Well, good morning, everyone, and thank you for joining us for nib's FY26 half-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 deliver a strong set of results today, reflecting disciplined growth in our core markets, improved customer value, and significant progress 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. This morning, I'll step through our H1 performance, the drivers of the result, and the strategic progress across our business. Nick will then take us through the financials, and before I close with outlook and open up for questions.
Turning to slide five, our purpose, your better health and wellbeing, continues to guide how we support customers and healthcare providers. At nib, we remain focused on delivering great value health insurance and support services to our customers, underpinned by high-quality products and improved access and affordability. This ongoing focus continues to translate into sustainable commercial outcomes for our shareholders, while supporting a positive contribution in the communities where we operate. If we jump across to slide six, looking at the H1 2026 highlights, this was a strong group performance in line with expectations, with positive contributions across all business segments, and reflects the disciplined execution of strategic priorities and a continued focus on delivering great customer outcomes. Pleasingly, group underlying operating profit of AUD 129.1 million was up 22%, supported by top-line revenue growth of 7.7%.
In our Australian residents business, we delivered another consistent, high-quality result, with disciplined policyholder growth and margins maintained in the 6%-7% target range. Our adjacent businesses delivered their highest H1 UAOP since FY 2019, contributing AUD 30.4 million, up more than AUD 20 million on the prior corresponding period. International and New Zealand segments achieved particularly strong outcomes. Our productivity and performance agenda continues to gain traction. Since FY 2024, we've delivered AUD 39 million of cumulative productivity benefits across the group, with material reductions in key expense ratios. We've also continued to simplify the portfolio, announcing the sale of the World Nomads International travel insurance business, sharpening our strategic focus on our core health insurance markets, with the review of the remaining Australian and New Zealand travel business ongoing.
If we move across to slide 7, you can see that our performance is translating across the key group metrics. PHI lives covered rose to 1.95 million, our largest customer base ever, with our value proposition continuing to resonate on both sides of the Tasman. Customer satisfaction remained resilient, with group NPS at +33. There were some temporary impacts in New Zealand as a result of pricing and product changes, which were largely offset by positive experiences across our other business segments. A key highlight of the result was the significant improvement in the group operating expense ratio, which reduced 100 basis points to 16.5%. It's a result of our direct focus on productivity, automation, and our AI agenda, now delivering scalable results. ROIC increased to 14.7%, reflecting stronger operating performance and disciplined capital deployment.
NPAT of AUD 82.9 million was in line with expectations and does reflect the lower investment income relative to a strong comparative period and the higher one-offs, as we previously guided. The board declared a fully franked interim dividend of AUD 0.13 per share, consistent with the prior year. If we jump across to slide 8, and we go a little deeper on the business segments, Australian residents delivered another strong result. Our disciplined focus on policyholder growth across our high-value segments, NPS at +35, 89% of interactions now self-serve digitally, and the non-marketing expense ratio of 5.8% were all key highlights. nib continues to support the long-term viability of the private hospital sector, and our hospital payout ratio is now tracking higher than pre-COVID levels and in line with expectations.
International's positive contribution continued, where we delivered a strong UAOP result, up 23%, with stable gross margins and tightly controlled expenses. Policyholder growth was particularly driven by PALM participants, our temporary graduate focus, and skilled workers. Customer outcomes remain a key strength in this segment, with record NPS of +63. Pleasingly, we retained preferred provider status for PALM and have continued to strengthen those relationships in the seasonal worker community. Over the ditch in New Zealand, the recovery is progressing at pace. We made a strong return to profitability with UAOP of AUD 3.9 million, up AUD 14 million, driven by our management action plan and a stabilization in claims inflation. As we saw last year, repricing does bring short-term pressure on policyholder trends, but has been necessary to restore the business to sustainability.
Claims inflation is moderating, and our focus is now firmly on customer experience and value. Across the wider non-PHI businesses, health services achieved profitability for the first time, in line with our expectations. Our investment in ItsMy Group continues to support more than 10% of all private health insurance industry sales, and Thrive delivered UAOP growth of 4.8% and returned to positive participant growth in January 2026. If we have a look at productivity on slide 9, this highlights how our digital and AI transformation is translating directly into improved customer and commercial value.... Our productivity gains are now structurally embedded, resulting in the group operating expense ratio reducing by 100 basis points. This is underpinned by cumulative productivity savings of AUD 39 million since FY24.
In Australian residents, 94% of claims are now processed within 24 hours, and 86% are processed unassisted using automation. More than 600 of our operational staff are now using internal AI tools, supporting over 250,000 interactions since January 25. These at-scale initiatives are enabling further investment in our customer value proposition. Almost 80% of our customers now benefit from no or known gap coverage, and we've expanded No Gap Dental, Optical, and our physio networks to more than 2,000 locations. This is saving customers more than AUD 45 million in out-of-pocket costs. Importantly, we continue to secure multi-year agreements with hospital providers, with more than 80% of our total benefit outlays now under a partnership model.
