Star Health and Allied Insurance Company Ltd

NSE:STARHEALTH

Earnings Call Analysis

Star Health Achieves Robust Growth in FY24

Star Health's gross written premium soared by 18% to INR 10,286 crores, while their market share in general insurance edged up to 4.82%. The agency business remains dominant, driving 82% of total business. Bancassurance, with 48 tie-ups, and digital channels, contributing 7%, bolster growth. Combined and claim ratios stood at 98.2% and 67.3%, respectively. Investment assets rose 20% year-on-year with a yield increase to 7.6%. Pre-tax profit surged 38% to INR 388 crores in Q3, and non-annualized ROE improved to 12.1%.

Strategic Focus and Product Offerings

The company has been following a clear strategy of prioritizing risk management before growth in order to ensure sustainable and profitable long-term expansion. They have observed a 10% increase in the average sum insured of new policies and an expanded portfolio with more high-value policies comprising 77% of the retail health portfolio, a significant increase from the previous year's 69%. Moreover, the company has launched a home health care program in 11 cities, with a customer NPS improvement to 63 points from 55 in the previous quarter. App downloads have increased by 12% compared to the previous quarter, reaching over 5 million as of December '23.

Seasonal and Pandemic Trends

The company faced a challenge with higher incidences of fever and infectious diseases in the earlier quarters, which impacted the margins temporarily. However, they have seen a normalization of events from January onward, and no significant increase in COVID cases was reported. Importantly, while the executive team avoided giving specific future guidance, they expressed an intent to work towards improving loss ratios through various strategic initiatives.

Channel Performance and Prospects

The bancassurance channel, which currently makes up 5% of their books, is being seen as a growing opportunity. The company expects this channel, along with digital, to become a more significant contributor in the future, with 33% of new business already coming from non-agency channels. They are focused on profitability and closely track performance indicators to ensure business is conducive to company objectives.

Financial Management and Investments

From a financial perspective, the company is profiting from market opportunities and booked approximately INR 30 crores in capital gains this quarter, with a prudent approach to investments. The fixed income book is being managed with a duration slightly below 4%, while maintaining a core portfolio yield of approximately 7.71%.

Product Pricing and Response to Medical Inflation

In response to medical inflation, the company is managing efficiently through claims and network management. Planned price hikes for products contributing to about 10% of their portfolio demonstrate their proactive approach to dealing with economic changes and maintaining business goals.

Long-term Policy Engagement and Reinsurance Strategy

There's a focus on long-term policy engagement, which constitutes a small but important part of the portfolio with positive customer ROE profile. The company continues to employ a reinsurance strategy with parameters like loss ratios and commission understanding on a sliding scale basis to modulate risks.

Adjustment to Market Feedback and Agency Business Approach

The company has shown agility by making adjustments to offerings based on market feedback and maintains a strong focus on the agency business. They have seen positive results from actions taken in the later parts of the quarter, including price increases that are contributing to their performance and will continue over the next 9 to 12 months. Further, they have experienced high double-digit growth in strategically targeted regions, indicating a deliberate and controlled approach to business development.

Policy Portability and Customer Retention

Customer retention remains central, even as the company experiences some customer port-out following price revisions. They've tightened underwriting standards for porting in due to differences in loss ratios between portability customers and new customers, aiming for stricter control over customer expectations and retention in the long run.

Capital Gains and Commission Disclosures

The company disclosed capital gains and indicated that information regarding gross commission numbers will be made available through public disclosures on their website, illustrating transparency in their financial practices.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day and welcome to Star Health and Allied Insurance Company Limited Q3 and 9 months FY 2024 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Pratik Patil from Adfactors, Investor Relations team. Thank you, and over to you, Mr. Patil.

[Pratik Patil]

Thank you, Nirav. 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. Aneesh Srivastava, Chief Investment Officer; Mr. Amitabh Jain, Chief Operating Officer; and Mr. Aditya Biyani, Chief 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 risk and uncertainties.

Thank you, and over to you, Mr. Roy.

[Anand Roy, executive]

Thank you. Thank you so much, and a very good evening to all of you. Thank you very much for joining us today. As we can for the first time in this new year 2024, let me wish all of you a healthy and prosperous 2024.

The Indian insurance industry is going through a very rapid transformation. We all know that the insurance regulator, IRDAI, has put customer at a center of every decision and moved away from the rule-based regime to principal-based regime, with an overarching focus to provide insurance for all by 2047. And the entire industry stands committed to this vision. The Indian demography combined with the low levels of insurance penetration offers a large opportunity to insurance players today.

While 37% of our population is covered under various health insurance programs, the retail health coverage remains very low at 4%, implying a long runway for growth. Health insurance business is the most preferred business segment within the general insurance landscape. Thanks to the lower retail penetration rate, higher customer engagement that ensures confirmed renewals, high lifetime value of customers and the higher ROE that the business offers.

As a key stakeholder and a leader in the health insurance ecosystem, Star Health remains fully committed to support every initiative that is undertaken to ensure a robust development of the Indian insurance industry. Having talked about the opportunity in the market and our commitment to make health insurance available to every Indian, Star is best positioned in the market to play a very pivotal role in the industry. Star Health continues to lead the segment, demonstrating our leadership on various fronts of business.

