Company Reports

With household cost-of-living pressures mounting, there is a risk that participation in private health insurance will fall, but so far numbers have been resilient at five-year highs; 45.2% of the population is currently covered. Policy switching with signup offers, like first six weeks free and gift cards, probably reflects some increasing customer price sensitivity. This is likely more so for younger customers buying policies to avoid paying additional tax and not fussed about the actual inclusions. This is hurting narrow-moat Medibank’s policyholder growth. Medibank increased policyholders below our expectations, as it did not match what it views as unprofitable offers in the aggregator channel. We think Medibank can grow slightly ahead of the market over the medium term. We think smaller and less profitable private health insurers are unlikely to maintain current offers as claims rise on an aging population. Also, Medibank continues to improve its value proposition by expanding providers and procedures where members pay no gap. This should help differentiate the offering and lift customer satisfaction, a positive for client retention and new customer wins.

Medibank is Australia's largest private health insurer, operating under the Medibank and Ahm brands. The dual-brand strategy has allowed the group to offer differentiated pricing and messaging to increase members and profits.

Our fair value estimate for narrow-moat Medibank is maintained at AUD 3.50 per share with management reiterating fiscal 2024 outlook statements at the annual general meeting. Our forecasts are in line with management guidance which includes up to 2% growth in policyholder numbers, claims per policyholder to rise by 2.6%, and another AUD 30 million to AUD 35 million in one-off cyber costs. Margins in private health insurance are expected to be broadly flat.

Medibank is Australia's largest private health insurer, operating under the Medibank and Ahm brands. The dual-brand strategy has successfully allowed the group to offer differentiated pricing and messaging to grow members and profits.

Medibank’s fiscal 2023 profit increased 30% to AUD 511 million, broadly in line with our forecasts when adjusting for one-off cybercrime costs. The core private health insurance business modestly bettered our forecasts, but was offset by reduced income from Medibank’s other investments. Reduced telehealth income in the wake of the pandemic and costs in establishing new short-stay hospitals were a drag, but this has no implication for our positive long-term view as these startup costs are expected to bear fruit over the forecast period.

Medibank’s third-quarter update and largely unchanged fiscal 2023 outlook leave Australia’s largest private health insurer on track to meet our forecasts and our AUD 3.30 fair value estimate stands.

Medibank reported a 5.9% increase in fiscal 2023 first-half net profit after tax to AUD 233 million, with operating income from the key private health insurance division up 9% thanks to policyholder growth and average claims per policyholder rising by less than price increases. Premiums increased 2% while claims increased only 0.7%.

On Oct. 17, narrow-moat Medibank advised that there was no evidence customer data had been removed after the group detected unusual activity on its systems. On Oct. 19, Medibank shares were placed in a trading halt as the private health insurer was contacted by a suspect claiming to have stolen 200 gigabytes of data and provided a sample of 100 records with sensitive information. This included names, addresses, Medicare numbers, and even some claims data. Assuming this includes verification documents of a few megabytes each, we estimate this amount of data could easily encompass 30,000 policyholders. It could be a much higher number, but it is also possible the suspect only has data on the 100 revealed policyholders and is exaggerating its leverage over the insurer. But it remains too early to know.

Medibank’s fiscal 2021 profit increased 40% to AUD 442 million, beating our forecast by 14%. The earnings beat and jump in profit is largely driven by volatile investment income, and the impact of the coronavirus on claims.

We increase our Medibank fair value estimate by 7% to AUD 3.10 on more positive policyholder growth assumptions. We are not increasing our assumption of the size of the market, simply that Medibank can take more share. We now assume Medibank can grow policyholders around 3% per year out to fiscal 2025, compared with around 2% previously. With the market estimated to grow at 1% per year, this reflects our expectation that Medibank’s market share edges up to 30% by fiscal 2025 from an estimated 27.2% currently.