More than 11,000 customers were enrolled in health management programs in partnership with our business, Honeysuckle Health, and these were 90 delivered through virtual means for 93% of customers. These are now translating to better health outcomes and experiences for our customers. With that, I'll pass to Nick, and we can go through the results in a little more detail.
Thanks very much, Ed. If I look at the overall group financial performance, the highlights of this result were the strong UAOP growth at 22% higher than last year; managing the RHI result into the target range, with reported margins at 6.8% and underlying margins at 6.5%. The rebound of the adjacent businesses, which had their strongest result since pre-COVID, highlighted by the performance of the international business, the recovery in New Zealand, and a health services segment generating a profit. The continued progress on the productivity agenda, with the operating expense ratio reducing by 100 basis points to 16.5%.
As we announced on the 19th of December, we did take a non-cash impairment in the nib Thrive segment of a little over AUD 4 million, and non-recurring costs were impacted by a net cash expense before tax of around AUD 8 million in the H1 result relating to historical adjustments to the Australian Government rebate and to the New South Wales Hospital Insurance Levy. Our investment income was down, driven by markets generally, and mainly the reduction in cash rates and also our sustainably biased equities portfolio underperformed, given the strong performance of the mining sector over the last six months. Turning now to Australian residents' health insurance. Our core high business continued to deliver in line with expectations, with revenue growth of 7% and margins in the target range.
The reduction in margin was expected, given the elevated margin profile of past periods, and growth was a little lower than we'd have wanted, given competitive market dynamics. We also did have negative product mix impacts on revenue. However, the margin impact relating to that was more limited, given the downgrading occurred in the higher claiming tiers. Claims inflation was 5.3%, or 6.1%, including the impact of the New South Wales bed rate, and has been offset by pricing and productivity, which we'll come to in the following slides. Productivity was definitely a highlight, with the overall management expense ratio below 10% and our non-marketing expense ratio at 5.8%, which is the lowest since 2017.
Looking and just going a little bit more into pricing, margins, and inflation, in this slide, we try and unpack inflation a little bit more and our pricing and productivity response. I'll just take you through this. It might take a little while, but bear with me. Starting at the bottom left, you can see that we had very high medical inflation driven by investment in customer benefits, mainly expanding our No Gap and Known Gap offerings. Hospital inflation was also elevated, given the New South Wales bed rate impact and our support of the private hospital sector. The chart at the top left then pulls apart those impacts, as a number of those are like are unlikely to reoccur.
Starting with our claims inflation, excluding the bed rate impact of 5.3%, we then expect the impact of investment in No Gap and Known Gap to reduce, given it commenced in October 2024. We'd then like to highlight what we've termed risk equalization volatility. There's been some market commentary around the increase in hospital claims and payments, especially in the December quarter, and we did see this. The growth in the industry gross deficit was over 4% higher in the H1 than in the preceding 12 months. This was especially notable in the December quarter. Given that we basically paid the entire net risk equalization transfer in the pool, we did see our inflation increase as a result. One would assume that that benefited other participants.
We're not able to provide an indication as to whether that will reverse, as that depends on the behaviors of the other participants in the pool, but we are just highlighting this impact as unusual. If we adjust for those impacts, we come to a base level of inflation of around 4.1%, which does include mix and downgrading effects. Let's look at our pricing, on which the mix impact was negative 1.3%, which means that we need around 5.4% pricing to cover inflation. Given that our pricing is 5.79 in the March quarter and 5.47 from April 26, we think our settings are in a reasonable range to continue to manage gross margins within the ranges we're targeting.
Our hospital benefit ratio is now ahead of pre-COVID levels, and we're focused on continuing to manage claims inflation with an end-to-end strategy having been developed and one which will be executed across the rest of this calendar year. We remain focused on productivity and delivering enhanced value to our members. Turning now to margins. As we just highlighted, we think the settings are in the right range for margin stability, and there was relatively little impact between our underlying net margin and reported net margin. The margin impact from the change to the LIC was quite small, highlighting that our provisioning at June 2025 has been appropriate. There has, however, been a reduction in the LIC due to faster payment speeds in the H1 of 2026, which has again been the subject of market commentary and may be a factor in the risk equalization volatility we've highlighted.
Overall, our estimate is that the LIC reduced by AUD 28 million-AUD 29 million due to this factor. Again, the December LIC is so far supporting this conclusion through hindsight analysis. If we look at cash claims growth to incurred claims growth, I'll just let you know that that's in the second, in the slide on page 32, in which we do provide a breakdown of further incurred claims information. If we adjust this impact for payment speeds and volume impacts, then cash claims and incurred claims growth align. I'm sure a few of you will want to unpick this a little more in our calls this afternoon and discussions this week.
Moving now to the adjacent businesses, given how busy the reporting season is this year, I'll not spend too much time on the other businesses, other than to note their strong performance with a combined UOP of AUD 30.4 million this year versus AUD 9.9 in the prior comparable period. This was the best performance since the H1 of 2019. Our international business delivered a strong performance with UOP growth of 23%. The New Zealand turnaround was notable, with our recovery plan taking effect in a more stable inflation environment, albeit at elevated levels. Our health services segment delivered a profit as expected. We sold the international perimeter of our travel business, given that most of the net assets are intangibles, there will be a high cash realization from the sale of around AUD 20 million.
