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Medibank share price plummets 9% on higher FY20 claims

The Medibank Private Ltd (ASX: MPL) share price has been hammered down more than 9% in early trade, following revised FY20 guidance this morning.

The Aussie health insurer reported higher than expected claims since the start of the FY20 financial year, which has resulted in a $21 million under provision from the group’s 30 June 2019 claims reserve.

Medibank’s actual 2.4% underlying claims growth per policy unit in FY19 is an increase from the 2.0% reported. Medibank is now forecasting this trend increase in claims per policy unit in 2H 2019 to continue in FY20.

The news has seen the Medibank share price come under strong pressure in early trade as the company revises its FY20 outlook.

The health insurer cited higher private hospital payments as the biggest catalyst for the claims increase. Medibank’s earnings will be affected by “challenging” conditions, despite an uptick in policyholders to start the year.

Management is “confident” that it is on track to stabilise Medibank brand policyholder volumes by the financial year-end.

There were no other changes to outlook comments from the company’s FY19 results.

What does this mean for the Medibank share price?

The Medibank share price will be under pressure on this revised FY20 outlook news, after a strong trading year so far. Medibank shares opened at $3.40 per share having surged 36.00% higher since the start of January, but have plummeted to $3.09 at the time of writing, a 9.12% drop.

The company’s shares currently boast a 4.23% dividend yield with a market cap of $8.54 billion. 

Fellow ASX health insurers QBE Insurance Group Ltd (ASX: QBE) and NIB Holdings Limited (ASX: NHF) could also be under pressure this morning.

Foolish takeaway

It’s been a strong year for the Medibank share price so far, but the revised guidance could change that this morning.

It’s worth watching Medibank shares in this morning’s trade, following a quiet Melbourne Cup Tuesday.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited. 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 Scott Phillips.

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