Good Times on Hiatus as NIB Succumbs to Higher Claims Costs

In November 2019, when Medibank called out higher claims costs as a headwind to earnings, NIB Holdings maintained fiscal 2020 guidance of underlying operating profit of at least AUD 200 million. The insurer was comfortable its assumed insurance margin of 6% for the Australian health insurance division already accounted for an increase in claim expenses, down from what we considered an unsustainably high margin of 7.3% in fiscal 2019. Within months, NIB has disappointingly downgraded fiscal 2020 guidance to be at least AUD 170 million.