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NIB profit boost driven by lower claims, churn rates

Glenn Freeman  |  20 Feb 2017Text size  Decrease  Increase  |  

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Private health insurer NIB has reported $71 million in net profit after tax for the first half of fiscal 2017, up 65 per cent on the same period in 2016.


NIB Holdings (ASX: NHF) shareholders will receive a fully-franked interim dividend of 8.5 cents a share, up 48 per cent on the first half of  fiscal 2017 (1H16).

Management attributes the growth, which comes amid an ongoing period of difficulty for private health insurers, to the ongoing success of its core Australian Residents Health Insurance (ARHI) product.

Revenue across the group rose 7.3 per cent to $995 million over the half, relative to 1H16. ARHI premium revenue increased to just under $830 million, up 6 per cent, accounting for 83 per cent of total revenue.

"Our core ARHI led the way, with net policyholder growth of 2.1 per cent for the six months. This meant NIB accounted for over half of all industry policyholder growth for the period," said Mark Fitzgibbon, NIB's managing director and CEO.

As a sector, private health insurers continue to grapple with declines in the number of new policyholders and policy renewals, along with an increase in claim rates driven by Australia's ageing demographic.

"From an industry perspective, we expect the private health insurance market growth to slow in response to ongoing affordability concerns and slowing population growth," said Morningstar's senior equity analyst, David Ellis.

The government-mandated annual premium increase underpins the profitability of private health insurers, with this increase set at 4.84 per cent in fiscal 2017 and due to take effect from 1 April 2017.

NIB Holding will increase its premiums 4.48 per cent--its lowest in 15 years--compared with 5.55 per cent in 2016 and 6.55 per cent in 2015.

"The first half is seasonally a stronger period for private health insurers, but on top of that, there were a number of other unexpected things that drove this NIB result," said Ellis, who had predicted NPAT of around $50 million for 1H17.

Claims costs were lower than expected during the period, as reflected in the group's underlying operating profit of $95 million for the half--up 43 per cent from $66 million at the same time a year earlier.

Growth in the number of policyholders was also stronger than expected, as was the premium increase, according to Ellis. He believes efforts to further improve customer service levels and reduce the rate of policy churn will be major areas of focus for the insurer in the short to medium term.

NIB management expects market conditions for private health insurance to remain "soft, with affordability a key consumer concern".

Fitzgibbon said NIB would look to achieve "more 'bang for buck' for policyholders and to ease premium pressures through more sophisticated contracting with providers and risk management of high-cost policyholders".

He reiterated plans to grow its non-ARHI business at a rate of between 4 and 5 per cent "through distribution strategy, price competitiveness, improved sales/retention skills and world-class customer service".

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Glenn Freeman is Morningstar's senior editor.

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