nib reports strong first half with 'fascinating period ahead'

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nib (ASX:NHF) has reported an underlying operating profit of $114.3 million for the six months to the end of December 2018.

The result, an increase of 18.6 per cent on the corresponding period for the previous year, came with a 10.9 per cent increase in revenue to $1.2 billion. The company reported a 4.8 per cent rise in net profit after tax (NPAT) to $74.3 million.

Managing Director Mark Fitzgibbon said the result "defied industry headwinds" and reflected the "good progress" nib is making on managing provider fees and supporting members manage health risk and sickness.

“Our core business Australian Residents Health Insurance (arhi) funded more than 151,000 hospital admissions and over 1.8 million ancillary treatments with claims rising 7.8% to over $800 million," said Mr Fitzgibbon.

"It highlights the growing and vital role private health insurance plays in our nation’s healthcare. However, a combination of pricing, organic growth, an increased contribution from our new GU Health business and improved claims management saw our net profit margin increase.”

Mr Fitzgibbon said it was an "enormous credit" to the company's Australian health insurance business that it was able to post net membership growth of 6,400 in challenging market conditions.

“Unfortunately consumer sentiment is running against most forms of discretionary spending including private health insurance. It underscores the task we have as a business and industry in not only better promoting the importance of private health insurance but in finding new ways to further lift its attraction,” said Mr Fitzgibbon.

“We also need the community and policymakers to better appreciate how private health insurance must play a more significant role in our healthcare system given the extreme pressure on our tax-funded Medicare and public hospitals.

"It is especially frustrating that we have members incurring large out-of-pocket expenses when they see a doctor outside a hospital which we just can’t help the member with. That’s because of antiquated regulations that limit private health insurers to only paying for doctors inside a hospital,” he said.

Mr Fitzgibbon added despite the “noise” the private health insurance industry deserves some credit for the progress it is making in reducing premium increases.

“nib’s 2019 premium increase of 3.38% was our lowest in 16 years and it is the fifth consecutive year we’ve delivered an increase lower than the previous year. It may still be above CPI, but CPI simply measures cost inflation and rising health insurance premiums reflect a combination of cost inflation and growing demand for treatment. The inconvenient truth is communities worldwide are spending more on healthcare relative to other goods and services and it comes at a cost,” he said.

Mr Fitzgibbon acknowledged the positive impact of the federal government's reforms to the sector, saying they would make private health insurance "more affordable for many members and easier to understand."

“The extra opportunity for people under 30 is especially welcome as the private health insurance system relies upon constant attraction of younger, typically healthier, members. It’s a good move all round,” said Mr Fitzgibbon.

The company said it does not anticipate the second half of the current year to be as strong as the first.

"Key factors expected are unfavorable claims seasonality, the fact that the first half was boosted by a claims provision release within arhi [Australian resident health insurance] and likely weak market conditions affecting parts of the Group," said the company.

Mr Fitzgibbon said the sector was facing a "fascinating period ahead".

“As for any business, and as we’ve been doing for a long time, we have to navigate whatever policy shifts may come our way and not let them become an excuse for not doing as well as we should for our members and shareholders,” he said.

“Unavoidably, Australia needs more private sector involvement and investment in our healthcare system especially if we want to deliver throughout the community amazing technologies that are emerging globally. Inspired by Artificial Intelligence, these technologies have the power to predict and prevent disease and help doctors ensure treatment is much more personalised and precise. They’ll allow us to shift from being overwhelmingly a 'sick care' system to a genuine 'healthcare system’,” added Mr Fitzgibbon.