With that in mind, if we could now jump to slide 21 on capital management. Our ratios continue to strengthen, and the PCA ratio for the health fund was at not 1.91 x, which is a similar level to last year and above our target minimum of 1.5-1.6. We'll look at capital management initiatives in the H2 as the travel strategic review continues and funds are received. Finally, on cash flow, our H1 of 2026 operating cash flow was positive and ahead of the prior comparable period, and the normal seasonal trend is continuing, and we'd expect strong cash generation in the H2, given pricing and rate protection factors. With that, I'll now hand back to Ed.
Thank you, Nick. I just wanted to pause and spend a short moment on our strategy. It's fair to say it remains clear and focused across our business. Firstly, we aim to grow and strengthen our core PHI businesses in Australia and New Zealand. We'll continue to invest in customer propositions, we'll continue to focus on delivering our above-system, multi-brand, multi-channel growth. Scaling health management and claims optimization programs are also a priority. Secondly, we continue to scale our adjacent businesses to deliver value back to private health insurance, including our focus on health services, the ITSMY group platform, and our scale-up efforts in NDIS plan management. Thirdly, we continue to embed productivity powered by digital and AI. We're simplifying the business model, we maintain a disciplined capital allocation focus.
This strategy is underpinned by our people, who continue to deliver exceptional outcomes for customers and is strengthened by our proactive approach to risk management. We're pleased with the ongoing execution and progress on our key priorities, and this is reflected in our H1 performance. If we jump across to slide 25, I also wanted to go a little bit deeper on our investment thesis. Private health insurance is a core pillar of Australia's healthcare system. It funds around 40% of hospital episodes and the majority of elective surgeries and continues to ease the pressure on the public system. Participation remains stable, and long-term growth of 1.5%-2% is supported by positive government policy and an aging population. The industry is capital light, cash generative, and operates with resilient regulatory settings. Within this environment, nib is differentiated.
We continue to deliver above-industry policy growth, maintain disciplined cost control, and leverage our scaled digital data and AI capability. This is alongside our targeted health services strategy, which strengthen outcomes in our core PHI proposition. These things, taken together, position nib to deliver sustainable growth and long-term value for customers and shareholders. Lastly, if we jump across to slide 26, and we'll just step through some of the FY26 outlook and guidance. FY26 Group UOP continues to track in line with expectations. We expect FY26 Group UOP to be in the range of AUD 257 million-AUD 260 million for the full year. Our disciplined productivity program remains a key focus and will continue to support performance, with further reductions in the Group operating expense ratio expected.
Across the portfolio in Australian residents, we are targeting above-system policyholder growth and a stable full-year underlying net margin in the 6%-7% target range. International is expected to continue its strong contribution to group UOP, and New Zealand is recovering strongly, with a clear focus on customer experience and value. Health services profitability is expected to continue for the full year after that important milestone at the half, and in travel, the strategic review is well progressed. With that, we'll now open up for questions, and we'll, we'll pass to the operator.
... Thank you. As a reminder, to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by as we compile the Q&A roster. First question from Julian Braganza from Goldman Sachs. Please go ahead.
Good morning, guys. Firstly, I just want to be clear on what's happening with claims inflation just on a like for like basis. You're saying underlying base inflation, 4.1, headline 6.1. I think previously at the full year result, you flagged 4.9%, including the bed rate impact. There's a few different definitions here, but I just want to be, just be clear what, what's happening since FY25 to H1 26. What is the, the outlook for here for, for inflation, given incremental hospital indexation? Just trying to lead into, into H2 26 and FY27 to align with the, with the rate that you've got. Any, any color around that would be great. Thanks.
I think in FY25, Julian, it'll be the investment in gap and non-gap that we didn't pull out. In this case, we're pulling it out because we don't think it will repeat into the future, just to give you a bit more guidance. It also gives you a bit more of an indication about where we're seeing that base inflation, and then why we've priced where we have. As to the risks and opportunities into the future, I guess that's, you know, something I can turn to Ed, but again, that's something that's in the future, and we'll adapt to those as they, as they come up.
Yeah, I think just building on that, Julian, I mean, when we think about what we're remaining alert to, you, you referenced indexation and certainly as part of our expectations and commitments to the hospital sector viability, you know, we've, we've been doing our bit, and I think we've talked to some of the key data points around our ongoing support for the hospital sector. That also correlates to utilization as well. You know, given our strong track record of growth, yeah, we are anticipating utilization to continue, and that's another important element of, you know, ensuring that there's adequate volume flowing through the hospital sector.
In terms of our actions underway that we can, you know, proactively manage that, we referenced that we're embarking on a fairly comprehensive end-to-end review of our hospital contracting and broader benefits management strategy. A couple of things that are interesting that we're working hard on is around average length of stay. That is an opportunity for nib. When we look at benchmarks to peers in the industry, that's something that we are working, working harder and presents some opportunity moving forward. Equally around the shifting patterns of care, particularly with a focus around short stay, day, and community-based care. Again, when we benchmark ourselves to industry, that is also an opportunity for nib.
