Good morning, everybody, and we're coming to you today from sunny Newcastle, in the traditional lands of the Awabakal people. We pay our respects to their elders, past, present, and future. Thanks for joining us. This morning, we have the usual conventional presentation. I'll kick off with just some high-level thoughts. Nick, who will be joined by Ed, will spend time going through the accounts and results in some more details, and I'll come back at the end to summarize. Of course, we'll have Ros in between talking about the efforts we're making around sustainability.
So, look, for a number of years now, we've been promising to convert the company into being as much a health management company as we have for about seventy-five years, a health insurance company, and the evidence of that progress is quite pronounced, as you can see from the results. Next slide, please. What we're attempting here, not losing sight of the fact that health insurance will, for the foreseeable future, be the core economic engine, we see an opportunity to be more than health insurance per se. We see an opportunity to expand the value proposition for people by giving them access to a much broader range of healthcare products and services. We see the opportunity to provide them and their doctors with much deeper insight into their health risk and how those health risks might be better managed.
So that's our vision for the company. As this slide demonstrates, you know, I won't go through every element of this, but it evinces, you know, real progress. You know, we now have a large corpus of members and customers using our app. You can see how popular the use of telehealth consultations are, how popular the use of our prescriptions functions, and even new applications like the symptom checkers.
You know, I'd like to brag that, you know, today, my nib app on my device, I can not only, I can still do all my traditional health insurance stuff, like make a claim, check my annual limits, find a provider, and so forth, but much more than that today, I can consult a doctor, I can have a prescription home delivered, I can check a symptom, I can access a wide range of health management programs, most relevant to my health risk. So we feel as though we're making terrific progress in this quest of becoming, as I say, a health management company. Next slide, please. Nick and Ed will go through the details of all of this. Look, we've had a good year. We've grown earnings. Ed, Nick will go into the details.
If you think about the disruption of what has been easily the most profound event, certainly in my lifetime, across that period, we've grown earnings, underlying earnings, by about 5.2% over that period. So we're pleased with that outcome. Last year's result accommodated some one-off variations, such as the premium deferral we made as a compensation measure for COVID-19. You know, in very tough market conditions, especially in the second half, we still grew the ARHI business. 2.5% by our lofty standards isn't that spectacular, but nevertheless, it's well ahead of our system's growth, and importantly, the system continues to grow, and as we predicted, margins are moving back to our target range of 6%-7%.
We indicated throughout COVID-19 that those elevated margins weren't sustainable, nor did we intend them to be sustainable, and we're now back within range, and obviously, that has, you know, some impact on our earnings relative to previous periods. We'll no doubt get lots of questions about our claims experience. We still believe that the long-range experience for us in ARHI will be somewhere between 4% and 6%. We believe that only for the reason that it's been that way for so many decades. What we're seeing at the moment is the funnel, if you like, of hospital activity refilling back to pre-COVID levels, and just how quickly that filling was going to revert to whatever the new normal mean becomes, was always going to be problematic for us in terms of forecasting our margins.
So it's happened a little bit faster than what we may have imagined, in the second half, and certainly in New Zealand, but it's entirely consistent with our original expectations. We've seen good recovery in international workers and students. We now sit with about 216,000 international workers and students. That's as high as it's ever been before. And margins, particularly our students business, are improving. The New Zealand result was slightly disappointing, but as I've mentioned, that was mainly a factor of claims inflation returning to this new normal at a slightly faster rate than we predicted. We've seen terrific performance in our new fledgling NDIS business, nib Thrive, who contributed meaningfully to this year's profit.
Travel, which was obviously hard hit throughout COVID-19, is starting to recover as well. We're very pleased with where the business is at. The new health businesses, as I've touched upon, are growing. Our major investment in Midnight Health and Honeysuckle Health, our joint venture with Cigna, while loss-making, is showing real progress, not only in terms of improving health outcomes and improving the value proposition across the business, but also in terms of reduced loss making. We expect... I'll come back to this when we talk about the outlook, but we expect those businesses to be profitable, cash flow positive within the next few years.... Overall, it's a story of ongoing growth, notwithstanding weaknesses in the market.
It's a story of claims inflation, particularly in ARHI and New Zealand, reverting to a new normal, as we thoroughly expected, and I suppose our challenge there is largely to make sure that we predict in pricing that risk, and it's a story of the other adjacent businesses, you know, recovering in this post-COVID world. Next slide, please. I won't go through all of this. I've touched upon much of it. You know, strong top line revenue growth. Growth in our underlying operating profit under AASB 1023, and Nick will go into some detail about how we reconcile AASB 1023 with AASB 17. A good investment income performance. NPAT up 2.8%.
ROIC in the business, return on invested capital, is still very strong. The cash flow results last year were equally strong. EPS, we're comfortable with, and we've slightly increased the full year dividend, as you would've, as you can see from this slide. Next slide, please. Nick?
Thanks, Mark. If I could just take you through the group statement and then just a bit on AASB 1023 versus 17, and then I'll hand across to Ed on the residents business. So you can see here, if I look sort of towards the middle, the underlying operating profit on a 17 basis up 77%. What you'll see in the next slide is that there's a bit more of a volatile nature with this accounting standard and a bit more of a sawtooth nature versus 1023, but it actually all ends up in the same spot. So we're not saying that our profit's gone up 77%.
We're saying it's more like about the 5%-6%, which has been in line with the CAGR since pre-COVID. The pleasing elements of it were the growth in revenue up 9%, which is strong. As Mark mentioned, we did see some claims inflation come back in the second half in particular, and we'll have a bit of a talk about that when we come to the ARHI slides. As we go down, I think a good part of the result was the non-marketing expenses, which declined overall.
It was actually, if we adjust, because we had some asset write-offs last year, if we adjust, it was a 1.3% growth, which is, which is a good result given the, the growth in our business and also the inflation that's, that's been in the economy, and in particular, the second half non-marketing expenses in, in some of our more established, businesses such as, such as ARHI and New Zealand did decline. So we were, we were pleased about that, and we'll continue to manage that strongly into, into FY 2025. It's worthwhile highlighting, the one-off transactions, especially the Thrive integration.
