Good evening and thank you for joining us today for Nib's FY 205 Full Year Results. I'm Ed Close, Nib Group CEO and Managing Director, and I'm joined here in Newcastle by our Group Chief Financial Officer, Nick Freeman. We're pleased to share a positive set of results today. They reflect our continued focus on sustainable growth in key markets, delivering value for our customers, and excelling in operational and digital transformation. Before we begin, I'd like to acknowledge the traditional custodians of the land we're joining you from today, the Awabakal people, and pay my respects to elders past and present at Nib. Our purpose remains clear: your better health and wellbeing. Our vision and mission continue to guide our strategy and our people every day, ensuring we deliver value to our customers, our partners, our communities, and our shareholders.
Turning to slide 6 and looking at the FY 2025 highlights, in FY 2025 we delivered a strong group operating performance in line with guidance with UOP of $239.2 million and NPAT of $198.6 million. Our core ARHI business continues to perform, achieving 3.2% net policyholder growth and maintaining stable net margins well within the 6% to 7% target range. Our digital-first, customer-led approach supported a group NPS of +34, with more than 70% of Australian PHI policies now digitally connected. Long-term hospital partnerships and enhanced provider networks are delivering real value for customers and providers, improving access and affordability to quality healthcare. Our adjacent businesses are building positive momentum, contributing a solid $45.3 million in UOP to the group result. Notably, New Zealand returned to profitability in second half of 2025. Our international students and workers portfolio grew UOP by 23%, and Honeysuckle and Midnight Health losses were halved.
We also accelerated our productivity agenda, delivering $18 million in savings. With over 50 AI and machine learning initiatives now in production across the group, our refreshed strategy is delivering results with a primary focus on our core PHI businesses whilst also scaling health services and in plan management. The Nib Travel strategic review is progressing well and remains on track. Turning to slide seven, looking a little deeper at some of our key performance metrics, we delivered strong results in line with guidance. As I mentioned earlier, looking at group revenue, which rose 7.8% to $3.6 billion. Our PHI portfolio now covers nearly 2 million people, up 3.2% on the last 12 months. We're also pleased with our ongoing productivity focus, and this progress is reflected in our group operating expense ratio improving by 50 basis points to 17.7%.
Net investment income rose 28.9% to $79 million, and the group maintained a fully franked dividend of $0.29 per share in line with FY 2024. Taking a look in slide eight, in our flagship ARHI business, our consistent track record of growing well above system continued, where we outpaced the market with 3.2% net policyholder growth and 3.9% growth in combined policies. FY 2025 marked our best-eve r sales year, up 13%, driven by a high-performin g multi-channel distribution strategy targeted towards high-value segments. We attracted 52,000 new to industry customers and remained a net gainer from switching behavior. Net margins remained stable and were guided into our 6%- 7% target range as we expected, supported by disciplined pricing, optimized product design, and tight cost control.
With 1.4 million Australians now covered and a 9.7% market share in ARHI, we see high potential for continued growth in our priority markets, with our product pricing and value proposition well-positioned across our various brands and channels. If we turn to slide nine, we continued to prioritize value for our customers and providers, supporting a healthcare system in transition. Innovative care models are reshaping healthcare delivery in Australia, improving access and making high-quality care more affordable for consumers. In FY 2025, Nib supported over 121,000 health interactions through wellbeing offerings and telehealth support, and we enrolled more than 22,000 customers in health management programs in partnership with Honeysuckle Health. Our prevention and in-home care initiatives saved more than 24,000 hospital bed days, and we expanded our no gap dental and optical networks to over 500 providers, saving customers $40 million in out of pocket costs.
Our no gap model now covers more than 40,000 medical specialists across the country, and one in four major joint procedures is now delivered through our no out of pocket clinical partners program with leading specialists across Australia. We also continue to actively support the wider healthcare system. We've secured multi-year partnerships with some of Australia's largest hospital groups, and we provided nearly $28 million in additional private and public hospital funding over the past two years, including support for the New South Wales public health system. Importantly, our ARHI hospital claims ratio remains in line with historical levels. If we take a look at slide 10, our adjacent businesses made strong progress in FY 2025, contributing $45.3 million to the group UOP.
International saw revenue growth of 14.4%, and UOP was up 23%, with more than 46,000 palm lives supported, those direct employee relationships strengthened, and new growth opportunities emerging from commission reforms. In New Zealand, our recovery plan is gaining positive traction. Price increases are now aligned with inflation, product and network changes are taking effect, and we returned to profitability in second half of 2025 as inflation stabilized. We also welcomed our new New Zealand CEO, Skye Daniels, who arrived in August. Our health services strategy is progressing well, with Honeysuckle Health and Midnight Health now fully owned and consolidated, losses halved, and we're on track for profitability in FY 2026. In travel, we posted our best monthly sales in two years in June, supported by strong distribution and disciplined cost control. The strategic review is well advanced and remains on track. Thrive is now at scale following our inorganic growth strategy.
