NIB (ASX:NHF) Share Price Falls 2% After FY20 Market Update

The NIB (ASX: NHF) share price fell over 2% after providing a FY20 market update.

NIB is one of the ASX’s largest private health insurers, it was founded in 1952. NIB provides health and medical insurance to over 1.5 million Australian and New Zealand residents. NIB also provide health insurance to more than 160,000 international students and workers in Australia. It’s also Australia’s third largest travel insurer and global distributor of travel insurance through its World Nomads Group business.

NIB’s FY20 Trading Update

This morning we heard from Medibank that has been experiencing higher than expected claims which has resulted in a $21 million under provision from the 30 June 2019 claims reserve. The underlying claims growth per policy unit was 2.4% in FY19, not the 2% which was reported at the full year. This increase is expected to continue throughout FY20.

Then this afternoon NIB also gave a trading update. NIB private health insurer reaffirmed its underlying operating profit (UOP) guidance of at least $200 million and statutory operating profit of at least $180 million.

NIB Managing Director Mark Fitzgibbon explained that based on current market trading conditions its Australian resident health insurance (arhi) net margin was expected to be around 6% this financial year. Mr Fitzgibbon said:

For FY19 we saw actual arhi claims inflation per person expense of 2.9%, which was understated by product mix erosion or downgrading. We expect this pattern of inflation to continue in FY20. Our FY19 net margin with further actuarial development is now 6.3% compared to 6.5% (adjusted for FY18 claims provision release) reported at the time of our full year announcement in August.

Overall hospital inflation in FY19 was 3.2% representing a combination of episode growth and episode price inflation as well as our significant risk equalisation contribution.

As anticipated, the mental health waiver played a significant role in this inflation, in terms of both utilisation and costs per episode, but this impact is expected to moderate in FY20. Experience in other parts of the case mix is varied without any significant developments.”

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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