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.