NIB Holdings Ltd · ASX:NHF
NIB — H1 2009 Earnings Presentation
41 slides from NIB's earnings presentation, Feb 25, 2009
Slide 1: nib holdings Half Year Results
= nib holdings HALF YEAR RESULTS 25 FEBRUARY
Slide 2: Today's agenda
Today’s agenda For personal use only Overview Mark Fitzgibbon Financial performance Michelle McPherson Outlook & strategy Mark Fitzgibbon Q&A 2
Slide 3: Overview
__ nib holdings OVERVIEW Mark Fitzgibbon Managing Director and Chief Executive Officer
Slide 4: Overview
Overview For personal use only Strong 1H09 underwriting result • Net underwriting profit up 50.0% to $20.8m (1H08: $13.9m*) • Net underwriting margin of 5.1% (1H08: 3.7%*) Net policyholder growth of 9,741 9 741 (or 2.7%) 2 7%) • 375,130 policyholders as at 31 December 2008 • nib continues to gro
Slide 5: We continue to be pleased about… net margin of 5.1%
We continue to be pleased about… For personal use only Very good operating performance – net margin of 5.1% 5 1% in 1H09 up from 3.7% in 1H08 Net underwriting margin above 5% Strong net underwriting margin of 5 1% is in line with our target of 5% 5.1% due to improved gross margin Improved gross
Slide 6: We continue to grow faster than the industry
We continue to be pleased about… For personal use only We continue to grow faster than the industry nib Industry 8.0% 6.0% Despite MLS and economy our organic growth strategy continues to % Growth 4.0% generate results • nib growing faster than industry- 2.0% 2.7% vs 1.6% 0.0% • 9,741 net new poli
Slide 7: The efficacy of our business strategy
We continue to be pleased about… For personal use only The efficacy of our business strategy 1H09 6 months to FY05 FY06 FY07 FY08 1H08 31/12/09 Annualised growth in net 4.2% 3.9% 8.8% 11.1% 13.0% 5.3% membership % of new sales new to 68.7% 70.8% 74.4% 78.2% 80.4% 72.1% category % of new sales “under
Slide 8: Reducing adverse selection through product design
We continue to be pleased about… For personal use only Apparent success in reducing adverse selection through product design Annualised gross margin per SEU (indexed to gross margin of customers in their first year) 1.00 1.00 0.80 Index 0.60 0.47 0.43 0.40 0.42 0.36 0.20 0.00 1st year 2nd year 3rd y
Slide 9: We are not so happy about…
We are not so happy about… For personal use only Di Disappointing i ti iinvestment t t returns t • 1H09 return on investment assets was (6.5)% or $(13.6)m • Poor investment returns are negatively impacting our ROE target of 15% (1H09: 2 2.9% 9%*)) Macro-economic conditions • GFC will exert addit
Slide 10: Financial Performance
|_| nib holdings FINANCIAL PERFORMANCE Michelle McPherson Chief Financial Officer and Deputy CEO
Slide 11: Financial results
Financial results For personal use only Net underwriting result of $20 $20.8m, 8m up $6 $6.9m 9m or 50.0% 50 0% on 1H08 1H09 1H08 % change ($m) Statutory Adjust Normalised Statutory Adjust Normalised 1H09 vs 1H08 Profit after tax 2.1 0.0 2.1 (7.6) 25.3 17.7 (88.1)% We have not normalised one-off c
Slide 12: Financial results – normalised – key drivers
For personal use only ($m) -10 0 10 20 30 40 50 60 70 1H0 08 NPAT 17 7 17.7 Prem rev. - policyholder growth Claims exp. -policyholder growth 27.4 (16.2 ) oduct mix Prem rev - pro (10.3 ) ms expense - pro Claim oduct mix 18.3 Prem rev - rate e increase Claims expense - inflation C 22.7 (22.6 ) Risk E
Slide 13: Premium revenue
Premium revenue For personal use only Strong growth in premium revenue – up 10.7% 10 7% to $410 $410.6m 6m Premium revenue continued to grow $39.7m increase in premium revenue strongly (1H09 v 1H08): • Policyholder P li h ld growth th generated t d increase of $27.4m (1H08: $32.0m) • Premium rate
Slide 14: Claims expense and levies
Claims expense and levies For personal use only Claims inflation up 8 8.7% 7% or $27 $27.9m 9m $27.9m increase in claims expense and Hospital claims inflation levies • Claims expense- p $20.7m $ (1H08:$25.1m) o Policyholder growth- $16.2m (1H08:$20.6m) o Claims inflation has increased by $22.6m dr
