no overlap of red spine allowed for fold crease
spine set up as 8 mm
Annual Report 2020
redefining
better
Medibank Private Limited
ABN 47 080 890 259
Contents
About Medibank
Financial summary
Business snapshot
Chairman’s message
CEO’s message
Creating value for our stakeholders
COVID-19 support
Better products and services
Better healthcare
Better business
Our sustainability highlights
Operating and financial review
Directors
Executive leadership team
Corporate governance statement
Directors’ report
Remuneration report
Financial report
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Directors’ declaration
Auditor’s independence declaration
Independent auditor’s report
Shareholder information
Financial calendar
Corporate directory
1
2
3
4
5
6
7
8
12
16
20
22
30
33
35
45
48
73
74
75
76
77
78
121
122
123
131
133
133
Sustainability Report 2020
for a
better
future
Annual Report 2020
redefining
better
2020 full year results
Investor presentation
Craig Drummond – Chief Executive Officer | Mark Rogers – Chief Financial Officer
Medibank Private Limited
ABN 47 080 890 259
20 February 2020
This report is part of
our suite of reporting
for the 2020 financial
year. You can find more
information about our
performance in our
Full Year Results
Investor Presentation
& Sustainability Report
Cover – In FY20, we expanded extras cover so customers could claim
for virtual consultations for services including physiotherapy
about Medibank
We’re a company with health and wellbeing at our core.
We began as a health insurer and have grown into a
broader healthcare company, committed to delivering
affordable healthcare that gives our customers more choice.
We’re delivering care in new ways by collaborating with hospitals,
doctors and governments and driving reform to help reshape
Australia’s health system. We also offer travel, pet and life insurance
to meet a wider range of our customers’ needs.
Our purpose of Better Health for Better Lives is not just words.
It’s our commitment to our customers and community and is a
driving force for our people.
We’re focused on our strategy of differentiating and growing our
private health insurance business through our Medibank and ahm
brands and transforming into a broader healthcare company.
Purpose
Vision
Better Health
for Better Lives
Enablers
People
Data insights
Technology
Everyone in Australia deserves to live their best quality of life
– for themselves, their communities and future generations
Strategic
pillars
Deliver differentiated
products and services
for customers
Continue to improve
healthcare value
for customers
Expand the offering
for customers and
grow the business
Values
Customers First
Own It, Do It
Show Heart
One Team
Health insurance
Diversified insurance
Health services
Our
business
Health, Support, Value
Travel insurance
Homecare
Pet insurance
Telehealth and digital
Simple, Easy, Affordable
Life insurance
Integrated care
and coordination
Annual Report 2020 1
financial summary
+10,600
(+0.6%)
net resident
policyholder growth
26.94%
market share
(up 4 basis points in FY20)
All data is presented on a statutory basis
c. $20 million
in productivity savings
Dividend
Group net profit after tax
($m)
Composition of 2020 segment
operating profit from continuing
operations (%)
6.3
cents
per share
final ordinary dividend
fully franked
12.0
cents
per share
total ordinary dividend
fully franked
-0.6
2020
$315.6m
2019
$437.7m
$424.2m
2018
2017
2016
$315.0m
$458.7m
$445.1m
$449.5m
$417.6m
0
100
200
300
400
500
continuing operations
discontinued operations
FY20 total includes loss from discontinued operations
Health Insurance segment
premium revenue
($m)
Health Insurance net claims expense
(excluding risk equalisation)
($m)
Medibank
Health
5.6%
Health
Insurance
94.4%
$510.7m
$497.5m
$535.6m
$542.5m
$470.6m
Health Insurance operating profit ($m)
2016
2017
2018
2019
2020
Health Insurance
operating profit
($m)
2020
2019
2018
2017
2016
$6,545.6m
$6,464.7m
$6,319.5m
$6,244.9m
$6,172.5m
2020
2019
2018
2017
2016
$5,539.5m
$5,404.6m
$5,281.1m
$5,276.9m
$5,209.3m
2020
2019
2018
2017
2016
$470.6m
$542.5m
$535.6m
$497.5m
$510.7m
0
2,000
4,000
6,000
8,000
0
1000
2000
3000
4000
5000
6000
0
100
200
300
400
500
600
Health Insurance
gross margin
(%)
Health Insurance
management expense ratio
(%)
Health Insurance
operating margin
(%)
2020
2019
2018
2017
2016
15.5%
17.1%
17.3%
17.1%
16.6%
2020
2019
2018
2017
2016
8.3%
8.7%
8.8%
9.1%
8.4%
2020
2019
2018
2017
2016
7.2%
8.4%
8.5%
8.0%
8.3%
0
5
10
15
20
0
2
4
6
8
10
0
2
4
6
8
10
2 Medibank
business snapshot
3.76
million
million
customers at 30 June 2020
customer advocacy
31.831.8 (+7.0) Medibank
41.241.2 (+2.7) ahm
average Service NPS
84%
employee
engagement
91%
in April
$5.5
billibillionon (up 2.5%)
benefits payable
to our customers
Services supported
1.31.3 million
22.722.7million
500,000
500,000
hospital
admissions
extras
services
surgical
procedures
259
virtual
hospital beds
8,620
patients received
in-home care
3,982
employees
Headcount at 30 June 2020
including
around
1,500
health professionals
Annual Report 2020 3
2020
2019
2018
2017
2016
7.2%
8.4%
8.5%
8.0%
8.3%
0
2
4
6
8
10
chairman’s
message
Elizabeth Alexander AO
Our strategy has been the right one to guide
the company through a year that has presented
the country with significant health and
economic challenges. Against this backdrop,
we have delivered a sound result.
