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Edited Transcript of NHF.AX earnings conference call or presentation 21-Feb-21 11:00pm GMT

·61 min read

Half Year 2021 NIB Holdings Ltd Earnings Presentation New Castle, New South Wales Feb 23, 2021 (Thomson StreetEvents) -- Edited Transcript of NIB Holdings Ltd earnings conference call or presentation Sunday, February 21, 2021 at 11:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Mark Anthony Fitzgibbon nib holdings limited - MD, CEO & Executive Director * Nick Freeman nib holdings limited - Group CFO ================================================================================ Conference Call Participants ================================================================================ * Andrew Buncombe Macquarie Research - Insurance and Diversified Financials Analyst * Ashley Dalziell Goldman Sachs Group, Inc., Research Division - Equity Analyst * Kieren Chidgey Jarden Limited, Research Division - Analyst * Matthew Dunger BofA Securities, Research Division - Research Analyst * Megan J. Kirby-Lewis Morgan Stanley, Research Division - Research Associate * Nigel Pittaway Citigroup Inc., Research Division - MD & Head of Pan-Asia Diversified Financials and Insurance * Siddharth Parameswaran JPMorgan Chase & Co, Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [1] -------------------------------------------------------------------------------- Good morning all, and welcome to our half year presentation this morning. Before we get going, I'd like to start by acknowledging today representing from the traditional lands of the Awabakal. I'm sure they had many gatherings, meetings of their own here for many eons. So we pay our respects to the oldest, both past, present and future. First slide, please, Amber. Look, always like, well, we always like to start with this slide for a couple of reasons. It's rather high level, and there's a lot of aggregated data there, but we think it's important in terms of emphasizing. For us, it starts with our purpose as a health insurer, and increasing in the future health care company. Secondly, because, obviously, the data is important to those, many members who have benefited from the couple of hundred thousand hospital admissions and a couple of million ancillary visits. And thirdly, because it highlights just the growing significance of private health insurance in our total health care sector. We're accounting as an industry for about 45% of all hospital admissions these days. It's about 12 million every year and about 65% of all elective surgeries. So it just highlights just how important and significant private health insurance has become to the overall health and well-being of our health care system per se. Nick will go into most of the financial detail, and I'll talk about some of the highlights on the next slide, but it's a pretty good result. In particular, our arhi New Zealand business held up very well, notwithstanding the challenges of COVID-19, and their very strong performance. You'll see as we go through the presentation, has helped offset some of the obstacles and weaknesses in some of our other businesses, borne out of COVID-19. So more about all this detail a bit further on. Look, lots of highlights. I've already mentioned the very strong performance of -- no, I should start by saying I should emphasize just the effort and focus we've placed upon our members' well-being throughout the COVID-19. We've supported our members in many different ways through premium relief at a cost of about almost $50 million in forgone premium revenue. We've expanded cover for our members at no additional cost to cover COVID-related treatment. And we've been very active in the community at large and supporting COVID-19-related interventions and program. Probably the best example of that is support we provide for Lifeline. And the fact we bought some surgical masks very early on in the pandemic when they're in very scarce supply. It was quite novel. We sourced those masks through our partnership in China. And we'll talk more about China a bit further on. But the call out here, I think, is, first of all, if I could just refer you to that top right-hand graph is the ongoing powerful performance of arhi in its organic growth relative to the industry. And the first half has proven to be a very successful one for them, not only in terms of growth and attraction in the marketplace, but also its profitability. It appears as though consumers have a heightened sense of awareness around the risk of disease, courtesy of COVID-19 and nobody celebrates the mystery and disruption of COVID-19, of course, but there does appear to be learning consumers to the need for more protection in these times. And of course, we're informed with that protection. The second graph there will refer often through today's presentation to the provisioning we have made for COVID-19-related deferred treatment. This is a treatment that hasn't occurred because of COVID-19, whether hospitals are in lockdown or people have just been nervous about hospitalization or close contact. One of the big challenges we've had as a company and an industry is to work out of that treatment, which has effectively been deferred, to what extent does it catch up and at what speed does the deferred treatment catch up. But it's very inexact science and not unlike, I suppose, the banks trying to calculate provisioning for doubtful debts during COVID-19. That bottom graph on the right-hand side, I find interesting. It's a bit of a simplification. But if you think of that surface area between our experience in '20 and our experience in '19, if you think of that surface area back in April of lost activity, in order for it all to come back or to catch up that surface area in subsequent periods needs to be as great. And you can see there that while we have seen not insignificant catch-up, it's not -- it's nowhere near the level of activity that was lost in April and May, principally last year and even then further on in Victoria throughout August and September, which has further confounded the calculations. So one of the great challenges we've had, and as I mentioned, the industry's had is actually estimating what was actually lost or deferred, courtesy of COVID-19, and to what extent would that activity actually return in the form of catch-up activity. There are a number of functions -- factors, I should say, at work there. As I mentioned, Australia was confounded by Victoria. In New Zealand, we have seen more rapid catch-up. New Zealand didn't have a Victorian equivalent. And of course, it's the supply side. In New Zealand, it appears that supply side has been more able to cope with catch-up where the Australian has been a little bit -- we've seen more friction. And when you think about it, that kind of makes sense too inasmuch as the government has effectively repositioned many of the private hospitals during COVID and after COVID. So I think that's an important feature of our results, how we've gone about estimating the COVID exposure and the need for provisioning. And it still remains very fuzzy. I'll come back to that as we go through the presentation. As I touched upon, COVID-19 hasn't been kind to a couple of our adjacent businesses. Our International Workers and Students business have obviously been hurt by restrictions on international travel. And the ability of students and workers not only to come here, but the fact they kept here has meant, particularly in students, we have seen higher claims experience. It's obviously had a very detrimental impact on our travel insurance business, and we'll go through the numbers as the presentation unfolds. I've touched upon New Zealand, which is -- which like the Australian residents insurance business has had a pretty good first half. And Nick will talk more about this, but we're particularly pleased with the extent of cost reduction and productivity improvement we've seen the business. Now admittedly, much of that was driven by the necessity of COVID-19 and its impact on the marketplace particularly in travel, but it also highlights the increased investment we're continuing to make in AI and automation and generally improving the operating efficiency throughout the business. So I'll pause there and hand over to Nick to go through the detailed financial information. I'll come back towards the end to talk about the important outlook. Nick? -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [2] -------------------------------------------------------------------------------- Thanks, Mark. I'll just take you through the financial slides and hand back to Mark at the end, and then I think we'll have some time for questions. If I just start working through the slides, and we'll go in a little bit of a page turn, if that's okay. The first is the group income statement. So the clear highlight of this is the premium revenue growth and then the low claims incurred. So just working through that a little bit. So if you have a look at the premium, we have a couple of things going on. We do have a very strong growth in policyholder numbers, up 2.7% in the half, but sort of versus PCP, it's 3.2%. But that, in turn, has been slightly offset by the deferral of the price increase from April, which came in on the 1st of October. If we look through on claims, we'll go through this, I