Medibank reported a 27% increase in first-half profit to AUD 226 million. On balance the result is not far off what we expected, but we lower our fiscal 2021 profit forecast by 3% on slower premium growth. Our long-term forecasts and AUD 2.90 fair value estimate are maintained.

Medibank is Australia's largest private health insurer operating under the Medibank and ahm brands. The dual brand strategy has successfully allowed the group to offer differentiated pricing and messaging to grow members and profits.

Medibank is Australia's largest private health insurer operating under the Medibank and ahm brands. The dual brand strategy has successfully allowed the group to offer differentiated pricing and messaging to grow members and profits.

Private Health Insurers Medibank Private and NIB Holdings had an odd 2020. Hospital procedures declined materially due to lockdowns and patient fear, as did visits to the dentist, physio, optometrist and so on. Anything that could be put off was. It did not mean a massive uplift in profit for the health insurers though. Private health insurers took material provisions on the basis a large catch up would occur, assuming 85%-100% of deferred hospital procedures would be caught up in the short term, as well as 50%-70% of ancillary claims. Insurers also paused planned premium increases which had been approved to cover inflation in claims, and gave members needing assistance premium waivers and discounts.

Medibank is Australia's largest private health insurer, with 1.8 million policyholders covering approximately 3.5 million people under the Medibank and ahm brands. Medibank Private was established in 1976 to bring increased competition to the private health insurance industry, with the government selling the business in 2014 via an initial public offering. The ahm business was acquired in 2009, with Medibank successfully using the brand to grow its share of younger customers. The dual brand strategy has successfully allowed the group to offer differentiated pricing and messaging to grow members and profits. Medibank has over 400,000 policyholders under the ahm brand, up from only 160,000 in 2010. In our opinion, Medibank offers steady long-term defensive earnings growth.

The coronavirus will have both positive and negative implications for private health insurers. We expect fiscal 2020 and 2021 earnings to be boosted by postponement of elective surgeries, resulting in a reduction in claims expenses. We believe many doctors and patients will opt for this, especially with older age groups (over 65) which face higher risk from COVID-19 and account for more than 40% of procedures. The positive benefits will likely be short-lived though, with the drop in claims costs for the next six to 12 months expected to normalise in fiscal 2022. Negatives include losses on investment portfolios, rising unemployment and policyholder numbers, and lower demand for travel and international student insurance.

Narrow-moat Medibank reported a weak first-half fiscal 2020 result, with a 9% fall in NPAT to AUD 179 million reflective of industry challenges. The core health insurance business performed worse than the headline implies, down 20%, with investment income of AUD 38.5 million a sharp recovery from a meagre AUD 4.1 million last year. We expect the tough operating environment to persist, but claims inflation should slow.

Narrow-moat Medibank Private hosed down fiscal 2020 earnings expectations on higher-than-expected claims inflation. Medibank’s actual claims growth per policy holder was 2.4% in fiscal 2019, compared with the 2% it had reported. It blamed a longer than usual lag in hospitals submitting claims for the discrepancy. With similar inflation continuing into first-half fiscal 2020, the insurer expects the trend to continue for fiscal 2020. Management attributed the higher claims to higher private hospital payments, which reflects an increase in the average benefit size along with the continuation of elevated prosthesis costs.

Medibank is Australia's largest private health insurer with 1.83 million policyholders covering approximately 3.9 million people under the Medibank and ahm brands. Medibank Private was established in 1976 to bring increased competition to the private health insurance industry. The insurer has evolved into Australia's largest private health insurer and health services business, employing more than 3,400 staff, of which one-third are health professionals.

Medibank is Australia's largest private health insurer with 1.83 million policyholders covering approximately 3.9 million people under the Medibank and ahm brands. Medibank Private was established in 1976 to bring increased competition to the private health insurance industry. The insurer has evolved into Australia's largest private health insurer and health services business, employing more than 3,400 staff, of which one-third are health professionals.