The Australian Prudential and Regulatory Authority (APRA) is handing down some new ground rules to Australia's largest health insurance provider, leaving the Medibank Private Ltd (ASX: MPL) share price wincing in pain today.
In afternoon trade, shares in the dominant Australian health insurer are sliding down 3.9% to $3.44. Meanwhile, the broader share market is singing a different tune, with the S&P/ASX 200 Index (ASX: XJO) snapping its four-day losing streak.
The move downwards for Medibank shares follows APRA's release this morning detailing its orders for Medibank following the cyber incident in October 2022.
Larger buffer after big boo-boo
Today, the prudential regulator has announced the increase of Medibank Private's capital adequacy requirement by $250 million. APRA has decided following its review of Medibank's data breach — an incident that saw 10 million customers' personal information illegally accessed.
The additional $250 million requirement will take effect from 1 July 2023. APRA states this increased figure considers the 'weaknesses identified in Medibank's information security environment'. Furthermore, it will stay in place until Medibank has completed satisfactory remedial work.
Justifying the action taken, APRA member Suzanne Smith said:
In taking this action, APRA seeks to ensure that Medibank expedites its remediation program. This action demonstrates how seriously APRA takes entities' obligations in relation to cyber risk and that APRA will respond strongly to identified weaknesses in cyber security controls.
Delving into Medibank's half-year results, the health insurer noted a 13% capital buffer based on its premium revenue.
Additionally, management was looking forward to a reduced capital ratio of 10% to 12% following the new capital standards set out by APRA in September 2022. Assuming all else is equal, an additional $250 million in the capital buffer would push its ratio to roughly 16%.
Medibank share price bleeds despite response
Medibank addressed APRA's actions with a timely update to the market this morning. However, the response has not dodged a negative day for Medibank shares.
According to the announcement, the insurance company holds sufficient existing capital to meet the required $250 million increase. Even after stowing away the extra cash, Medibank states it will still hold around $148 million in unallocated capital.
As such, management will not yet reduce its target health insurance required capital ratio.
Despite regulatory ramifications, the Medibank share price has performed well in 2023. Shares in the company are up nearly 19% on a year-to-date basis.
