Why the NIB Holdings Limited and Medibank Private Ltd share prices skyrocketed today

Shares of private health insurance business NIB Holdings Limited (ASX: NHF) are skyrocketing this afternoon after the company upgraded its earnings guidance.

The shares are up 16.1% at $4.47 today, which is a new record high for the business (its previous 52-week high was $4.07).

The move came at about 2:45pm AEDT after the company issued a brief update regarding its full-year earnings guidance. While it previously expected its underlying profit to be between $102 million and $114 million, it is now guiding for between $125 million and $135 million, representing an increase of more than 20% at the mid-point.

In saying that, the company had previously suggested that its full-year result would be at the upper-end of guidance, so an increase in guidance of 14% may be a fairer representation.

The company noted that, due to its performance during the first three quarters of the year, it was comfortable to increase its guidance. This was, in large part, due to lower-than-expected claims, including NIB’s significant contribution to the industry risk equalisation scheme.

It said: “So far we continue to see a lower claims trajectory with a much reduced risk equalisation estimate for quarter three (January- March 2016), indicative of slowing claims growth across the entire (private health insurance) sector. It is a very welcome development.”

Notably, the company also said that: “If sustained and coupled with efficiency improvements being pursued by the industry, lower claims inflation clearly has the potential to ease pressure on future premium increases.”

That would certainly come as a positive for the industry, with many individuals and families now left to consider whether they really need private health insurance based on its ever-increasing costs. Shares of NIB’s rival Medibank Private Ltd (ASX: MPL) also jumped 3.6% immediately following the announcement, with Medibank’s share price also sitting at an all-time high price of $3.17.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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