think, a bit on the next page. But we've had some impacts on claims through further savings, largely a result of the Victorian lockdown, but there also were some other factors. We've also had some risk equalization benefit as the largest payer into the pool, the reduced amount of claiming has assisted there. And so we'll work through that in the next couple of slides. Going through in terms of the other income and the other expenses, you can see very steep declines in both of those, largely driven by nib Travel. So that shows the extent of both the revenue reduction and also the cost reduction. Going down, you can see that we had an impairment of the travel intangible of $7 million. Again, we'll do a continual reassessment of these each half. And just looking through, we've still maintained our core assumption of travel coming back to normal levels in FY '24. But just as we work through and we work through the delay in the cash flows that caused an impairment in that area. Coming through down to a good strong bounce back in investment income. Probably no surprise. There was a rebound in investment markets as well, especially across that November, December period. It's just worth highlighting that if we exclude the noncash impairment, that net profit would have been up 27.5%. I'll go to the next slide. We try and include this page. Just to give you a bit of an idea, it's especially important around our arhi business, but this is a great view and just trying to see some of the ups and downs around the gross profit drivers. At the bottom right-hand corner, we've showed you the reconciliation to gross profit. But firstly, just looking at the policyholder growth. And again, I sometimes talk about the importance of the growth to offset the negative mix variance. A little bit lighter this time, and that's really an impact of the price deferral and also the impact on our international health business, which has been clearly impacted by COVID on the students and workers. Then go down through to the rate variances. What we've done here is we've taken out, you can see at the second bottom line, we've taken out the price deferral impact. So that you can see that our pricing strategy is covering the claims expense increase from both an inflation and incurred scenes. Going through, we had some OSC impacts. Last year, that was largely a prior comparable period issue. So those have gone away. So they're pretty small this time around. And I'll come to kind of what are the 2 biggest impacts, which is around risk equalization and the impacts of COVID. So you can see a very favorable impact from risk equalization. There's a few things going on here. The first is that as the largest payer, we obviously get a benefit in regard to when there's been a lower claims experience. But what we've actually seen as well is not only a lower claims, but also a lower rate of claims from the older age cohorts. So that's assisted as well. And then if we have a look at the negative $7.5 million, that's in relation to some risk equalization payment that we've identified that may be ineligible. We've taken a provision against that. It's largely historical with only a very small amount in the current period. Going through into COVID-19, we've broken open sort of the 3 major impacts. So what you can see, we'll go through this in a little more detail on the next slide, but you can actually see that we experienced some further savings. So if you remember about when we took this provision, we essentially estimated what we thought claims would be pre-COVID. And then we estimated savings against that. So we continue to get some savings that is largely in Victoria. We then had a fairly modest catch-up in relation to the provision and the catch-up was proportionately greater in New Zealand. Very small impact from the suspension and waiver. And then we did release -- against that claims catch-up, we did release some of the COVID provision. And then finally, the price deferral. So moving across to the next page. Trying to give you a little more information here on the actual COVID provision. We've got the 30 June breakdown at the top and then the 31 December at the bottom. A few highlights here. Firstly, the claims increase, you can see at the middle of the table, $113 million was the expected claim saving. At 30 June, that increased to $160 million, and you can see that the proportionately larger increases in the risk equalization, which is a result of that lower industry claiming. Going across to New Zealand. You can see that we've actually released quite a bit of New Zealand, and that you can see that we've kept the deferral rate at 90%. And again, that's an effect of the experience because of the quicker return to normal, we did see a more predictable and a faster rate of catch-up in New Zealand. However, in the arhi business, that was less so. So the catch-up to date has been relatively smaller. We've taken a lower deferral rate given the catch-up experience that we've had and given the risk equalization experience that we've had. But if you can see the deferral rates actually on that higher number. So the release was actually fairly small, going down from $90 million to $70 million. So overall, in the provision, a total reduction of $98.8 million down to $73.1 million with proportionately the largest release in New Zealand. Moving across. We'll just going to now a quick overview of our segments. This is a strong result from arhi. I won't go into overly great detail on it, but you can see the premium revenue and the claims expenses I've talked before. And then a really strong UOP result, as a result, up 42%. Worthwhile, the expenses number, you can see has grown a couple of percent. That's in around a couple of things. Firstly, some of the benefits that we've had from property rationalization that we've done actually comes through in the income line because it's been subleased, and then we did do an investment in our Payer to Partner initiative. I'm sure Mark will go into more detail on that later, but we did have a reasonable up-front investment in that this half. Moving on to quickly, this is a quick one on arhi, which I think is quite useful. On the left-hand side, this is the risk equalization, and it's the quarterly year-on-year change in the gross deficit. And so as you can see, the reduction has been quite dramatic. And if you look, it still actually hasn't returned to that 0 line. So we still haven't caught up. And then you can see on the right-hand side, just a driver tree. Revenue obviously helping, but then you see the risk equalization benefit coming through. Turning now to our international business. And you can see that this has been hit fairly hard. I don't think any surprise by that in terms of the border restrictions and the travel restrictions. It is a tale of 2 businesses. The students business has been hit harder than the workers business. The workers business has been holding up okay, but the students business has been hit. And we're also seeing an increase in claiming as a result of some of the change in behavior of some of our members. And there's a few things going on. First of all, we've seen people stay on longer and keep their insurance for longer. And as the longer you keep it, the more you tend to claim. So that's been -- we've also had a shift in the periods of stay. So what we were experiencing in times gone by, whether students would return back for planned events such as pregnancies and so forth and have it in their home country, this has now been occurring within Australia. So that's increased the claiming. And also, we have had a few high cost plans this half. Moving across to New Zealand. Again, fairly steady result, maintained the margin, strong revenue growth. You can see that there's been that catch-up in claims. So the claims growth has been there. And a fairly steady UOP there. Just worth highlighting quickly on just the member numbers. We split these out between New Zealand residents and the international students. We did take on a large account last year, which helped the international students area. That's obviously been hit strongly. So we just wanted to highlight the continued growth in the residence area. Okay. Travel. So Travel obviously impacted very strongly in the operating income. Acquisition costs come off significantly as a result. And then a 54% reduction in operating expenses to reduce the UOP loss to $7 million. That was down from a little low, under $22 million in the second half of last year. So pleased with the rationalization going on there. We do see underlying demand, and we've tried to highlight that by showing you the sales numbers in the 1st to the 16 -- 1st of January to 16th of February. So while they're still down 85% versus PCP, you can see that they were well ahead of where they've been in the first half. So we're confident that the underlying demand is there. The challenges around the border restrictions and the confidence around the border restrictions and so forth. So we'll wait for this phase and see for developments there. As I said before, we took an impairment of $7 million in terms of the intangibles, and that's really looking around some of the assumptions that we've made, but we have maintained that assumption of a full return back-to-normal travel in financial year '24. Okay. Just a few highlights on