The Instacare acquisition boosted performance across the year, and service levels remain strong, with 96% of claims processed within one day and 85% of calls now answered within 90 seconds. UOP of $16.9 million was up 10.5%. Turning to slide 11, in FY 2025 we commenced a multi-year productivity program, and in the last 12 months, as I mentioned, this has delivered $18 million in savings. Our group operating expense ratio reduced by 50 basis points to 17.7%. This was achieved while containing non-marketing expenses to just 3.4% growth in an inflationary environment, and pleasingly, we saw customers per FTE improve by 7.7%. We're accelerating our digital-first agenda to drive better customer, employee, and efficiency outcomes. Over 50 AI and machine learning initiatives are now in production, including NIBGBT, an internal knowledge management tool.
Our AI summarization strategy is supporting more than 500 contact center agents, which has cut after-call work by 60%. Our chatbot Nibby handled more than 5 million interactions in the last 12 months and helped to streamline customer service and reduce response times. We're now straight through processing nearly one in two Thrive invoices using AI with a rapid expansion underway to ARHI in New Zealand. Finally, we've completed a group-wide simplification across our operations. We've combined Australian PHI operations, consolidated health services, and we're refocusing our New Zealand and travel businesses to their core markets. These changes have been supported by our new group operating model and capital allocation framework to ensure disciplined focus and execution of our revised strategy. With that, I'd now like to pass to Nick who'll go through the financial results in a bit more detail. Thanks. Thanks, Nick.
Thanks Ed. As Ed has pointed out, Group UOP landed at $239.2 million, which was within our guidance range of $235 million- $250 million. It was driven by continued top-line growth with ARHI growing once again above system, and expense management was a highlight with our operating expense ratio reducing from 18.2% to 17.7%. ARHI claims inflation continues to moderate during the year on a like-for-like basis, and New Zealand was ahead of expectations, recording a profit during the second half. We'll talk a bit about those businesses more in a moment. A few other things worth noticing: strong performance in our international students and workers business, with Europe growing 23%. The health services losses halved, and Honeysuckle Health did achieve its first break-even month in the fourth quarter. As expected, investment income was strong and in line with market performance.
I think as some of you already noted, we did have a low effective tax rate as $13 million in Midnight Health historical tax losses were recognized after we moved to 100% ownership. Turning now to ARHI, we've already talked about the growth, and we'll talk a bit more about claims inflation on the following slides. Net margin was 7.3% with an underlying margin at 6.5% being managed back into our target range. Gross margins reduced and are now back in line with historical margins, down from the elevated post-COVID levels. The group-wide expense efficiencies flowed into reduced operating expense ratios in ARHI and allowed further investment into our no GAAP and non-GAAP offerings.
Downgrading increased from 0.3% to 1%, which is in line with historical averages, and there was limited gross margin impact as the downgrading tended to occur in the lower margin segments as we actively manage the pricing and product design. Have a look, a bit of a deeper dive into inflation and margins in this slide. The key highlights are that Nib holdings continues to have an industry-leading margin position and, similar to industry, is seeing margins come back to pre-COVID levels. Inflation's continued to moderate, reducing from 5.9% to 4.5% on a like-for-like basis. Actual inflation was 4.9% including the New South Wales hospital bed rate changes. Our pricing averaged 4.52% during FY 2025 against an average inflation of 5.4%. It's not surprising that gross margin declined, but with current pricing at 5.79%, settings are once again realigned to promote margin stability.
You can see in the bottom left chart that most of the bottom right chart, I should say, that most of the inflation has been driven by increased hospital indexation and to some degree medical inflation, which is in the hospital. Other utilization, length of stay, and extras inflation have been settling at expected levels. Turning now to margins, we reported a net margin of 7.3% and an underlying margin of 6.5%, and the only significant factor in the difference were claims development and LIC movements. There were two impacts in this regard. Firstly, we did reduce the probability of sufficiency in the risk margin from 98% to 95% in the first half as the claims inflation started to stabilize. I would highlight that 95% is still a very high confidence level with the APRA minimum for capital being 75%.
Secondly, we saw significantly faster claims processing speeds, which reduced by about five days. In the bottom left-hand box, we show the average payment percentage relating to the current month. In the bottom right, we outline the gap between the claims inflation and also where our pricing is. As we continue, as I continue to mention, the accommodations, the settings are a little more stable right now with 5.79% pricing against the 4.9% inflation. There will be further continued net margin stability through targeted pricing and product design, the network controls, and also the ongoing focus reducing the MER. Worth noting that our LIC provisioning and risk margins are now in line with pre-COVID levels, aided again by the moderating inflation and more stable claims processing.