Okay, got it. Just to be clear, so if that 4.1% underlying number continues to track higher, with headline indexation, how are you thinking about just that product mix, mix impact? Have you factored in any benefits from the downgrading from gold to silver and bronze on the claims side of the equation? Yeah, I just want to understand how you, how you think about that downgrading, particularly given you'll be putting that, the rate increase through in the H2. Thanks.
The 4.1% includes the downgrading that's occurred in the period, and that's why we've deducted the downgrading from the pricing.
Yeah, sorry, I meant in terms of an offset. Can if that 4.1%, just in terms of the underlying base inflation, if that continues to track higher, like, what happens, like, on the other side of the equation, downgrading, how can that track into H2 and into next year? Can that be lower? Can the downgrade be lower to offset the inflation piece? That's just what I'm trying to understand.
It could be lower or higher.
Yeah, I think what we-- what I would say, Julian, is if you think about some of the pricing decisions that we made in April 2025, which were quite strategic in where we applied those, that did correlate with downgrading in what we would describe as lower value segments and tiers. So we'd expect that that is largely washing through as well. In terms of your margin impact overall, when you, when you look at downgrading and that claims experience, we're, we're, we've focused on a fairly neutral impact overall.
Okay, got it. Just a last question for me on expense ratios. Down to 9.9%, just how much flexibility, just in terms of what you're doing there, how much scope is there to reduce that further from here? Thanks.
We've touched on, you know, our forward-looking expectation that productivity will continue to deliver benefits. We're really pleased with the progress, and we've highlighted the step change that is now very much structural. What we do want to remain committed to, and we talked about the investment in customer benefits, but also our investment into our growth and distribution. You know, we remain disciplined around how that productivity will unlock value, but also important to think about, well, where do we redirect some of that value back to customer benefits and also our growth strategy? We're not putting specifics out there at this point, Julian, but, you know, we are expecting that there's still some opportunity ahead.
Got it. Thanks so much for that, guys. Much appreciated.
Thank you. Next question comes from Siddharth Parameswaran from JP Morgan. Please go ahead.
... Good morning, gentlemen. Maybe just a question first, just on the lapse rate. That has been rising for a period of time and seems, you know, very, very high by industry standards. I was hoping if you could just provide, you know, more detail behind the comments that you've given us as to what's happening, and maybe just some comments on whether you think this is where it'll stop or whether it'll get worse. You know, related to that, just, I, I know you have some assumptions on amortizing your, your DAC. I just wanted to understand where we are in terms of, you know, how, how close you are to those assumptions.
Morning, Sid. Yeah, I'll provide a few insights on lapse performance, and I'll pass to Nick to put some color around the DAC. On the lapse drivers, I mean, yes, it is elevated. It is an opportunity for us, absolutely. That higher lapse rate is predominantly driven by a few key factors. Firstly, our high sales mix. Generally, about a third is attributable to that lapse experience as well, particularly around competitor responses to our strong sales performance. Win-back activity is something that is, you know, we're watching closely as competitors understandably respond to our high sales and distribution focus. That is a big driver of what we would call that short-term lapse.
Equally, I, I touched on the, the pricing approach that we took over the last 12 months around prioritizing those high-value segments and working out, well, where does nib as a business model want to prioritize? That has also been reflected in that lapse impact, as we have, you know, been quite strategic around product design and, and pricing optimization. You know, what the other, other sort of third, if we think of it in three parts, absolutely an opportunity for us. We've, you know, we talked about the, the government rebate adjustments that we have made, and we're in the process of refreshing our go-to-market strategy with a big focus on the nib brand itself.
You know, we remain optimistic about the opportunity to, to really intervene in, in that, in that lapse and retention space, and we do expect that there should be some moderation moving forward.
Do you want to pause?
Yeah, and, yeah, and in terms of the, the DAC, we've still got headroom. We amortize over five years, and, there's still headroom above that in terms of the average life.
Okay, great. Thank you. Okay, just a second question that I had was just around claims inflation in, in RHI. I just wanted to ask if you'd benchmarked where your inflation is coming in versus peers, because it seems. I mean, from, you know, taking your numbers today, if I was to adjust for the mix effect, which seems to be, you know, benefiting you, it seems like inflation is extremely high. You know, for, yeah, like, you know, headline 6.1, I understand there's an reinvestment in customer benefits, but the mix effect effectively, you know, more than offsets that. It seems like underlying inflation is well over 6. You've got a rate increase, which is 5.4. Just, just keen to, you know, understand exactly...
Well, firstly, will there be anything which will bring that inflation down on, perhaps on the hospital side? You, you touched on a couple of things, but I, I, you know, there's, I think the underlying pressures are more the other way, than hospitals are asking for more. I was just hoping you could, you could help us understand, you know, some of these numbers on the inflation side.
