nib downgrades forecast on higher claims expense


nib has cited higher than expected claims expense as the main cause of the decision to downgrade its profit forecast for the current financial year.

The insurer announced a $30 million downgrade, saying it now expects to deliver a forecast underlying operating profit of $170 million for the financial year 2020.

According to managing director Mark Fitzgibbon, “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.

“Within our Australian residents health insurance (arhi) business, claims inflation and utilisation continues to trend broadly in line with our expectations and we still expect the business to deliver a net margin of circa 6% this year."

"Pleasingly arhi’s top line premium growth is up 3.8% on same time last year with net policyholder growth for the half year of 1.4% compared to 1.1% first half last year a material driver of this result,” he added.

However, the insurer said data for the December 2019 quarter suggests higher industry claims is contributing to a greater than originally forecast risk equalisation net contribution.

“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. This has resulted in our FY20 risk equalisation net contribution now expected to be around $250 million, up approximately $20 million or 9% on FY19,” he said.  

“Our adjacent businesses are also experiencing claims headwinds as well as a tougher operating environment. This has seen some resetting of claims experience in our adjacent underwriting segments such as international students and workers as well as our New Zealand operations, following several years of benign claims. While still very strong businesses, we’re expecting margins for each business line to revert closer to longer term sustainable levels going forward.

“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,” said Mr Fitzgibbon, adding the company remained confident about its outlook.