On the retail front, we continue to be the largest player with a size that is 3x the size of the second largest player in the industry. On the distribution front, Star Health has the largest agency network with the highest agent productivity amongst all companies. The third most important measure where Star Health stands distinguished is that we operate at the lowest EOM, the expense of management which is significantly lower than the mandated limit of 35% by IRDAI.

I would like to reiterate here that Star Health, we focus on sustainable and long-term growth with our emphasis on profitability by ensuring quality business. Our risk first, growth later is our defined mantra. And going forward, I would like to highlight some strategies and measures we have chopped out so far in this direction.

The realignment of group strategy that we have done towards profitability through stringent underwriting guidelines, we have adopted a risk-based pricing mechanism, changing the distribution and product mix towards better combined ratios, we have recalibrated our portability strategy, increased share of higher sum insured policies and with the consistent rise in network hospitals and pricing arrangement with our network partners.

While growth, profitability and managing risk is quintessential to our business, one very significant factor that goes a long way in ensuring the sustainable value creation by customer experience and customer delight. We are able to deliver the same through various initiatives such as teleconsultation, wellness and various prevention programs that we've done, apart from our efficient claims management.

In claims management, digitization and increased automation has led to better turnaround times, benefiting our customers. Initiatives such as Anywhere Cashless and Home Health Care Solution provided to customers at their doorstep are examples of our customer-centric approach.

Coming to our business performance. On the business side for the 9 months ended December' '23, our gross written premium grew at a rate of 18% to INR 10,286 crores compared to INR 8,753 crores during the same period last year. As the largest stand-alone health insurance company in India, our share of GWP is close to 46% of the entire SAHI industry. In fact, our market share for the 9 months ended December '23, amongst all general insurance company, is up by 14 bps from 4.68% to 4.82% this year. Our market share in retail health for 9 months FY '24 has remained stable at 33% versus the previous year.

Our agency business contributed around 82% of our overall business for the 9 months ended December '23. Our agency strength has increased to 6,84,000 agents, with a net addition of around 19,000 agents in the December quarter and 63,000 agents in the last 9 months. Regulatory changes have assured in an era of equal opportunities for insurance players. The opening up of the bancassurance segment set up an open architecture continues to add muscle to our growth. With 48 tie-ups in the banks and NBFC segment, this channel now contributes to around 5% of our GWP and is growing at a healthy pace of more than 40% in fresh business. We expect this growth to accelerate as we move forward.

Digital business contributed to around 7% of our overall GWP. Digital channels, including our own channels and third-party aggregators have been growing at a healthy clip of 33% in fresh premium growth. To put numbers in perspective, 5% of our GWP comes from our own digital channels, web aggregators account for close to 2% of our GWP. For 9 months FY '24, contribution to fresh business of all non-agency channels is 33%.

In order to increase penetration in semi-urban and rural geographies, we plan to open 1,000-plus sales manager stations, which are small individual service centers. Of which, 859 have already become operational in the first 9 months. With 877 branch offices, we now have a total of 1,700-plus customer touch points to ensure better service. Of the 19,000-plus PIN codes in India, Star Health is present in 17,000 PIN codes via our sales distribution network. A larger presence across sales channels calls for a wider range of service points to cater to our customers. With this in mind, we have 20,000 customer touch points for servicing.

I will now talk about some of our claims initiatives and the outcomes. In terms of claims amount, 84% of the paid claims in 9-month FY '24 were cashless, which was 80% in the previous financial year. Our cashless TAT has improved to 94% claims settled within 2 hours' time. The auto adjudication of claims helps us in drastically reducing the turnaround times. 34% of agreed network hospitals, representing 74% of the cashless claims have been onboarded under our authorized auto-adjudication initiative. Our anti-fraud digital initiatives continue to yield good savings. We have upgraded from the SaaS platform based triggers to an in-house system equipped with dynamic functionality to fine-tune the rules to show effectiveness in our claims management.

Our financial performance. The combined ratio for 9 months ended December '23 was 98.2 and the combined ratio for the third quarter for FY '24 was 97.8. The claim ratio for 9 months ended December '23 was 67.3% and 67.7% for quarter 3 FY '24. Expense ratio, our expense ratio for the 9 months ended December '23 stood at 30.9%. For the third quarter of FY '24, it was 33.1%. Investment income. Our investment assets have grown to INR 14,450 crores in quarter 3 FY '24, showing a growth of 20% year-on-year. The yield for 9-month FY '24 rose to 7.6% versus 7% in 9-month of FY '23. The investment income during quarter 3 of FY '24 grew by 39% to INR 285 crores versus INR 205 crores in the previous year.

Profits. Our PBT of INR 388 crores for quarter 3 of FY '24 was up 38% from last financial year. The Q3 PAT came in at INR 290 crores, registering a growth of 38% over the same period last year. For the entire 9-month, FY '24 recorded a PBT of INR 939 crores, a growth 36% over the same period from last year. And the PAT for 9-month '24 was INR 703 crores, also a growth of 36%. The non-annualized ROE for 9 months ended December '23 was 12.1% versus 10.4% in the previous financial year.