The strength of Australia’s world-class health system
has come to the fore in response to the global
COVID-19 crisis. I am proud of the way we responded
quickly to the needs of our customers and community,
while ensuring the health and safety of our people.
Despite these challenges, we made good progress on
our transition to a broader healthcare company. And by
working to deliver better outcomes for our customers
we have been able to deliver for you, our shareholders,
paying a fully franked full year ordinary dividend of
12.0 cents per share. This is consistent with the
prudent approach the Board follows in regard to
our capital management and positions us well to
respond to the current environment.
We are increasingly focused on the impact our
business practices have on our broader community
and have elevated the importance of sustainability
throughout the business this year. We spoke with
shareholder groups, customers, community partners
and our people to better understand the issues that
matter, and these now form the basis of our new
approach, outlined in our first Sustainability Report
which is available on our website.
We have continued working towards greater diversity
and building a more inclusive culture, so that we better
reflect the community we serve. This year Medibank
ranked third in the 2019 Access and Inclusion Index,
where our work to improve accessibility for people with
a disability by introducing a formal process for major
suppliers and partners was recognised. In setting
objectives for 2021 we have introduced a new focus
on supporting employees with caring responsibilities,
in addition to those on gender equality and employee
diversity. By doing so, our business will be stronger.
I have shared the story of Medibank’s transformation
many times since joining the Board in 2008, and
my appointment to Chairman five years later. In
preparation for Medibank’s listing on the Australian
Securities Exchange, I invited the community to
become part of our company and its future. Since then,
our focus on our customers has not wavered, nor has
our commitment to our purpose of Better Health for
Better Lives.
Over this time, we have transformed our relationship
with customers and brought a greater focus on playing
a role in their health and wellbeing. We have driven
stronger customer advocacy each year and advocated
for healthcare reform to improve affordability. I am
pleased to see Medibank’s impact on helping to
make Australia’s health system stronger and a more
sustainable one for future generations.
In announcing my retirement from the Board recently,
I want to express the honour I feel to have served you
over the past 12 years. Thank you to my fellow Board
members, Craig Drummond and the entire Executive
Leadership Team for their stewardship of the
company. They lead a committed team of people who
strongly believe in Medibank’s purpose and who have
helped make it the market leader it is today. I wish new
Chairman Mike Wilkins and the Board all the best – I
leave the company in good stead and look forward to
what Medibank will continue to achieve in the future.
4 Medibank
ceo’s
message
Craig Drummond
From bushfires to a global pandemic, 2020
has been an enormously challenging year
for everyone. Through this time, I am proud
of how we have responded and managed
the issues within our control.
We were clear at the beginning of the COVID-19
pandemic that we would respond quickly to our
customers’ changing needs. To date our financial
response exceeds $185 million and we will continue
to act swiftly in providing further support.
Despite the uncertainty, we increased policyholder
numbers, grew market share, and continued to
see improvement in customer advocacy across
both our Medibank and ahm brands.
After moving our team of almost 4,000 people to
work virtually from home I was pleased that employee
engagement reached a record high of 91%. This is
testament to the resilience of our people, the way we all
work to our Better Health for Better Lives purpose, and
the connection we maintain with our customers and each
other. To recognise the critical role that our people play
at Medibank, we have broadened our advocacy milestone
to include targets around employee engagement.
Medibank’s purpose galvanises strong community
engagement and was the key driver of our $5 million
donation to Beyond Blue to support its vital work
through the COVID-19 period.
