NIB Downgrades FY20 Profit Due to Increase in Claims

NIB Downgrades FY20 Profit Due to Increase in Claims

NIB Holdings Limited (ASX:NHF) is a private health insurer in New Zealand and Australia, it distributes and underwrites private health insurance to New Zealand and Australian residents as well as international students and visitors to Australia. The company also specialises in the distribution and sale of travel insurance policies globally through its nib Travel business.

The Company Downgrades its Profit Expectation

The company is expecting to report Underlying Operating Profit of $170 million in FY20, down by about $30 million as previously forecasted.

  • The downgrade in profit is because of recent claims environment within its Australian and New Zealand health insurance operations that put pressure on the company’s expected earnings;
  • The company’s Australian health insurance business was witnessing claims growth in line with expectations, but industry data from the December quarter suggests that there will be greater than originally forecast risk equalisation net contribution in FY20;
  • As a result, FY20 risk equalisation net contribution now expected to be around $250 million, up about $20 million or 9% on FY19.

As per the company’s Managing Director, Mark Fitzgibbon further claims development relating to nib’s FY19 result, Australian resident’s health insurance’s (arhi) FY19 net margin of 6.5% reported at the time of the company’s full year results in August is now 6.2%. The company’s other businesses are also facing tougher operating environment and claims headwinds.

  • This has seen some changing of claims experience in adjacent underwriting segments such as international students and workers as well as New Zealand operations, after several years of benevolent claims;
  • While still very strong businesses, the company is expecting margins for each business line to revert closer to longer term sustainable levels going forward;
  • Although, these businesses account for a relatively minor proportion of the company’s earnings, it’s likely to result in a drag on the Company’s FY20 earnings.

The Company’s Travel’s international sales saw an uptick of 13% on last year, the domestic sales situation remained difficult and the company witnessed some challenges integrating the May 2019 acquisition of QBE Travel with the businesses.

The company has also released its key dates for 2020. Please find the dates given below:

Source: Company’s Report

The company announces changes in Senior Executive Team

The company’s Deputy Chief Executive Officer and Chief Financial Officer (CFO), Mrs Michelle McPherson has resigned to take on another CFO role. She has been with company since 2003 and will continue in her role over the coming months and for the presentation of the company’s FY20 interim results in February 2020.

The company has appointed Matt Paterson in the role of Group Executive Business Services, with charge for claims functions and operational contact centres throughout the company.

Company Announces Lowest Premium Change in 17 Years

The company will increase health insurance premiums by an average of 2.90% from 1 April 2020 after the approval from the Federal Minister for Health. The record low premium increase shows the company’s commitment to keeping health insurance affordable for members. In the last financial year only, the company paid out $1.7 billion in claims on behalf of Australian resident members, with its largest single claim of more than $310,000.

The Company establishes joint venture with Cigna

Recently, the company announced the formation of an expert healthcare data services and science company, with the aim of providing improved health outcomes.

The joint venture will operate independently of the company and be led by Rhod McKensey, Group Executive of the company’s arhi business since 2013;

  • The joint venture initiative between nib and Cigna Corporation will see each contribute $10 million in start-up funding.

The purpose of the joint venture is:

  • Provide healthcare services, programs and interventions related to the disease risk profile;
  • Provide advice on how this risk can be best prevented, lessened, managed or treated;
  • Analyse and interpret underlying individual disease risk.

It is predicted that the joint venture will connect with other payers, healthcare insurers and providers of healthcare to enhance health results for people across New Zealand and Australia. It will focus and draw upon existing data science technologies with great expertise and IP from Cigna and build new competencies.

The joint venture is the outcome of numerous years of preparation and research. With more than 740,000 preventable hospital admissions in Australia each year, indicating around 7% of all hospitalisations, the company believes there’s a huge role for the joint venture to play.

Strong Growth in FY19

The company’s total revenue increased by 8.3% to $2.4 billion reflecting the company’s underlying operating profit accretion of 9.2% to $201.8 million. NPAT stood at $149.3 million, a gain of 11.8% on the previous year, while statutory earnings per share were up 11.9% to 32.9 cents per share. The company paid 70% of these earnings by way of total dividends to shareholders, of 23 cents per share fully franked, compared to 20 cents per share in FY18.

FY19 Results (Source: Company Reports)

Stock Performance

The stock of NHF closed the day’s trading at $5.710 per share on 20 January 2020, down by 12.691% from its previous closing price. The company has a market capitalisation of $2.98 billion as on 20 January 2020. The total outstanding shares of the company stood at 456.08 million, and its 52-week low and high is $5.090 and $8.200, respectively. The company has given a total return of -4.53% and -16.26% in the time period of 3 months and 6 months, respectively.


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