Solvency. The solvency of the company as of 31st December '23 is 2.28x compared to the regulatory requirements of 1.5x. The key highlights of quarter 3 are: the average sum insured of new policies has increased by 10% to INR 9.65 lakhs per policy. INR 5 lakhs and above sum insured policies now constitute 77% of the retail health portfolio versus 69% of the previous year. The share of long-term policies within our overall retail GWP has increased to 6% versus 4% in the last financial year.

Our home health care program is now live in 11 cities. Star Health customers can now avail home health care services by speaking to our doctors and medical professionals through telemedicine, who will visit their homes, if necessary, to provide them service. Our customer NPS on claims has improved to 63 points versus 55 in the previous quarter. Our Star Health ad launched during the initial quarters with new features, sees accelerated traction in terms of registered users availing the benefits of the app. The number of app downloads is more than 5 million as of December '23 and has shown a 12% growth versus September quarter. The organic traffic to the website grew by 39% in 9 months FY '24 over the same period last year.

To summarize, I would like to reiterate again that we follow a very strategic -- risk first, growth later strategy is our mantra and to ensure a sustainable long-term profitable growth in the foreseeable future.

Thank you so much, and we are now open to questions.

[Operator]

[Operator Instructions] The first question is from the line of Shreya Shivani from CLSA India.

[Shreya Shivani, analyst]

I have 2 questions. Sir, first is on the loss ratio trends. So while it seems that the severe seasonal diseases which impacted second quarter has had some impact in the third quarter as well, how has the trend been [Technical Difficulty] What would be the...

[Operator]

Shreya, sorry to interrupt. We lost your audio in between. Now can you start once again?

[Shreya Shivani, analyst]

Can you hear me now? Okay, I'll just quickly repeat my question. It's on the seasonal diseases and the impact which dragged second quarter margins. How much of third quarter -- how many months of third quarter did that persist? And what about COVID cases, where should we expect the loss ratios of fourth quarter to be? Or should we expect some one-offs in fourth quarter as well because of COVID?

And what would be your guidance be for the next 2 years on loss ratio? Second is on the health insurance policy that you're selling via banca channel. So now banca is only 5% of your channel mix, where do you expect, in the coming 2 years, banca channel to grow to? What mix could it become? And is the loss ratio trend any different in the banca channel versus your agency channel?

[Amitabh Jain, executive]

Yes. Thanks, Shreya. So this is Amitabh. I'm taking the first part of the question. So you're right, we had a significant increase in the incidence of fever and infectious diseases in the months of September and October that weighed on the overall [likes] here that we witnessed in Q3. But since then, it has calmed down and even January seems to be normal.

[Shreya Shivani, analyst]

Sir, COVID cases?

[Amitabh Jain, executive]

COVID cases, there's no significant increase. So it's not causing a -- there's no concern or worry on that aspect.

[Shreya Shivani, analyst]

So sir, should we expect that after fourth quarter is over for at least for the next 2 years, our guidance on loss ratio goes back to 63% to 65%, right?

[Anand Roy, executive]

So Shreya, we are not giving any guidance as such, but yes, we are endeavors to keep improving our loss ratios by various measures as we mentioned in our call, including various strategic measures like price increases at significant times and also our efforts on home health care and other such measures.

[Shreya Shivani, analyst]

Okay, sure.

[Anand Roy, executive]

So as far as banca, to answer your second question, banca, as you rightly said, is an interesting channel for us, we are growing, we are right now contributing 5% of our books. We hope to make it larger as the years go by. Many of our partnerships are only now taking shape in terms of the system integrations and product launches. So we expect this to be a very, very significant contributor in the future. We already, as I mentioned in my speech, that almost 33% of our new business is coming from non-agency channels, which is banca and digital largely. We expect this to keep growing faster.

[Shreya Shivani, analyst]

Sir, is there any difference in the quality of customer or the loss ratio trend between your main channel, which is the agency, and the banca channel?

[Anand Roy, executive]

So banca, as you know, has very different business modules. There is an attachment business contribution, which is quite significant, which the banks give part on their loan books. But we also do a reasonable amount of indemnity policies through our public sector bank partnerships. So it's going to be a mix of both. And as far as loss ratios and combined ratios are concerned, we are very, very clear that we do business where it is profitable for us. So we make sure that is tracked very closely.

[Operator]

Next question is from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

Yes. Firstly, on -- if I look at -- if I start thinking about Q4 from here on, you mentioned that the loss ratios are significantly better. And you would have a full benefit of renewal price hike of the Family Health Optima because a large portion of it was sold possibly in Q4 of last year. So a big benefit of that should come in at least on the GDP front. Some of it will go to the URR.

But how should we look at Q4 from a profitability perspective? And then I would extend this to FY '25 as well. So your share of group premium has gone up to 6% today and the price hike that will happen in Q4 of Family Health Optima, quite a bit of that portion will go into the URR and will kind of unwind into FY '25.

So both group health -- sorry, not group health, the long-term policy as well as the price hike of Family Health Optima, that should unwind into FY '25 net earned premium without any OpEx against it, right? So from a profitability perspective, how should this kind of transpire into FY '25? That would be my first question.

[Anand Roy, executive]

Prayesh, thanks for the question. So you're right, the full benefit of price increase will come by April -- 30th April, so Q4 being the biggest quarter. The earned premium will improve in FY '25. And that is where we are saying that we'll ensure that the loss ratio keeps on improving as we keep on moving forward, along with the price hikes and the various initiatives that you have taken.