If we now move to slide 17, I'll try and run through some of these segments a little more quickly so we can run through to Ed and some questions. As I mentioned before, international students and workers perform very well with their UOP growing at 23%. We'll go to New Zealand where I might linger a little bit longer. New Zealand has experienced challenging circumstances, making a loss in the first half, and while we made a profit in the second half, it was still a loss for the full year. Claims inflation reached unprecedented levels, especially in early Q3, and while it's still high, we are seeing some moderation in the inflation as we are seeing as claims have developed. We're seeing inflation now around 21%, and of this 21%, 6% is service cost, which has reduced. However, the utilization remains high at 15%.
The reduction in inflation in New Zealand allowed it to return to a reasonable profit level in the second half. However, just want to caution at the moment around the working days impact which we still expect to be present in 1H26 and also the challenging conditions continued with that utilization. Having said that, our claims inflation recovery program is still well progressed and will continue into FY 2026. Turning now to slide 19, and this slide just provides a little more insight into on pricing and aligning with inflation trends. On the left hand side, what we can see is that, I don't know what to call it, salmony pink. I'll go salmony pink line is the applied increase at renewal and as that runs through the book, as it progresses through the book every month, the average renewal increase, which is the dark green line, has been trending up.
We can now see that that's starting to intersect with the inflation line, which is the lighter green line on the right hand side. Should also highlight that there were nine fewer working days in second half of 2025 and that obviously helped the profitability and that impact continues the first half. Second half impact continues in FY 2026 and we've provided some more details of that in the appendices. Okay, zipping through the other segments, let's go to slide 20 Travel. The thing I just highlight is the second half being a good much stronger than the first half of $4.8 million GWP, up 6.7%. That's probably about all on that. I'll go to Thrive. Thrive grew at UOP up by 10.5% and that was mainly driven by the successful acquisition of Instacare in December 2024. Health services, might just linger a little bit on this.
So health services, you can see that the profitability trend continues to trend towards break even, which we expect in the full year. Honeysuckle Health had its first break even month in Q4 and I'd also highlight that we did make some further investments in the health services segment as we moved to 100% ownership of Honeysuckle Health, 100% ownership of Midnight Health, as well as an investment in It's My Group, which is a market leading private health insurance sales and service and technology company powering more than 20 Australian health insurance brands. Turning now to capital management and cash flow, our balance sheet remains strong with group gearing and leverage remaining stable and at low levels despite our debt increasing modestly as we invested in the purchase of Instacare and in the health services segment.
In terms of cash flow on the next page, it was pleasing to see the expected bounce back in second half cash flow occurring with cash flow 19% higher than the prior corresponding period and operating cash inflow growth exceeding operating cash outflow growth in that half. I think the more stable margin environment in both New Zealand and Australia along with stable claims processing speed should be positive for cash flows moving forward. I'll now hand back to Ed.
Thanks, Nick. Turning to our strategy, our refreshed strategy focuses on four core areas. Our highest priority focus is to drive above system growth and consistent, sustainable earnings across our core PHI businesses in Australia and New Zealand through our multi-brand, multi-channel approach, disciplined pricing, and innovation across products and provider networks. Our health management strategy in partnership with Honeysuckle Health will continue to scale up with the aim of improving health outcomes and access to affordable care for customers alongside optimizing our claims performance. Secondly, we're expanding health services and our insurance partnerships to deliver greater value to our PHI businesses and our strategic B2B clients. With Honeysuckle Health and Midnight Health now consolidated, we're positioned to drive operating leverage as they transition towards profitability and will focus on scaling our offerings in health management, corporate and virtual health, and injury support.
We continue to expand our relationships with PHI and non-PHI brands across Australia in partnership with Yitzmai Group, a market-leading PHI technology and services business. Thirdly, in NDIS plan management, we will strengthen our growth profile through a multi-brand strategy targeting key geographies and distribution channels. A big focus is around enhancing participant and provider experience and capturing efficiencies through the integration of private health insurance and digital infrastructure across the operating model. Underpinning those three pillars, we're unlocking group productivity through AI and digital-first capabilities with a big focus on simplification of our business model. This growth strategy is underpinned by disciplined capital allocation to support long-term value creation and returns for shareholders.
Turning to the all-important FY 2026 outlook slide, looking ahead, we expect a positive uplift in Group UOP driven by continued strength in Australian PHI, an expected return to full-year profitability in New Zealand, and solid momentum across our other adjacent businesses. In ARHI, we're targeting above system policyholder growth of around 3% and maintaining stable margins in the 6% -7% range. International students and workers will continue to contribute strongly, and our New Zealand recovery plan is progressing well. In non-PHI, Nib health services, as we mentioned, is on track for full-year profitability. Thrive remains focused on organic growth and further efficiency gains following the removal of setup fees by the NDIA.
More recently, our multi-year productivity program will continue to underpin our group performance with further ongoing reductions in our group operating expense ratio, and capital expenditure and one-off costs are also expected to reduce materially over the next 12 months. FY 2025 marked a year of disciplined strategy execution with positive momentum across our core PHI and adjacent businesses. We have a clear focus on sustainable growth, operational excellence, and digital-first customer experiences. We are well positioned to deliver consistently strong outcomes in FY 2026 and beyond. I'd like to now open up to Q& A.