investments, gearing and capital. I might just turn you to the right-hand side. So we did have the -- what we've done here is just showing you the sources and uses of capital. We have grown our capital across the half. You can see that the strong impact contributed, and then we have allowed for the $0.10 dividend. And in terms of the uses of capital the growth in arhi is -- in New Zealand is absorbing some, but we had a release from our Travel business where the losses are now reducing and with the activity reducing. So that's allowed us to pay up towards the higher end of our target dividend range and just below the 70% rate. And I just thought I'd spend a little bit of time on cash flow because there's a bit going on here. And you can see in the bottom right that there's a bit of seasonality to our cash flow. Nevertheless, it was the operating cash flow was minus $40 million. I just wanted to go through a few things in regard to why that's occurring. So the first part is that we've had the deferral of the price increase. Then the second part is that we actually had a stronger cash claims catch-up here in the first half of this year than we did the incurred claim. So there's a bit of a difference in the P&L versus cash. Partially, that was just an actual catch-up. And partially, that's in relation to the finalization of some hospital contracts where the hospitals essentially withhold the payments until the new contracts are finalized. Travel in this year obviously had an impact there. And then we did have some more tax. So that tax is in relation to a catch-up from the prior year. Also, we've had some higher pay -- high installment tax as a result of the profitability. And then the last one is also the tax on the investment returns. So again, when that returns to normal, I'm confident in the second half cash flow outlook and the January cash flow certainly was quite strong. I think I'll now hand back over to Mark. Thank you. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [3] -------------------------------------------------------------------------------- Thanks, Nick. Okay. Well, I'll cover some of the key points -- key areas of focus for us and outlook. But before I do, I just want to comment on our efforts around sustainability at nib. We've long had a deep conviction around sustainability, and we take it personally, the obligation, responsibility we have as a business to the broader community in terms of sustainable business practice. Usually, the area we believe we can make the most significant contribution is around population health. You can see from the slide, there are 5 elements to our sustainability plans, but our ability to impact directly, at least population health is far greater, for example, than our ability to impact down carbon emissions and natural environment, which is not to say we don't see that as important and having a goal of that. And you can see from this slide that we've actually made a commitment to be carbon neutral by the end of financial year '22. But population health is where we're very focused in terms of how do we make our communities in which we operate all the more sustainable in terms of the health and well-being of their people. And there's no better example of that at the moment than the work we're doing with New Zealand Maori tribe or iwi, Ngati Whatua Orakei, where already, we have almost 5,000 people enrolled in our general population health program, a program which working in collaboration with the leaders of that tribe, we're seeking to improve the overall health of that population and health outcomes. Our business strategy will be well known to those familiar with the company. Our ambition is fundamentally to be as much a health care company as a health insurance company. Increasingly, into the future, we want the value proposition for our members and travelers to be as much about their health and well-being in the first place, helping them avoid the risk of disease and injury as we have been for almost 70 years around their sickness. That is being there [fallen once they've] already sick or injured. And I'll talk more about this a bit further on. It explains a massive investment we're making in data science, particularly through our JV with Cigna Corporation Honeysuckle Health. Our efforts around [personalization] are very much about changing the value proposition for consumers and the reason that you'd be a member or a traveler with nib in the first place. We're naturally focused on affordability and sustainability, as I've touched upon. We still recognize our flagship Australian Residents Health Insurance business, or arhi. It's a key economic engine for the business. So no lack of attention or investment in that business, our arhi business, vis-à-vis its ongoing organic growth and whatever other initiatives we can track to drive that growth. Similarly, we're using that core business as a source of economies to scope into adjacent businesses, as we have been for many years now, international workers, students in New Zealand, travel insurance and increasingly our JV in China. And of course, Honeysuckle Health, which I've mentioned. And Racing the Red Queen, our cheesy little characterization of our absolute fundamental belief that with our constant innovation and experimentation that we wanted to be as successful as a business as we'd like to be. So innovation, Racing the Red Queen, as we called it, is something that's fundamental to our world view about business in the marketplace. I've called out a number of key focus areas here. There are many. But singling these out, as I've touched upon, you'd expect our focus upon organic growth within arhi, New Zealand to remain as strong as it has been in the past. And we still sense opportunities for further partnerships like the wonderful partnerships we enjoy with the likes of Qantas and Suncorp. And who knows, there may be some -- may even do some M&A prospects out there. Part of P2P -- sorry, I shouldn't explain. P2P is payer to personalization. So this is trying to describe that -- what I've already described that we want to be more than just a payer of health care bills once our members are already sick or injured. We want to partner with them and their providers to help them maintain good health in the first place and mitigate the risk or prevent the risk of disease and be more precise in the treatment of disease and other maladies. So we see a whole range of new products being developed to complement that thinking. We see a future in which you can be a member of nib in Australia and New Zealand without even having indemnity, without even having insurance that you'll have a range of other products you can access through nib to maintain your good health and prevent the risk of disease. We're very interested in being more precise and active, as I've described in identifying risk in people and specific populations and making interventions to prevent or mitigate that risk of disease. Again, Honeysuckle Health is a key driver behind that. We're particularly interested in making the experience for our members and travelers for the more digital. We expect that in the future, they will be able to engage with us across the full functions of our activities from understanding their individual risk profile, having a good health management plan to be able to engage digitally for a much broader range of providers both the providers of sick care and providers of health care. Continued investment and focus on Honeysuckle Health is part of that. We particularly need to address the high claims experience, which I think I touched upon earlier and Nick underscored in our students business. There is certain COVID-19-related factors, which are causing spikes to claim amongst our students population, unfortunately, for them. We're particularly looking to limit our losses in travel. Travel, of course, has been hit hard by COVID-19. We're cutting cost to fit essentially. But we're not -- we're certainly not putting the business on life support. We characterize it as being on idle, and we see in the not-too-distant future, return to travel and a resurgence in that business. And as Nick has already touched upon, we're very focused upon tighter cost control within the business. Look a bit of information here. Most of the points I've covered, I think. Thinking about arhi, we had a good first half. Hopefully, the second half will be just strong. We're targeting 3% to 4% organic growth, hopefully, towards the top end. But again, making predictions in current economic circumstances is slightly problematic. Where the claims trajectory goes from here? Nobody can be certain, like we've already made the point. We haven't caught up as quickly the deferred activity from FY '20, but also deferred activity from the first half, particularly in Victoria. Now to what extent that catch-up occurs, and at what pace the catch-up occurs is a function of many factors. I think our reserving reflects that ongoing uncertainty, and Nick has already touched upon the fact that we still have about $73 million put aside to fund that catch-up. And I think just generally, there's -- one of the consequences of COVID-19, I think, is that apart from people having greater awareness of the risk of disease and the need for protection is a growing acceptance that private health insurers do have a more significant -- have the potential to have a much more significant role in our health care system. And certainly, as a company, we're driving a broad range of policy thinking and initiatives about that notion. New Zealand is very similar to Australia in terms of dynamic. I won't step through each element of that. International (Inbound) Health Insurance for international workers and students, I think we've covered. We're waiting for circumstances to improve and very confident about the medium to long-term outlook of both businesses. I think I've commented upon this before. I think Australia would potentially benefit from COVID-19 with its attraction to students, and the likely greater aversion to the U.K. and U.S.A., although I note that the U.K. in particular, is moving very quickly post-COVID-19. Well, we're at the moment to win greater market share amongst international students and taking costs out to control profitability in that business is an important focus. I think I've covered most of what there is to say about travel. Again, the business is in idle. We're taking the opportunity to modernize systems in the business. There's still quite a few legacy issues there from our acquisition 5 or 6 years ago. And again, we're confident that business will bounce back when market conditions permit. I'll come to Honeysuckle Health in a moment and the China joint venture because we had -- we've singled out some slides on that. Look, it's just a bit of an update on Honeysuckle Health and our joint venture in China, what we call Flying Tiger. Little bit about Honeysuckle Health is this is a joint venture we created with Cigna Corporation a couple of years ago now. It's based in Newcastle, has its own CEO, Rhod McKensey, who used to lead our arhi business, and it has workforce now about 50 to 60 people. It has a number of purposes in life. It is a data science company, a company which through using big data and AI is able to present to nib and future clients, a deep insight into the risk profile of their population and recommendations and -- as to how that risk might be better managed, again, courtesy of sophisticated data science. It's also a company, a platform which delivers health care programs itself based upon that insight as to the risk profile of members and population. We've made a very strong program. They already had 3 interventions or programs in the marketplace around hospital discharge support to prevent people -- to avoid people returning to hospital when that can be avoided. There's something like 700,000 avoidable hospital admissions that occur in Australia each year. They have a mental health program, and they have a chronic care program. So we're very confident about the prospects of that business. We think it's a point of difference in the marketplace is that in supporting clients with disease programs -- disease management programs in a much more sophisticated and precise way. The business will -- its loss this year will be in the order of $7 million of which we have half. But we expect the business to be profitable within the next 2 to 3 years. Similarly in China, we have had a joint venture operating there for about 3 years now. It's starting to build momentum. We're on the cusp to it being licensed to sell health insurance. Its business activity today has been confined to providing health management programs, albeit very important programs, to a broad range of corporate clients in China, throughout China. Its revenue at this year will be about $5 million, and we'll lose between us -- between us and our joint venture partner, somewhere between $2 million and $3 million, but we expect the business to be profitable in financial year '23. So both businesses, very much an evidence of our commitment to this Red Queen Racing philosophy I touched upon earlier. And both are in marketplaces which have an enormous potential, like the Chinese marketplace, for example. China spends already about USD 1.3 trillion each year on its -- on their health care. And the latest government estimate is that total gross written premium for health insurance by 2025 will be about USD 400 billion. Now to put that in some context, Australians as a whole spend about half of that or $200 billion a year on our health care. So both businesses have very exciting prospects, and both are already gaining considerable momentum. And that concludes my presentation. Over to you guys for any questions you may have. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Andrew Duncan (sic) [Andrew Buncombe] from Macquarie. -------------------------------------------------------------------------------- Andrew Buncombe, Macquarie Research - Insurance and Diversified Financials Analyst [2] -------------------------------------------------------------------------------- Just the first one, are there any further cost-out programs planned for the travel business in second half? Or is that now all in the base? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [3] -------------------------------------------------------------------------------- We'll continue. I think the half year result, given the revenue situation, is reflective of where the business will remain. There'll be some opportunity to further prune cost. But as I've tried to emphasize, Andrew, we're not -- we don't want to put this business in the hibernation. We do see some light at the end of the tunnel. Nick touched upon that. It may be another year or 2 away. But we're as much taking the opportunity to invest where we think that it's prudent, particularly around making the business. We think the business -- well, we don't think. We believe the business is to emerge more as a digital business than it has been in the past. There's been too many manual processes. And we're changing that up. A good example of that is the business is now running on cloud from AWS, running Salesforce and AWS is now operating on Salesforce's CRM on a cloud environment. So it's been an area where we're focusing a lot of our energy and business modernization and building the kind of new digital and cloud-based and Software-as-a-Service capabilities that we have in mind under our IT strategy for the group. -------------------------------------------------------------------------------- Andrew Buncombe, Macquarie Research - Insurance and Diversified Financials Analyst [4] -------------------------------------------------------------------------------- Okay. And then I think over the last 12 or so months, you've now received about $5 million in JobKeeper. Just in the context of the group results, which is obviously a decent at this half, should we expect need to give any of that back in the second half? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [5] -------------------------------------------------------------------------------- It's a little bit more than that. It's about $6 million, Nick? -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [6] -------------------------------------------------------------------------------- That is $5 million this half, and it will probably be $1 million for the next half -- for the current half that we're in now. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [7] -------------------------------------------------------------------------------- Yes. Look, it's -- of course, it's a topical question. Every cent we've received in JobKeeper has been used to keep people in employment. We took the position very early on in the piece that government asked us to support employment, employees, we would have otherwise let go, particularly around travel. Government asked us to support them with JobKeeper. We bowed into that in good faith. And the Travel Insurance business is a very discrete business within the nib group. It's not a business which suffered initially. And as things turned out, the marketplace came good, and it suddenly started making money. It's not that kind at all. It continues to suffer the effects of COVID-19, and it continues to lose money, and we continue to deploy JobKeeper to keep the people within that business employed. So it's not our intention nor have we made a provision for any refund of payments received for government to keep those people employed. -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [8] -------------------------------------------------------------------------------- Probably also worth noting that over the 2 halves, I mean, that business has lost on an underlying sense, almost $30 million. And from a statutory sense, the number is significantly higher. So this is -- and all the JobKeeper payments are going into the travel area. -------------------------------------------------------------------------------- Andrew Buncombe, Macquarie Research - Insurance and Diversified Financials Analyst [9] -------------------------------------------------------------------------------- Excellent. And then just a final one from me, please. Given that the arhi claims are now coming back slower than expected. If that sort of continues, what would we need to see before you would start to share some of that with customers? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [10] -------------------------------------------------------------------------------- So I don't think -- well, we'll obviously have a clearer view by the end of the financial year. If we aim to make -- in arhi business, we aim for a net profit margin of 6%. That remains our target. You can see from our half year results that we're a bit over that because of the recovery in claims. And well, claims is just a function of utility, the recovery and hospital utilization, in particular, including across the whole industry, and that's the risk equalization component hasn't been at the pace that we originally expected. But that's not to say that we -- the pace might gather as the vaccination is rolled out as people, and particularly older people become more confident about any risk associated with going to hospital or having any forms of treatment. So I think our position is maybe conservative, but prudent. We'll obviously review our provisioning at 30th of June this year. If there is any surplus earnings for one of the better description, that will obviously have some influence on our next pricing application, which would apply from the 1st of April 2022. Just quickly there on that. I will recall back in May, we were actively considering and modeling one-off rebates across our entire membership of $100 to $200. I think we even looked at a $400 rebate. On the assumption that hospitals were going to be closed, people were suggesting in -- well, some people were suggesting in April and May of last year that hospital would be close till Christmas. Well, we now know, that just wasn't the case. Surgery rebid in Australia and New Zealand in June and July. So I think we have to be careful not to preempt too much thinking around what lies ahead, what exposures we may have in the business. As I mentioned, I think our position that we're taking at the moment is prudent, but it will all be subject to review as things continue to unfold. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Our next question comes from Megan Kirby-Lewis from Morgan Stanley. -------------------------------------------------------------------------------- Megan J. Kirby-Lewis, Morgan Stanley, Research Division - Research Associate [12] -------------------------------------------------------------------------------- Nick, my first question is just on arhi policyholders growth. Just wondering if you could give us some more detail on what the impact of the return of suspended policies was in first half? And then whether or not there's any still outstanding that would have an impact on the second half. -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [13] -------------------------------------------------------------------------------- Yes. Yes, we can. So during the first half, if you just take the first half member numbers, that was 2.7% and goes down to 1.8% excluding the resumptions. And this half, I don't think we're seeing really a notable amount of resumptions. -------------------------------------------------------------------------------- Megan J. Kirby-Lewis, Morgan Stanley, Research Division - Research Associate [14] -------------------------------------------------------------------------------- Okay. Got it. Then without an improved trend on the number of policy downgrades versus upgrades, just wondering if this was consistent across the half, given there was a 3-month period without any premium increases and then the increase came through in October? And then as a follow-on to that, what impact would you expect once we see the next round of increases come through in April? -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [15] -------------------------------------------------------------------------------- Sorry, you cut out kind of at the critical time for us. Do you mind just mentioning that one again? -------------------------------------------------------------------------------- Megan J. Kirby-Lewis, Morgan Stanley, Research Division - Research Associate [16] -------------------------------------------------------------------------------- Sorry about that. I'm just wondering if the improved trend on downgrades versus upgrades was consistent across the whole half, given the difference on the premium increases? And then what impact you would expect from April onwards once the next high increase comes through? -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [17] -------------------------------------------------------------------------------- So if I look at the sort of latter, again, that's again, a future thing, which is kind of challenging to predict. What we're really just trying to highlight is the more even sort of balance between downgrading and upgrading. But I do note that the impact was still overall negative. So in terms of across the half, I think we'll probably have to come back to you on that. I haven't tracked that by months. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [18] -------------------------------------------------------------------------------- Yes. Look, it's in 2 notes. So notifications for the 1st of April increase is starting to roll out now. It always creates some agitation, one of the better description in the marketplace. We typically do well in those circumstances. You can see from our data that we -- for -- at a rate of about 2 to 1, we gain with people switching. Now whether it will be the same this April, only time will tell. I think the one important call out with the arhi growth, I think the suspension -- clearly suspension aided that growth rate. But the other important call out for us is that so much of our growth occurred amongst under 40s, younger people, I think about 52%. It's in our press release. Yes. And about 40% -- about 45% of our growth was new to category. Now that's a terrific result. That dropped right off a couple of years ago. And new to category is particularly important because the refreshes are risk pool, and they tend to be better risk and that waiting period effect assists profitability, at least in the first year. So the growth we're seeing is growing in its quality as well. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Question comes from Kieren from Jarden. -------------------------------------------------------------------------------- Kieren Chidgey, Jarden Limited, Research Division - Analyst [20] -------------------------------------------------------------------------------- I just interested if you could help us understand where you think the arhi underlying net margin was the first half '21. It's a number you've previously reported. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [21] -------------------------------------------------------------------------------- Well, I wish I knew. With all of this is -- well, there's 2 elements here. First of all, estimating what was the COVID loss of activity and what level of attrition will there be? When will it come back? And the data is just not there to be too exact about that. So if Jack has a colonoscopy in November, was that a colonoscopy, he was -- that was deferred from April, or was it always a colonoscopy, he was going to have towards the end of calendar year '20? We just don't know. The data doesn't disclose that. So the estimates we're making about what activity we're seeing, we saw in the second half was catch-up and what was just underlying is difficult, extremely difficult. Then you have to layer the consideration that we look putting aside catch-up and the rate of catch-up, what is happening at an underlying level? Is there a new normal? Are people into the future, particularly older people, going to be more averse to hospitalization and more interested in more conservative treatment options? Do consumers -- does Jack and Mary suddenly take more seriously the option of perhaps losing some weight, doing more physiotherapy, more exercise rather than racing out and having a knee or hip replacement. These are the issues which -- these issues won't become clearer and only become clear with the passage of time. If I had to have a guess and it's purely a guess, I'd suggest that underlying claims inflation is probably running at 3% to 4%, but it's nothing more than a guess, indicative of the fact that our health care spending generally for the past 60 years since World War II across the entire OECD, is increased at about GDP plus 2%. So I don't think we're going to stop having more and more health care because it's a wealth good. And an aging population will demand greater health care. But does it become more efficient from an allocated and technical perspective? Probably. And what impact does that have on the trajectory, does it reduce it 100 basis points or maybe 200 basis points, nobody can say. -------------------------------------------------------------------------------- Kieren Chidgey, Jarden Limited, Research Division - Analyst [22] -------------------------------------------------------------------------------- I appreciate it. Obviously, there's huge uncertainty for all the reasons you've highlighted, but you have obviously made accounting assumptions around the proportion of deferred claims. Just keen on understanding sort of second half '20. I think there was around a $23 million benefit to claims, which was sort of you guys assuming 20% of the lower-than-expected activity wouldn't come back. If we look at what you've done at the end of December, the aggregate number seems to have risen to about $65 million. So is it that delta of $42 million between the halves that has come through the net claims benefit on