The integration is on track, and it's actually a bit ahead of schedule, and so we've put in the investor presentation at the back a list of all of those integration costs, but they were higher, which has impacted the EPS. Investment income strong along with the markets and again just this slightly elevated tax rate because of the non-deductible Midnight Health losses. Just quickly, just having a quick look between AASB 17 and AASB 1023, and I've just tried to very much simplify a slide, which is around the underlying operating profit on the left of 77%, but if you look on the right, it's more like 5.9%, and then the difference really is just the COVID provision.
If you look at all the rest of the numbers, they're all either exactly similar or quite similar. There's a few little impacts in revenue because of 17, but they're not that material. So what we're just trying to highlight here is that, you know, in our view, the growth is more in that 6% range rather than, you know, the headline number. It's also worth noting that again, in that COVID pre-provision last year, from our perspective, we brought it back because we didn't see the potential to carry it forward. Some of that did go up into the old OSC, which is now called the liability for incurred claims, and you saw that that was relatively elevated in FY 2023. It still remains reasonably high in FY 2024.
It's only a little bit lower, and that's a result of what we are seeing in the market in the second half in terms of the claims inflation. I'll now hand over, I think, to... Oh, one more, one more page. Just again, what we're just trying to highlight here is if you look on the bottom left, the revenue between 1023 and 17 is really very similar. On the right-hand side, what you can see is the volatile nature of the dark green line, which is under 17, and the smoother nature under 1023, but then the top left table actually shows you that if you accumulate the UOP across all of the years, it actually comes to the same position.
A little more volatile under the new accounting standard, but ultimately ending up in the same position. I might hand over now to Ed to have a talk about the residents business.
Thanks, Nick, and good morning, everybody. If we jump to the next slide, please. So yeah, diving a bit deeper into the residents' health insurance business, you'll see, we delivered a strong underlying operating profit result of AUD 220.1 million, which is up 8.2% on the 1H 2023 basis. Contributing to that result was a good sustainable policyholder growth of 2.5%. In particular, we saw pleasing outcomes in our nib brand, our direct-to-consumer business and broker channels performed favorably, as did our white label partnerships. And we're off to a great start in July as well. So early days, we appreciate that, but we are seeing some continued buoyancy in the market, and nib and the ARHI business is capitalizing nicely on that.
This translated into an insurance revenue increase of 8.5%, driven by that growth, but also our premium increases of 4.1% and continued low downgrading of 0.3%. On an incurred claims basis, we did see some elevated claiming activity coming off that artificially lower claims base. So incurred claims were up 4.9%, and paid claims per policy growing at 5.7%, predominantly driven by hospital indexation, but also increasing utilization post that COVID period. So this is at the higher end of our long-term outlook, but we are anticipating this to be a shorter-term risk as we start to normalize back to the 4%-5% long-term average.
We had a pleasing result around our management expense discipline, and we can see there that the ARHI Other MER reduced 100 basis points down to 6.4%, and we're expecting further productivity savings on a look-forward basis. Our NPS did have a modest decrease off the back of the 2 premium increases across the course of the year. Turning to slide 15. So what we've done here on a half-year trend basis is just show that like for like on the 17 versus 1023 basis, and importantly, drawing your attention to the second half of 2024, what you will see is that gradual return back to our target net margin ranges of 6%-7%. You can see we're still at the upper end there.
Our gross margin and our management expense ratio is starting to work back into that composition that we're more familiar with in terms of our pre-COVID experience. Pleasingly, we have seen some relatively flat non-marketing expense reductions, and that discipline and control around management expenses, but also a shift as part of our digital-first strategy to increasing levels of digital adoption, and you'll see there that our app usage was up 21% on the full year. We're also seeing ongoing investment and automation across our claims activity, with improvements around our straight-through processing. If we turn to the next slide, please.
Diving a little deeper into policyholder growth, what you will see on the left-hand side there is that nib's compound annual growth rate continues to outperform industry, but both industry and nib have had a sustainable track record, driving growth at positive margins. On the right-hand side, what we've done is just to dive a little deeper around. You know, that growth is really occurring in both our combined and hospital product mix, and we're seeing favorable outcomes there, in particular, leaning towards our attractive target segments in those bronze and silver hospital tiers, rather than, you know, the standalone ancillary at lower revenue, and as I mentioned earlier, we are seeing some good growth in the first part of the fiscal year 2025, with net growth up 42% on the same time last year.
Jumping to the next slide. Just breaking out that policy trend in a little bit more detail, and you can see here the composition over a three-year period has been favorable, in particular, skewing towards the hospital and extras combined policies, which we generally see deliver lifetime value and stronger tenure mix. So we're now seeing that start to play through and but still seeing some pleasing outcomes on an ancillary basis, but not at the same growth levels of combined and hospital. We'll move through the next slide.
This is just taking a bit of a look at the claims growth, and FY 2024, as Mark and Nick have mentioned, we did see some elevated claims activity, both for nib and industry, and this is looking at the APRA data on a rolling 4-quarter basis out to the end of March. You'll see that the shape is consistent both with nib and hospital coming off that lower, artificially COVID-affected base throughout the COVID period. This just steps it out in a little bit more detail. You can see here the table is just showing the pre-COVID experience back to our long-term inflation trend of 4%.
We do see some shorter-term risk towards the 6% and nib's or ARHI's paid claims, inclusive of risk equalisation on a policyholder basis, is at 5.7%. But we believe that if we jump to the next slide, the pleasing thing is that the industry and nib, on a consistent basis, has been able to price in that inflationary impact over the long term, and certainly you can see here that that delta between revenue, compound annual growth rate, and claims CAGR has tracked at that 30 basis points differential. So we're confident on a forward-looking basis that we'll continue to be able to price in any elevated claims activity we might experience in the short term. I'll pass back to Nick to go through the rest of the divisions.
Thanks, Ed. Okay, if we turn to our students and workers, a pleasing result, a bounce back with the students coming back into the system this year. As you know, our workers business has been strong for a while, so this was overall a really pleasing result. Really everything going in the right direction, so I won't spend too much time on this, apart from the growth was as we anticipated, and look forward to questions at the end of this presentation. New Zealand had a bit more of a difficult result. The plus side was really around its revenue.