Thank you. As a reminder to ask a question, please press star one and one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by as we compile the Q&A roster. First question comes from Julian Braganza from Goldman Sachs. Please go ahead.
Morning guys. Thanks so much for taking our questions. Just a first question on the Nib holdings business. You're putting through price increases in the order of 15%- 20%, but the revenue growth that's coming through is mid to high single digit, around 8%. Just want to be clear what the difference is there, what's happening with volumes, what's happening with downgrading, and what's the expectation for revenue growth given 2026 as well, given the rate increases that you're pushing through.
Thanks, Julian. I'll kick off with some high level remarks and then pass to Nick. There's definitely a timing element to what you're seeing there come through in the FY 2025 revenue uplift of circa 8%. We guided you to the 12 months portfolio pricing as they're coming through on the quarterly basis. What I would say is that, and we talked to this, is that our pricing is now matching inflation. That will take some time to wash through the portfolio as I'm sure you can appreciate. We've got different channels and different cohorts that have their different renewal periods, and those anniversary dates are still playing through. I guess we have high confidence when you think about that pricing matching inflation piece that we're now on top of that previously significant challenge.
When you think about the FY 2026 piece, I think you can have high confidence that our ability to match the inflation is good. I guess you're seeing that timing aspect that's flowing through the 2025 result versus our expectation moving forward.
No, I think that that's right. I mean we did see our residents book decline a little bit in FY 2025, but we'd expect the pricing to compensate that into FY 2026.
Yeah. Maybe a final comment just on the growth outlook. You mentioned volume, Julian. We are seeing strong resilience from that portfolio around the ability to absorb those significant premium increases. There are several factors that are quite different in the New Zealand market to Australia around switching and portability of policies between funds. I guess the other piece is that given this is an industry-wide challenge that insurers are facing, we are seeing competitors also consistently lift premiums as well. Competitive positioning remains strong.
Okay, great. Thanks so much for that. Just a second question. On the ARHI net margins into FY2026, it looks like you're guiding to about kind of stable margins. Underlying margins 6.5%. All this from 2025 into 2026 with second half 2025 probably around 6.3%. A touch softer maybe. If you can just talk a little bit about the moving parts into next year. From a rate inflation perspective, you're saying that should be more aligned. Just in terms of downgrading, given how material that was in the second half, from what I can calculate, and also just in terms of expansion, if those two key features in particular, how should we be thinking about that into next year? Thanks.
Yeah. As we've stated, we're guiding to underlying margins in that 6%- 7% range across the full year. The components, you're breaking that down a little bit. You're obviously aware of the premium increase that was announced in April, and largely the benefit of that will flow into the 2026 period. That's something that you can look to. We've also shared the claims inflation per customer per workday at 4.9%, including the New South Wales bed rate impact. We've also showed you what that looks like when we back that out. I think you can take that as another data point. Industry claims is tracking around circa 5%, so you can sort of triangulate those pieces there as well. We've talked about ongoing opportunity from a productivity perspective as well.
If you think of the components around the confidence that we have around the underlying net margins being within that 6%- 7% range, I think you can triangulate those data points as a good guide. We talked previously around 4%- 6% as an inflation assumption that we think about at Nib holdings moving forward, and there's nothing that suggests that we're moving away from that broader range as well. Anything that you'd like to add there, Nick?
Yeah, I think also when the hindsight flows through, Julian, the second half margins are probably a little more positive than 6.3% as well.
Okay, Thanks. Just on downgrading and expense expectations into mixture given what's more of experience with the second half.
Yeah. With the downgrading, Julian, we talk about 1% being more in line with historical levels. Certainly, we saw elevated downgrading and also some lapse impact coming through from absorbing that premium increase. We took the opportunity to deliberately make sure that the portfolio was optimized in those high-value segments. Some of that downgrading, we're seeing minimal to immaterial gross margin impact as a result of that revenue downgrading as we tilted our portfolio to those high-value segments. We're actually quite comfortable with that level of downgrading that's playing through at the moment. The piece on lapses, we do have a large proportion of our cohort on lower value policies, which means whilst the downgrading would be occurring at the top end, obviously there's not that alternative available to those individuals that reside on the basic and bronze level covers.
There are some sort of factors around that, pleasingly, and we obviously talked to the full year 3.2% on the policyholder growth, but we saw really positive momentum in the last quarter as we made those pricing and product changes, and the progress year to date is also pleasing.
Okay, great. Thanks so much for that, guys. Much appreciated.
Thank you. Next question comes from Andrei Stadnik from Morgan Stanley. Please go ahead.
