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Why the NIB share price is tumbling this morning

The NIB Holdings Limited (ASX: NHF) share price will be on watch this morning after the private health company released its half-year 1H20 results.

At the time of writing, NIB shares are trading 4.13% lower at $5.11 per share.

What did NIB report?

NIB announced that group underlying revenue grew by 6.4% to $1.3 billion during the half-year compared to the corresponding period (pcp) of 1H19. This was driven by an increase in membership and premium revenue across all business segments.

However, underlying operating profit (UOP) came in at $83.2 million, a 27.2% decline compared to 1H19. According to the company, this was due to higher claims inflation across its insurance businesses, in addition to timing in the receipt and payment of claims that impacted NIB’s ‘unpaid claims’ reserves.

NIB did note that its UOP for Australian residents health insurance (arhi) and international inbound health insurance (iihi) businesses did in fact benefit by a release from the unpaid claims reserve from the previous accounting period.

In contrast, the company noted that its 1H20 result was actually disadvantaged by an under reserving at the end of FY19. If the most recent now paid claims results are used in calculation, then the group UOP result for 1H20 shows a lower decline of around only 2% compared to 1H19 and slight improvement within the arhi segment.

NIB beating industry average growth

NIB Managing Director, Mark Fitzgibbon, commented that the first-half earnings result was disappointing even after allowing for the claims provisioning effect.

“We’re not accustomed to seeing our earnings decline and it’s especially frustrating when our revenue is actually growing right across the Group,” he said.

“Nevertheless, and although insurance margins have been higher in recent years, they remain strong and represent a very good return on invested capital,” he added.

The company did note, however, that the arhi segment is growing in challenging market conditions. The segment recorded sales of more than 12% compared to 1H19 while NIB accounted for almost 38% of total industry policyholder growth for the half.

Overall, NIB noted that it had grown its membership by 1.4%. In comparison, the industry as a whole only grew by 0.3%

Outlook for remainder of FY20

NIB has reaffirmed its FY20 group underlying operating profit guidance that it previously gave of at least $170 million. Guidance for statutory operating profit is at least $150 million.

Mr Fitzgibbon further commented, “We’re thinking about FY20 as a reset of sorts. We’ve embarked upon a major transformational effort to make our future value proposition much more about people’s better health rather than just responding to sickness or accident.”

NIB declared an unchanged interim dividend of 10.0 cents per share fully franked.

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Motley Fool contributor Phil Harpur 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.