Again, good, strong policyholder growth, good, strong revenue growth, but we are seeing that claims jump up, especially in the second half. What we've just done at the bottom is just showed the CPI that's occurring in New Zealand. There has been quite a jump, especially around wages in that country, and you can see that incurred claims up 16.9% with service cost 8.7, utilization 6.2. So, really this is a pricing story. What we are seeing is we are seeing industry repricing. We'll need to do repricing as well and just normalize that particular impact.
And then we'll be focusing strongly on the other MER, which is relatively higher in this business than it is in our other businesses. So those are the two actions out of that. In travel, travel's a difficult one. We did lose the Qantas contract, but again, the what we call the GPAC, which is the gross profit after acquisition costs, which removes the Qantas commissions, didn't really sort of impact as much from the Qantas contract loss. But what you can see is that in FY 2023, we had a really strong result. If you remember, the second half of 2023 was a particularly strong result. You know, that, inverted commas, "revenge travel" that occurred, it was very strong sales, a lot of pent-up demand.
And what we've seen is that that's tailed off a little bit across this year and become a little more stable. The slight mismatch is that all of the claims from that pent-up demand during the COVID period, that claims activity has now pushed into this year, so our operating costs have increased a bit because the claims from FY 2023 are now being processed in FY 2024. So we just need to wash that through. Again, we see that as a reasonable base, and we'll be looking forward from that base, but again, it's in terms of the operating expenses, need to ensure that they're in line with the revenue.
I'll just go back, sorry, quickly, back to travel. In terms of going forward, we do have some new underwriting arrangements. They're a little more flexible, which is really good, and we are putting in some new products into the U.K. and Europe in particular, what's called the annual multi-trip, which is an important product in Europe, and that allows people to pay once a year and take multiple trips. So we haven't had that product in the market. We launched it a month or two ago, so we're very excited about what that may bring. In terms of Thrive, going along to our expectations, now a meaningful contributor into FY 2024.
Participants growing up towards that 40,000, and we've now got to the scale. As I mentioned before, the integration costs, integration's on track, if anything, a little bit ahead of expectations, but we have put in here to show you the that bottom, the impact of the amortization of acquired intangibles of AUD 7.4 million. We did have a one-off catch-up from FY 2023 that we had to put through this year again, as we just did our allocations between goodwill and between customer contracts and so forth. So that will be a one-off, that AUD 1.7 million. And then the 15.9 of the integrations against 4.8, again, that's the one-off, and as the integration goes, that will come off.
So, looking in the right direction, we're pleased with the result, meaningful contribution, and we grow from here on. In terms of capital, everything going in the right place. PCA ratio of 1.94, so again, good, strong capital result. The net tangible assets just reducing a bit versus the overall assets, and that's just really us purchasing the nib Thrive entities, because, again, we've paid cash for those, and they come on board with goodwill and customer contracts. So that's the reason for that. Gearing ratio strong, leverage ratio strong, so all heading in the right direction with good, strong capital position of 1.94.
Then just highlighting again, again, what Mark was saying, just the cash flow from operating activities, up 4%, AUD 257 million, so that a positive result, and on the bottom right, you can see again, that our UOP versus our operating cash flow is starting to become more in line after that slight sawtooth pattern that we saw going through COVID. If I look at Honeysuckle Health, key call-outs here is that continues to grow, the NPS continues to be strong, and the losses continue to reduce. So we're anticipating a break-even into FY 2025, and that will be our focus. If I just go to Midnight Health, again, a similar picture, very strong result.
Really going very strongly in its weight loss management programs. We're helping a lot of people around their weight management. Peak losses in this year is what we're expecting, and we've put in there, so you can see the first half at AUD 10.4 million, the second half at AUD 5.9 million. We're expecting now this business to break even in FY 2026, as we continue to invest and continue to grow, especially around that weight management area, but also we're launching into the corporate health programs as well. I will now hand across to Ros.
Thanks, Nick, and good morning, everyone. Next slide. Thanks, Maddie. Look, earlier this year, we undertook our second double materiality assessment to consider the impact of ESG matters, both from a financial perspective as well as the impact on our stakeholders, such as our members and employees and suppliers, and it's really a foundational piece to our sustainability strategy, and you can read more about the details of that in the sustainability report that were published earlier today. But I will call out a few key highlights from FY 2024. We were able to achieve almost all of our sustainability targets this year, and in terms of health checks, nib well surpassed the target of 28,000, with over 78,000 individuals undertaking health assessments.
As Mark indicated earlier, these are easily done through the nib app, where members complete a survey based on lifestyle factors, their age, their medical history, and they receive a score which not only provides the members with a fantastic baseline around their own health, but allows nib to direct members into appropriate health management programs and appropriate health literature. Pleasingly, we're seeing more of our members go through our health management programs as a result of those health assessments. And they are members with chronic conditions or members who are at risk of chronic conditions. And you'll see there that we also surpassed the target of 20,000, with over 22,000 members completing those programs.
A really great example of how the P2P ecosystem is coming to life is MyJourney, which is one of the programs, offered through our partner, Honeysuckle Health. This is really designed for members who are on weight loss medications such as Ozempic, and they may be obtaining Ozempic, via Midnight Health. The program, like, provides for a wraparound service, where it works on educational and promotes behavioral change, so the outcome of, these health programs is much more sustainable for our members. In terms of climate, for the third year in a row, we managed to maintain our carbon neutral status, and we've been really turning our minds to what we can do for our members and the impacts of climate change in the longer and medium-term future on the health of our members.
And we've also published our climate disclosure report today, which provides more details about that matter. In terms of our people, we remain committed to keeping our people healthy and happy, and in particular, through Life at nib, we want to ensure that our employees have the support that's required in that hybrid working environment. So conducting things such as psychosocial assessments and the introduction of contact compacts, which ensure that we're coming together in a very deliberate and meaningful way with our employees. And in line with our core values of Free to Be You, we continue to focus on the importance of diversity and inclusion in our business, and we launched our first disability and inclusion action plan this year.
Via the nib Foundation, we continue to focus on working with those in the communities in which we operate, and to partner with partners who are very much aligned to our purpose of better health. And we have some very long-standing partners, such as the Black Dog Institute, and through their Sleep Ninja app, and Hello Sunday Morning. And in FY 2024, we reached over 430,000 people through these programs. Maddie, if I could move to the next slide. Thanks, Maddie. The focus for FY 2025, we will continue to focus on bringing our members through health management programs and having more members complete health checks, so we can work towards improving health outcomes of our members, and to harness digital innovation to personalize those healthcare services.
