Thank you for standing by, welcome to the Medibank Private Limited FY23 Results Investor and Analyst Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to David Koczkar, CEO. Please go ahead.
Good morning, everyone, welcome to the Medibank 2023 full year financial results presentation. I'd like to begin by acknowledging the traditional owners and custodians of country throughout Australia and recognize their connections to land, sea and community. I join you today from Naarm, the home of the Wurundjeri Woi Wurrung peoples. I'd like to pay my respects to their elders, past, present, and emerging, and extend my respect to all elders on the lands on which we work and live. Today, I'm joined in the room by Mark Rogers and the executive leadership team. We're pleased to share with you the performance of Medibank over the full year. Today, we've delivered a solid result. Momentum has returned to our PHI business, including a standout performance in the non-resident segment. By focusing on our customers and managing the business well.
We've worked really hard to regain the trust of our customers. While there is more to do, pleasingly, we are growing again. The strength of our health insurance business, strong underlying profit growth of Medibank Health, our ongoing strong capital position support our future growth. Despite cost of living pressures, our customers continue to prioritize their health and wellbeing. While the industry remains resilient, there is no room for complacency. We continue to change the nature of our relationship with our customers across both our brands, with more of our customers turning to us for additional services and products we offer as a health company, not just as an insurer. In fact, almost 30% of our Medibank customers engaged with one of our health offerings this year.
This provides our customers with more value, while at the same time working to change the way healthcare is delivered in this country. Our dual brand strategy, our products and services, and our innovation in health set us apart from others, it gives us the confidence to continue to grow. We remain a strong and resilient business, the investments we've made over several years mean we are well positioned to continue to respond to the current environment. Today, I'll walk you through the key highlights of the result, then Mark, as normal, will cover our financial performance, particularly including an update on claims and investment income, and costs associated with the cybercrime event, including the recent additional capital adequacy requirement of AUD 250 million. I'll provide an update on our outlook, then we'll be very happy to take your questions.
Let's start on slide five and some customer highlights. Delivering for our customers has been and continues to be our focus. Providing value is absolutely crucial, particularly as households manage cost of living pressures. In June, we delivered our lowest average premium increase in 22 years. At 2.96%, this is well below headline inflation, and this comes off the back of an additional AUD 469 million in COVID givebacks to customers in FY23, bringing our total financial support to a record AUD 1.15 billion. We know value starts with being on the right cover, and this year we checked in with more than 500,000 of our customers to provide that support. We also know that value is more than just premiums. It's also value for money and choice for customers while using their cover.
We've continued to focus on helping reduce out-of-pocket costs, including through our Members' Choice Advantage, dental and optical networks, which saved customers more than AUD 25 million in FY23. Meanwhile, customers having a knee or hip replacement saved an average of AUD 1,600 through our No Gap network. We've made a bold commitment as a company to create the best health and wellbeing for Australia, we are pleased with our ongoing progress to support the health of our customers beyond health insurance. In FY23, we continued to build on key initiatives in prevention, navigation, and support. Almost 700,000 of our customers engaged with our Live Better program during the year, up 34% from the previous year. The number of virtual health interactions with our customers also continued to grow, as did our home care services.
More customers are choosing rehab at home following a joint replacement, with increased from around 24% to about 30% of our customers in FY23. Finally, we continued to expand our role within the broader health sector, working with a range of partners across integrated and primary care, to encourage system change to better meet the growing needs of the community. This includes our iMH joint venture with Aurora Healthcare, to extend mental health care beyond just the hospital walls. The first three initial iMH hospitals opened in Canberra in March, and we're also on track to open a second hospital in Sydney in the coming months. We also continued to support primary care through our investment in Myhealth, which now has 108 clinics in our network.
Lastly, My Home Hospital, which delivers hospital-level care in the home to public patients.... freed up more than 19,000 bed days in the public system in FY23. We deliver this service, as we've mentioned before, for the South Australian Government through our joint venture with Calvary. To slide 6 and some headline numbers, which Mark will talk to in more detail shortly. Momentum has returned following the cyber attack last year, with resident policyholder growth back on track. We've also now surpassed 4 million health insurance customers for the first time in our 47-year history. In our resident business, growth came from families, younger people, and those taking out cover for the first time, with policyholders up by almost 11,000. This 0.6% increase is within our expected range that we shared at the half year result in February.
In particular, ahm performed strongly with 3.4% growth for FY23, while the Medibank brand remained resilient, growing in Q4. Far this year, we are on track to meet the target range in our FY24 outlook, which I'll talk to in a minute. We are focused on growing resident market share, although we will continue to be disciplined in what remains a highly competitive market. In the non-resident business, we are pleased with the almost 40% growth in policy units to 275,000, which now provides coverage to around 290,000 customers in the non-resident segment. This was our highest growth in this market in seven years.
Growth in these two segments drove a 9.8% increase in health insurance operating profit to AUD 650.4 million, reflecting the resilience of this business. In Medibank Health, segment operating profit for our continuing businesses was up 4.2% to AUD 44.2 million, led by our performance in health and wellbeing and a rebound in travel insurance. Our underlying management expense ratio was up slightly from 7.4% to 7.5%. While still among the lowest in the market, the movement reflects higher costs associated with the significant growth in our non-resident business, which was largely offset by productivity savings. This excludes one-off cybercrime costs, which were largely targeted to our incident response and customer support package last year.
At a group level, NPAT was up 29.8% to AUD 511.1 million, including net investment income of almost AUD 139 million. In line with our strong capital position, we are delivering shareholders a fully franked final ordinary dividend of AUD 0.083 per share. This brings our full-year dividend to AUD 0.146 per share, which is an increase of 9%, reflecting a payout ratio of underlying net profit after tax of 80.5%. On to slide seven. Our strategy to grow as a health company is the right one. Our people remain engaged about who we are, what we stand for, and where we're headed.
We are evolving as the needs of our customers evolve, by remaining focused on delivering better value, choice, and control in health, our key customer advocacy measures are back at pre-cyber levels. We are also focusing on supporting health and wellbeing in the community. We now have three Live Better vans that travel to remote and regional locations, offering health checks and taking part in local community events. Our support of parkrun has put the Australian arm on track to be the second country worldwide to reach the milestone of 1 million participants. With our two consumer brands having distinct customer offerings, our dual brand strategy enables us to offer products and services across the full breadth of the health needs of the market.
