It has been an eventful day for the NIB Holdings Limited (ASX: NHF) share price.
Its shares were trading almost 5% lower at one stage today. But in afternoon trade this has narrowed to just a 2% decline.
What is happening?
That update revealed higher than reported underlying claims growth per policy for Medibank in the latter part of FY 2019.
Unfortunately, when combined with its October claims payments, the company is starting to see a trend. As a result, it expects the claims per policy unit growth to continue throughout FY 2020.
The release explains that this was “driven by a number of factors, predominately as a result of higher private hospital payments.” This is reflective of “an increase in the average benefit size along with the continuation of elevated prosthesis costs.”
This news led to the Medibank crashing significantly lower on Wednesda, dragging the NIB share price with it.
In light of this, NIB has released a trading update of its own this afternoon to ease concerns.
What did NIB announce?
Pleasingly, NIB reaffirmed its FY 2020 underlying operating profit (UOP) guidance of at least $200 million. It also reiterated that its arhi’s net margin was expected to be circa 6% this financial year.
The company’s managing director, Mark Fitzgibbon, provided investors with a breakdown on its performance and expectations.
He said: “For FY19 we saw actual arhi claims inflation per person expense of 2.9%, which was understated by product mix erosion or downgrading. We expect this pattern of inflation to continue in FY20. Our FY19 net margin with further actuarial development is now 6.3% compared to 6.5% (adjusted for FY18 claims provision release) reported at the time of our full year announcement in August.”
“Overall hospital inflation in FY19 was 3.2% representing a combination of episode growth and episode price inflation as well as our significant risk equalisation contribution. As anticipated, the mental health waiver played a significant role in this inflation, in terms of both utilisation and costs per episode, but this impact is expected to moderate in FY20. Experience in other parts of the case mix is varied without any significant developments,” he concluded.
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Motley Fool contributor James Mickleboro 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.