In terms of climate, given our recent acquisitions, we're committed to transitioning all nib-controlled locations to 100% renewable energy, and we will conduct a second climate change scenario analysis, so we can really have a further look at the long-term impacts of the changes in climate on our members' health. For our people in FY 2025, we will continue to focus on reducing the gender pay gap, and we will be working further towards more diversity within our workforce. In terms of the community, we continue to be committed to working with our indigenous partners and communities in both New Zealand and Australia, and improving the health and well-being of First Nations people. We completed all of our deliverables in FY 2024 of our RAP, and we will be launching our next Innovate RAP in FY 2025.
Finally, in terms of governance, we remain committed to upholding strong governance across the entire business. Significant work is already underway in relation to CPS 230, and we're working to ensure that our cybersecurity and protecting our members' data remains a priority. As we continue to use more AI, we're developing our AI policy to ensure that it is working to manage our members' data in a responsible and ethical way. Thank you. Back to you, Mark.
Thanks, Ros. Many of you have seen this slide before. I started off today talking about how the essence of P2P were threefold, really: an expanded value proposition for consumers. Secondly, that'd become a source of differentiation in what, particularly in private health insurance, which has become largely commoditized over the decades. And most importantly, it improved health outcomes across our population, consistent with our raison d'être as a business. And so you might say: "Well, that's fine, Mark, but where do you actually capture value for the enterprise?" And I think this diagram is a useful way to think about that. Our high expansion is obvious.
You know, we look to grow the marketplace, the attraction of private health insurance and our relative share, and we've been doing that quite nicely, for many years now. So P2P is fundamental to that. But of course, if you think about the Australian healthcare economy, AUD 230 billion, and you add the NDIS and travel and New Zealand, the opportunity for a company like us is actually much, much larger. So above and beyond ARHI and it's expansion. We've explored adjacent markets, which are PHI, PHI-related. It's really an economies of scope perspective. And that, of course, today includes international workers and students. It includes New Zealand, it includes travel insurance, and as I mentioned earlier, we're doing quite well there, and that's quite a significant...
All taken all together, they're very significant markets where we can capture value. Government and third-party programs, well, obviously, the best example of this is the NDIS. You know, we're working in that AUD 40 billion system now. Now, this is a system, a value pool, if you like, as large as the entire private health insurance system in Australia, and we're very excited about our prospects. The government's policy approach around a more seamless, integrated experience for participants and all people with disabilities through a Navigator model is very much aligned with our vision for the business. You know, as Nick has touched upon, you know, we're making great progress there. Midnight Health and Honeysuckle Health are interesting value pools.
Honeysuckle Health, by keeping people healthy and hopefully out of hospital because of good health, or having them treated in substitutional settings of care, including their home, is obviously an opportunity to capture value in that large part of the healthcare economies we call hospitals. It's about AUD 100 billion of that AUD 230 billion we mentioned, and that's going very well. Almost 30% of our major joint replacement now is conducted in our Clinical Partners program, which, subject to the doctors being happy that it's clinically appropriate, we'll see rehab, rehabilitation, for example, done at home. And Midnight Health is playing in the value pool of what we affectionately call everyday healthcare.
That's about the AUD 35 billion that Australian consumers spend on out-of-pocket expenses in meeting their everyday health requirements, and that includes things like GP consultation, prescriptions, and as Nick touched upon, we see great opportunity around weight management and the prodigious role that we expect GLP-1 agonist, you know, the Ozempics that we gave you, some Mounjaro of the world, will have. We like to think, as a business, we'll be a leading facilitator of weight management into the future, led by our ability to facilitate easy access to the GLP-1 agonist. And of course, the final part of that is just providing additional value and making it all the more affordable for consumers, which feeds every element of this schema. Next slide, please.
I won't go through every element of this, but look, there are a few highlights. In New Zealand, for example, we now have a fully operational life insurance business. That's important for us in New Zealand because advisors, our principal distribution channel, like to sell health and life insurance as a bundle. So expect we'll do much better there. I've touched upon the nib Plan Management. On the right, top right-hand side, just calling out the significant investment we're making in digital assets. Ed touched upon this, such as our symptom checker.
You know, our vision for our P2P ecosystem is not that we manufacture every element of the system, but that we facilitate, we orchestrate consumers being able to access a broad range of physical, virtual, and home care products in a single location, maybe on our app. For somebody with a disability, it may be on some other form of device. Also, we're calling out here social prescribing. This will figure more and more in our ambitions to play a role in helping support government programs like the NDIS, because we know how important social factors, employment, food security, home security, mitigating the risk of isolation and loneliness, but we know increasingly through data science, just how important these are to improving health outcomes, our very mission.
You can see a whole stack of enabling capabilities to support this framework, below. Like every other company in the economy, we're very interested in AI, and see huge potential for it right across the spectrum of our activities, from predicting health risk and how that might be better managed, through to processing claims or invoices as we currently do in the NDIS and other parts of the business. Next slide, please. Okay, this is probably the bit everyone's waiting for. So let's just break it down. Look, we still expect good growth in the system. The system has grown for the past 17 quarters. It's grown on the back of heightened concern in the community about the risk of disease, courtesy of the pandemic.
It's grown on the back of not something we celebrate, but concerns in society about public hospital system and waiting times. I think it's growing on the back of the industry strong competition across the industry and the industry being prepared to invest in its future through marketing and advertising and product development, just like we are. Our forecast for next year's policyholder growth is 3%. I expect that we'll probably be around 30%, or to double what the system will grow. It's only because of you know difficult economic circumstances. Although as Ed highlighted in his presentation, we're off to a really good start.
You know, annual growth rate is now, it's jumped to 2.8% from just 2.5% at 30 June, so we're quite optimistic about our HI bouncing back this year. Look, absent a crystal ball, I know there's considerable discourse around what's the long-term outlook for claims inflation likely to be for our HI. The truth is, nobody can predict this with any accuracy, but what we can rely upon is history, and while history doesn't repeat, it rhymes, and that range of 4%-6% is very consistent with what we've seen over the course of the last 20 years.