your accounting treatment so far. Is that the right way to look at it, Nick? -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [23] -------------------------------------------------------------------------------- I'd probably see it as slightly different numbers, but we can kind of work out what -- how you're calculating and how I might have a look at it. I'd work it out as slightly lower. Well, actually a bit, quite a bit lower. And going forward, I mean, I guess I'd look at it in a different way, that typically, we've had the 6% arhi margin target. We've typically achieved a little bit higher. Last year, we were a little bit lower. And next half is really going to be a story of how much of the provision we release and how much catch-up occurs and what happens with the rest of the industry and risk equalization, which was a significant impact this half. So -- but then if we project forward, and let's say that those things work themselves out, where does the new normal occur? Do we have -- do we retain the same level of growth that we've been able to retain and the same reduction in lapse, which will then assist our revenue, so -- because people would appear to be having a behavior change and taking more attention to their health, that would clearly be a positive on revenue, should help our margins somewhat. And then what I'd really like to see is a reduction in our management expense ratio because that's sustainable going forward. And then Mark has talked about the claims inflation against the -- whatever we think the pricing assumption is. But again, it's sort of we need a sustainable business model going forward. We need to show value to our members by returning back to our members an appropriate amount in claims. And we need to limit the amount of administrative costs that we have in doing that. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [24] -------------------------------------------------------------------------------- Yes. I suppose some sort of guide is our recently approved increase, which is 4.3% or thereabouts. Yes, underneath that, we thought we probably underpriced on the 1st of April last year, particularly relative to the likes of BUPA and Medibank Private and others. So that was at the back of our minds. And bear in mind, our pricing for 1st of April this year was compiled in November, December before when COVID was still more mystery than it is today. So I think where we're at is a prudent position, maybe conservative, but we need to be cautious around even that characterization because nobody knows for sure where COVID-19 will go to from here. And if it does turn out to be that our position is quite conservative, we'll look to address that as part of next year's pricing application. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Next Question comes from Siddharth Parameswaran from JPMorgan. -------------------------------------------------------------------------------- Siddharth Parameswaran, JPMorgan Chase & Co, Research Division - Research Analyst [26] -------------------------------------------------------------------------------- Just a question, if I can, about the international business. The profitability on that has fallen quite dramatically over the last 12 months. So just keen to understand how quickly the pricing changes and the claims changes you're talking about can actually start filtering through to actually start lifting the profitability on that? Have you actually made any of these pricing changes for people staying longer in the country, et cetera? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [27] -------------------------------------------------------------------------------- We're in the process, Sid, yes. Nick described it as a tale of 2 cities, I think, Nick, the workers business is actually holding up very nicely. So the weakness in the business is really around the weakness with students. We have been very aggressive in pricing in that marketplace. It's a very competitive market in the past. The experience we have encountered, again, Nick touched upon this. There's a couple of factors. You need to refresh the student's risk pool with newer students because as tenure increases, their claims experience increases. So because we haven't had that refreshment, we've seen a greater drawing rate, an underlying drawing rate for business. These kids haven't been able to go home as they would normally do. So that's created all sorts of pressures around their health care, including mental health. So that's definitely had an impact. A couple of nasty unfortunate pregnancy experiences for our members have hurt that result. What do we do about it now? Well, we -- like everyone, we look forward the things getting back to normal, students continuing to come to Australia, refreshing our risk pool, even working harder at managing our claims exposure, including particularly around high cost claims cases and to reprice the book. And we're going through -- well, we're pulling all those levers as we speak, Sid. But I'm not that worried about students. We're going through a tough period. As I mentioned earlier, I think the students market will remain a very strong one for Australia. We're pursuing some additional partnerships in the student marketplace. And their -- students and workers are very much businesses, we intend to continue to invest in and grow their prospects. -------------------------------------------------------------------------------- Siddharth Parameswaran, JPMorgan Chase & Co, Research Division - Research Analyst [28] -------------------------------------------------------------------------------- Yes. Sorry, but just to be very clear on what you're saying, you're saying you're in the process of putting pricing through. So presumably, that will impact next year, next year's rates. I presume people have already bought their insurance for this year. So it's really more a calendar year '22 improvement. Would that be right? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [29] -------------------------------------------------------------------------------- Well, Sid, I'm not going to be talking about our pricing strategy in this form with our competitors potentially online, but expect we'll be moving quickly with pricing, be sooner rather than later. So I'd like to think that it certainly will have some impact on the remainder of this fiscal year. But as you've noted, most of its impact would be for 2022 -- well, fiscal '22. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Your next question comes from Ashley from Goldman Sachs. -------------------------------------------------------------------------------- Ashley Dalziell, Goldman Sachs Group, Inc., Research Division - Equity Analyst [31] -------------------------------------------------------------------------------- And just a follow-up question around the COVID provisions. You've sort of alluded to the fact that if there is any underutilization, you'll sort of release that into next year's pricing round. Just wanted to clarify, I mean, I think the APRA guidance originally was that those provisions should be used or released by the end of FY '21. Do we still have that sort of hard stop in place? Or is there a bit more discretion now around management teams being out to kind of call the shape and, I guess, the length of the COVID catch-up curve? -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [32] -------------------------------------------------------------------------------- I'd need to confirm, but I'm not sure that's what APRA said. I'll check that. Now that you've said it, but I actually thought that APRA might have put out a comment rather than anything else in regard to they might continue past June '21. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [33] -------------------------------------------------------------------------------- Yes. I'd imagine, APRA would have a wait-and-see approach just as we have. Yes. I'd like to think there is no provisioning issue beyond fiscal '21. If only for the reason that COVID-19 is behind us and the vaccination is working so successfully. But I do think -- my intuition is, by the end of this financial year, we'll have a much clearer view about what's left in the pipeline still, which could be tagged as catch-up versus what's just now normal activity, whatever that new normal looks like. So I'd imagine by the end of this fiscal year, our -- I wouldn't rule out that there'd still be some provisioning and APRA may have a view on that, but my hope would be that it certainly hasn't the materiality that it's had for financial year '20 and this first half. -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [34] -------------------------------------------------------------------------------- So it's also worth noting that there's a difference between APRA provisioning and the statutory provisioning as well. So at the moment, we're continuing to provision from a capital sense and from a prudential sense with the APRA guidelines that actually has for capital a far higher provisioning level. But statutorily, we make our own assessment in that regard. So APRA haven't changed their guidelines from June on what needs to be provisioned from a prudential level, but we're clearly at a different deferral rate than their suggestions to the statutory accounts. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [35] -------------------------------------------------------------------------------- I think health insurance will form their own view on this. I think Craig reports on Wednesday. They may have a different provisioning sense than us. Mind you, they're more exposed to Victoria than we have. So that may be quite logical. So again, it will all be based upon deep actuarial science, but it will remain, by definition, quite uncertain. -------------------------------------------------------------------------------- Ashley Dalziell, Goldman Sachs Group, Inc., Research Division - Equity Analyst [36] -------------------------------------------------------------------------------- Okay. Maybe if I could just come back to the international business, kind of following on from Sid's questions. The first half '21 result, you've called out a higher incidence of larger claims. I think you called it out at $3.6 million. I mean is that the only kind of normalization we should be making to the result you've just delivered ahead of these kind of pricing changes rolling through? And then just the second part, I mean, to the extent that you don't get students coming back into the country, let's call it, through calendar '21, in the refresh of the policyholder pool, can you perhaps give us some thoughts around what that business could look like in FY '22 without borders reopening this calendar year? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [37] -------------------------------------------------------------------------------- Well, what would 1FY '22 to look like is what fiscal -- fiscal '19 look like -- I'm just getting my years right, or fiscal '20. Yes, let's call it fiscal '19. Now -- and that certainly be our view for fiscal '23. Now just how much fiscal '22 is going to be impacted by COVID-19 and restrictions on travel, well, we just don't know. Obviously, we're optimistic that the global vaccination process goes well. Naturally, we're optimistic that Australia does well as a consequence of COVID-19 because it's seen as a safer player -- place relative to Europe and U.S.A., but at -- yes. It's crystal ball stuff, isn't it. -------------------------------------------------------------------------------- Ashley Dalziell, Goldman Sachs Group, Inc., Research Division - Equity Analyst [38] -------------------------------------------------------------------------------- Okay. And I mean the current half, the higher claims costs of $3.5 million? I mean outside of that, are there any other one-offs that you'd be calling out to think about normalizing into the second half? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [39] -------------------------------------------------------------------------------- Well, none that I can think of. It's really a story of what I've described. The risk pool not being refreshed and some high-cost claims activity. The workers, in contrast, have actually won some new business during that first half, such as the seasonal workers program, which has been good for that business. And even in students, as we speak, we are exploring some new potential. So I think it's what might be not normal post-COVID-19 is the fact that we're actually -- our sales pipeline is larger, and we are growing that students business more prodigiously and growing more market share occurs with some of the activity within the business. I'm very bullish on both international workers and students. We just have to get through this current predicament. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- Our next question comes from Matt Dunger from Bank of America. -------------------------------------------------------------------------------- Matthew Dunger, BofA Securities, Research Division - Research Analyst [41] -------------------------------------------------------------------------------- My question was just on the 3% to 4% claims inflation you were just talking to when the industry is pushing through 2.7% price increases. Are you able to talk to us about why you might be seeing elevated claims inflation? And also, your 4.4% improved price increase is the residual versus the 3% to 4% claims inflation expectations for some customer downgrading? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [42] -------------------------------------------------------------------------------- Well, I think the 2.7%, if that's a number you cited, is indicative of the impact COVID-19 is having on reduced utilization and therefore, claims experience. The 3% to 4% I mentioned was in response to a question about what do we think the underlying level is, and I just think 3% to 4% is a reasonable way to think about it. It's not 8% to 9% as we're experiencing in New Zealand, for example. So that's just a pure estimate. The latter part of your question regarding... -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [43] -------------------------------------------------------------------------------- Down -- the residual between the 2 covers downgrading, which is probably again, a range of factors. I mean we target a sustainable margin in the pricing round, and that's why we came up with our 4%. We'd just note that we obviously, priced a little bit lower the year before. And so we're going to, I guess, work through -- as I said before, we work through the risk equalization. We'll work through the claims against the COVID provision and then you try and get to what the new normal looks like when all of those go through. We've modeled that as best we can and targeted the margin. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [44] -------------------------------------------------------------------------------- Yes. Look, as most of you know, I've never got too excited about the issue of downgrading. For me, provided our premium revenue in normal times is growing faster than our claims experience and maintaining our margins, that's fine for me. Let's not forget downgrading is a save tool. We very actively encouraged our members to take up the new $750 excess as part of the last round of government reforms because we knew that it would help save a lot of members. So downgrading is just a part of the experience of choice that these days, we're able to provide a cover and a very important retention tool in our portfolio of tools. -------------------------------------------------------------------------------- Matthew Dunger, BofA Securities, Research Division - Research Analyst [45] -------------------------------------------------------------------------------- Great. And if I could just ask a second question on APRA. They've called out the capital framework as one of their priorities for this year. How are you thinking about your noninsurance businesses meeting target returns, if they are pulled into the LAGIC environment? -------------------------------------------------------------------------------- Nick Freeman, nib holdings limited - Group CFO [46] -------------------------------------------------------------------------------- We wouldn't expect them to be pulled into the LAGIC environment based on currently what we're discussing. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [47] -------------------------------------------------------------------------------- I think our return to -- on invested capital will still remain quite -- I don't think, certainly, our intention and our goal that the return on invested capital that we've been able to deliver in the business will be maintained whatever the capital denominated. We're reasonably capital-light business. And I think that prudent capital management has been a hallmark of what success we've enjoyed over the years. So we're -- strategically, we're accumulating a bit of capital where we're surplus, what, $65 million thereabouts? That's all part of our thinking around coping with any new LAGIC requirements. And I think our debt-to-cap position remains, again, equally prudent. We have debt-to-capital of 27% or thereabouts now. And our ability to cover debt is well actually above what a bank would expect. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- And your last question now comes from Nigel from Citi. -------------------------------------------------------------------------------- Nigel Pittaway, Citigroup Inc., Research Division - MD & Head of Pan-Asia Diversified Financials and Insurance [49] -------------------------------------------------------------------------------- Just first of all, a question on the top line growth in New Zealand. But I think if we go back 6 months, you were flagging some reasonably chunky premium postponements in that business. But obviously, you still managed to get some reasonable growth. Can you just sort of update us on what happened with those postponements? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [50] -------------------------------------------------------------------------------- I'd have to take that on notice, Nigel. I'm not -- it's not top of mind as an issue for me. Growth in New Zealand, if you carve out the impact of the Uni-Care students business. So on New Zealand, we lump in the students business with the residents business. So you've seen the impact on students on the top line numbers in New Zealand. But I don't recall that postponement issue of being any consequence. It wasn't in my thinking. There was certainly part of... -------------------------------------------------------------------------------- Nigel Pittaway, Citigroup Inc., Research Division - MD & Head of Pan-Asia Diversified Financials and Insurance [51] -------------------------------------------------------------------------------- Unless I've got this wrong, you are flagging about an $8 million headwind, I think, into FY '21. So reasonably significant given the growth you've seen there? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [52] -------------------------------------------------------------------------------- Yes. Well, the -- so the postponement of premium increases just like in Australia, had a material impact. I just don't -- I don't recall -- well I don't have the number is front of me, -- but I don't recall it as being something that was lying in bed, worrying about. That was just what we did for members back then when things were looking so dire. -------------------------------------------------------------------------------- Nigel Pittaway, Citigroup Inc., Research Division - MD & Head of Pan-Asia Diversified Financials and Insurance [53] -------------------------------------------------------------------------------- Okay. I mean, just that the growth will be... -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [54] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Nigel Pittaway, Citigroup Inc., Research Division - MD & Head of Pan-Asia Diversified Financials and Insurance [55] -------------------------------------------------------------------------------- Yes. All right. All right. We'll move on. So on the travel business, again, sort of if you think about what you were saying 6 months ago, you were saying that in 12 to 18 months' time, as it was then, you'd review the sort of viability of the travel business. So it's the tone you've sort of -- your tone this morning on that business suggests that almost that decision has been made, that you are going to persist with it. Is that the correct interpretation of what we've heard? Or is that still sort of under review for sort of consideration in a few months' time? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [56] -------------------------------------------------------------------------------- Nigel, I think it's totally business as usual for us to be reviewing, the deployment of our capital at any given time across any of our businesses. Somebody came along tomorrow and offered $5 billion for our workers and travel business -- our workers and students business, of course, they'd be sold. So we're always looking at the capital deployment across our businesses, the return on that capital. Absolutely, travel is one area. Bear in mind, we don't employ a lot of capital in travel. We don't underwrite the business, well, other than for our very small and almost nonmaterial captive. So we'll be purely looking at it from an operational point of view. Its prospects, we still make sense of it strategically. If for nothing else, it allows us to say, particularly in this -- around this increasing notion of personalization allows us to say to our members, we have got you covered, whether you're in Melbourne, Sydney or Los Angeles. So strategically, we still see power, attraction in investment. But just how much sense we can make out of it commercially, given that the ongoing uncertainty around COVID-19 and travel is something that we'll start to consider in more detail towards the end of this calendar year. At the moment, the focus is, as is on keeping the business in idle, modernizing the business where we can, particularly around automation and digitization. -------------------------------------------------------------------------------- Nigel Pittaway, Citigroup Inc., Research Division - MD & Head of Pan-Asia Diversified Financials and Insurance [57] -------------------------------------------------------------------------------- Okay. And I guess, just sort of your guidance today that you think it's now operating at a more stable level really updates your sort of guidance that you thought you could have the losses from last year. Is that a fair way to interpret? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [58] -------------------------------------------------------------------------------- Our forecast has the loss -- I think we communicated a few months ago at the full year results from '20, a loss between $10 million and $20 million. Our hope is that that's at the lower end, yes. -------------------------------------------------------------------------------- Nigel Pittaway, Citigroup Inc., Research Division - MD & Head of Pan-Asia Diversified Financials and Insurance [59] -------------------------------------------------------------------------------- Right. But obviously, the way it's tracking at the moment would suggest the lower end is probably ambitious, no? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [60] -------------------------------------------------------------------------------- I'm not giving guidance on travel, Nig. -------------------------------------------------------------------------------- Nigel Pittaway, Citigroup Inc., Research Division - MD & Head of Pan-Asia Diversified Financials and Insurance [61] -------------------------------------------------------------------------------- No. All right. But I mean you did say it was stable at $7 million, so I'm just trying to interpret that, that sort of comment. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [62] -------------------------------------------------------------------------------- Well, you can double that, if you like, but we'll be working even harder on that front. -------------------------------------------------------------------------------- Nigel Pittaway, Citigroup Inc., Research Division - MD & Head of Pan-Asia Diversified Financials and Insurance [63] -------------------------------------------------------------------------------- All right. Okay. And then finally, just on -- I mean, I presume the government has been otherwise occupied, but just how confident you are in terms of reform, in particular the prostheses changes coming through? -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [64] -------------------------------------------------------------------------------- Well, I'm an optimistic person. I'm hoping sanity will prevail. It's quite egregious, the prices Australian consumers are paying for our medical devices. And the examples are many fold. So somehow, government is going to have to come to grips with this in their dealings with the medical device companies. The agreement, I think, is up for renewal in early next year. And hopefully, sanity will prevail. And I won't take the audience through today, the graphic examples of Australian consumers have been gouged. As I mentioned, they're many fold and adding considerably to the cost of our health care system. So yes, we're part of a very concerted industry push to bring about some discipline there and policy reform. Personally, I'd like to see government out of prosthetic pricing altogether and allow us to negotiate directly with the medical devices company and eventually pay a case mix payment for an episode of care rather than pay the bits and pieces of those episodes. -------------------------------------------------------------------------------- Nigel Pittaway, Citigroup Inc., Research Division - MD & Head of Pan-Asia Diversified Financials and Insurance [65] -------------------------------------------------------------------------------- Okay. But that's the -- there's nothing else on the agenda. That's the most hopeful at the moment. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [66] -------------------------------------------------------------------------------- I think most likely, we'll end up with some sort of independent pricing tribunal. The current regulatory settings around setting prices just haven't been agile enough to keep pace with the growing shift in -- with the growing technology and the shift in the technology. -------------------------------------------------------------------------------- Operator [67] -------------------------------------------------------------------------------- There are no further questions at this time. So I'll hand back to you. -------------------------------------------------------------------------------- Mark Anthony Fitzgibbon, nib holdings limited - MD, CEO & Executive Director [68] -------------------------------------------------------------------------------- Okay. Well, thanks, everybody, for your time this morning. We're very comfortable with the half year result. I think it's a credit to our -- dedication of our people right across the company and group that we've been able to support our members and travelers in a way we have while still maintaining momentum, particularly in Australia, the arhi business and New Zealand business. We've had to work hard in some of those adjacent businesses because of the impact of COVID-19, but done particularly well in international workers and students in the circumstances, and I think in reducing the exposure within the travel business. And as I start off by saying today, there's some very exciting prospects ahead the likes of new investments as Honeysuckle Health and our JV in China. So thanks for your time today, and have a good week.