NIB Receives Sound Premium Increase, Still Well-Placed for Growth in Healthcare Spend

Narrow moat-rated NIB Holdings, or NIB, was granted an average premium increase of 7.99% by the government to cover the rising cost of healthcare services. The health insurance industry is highly regulated, with idiosyncrasies due to Australia's philosophy of affordable healthcare. Consequently, everyone is entitled to buy the same product at the same price, and the higher cost of the sick and elderly is distributed across the industry through a risk equalisation levy. Insurers with young, healthy customers such as NIB must contribute payments toward this equalisation scheme. Premium increases are largely designed to offset these payments as well as cover claims inflation, which typically runs at 5% to 7% per annum. The solid premium increases are broadly in line with our expectations, and consistent with the firm's positive outlook. There is no change to our AUD 2.70 fair value estimate. We continue to believe NIB will benefit from attractive long-term dynamics and continued government support. At current prices, NIB is fairly valued on a forward price earnings ratio of 15.8 times, considering its bright outlook.