And as I explained earlier on, the high level of inflation that we're currently experiencing is simply the system both in Australia and New Zealand reverting off a very low artificial COVID base to this new normal. So we're fairly relaxed about claims inflation, notwithstanding some of the pressures we're feeling there, and ultimately the situation with hospitals will resolve itself. It's not up to us to repair their P&Ls and balance sheets, but we're certainly sympathetic to their plight and willing participants in the government's current review of the hospital system, private hospital system, and arrangement. And we're equally confident about stabilizing our net margin in that six to seven% range as we weather this current high inflationary environment and things return to normal.
There'll be some risk around pricing, not so much in New Zealand, where we have a lot of flexibility, but in Australia, where we have an approaching federal election, but at the end of the day, you know, we're confident government accepts, supported by its regulatory institutions like APRA, that we still need to price in whatever the underlying rate of inflation is, just like general insurers have to do in respect of home and car insurance, et cetera, so very optimistic about ARHI and its prospects as always. IIHI is now, as I mentioned earlier, at record levels. We did experience difficulty during COVID, particularly with students, and the fact that we didn't have new students arriving in Australia, refreshing the risk pool, and we had a larger cohort of existing students aging.
Because something we've, you know, we've learned over the years is that the longer international workers and students stay, the longer their tenure, the worse it gets for the loss ratio. So staying ahead of that and pricing in that natural occurring growth in claims experience is a challenge we have in the business, but that's it. It's now stabilizing, and we're quite happy with the IIHI result in fiscal 2024, and we expect it. We expect to do even better in fiscal 2025. New Zealand is interesting. New Zealand is growing nicely.
It's growing on the back of an enhanced value proposition, a better experience for advisors, and our particular partnership with Maori tribes or iwi, where we're assisting those tribes identify health risk in their tribes and manage that health risk. So it's a very exciting prospect for the business, with opportunities to grow even further. And as we price in the rapid rate of inflation that we've experienced in fiscal 2024, margins will stabilize to that 8-9% range. Nick touched upon travel. We lost the partnership with Qantas, which affected sales but didn't necessarily affect our overall income. A lot of improvements we've seen in travel. It's much more integrated with the business today.
Culturally, it's more aligned with the business. We have some improved underwriting arrangements in place that Nick touched upon, and we expect the U.S. and Europe to really kick back into gear in this following 12 months. So, you know, travel will continue to grow, and it will improve upon the 2025... the 2024 result into 2025. I've spoken a bit about Thrive, as the others have already. Expect ongoing growth in the business, expect ongoing improvements in profitability, expect ongoing improvements in efficiency borne out of scale, but also automation. And expect that we'll be part of working with government and the disability community in shaping what a navigator actually looks like.
You know, we're very clear about, you know, what the purpose of this business in helping participants, not just pay the invoices of their support providers, but helping them design their plans, make more informed choices around their providers, better manage that relationship, but also have access to the broad range of health, healthcare products that we offer our members today, and as Nick touched upon, we expect to see Honeysuckle Health will continue to grow. It already has one customer larger than nib today, and Midnight Health, as I've already mentioned, apart from providing the basic services around virtual consultation with GPs, prescriptions and medical certificates, it's leading the way in the development, the application of GLP-1 agonist in the marketplace, and also leading the way in terms of better integrating services which support weight loss.
Because we know that pharmacy alone is not the solution for tackling the endemic we call obesity. It requires behavioral changes, and, married with Honeysuckle Health, we're already delivering a number of programs, MyJourney, which is designed to understand those behavioral changes needed to complement the pharmacy. So with that, I'll hand over to questions.
Thank you. We will now begin the question and answer session. To ask a question, please press star one one on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Our first question comes from the line of Vanessa Thomson from Jefferies. Please ask your question, Vanessa.
Thank you, thanks for taking my questions, and congratulations, Mark and Ed. Best wishes for next steps. I just wanted to ask a question about ARHI and the hospital picture that you're seeing at the moment. I wondered, I noticed you've got 27% of joint replacements through Clinical Partners. Are you also seeing shorter lengths of stay in hospital? And I just wondered what you thought might be driving this. Thank you.
The short length of stays is a global trend. It's improving on the back of improved clinical practice and technologies. So, you know, procedures which 30 years ago may have required four nights in hospital today can be handled overnight or even same day.
So it's just, you know, the usual advancements in clinical practice. And, you know, I suppose in some markets-
And do not-
I was just going to say, in some markets, let's say in Australia, it's been delivered, you know, it's been driven by commercial considerations, as well.
You think that accelerates it more recently, you know, perhaps with prehab and, I don't know, hospital at home, that kind of stuff?
Absolutely. So between 60%-70% of procedures currently in long-stay hospitals are currently short-stay. So it's happening within the traditional long-stay hospitals, but of course, it's also happening within the dedicated day hospital sector as well. So, you know, this is no longer a trend, it's a reality. It's more a reality these days that if we go to hospital, to the extent that it's clinically appropriate and the doctor makes these decisions, never us, that the shorter the stay in hospital, the better.
Thank you. And one more question, just on the nib Thrive business. It's a great profit for this period. I wondered if you could give us some color on how you transition to the navigator function from plan management businesses. I understand you're talking with government. Just wanted to understand how that would happen and whether the economics would change. Thank you.
The economics will eventually change, but it's not clear exactly how, and you know, this is something we're working with the disability sector and government and the NDIA in working out. There's probably a future, and I won't try and put a timeframe to it, but let's just say 10, five to 10 years ago, where a navigator is paid a percentage of the plan budget, because you know, that that would be simple. In the meantime, the economics for us will remain that the existing remuneration structures will stay in place.
So at the moment, plan managers are paid an annual fee for a participant, and support coordination, support coordinators, where we're also playing now, are paid a charge, which is part of the plan, and that charge relates upon the level of accreditation of the support coordinator. So the existing remuneration structures will remain in place until the Navigator model is actually introduced. How long that will take really is difficult to predict. In the meantime, we had a plan... We've always had a vision that we would be a navigator, not just, as I mentioned earlier, somebody who'd pay invoices and help manage the budgets for participants. We entered through plan management because they were the assets that were available for sale. Support coordination is very fragmented.