In terms of group business, it's a combination of SME as well as banca group business, which is very, very efficient when it comes to loss ratios, and that should also help us in terms of overall profitability.

[Prayesh Jain, analyst]

So it's fair to assume that given the severity and the frequency of claims that we have seen in this year, if that would have sustained, possibly we can come within your -- we can come within the guidance range of 92% to 95%. Would there be a fair -- would that be a fair assumption? And with your reinsurance treaty in place, yes.

[Anand Roy, executive]

We don't want to comment on the guidance. But yes, we see that there will be improvement as we keep on moving forward with the various initiatives that we have taken.

[Prayesh Jain, analyst]

Okay. Secondly, so if you could break down your reinsurance treaty and could you explain that a bit with the rationale for it and if you could just give us for 9 months as to how this has impacted each of the line items, like your -- the premiums you did and your claims that would have come and the commission that you would have received on it?

[Anand Roy, executive]

Okay. So basically, we choose the risk we want to retain in our books. We always wanted to be risk averse for long-term treaties. We already have an arrangement for our long-term benefit policy. Even previously, we have mentioned that we want to look at reinsurance as long as it is efficient. So since now, long term, indemnity is a meaningful portion of our portfolio. We are choosing to keep a certain portion of our risk in the books as well as balance is reinsured. So that is part of our long-term strategy on long-term policies.

In terms of impact of [indiscernible], NWP gets impacted because we see the portfolio out. We get certain reinsurance commission. The earned premium goes down because the NWP reduces. So it impacts this 3, 4 line items.

[Prayesh Jain, analyst]

So can we get the quantum of each of these line items, commissions, claims and NWP?

[Anand Roy, executive]

No, see, our [indiscernible] are confidential and not in public domain. So we cannot do each and every line item per se.

[Prayesh Jain, analyst]

Okay. Got that. And secondly, from a growth perspective, Anand, this is -- what would be the number of policy growth that you would have seen in 9 months? And what has been the Family Health Optima renewal ratio in terms of number of policies so far? And how would you see that for, say, the Q4 as well?

[Anand Roy, executive]

So see, the Family Health Optima is the biggest portfolio we had, and took us a good price hike in that. When we took the price hike, we were expecting about 5% approximate drop-off in customers because that was based on our historical trends when we have taken price hikes earlier. And happy to let you know that, that is where it is right now. We have been able to retain our customers on our books. And the overall retention premium is almost 105% in terms of the Family Health Optima premium.

As far as our overall growth is concerned, we remain very optimistic around our growth. We see that the growth is driven both by new policies as well as by our price revisions and upgrade in terms of some insured during renewals. So it's a healthy mix, and we are quite confident of keeping this going.

[Prayesh Jain, analyst]

Anand, just the last question from my side. But if you look at the growth in the last couple of months, that has been significantly lower than what the -- your other players. And in fact, that gap has only widened in the last couple of months. What has been causing that, in the sense that the growth which you had guided for around 20%-plus growth or 20% kind of growth on the retail health is now trending more towards 15%, 16% kind of range?

So -- and in spite of the fact that there is so many levers at play or so much has gone up, all those elements have been at play for some time now, but we still don't see the growth coming in. So how should we think about growing from a longer-term perspective? Is it more of a 15% kind of a range or 20% is something that we should look for? How should we think about this?

[Anand Roy, executive]

No. So see, if you look at the growth, we have been growing almost equal to the industry's growth rate. But as I mentioned earlier, our philosophy is risk first, growth later. We are looking at the quality of book rather than only the quantity of growth. I think that is something that we are very mindful about. Because we are building a business for a long term, and health insurance is a business where you onboard customers and you stay with them for life. So that's what we intend to do, and we are not going to run behind growth and the cost of quality of growth.

So we still have absolute conviction that we will be able to grow closer to the -- our internal aspirations of course are to grow close to 20%. But at the same time, we are calibrating areas where we see that the quality is not so good. We are slowing down there. But we are growing fast in the profitable areas where we are seeing good momentum.

[Operator]

Prayesh, I request you to join that again for a follow-up question. [Operator Instructions] Next question is from the line of Madhukar Ladha from Nuvama Wealth.

[Madhukar Ladha, analyst]

Congratulations on a good performance. First, coming back to the retention question. So there's definitely some rethink of here, right? Because your retention has reduced, you were doing about 95% and now it's at around 87%. So what has driven this? And I wanted to get some sense then -- because of this, your NWP has actually grown only 7% this quarter, right? So would that mean that if this trend sort of continues, what should we expect our NWP growth to be like? Because that is what will ultimately flow into NEP.

Second, I also noticed that your expense ratio has gone up to about 19% for this quarter. And obviously, commission ratio has been aided by some reinsurance commission that you've got. So why are the expense ratio elevated? And what -- how should like our normalized sort of commission ratios look like? So these would be my 2 questions. I'll come back with any follow-up.

[Anand Roy, executive]

Madhukar, there are 2 things. So this reinsurance treaty that we have done, it is retrospective from 1st April '23. 87% that you're saying is only for Q3. The correct number to look at is for 9 months, which is 92%. So from 95%, it has shifted to 92.3%, which is not a significant change and it is in line with our strategy, as we mentioned on the long-term policy.