Good morning. Can I ask my first question around lapse rates? It looks like lapse rates went up and might have hit an all-time high at almost 15%. Looking into next year, do you think that can improve and what have you baked into that 3% net?
Policyholder growth plan? Yeah.
Morning Andrei. We haven't guided to any explicit composition around sales lapse scenario for 2026, but we have obviously talked to the around 3% ongoing target. A big part of our business model, as everyone's well aware, is that continued ability to outpace market growth. We have high confidence around that ongoing. There are a couple of elements I should point out on lapse. Certainly that higher sales rate, and we talked to record sales in 2025, does drive some increased churn as a result of that. Roughly a third of some of those that lapse increase would be attributable to the high sales period. It does come with the business model that we've always had, that long standing ability to unlock. The second piece I talked about was that proportion of cohort on those lower tier products. Again, not unsurprising to us.
If you sort of look back to historical levels, you will see that lapse is generally something that does come with the policyholder distribution strategy that we go after. That said, you've touched on this. Retention is a big priority for us in the ARHI business moving forward. The investments that we've made in our no GAAP and known GAAP network enhancements, the investments that we've made more generally around programs like Clinical Partners, the work we're doing with Honeysuckle Health, and several other loyalty and retention initiatives are in full flight. We are deliberately focused on improving that lapse rate moving forward.
Thank you. For my second question, can I ask you to expand a little bit on what happened in Thrive during the year? I think you were subject to a compliance notice for a period of time that might have slowed some of the growth there. How do you kind of view your aspirations going forward in terms of what might be possible in terms of supporting what the government wants to do with NDIS? How confident are you that you've got a tight grip on operational issues?
Yeah, so touching on the last 12 months in Thrive. We did encounter some temporary service disruption as a result of the integration of 5 of our plan management businesses back in November. Those businesses came in under the Nib Thrive umbrella and that did cause some short-term delays in processing and service levels across our participant and provider community. We were disappointed with that outcome and certainly the team have worked very hard to get back on track in terms of our operational excellence there. We talk about some of the service levels, that 96% of claims now being processed same day, 85% of calls being answered within 90 seconds. We aspire to a best-in-class participant and provider experience and we were disappointed for that temporary reduction in those service levels.
We're pleased with the progress that's been made over the past six to nine months and certainly are comfortable with the servicing levels that did also. You would see this in the numbers, that did impact our participant growth for a period of time. Again we've worked hard and with the addition of Instacare, we've got that breadth of brand distribution and geographic stretch now to give us confidence around our growth projections moving forward. We remain actively engaged in constructive dialogue with industry partners around future navigator models and the important role that the intermediary sector, that plan management role as well as support coordination play in driving participant experience, but also scheme sustainability. We're quite buoyed about the projections there in Thrive.
Thank you.
Thank you. Just a moment for our next question, please. Next we have Nigel Pittaway from Citi. Please go ahead.
Good morning, guys. Just first of all, I think at the half year you said central estimate was around about 10% issue of claims. Presumably that's a bit lower now. Can you give us just a feel for whereabouts that currently sits?
I think, Nigel, I'm just trying to get to the slide. We have that on slide 32.
All right. It's always in those back slides that I never quite get to in time. All right, 32 is it? Okay, very good. I'll take that for the moment. Just in terms of obviously you're sort of reiterating your 3% policyholder growth for next year. I mean, are you expecting system to sort of grow at similar rates or are you expecting any sort of downward pressure on the rate of growth of system in setting that guidance?
Industry was tracking at about 2.3% for the 12 months to March based on the APRA data. Nigel, we're anticipating similar levels. We are seeing obviously with easing cost of living pressures as rate reductions start to flow through. That's one indicator of ongoing support for participation and the relevance of private health insurance. Also, notwithstanding ongoing public pressure around wait times gives us confidence that industry will remain at similar levels, maybe modestly lower than that 2.3% mark. As I mentioned, we've tilted product pricing and our distribution certainly in the back half of 2026 and gives us high confidence that around that 3% mark is achievable.
Okay, fair enough. Maybe a bit more on the sort of inflation components. I think when we previously were saying that things like rehab and gyno were quite elevated within hospital, is that still the case or have other sort of modalities come to the fore? Can you just give us a bit of a flavor of what's happening there.
On a modality basis, Nigel, fairly broad-based , it would be our view now within that hospital and medical category. Nothing that's jumping out that has caused us any surprise or questioning as to why there's been a significant uplift. I know coming out of the temporarily sort of benign Covid period, we did see certain modalities jump around a little bit. Largely for us, we're seeing pretty consistent growth and stabilization across those hospital categories.
The big call out would be more on the hospital indexation side. The impact of that and also the medical inflation as well would be the two main drivers.
Okay. Do you think we've reached peak indexation now?