Plan management is fragmented, but there were some larger assets, as we've demonstrated in our M&A program, which we've been able to acquire, and accompany that with some investments in technology and support coordination business. We now have a license as a support coordinator. Support coordination is going to be really important as a skills base to help us develop our Navigator model, because it's the skills of the support coordinator rather than the skills of the plan management business, which lend themselves, we think, to a navigation model.
Something that's really important to emphasize here, which may have gone unnoticed in the discourse, is that a fundamental premise of the Independent Review Committee and government's endeavors is to provide services to all the three and a half million Australians who identify as having a disability, not just those 600,000 to 700,000 who are eligible for NDIS funding, and they describe that as foundational support. We think the addressable market for the nib Thrive would not only be the 700,000 NDIS participants, but anyone across Australia and potentially New Zealand who have a disability. We can still provide them with the service of helping them design a plan to meet their goals, procure the relevant support services they require, and manage that relationship with support coordinators with providers of support.
They may self-fund or rely on other funding to purchase that support for us, but we're not looking just at NDIS participants, even though obviously they'll be the top priority.
Thank you.
Thank you. Our next question comes from the line of Julian Braganza from Goldman Sachs. Please go ahead, Julian.
Good morning, guys. Thank you for taking our questions. Just an initial question, just from the claims inflation over the period, or second half 2024, can you just talk to where the pressure is coming from in claims inflation? Is it hospital contracting have anything to do with it? And also just trying to understand, are there any one-off claims impacts? Coming through the results in the second half of 2024 period, just to understand if there's a difference between the margin you reported and just the underlying margin that you were previously disclosing. Thanks.
You can jump in there.
If you want to take it.
Yeah.
Thanks, Julian. Yes, I mean, we've outlined in the ARHI slide claims inflation of 5.7% up towards the upper end of that 4%-6%, and I guess it's broadly spread across the modalities. Interestingly, during COVID, we called out rehabilitation, psych, and also risk equalisation as being low. What we're seeing is that psych and risk equalisation remain relatively low, but rehabilitation actually came back a bit and was above average, so broadly across modalities, rehab a little higher, but it's not, you know, it's one of the big five, but it's not the big two of joints and cardio. In terms of utilization and cost, about evenly spread, maybe a bit more on cost inflation versus utilization.
And then lastly, if we look between hospital and ancillary, it would be more on the hospital side.
Okay, thanks, and in terms of just hospital on... Sorry.
It's the three core components for us, or any insurer for that matter, but particularly us with the third risk equalisation, are service cost, utilization, and risk equalisation. So the growth we're seeing is fairly symmetrical. You know, the hospitals are obviously pursuing price increases. That's well known in the marketplace, and to the extent that we think it's prudent, we're accommodating those requests, including entering into renegotiations mid-cycle. As the pipeline starts to fill again, we're seeing a growth in utilization, you know, activity which was, you know, deferred during COVID-19, and it explained the provision that we made during COVID-19. And the third one, particularly for us, is risk equalisation.
So just as we benefited from low systems growth during COVID, because we're such a large contributor to the risk equalisation pool, so too are we experiencing greater pressure because of that same factor. But bear in mind, too, of risk equalisation, that to the extent that other insurers, Bupa, Medibank Private, et cetera, improve their claims efficiency and claim less into risk equalisation, that does have some benefit for us, which shouldn't be so forgotten. So we're always somewhat paradoxically cheering any improvements that many of our competitors may make in improving health outcomes and our clinical efficiencies.
Okay, great. No, thank you for that. And just a second question on reserving. Nick, can you maybe just talk to your overall reserving position and just the moving parts between the different buckets? It looks like just the claims processed, but not yet paid, seems to have strengthened over the half. And so I'm just trying to understand how we should be thinking about your reserving at the close for FY 2024, and how you're thinking about that.
It's really that in note four, I think it is, of the accounts. It's really that IBNR number. The claims process, but not yet paid, is just a factual number in terms of what we're holding on, but we haven't yet paid. And it's the IBNR, which is the one that impacts. You can see that's gone down, I think, about 20 million, after going up a bit. So relatively high in comparison to claims paid, if you did a trend over that period and looked at it. So it is relatively high. But again, we have seen higher claims paid, so we're, we sort of have had that relatively high.
Okay, thank you. And just one last question. In terms of just the lapse rate, so that has increased second half 2024 quite a bit. Just interested in your view of sales mix going forward, and how we should be thinking about that, given the competitive dynamic in the industry, and across different channels, and whether there's expected to be any change there to improve that lapse rate? Yes, thanks.
Yeah, I'll take, I'll take this one, Julian. So, yeah, on the lapse rate, yeah, it's worth looking back around the pre-COVID lapse rate numbers to probably get a better guide of what a more sustainable long-term lapse rate is for ARHI, and is in some ways a by-product of a very strong sales rate as well. So there's some relativity there around the FY 2019 number that's probably worth guiding back to that 13.8% number for the full year, and particularly in the second half, you know, really compounded by the April premium increase, and sort of the elevated switching market off the back of that, and also people looking for better value, I think, just in the marketplace more generally.
While we did see that make, you know, quite a step change from FY 2023, which was a very strong result for ARHI, that has sort of trended back towards those pre-COVID lapse levels that we're generally expecting to see. That said, I think on the sales mix piece, that we've, you know, done very well in FY 2024 with record sales and sort of that multi-brand, multi-channel distribution strategy really starting to generate some good top line sales outcomes, and in particular, skewing, as I mentioned earlier, to that combined and hospital mix, which is our favored sort of target segments. Looking forward, and I know we showed you a brief snapshot around the FY 2025 results to date, we are still seeing continued strong growth there.
So we expect lapses will remain relatively high, and we are seeing that over the course of the first seven weeks of the year in what is a competitive marketplace. But we're feeling that we're comfortable to play in that space around marketing, product and pricing, but also our offer composition to capture growth, in a sustainable way.
Yeah. And of course, Ed, there was the two—as you mentioned earlier, the two premium increases always was going to give us a whack. My friend, David Koczkar, I think, subtly mentioned the other day that there was some growth behavior in the marketplace, aggressive growth behavior, which is not sustainable, and you know, I'd agree with that. There is a level of competition out there in the market, which you know, that's what competition's about, but I doubt the insurer leading that will have the stamina for much more.