For ahm, that means keeping things simple, while for Medibank, it's about supporting health and wellbeing to help our customers realize their full potential. With this in mind, our newly launched Silver Plus range from Medibank has exceeded initial expectations. With a focus on prevention and savings, this range is resonating with people aged between 40 and 60, resulting in a positive lift in family joints. It is now our second highest selling cover. Another example is thinking differently about how we best support regional communities. We are trialing local hubs in Geelong and South Australia, where our local teams support customers in their community, regardless of whether in-store, on the phone, or through our digital channels. In Brisbane and the Gold Coast, our Amplar Health team is also trialing a similar localized approach to supporting their patients.
As we expand in health, so are the ways we are supporting our customers and the wider community. Three months ago, the Calvary Medibank Joint Venture virtual hospital was accredited as one of the first standalone virtual hospital to deliver hospital-level care. Our virtual hospital delivers My Home Hospital on, in behalf of the South Australian Health, as I mentioned before. As our Medibank Home program for customers has grown, so have the benefits to the broader health system. In FY23, this program alone saved 115,000 hospital bed days. Alongside supporting a growing number of Medibank customers, with 90,000 supported last year, Amplar Health continues to work alongside governments and others to deliver triage, primary care, and preventative health programs in the community.
This includes its work in northern New South Wales, giving residents around-the-clock access to registered nurses to take the pressure off local GPs and hospitals. On to slide 8. As I said earlier, despite tougher economic conditions, we are confident that the industry remains resilient. People continue to choose private health insurance in record numbers. Younger people are coming to private health insurance because they want more choice. They are seeing more value, and they are concerned about public hospital waiting lists, reportedly up to 6 years -8 years long in some states for initial public specialist outpatient appointments. More than 500,000 public patients are either waiting for surgery or waiting for an outpatient appointment. Importantly, our two distinct brands and our strategy to expand in health mean we remain well-positioned to respond to the current economic environment.
The Australian economy is backed by solid fundamentals, low unemployment, low underemployment, and wage growth. This is reinforced by the health insurance industry's 12th consecutive quarter of growth. The industry also saw the highest growth in customers with hospital cover under 30 in over a decade. While consumers are paring back their spending in a number of areas, such as petrol, household goods and apparel, health is not one of those. Household spending on health is growing as people continue to make their health and well-being a priority. Against the backdrop of a strained public system, this investment is still being viewed as non-discretionary. In fact, we saw interim figures from the latest Ipsos report show more Australians see private health insurance as essential.
Among our own customers, the rate of downgrading has been subdued, and they are continuing to use their cover more this year than in recent years. Meanwhile, the significant recovery in net migration supports our non-resident business as more students, workers, and visitors come to Australia. Despite these supporting factors, the rising cost of living calls for us to continue to work hard to ensure we are providing value for customers. We've responded to this by keeping our average premium increase well below CPI, continuing to return additional COVID permanent net claim savings to customers, and building in choice and value in our products and services. We've also continued to our record of adopting voluntary government reforms that encourage young people to take up and hold private health cover.
In 2019, it was introducing youth discounts. This year it's been implementing the adult dependent reforms, which enable people to remain covered within their parents' policy until they turn, turn 31. As is shown on the slide, this helped to drive a 6% increase in hospital lives amongst those aged 25 and 29 years across the industry, the largest growth of any age group. It's great for young people who continue to be covered, and it's also good for long-term participation in the industry. The PHI industry's resilience is one thing. There are persistent challenges continuing to face healthcare more generally in Australia, which I'll talk to on the next slide, slide nine. The challenges in healthcare are well known. Spending continues to grow, driven by the increased burden of chronic conditions and the aging population.
Despite this, Australia's mixed public and private health system is consistently rated highly around the world, and Australia is considered a leader when it comes to health outcomes. How do we sustain this and improve system productivity? It requires us to challenge the status quo by continuing to think differently and trying new things. Our strategy is shaped by the four mega trends in health that I've spoken to you about before, and it's pleasing to see our innovations being adopted by customers and resonating across the industry. For example, we're shifting our focus from treatment of illness to prevention, which is why we created Live Better, and which has seen participation more than double over the past two years. It's also driving growth in our 9 preventative health programs, which enrolled more than 16,000 customers this year, a 64% increase compared to last year.
These programs helped save the equivalent of around 55,000 bed days. The newest program, a trial in partnership with the University of Melbourne, is looking at how lifestyle support can reduce the need for hip replacements and pain management for customers with hip osteoarthritis. Another way is by investing in new patient-centric models of care. In psychiatric care, our data shows readmission rates are more than 40% within 12 months of hospital hospitalization. This is just simply not acceptable. Our investment in iMH is introducing a new mental health model, which provides integrated support for patients both in and outside hospital. Unlike the current hospital-centric funding model, we see an opportunity to support patients when they leave hospital through additional services, including telehealth, in-home care, and community support, all provided under the supervision of their treating psychiatrist and a multidisciplinary team.
We also recognize opportunities to improve access to mental health support outside the more acute settings. That's the basis for the ongoing investment we have in our Better Minds app and our 24/7 mental health support line for customers. Two offerings that have helped drive the fourfold increase in virtual health interactions we've had with our customers over the past four years. While Australia still trails behind many countries in the uptake of short-stay surgeries, the number of our customers undergoing No Gap surgery for joint replacements, endoscopies, and general surgery is now 10 x what it was two years ago. To meet this increasing demand, our No Gap network across all modalities now stands at 34 hospitals. Many of our hospital agreements are incorporating new ways to support patients.
The past few years have been challenging for hospitals and healthcare workers, and we are increasingly forming more innovative partnerships with providers to address these challenges and support the longer-term sustainability of the system. By providing more choice, a greater uptake in new care models will reduce the burden on the healthcare system already under pressure, freeing up capacity and allowing future investment in more fit-for-purpose and less expensive settings. Now we'll go to slide 10. Continuing to evolve our relationship with our customers by providing more choice and value, is driving our strategy to innovate and grow in health. As I've said previously, we already have strong foundations in four large and growing health markets. Our ambitions in health are well understood: to continue to grow and provide greater value and choice for our customers as a health company.
When it comes to prevention, our ambition is to continue to grow by helping our customers to take active steps to support their health and well-being. For primary and virtual care, our ambition is to grow our multi-channel, multidisciplinary offering across the community through increased adoption of virtual health with a particular focus on supporting customers with chronic conditions. Through community care and short stay, we are looking to expand and support a national network of short-stay hospitals and accelerate the take-up of new models of care, including services delivered at home. What really sets us apart is how we're bringing all these capabilities together, providing a very different combination of these leading solutions for our customers. This puts us in an unparalleled position to help our customers both be better and get better.
