NIB Holdings – Solid not sexy
Bit Frothy for a dull stock. Long-term solid, but you'd buy on weakness, and if you miss it, it doesn't matter. There are other more exciting stocks for anyone wanting to make money.
- NIB Holdings (NIB) has been around since 1952. Twenty years ago, they were a regionally based private health insurer based in Newcastle.
- The company was demutualised and listed in 2007 and has since grown rapidly.
- They provide health and medical insurance to over 1.5 million Australian and New Zealanders, as well as 190,000 international students and workers in Australia.
- They are also a top three Australian travel insurer through NIB Travel.
- They have a corporate health insurance business called GU Health. They back the ING Health label.
- They are the second largest health insurer in NZ.
- They handle just short of half a million hospital admissions a year and around 4 million other visits. They also handle around 20,000 travel claims.
- They have a 9.4% market share in the Australian health insurance market. Of that, 27.1% is direct to customers, 12.5% is corporate, 36.7% is through retail brokers, and 23.7% is with white label partners.
- 1.283 million Australians use NIB as their health insurer, along with 283,000 Kiwis.
- They have 191,000 international (inbound) customers.
- The CEO Mark Fitzgibbon has been in place since 2002. Solid management.
- Drivers of profit include growth in policyholder numbers (+2.8% last results), claims experience, investment returns capital management (healthy investment markets help), disasters - floods, bushfires, pandemics - R&D costs, business costs (IT, marketing, underwriting expenses) new business wins, acquisitions, involvement with the NDIS. COVID 19 saw them suspend premiums for a while and the share price dropped from 820c to a low of 350c. This was a fabulous buying opportunity in hindsight. As we write (June 2023), the share price has only just surpassed its pre-pandemic price.
- Margins are around 6 to 7%. Return on equity is around 15%. In their last set of interim results revenue was up 9.3%, investment income was up 47%, profit after tax was up 12.8%, the dividend was up 18% and earnings per share up 12.4%.
- Growth initiatives include expanding PHI market share (private health insurance) in existing markets. Entering new BHI markets. Pursuing NDIS opportunities. Growing travel insurance. Containing healthcare treatment and claims cost inflation. Expanding their involvement with government and other healthcare paying bodies.
They publish results they also published this list of profit drivers which gives you a good idea of the variables.
“Arhi” is the Australian residents health insurance.
Some of the drivers for Australian private health insurance includes:
- Rising Healthcare Costs: Increasing healthcare costs are a significant driver for private health insurance growth. As medical expenses continue to rise, individuals seek insurance coverage to mitigate the financial burden associated with hospital stays, specialist consultations, surgeries, and other healthcare services.
- Government Incentives: The Australian government provides several incentives to encourage individuals to take up private health insurance. The Medicare Levy Surcharge imposes an additional tax on high-income earners who do not have private hospital cover, motivating them to seek private health insurance to avoid the surcharge. The Lifetime Health Cover loading, another government initiative, encourages individuals to take out private hospital cover earlier in life to avoid increased premiums in the future.
- Access to Private Healthcare Facilities: Private health insurance offers policyholders access to private hospitals and healthcare providers, allowing them to bypass public healthcare waiting lists and receive timely treatment. The desire for shorter waiting times and greater control over healthcare choices drives individuals to opt for private health insurance.
- Extras and Ancillary Benefits: Private health insurance policies often include extras cover, which provides benefits for services such as dental, optical, physiotherapy, and chiropractic care. These additional benefits attract individuals who value comprehensive coverage beyond what is offered by the public healthcare system.
- Flexibility and Choice: Private health insurance provides policyholders with more options and flexibility in choosing their preferred healthcare providers, specialists, and treatment options. This freedom of choice is appealing to individuals who prefer a personalized approach to their healthcare.
- Ageing Population: Australia has an ageing population, and older individuals tend to have higher healthcare needs. As people age, they often seek private health insurance to access services such as joint replacements, cardiac procedures, and other age-related medical treatments.
- Premium Variation and Competition: Private health insurers offer a range of policy options with different coverage levels and premiums, allowing individuals to select plans that align with their specific needs and budget. The competitive nature of the private health insurance market encourages innovation, product differentiation, and competitive pricing, attracting individuals to consider private health insurance.