Shares in NIB Holdings Ltd (ASX: NHF) climbed 10% this morning to $6.27 after the private health insurer upgraded guidance for full year statutory profit to come in around $169 million, compared to prior guidance of at least $148 million.
This is a significant 14% lift to profit guidance that NIB's management team apportioned to its expected profit margin rising to 6.9% compared to previous estimates for it to come in between around 5%-6%.
In effect policy holder claims came in lower than expected as it turned out NIB's policy holders didn't require the healthcare that the insurer had budgeted for.
Management flagged that international students and workers in particular, who have specific healthcare cover under the terms of their visa, also failed to claim for health services as much as anticipated.
Other contributors to the rising margins were "tighter cost containment" and the Federal government's drive to bring down the cost of medical devices under a recent review it conducted.
Ironically, NIB's fast-growing profits may themselves attract the attention of the public regulator as it is not a good look if the private sector is pocketing excess profits at the expense of the public healthcare service.
Annual premium increases to private health insurance policies are already set by the government with NIB claiming the 3.95% allowed in 2018 was the lowest in 15 years.
For financial year 2018 NIB's managing director suggested its net margins would retreat back towards the 5%-6% range.
NIB pays a decent dividend too, but it's not The Motley Fool's number one dividend stock to buy now…
