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Medibank losing health insurance customers

Nicki Bourlioufas  |  17 Feb 2017Text size  Decrease  Increase  |  
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Medibank Private (ASX: MPL) has lifted half-year profit 1.9 per cent to $231.9 million on higher investment income, but the insurer is battling loss of market share in its health insurance division.

Health insurance operating profit fell to $249.4 million for the six months ended 31 December, 2016, down from $271.7 million the same period a year earlier. Gross margins decreased from 17.2 per cent to 16.9 per cent.

Health insurance premium revenue for the six months to 31 December rose 1.2 per cent to $3.12 billion. The insurer paid $2.6 billion in claims on behalf of its customers, up 1.5 per cent from the year earlier period.

Net investment income rose to $76.8 million, up from $18.6 million due to higher equity market returns and stronger credit markets.

Medibank chief executive officer Craig Drummond said the company is trying to turn around customer loss in a challenging health insurance industry.

"Industry volume growth continued to slow, which is indicative of the challenging conditions currently being experienced. However, underperformance relative to the [health insurance] market in both customer acquisition and lapse impacted growth," he said.

"In the first half we have re-orientated Medibank to sharpen the focus on our customers. I'm encouraged by the early progress we have made, but we recognise there is more to do.

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"Our investment in customer service has resulted in improvements in our customers' experience. We have added 60 new people in our customer contact centre and extended operations to Saturdays, launched 24/7 web chat, and reduced call wait times by 50 per cent since the first quarter of 2017.
"I'm pleased with the steady progress we have made during the half, and while challenges remain, we are strengthening the business by delivering improved value for customers and better products and service."

Morningstar senior equities analyst David Ellis said investors were disappointed with the result. The health insurance business is losing market share, down to 27.2 per cent of the market as at 31 December 2016, though the loss of policyholders has slowed.

"It's not a good thing because Medibank is losing policyholders. Investment income can go up or down, but it's the health insurance business that is its core business and that result was disappointing," Ellis said.

Medibank shares fell on the result, closing at $2.70, down 3.9 per cent.

Medibank reaffirmed its previously stated outlook that health insurance operating profit for the full 2016-17 financial year is expected to be approximately $490 million.

Medibank paid an interim dividend of 5.25 cents per share, fully franked. "While this represents a first-half dividend payout ratio of 65.9 per cent of underlying [profit], the board remains committed to a full-year target payout ratio between 70 to 80 per cent of annual underlying [profit]," Drummond said.

As at 11 February 2017, the 14 analysts surveyed by Thomson Reuters offering 12-month price targets for Medibank had a median target of $2.79, with a high estimate of $3.35 and a low estimate of $2.40. 

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Nicki Bourlioufas is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. The writer owns shares in Medibank Private.

© 2017 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

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