Yeah, I think I'll talk to some of the experience, Sid. I can't, you know, crystal ball where others have been at around their hospital partnership arrangements, but we've talked consistently now for 18 months or so around the work we've been doing in the hospital sector. From a contracting timeline and sequencing perspective, we struck several multi-year agreements over the course of the last 18 months. We're certainly feeling that indexation impact through those numbers, and that was expected. I referenced the 80% of benefits outlay that are now under a partnership agreement. Obviously, indexation plays an important role there, but it also gives us good predictability around, you know, what we're expecting moving forward, given 80% of the benefit outlay is under contract.
If I think about, you know, some of the other factors that are playing through, we have a high proportion of our customer base in New South Wales, and that is certainly seeing higher levels of inflation, again, exacerbated by the, the New South Wales bed rate impact. So our member base proportion is, is obviously skewed to that state. The other thing that we've been spending some time on is looking at our, our, our customer proportion that, that sit on Gold relative to, to peers. If you think about, again, our strategy over a, you know, a long period of time, we have a much lower proportion of our base on Gold.
What, what we're actually seeing is that as the market generally responds to the sustainability or, or lack thereof, should I say, of the Gold proposition, that, you know, we've been a little bit out on, on that timing and, and lag effect that, that might be starting to, to play through around Gold. There, there are some of the factors. I mean, you, you asked about the, the management response, and I've, I've talked about disciplined pricing, I've talked about the, the, the, the productivity approach, giving us optionality around our expenses, and we've talked about that end-to-end claim strategy with a big opportunity around shifting patterns of care. Then I think the, the last point, and you referenced, referenced this, was we have been quite deliberate around our investment in customer benefits.
That medical inflation line that we, we, we, we highlight there is really table stakes for us as we see it as a critically important part of our proposition, and we're committed to, to making sure that investment, you know, resonates.
Um, a couple of-
Great
... comments from, from me, Sid, would be, you know, the Gold's an important point. We're at about half the industry proportion of Gold, given our history and that we targeted a different customer base. While everyone's reduced, been reducing on gold, given what Ed just talked about. The relative reduction for the rest of the industry versus nib is different. If I go back to sort of industry and so forth, it's hard for us to comment on any single participant, but I think what we often talk about is we think that the best guide to where people are seeing industry inflation and where industry inflation is what people put in their pricing.
An industry of about 4.5, a little less, but the majors are more like 5, with the exception of 1, I think gives you an indication about where that is. Relatively, if I take, you know, 5% for the majors and 1% downgrading, that comes to 4. I could-- You know, we've got us saying it at about 4. Do you know what I mean? Like, I, I'm, I'm not seeing perhaps as much difference as, as you're seeing, but, you know, happy to talk it through. I think, yes, you know, that slight elevation for the factors that Ed's talked about.
Yep. No, that's, that's very helpful. Thank you, gentlemen.
Thank you. Just a moment for our next question, please. Next, we have Nigel Pittaway from Citi. Please go ahead.
Good morning, guys. just like to ask a first question on our high policyholder growth and, and really what you're trying to tell us there. I mean, I think in the one breath you're saying you are focused on high-value segments, but then you also said you were quite disappointed with policyholder growth. You've obviously dropped your policyholder growth target for the full year, and an increasing share of your policyholder growth is coming at the moment from aggregators, which I understand have been quite aggressive during the period. Can you put all, that all together for us as to exactly what you're targeting and how we should think of that policyholder growth moving forward?
Morning, Nigel. Thanks for the question. I think we've been quite clear around our expectations moving forward. We're talking to above system, system's tracking at around 2%, we have to be disciplined. I think we've talked about making quite deliberate choices about where we play and how we execute on that. Talked to some of the drivers of lapse, I've also then signaled that retention is a big opportunity for us. You know, certainly a core part of our distribution and business model is that consistency around above system policyholder growth. We're certainly not stepping away from that. We do have some quite innovative initiatives that are coming through over the next 6 to 12 months that gives us confidence.
You touched on the, the aggregator channel, which strategically, again, remains important to us, and particularly through the partnership with It's My Group, but, but all of our strategic partners in the aggregator sector, sector. You know, they, they support our high-value growth strategy. Yep, we remain alert to some of the factors. I touched on some of the temporary disruption of the government rebate changes and our adjustments to offer and how we flight our go-to-market strategy, and, and that, and that has had some short-term impact, but that will, will start to unwind over the months ahead.
Okay, you have dropped your sort of policyholder growth target of before to above system, so that is a sort of modest temporary, I'd say to say, right?
Couldn't quite get all of that, Nigel, but I think you're you're referencing back to the, the step change from 3% to above system?
Yeah, absolutely.
Yeah, I, I hope I've tried to be clear on, on, on the factors around why we've, why we've stepped away from that in the, in the H2.
Yeah. Okay. All right. I'll move on then. I mean, in terms of just the growth then in New Zealand, presumably not all those price rises are fully earned through yet, so the growth rate, obviously, you've had a pullback in policyholders, but in terms of sort of the earn through those premium rate increases, there's still more of that to come. Would that be fair?
