Jefferies Initiates 'Hold' On Star Health Citing Profitability Concerns

Jefferies has initiated coverage on Star Health and Allied Insurance Co. with a 'hold' call, noting continued industry headwinds that can keep profitability under pressure. The private insurer has around 33% market share in India's retail health insurance space and has the largest agency network.

The brokerage estimates elevated combined ratio at 97-98% over fiscal 2025-2027, with range bound return on equity of 11-13%. A combined ratio that is below 100% shows that the entity is making profit, and the goal of insurance companies is to maintain a low combined ratio.

Jefferies has set a price target of Rs 550 per share on the stock, which implies a price-to-earnings ratio of 28 times the September 2026 estimate. The target price also implies a 9.8% potential downside to the previous closing price.

Pick up in retail volumes or reduced competition are potential upside risks to the company, the brokerage noted.

Jefferies has also raised the earnings-per-share estimate of ICICI Lombard General Insurance Co. by 6-16%.

It has a 'buy' call on the stock with a price target of Rs 2,600 per share, which implies a price-to-earnings ratio of 40 times the September 2026 estimate. The target price indicates 25% upside potential from Thursday's closing price.

ICICI Lombard is the biggest beneficiary of current motor upcycle with an improved growth from stronger personal vehicle renewals, two-wheeler uptick and better market share and profitability from moderation in competitive intensity, the brokerage said.

"Even as industry can see uptick in motor claims, ILOM's conservative reserving keeps its claims outlook healthy," Jefferies said. Another factor that helps the company is its low exposure to retail health segment.

Within the non-life insurance sector, large private insurers are set to gain from multi-year upcycle in motor segment, which contributed around 35% of premium risk, led by premiumisation and moderating competitive intensity, Jefferies said.

Renewals that contribute 60-70% of the premium mix will continue to benefit during the multi-year upcycle in automobiles and consumer shift to more premium segments of the market.

Health can see pressure in retail segment from rising claims frequency and elevated competition. Pricing-led growth is driving up 'porting' of policies and leads to adverse risk selection for large players, Jefferies said.

"While rising claims can warrant industry-wide price hikes and reduce porting and improve renewals, current downcycle can be prolonged and we remain cautious. Introduction of composite licence can increase competitive intensity," the brokerage said.