I won't try and crystal ball how all of that plays out. Nigel, what I would say for Nib holdings is that we've been quite transparent around this, that securing those multi-year agreements with all the major hospital groups gives us confidence and clarity around our forward-looking indexation levels into 2026 and beyond. With that, I guess we're sort of guiding back to those 6%- 7% margins as really the best indicator around our projections around that. We talked about the ARHI hospital payout ratio being in line with historical levels. We're feeling that that's going to be well supported as we move into the next premium round.
Okay, thank you.
Thank you. Next question comes from Andrew Buncombe from Macquarie . Please go ahead.
Hi guys.
Thanks for taking my questions. The first one would be interesting to get some insight into what is happening with the Palm contract going forward. Thank you.
Good morning Andrew. Can't say too much on Palm at this point given conversations are still commercial in confidence and that process is still playing out. What I would say though is that Nib has had a long standing track record of delivering exceptional outcomes for those Palm participants and the employers that are directly engaged in supporting that seasonal worker program. We've strengthened our relationships over the last few months. We remain very positive about the outlook of that Palm offering and those direct agreements that we have struck with those approved employers. Remembering that this is a non-exclusive arrangement that Nib has and there are other insurers that actively play in that space. We've been able to forge a dominant market share through the conviction that we have working really closely with those employers and participants. Outlook I would say is positive.
What I can't say is anything that's commercial in confidence at this stage. Sorry Andrew.
That's okay. Thank you. The next one, sticking with international, it sounds like there's Folio in that market currently up for sale. Given how Nib holdings has had mixed success in travel insurance, NDIS plan management, and currently in New Zealand, how would you convince investors that Nib are the best stewards of reinvesting that excess capital to double down on that market?
Thank you.
I'm not fully aware of inorganic growth opportunities in the international segment, Andrew. It's not the highest priority on our radar at this point. Probably all I'd say on that one at this point.
That's good. The final question from me, it looks like your risk equalisation contribution in second half 2025 was very low this period. Any color around whether you think that the go-forward rate would be helpful?
Thank you.
I'll jump in there. Probably payment speed related given, you know, it's on a cash basis. I think that there were some interesting ins and outs in the second half in terms of the cash and which players paid more cash versus less cash. Like to see that play out a little bit, Andrew, before we'd have any comment.
Excellent.
That's it for me.
Thank you.
Thank you. Next we have Siddharth Parameswaran from JPMorgan . Please go ahead.
Good morning gentlemen. A couple of questions if I can. Firstly, just on the ARHI division, I just wanted to check firstly on the inflation numbers. You've given us 4.5% FY 2025 on an incurred basis and 4.9% including New South Wales bed rate changes. I just want to make sure, clarify what it is on a paid basis because I think the number suggests it's reasonably higher. I was wondering if you could just help us understand that and which one we should be using because, you know, does that 4.5% include any changes in reserving assumptions?
The 4.5% does include the changes in reserving assumptions, and in terms of the paid, we'll talk about that in the afternoon because again we had that five days improvement in claim processing speed.
Okay, thank you. Maybe I'll just clarify, just a follow-up to Julian's question earlier. Just starting with an underlying margin of 6.5%. If I just take into account the rate increase that you got and the inflation that you're flagging, it would suggest that the margins may inch above the target range.
I'm just wondering if there's, particularly given that you're also flagging some efficiency gains, if you could maybe just bridge the gap.
I guess there's a lot of moving parts in that one, Sid. If we work forward, there's still the indexation to play fully out. You've got whatever the pricing assumption's going to be on the 1st of April next year, and you've got that industry inflation at around 5%. Again, our average inflation and pricing is still catching each other up. They've aligned on a point basis, but as we sort of highlighted, we're still catching up. I guess we're pretty comfortable with the guidance that we've provided. Depending on if you want to move some of those assumptions, sort of 20 or 30 basis points one way or another, I could see where you'd come from there. I think that's why we're pointing to where we're pointing, because there's still a few things playing out.
Okay, that's helpful.
Just one final question.
Ed y ou said you had a strong outlook for International. I was just keen to clarify that. Is that driven by pricing changes you're making? Because we do have some potential adverse outcomes on student numbers and maybe migration slowing as well. I was just keen to understand, is that pricing-led or is it also you're positive on volumes?
Yeah, Sid, I think we talk to ongoing, strong contribution from our international segment. You've touched on a couple of important points. Migration settings have evolved since those COVID peaks, those post-COVID peaks, I should say, and they are normalizing to more consistent levels with pre-COVID. From a volume perspective, we remain alert to that. We do see opportunity to selectively pursue some segments that we haven't historically played within, like the university sector, and the commission reforms allow us to take a look at that. Things like tourist visas and working holiday makers. We want to be really deliberate and disciplined about which of those markets we enter and why, because each of them comes with a differing risk profile. Pricing, yes, we've put through sustainable premium increases over the past 12 months across that portfolio.
