Nib posts ‘disappointing’ result

Nib’s 1H20 results were “disappointing” and indicative of prevailing industry pressures and escalating competition, Nib CEO Mark Fitzgibbon said today. In an investor presentation, the private health insurer reported a 27.2% drop in underlying operating profit (UOP) on 1H19, to $83.2m, while group revenue was up 6.4% to $1.3bn.

The profit slump was in contrast to organic growth in group revenue despite a difficult market (see Insurance Review, 19/2020) and “solid” profit margins.

CFO Michelle McPherson said Australian premium revenue was up 3.8% to $1.04bn, driven by policyholder growth and the April premium increase. But UOP was down 29.1% to $62.6m.

Product downgrading led by affordability concerns resulted in a $3.7m unfavourable gross profit impact. McPherson said the 2019 premium increase, which generated $33.3m in revenue, was not enough to offset claims inflation ($39.5m).

In claims development, 1H19 overstated by $21.3m and 1H20 understated, led to a “double-ended” $28.1m net unfavourable organised system care variance, delivering a 1H20 net margin of 5.9% – down from 8.7%.

NZ was the only Nib business recording a UOP rise – up 16.8%, to $11.1bn, struck on a 13.9% premium revenue increase, to $119m.

International (inbound) health insurance recorded a 15.4% rise in premium revenue, to $$61.5m, but UOP dropped 31.3% to $12.3m.

Nib travel, encompassing QBE Travel, which Nib bought in May 2019, recorded a 42.7% rise in operating income, to $47.8m. Excluding QBE Travel, operating income was $31.3m – down 6.7%.

Including QBE, sales were up 86.5% – up 4.8%, excluding QBE. But acquisition costs – up 55.2% because of changes in distribution mix, eg higher commission arrangements associated with the QBE travel book – were growing faster than operational income.

Nib’s FY20 guidance is “at least” $170m in UOP and a net margin of about 6%. Merger and acquisition possibilities could emerge in the short to medium term. The Coronavirus effect on Nib sales was a “watch point” for the inbound and travel businesses.

Licence to sell “critical illness” lump-sum insurance in China, as part of its joint venture with Chinese pharmaceutical company Tasly Holding Group, was targeted for end of FY20.