Slide 15: Claims expense and levies
Claims expense and levies For personal use only ($m) 1H05 1H06 1H07 1H08 1H09 1H09 v 1H08 Claims expense 202.8 221.6 249.6 274.7 295.4 7.5% HBRTF/Risk equalisation levy 19.1 19.6 19.9 34.8 41.1 18.1% - Gross deficit (43.6) (47.1) (55.8) (57.9) (68.4) 18.1% - Calculated deficit 62.7 66.7 75.7 92.7 10
Slide 16: Management and other expenses
Management and other expenses For personal use only Management expense ratio remains stable at 10 10.4%, 4% with other expenses significantly impacted by one-off costs Management expense ratio remains stable $4.9m increase in management expenses to $42$42.8m 8m due to one-off one off costs of $4.0
Slide 17: Investment income
Investment income For personal use only 1H09 return on investment assets is disappointing Investment return Annualised return 1H09 1H08 C h Cash 6 5% 6.5% 6 2% 6.2% Australian shares (47.7)% 9.7% Australian fixed interest 22.5% 3.2% O/s shares (55.5)% (4.2)% O/ fixed O/s fi d iinterest t t (10.8)% 1
Slide 18: Investment assets
Investment assets GFC has seen us maintain existing investments with any operating For personal use only surplus generated being invested in cash Investment assets – $404.6m (at 31 Dec 08) Externally managed portfolio – mix at 31 December 08 was 76%/24% Total investment assets of $404.6m as at 3
Slide 19: Regulatory capital requirements
Regulatory capital requirements For personal use only $119.1m $119 1m of excess capital above internal target after allowing for 2009 interim dividend Updated capital management plan resulted Health fund capital (at 31 Dec 08) in revision to internal target from 1.5x– 1.4x reflecting more rigorous
Slide 20: Capital management
Capital management For personal use only Our capital position remains strong • $119.1m in excess capital at 31 December 2008 reflecting revised p capital adequacy q y target g of 1.4x • Ungeared balance sheet Capital management • Share buy-back y – on market share buy-back y of up p to 10% of is
Slide 21: Dividend
Dividend For personal use only Revised dividend policy • Board has determined to no longer apply a standard pre- determined dividend payout ratio • Fully franked dividends seen as an efficient way to return surplus capital to shareholders • After for allowing for strategic needs needs, capital exp
Slide 22: Outlook and Strategy
| nib holdings STRAT OUTLO Mark Fitzgibbon Managing Director and Chief Executive Officer
Slide 23: Market outlook
Market outlook For personal use only Despite economic conditions the basic fundamentals and support for PHI remain strong Federal Government will remain Penetration1 continues to increase supportive of industry – 30% Rebate, Lifetime Health Cover Cover, Medicare Levy Surcharge Significant potent
Slide 24: Business strategy
Business strategy For personal use only Clear focus and ambitions Growth targeted at <40 segment Claims efficiency • Ongoing investment in marketing • Product design to reduce and sales/retention/policy “buy up” adverse selection and • Ongoing interest in M&A and unwarranted variation industryy
Slide 25: Significant near term issues
Significant near term issues For personal use only 2009 premium pricing submission • With Federal Minister for Health and Ageing for approval MLS and economy • MLS changes have had an impact on sales and retention although not yet to extent previously forecast New distribution arrangement with
Slide 26: Removal of Loyalty Bonus and replacement with higher annual limits
Removal of Loyalty Bonus and replacement For personal use only with higher annual limits nib is replacing its Loyalty Bonus program (FY08:$19.1m) with higher annual limits for Extras services on selected products • Approximately 70% of nib’s customers will receive higher annual limits greater than
Slide 27: Proposed NHRRC reforms