Coming back to your question on expense ratio and commission ratio. So commission ratio, while it is aided by the initial commission, expense ratio, what happens is whilst the numerator is the same, the denominator has gone down. It's more a technical thing. The correct measure is the overall expense ratio, which is constant in line with last year, as well as it has improved compared to H1 as well.

[Madhukar Ladha, analyst]

Understood. Got it. Got it. This is helpful. And finally, I just have one more question on your investment income. So the yield has shot up in this quarter. Is it because some capital gain booking has happened in this quarter as a result of that? Or what's going on of that?

[Aneesh Srivastava, executive]

Yes. Madhukar, this is Aneesh here. So yes, we have booked some profits in this quarter. But the objective of booking profit was not that we have to take the profits, but we saw certain opportunities where we felt that the valuation would be such that we should exit some positions. And as far as booking profit is concerned, it's not that this is the first time that we have booked profit, we have booked profits in the earlier quarters as well. So I suppose this is a very calibrated and conscious approach that we are taking on investment book. For yields to go up, actually, you know that in general yields have hardened in the market, even short end of the yield curve is relatively elevated. So all that basically flows into the overall yield curve and portfolio.

[Madhukar Ladha, analyst]

So what is the kind of duration in yield that we are running right now like [option]?

[Aneesh Srivastava, executive]

So on fixed income book, we are running a duration of approximately slightly below 4% to somewhere around 3.9%. And core portfolio yield, core fixed income for yield, if we satisfy the liquidity that we maintain, that is approximately 7.71.

[Operator]

Next question is from the line of Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

A couple of questions. The first one more on sort of an industry, of this test kind of announcement on this CapEx everywhere. How does this change sort of the network hospital concept or agri network hospital? I mean, because now with this concept, at least from accessibility point of view, every policyholder from any insurer has cashless access to hospitals. So I mean how does this sort of a thing changes your -- does it change anything in terms of the positioning of health insurer as far as the network hospitals are concerned? And if at all, anything in terms of the pricing which is in every network hospital. So that's one.

Second question, sort of what kind of medical inflation you are seeing, I mean, so far, say, calendar '23 or FY '24, and has sort of a change towards up or down from -- in the post-COVID -- what you were seeing in the post-COVID era? And related to that, based on those disclaim [indiscernible] in certain trends and also that you and the industry has undertaken multiple price hikes in retail health, going forward, do you see the prices to be stabilizing or still some need to take price hikes?

[Anand Roy, executive]

Yes. Avinash, the Anywhere Cashless is a great initiative led by the regulator. And we believe that the consumers' appreciation towards retail health insurance will only increase. And as the customer experience, because of this, easy access to cashless services. Generally, we have seen that the reimbursement claims come with higher incidents of fraud, waste and abuse. So increase in uptake of cashless is overall welcome for the industry and for us as well. We've already launched this initiative, and we are getting good response.

On the second question on medical inflation, the medical inflation remains high as far as the overall industry is concerned. But we are managing that through efficient claims and network management, and that remains at levels that we believe we can manage. On price hikes, yes, I mean, this is something that we keep doing as per the requirement of a particular product and the portfolio overall yield and price requirements. We're expecting to have price hikes coming up in this quarter for a couple of products, which are contributing to about 10% of the portfolio.

[Operator]

Next question is from the line of Supratim Datta from AMBIT Capital.

[Supratim Dutta, analyst]

So starting off with the long-term indemnity policies which you have showed, could you let me know what is the loss ratio difference between the long-term indemnity policies or it's been regular indemnity policy?

[Operator]

Supratim, we are losing your audio. Can you please speak for the handset or a little louder?

[Supratim Dutta, analyst]

Yes. Can you hear me now?

[Operator]

Yes.

[Supratim Dutta, analyst]

Yes. So what is the last thing is, could you give me the loss ratio difference between the long-term indemnity policies and the regular indemnity policies? That's one. And 2, what I would like to understand is how does the ROE profile now for the long-term indemnity policy differ compared to previous regime when you did not have the reinsurance, the 50% reinsurance?

And thirdly, I understand you talked about growth and your philosophy on focusing on risk first and growth later. However, you have always been -- as in insurance company, you have already been focused on growth. And you are focused on risk and you are growing much faster now in the banca and the group channels. Then why is the core agency channel not being able to drive the growth? What are the challenges there? If you could help us understand that and how you're addressing that, that would be very helpful.

[Anand Roy, executive]

So Supratim, on this long-term indemnity, as we said, this portfolio has started to grow now and it's become a substantial portion of our portfolio. The experience on whatever previous portfolios that we have is good. The loss ratios are better because all the customers are retained for 2 years or 3 years. So it's generally good in terms of loss ratios. And hence, the ROE profile of this customer is also good. But as you have written substantial portion now, we'll have a better experience as we keep on going forward.

[Amitabh Jain, executive]

So let me take the question on agency -- core agency growth. See, the core agency business contributes 82% of our portfolio. So we are absolutely doubling down on agency. There is no question of slowing down there. There are certain strategic steps that we have taken on focusing a bit more on quality in certain areas where we were seeing consistent bad quality business coming in. For example, certain parts of North India, certain parts of Western India. So we have kind of calibrated our strategy there.