We've also seen some of the COVID effect wash out, particularly in our students portfolio, where those students were staying in country for much longer than they typically would, and with that comes a claims and benefits profile that we wouldn't have usually seen in that book. There are a few factors, if you think about some volume headwinds and pieces that we need to be alert to around migration settings. Equally, the disciplined approach we've taken to pricing and gross margin has been pleasing, and then again underpinned by that productivity agenda gives us confidence that the ongoing contribution from International will be solid.
Okay, thank you.
Thank you. Just a moment for our next question, please. Next we have Freya Kong from Bank of America.
Hi.
Morning. Thanks for taking my questions. Just following up on International, is there anything we should read into your, I guess there's no guidance margin and historically it's been around 10%- 15%. Are you just being cautious there or any reason for this?
Morning, Freya. No, no specific reason as to why we haven't stated an explicit margin range in that guidance. I think that historical data points would be a fair assumption moving forward.
Okay, thanks.
On the group operating expense ratio, which was down 50 basis points this year, where do you see this tracking over the next two to three years? Should we expect similar sort of annual improvements because of the productivity and simplification initiatives that you have ongoing?
We definitely see ongoing improvements to orders of magnitude last 12 months. It's not something that we are guiding to at this point, but what I would say within that group operating expense, we also need to be mindful that there's a large contribution of acquisition and growth related expenditure there. Again, coming back to the fundamentals of our business model, we want to make sure that we preserve and continue to strengthen that growth model. Yes, directionally lower, but we won't be guiding at this point to specific reductions in the next 12 months.
Okay, great. Final question on New Zealand. Historically you've had that 8%- 9% target margin. Obviously we've fallen well below that. Now that you're seeing pricing, cumulative pricing, tracking claims inflation, do you think this is still an achievable midterm target?
Yeah, it's too early to make a call around the long term or even medium term margin achievability in that market. There are a lot of structural changes that are playing through if you think about the broader economy at the moment in the New Zealand market. Different players coming from different perspectives around the competitive dynamics in health insurance in New Zealand. We won't be talking to getting back to that long term average, certainly not in the next 12 months. Clearly we are seeing some early positive signs in New Zealand, but a little bit too early to make that call. Freya.
Okay, all right, thanks.
Thank you. Next we have Vanessa Thomson from Jefferies. Please go ahead.
Good morning, Kate, and thank you for taking my questions. I just wanted to return to some of that discussion around modalities for claims. You spoke to hospital claims. We've seen through and post-pandemic that non-surgical claims had declined in certain categories. I wondered if that had persisted into FY 2025, second half. Thank you.
Morning, Vanessa. It was a little bit hard to hear you, but I think you're talking about just some further insight around the modalities and the drivers of the claims inflation. Again, fairly broad based and general from our perspective. Ancillary remains stable. Hospital with that indexation is higher, but certainly nothing that's been emerging of note for us. Nick, at this point.
No, I think it's a fair question. Not really noticing that if there was a small trend this year, I think last year we called out that things like rehab had come back. This year it might be a little bit more in the discretionary areas. Again, I think Ed's right, you're fairly broad based. Things that were noticeable because last year, rehabilitation, because it's a relatively large category and it grew, was worth calling out. In this case, I'd say sort of more even.
The previous patterns where we've seen less respiratory, less inpatient psych, and less inpatient rehab, have they continued? It sounds like perhaps not for rehab.
No, no. I'd guess that your rehab had its growth spurt last year. Sorry, what was the other area that you were looking at?
Respiratory and inpatient psychiatric.
No, I wouldn't be noticing those things as much this year.
Okay, yeah, thank you.
Just two quick points I would just add there just around sort of broader context. Length of stay is stable at this point, and I guess has sort of been on that moderately decreasing trend for some time now. As we know, there's different care models that are evolving and the role of short stay, same day, and the work we've done around hospital minimization, hospital substitution, and some of the work we're doing with health management programs with Honeysuckle Health, all of those things are aiding the ability we talk to bed days saved as a good proxy for the effectiveness of our health management strategy. It's good to be able to sort of look at those aspects when you're trying to get a feel for what are the controlling mechanisms that we have around improving health outcomes and managing claims.
The other piece I would just note there, and we do talk to this in the investor pack, is that we've also made deliberate decisions around investments in some areas that do have an inflationary impact, particularly our known gap and medical specialist networks, which we recognize needed to be amplified over the last 12 to 18 months. That has also had an inflationary impact. The benefit of out-of-pocket certainty and better provider relationships has significantly outweighed that inflationary impact.
Thank you. My second question is just on hospital contracts. I appreciate commercial sensitivity, but you've mentioned that you've locked in the three contracts with the largest hospital providers. Do those contracts allow for indexation? We've seen ongoing wage pressure for hospitals still persisting and just wondered about that. Thank you.
Those contracts, Vanessa, you know, under a partnership model, enable dynamic indexation throughout the period and so won't get in all the detail, but gives us good predictability and forecast accuracy around our trajectory. It also gives those large hospital groups clarity and certainty around those indexation levels for them as well.