Proposed NHRRC reforms For personal use only Interim report only Increased individual responsibility p y Integrated primary care, wellness and disease prevention Healthcare education and promotion Pay for quality Single funder (option c) Denticare Maintain public/private balance 27
Slide 28: General disclosure on M&A
General disclosure on M&A For personal use only “nib pursued a demutualisation and listing on ASX in 2007 to be better placed to participate in the consolidation and modernisation of the private health insurance industry. From time to time nib has discussions with domestic and international industry
Slide 29: FY09 guidance and outlook
FY09 guidance and outlook For personal use only Normalised net underwriting margin of around 4% • Despite 1H09 net underwriting margin of 5.1%, removal of Loyalty Bonus and replacement with higher annual limits will likely impact claims expenses for 2H09 • 5% net underwriting margin target is achi
Slide 30: Questions and Answers
QUESTIONS AND ANSWERS
Slide 31: For personal use only
For personal use only
Slide 32: Data sheet – nib
Data sheet – nib Jun 03 FY Jun 04 FY Jun 05 FY Jun 06 FY De 1H Jun 07 FY De 1H Jun 08 FY De 1H For personal use only H07 / at 31 H08 / at 31 H09 / at 31 Y03 / at 30 Y04 / at 30 Y05 / at 30 Y06 / at 30 Y07 / at 30 Y08 / at 30 ec06 ec07 ec08 nib Total policyholders 255,812 279,272 290,940 302,299 312,
Slide 33: Data sheet – PHI industry
Data sheet – PHI industry For personal use only By financial year intervals FY03 / at 30 FY04 / at 30 FY05 / at 30 FY06 / at 30 FY07 / at 30 FY08 / at 30 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 PHI industry Total Policyholders 4,649,268 4,671,430 4,708,420 4,806,754 5,008,329 5,219,567 - Policyhol
Slide 34: Data sheet – nib normalised financials
Data sheet – nib normalised financials For personal use only ($m) FY05 FY06 1H07 FY07 1H08 FY08 1H09 PROFIT & LOSS Premium revenue 530.7 530 7 611.9 611 9 328.3 328 3 666.0 666 0 370.9 370 9 758.2 758 2 410.6 410 6 Gross underwriting result 71.7 111.8 50.2 94.9 51.8 111.3 63.6 Net underwriting resul
Slide 35: Normalised profit & loss reconciliation
Normalised profit & loss reconciliation For personal use only 1H09 1H08 % change 1H09 vs ($m) Statutory Adjust Pro forma Statutory Adjust Pro forma 1H08 Premium revenue 410.6 0.0 410.6 370.9 0.0 370.9 10.7% Net claims incurred (347.0) 0.0 (347.0) (319.1) 0.0 (319.1) 8.7% Gross underwriting result 63
Slide 36: Financial results – underlying results
Financial results – underlying results For personal use only Net underwriting result of $20 $20.8m, 8m up $6 $6.9m 9m or 50 50.0% 0% on 1H08 Underlying results split out Investment income between: • Normalised investment income for 1H09 – calculated on the basis of a 6.0% (7 0% - 1H08) assumed ret
Slide 37: Balance sheet
Balance sheet For personal use only Robust balance sheet remains ungeared ($m) At Dec-08 June-08 Health fund operating assets Current assets 33.3 32.1 OSC is 8.9% of claims expenses for Non-current assets 77.7 71.6 rolling g 12 Months to 31 December Health fund operating liabilities Outstanding cl
Slide 38: Capital adequacy
Capital adequacy For personal use only Capital adequacy multiple remains strong Internal target 38
Slide 39: Sales and lapse
Sales and lapse For personal use only FY07 / at 30 FY08 / at 30 1H08 / at 1H09 / at nib Jun 07 Jun 08 31Dec 07 31Dec 08 Total T t l policyholders li h ld 328 784 328,784 365 389 365,389 350 248 350,248 375 130 375,130 - Policyholder growth rate 8.8% 11.1% 6.5% 2.7% Total sales 49,758 67,456 32,831 2
Slide 40: Disclaimer
Disclaimer For personal use only The material in this presentation is a summary of the results of nib holdings limited (nib) for the six months ended 31 December 2008 and an update on nib’s activities and is current at the date of preparation, 25 February 2009. Further details are provided in the Co
Slide 41: nib holdings Half Year Results
= nib holdings HALF YEAR RESULTS 25 FEBRUARY