Yes, that, that's right. On, on page 17 of the presentation, we can see that the first quarter and the second quarter, that the average is price rise is going up from 22 to 26. We've also got to remember that we've, we've unfortunately had some lapse as a result of the, the remedial action, and there's been some downgrading. Yes, some will go through, but, but please, let's just, the, the, the lapse and the downgrading is, has been... You know, we've had that, that impact, and we're, we're now really focused on, on adjusting, I guess, for that, for that impact, and having put the, the business on, on a more sustainable footing, reverting it back to, you know, focusing more on customer service and the growth.
Okay. Wanted to sort of see what's involved a little more in the capital management review. Obviously, before, you've sort of indicated that, you know, any proceeds you got, there was a fair chance that a reasonable amount of those might be distributed. I mean, can you sort of give us a flavor of what, what exactly you're gonna be looking at in that capital management review?
Yeah. Nigel, certainly, you know, that, that remains front and center around returning those proceeds to shareholders, and, you know, we're, we're working through those options at the moment. I think it's also fair to say that we're focused on maximizing the return on our existing investments as well, and particularly strengthening some of those adjacent businesses. Yeah, we'll, we'll work through that carefully over the, over the months ahead, but hopefully that's giving you a signal around our, our, our intended direction.
Great. Maybe just finally, on international, clearly you're back inside what used to be your margin target of 10%-15% this half, but typically H2 has been stronger. Is it fair to say that overall margin for international is probably a bit better than you used to get when you were targeting 10%-15%? Is that fair, that comment?
Yeah. I mean, we were really pleased with the way the international business has, has gone, especially 'cause it's on that lower gross margin of 39%. Really, that's a, you know, the benefit on that has been in the expense ratios. It, it, it's hard to, to really give that, that target, given that it has been quite a volatile segment. But, you know, we're, we're pleased with, with where the margin or we're happy with the margin, where it is. We're pleased with the expense ratio. I hope that gives you an indication, but I'm just hesitant around those, you know, historical targets when, when they've been quite volatile, since we gave them.
Okay, great. Thank you.
Thank you. Just a moment for our next question, please. Next, we have Freya Conn from Bank of America. Please go ahead.
Hi, good morning. Thanks for taking our questions. Can I just ask on the updated strategy in New Zealand, are you going to continue to prioritize profit over growth, or are you gonna look to more to increase retention and growth now? Also, what kind of margins are you writing new business at, relative to your historic 8%-9% target?
Morning, Freya. Thanks for the question. Yeah, it's, it's, it's a balance in New Zealand, and so we, we took some necessary action in that market to, to ensure that we could get that business back on sustainable footing, and we're, we're really pleased with the, the, the direction it's heading. Notwithstanding, you know, we acknowledge the customer impacts were felt, and you can see that in the NPS and the lapse rate. Our priority over the next 12 months is making sure that alongside pricing discipline, how do we really proactively manage that claims inflation trajectory And so that, you know, consistent with the Australian approach, we'll be looking to, to really influence that claims trajectory and working closely with our provider community to do so. We're not guiding to, to any forward-looking margins in that business at this point.
A little bit like the international space, there's still quite a lot of uncertainty there. Macroeconomic conditions are, are improving, but they also remain, you know, somewhat suppressed to where they have been historically. You did reference our historical margin point, but it is still too early for us to, to really sort of put that on a, on a forward-looking basis. We're pleased with the, the steps that have been taken to date. You talked about balancing on customer and growth, and that is also a big focus for us, and we're seeing competitive dynamics really stabilize as well.
I would say that the playing field is, is certainly more even now, and, you know, we're quite buoyed by some of the growth initiatives that we are now turning our attention to, including the, the revised launch of our life insurance offering over there as a bundled play with health. Really strengthening our relationships with the financial advisor community, which is an important distribution channel for us in New Zealand. We'll selectively pursue some of those other, you know, adjacencies, including international visitors in New Zealand, and also the corporate sector. There's opportunity there, and there's certainly headroom for growth. We're about 15% of the overall residence mar, market in New Zealand, so again, consistent with Australia, we see lots of opportunity for, for growth moving forward.
Okay, thanks. What's the underlying yield that you're getting right now on the defensive portfolio? Were there any negative mark-to-market impacts in the half?
That'll be included on the last page of the appendices.
I don't think you split out underlying yield there, though. Correct me if I'm wrong.
Okay, maybe this afternoon you could take me through underlying yield.
Okay. Okay, great. Then just final clarification, the group year target for the full year, what would that be, excluding travel? 'Cause that's a discontinued operation now.
Again, we've, we've guided to what we've guided to, and I guess we'll, we'll keep it where we are in that regard.
Okay. All right, bye. Thank you.
Thank you. Just a moment for our next question. Next, we have Andrew Buncombe from Macquarie. Please go ahead.
Hi, guys. Congratulations on the result. Just two from me, please. How should we think about the product mix impacts in the residents business in H2 2026? Was there anything unusual in the H1 that we need to adjust for? Thanks.
No, I don't think there's anything too unusual. I think that, that potentially our relative pricing last year versus the industry, and then because our relative pricing this year versus the industry is, is smaller, you know, maybe that might provide some modest benefit.
