Singapore’s GIC leads ₹1,200 cr pre-IPO funding in Star Health

Star Health and Allied Insurance Co Ltd, the health insurer backed by billionaire Rakesh Jhunjhunwala and Westbridge Capital, raised around ₹1,200 crore in a pre-IPO funding round led by Singapore’s state investor GIC, two people aware of the development said.

“The funding was closed earlier this quarter. GIC led the funding with around ₹600 crore investment, and Capital Group, which is one of the big FIIs (foreign institutional investors) in the Indian stock market, invested around ₹300 crore. A few other public market investors also participated in the round, and so did the existing investors of the company,” said one of the two people cited above, requesting anonymity.

“This is one of the biggest private investments in an insurance company during the pandemic and shows strong investor interest in the company despite the insurance industry overall facing headwinds because of the pandemic and rising claims. Star Health has seen one of the highest growths in the industry in gross premiums in FY21, and the company’s finances remain strong despite a challenging year,” he added.

Star Health reported a 36.7% growth in its gross premiums in FY21, higher than the 27.1% growth rate it clocked in the previous fiscal. At the end of FY21, the insurer’s solvency ratio, a measure of an insurance company’s ability to meet its liabilities, increased to 2.22 from 1.88 at the end of the previous fiscal year. Regulatory requirements mandate a solvency ratio of 1.5.

According to the second person cited above, work on the company’s draft IPO document is at an advanced stage and is expected to be filed with the markets regulator soon.

Mint reported last week that Star Health hired around 10-12 investment banks for its IPO, including Kotak Mahindra Capital, Citibank, Credit Suisse and Bank of America. The IPO is expected to be around ₹2,000-3,000 crore in size, with the company expecting to get a valuation of over $3 billion for its public market debut, Mint reported.

Emails sent to Star Health, GIC and Capital Group remained unanswered.

Founded in 2006 as India’s first standalone health insurance provider, Star Health provides health, personal accident and overseas travel insurance.

The investor consortium of Westbridge Capital, Rakesh Jhunjunwala and Madison Capital, had in August 2018 agreed to acquire over 90% stake in Star Health from existing investors Star Health Investments Pvt. Ltd and private equity funds managed by ICICI Venture, Tata Capital and Apis Partners. The consortium had acquired the insurer at a valuation of close to ₹6,000 crore.

The proposed IPO will make Star Health the fourth private sector insurance provider to list on the Indian stock exchanges, following HDFC Life Insurance Co. Ltd, ICICI Prudential Life Insurance and ICICI Lombard General Insurance. Other listed insurance companies include SBI Life Insurance and state-owned The General Insurance Co. of India and New India Assurance Co. Ltd.

“Although the economic slowdown has had an adverse impact on Indian insurers, with general insurance growth slowing to 2.5% and life insurers’ new business premiums falling by 1.7% in the nine months to December 2020, we expect general insurance premium growth to remain in positive territory, thanks to persistently strong demand for health and protection coverage,” Mohammed Ali Londe, senior analyst at Moody’s Investors Service, said in a note in January.

Health premiums rose 13.7% in the nine months to December 2020 because of rising consumer awareness of these products during the coronavirus pandemic and regulatory actions that enabled insurers to offer protection against the virus, Moody’s said.

“Indian insurers have also responded to the crisis by rapidly developing appropriate products and improving their digital offerings. This has led to an increase in sales of health and protection policies, which Moody’s expects will drive further growth in the future,” it added.

According to the company’s website, Star Health has underwritten a gross written premium of ₹6,865 crore during 2019-20 and had a net worth of ₹1,889 crore as on 31 March 2020. It has over 12,800 employees and over 640 branch offices across India.