| Publication: | The Age |
|---|---|
| Date: | 18 August 2009 |
| Section: | Business Day |
Danny John | August 18, 2009 - 9:20AM
The country's only listed private health insurer, NIB, has hit the top end of its underwriting profit margin but saw its net earnings for 2009 slip back because of a large drop in investment income.
The NSW-based health fund today reported a $2.9 million drop in post-tax profits to $23.8 million for its 2009 financial year as a result of the negative returns on its investment portfolio.
In recent trade, NIB shares were up 9 cents, or 9.6 per cent, to $1.03.
In the corresponding period last year, this element of its earnings contributed $7.5 million to the full year profit figure then of $26.7 million. But this time around, NIB incurred a loss of $1.8 million on the portfolio given the dramatic volatility seen on financial markets - a $9.3 million turn-around.
However, that was partly offset by the fund turning in a pre-tax underwriting profit of $40.2 million on the revenue it earns from its health insurance income.
That was an improvement of $7 million on the 12 months to June 30 2008 and represented a net underwriting margin of 4.8 per cent, a 40 basis points (0.4 per cent) increase on last year.
The pre-tax insurance result was right at the very top end of the guidance that NIB most recently provided to the market. Revenue from premiums was up nearly 9.5 per cent at $829.5 million compared to $758 million last year.
The fund, which listed on the ASX in late 2007 just as the global financial crisis hit financial markets, declared a final dividend of 4.4 per cents a share which takes the total to 7.4 cents for the full year.
A third of the pay-out has been from earnings with the remainder coming from a return of surplus capital held on NIB's balance sheet.
As well as conducting an on-market buy back of as much as 10 per cent of its stock with its spare capital, NIB has also been scouring around for suitable acquisitions but has been outbid on a number of occasions including the sale of Sydney-based Manchester Unity.
It still holds $132 million of cash after the payment of the dividend and say today it will continue to look for "strategic investment opportunities" whilst it decides on any other capital management plans.
The insurer remains confident of its future albeit that it claims only a 7 per cent of the total private health cover market and needs to grow significantly to keep pace with the dominant funds, Medibank Private and BUPA/MBF.
NIB revealed today that policyholder growth for the past year was a "solid" 5.2 per cent - two percentage points higher than the growth seen across the industry.
The fund has focused in recent years on increasing its share of the key 20-39 age group and says that it grew membership numbers in that area by 12,056 policies, representing more than a fifth of the industry's expansion over the past 12 months.
It is planning for net policyholder growth of between 4 and 6 per cent in the current financial year and an underwriting margin of as much as 5.5 per cent which, if achieved, would translate into a pre-tax profit of $45-50 million.
NIB's chief executive Mark Fitzgibbon said one of the major priorities for the 2010 financial year was the management of its capital given that a "lazy balance sheet" would be a drag on its target of delivering a 15 per cent return on its equity.
"We are constantly considering how we could better capitalise the business," said Mr Fitzgibbon.
But there was no mention by Mr Fitzgibbon today of any likely merger or takeover proposals for the fund which has been the subject of possible bids and pressure from certain shareholders for it to return as much capital as possible.