Okay, great. Thank you so much for that, guys, and all the best, Mark and Ed.
Thank you. Our next question comes from the line of Andrew Buncombe from Macquarie. Please go ahead, Andrew.
Hi, thanks for taking my questions. Just two from me. Firstly, in relation to the 50,000 participant target for the NDIS, you had very slow growth in that metric in second half 2024. Do you think you can get to that 50,000 target organically, or do you need to make further acquisitions? Thank you.
I think both, Andrew. Certainly the one of the factors we've encountered with organic growth is, you know, our focus upon merging what six plan management brands has taken away, well, obviously made it slow down our ability to introduce the market, the nib Thrive brand, but we're there now. So expect that the marketing and effort around the nib Thrive brand will contribute materially to organic growth. Similarly, as we build on our support coordination business, they will bring other participants, which we hope would become plan management participants as well.
I think some of the rigor and integrity that Minister Shorten and others are attempting to bring to the NDIS will see an end to evidence of shopping around for plan managers. So there is some evidence that people will shift plan managers in an effort to secure an arrangement that they may not be able to secure with a more reputable plan manager. So, you know, we think that could be a factor as well. Then we haven't ruled, to the extent that it meets our economic criteria and business case, we wouldn't rule out some further small acquisitions. You know, we talk about 50,000, you know, I've every...
You know, it depends what, how the Navigator model plays out, but there's no reason to believe that nib Thrive couldn't be supporting a 100,000 NDIS participants inside the next five years. This industry-
Thank you. My other one-
the NDIS, if you think about that middle earth, that role of local area coordination, support coordination, and plan management, there is no doubt in my mind that that will consolidate into four or five larger players over the course of the next five, 10 years, and we certainly aspire to be, you know, one of those leading, providers, navigators.
Thank you. And then just in relation to the guidance on slide thirty-six, just, keen to get some clarification around the comments of break even for Honeysuckle in 2025 and Midnight Health in 2026. Is that on an exit rate basis, or is that expected to be achieved in each of those years? Thank you.
That should be achieved within the year, maybe the second half. Midnight Health, the first break-even month is at the start of FY 2026.
That's it from me. Thank you.
Thank you. Our next question comes from the line of Nigel Pittaway from Citi. Please ask your question, Nigel.
Great. Thanks very much. Good morning, guys. Wanted to return to the subject of the claims provisioning. It's probably easier if you look at it on that AASB 1023 basis on the right-hand side of slide 11. But as I understand it, the AUD 232.8 million in 2023 had AUD 64.3 million of top-ups to the, what was then the OSC provision. So I think what you're saying is that's largely still there, but some of it got released a bit in 2024. So firstly, is that correct? And secondly, if you do then adjust for that level of provisioning, that means that that line's gone up by easily into double digits. So can you maybe explain why?
... So that's correct. I mean, largely what we're saying is that there was a movement out of the COVID provision and into the LIC by 64, and then in FY 2024, it reduced by about 20, so it's remained relatively high given the inflation that we're seeing.
So the underlying is 10% increase in that, if you adjust for those two numbers, 64 and the 20, well into double digits?
No, I'd say it's nine point five.
Right.
But I'm not and neither it's probably worthwhile. I think I know where it's heading, but you know, if we look at what I'd call the claims paid, which excludes those two, yeah, we'd agree that that's up in that 9%-10%, which against our average growth, and if you have a look at sort of the comparisons, you can reconcile between the average growth.
All right. Okay. So nine and a half because of... Still seems high, right?
So, yeah, I mean, if we go back and say claims paid per policy at five point seven, it is at the higher end of our range.
All right. Okay. I'm just still not clear why that goes up nine and a half, but unless there's any further explanation, I'll move on.
We can take it off this afternoon.
All right, then move it, move it.
Yeah. 9, less 3.6% average growth.
Right. Okay, fair enough.
In that period-
Slide nineteen then. Why are you so ahead of industry claims growth, do you think, even sort of once you account for risk equalisation?
Oh, I mean, again, well-
Well, no, you go. Yeah.
Again, I'd say, you know, that five point seven. I mean, this is a period of just depending on where people's COVID experience occurred, that you can get some volatility. And I think what we're trying to say is that over the long term, there'll be some volatility as we emerge from COVID. But if you go back to the prior slide, the industry experience and nib experience is fairly similar.
Risk Equalisation, there's. Look, we need to see the APRA figures, but there's a product mix question as well. You know, it's fairly evident that some of our competitors have relied heavily on lower value products, including ancillary products, for their policyholder growth. And, you know, by definition, that will lift the denominator, but without the same level of growth at the numerator that Nick touched upon.
Yeah, I mean, there is a criticism in the market that, you know, this, you're now sort of paying the price of previously growing in areas you shouldn't have. I mean, presumably you wouldn't agree with that. So can you just maybe, just say why you think that's not the case?
I don't understand. What's your definition of areas? What, by product mix or geographic, or how do you mean?
You've obviously had strong growth over time. You know, some people say that, you know, that that's inappropriate growth, so I'm just trying to... You know, you presumably would not not agree with that, so I'm just sort of trying to sort of-
Well, let, well-
I hear what your view on that side of things.
Let's unpack that. As we've often observed before, we don't care what the underlying claims growth is, if the revenue growth more than matches it and the margins. And so if you're selling high value products, and we've given some emphasis to that in the last few years, particularly with our success in the likes of Silver Plus, you will see higher levels of, you know, growing rate inflation, relative to others. So the challenge becomes to price it in. We got a good pricing result this year, relative to the industry. You know, we've touched upon risk equalisation. I don't think anyone would be a critic of our efforts over many years now of attracting more younger people into the system. That supported the system as a whole, particularly through risk equalisation.
The other issue to think about, well, is nib being subject to anti-selection, which is public enemy number one in our business. And again, there's no evidence, certainly in our reckoning, of any anti-selection, adverse selection, whatever term you prefer. And of course, you know, the final point to be made on this is risk equalisation does exactly what the name suggests. You know, 50% of total hospital claims are risk equalized. So any trend of anti-selection, you know, by a single operative will largely be offset, you know, through the process of risk equalisation. We've ever really encountered-
Right. Right
in my, in my experience, inflation above and beyond the industry, you know, once you allow for, you know, variance in a, in a statistical form, is when we were a little bit generous with an ancillary product called Top Extras 85 a few years ago, and we paid the penalty for that. We quickly corrected the situation, but one of the reasons we had to pay the penalty for that, because ancillary cover is not protected underwritten by Risk Equalisation.
