined ratio by geography will not be able to present it so earlier, I mean, that will take some time because that is all proprietary information.

[Unknown Analyst]

But directionally, one would imagine that competitive intensity in Tier 3, Tier 4 towns should be lower than Tier 1, Tier 2 cities. So would your hypothesis be that as you go in Tier 3, Tier 4, your combined ratio would improve?

[Anand Roy, executive]

Yes, absolutely. Absolutely. I mean the combined ratio in rural areas is lower compared to urban areas, and that will definitely help in the overall combine ratio of the company.

[Operator]

Ladies and gentlemen, we will take that as a last question. I now hand the conference over to Mr. Nilesh Kambli for closing comments. Over to you, sir.

[Nilesh Kambli, executive]

Thanks for joining the call late in the evening and listening patiently to us. We had a very good first quarter, and we are optimistic about the remaining 9 months to achieve the growth and profitability targets for FY '24. Thank you very much.

[Operator]

Thank you. On behalf of Star Health and Allied Insurance Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.