As I've said before, this will also enable us to grow as a business across health, across health. We remain clear on our priorities for growth, and we'll continue to pursue opportunities to support our customers through partnerships and by direct investment. As an example, this is the approach we've been taking to build our customer No Gap network, now working in partnership with 34 hospitals, while currently investing in two new short-stay surgical hospitals to build further capacity in the system. While the approach we take may be different, what's driving our strategy is not. It's about what will benefit our customers, what will drive value back to the business, and where we can make the biggest positive impact on the health system itself. Now to slide 11. What's helping connect this for our customers has been our focus on expanding our digital solutions.
Our spend on digital is nearly five times the size of what we spent 5 years ago. A few years back, this investment was focused on making it easier for customers to purchase and manage their policy. This has been a good investment for us and our customers, with 85% of Medibank customers now engaging with us through digital channels and 82% of ahm customers using the ahm app. More recently, it has been focused to help connect our customers to our health offerings and to meet increasing expectations when it comes to choice and convenience in health. In our resident business, the number of virtual health interactions we provided to Medibank customers was up 30% to 226,000.
For our non-resident and corporate customers, the number of virtual consults was up 163%, and having access to this virtual support is consistently reflected in higher customer Net Promoter Score results. Our growing investment has always supported the public system, seeing us build a digital health solution for residents across 48 postcodes in the North Coast region of New South Wales. It's also seen us build a virtual psychology clinic, which we deliver with the support of Myhealth GP clinics, using the Medinet platform that we've already invested in. We continue to see huge possibilities for technology to better support healthcare in Australia. We have seen for ourselves how investing in our digital health capability has enabled our Amplar Health team to deliver more than 1.6 million virtual health interactions in FY23.
In particular, there's a real opportunity in primary care to better support patients with chronic conditions, both through prevention and proactive management. This will deliver benefits to both patients and practitioners and help reduce pressure in the health system. Our Amplar Health team is currently working alongside Myhealth GPs to pilot a new GP-led care model in line with recent government reforms. In the year ahead, we will continue to build out and connect new digital health services to make it easier for our customers to manage their health, from prevention to navigation to treatment. We will continue to play a role at the center of the health ecosystem, bringing together and supporting stakeholders and collaborators to make it easier for Australians to manage their health.
It makes good business sense, too, given the benefits it will bring to our own customers and to support and connect the growing footprint of Amplar Health. I'll now hand over to Mark.
Thanks, David. Good morning. The result reflects how resilient our health insurance business is, strong underlying profit growth in Medibank Health, and continued capital generation. Health insurance performance includes continued policyholder growth and modestly positive gross in the resident business, and very strong policyholder growth and margin recovery in non-residents. Group operating profit was up 9% to AUD 647.5 million. With a significant increase in investment income, profit before tax increased 29.8% to AUD 727.1 million. We've incurred AUD 46.4 million of non-recurring costs associated with the cyber attack and expect a further AUD 30 million-AUD 35 million of IT security uplift, legal, and other costs in FY24.
Reported EPS was up 29.8% to AUD 0.186 per share, and underlying EPS, which adjusts for the normalization of investment returns, was up 14.8% to AUD 0.181 per share. Moving to slide 14. Across the 6 months to May, claims paid were AUD 138 million, or 5% below our expectation of underlying claims growth per policy unit of 2.4%. Hospital claims paid were 5% below expectations, have increased since March, and were only modestly lower than expected in May. The recovery in nonsurgical claims continues to lag surgical claims, particularly in rehab, and given the persistence of this trend and changing customer preference, we believe this is now, at least in part, a permanent change, which will favorably impact claims in the future.
Reform continues to favorably impact procedures claims, and whilst public hospital claims growth has increased in line with improved bed availability, it remains below private hospital claims growth. Extras claims paid were 4% below expectations, and although dental claims have increased during 2H 2023, trends are variable, particularly in more discretionary modalities. We continue to monitor mental health and respiratory claims, and the proportion of surgical procedures happening on the same-day or short-stay basis for signs that the current trends are becoming permanent. Slide 15 covers the health insurance result, which shows reported revenue and gross profit grew by 4.2% and 6.3%, or 8.3% respectively, with the risk equalisation payment in line with last year.
Permanent claims savings were returned to customers through AUD 451.7 million of giveback initiatives, resulting in COVID having a modest AUD 300,000 negative impact on operating profit. Underlying gross profit increased 8.3% to AUD 1,223 million, with underlying revenue growth of 5.1% and a 50 basis point improvement in underlying gross margin to 16.1%, including a non-resident gross margin, having recovered to pre-COVID levels. Whilst the underlying management expense ratio increased 10 basis points to 7.5%, underlying operating margin was up 40 basis points to 8.6%, and underlying operating profit up 9.7% to AUD 650.7 million.
The new insurance accounting standard, AASB 17, will apply from July 1 and is expected to have an immaterial impact on underlying health insurance operating profit. In transition, the June 30 deferred claims balance of AUD 253.8 million will, net of tax, be transferred to an equity reserve and used to offset future customer givebacks, recovery of deferred hospital procedures, and other temporary claims impacts. Turning to slide 16. Over the last 12 months, the resident health insurance market remained buoyant, with policyholder growth of 1.9%, only modestly below FY22. This is despite the implementation of the adult dependent reform, which has increased the number of 25-30-year-olds staying on family policies, which impacts the number of singles policies.
Over the 12-month period, our policyholders increased by almost 11,000, or 0.6%, with growth coming in the seasonally stronger fourth quarter, with a modest 0.4% decline in the Medibank brand and 3.4% growth in ahm. With the resumption of more normal business operations during the third quarter, retention rates have progressively improved despite increasing our premiums, whereas many competitors deferred their increases till early 2024. Acquisition also improved with the resumption of marketing activity and increased ahm aggregate sales. We continue to bias sales to more profitable direct channels, which accounted for 55% of ahm sales this year. Aided by early benefits from adult dependent reform, growth in hospital lives was 0.9%, with 30 basis points above policyholder growth and skewed to younger customers.