Thank you. My last question is just on Thrive. You said in the comments that the lapse rate has stabilized. I assume post the service interruptions, the setup fees are now being eliminated for new plans. If those people come back, presumably, are they lapsing because of the interruption or is that just something you generally see in the Thrive portfolio? Thank you.
Yes, I think there were two parts there, Vanessa, if I heard that correctly. The service disruptions did exacerbate that participant lapse for a period of time, and we have seen improving stability around that, particularly in the last quarter and into FY 2026. The reduction or the removal of setup fees has no impact to the participant themselves. This was a fee that the plan manager took to support the establishment and then the renewal of those fees. No impact from a participant perspective around the reduction of that fee. The opportunity, I guess, ahead for us is if you think about the Thrive business with circa 10% market share in plan management. I talked to this earlier.
Our commitment is around staying really focused on being an exceptional plan manager and supporting those participants and providers with processing accuracy, processing speed, wraparound services, and certainly making sure our service levels are best in class. With that, getting back to really solid growth numbers and unlocking further efficiency remain well in front of us.
Thank you.
Thank you. Just a moment for our next question, please. Next we have Kieren Chidgey from UBS. Please go ahead.
Morning, Ed and Nick. Just a couple of follow up questions to start on the OHI margin. There's obviously been a very significant shift in your payment processing times that's caused a lot of distortion between your paid inflation per person and the incurred. I'm just keen for a little bit more detail there. A, is that done in your view and B, kind of like how are you adjusting for that in terms of getting back to this view of 6.5% underlying net margin in 2025?
Yeah, I think that we've tried to provide that graph on Slide 16 to give you an indication of the size of it, and you can see back in the sort of scale of the improvement from FY 2023. I think as we look to it now and we compare what our backlogs are, what our claims processing speeds are, and the nature of those speeds back to FY 2018 and FY 2019, we're starting to see similarities. That gives us the confidence around, I guess, the settings to be more supportive of margin stability going forward, along with our pricing versus that inflation. Essentially, we've got a couple of systems that we process claims through. We have good insight into those claims, and we've been able to historically track back on both volume and nature of them.
Okay, and you made a comment earlier today that, you know, I guess given you said 6.8% underlying margin first half would imply something closer to 6.3% in second half. You said in hindsight that might prove conservative. Can you just explain what you meant by that comment? I mean, it sounds like you're talking about conservative reserving at sort of the end of the period. Your earlier comment suggests you've reflected all these payment changes already in reserving.
It's more that the 6.3%. I can get the sort of analytics and maths of how you arrive at 6.3%. What I'm saying is that if you take the ups and downs between the first half and the second half, just to clarify, what I was just saying is that the 6.3 % may be a little bit, I guess, pessimistic between the margin profile saying 6.7%, 6.3 % goes to 6.5%. If your exit rate is 6.3%, what does that mean for FY 2026? I was trying to say that could be a little bit conservative or pessimistic given that we're guiding. If you had the.
Is there seasonality in your margins?
There is, as we've talked about, in terms of both the work days and the marketing. If you look at the LIC, you really only need about 20 basis points difference between halves to get to that. That could occur through hindsight. That would get you to a 6.5%, 6.5%, 6.5% type profile between the halves. It's really not very much change that needs to occur in hindsight that would then, instead of going 6.7%, 6.3%, 6.5%, you'd go 6.5%, 6.5%, 6.5%. As you know, the last couple of months of every half are not fully developed. As those develop, those sorts of, like, tens of basis points can occur.
Okay, I might have missed a comment on this, but did you confirm the tax rate outlook moving ahead is just more of a normalized 30% and the benefit this period's one off?
I didn't make a comment. Yes, that would be our expectation to a normalised tax rate.
Okay, thanks. Just a final question. Bit of a niche one, but your corporate or I guess other unallocated area had quite a lot of cost growth in second half of 2025. Can you talk about what fed into that? I think you show on slide 35 about $16 million of non-marketing expenses for the year. I think from memory it was $4 million or $5 million first half. It seemed to double in the second half.
Yeah, I mean, no, I think that's a really fair question. I guess there's a couple of drivers. The first is, I don't know how to put this any other way, but on my right hand side there's a new Chief Executive and there's sort of a runoff of the old Chief Executive. We've got for a little bit of time some double up in executive costs that are flowing through. The second is that there's been some reallocation back into the corporate office because we stood up a Group Strategy and Development division which now sits in the corporate office. There's been a bit of a reallocation back into that central area.
Okay. In terms of expectation into 2026, is a similar number then? It does sound like it on the strategy side, but yeah.
Bit reduced as some of the duplication goes out during the year.
Okay. All right, thank you.
Thanks.
Thank you. I see no further questions at this time. That concludes today's Q&A session.
Thank you everybody for joining us. Great to be with you and look forward to following up in the weeks ahead. We'll leave it there. Thanks a lot.