The NIB Holdings Limited (ASX: NHF) share price is up more than 10% after revealing an impressive profit update for FY21.
What’s happening for NIB?
The private health insurance business said that COVID-19 continues to impact the health sector.
Despite that, NIB said that its core Australian residents health insurance (ARHI) business is performing well. Total ARHI policyholders grew by 3.7% to 641,804 while claims, especially risk equalisation, continues to be lower than expected.
Its group underlying operating profit (UOP) for the nine months to 31 March 2021 was $140.9 million. The provision for deferred and suspended claims during the pandemic for ARHI was $59 million compared to $70.7 million for the first half of FY21.
The amount of catch up in the third quarter of FY21 of treatments deferred during the COVID-19 lockdowns appears to be slower than assumed at 31 December 2020.
NIB said that it anticipates to retain some of its remaining ARHI COVID-19 provision at 30 June 2021, subject to actuarial analysis at that time.
Management said that strong AHRI performance coupled with a stable performance in New Zealand is more than offsetting COVID-19 inspired weakness in NIB’s international inbound health insurance and travel insurance businesses.
Due to the fact that ARHI is performing so well, NIB is going to increase its spending on marketing, growth projects and ‘business transformation’ with a focus on improving health services to its members and travellers.
As long as business conditions remain similar, and noting that the catch up in healthcare treatment is uncertain and the related COVID-19 provision, NIB expects total UOP for FY21 to be within the range of $200 million to $225 million. That’s after generating $86.9 million of UOP in the first half of FY21. So it’s forecasting a strong second half.
Summary thoughts
NIB is an interesting way to play the healthcare sector. It’s diversified across all the different healthcare treatments and problems. NIB should benefit from ageing demographics. Other parts of the business should benefit as vaccines unlock more of pre-COVID lifestyle. There are positives still to come.
There’s still the issue of affordability for younger Aussies, so I’m not sure if the NIB share price is worth buying for the long term or not.