Throughout 2020 we remained focused on improving
the value we deliver to our customers. In addition to the
benefits we introduced during COVID-19, our customers
saved millions of dollars in out-of-pocket costs through
our Members’ Choice Advantage dental network. We
also continued to recognise and reward customers
through our Priority and Live Better rewards programs.
Our customers continued to tell us that they want
us to play a bigger role in their personal health and
wellbeing. As such, we’ve set new targets across health
education, promotion and support to further embed
health and wellbeing in our customers’ experience.
Over the past 12 months we also made good progress
on our strategy to transform into a broader healthcare
company. Telehealth came into its own this year, with
the team rapidly scaling up to support the public
COVID-19 health response. We continued to explore
ways to provide our customers with greater choice,
while at the same time alleviating pressure on the
health system, health insurance premiums and out-of-
pocket costs. Our in-home care programs continued
to grow and we expanded our no gap joint replacement
pilot to more locations around the country. As part of
this, we acquired a 49% minority shareholding in East
Sydney Private Hospital to help the hospital and its
doctors scale their short stay model of care.
None of these achievements would have been possible
without the hard work and dedication of our people who
have remained focused on the needs of our customers,
despite all that has happened this year. I also want to
recognise the commitment of Australia’s frontline health
workers who are doing an incredible job for our country.
For the past four years I’ve worked alongside Chairman
Elizabeth Alexander, who announced her retirement in
August. Elizabeth has made a significant contribution
to Medibank – seeing it through from government
ownership, to an ASX listed company, that is a stronger
and more sustainable business today. I’d like to personally
thank Elizabeth for her support and leadership.
I look forward to working with our new Chairman,
Mike Wilkins, as we continue our transformation to a
broader healthcare company.
Finally, thank you for your ongoing support of Medibank.
We remain well positioned for the future given strong
advocacy from our customers and our people at a time
our role in the broader health system has never been
more important.
Annual Report 2020 5
creating value for
our stakeholders
GOALS
WORK
LIFE
We’re focused on
creating sustainable
long-term value for our
customers, our people,
our shareholders and
the broader community.
Customers
Team members
We’re delivering affordable
healthcare for our customers,
providing personalised health
and wellbeing support through
products and services that give
choice and peace of mind. We’re
helping customers better navigate
the health system and make more
informed healthcare choices.
We provide our people with
a flexible, inclusive working
environment that encourages them
to bring their whole self to work
and helps them achieve better work
life balance. We’re enabling them to
enhance their knowledge and skills
and supporting them to reach their
health and wellbeing goals.
CO2
Shareholders
We’re committed to delivering
sustainable shareholder
returns in a way that also
meets the expectations of our
customers and the community.
We’re delivering this through
our purpose-led culture
supported by a focus on
performance, governance
and risk management.
Community
We’re targeting some of Australia’s
biggest health issues, prioritising
mental health support and preventative
health, and providing access to health
and wellbeing activities. We’re also
working to help close the gap that
exists for Indigenous Australians
and are playing our part in tackling
the impact climate change is having
on human health.
Government
Health system
We’re working with government
to support Australia’s world-
class dual public private
health system and ensure its
ongoing sustainability for future
generations. We’re advocating
for our customers, contributing
to public policy and helping
deliver reform.
We’re helping reshape Australia’s
health system, partnering with
hospitals and doctors on innovative
ways of providing healthcare in the
home and community, targeting
chronic disease with prevention
programs and sharing information
with hospitals to help them
improve patient experiences.
6 Medibank
COVID-19 support
As COVID-19 swept across the world and Australia, and its impact on our
daily lives grew, it challenged us to adapt. We had to work differently, think
differently and make changes quickly, so we could help our customers, support
our people and play a key role in our health system’s response to the virus.
Our work over the past few years to build our healthcare capabilities,
particularly in the areas of telehealth and in-home care, set us up well to
be able to respond to the changing demands of COVID-19, while our flexible
work culture and continuity planning enabled us to seamlessly transition
to a virtual working environment within the first few weeks.
$185185++ million
support for customers
during COVID-19
Supporting our customers
Our initial focus was on helping address the
immediate health and financial impacts the virus
had on some of our customers. We announced a
series of support measures including postponing
premium increases for six months, offering
hardship support – including a 50% premium
waiver, and extending existing hospital cover
to support COVID-19 related admissions.
To help people stay focused on their health
and wellbeing while in isolation, we introduced
Live Better at Home, a free online program
of work out videos, cooking demonstrations
and guided meditations from experts and
local health and wellbeing businesses,
many of which had been forced to shut
down during restrictions.