All right, thank you very much.
Thank you. Our next question comes from the line of Siddharth Parameswaran from JP Morgan. Please go ahead, Siddharth.
Good morning, gentlemen. Just a related question to the one that Nigel asked. Just in terms of the inflation that you are seeing, I think you're planning, you have about 6.6%, excluding risk equalisation this period. In the guidance that you give for margins for next year, you must be assuming that inflation drops quite sharply. Unless I'm missing something about, you know, downgrading risks, downgrading trends or the like, because your claim, I mean, your premium inflation is only 4.1%. Can I just understand, you know, what assumptions are going into your guidance of 6%-7%? And maybe if you can just confirm that 6%-7% is not a through-the-cycle guidance, it is actually what you're guiding for 2025.
So, Sid, I'd have the average revenue per policy or a little higher than that. It might be something to do with changes in average policies. But yeah, I mean, we're not expecting it to be up at 6.6. We're expecting it to be within that 4-6 range, potentially more in the higher end of that range. But again, it's really around what the revenue is versus what that claims inflation is going to be, and then, you know, what we can price in. And so, I think what we're saying is that if we go to our second half margin structure, that's going to be the margin structure that we'll start to target, and we'll be focusing that on our pricing into next year.
But also, it does depend on where we see claims fall out for the next few months as we go into that cycle.
It's a relevant risk.
So, I mean, is there any reason we shouldn't use the second half as the starting point for thinking about your margins? Is there any reason the second half, which is, you know, dropped quite precipitously from what you told us was the underlying at the first half, you're not calling out any one-off. Is there any reason we shouldn't-
In that high sixes?
At six point seven seven.
No, in that,
Yeah
... that sort of high sixes that's why we provided that slide. So it has, you know, claims inflation was higher in the second half that we're anticipating versus our underlying margins in the first half. That first half result was strong, so yes, but I think we've always talked about the target margin range, and so that's why we're providing that in the second half.
Yeah, interpreting your question, Sid, I think it is a starting point, and I expect the first half of this fiscal will be harder than the second half. But as we've emphasized today, we're confident, you know, we can maintain that range. You know, we're confident that things will moderate through the course of this calendar year, notwithstanding the ongoing pressure on hospital pricing. And of course, there's always the cost lever to be pulled, you know, depending upon how things played out. And, you know, I know Nick and Ed have well-advanced plans around further cost savings, productivity improvements and targets to go with that. So, you know, we're clearly entered after a very benign claims environment throughout COVID-19.
As we've touched upon constantly today, we're clearly entered a period where things are reverting to whatever the new normal mean becomes, how fast that occurs and to, you know, when, you know, when it- how long does it take for the pipe to be full again? That's still a question for us and, you know, everyone across the sector. But I wouldn't expect... I think the second half, the first half of next year will be similar to what we've seen in the second half. Probably a little bit better, as things moderate, and, the second half of this fiscal should be back to some sort of new normal.
I think the bigger issue, without wanting to overstate it, is going to be, you know, even though the next pricing round doesn't affect 2025 so much, clearly it has an impact on 2026. But as we always have in the past, we'll cut the cloth to fit whatever comes down from the minister's office.
Yep. Okay, fair enough. And maybe just one last question from me, maybe to, maybe to Ed. Ed, firstly, congratulations on your appointment. Just keen to understand what you plan to do, what's your main focus for the business going forward, which might be different to what we've seen for the last couple of years, near term and longer term?
... Pretty consistent themes moving forward. So certainly, you know, I guess in the conversation today, there will be an elevated focus around strengthening our core businesses, particularly around claims cost containment, and also, an ongoing disciplined approach to management expenses, because they are certainly levers that we can pull that are within our short-term control. Continuing, as we put in the outlook around the 3% growth for ARHI, we're still very confident and positive around that multi-brand and distribution strategy that we've deployed.
We're also looking at a, you know, potential third-party administration opportunities around working more closely with some of our health insurance partners in the marketplace, and we, you know, we're excited about what those opportunities and prospects could uncover around both supporting our core ARHI business, but again, growing some adjacent earnings beyond the health insurance businesses. Certainly in the students and workers business, we are confident around policyholder growth moving forward, and whilst, you know, there is a lot of discussion around some of the migration patterns, particularly in the student space, we are just seeing that start to normalize towards a pre-COVID base, and then I think the other, you know, the two other big pillars, and Mark's talked a lot about our NDIS business, Thrive.
We're very excited around the future Navigator model, under that business, both on a short-term basis around sustained earnings in the plan management space, but equally, you know, how do we play a more meaningful role as one of the leading brands in the NDIS sector? The third pillar really is very much around this everyday health management space, which we've sort of put into that portfolio, our Honeysuckle and our Midnight businesses. You know, the culmination of the health services capability that they're now actively supporting in the marketplace beyond nib gives us some strong encouragement. But as Mark's alluded to earlier, just the value proposition that those two businesses actively support our core businesses is also what gives us confidence around a level of differentiation.
I guess underpinning those three areas, there's this element of digital and customer, and we've given you some reference around this digital-first strategy that's starting to gain significant momentum. Mark talked a lot about the opportunity in AI and also automation. And so again, if you think about the composition of an insurance style business, it really lends itself to increasing adoption of automation and also self-service, and we feel we're only really just getting started on that digital and customer agenda. So, yeah, in a nutshell, that's probably the key themes as we look forward. So, you know, definitely some consistency with the existing strategy there.
Okay, no problem. Thank you very much.
Thank you. As a reminder to ask a question, please press star one one on your telephone keypad. I'm showing no further questions, and I'll turn the conference back to Mark for closing remarks. Please continue, sir.
Well, thanks, everybody. Thanks for your time today, and your questions, and no doubt we'll be seeing a few of you in the weeks ahead. So thanks, and thanks everybody today for organizing this session. It's much appreciated. Cheers!