But let me assure you that Star Health is an aggressive growth-focused company. We are not going to slow down growth as such, but quality of growth will be a major driver in our plants. So just to put it in context, we have really, really slowed down our inward portability business in those markets, which we saw that it was a loss leader in our overall books for a long period of time. So those are the steps that we have taken.

And we are not shying away from taking some aggressive steps to build a better quality of book. As you know, last year, we took a conscious call to slow down our group business. So we will continue to keep evaluating business on its merits and not do growth for the sake of growth.

[Supratim Dutta, analyst]

And could you give me the ROE deferential now in these long-term indemnity policies that you have put in place for reinsurance contact?

[Anand Roy, executive]

As we spoke, long term is a very small portfolio till last year, and it plays out over the next 2, 3 years. So since the loss ratios for this portfolio is -- could be -- the customer remains with us, the ROE profile of this customer is also very good.

[Supratim Dutta, analyst]

But how does it change now that you have put on a 50% reinsurance contract?

[Anand Roy, executive]

No, nothing changes. No, reinsurance contracts are on -- there are certain parameters, there is a loss ratio understanding, there is a commission understanding. These are on sliding scale basis. So there is a certain cost associated with it. That's it.

[Operator]

[Operator Instructions] The next participant is Nilesh Saha from Julius Baer.

[Nilesh Saha, analyst]

Yes. Are you able to hear me?

[Anand Roy, executive]

Yes.

[Nilesh Saha, analyst]

So I joined the call a bit late. So yes, I'm not sure if you spoke about this earlier. But I was hoping if you can comment a bit over -- yes, like -- so this growth that you reported this quarter, right, could you give some color on the new customer volume growth, part A. And part B, what is your retention metric looking like for your customers whose policy is completed a year in end of quarter gone by?

[Anand Roy, executive]

So we had answered this previously, the...

[Nilesh Saha, analyst]

Okay. I can then go back and look at the con call transcript once that comes out, no need to repeat. I can just go on to the next quick question which I had. I just -- yes, so over the last 3 quarters, what I have heard a lot from you guys on the call is a lot of emphasis on managing risk, right, improving -- what you also spoke of on the call, right, making sure that the insurance policies that are of good loss ratio and stuff. Could you comment a bit on what you are doing at the back end, right, in terms of how your sales -- in terms of how you manage your agency, right? That is -- where you are implementing these sort of changes, right? And if that is having some sort of impact either on the growth side or on the cost side? That's all from my end..

[Anand Roy, executive]

Yes. So this is a continuous sort of evolving exercise, and training of agents and our own sales teams is something that we keep improving upon. Some of the risk-based selection criteria, underwriting guidelines, scoring models, those are the things that we are working on improving our analytics based on geography, customer segmentation, micro segmentation of risks and so on, and that's something that we are training our teams as well as our agency force on a continuous basis. So we expect that as we sort of continue this and put more and more emphasis on the overall mantra that we have, that risk first and a profitable growth on that is what we are going to continue to work upon.

[Nilesh Saha, analyst]

Okay. Just one small follow-up, right? Have you been able to implement anything either at the level of your agents or the managers who handle your agents where you have tried communications or payouts on the basis of the loss ratios of the policies that they sell? I remember that long back there were some plans on this front, but have you implemented something of this kind?

[Anand Roy, executive]

Yes. So all our branch managers have -- the sales managers and above are -- have their KPIs on profitability. We do ensure that they are well aware of the profitability of their business on a monthly basis. They have dashboards, which they are able to evaluate their business regularly, available with them. As far as the payouts and commissions are concerned, we did roll out something, but we have made some changes based on market feedback, and we will keep evaluating and making changes as and when necessary.

[Operator]

Next question is from the line of Nidhesh from Investec.

[Nidhesh Jain, analyst]

Firstly, on the agency channel, if I just do some rough calculation, my guess is that the agency cost ratio will be around 70%, and we are taking steps to curtail loss ratio there. And the last 2 quarters, I have heard that we have taken lot of steps to curtail loss-making geographies. So whatever the steps we are taking, by when do you think those will be visible in our portfolio? Will it take full 12 months, the books had to run down and then the new book that we are building out that will -- so whether it will take 12 months or do you think the steps that we are taking would be -- the benefit of that will be visible quite quickly?

[Anand Roy, executive]

So the first thing is the agency loss ratio is not 70%. And to answer the second question, the steps which we are taking, we are seeing good positive results as we [indiscernible] November, December as Amitabh mentioned are trending well. Even January we are seeing a good result. We have taken the price increase, which benefit is expected to come -- has come in Q3, Q4 and for the next 9 to 12 months as well. The quality business that we're talking about, the reduction in portability, we are seeing some good benefits out of that as well. So it already started to benefit our portfolio, and we see some good benefits coming in the future.

[Nidhesh Jain, analyst]

And second is, what is the fresh premium growth for Q3 and 9 months on an overall basis, and in the agency channel, if you can talk about these numbers?

[Anand Roy, executive]

See, we will not like to comment channel specific, but we have the growth in premium business is at double digits as we speak.

[Operator]

Next question is from the line of Dipanjan Ghosh from Citi.

[Dipanjan Ghosh, analyst]

Am I audible?

[Anand Roy, executive]

Yes.