We expect this reform will deliver further benefit to the industry over the next five years. That we will disproportionately benefit given our strong position in family policies. This should result in the percentage of insured lives that are under 30 years of age increasing. As these customers are typically lower claiming, we expect this will positively impact the quality of the insurance pool. In FY24, we will look to grow market share through further capitalizing on our dual brand strategy, increasing our focus on the growing corporate market, and investing further where this makes commercial sense. Turning to slide 17. Underlying resident gross claims, which exclude COVID impacts, increased 4.3%. With the return to more normal age claiming patterns, risk equalisation had no impact on net claims growth this period.
Underlying resident claims growth per policy unit increased 10 basis points to 2.4%, which largely reflects the impact of adult dependent reform. Lower hospital claims growth includes the benefit of procedure savings and the improved risk equalization outcome, with cost inflation only having a modest impact this period. The increase in extras is due to investment in additional benefits and sales mix. In FY24, we expect adult dependent reform to further impact claims per policy unit. The major claims headwind to be higher public and private hospital claims inflation, and the major tailwinds, the expectation of lower rehab claims, benefit from our claims management initiatives, and lower extras claims growth. Based on this, in FY24, we expect underlying resident claims growth per policy unit of 2.6%.
Whilst we are yet to see the economic environment impacting demand for services, we are closely monitoring this, particularly the mix of hospital admissions and spend in more discretionary extras modalities. Slide 18 details underlying health insurance performance, which shows continued growth in both the resident and non-resident businesses. In the resident business, underlying growth margin was up 20 basis points to 15.6%, with revenue and claims growth per policy unit of 2.6% and 2.4% respectively. Growth in revenue per policy unit is in line with last year, with a lower premium increase offset by a 10 basis point improvement in downgrading to 50 basis points, which includes the benefits from adult dependent reform.
Despite the likelihood that economic conditions will deteriorate, in FY24, we expect downgrading of around 40 basis points, with further favorable impact from adult dependent reform and the benefit of increasing product value, portfolio management, and sales mix activities. Pleasingly, the momentum in the non-resident business has continued, with policy unit growth across the last 12 months of 39.9%, including almost 20% since 31 December. Underlying gross profit increased more than 77% to AUD 66.4 million. With the favorable tenure and mixing impacts we've seen since borders reopened, underlying gross margin improved 810 basis points to 33.6%. With higher gross profit in the second half, strong policy unit growth continuing since 30 June, and further growth in the work and visitor markets anticipated, we expect solid non-resident gross profit growth in FY24.
In the medium term, we will continue to invest in this attractive market, including by increasing product value and expanding our health offering to increase our market share. Now, moving to slide 19. Management expenses are up 6.8% to AUD 572.4 million, with growth in non-resident sales commissions and inflation, partially offset by the benefit of our productivity program. As a result of significant non-resident customer growth, sales commissions, which were expensed up front, increased AUD 18.8 million, including almost doubling in the second half. The modest growth in D&A reflects higher spend on digital assets, and whilst deferred acquisition cost amortization also increased, this remains below the level of new acquisition costs. Operating expenses are up 3.4%, with cost inflation of approximately 4% and modest volume impacts, partially offset by AUD 7 million of productivity savings.
Whilst achieving productivity savings, this period has been impacted by the cyber attack, we are targeting a further AUD 20 million savings over the next two years. The major drivers of expense growth in FY24 will be cost inflation, which we expect to be modestly higher at 4.5%, a AUD 3 million increase in statutory charges, and an additional AUD 5 million ongoing investment in IT security. We expect non-resident sales commissions to be in line with this year. Whilst the underlying management expense ratio was up 10 basis points to 7.5%, going forward, we will continue our productivity program and gain further benefits of scale to target a stable to modestly improving ratio whilst balancing the need to invest for growth. Moving to slide 20 and Medibank Health.
Whilst the majority of COVID impacts on Medibank Health have unwound, operating profit growth this period has been impacted by the transition out of the 1800RESPECT and Beyond Blue contracts in 2H 2022. Excluding these contracts, segment operating profit was up 4.2% to AUD 44.2 million, with a 17.2% increase in operating profit, partially offset by lower contribution from our JVs. Revenue of AUD 277.1 million was modestly lower, with strong growth in health and well-being and diversified insurances offset by a reduction in telehealth, where the prior period included COVID-related revenue.
Gross profit was up 9.2% to AUD 131.8 million, and gross margin improved 450 basis points to 47.6%, with favorable business mix, improved utilization and business efficiency, partially offset by higher labor costs and other inflation. The AUD 4.6 million increase in management expenses reflects inflation and investment in future growth. With the modest decline in revenue, the management expense ratio increased 190 basis points to 31.6%. The business has good momentum, and we are targeting, on average, organic profit growth of at least 15% per annum over the next three years, with key areas of focus, volume and performance uplift in health services, continuing to reposition the business to meet the emerging needs of Medibank customers, and delivering synergies between our health businesses. Moving to slide 21.
Investment income of AUD 138.6 million compares to an AUD 24.8 million loss in the prior period, with the benefit of stronger equity markets, higher interest rates, and narrowing credit spreads this period. The AUD 40.3 million increase in gross portfolio income reflects significantly improved returns in both domestic and international equities, partially offset by a lower return in property. In the defensive portfolio, the significant increase in income includes AUD 55 million from the higher RBA cash rate, an AUD 9.7 million benefit from narrowing credit spreads this period, compared to an AUD 26.5 million cost last year, and an improved return on international fixed interest holdings.
Underlying net investment income increased AUD 88.1 million, and the underlying investment return was up 230 basis points to 3.89%, which is a 91 basis point spread to the RBA cash rate. During the period, the average RBA cash rate was 298 basis points, and based on the current spot rate of 410 basis points, this is expected to generate an additional AUD 20 million of interest income in FY24. Slide 22 covers capital. We've shown the 1 July pro forma capital position, which, which includes the impact of AASB 17 and the new APRA capital standard, which collectively increased eligible capital by AUD 87 million and reduced the target health insurance capital ratio from 11%-13% to 10%-12% of premium revenue.
We've temporarily increased health insurance capital to offset the AUD 250 million APRA supervisory adjustment. However, the business remains well capitalized, with 1.8 x coverage of the health insurance PCA and an unallocated capital of almost AUD 176 million. The increase in other required capital reflects our investment in the integrated mental health joint venture with Aurora Healthcare. We expect to contribute more capital to this JV over the next 12 months. The business continues to have strong capital generation from the delivery of unallocated capital and the ability to raise Tier 2 debt. We remain well placed to fund our M&A aspirations.
