NIB downgrades forecast
Health insurer says it will earn $30m less as claims increase
NIB expects to earn $30 million less than previously forecast as claims inflation eats into the health insurer’s fullyear operating profit.
NIB said yesterday it expected to make at least $170 million in full-year group operating profit, down from the $200 million previously forecast.
NIB shares were down about 13 per cent at $5.71 at the close of trading yesterday, while Medibank Private shares were down 3.0 per cent at $3.21. “We’ve definitely seen a tick up in claims and while we did anticipate some level of claims inflation across the group in FY20, recent experience is that it’s been more widespread across a number of business lines than we previously anticipated,” NIB managing director Mark Fitzgibbon said.
Mr Fitzgibbon (right) said that NIB’s Australian health insurance business was seeing claims growth in line with expectations, but industry data from the December quarter suggested NIB would have to pay more in risk equalisation levies.
Australian health insurers share a portion of all their claims through a risk equalisation pool, with insurers with lower than average claims subsidising those with higher claims.
“Recent quarter-end claims data points to higher than expected industry claims and as the largest contributor to risk equalisation it means we’re shouldering much of the industry’s claims growth,” Mr Fitzgibbon said.
“This has resulted in our FY20 risk equalisation net contribution now expected to be around $250 million, up approximately $20 million or 9 per cent on FY19.”
Mr Fitzgibbon said that some of NIB’s adjacent underwriting environments such as international students, workers and New Zealand operations were also “experiencing claims headwind”.
“And while these businesses account for a relatively minor proportion of our group earnings, it’s likely to result in a drag on our FY20 earnings,” he said.
Mr Fitzgibbon told analysts that the board would make a decision later on whether it would maintain the company’s dividend.