India’s standalone health insurance sector, currently dominated by Star Health and Allied Insurance Co Ltd, is set to welcome Niva Bupa Health Insurance Co through its upcoming IPO. Despite being smaller in net earned premium (NEP) compared to Star Health, Niva Bupa has shown impressive growth rates and a lower claims ratio, indicating efficient risk management.
Growth Rate
In recent years, Niva Bupa achieved a NEP growth rate of 47% annually, outpacing Star Health’s 15%. Its claims ratio, which measures NEP spent on claims, stood at 59% in FY24, the lowest in the industry, signaling strong underwriting standards. This could potentially lead to Niva Bupa commanding a higher valuation than Star Health upon listing.
With Star Health trading at a market capitalisation-to-NEP multiple of 2.6x based on FY24 figures, assigning a 25% premium suggests Niva Bupa could achieve a market capitalisation of approximately ₹12,000 crore post-IPO. This aligns with the IPO’s target size, which includes a ₹3,000 crore offer for sale component to meet regulatory requirements.
Solvency Ratio
Niva Bupa appears well-capitalised with a solvency ratio of 2.5, exceeding the regulatory minimum of 1.5 for insurance companies, akin to banks’ capital adequacy ratios.
Standalone health insurers like Niva Bupa benefit from faster growth compared to general insurance, driven by rising demand for health coverage. However, they face competition from existing players and potential challenges from government health schemes like Ayushman Bharat, which offer free hospital treatment to a large segment of the population.
Investors assessing the Niva Bupa IPO must weigh these factors against the sector’s growth potential.
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