In line with this strong capital position, the board has declared a fully frank final dividend of AUD 0.083 per share, bringing full-year dividends to AUD 0.146 per share, which is a 9% increase and a 80.5% payout of underlying Net Profit After Tax. To finish, a few comments on our financial priorities for FY24. Increasing resident market share in a sustainable way and managing downgrading, maintaining strong growth in non-resident customers, including workers and visitors, and an increasing focus on customer lifecycle management are key to maintaining health insurance revenue growth. We continue to target ways to offset claims inflation, including through procedures reform, taking a broader partnership approach to hospital contracting, and increasing our focus on payment integrity.
Amplar will also play an important role by providing more services to Medibank customers through its prevention and chronic condition management programs, and supporting the shift to new care settings at scale. At the same time, we will need to carefully balance the desire to maintain low premium increases for customers with any change in the claims environment. The markets that Medibank Health operate in continue to have strong growth prospects, and in addition to our organic growth aspiration, over the next three years, we're aiming to invest a further AUD 150 million-AUD 250 million in M&A that add scale, capability, or expand geographic coverage. Finally, we believe our main sources of difference are scale, direct distribution strength, and the advantages that the new capital standard provides, and we will look to increasingly leverage these benefits.
Now I'll pass back to David to make some closing remarks.
Thanks, Mark. Just take you to slide 25, just on looking forward. Our strategy remains unchanged. We remain committed to supporting our customers, our people, and the community. In what has been a very challenging year for our customers and our people, policyholder growth is back on track following the cyber attack of last year. We remain a strong business, the investments we've made over several years position us well in the current economic environment. Our dual brand strategy, our products and services, and our innovation in health set us apart from others and give us confidence we'll continue to grow. We are well positioned in the market and remain well capitalized to fund growth, and we'll continue to use our strong balance sheet to invest in further opportunities with partners to support our growth ambitions.
In particular, our focus for the year ahead is continuing to regain momentum in our resident business and to grow share across both our resident and non-resident segments. We're also focused on the continued delivery of our IT security uplift program and making our next steps to expand in health, in particular, focus on virtual health. We are a resilient organization with great people and a strong relationship with our customers. While it's been a very challenging year, we've listened and learned, and we'll continue to strengthen our business. We're in good shape, and while there's more to do, our eyes are firmly focused on continuing to play a greater role in supporting the health needs of our customers and to improve the way healthcare is delivered in Australia. Finally, turning to our FY24 outlook on slide 26.
We'll continue to assess claims activity and remain committed to not profit from the pandemic, returning any permanent net claims savings due to COVID to customers through additional support in the future. We anticipate further moderation in resident industry growth in FY24 relative to FY23. We are aiming to achieve 1.5%-2% resident policyholder growth in FY24. We expect underlying claims per policy unit growth of 2.6% for FY24 amongst resident policyholders. We are targeting AUD 20 million of productivity savings across FY24 and FY25. We expect cybercrime costs of between AUD 30 million and AUD 35 million in FY24 for further IT security uplifts and legal and other costs related to regulatory investigations and litigation. This does not include the impacts of any potential findings or outcomes from regulatory investigations or litigations.
Targeted organic and inorganic growth for Medibank Health and Health Insurance remain areas of focus. Before I hand out for questions, I'd like to thank our customers and our people for their continued support during what has been a very challenging year. We have an incredible team of people at Medibank. I know they remain energized for the task ahead as we continue to pursue our vision of the best health and wellbeing for Australia. Now, I'm keen to hear any questions you may have.
Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star, then 2. If you're using a speakerphone, please pick up the handset to ask your question. The first question comes from Kieren Chidgey from Jarden. Please go ahead.
Morning, guys. A couple of questions, maybe just starting on your inflation outlook for the health insurance division. Just wondering, you know, if you can put in context this 2.6% outlook for residents, given you were sort of trending, I think you've said 4%-5% below your underlying claims estimates for the last 6 months through to May.
Does that 2.6% outlook sort of include a fairly significant rebasing of sort of that underlying claim space for things you call out, like rehab and prosthesis? You know, I'm just trying to get a sense of the building blocks in terms of indexation for hospitals going forward relative to realization of these structural benefits you've seen in the rearview mirror.
Yes. Hi, Kieran. Thanks for your question. The 2.6% is based off the underlying expectation for FY23, not off the statutory expectation. That's just the methodology. You're right, the 2.6% is a net outcome, and it includes an expectation of higher inflation in both public and private hospital claims costs. There is a benefit from an expectation of lower rehab costs going forward. We've spoken to you for some time about rehab claims being much lower than our pre-COVID expectations. In FY23, they tracked 15% below our expectation, we're now calling part of that part of that difference a permanent impact on claims in FY24.
Okay. I mean, how, how much of that 4%-5% differential on underlying claims essentially has been allowed for in that 2.6 moving forward? Is it only, you know, a proportion of it? Is there further potential into 25, or have you fully realized what, what you think is structural at this point?
We've included less than half of the current softness of rehab claims in FY24. Bearing in mind that under some of our hospital partnership agreements, we will share some of the permanent softness in rehab claims or lower rehab claims with some of our hospital contracting partners.
Okay. Just a second question around, so your outlook, I guess around policy growth and downgrading. I think, you know, you're flagging, downgrading, unlikely to deteriorate from, from here. I'm just interested in what's giving you the confidence in that, notwithstanding sort of the, the very good result on that front through the back half of FY23. You know, I just presume the environment incrementally gets, gets tougher through 2024.
Yeah, that's right, Kieran. The, our, the base of our forecast for 24, we look at the second half of FY 23, which is about a 30 basis point level of downgrading. You may recall the first half of 23 had significant investment in loyalty, but also in retention offers during the cybercrime. We always expected the FY, the second half 23 number to be lower. That came in at 30 basis points. If you look forward into FY 24, we're expecting some further benefit from adult dependent reform, because that's a benefit to the level of downgrading. We are building in some economic headwinds into that expectation of 40 basis points.
We're pretty comfortable with that number, subject to, of course, the economic environment not deteriorating markedly lower and becoming a lot more challenged and stressed than what we're expecting.
All right. Are you seeing any more switching or sort of lapse activity coming through more recently?
Kieran, thanks for the question. look, the switching market is slightly up, you know, usually changes and fluctuates based on when premium increases get put through various insurers. As you have seen in the market, we've had a few years of changing seasonality. I think what we are seeing is, you know, really strong retained growth in, in the industry.