Great. A couple of questions on travel, please. Would you consider holding the Australian and New Zealand travel business if you can't get appropriate compensation, and then also potential stranded costs from travel, if you can just talk to that as well, please? Thanks.
Yeah, morning, Andrew. Thanks for the question. Look, that, that review onto the, in the Australian, New Zealand perimeter is ongoing as we've flagged. I think all options certainly remain possible. If you think about the strategic logic of distributing travel under an nib-branded arrangement to our Australian and New Zealand domestic policyholders, there's clearly a tighter alignment than the, you know, the different brands in those global, global segments through World Nomad. If you think about proximity and relatedness to the core, then clearly that is stronger. but all options, of course, are on the, on the table, and, you know, there's, there's certainly, you know, the plenty of interest that, that continues to, to work through.
As it relates then to stranded costs, we're confident that they'll be largely immaterial and that they would be, you know, certainly, a priority focus for us, in the event that the Australian perimeter did exit the portfolio.
That's it for me. Thank you.
Thank you. Next, we have Kieran Chidgey from UBS. Please go ahead.
Morning, Ed and Nick. I just wanted to go back to high claims inflation, the 6.1% underlying claims inflation number you're talking to. Can you give a broad breakdown in terms of what you saw on hospital relative to ancillary, and also interested within hospital on the composition between indexation and utilization?
The, the hospital versus ancillary is, is at the bottom left on that page 13. 3.6% ancillary, 6.2% hospital, 13.5% medical is, is where the 6.1%. In terms of sort of some of the drivers, I think we have commented that we are seeing some relatively high utilization, and again, that will be a focus of the, of the end-to-end management strategy around how we, how we manage that with our hospital partners.
Okay. I mean, the year-on-year change, Nick, it'd just be useful to get some color between the, you know, what sort of the higher inflation, is that predominantly all coming from that utilization bucket? I mean, you did talk to hospital indexation being up as well.
I mean, I guess sort of the biggest reasons on the six point, the 6.1% is firstly the New South Wales bed rate and secondly, the investment in customer benefits. Then we've got that risk equalization piece. In terms of breaking down between your price and utilization, it's, it's something we can, can think about in the future.
In your outlook on risk you're kind of flagging a fairly stable margin outlook into H2, what, what are you assuming from a risk equalization basis as we move into H2?
We are assuming that we don't see a second quarter like we see, like we saw in, in this, the December quarter. We are assuming that we don't see that again, but we're not necessarily assuming that it reverses.
Okay. Just a second question on Thrive. Just looking in the stat accounts, there's sort of a suggestion there that, there's indicators of possible impairment for Thrive, even though you haven't taken one this period. I do note the revenue growth assumptions have almost halved on the go forward in that CGU impairment testing. Can you just talk to, I guess, what, what you're seeing in that business and how you're thinking about the growth outlook from here?
Yes. Morning, Kieran. With, with NDIS and, and Thrive, it's certainly been a, a soft growth performance over the past 12 months. Really, this is driven by a few, a couple of factors. There was some internal challenges that we've been quite transparent about, dating back about 15 months ago or so now, when we integrated several of those businesses onto one operating system and one brand. That did have, you know, quite a significant temporary impact on our service levels and broader participant experience. That has largely unwound. Over the top of that, as you're aware, there's, there's been, you know, some, some regulatory changes that, that the NDIS scheme is, is working through, and certainly Thrive has been within that. Plan Management has also been within that as well.
On that forward-looking basis, the, you know, those revenue projections that you're referring to, we are anticipating modest growth there, and we, you know, talked about January being more favorable and back in positive territory. We are cautious about, you know, some of those shifting market conditions. Hence the revised revenue assumptions.
Yeah. All right. Thank you.
Thank you. Just a moment for our next question, please. Next, we have Andre Stadnik from Morgan Stanley. Please go ahead.
Good morning, to have you, Nick, a question around claims inflation. Apologies about that. I just wanted to ask in terms of the cash paid claims, it looked like the cash paid claims were running at about 6.5% growth a year ago and two years ago, but in this half, they stepped up to almost 8%. How should we think about that? Is that just the speed up in the claims processing or anything else moving there?
Yeah, and I'm happy to, to go, go through that. Again, on page 32, I'd actually say that it was even a little bit higher than that, 8%, then when we back out the increase in processing speeds, and then also adjust for the average volume growth, we, we do come back to very close to that 6.1% incurred that, that we've reported. So, so comfortable that cash and incurred are, are aligning. Then from that 6.1, we've then provided that waterfall down to the, down to the 4.1%, against which we're, we're pricing on.
Thank you. That, that slide 13, we talk about 4.1% underlying base inflation.
Yeah.
Has that been adjusted for the $31 million LSC release? 'cause that's worth, I think, roughly about 2.5%.
No, that's-
Um, so-
That, that release is, that 31 release is AUD 2 million-AUD 3 million of actual release, of hindsight release, which is worth-- which is that 20 basis points in the underlying margin waterfall. The other 28 is the... or 28-29 is the payment speed processing, so that's why that's reduced. Of that-
Thank you.
