Health insurers - How are the management costs panning out for Medibank and nib holdings?

Insurance has become an essential part of the overall health care system in Australia. In the country, there is an immensely developed health care structure with the health care insurance providing all the coverage for medical expenses to the citizens. There are many private health insurance providers, which provide the coverage for medical expenses depending on the plan selected by the policyholder. The medical costs include all the medical services such as emergency room, the prescription for drugs, medical procedures and doctor’s visit. As there is increasing expenses in the health care industry such as increasing medical fees, rise in the price of medical devices etc., the health care insurance providers are facing financial pressure.

The two-health insurance service provider - Medibank Private Limited (ASX: MPL) and nib holdings limited (ASX: NHF) have experienced a surge in their management cost in the last financial year, which both the companies are planning to overcome.

In the financial year 2019, the management cost of Medibank increased $2.9 million standing at $560.1 million, which was recorded $557.2 million in the last fiscal year. nib holdings experienced $42 million of increase in management expenses from $287.1 million noted in FY2018 to stand at $329.1 million in the fiscal year 2019.

Let’s discuss these two health insurance stocks- MPL, NHF

Medibank Private Ltd (ASX: MPL)

A health care insurance provider Medibank Private Ltd (ASX: MPL) which was founded in 1976 as a private health insurer operated by the Australian Government is working with the purpose of “Better Health for Better Lives”. The company provides health insurance benefits; also, it is engaged in providing diversified insurance such as life insurance, travel insurance and pet insurance and health services- Home healthcare services, Telehealth & digital, Integrated care & coordination and more. The company is a leader among health insurers and continuously working to improve Australia’s health system by collaborating with the government and health professionals on recent approaches to deliver care.

Financial year 2019 Highlights- (year ended 30 June 2019)

  • The company’s health insurance premium revenue increased by 2.3% to stand at $6,464.7 million in the financial year 2019 versus $6,319.5 noted in FY2018.
  • Mediclaim’s gross profit stood at $1,102.6 million, up 0.9% as compared to the last financial year.
  • In this financial year, the company experienced 0.5% of increased management cost $560.1 million for FY2019, which was $557.2 million in the pcp.

Financial year 2019 HighlightsSource: Company’s Report

In an ASX announcement dated 6 November 2019, the company provided an update about its financial year 2020 outlook. The expected management expenses for the fiscal year 2020 is approximately $545 million down from $560 million in the financial year 2019 period.

The company is confident of achieving the set milestones and stabilising the brand policyholder by the end of the fiscal year 2020 and expecting good growth in FY2021.

As per the annual report, Medibank laid emphasis on recognising the importance of managing costs within the health system and also mentioned that it has delivered $40.4 million of productivity savings in its own business in the last two years. The company is also aiming towards an additional $50 million in productivity for the next three years period, which includes $20 million in FY 2020 period.

Additionally, Medibank notified that the company would fully focus on its own costs, with this, the company is expecting to lower the management expenses.

Stock performance

The company’s stock was trading flat at $3.160 on 15 November 2019 (at AEST 3:24 PM), with a daily volume of 2,277,667 and a market cap of nearly $8.7 billion. The company has a 52 weeks high price of $3.654 and a 52 weeks low price of $2.274. The stock has delivered a return of 27.30 per cent on a YTD basis and 12.06% in the past six months. The company has around 2.75 bn outstanding shares.

nib holdings limited (ASX: NHF)

An ASX listed health insurance service provide, nib holdings limited (ASX: NHF) is founded in 1952 and headquartered in Australia, provides health and medical insurance to more than 1.6 million citizens in Australia and New Zealand. Additionally, the company is Australia’s third largest and a worldwide distributor of travel insurance by providing financial protection through nib Travel.

Financial year 2019 Highlights- (year ended 30 June 2019)

  • The Group’s revenue for the period was approximately $2.4 billion, up 8.3%.
  • The Underlying Operating Profit (UOP) increased to 9.2% standing at $201.8 million.
  • EPS (Statutory) for FY2019 was up 11.9% to 32.9 cents per share.
  • Net investment income of the company for last fiscal year was $36.1 million, which was up 22.0% as compared to pcp.
  • For the fiscal year 2019, the net profit after tax (NPAT) was $149.3 million, increased to 11.8%.
  • In the fiscal year 2019 the company experienced an increase in management costs of $42 million from $287.1 million in FY2018 to $329.1 million in FY2019.

nib holdings limited  Five-year summary (Source: Company’s Report)

According to an ASX announcement dated 6 November 2019, the company reaffirmed its FY2020 underlying operating profit guidance of at least $200 million and statutory operating profit of at least $180 million.

The company mentioned that it would announce its interim results for the financial year 2020 on 24 February next year.

Stock performance

The company’s stock was trading at $6.915 on 15 November 2019, up by 0.655% per cent (at AEST 3:39 PM), with approximately 456.08 billion outstanding shares and a market cap of nearly $3.13 billion. The stock has a 52 weeks high price of $8.200 and a 52 weeks low price of $4.640. The stock has delivered a return of 33.66 per cent on a year to date basis and 19.90% in the last six months. The annual dividend yield of the NHF stock stands at 3.35%.


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