If you look at the APRA results from last night or yesterday, we saw 1.9% policyholder growth for the year. If you, if you back out adult dependent reform, that's still around 2.3% growth in hospital lives, which compared to 2.7% last year, it's a very strong continued result, notwithstanding all the, you know, challenges in the system.
I think as we look forward to FY24, yes, we do think that that overall growth rate may come down just a little bit again. You know, what's really pleasing for the longer term, industry fundamentals is that very strong growth.
... under 30s, 102,000 under 30 years or under hospital lives growth in the last year, which is the biggest growth we've seen in 10 years. I think, you know, we see that as being, you know, part of the sort of tailwinds for FY24.
That's great. I'll leave it there. Thank you.
Thank you. The next question comes from Vanessa Thomson from Jefferies. Please go ahead.
Good morning, thank you for taking my questions. I just wanted to ask for some more color about the permanent behavioral changes you've seen. You, I think if I got it right, the rehab in the home is, is now being passed through to future expectations. Is there any change future expectations with regard to respiratory and psych claiming? Thank you.
Vanessa, maybe with what we're currently seeing now, we're still seeing softness in mental health claims, albeit in the last six months, there has been an increase, and respiratory claims are still well down on what they were versus pre-COVID levels. We're currently not assuming either of those trends become permanent into the future. To extent those claims trends continue through 2024 and 2025, that could be potential future tailwinds for claims inflation.
Thank you. I just wanted to ask for some color around the productivity savings and how they'll be built out into 2024 and 2025. Thank you.
Sure. I put them in three main buckets. That's the digitization of our customer interactions, and that's a, quite a significant component of productivity program, particularly in FY24. When we look into FY25, we're also moving to a new premises, which will have a smaller footprint in Melbourne. That will also deliver a significant array of the savings in FY25. Across both of those years will be your, your typical business efficiency and process improvement work, which is an always-on activity that we have here.
Thank you. It will be equally split, like, symmetrical?
Yeah, I, I wouldn't I, you know, I think that's a not a bad starting assumption, Vanessa.
Thank you. Thanks. That's all I had.
Thank you. The next question comes from Andrew Buncombe from Macquarie. Please go ahead.
Hi, guys. Thanks for taking my questions. Just the first one, is back on the downgrading assumption of 40 basis points going forward. Can you just give us some color on how you think that could potentially change half on half? Thanks.
Yeah, Andrew, I'm expecting a much narrower range, half on half in 2024 versus what we saw in 2023. The first half of 2023 was escalated for a number of one-off investments during the cyber attack, so we'd expect it to be a lot more evenly distributed. Having said that, likely slight second half skew, just given the premium increases do go through in the second half, and that's typically a precursor to a downgrading conversation for some customers.
That makes sense. My other question was just in relation to the 2.6% claims inflation guidance. I'm just trying to wrap my head around whether you're assuming any utilization of DCL in that number. Just trying to understand, is the 2.6% gross or net of utilization of some of that provision? Thanks.
Good. Our methodology is underlying claims inflation is completely excluding anything that relates to a COVID catch-up or the DCL. That methodology hasn't changed. That is without any use of the DCL. That is the underlying expectation, which is what we'd expect to see, excluding any claims recovery because of COVID.
That's it for me. Thank you.
Thank you. The next question comes from Nigel Pittaway from Citi. Please go ahead.
Good morning, guys. Just first of all, back to the 2.6% underlying claims growth assumption. Previously, you'd said that prosthesis savings would be much stronger in well, not much stronger, but stronger, I should say, in 2024 than in 2023, yet you don't seem to have mentioned that at all in discussing that this time around. I just wondered sort of where you're sitting on that at the moment?
Yeah. This time last year, we thought that prosthesis savings would be modestly higher in FY24 than FY23, largely because of additional cardiac price reductions. Having said that, just before the changes were implemented, the extent of those price cuts was reduced. Year on year, we're now expecting very similar dollar value of prosthesis savings. It's effectively neutral to year on year to our claims inflation.
I guess how will you determine whether or not to use the sort of, the equity reserve now for deferred claims? I mean, it does seem as though you've got a sort of fair buffer there, so if claims do spike, you've got the offset through that equity reserve. Does that lead you to... I mean, presumably, that means you should have pretty strong confidence that your 2.6% is, is reasonably conservative. Is that a fair assessment, or, what am I missing?
2.6% is realistic rather than conservative, Nigel. We've shown for the last three years that we do our best to ensure we don't commingle COVID impacts with underlying claims expectations. I think that's a very short-term and losing strategy. We'll use exactly the same methodology we've used for the last three years to actually ensure that we're not, we're not mixing up what's our claims recovery versus our underlying claims trends. We've got some really good analytics and a lot of history and data to actually support us in that determination.
... I think it's important to note, just on top of that, that, you know, we've remaining committed to not profiting from COVID. That claims reserve is there for either a catch-up in claims or to give back to our customers. We'll maintain the level of transparency we have done on that going forward, and that commitment we will continue to honor.
Yeah. Nigel, I, may go back to the second financial slide, and it shows that whilst we're AUD 138 million and 5% below our pre-COVID expectations, claims of 2.4% growth. If you look across from December through May, there was quite a significant recovery in claims. We're only AUD 8 million below that underlying expectation in the month of May. We're, we're actually trending back to what the, a lot closer to what the pre-COVID expectation was, relative to where we were 12 months or 24 months ago. The importance is we, we can actually pick which particular specialties, and procedures are soft versus others.
That's why by separating out rehab claims from surgical claims, we can actually see there is a trend that is a lot different in rehab compared to what it is in surgical, and that's what's given us the confidence to actually say that trend's now becoming permanent.
Okay, thanks for that. Then maybe just on the growth in the overseas business, I mean, I think previously you'd said you'd expected the number of students and workers to get back to pre-COVID levels in what was then sort of 12 months -24 months , and now it'd be 6 months -18 months. Is that still your expectation, or do you think it'll get back a bit quicker? How should we think about that?
Yeah, look, before COVID, there was probably around 360 through 70-odd thousand student visas in the country. Right now, it's almost half a million. Now, they haven't all come into the country, and the intake more recently has been very, very strong. I think our expectations are still that that student market is going to be bigger as those students return than pre-COVID. I think we're probably at a stage now where it's probably got back to that level, and now we're in a position for growth. I think from, from our perspective, we've retained all of our university accounts. We are winning our fair share, if not more than our fair share of new accounts, and we're increasing distribution strength to offshore agents.
