Health insurer nib is confident rises to premiums due to kick in from April will be enough to absorb an expected rise in claims costs.
The comments came as nib on Monday disappointed investors with a worse-than-expected five per cent drop in net profit to $36.3 million for the six months to December 31.
Margins were crimped during the half as nib faced higher-than-forecast claims, an increasing contribution to the industry’s risk equalisation scheme and a one-off ambulance levy expense.
Chief financial officer Michelle McPherson said the 5.5 per cent increase in nib’s Australian private health insurance premiums in 2012 was lower than what the company would have preferred as it did not cover the rise in claims.
But for 2013, the government has approved a 6.5 per cent rise.
“Our 6.5 per cent price increase that we announced just over a week ago has certainly gone a long way to addressing this and we are pleased with that outcome,” Ms McPherson said during nib’s half year results presentation.
In a slide presentation accompanying the financial results, nib said claims inflation across the industry would be about five to six per cent.
Shares in nib were sold off heavily in morning trade, falling 11 per cent at one point.
The stock recovered to close two cents weaker at $2.25.
Bell Potter analyst TS Lim said some investors may have overlooked the fact that premium rises would kick in at the start of April.
“That will go some way to address people’s concerns about falling margins,” he said.
Mr Lim said the 6.5 per cent increase was nib’s highest premium increase since the company listed in 2007.
“I think that’s going to make a big difference there,” he said.
Chief executive Mark Fitzgibbon said the recently approved price increases were a very good outcome for nib.
“For the first time since our time in the business, we actually got to price on a commercial basis without having to worry about some of the allied political issues which so often has attended this pricing process,” he said.
Higher claims costs and one-off expenses dragged nib’s first half pre-tax net underwriting result down 8.6 per cent to $39.1 million.
The insurer upgraded its full year pre-tax underwriting profit guidance to a $75 million to $78 million range, from $70 million to $75 million previously.
This was due to anticipated additional earnings from nib’s newly acquired New Zealand business, as well efficiency gains and improved productivity.
Meanwhile, Mr Fitzgibbon said nib was still considering further acquisitions, but did not offer any specifics.
The company declared a fully-franked interim dividend of five cents per share.
