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This private health insurer is growing and taking market share

In Australia, there are only about 12 insurance companies currently listed on the ASX. Most people may know the biggest, but how about within private health insurance?

Names like Medibank Private and Bupa, which are the number one and two market share leaders for health insurance, probably come to mind, but they aren’t listed, so how can an investor have exposure to this market except through the general insurers?

NIB Holdings (ASX: NHF) fits the bill. Although it offer kinds of insurance like for life and travel, it generates about 97% of its revenue from health insurance. Here are three things I really think are good about the company.

1. Policy holder growth 

It has been growing its market share through organic growth, with net new health insurance policyholders up by 4.6% on the average annually for the past 10 years, above the industry average of 3%. Also, just in November 2012, it acquired Tower Medical Insurance, the second largest health and medical insurer in New Zealand. It now has over a million people under its coverage in Australia and New Zealand combined.

2. Combined ratio

It has to balance out its insurance premium receipts and the claim payouts to make a profit along the way, and you can measure its performance by looking at its combined ratio, which is made up of its incurred losses and expenses as a percentage of earned premiums.

A ratio of less than 100% is good because the difference lower than 100% shows how much of a percentage of profit spread it is achieving of the earned premiums.

The company’s combined ratio in 2013 was 94.9%, meaning that it had 5.1% of total earned premiums remaining after subtracting incurred losses and expenses. QBE Insurance Group (ASX: QBE) had 97.1% combined ratio in 2013, whereas Tower (ASX: TWR) had the lowest at 81.9%

3. Return on equity

Insurance companies can also be compared and valued according to their return on equity, and since 2009 it has significantly raised its ROE from 6.6% to 21.6%.  That’s comparable to Insurance Australia Group (ASX: IAG) and its 21.31% ROE, and well above the average of the other listed insurance companies.

Foolish takeaway

The company offers good growth and has had stable, consistent earnings previously. Although not as big as the insurance giants of the industry, its one million customers under coverage in Australia and New Zealand shows it has momentum for the future.

With its expansion into New Zealand, where only 30% of the population has private health insurance, there are promising growth opportunities there.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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