NIB ends China ‘experiment’, shares surge more than 7pc

China’s prolonged Covid-19 lockdowns have ended NIB’s ambitions to sell health insurance in the Asian powerhouse.

NIB chief executive Mark Fitzgibbon says the health insurer has capped of its best quarter in seven years. Picture: Hollie Adams

NIB managing director Mark Fitzgibbon has waved the white flag on the health insurer’s China foray, pulling out of the market to focus on operations in Australia and New Zealand.

The Newcastle-based fund hoped to sell health insurance in China after striking a partnership with traditional medicine company Tasly in 2017. But after years of trying to get a licence, then obtaining one in the middle of the pandemic, Mr Fitzgibbon decided to pull the pin.

“Proud is too strong a word but I am very comfortable we’ve left our Chinese business. We gave it a good swing,” Mr Fitzgibbon said.

“You’ve got to experiment widely and amplify those experiments that do well, like we have with international workers and students in New Zealand, and cut off those don’t. It’s always a tough decision to end a business venture but we like to think good companies face into that.”

Mr Fitzgibbon said China’s lockdowns also drove the decision. He expects to recover most of the $15m spent on the China “experiment” via selling its licence and through NIB’s other business initiatives.

The company’s shares surged by more than 7 per cent to $7.78 on Monday after it announced it had outpaced the industry in new membership growth.

But its net profit sank 16 per cent to $133.8m in the year to June 30 following losses across its investment portfolio, which dived into the red, swinging $81.8m from previous-year earnings of $51.8m amid volatility across global financial markets.

The group’s underlying operating profit, however, surged 14.8 per cent to $235.3m.

“Our Australian Residents Health Insurance business grew 3.2 per cent, well above what we expect the industry will report,” Mr Fitzgibbon said.

“Premium revenue rose 5.2 per cent to $2.28bn, even though we deferred the 2022 annual premium increase.”

Other initiatives include investing in the fledging National Disability Insurance Scheme.

“We don’t get too far ahead of ourselves, but we have quarantined a significant amount of money to invest in the NDIS. A lot of that will be around acquisition of some of the existing claim managers and support co-ordinators,” Mr Fitzgibbon said.

“We think we have a lot to bring to that in terms of machine learning and insight to help participants better understand how they may be able to achieve their goals in terms of our ability to contract and pay providers.”

NIB’s overall claims fell 3.1 per cent to $1.53bn thanks to pandemic-fuelled restrictions on elective surgery.

As a result, risk equalisation payments – which ensure Australians pay the same premium prices at a particular insurer regardless of age or illness – fell 7.1 per cent, while NIB’s deferred claims liability increased to from $34m to $110.2m.

Barrenjoey analyst Andrew Adams said NIB delivered a “beat at the underlying operating profit line which appears to be driven by larger Covid-19 savings than expected in 2H22”.

“Management have moved away from underlying margin disclosures, adjusting for Covid-19 distortions, but guidance largely appears in line with expectations in FY23,” he said.

So far, NIB has returned $100m in “pandemic savings” back to members via premium deferrals and financial assistance and other measures. The Australian Competition and Consumer Commission has been watching health insurers closely to quash any profiteering from Covid-19.

NIB will pay a final dividend of 11c a share, fully franked, on October 4, taking the full year investor payout to 22c a share.