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NIB Holdings to increase premiums

Shares in NIB Holdings (ASX: NHF) have received a pre-Christmas boost after the insurer announced that it had received approval from the federal government to increase its premiums by an average 7.99% across all products.

The increase in premiums was necessary for the company given the rising costs of providing healthcare services as well as NIB’s contribution to the risk equalisation scheme, whereby the company’s payouts to customers had climbed higher than $1 billion – more than a 10% increase compared to the previous financial year.

NIB’s CEO, Mark Fitzgibbon said: “While every effort has been made to keep premium increases as low as possible, rising medical and healthcare costs as well as customer utilisation means we need to increase premiums to maintain the level of health cover and benefits our customers have come to expect.”

While the increase in premiums will differ across products, more than 70% of customers will only be hit with an increase of less than $3 per week following the changes. The company’s shares have soared to $2.55 since the announcement was made, which is just 5c short of their all-time high of $2.60. The changes will come into effect 1 April 2014.

Foolish takeaway

Although the company’s shares have performed strongly in recent times, NIB still presents as an excellent investment opportunity for investors going into 2014. While Morningstar has predicted earnings per share (EPS) growth of 20% in FY14 as well as a 10% increase in dividends, a low interest rate environment, population growth and mounting concerns regarding the public hospital system should push it towards another strong performance.

Furthermore, despite the increases to the insurer’s premiums, NIB still remains as one of Australia’s most affordable health funds, meaning that it should continue to attract more and more customers going forward.

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Motley Fool contributor Ryan Newman owns shares in NIB Holdings.

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