There's only AUD 2 million-AUD 3 million or 20 basis points that's actually affected margin.
Brilliant. Thanks so much. That, that makes sense. Thank you.
Thank you. Next question comes from Vanessa Thompson from Jefferies. Please go ahead.
Good morning. Thank you for taking my questions. I just wanted to circle back firstly on the nib Thrive. You mentioned that things have turned more positively in January of this year. Is that around participant numbers? Can see it's slid backward a little, and wondered if or, or is it around margin? Thank you.
Morning, Vanessa. Yeah, it's, it's... We talked about January from a positive growth perspective, and you'll see the, the overall, you know, period-on-period reduction, and I've, I've highlighted some of the drivers of that. January, we've, we've certainly seen a positive step-up on volume growth and, and participants. The scheme is still growing, and we show you some of the, the overall scheme growth numbers at the back of the pack, and the plan management penetration or contribution within the scheme is also increasing. From a thematics perspective around overall numbers and also the uptake of plan management, you know, those settings are still favorable. In January, we started to see, you know, some, some positive volume growth coming through.
What we have been really focused on, you can see that in the numbers, is making sure our participant experience and our operating efficiency is, is improving. We've, you know, we're pleased with the, the work that's happened around our cost base. We now got all of those businesses integrated. We have a dual brand strategy, primarily through Below Thrive and Instacare, that complement each, each other in key markets. All of those settings are now more stable and, you know, we're, we're-- I talked about some, some further regulatory pieces that we need to continue to navigate, and we're alert to those. Outside of that, you know, we're, we're feeling confident about where, where things are heading.
Thank you. Then, sorry, the, the move to Navigator, which I think is... I know there's very little information, but it's a couple of years away now. Are you positive on the margin consequence of that change? I understand that's a more time-consuming kind of role than plan management. Thank you.
Yeah, you referenced to the lack of information, Vanessa-
Mm.
It is still quite ambiguous, we must say, around what the, you know, the Navigator model could look like, will look like, and at what time that would take effect. That is really difficult for us to estimate and make assumptions around what that could be. We do have high confidence that the plan management sector has a really important role to play within the scheme ongoing. That intermediary layer, whether it's in its current shape within plan management or revised shape, certainly the role of connecting participants with the broader NDIS community is a critical one that intermediaries play.
Alongside that, there's an important role for the intermediary layer and plan managers to play around scheme sustainability, and we've talked about how we leverage payment integrity and our compliance frameworks and some of our digitization from our health insurance business across in plan management. You know, we're, we're keen to work alongside several stakeholders, including the government, around making sure that we're eliminating fraud, waste, and abuse from the NDIS sector more broadly. You know, those settings are, are attractive for a player like us.
Yeah. Okay. Thank you. My second question was on hospital contracting. I can see you've renewed your St. Vincent contract. It has dynamic indexation in year three. I understand you've done that with others. I just wondered, whether you have any contracts that have reached that dynamic indexation phase and, and how-... when you're in that phase, you incentivize the hospital? Thank you.
Yeah, thanks, Vanessa. S- some of those multi-year agreements are moving towards those dynamic indexation models. We're comfortable with the, the, the driving factors around where indexation is landing, and we've certainly looked to accommodate that around our forward-looking pricing, talked about predictability of having 80% of our, our total outlays under a partnership model. That's important 'cause it gives us that confidence around where we need to price to make sure that those things are, are aligned. I won't go into all the nuts and bolts around the, the component parts of, of those partnership agreements. I did reference length of stay and a shift to day settings and short stay as priority opportunities for nib.
We do lag the industry in, in some of those key metrics, and we touched on that, broader benefits management strategy that we've embarked on, and, and our provider partners have an important role to play there as well.
Thank you.
Thank you. We have a follow-up question from Sidharth Parameswaran from JP Morgan. Please go ahead.
Sorry, gentlemen, just a very quick one. Just wanted to check on just the seasonality that you're expecting H1, H2. I think you made a comment previously about the days effect just and being very strong in New Zealand in particular, and, and reasonably important for Australia as well. I was just keen to get your perspective on, on that. I, I didn't see any specific comments around that.
Expecting some positive benefit from that, more in New Zealand than, than in Australia, but, but some positive from, from that in terms of margins.
meaningful? As in, what does something like... I, I think you called out quite strongly last-
I guess it's the put, puts and takes, Sid, which is one of the reasons why, you know, we've, we've provided the guidance that, that we have. Yeah, I mean, I know that everyone wants to, to, to get as much accuracy in their, in their models as, as we do, but, you know, again, there's, there's always puts and takes on, on these things.
Yep. Okay, great. Okay, thank you.
See it at the back of the pack, slide 31, if you wanted to sort of see the half on half.
Yep. Thank you.
Thank you. I see no further questions at this time. I will now pass back to Ed for closing remarks.
Well, thanks, everybody, for joining us, and really appreciate the conversation this morning, and we look forward to catching up soon. We'll wrap it up there. Thank you.