I think we're well positioned, as we've been investing in this segment, to continue to grow share in that market that I think is now gonna be bigger than it was pre-COVID.
Nigel, what gives us confidence is that when we look at the second half of 2023, and since we had strong growth in the second half. We closed our spot balance close almost 10% higher than our average balance, and we've had strong growth in the last two months, so since balance date.
We see some really good tailwinds on customer numbers and revenue going into the first half of 2024. I'd expect, though, that The profitability of that business or the gross profit to be more driven by customer numbers and revenue going forward from here, rather than margin recovery. We now have essentially recovered our gross margin back to what it was pre-COVID.
Great. Thank you very much.
Thank you once again. To ask a question, please press star one on your phone. The next question comes from Dan Hurren from MST Marquee. Please go ahead.
Oh, good morning. Thanks very much. Look, I know you touched on this before, but I was hoping just in regards to the lapse rate, could you just talk about the journey across FY23, how that's changed and how it's moved into FY24?
Well, I think I might make some comments just generally on the quarters of FY23, because we've talked about that a few times, and maybe Mark on specifically the lapse rate. Yeah, we had very strong growth in Q1, and obviously then the cyber attack saw us lose around 13,000 policyholders. Our aspiration that we had when we talked to you in February was to have a relatively stable policyholder growth as a group, which we saw come through. In Q4, we've seen both brands grow. Our acquisition rate in that Q4 was very similar to the previous years. That gives us a lot of confidence going forward.
I think retention rates were slightly lower than Q4 the previous year, just because, mostly because of our premium increase that we put through in that June period, which is expected. I think once that, you know, now that that has gone through and now, you know, the rest of the industry is putting through premium increases through September, October, I think that's what gives us confidence for our growth, going forward.
That's a great answer, Toby.
Oh, how'd I go?
I think if you just look back at the APRA data and look at the what's making up the whole of fund policyholder growth, you see new to industry has been pretty stable, so that's supporting acquisition. Really where the softness in policyholder growth has been versus the prior 12 months was in exit. We had exits are up, and a lot of those, a lot of that reflects that there's softness in extras only.
We're still, still seeing strength in both retention of hospital, hospital insurance and acquisition of new policies with hospital coverage. We are seeing some softness, particularly in lapse on extras only. That's a market we play in, but not a market we necessarily chase. It's typically lower profitability, particularly if it comes through the aggregators.
They're typically switching customers, and so that's where I think you're going to see the softness. Here, that would typically be the most marginal new acquired PHI customers, a new entrant into the market that doesn't take hospital coverage. That's where we're, that's where we're watching the market very, very closely.
Great, thanks very much. Could you just remind us where you are in your cycle with major hospital renegotiations?
I see if Miles wants to comment after I have some opening remarks. We've got contracts with around 450 hospitals around the country. The typical agreements are between two and three years, so it's pretty much an always-on activity for us. Last year, FY23, we completed actually a sizable number of agreements, around 50% of our outlays, private hospital outlays, we recontracted. The coming year, 2024, we've got a lower percentage, I think it's around 30%. It is challenging in the hospital environment and, you know, we all have to continue to work hard to keep the pressure off premiums. We're actually having really constructive conversations with all our partners.
As we shared before, particularly moving our contracting agreements from, you know, what historically was very much a indexation-based contractual agreement to much more of a partnership approach, where we are jointly working out how we can maintain affordability for consumers, access to quality healthcare, but also to sustain the system.
Yeah, David, Milosh, that's absolutely right. There's a slightly lower balance in the coming year than the year past. Just reinforcing your point about more strategic partnerships, that's increasing now. What we're also seeing is an appetite to have longer agreements so that we can continue to address more fundamental care models and sustainability for consumers in terms of access and affordability.
That's great. Thank you very much.
Thank you. The next question comes from Siddharth Parameswaran from JP Morgan. Please go ahead.
Good morning, gentlemen. Just a couple of questions, if I can, please. Firstly, Mark, I just wanted to make sure I understood just the impacts of AASB 17 on your results in FY24. There is a slide that you have in there which is helpful, but I, but I just want to be clear, when we do our forecast now, should we be... are you basically saying we should be having an impact of about AUD 40 million on our, on our earnings? Will you be splitting that out in how you'll be presenting numbers going, going forward? I was hoping you could firstly just make some comments around that, and also just how any further give back to you have will actually affect the...
Sure.
profits that we see.
Yeah. The one known impact in FY24 statutory earnings is that AUD 39.7 million impact on operating profits. That relates to the 1 April to June premium increase deferral, which we expensed under 1023 in FY23, but we'll need to amortize that over the contract life, which is 12 months, 1 April to 1 April, going into FY24. That will impact statutory earnings, but then we'll adjust for that in underlying earnings. That's the major, that's the major change for AASB 17. We're expensing the DAC going forward. I've called out in the presentation that our DAC amortization was slightly higher than our new acquisition cost this year. There are the two major impacts.
To the extent we actually did another AUD 100 million cash give back to customers as an example, that would again impact statutory earnings by AUD 70 million after tax, and we'd adjust that against the equity reserve. There'd be no impact on underlying earnings, no impact on capital. Effectively, Sid, what we're doing is we're replacing the DCL with the equity reserve, and we'll use the equity reserve to balance between stat and underlying earnings.
Okay, okay, so there will be, I mean, when you look at stat earnings, there will be some, some impacts which for both these issues.
Yes, in the same way that we've used the DCL to reconcile between statutory and underlying earnings over the last three years, we'll use the equity reserve to do that reconciliation to underlying earnings going forward.
Okay. Okay, thank you. Can I just ask about your promise around COVID as well? When does that end? When will you start assuming that, you know, the current experience is actually more reflective of a go-forward situation?
To be clear, our expectation is that the pandemic has ended, but not necessarily the claims impacts have ended. There's still a potential that there will be further claims recovery. You saw in May that claims are broadly back in line with underlying expectations. To the extent they recover even further, we will draw on the reserve. If we go through another 12-month period and claims continue to be below that 2.6 underlying expectation, then we'll have to readdress whether any further of these claims trends are becoming permanent, Sid. We are now, based on the April and May experience and what we've seen since balance date, we are actually trending back towards what the underlying claims expectation is.