[Dipanjan Ghosh, analyst]

Sir, Star is probably only one of the few companies on the SAHI side and excluding the [PSU] which have been our operations for almost a decade now -- more than a decade. Sir, given that your growth has kind of slowed down from pre-COVID levels on the gross premium side and you're seeing vintage of the book also rising, you're also taking some price hikes here and there. Sir, can you give some color on how the vintage-wise loss ratio is shaping up? Not quantitatively, but maybe if you can give some color qualitatively. Last time, it has already been 5 years back [indiscernible] what is it now. Will you give us some understanding of both medical inflation, how the portfolio is behaving?

Second, I think more on the essential products where you have incurred the price item. Just wanted to understand, for the customers who have fallen off or where you have seen persistency loss because of the price hikes versus the customers who are still retained in your portfolio, how would be the claim ration between these 2 cohorts? Or in other words, just trying to understand, is it higher claims ratio customer which falls or the better-quality customers or some kind of understanding on that?

And lastly, just going back to the previous participant question. If we do the back calculation, it seems that fresh business through agency probably has declined by a good margin compared to, let's say, your agency growth, which should be better. Also, if you look at the growth on a 2-year lag basis, I mean, because we have been adding agents also at a very sharp pace, it seems that the growth does not look that great. So what are the steps you are taking? And by when can we expect the agency growth to really kind of revive? So those are my 3 questions.

[Anand Roy, executive]

Okay. So let me take the question on Star as being a 15-year-old company and about the vintage of customers. The fact that we are the only company, probably one of the few companies in the entire industry which is making underwriting profits should answer your question about the quality of book and the selection and the way we are managing the portfolio. So cohorts and vintages do not make any significant impact as long as you're managing it scientifically and repricing the product at intervals where necessary.

So I think that should be sufficient to say. We are not going to give obviously detailed cohort-based data to you. As far as our residue of customers are concerned, we do not differentiate any customer as a good customer or a bad customer. We would like to retain all customers. So our target was to retain customers with a minimum drop off, and we are very well within that range of our target. So I think that's what how we are looking at it. What was the third question?

[Amitabh Jain, executive]

Decline in fresh agency.

[Anand Roy, executive]

There is no decline in fresh agency business. As I told you, the business is being calibrated based on profitability of the regions. We are seeing very, very high double-digit growth in regions where we want to grow and we have kind of reduced our growth by design in certain areas. There is no compulsion for us to reduce our growth there technically speaking. But we are doing it in the long-term interest of the business. That's how I would put it.

[Dipanjan Ghosh, analyst]

Got it. And if I can just a small follow-up to the second question. I understand that you don't differentiate between good and bad quality customers. But for the customers that have fallen off, you would know the back book claims ratio on the customer cohort, and also the customer cohort that has been retained in the system kind of claims ratio for them. So just wanted to, if qualitatively you can...

[Operator]

Sir, the line for the participant dropped. We move on to the next participant. Next question is from the line of Swarnabha Mukherjee from B&K Securities.

[Swarnabha Mukherjee, analyst]

I had one query, a technical query that for the longer-term policy, if you could explain why our reinsurance support is required. Because if I understand correctly, these are also generally underwritten [indiscernible]. So how different it would be the expected experience between, say, 1-year policy and a 2-year policy that would warrant some risk [indiscernible]? So that is the first part of the question.

The second thing was that, you mentioned that in fourth quarter, the retention level would be 92, would I be correct in assuming that as we go ahead and our share of long-term policies increase, this retention level will also further go down in tandem? Is that -- so that is on the reinsurance side. And if you could also give me couple of additional data points. So first of all, this 10% business in which you are repricing, what would be the increase? What would be the quantum of repricing if you could highlight that? And if you could also give us the share of nonagency channels in the fresh business last year in third quarter? That would be very helpful.

[Anand Roy, executive]

So Swarnabha, on the reinsurance philosophy, we have a particular strategy. To give you an example, for -- not portion of this -- there are philosophies of 1 in 100-year event, 1 in 250-year event and companies buy 1 in 500-year event as well. Each has a different cost element. So this is the philosophy of the company. So the long-term policies for 2 years, 3 years, we have a philosophy of reinsuring it. So that's based on our philosophy that we have taken this decision to reinsure this risk.

Your second question this is the 92%, see, this is the 9-month number. As we keep on doing the long-term portfolio, on an overall basis, it should remain constant or slightly elevated. But there's really no significant difference to this 92% that is reflected in the 9 months number. On the...

[Swarnabha Mukherjee, analyst]

So, sir, just a follow-up. For the next couple of years, should we build in a number close to that 92% only or should we be taking [indiscernible] slightly more as your share of long-term [indiscernible]?

[Anand Roy, executive]

Yes. So it's our strategy. So we'll continue with it as long as the terms are bearable. So based on our strategy, we'll continue with this reinsurance arrangement that we have.

[Swarnabha Mukherjee, analyst]

Yes. And is there a possibility that this sharing which is -- what is now 50% quota share has then also changed?

[Anand Roy, executive]

Sorry, Swarnabha, can you repeat it?

[Swarnabha Mukherjee, analyst]

So I think you mentioned it's a 50% quota share kind of a policy rate. So would that -- can there be a design, sir, that can also change?

[Anand Roy, executive]

See, very difficult to comment now. But based on our philosophy, we'll continue to have reinsurance. Now 40%, 50%, 60%, it depends upon the reinsurance arrangement that we get in the market. But we'd like it to be payable as far as possible.

[Swarnabha Mukherjee, analyst]

Sir, if you could give me the other 2, it would be helpful, sir.

[Anand Roy, executive]

Can we have the question?

[Swarnabha Mukherjee, analyst]

Sir, I had requested for couple of data points which is how much will be the quantum of price hike in the products that you are agreeing to hike prices? And mix of nonagency channels in the first premium last year same quarter, if you could share that?

[Anand Roy, executive]

We were showing that in the PPT.

[Operator]

Shall we move on to the next question, sir?

[Amitabh Jain, executive]

So on the price increases, we covered that in an earlier question, that we're planning to take product -- price hikes in couple of our products in this quarter which amount to about 10% of our portfolio.

[Operator]

Next question is from line of Sanketh Godha from Avendus Spark.

[Sanketh Godha, analyst]

Sorry. Sorry, am I audible now?

[Operator]

Yes.

[Sanketh Godha, analyst]

Anand, you, in the initial remark said that from a risk management point of view, you started putting in lower compared to what you have done in the historical past. Sir, just wanted to understand what -- how much it has changed, say, a couple of years back or last year to current, and how much has it impacted maybe on growth? And second, have you seen in your policies a little more port-out happening in the current year compared to historical past? I just wanted to understand that trend, how is your experience. Because I'm coming from this point because of the growth, and that's the reason I'm asking this question.

[Anand Roy, executive]

Yes. So Sanketh, to answer your second question first, FHO, which was a big portfolio for us, and if there is a 5% dropoff because of the price revision, definitely some of those customers have ported out to other companies at their convenience. So there is a port out which is otherwise not seen in other types. This is a one-off event. And -- but every time we take a price hike, we do see this happening once in 3, 4 years. So that is about porting out. As far as porting in is concerned...

[Sanketh Godha, analyst]

But Anand, this number of 5% drop off -- I mean, I'm just asking from usual business standpoint. This number is relatively higher compared to what you have experienced in the previous years?

[Anand Roy, executive]

Yes, of course. That's what I was trying to say. If we were doing -- yes. If you were doing on an average, let's say, 90% retention policy-wise and if you are doing 85% this year on FHO, that's a 5% drop off which we have seen. Some of them might have gone to other companies. Some of them might have not gone out of their insurance franchise itself, but that is possible.

As far as porting in is concerned, we have really tightened our underwriting standards in porting in because of 2 reasons. One is we have seen that there is significant amount of difference between loss ratios in terms of portability customers and new customers. And second thing is we have also seen that porting customers, sometimes there is lot of dissonance in terms of expectations and it also leads to a bad experience with customers. Sometimes intermediaries will not give the true picture of the porting polices and conditions. So we have kind of really tightened that area, and we would like to keep it that way.

[Sanketh Godha, analyst]

But just, Anand, if you can quantify the number. For example, it was 14 x 5%, the total premiums was 14 last year, whether that number has reduced to say, like 1 odd percentage. Just wanted to understand, how much you've tightened this?

[Anand Roy, executive]

It's come down to low single digits is all I can tell you.

[Sanketh Godha, analyst]

Perfect. Perfect. And second question, and then I had one on data. See, this long-term policy is when you say 6 percentage. First, I want to understand how is your comfort level because as you highlighted, that this business also comes with the risk of higher claims because you are married to the customer for 3 years and don't have a choice to take a price hike. Then to what extent do you want to get it to be as the percentage of your total book? And then this 6 percentage what you have told in the call or initial remarks, is only indemnity or you have included benefit based also in this 6 percentage? That's my question.

And second, one data keeping, just I want 2 data points. What is the exact amount of capital gain you have booked in the current quarter? And what is the exact gross commission number you have paid in the current quarter, and 9 months, sorry?

[Anand Roy, executive]

Long term, we never said it is in terms of adverse experience. In fact, it is better experience we said, because these are customers locked in for the first few years of the engagement with the company and, hopefully, they will renew for future also. So these are definitely more better experienced customers in terms of loss ratios. As far as capital gain is concerned, I'll request Aneesh to add.

[Aneesh Srivastava, executive]

So we have booked approximately INR 30 crores of capital gains.

[Sanketh Godha, analyst]

The commission number for 9 months and 3 months or current quarter?

[Aneesh Srivastava, executive]

Sorry, which number, commission?

[Sanketh Godha, analyst]

In our release, we have net commission number, I was looking for gross commission number.

[Anand Roy, executive]

So gross commission numbers, we'll share separately. Sanketh, it will come as part of our public disclosure on the ID website.

[Sanketh Godha, analyst]

Got it. Got it. And Anand to your answer, the 6 percentage, I just wanted to check how much you want to take it to? And whether the 6 percentage is completely indemnity or benefit based is also included in the 6 percentage?

[Anand Roy, executive]

So 6% includes indemnity and benefit. And you want to grow this portfolio because this is a good portfolio. We would like to grow this portfolio.

[Operator]

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

[Nilesh Kambli, executive]

Thank you, everyone, for joining the call. We see that this quarter ended well for us, and we see some -- lot of positives as we keep on moving forward. And we are confident of improving for the next coming years. Thank you very much.

[Operator]

Thank you very much. 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. Thank you.