I mean, I'm just looking at your chart. Yes, I mean, it's still down, isn't it? I mean, it's overall, on a hospital base, it's still down about 3% versus versus your assumption. I, I presume that there's still a little bit of a gap, which... and just to be clear, I mean, is there any room for taking that into your I suppose in, in, in the way you're thinking about... I mean, is all that 3% COVID, or could any of that be seen as due to some of the initiatives that you've, that you've undertaken to keep claims costs lower?
Largely, the gap in FY23 was due to non-surgical claims being softer than what we're expecting. You would've seen surgical claims are up within 1% of our underlying expectation. Largely, that softness, and I'll just put it in context, Sid, we're probably AUD 45 million below our underlying expectation in December, and we're AUD 8 million below that in May.
The trend is getting back very predominantly back to the underlying expectation. That largely is driven by non-surgical claims, and there's only a few categories of those, that they're actually fairly easy for us to actually test whether or not they are becoming permanent or whether there's any short-term factors. I mean, rehab's the best example of that.
We've got a number of statistics that say, both in terms of customers that are referred, referred into rehab, and then the number of customers that have out of hospital rehab. Those statistics have been so persistent that it's really evident now that's a permanent trend.
Okay, I'll leave it there. Thank you.
Thank you. Once again, to ask a question, please press Star One on your phone. The next question comes from Julian Braganza from Goldman Sachs. Please go ahead.
Good morning, guys. Just on the margins, you haven't given margin guidance into 2024. Just given what you've said around claims inflation and downgrading, are you effectively implying stable gross margins from here into, into 2024, and just given the rate increases that you've got?
If, if we can deliver 40 basis points of downgrading and based on the 2.96% premium increase we had, that should give us flattish gross. Noting, though, that we only have the premium increase until April 1, so there's three months of FY24, we don't yet know what our premium increase will be. And to the extent we can actually deliver that downgrading outcome and claims inflation isn't different, or materially different to what we're expecting, that will deliver a flat or flattish gross outcome for us, Julian.
Okay, great. It's still the expense story in terms of its impact on net margins?
Well, it's probably what happens in overseas as well as what happens in, in the extended non-resident business as well. To the extent we grow non-resident business faster than we do resident, that, that business has a higher gross margin than resident. Of course, it is the, it is an MER conversation as well. I wouldn't expect to see, in the short term, any significant improvement in MER. We are guiding to a stable, stable to modestly improving ratio. I think if there was, we'd want to take any opportunity we could to invest in future growth rather than necessarily bank a big improvement in MER in the short term.
Okay, thanks. Just in terms of the seasonality in your, in your gross margins, half on half, are you still expecting that into, into FY24?
Our gross margin depends on hospital service days. Typically, the first half has more hospital service days and therefore higher claims. That largely reflects most surgeons go on holiday for the month of January. To the extent holiday plans of the surgeons in Australia doesn't change, I'd still expect the first half to have higher claims and therefore lower gross margin in the PHI business.
Okay, great. Thanks. Last question, just on the, just on M&A. Just interested in your any observations at a high level, what you're seeing in the market in terms of prospects that might be interesting, either across... Well, more so in the health insurance space, given that you've called that out as well.
I think across health, I mean, in terms of our pipeline, particularly, which is very focused on our target markets, pipeline's actually strengthening. I think in terms of PHI specifically, I think that's, yeah, probably we'll see some impact on the competitive position over the next year or two as some of those factors change, like the new capital standards and the competition changes. I think we remain, you know, interested in that space, but, you know, really only where, you know, that is a opportunity in a, in a distressed sense from that target.
I think our main focus really is in health, and we've got our pipelines and opportunities across all of our target markets in health that we're looking to explore, which is why we've restated our expectation, our ambition, to spend between AUD 150 million and AUD 250 million in that space.
Great. Thank you so much for that, guys.
Thank you. We have time for one last question. It comes from Scott Russell from UBS. Please go ahead.
Yeah, Morning, all. A couple of questions, please. Firstly, on the non-resident, I think in May, you lifted the guidance on gross profit to be double FY 2022. It was up 77%. Where did that come up short in that June quarter?
We went as precise as saying it was absolutely going to double. Yeah, you're right, Scott, we've taken a slightly more conservative approach into year-end, claims, realization, just because we've seen some quite slow payment patterns coming in that business. We've taken a conservative reserving approach in the business. We've also seen really, really-
... strong growth and a changing mix in some of our customers as well. We've applied an appropriate level of caution going into year-end.
Okay, I see. Second question on the inorganic strategy, though, you've maintained the guidance for AUD 150 million-AUD 250 million to be deployed over the next three years, so that language hasn't changed. Maybe you can remind us how much you've spent so far. I think there have been some small injections, but maybe more to the point, given the upper charge of AUD 250 million, how do you envisage? Let's assume that that remains for three years. How do you envisage funding those acquisitions from internal resources?
Maybe, maybe, to answer the first question, we, we would have spent around AUD 25 million on M&A in the last 12 months, bearing in mind, it does take time to actually identify it, to actually land, land the transaction. In terms of the APRA overlay, you'll know we've still got almost AUD 176 million of unallocated capital, which is well above what we had 12 months ago.
That APRA overlay, I mean, effectively, that's, that's just a deferral of AUD 167 million of capital we would have otherwise released into unallocated capital. We still have AUD 176 million to invest, that's, that's enough to fund our short-term aspiration.
To put it in context, had we not had the APRA overlay, I would have expected our unallocated capital number would have been around AUD 350 million.
I think just to further that, you know, as I said before, the pipeline in health for investment is actually stronger than it was probably this time last year. You know, we are looking at investing in those higher growth markets in health that generate a strong return in their own right, but can also add value back to our business and help system change.
I think as regards to, you know, the APRA overlay, you know, we have, you know, remained very strongly engaged with APRA through the last year, in particular, since the cyber attack event. I think our priority and focus right now with APRA is to help them understand the detail of the work that we've already done on the uplift program and then, and then work to continue on that over the coming months.
Yes, Scott, assuming the overlay wasn't released, we'd go to unallocated capital in the first instance. I think in the second instance, we're actually generating strong capital anyway, so we'd expect to generate more unallocated capital during the course of the year, and to the extent we needed to, we still have the Tier 2 market open to us. There'll be no issue in terms of funding the top end of that aspiration range.
Okay, no, that makes sense. Thanks, gentlemen.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.