When restrictions meant many customers
couldn’t visit their health practitioners for
around six weeks, we committed to returning
to customers any additional permanent savings
as a result of lower customer claims during
this time. We introduced access to telehealth
services and rolled over most unused extras
annual limits for ahm customers, which were
due to reset on 1 July.
We brought together our homecare, telehealth,
analytics and health design capabilities to create
COVID-19 Health Assist – a comprehensive
health and support program for our customers.
Our team of health professionals reached out
to almost 4,500 customers to review their
physical, mental and social needs and provide
customised support where needed.
Supporting our community
We played a crucial role in supporting the
community, providing services to support
seven coronavirus helplines which took around
250,000 calls, as well as supporting the Victorian
Government’s response to the state’s second
outbreak. To deliver these services we remotely
recruited, onboarded and trained hundreds of
casual nurses to join our telehealth teams in
the initial phases of the pandemic. We also
funded a number of COVID-19 research
projects into the impact of the pandemic.
Supporting our people
We protected the health and wellbeing of our
people, moving almost 4,000 employees to
remote working in March and introducing two
weeks special paid COVID-19 leave for all team
members. When we needed to temporarily
shut our retail stores, we reskilled our retail
team members so they could work from home
supporting our customers through our phone
and digital channels. No employees have had
to be stood down, temporarily or otherwise,
due to COVID-19.
Working remotely didn’t diminish our sense
of connection; instead it highlighted how
strong our community culture is. Teams
found creative ways to stay connected and
employees reported increasingly positive
sentiment, with engagement rising 7 points
to an all-time high of 91% in the weeks
after moving to virtual working.
We are now a more agile business; our
people feel more productive and we are
working more collaboratively. The lessons
we have learnt from the past few months
are now helping us redefine our future.
250,000
COVID-19 related
calls supported
30,000
customers utilised
hardship support to
suspend their policy
or access waiver
4,388
customers contacted
through COVID-19
Health Assist
340,000
video views
of Live Better at Home content
Annual Report 2020 7
better products
and services
3.76 million
customers
at 30 June 2020
$5.5 billion
benefits payable to
our customers
Naomi’s story
– Live Better
48-year-old Sydneysider
and Live Better member
Naomi was after inspiration
– determined to maintain
a healthy lifestyle after her
doctor advised her weight
and cholesterol levels were
higher than recommended.
She began joining the monthly
Live Better challenges
and found it helped keep
her focused and honest as
she improved her diet and
exercise. It’s a lifestyle change
that she plans to continue for
many years to come and the
rewards are just a bonus.
8 Medibank
We believe in our purpose of Better Health for Better Lives.
We’re committed to helping our customers make better
health decisions every day.
Better health every step of the way
We think the role we play in helping people to
stay healthy is as important as the support we
provide should they need to go to hospital or
require medical treatment. It’s why we’re focused
on providing personalised health information
and advice to our customers.
Better Knee, Better Me program which aims
to prevent the need for knee replacement
surgery, and we continue to work with
companies across the country helping them
to develop programs to improve the health
and wellbeing of their employees.
We’re investing in preventative healthcare;
partnering with hospitals, universities and
doctors on programs to help our customers
improve their health and wellbeing. This year
we’ve supported more than 74,000 customers
through our Health Assist programs which
offer specialised support delivered through
telehealth and in-home care. We launched
OptimalMe – an Australian-first study supporting
women to optimise their health before, during
and after pregnancy; Medibank Heart Health
at Home – a personalised, telehealth-delivered
cardiac rehabilitation service; and worked
with Australia’s largest child and family health
organisation, Tresillian, on a telehealth pilot
to support parents to manage their baby’s
sleep and settling issues in the comfort of
their own home.
Our CareComplete chronic condition program
has now supported almost 37,000 patients
around Australia since launching in 2014;
we’re seeing positive results from our
We’re encouraging all Australians to make
healthier choices on a daily basis through our
Live Better program which features an app
for tracking and measuring everyday activities
across eat, move and feel categories and an
online hub of expert health information, articles,
recipes, exercise tips and online courses.
We’re also providing customers with
personalised health and wellbeing information
to support them through specific health issues.
Customers who have undergone a skin cancer
removal or been hospitalised for a fracture
might receive information about best care
practices and tips, while new dads might receive
messaging about mental health and wellbeing.
More of the conversations we’re having with our
customers are health related. We set ourselves
a goal to have at least 1.8 million health-based
phone, chat or email conversations with our
customers this year, and we’re proud we’ve
exceeded this.
74,000
customers supported
through Health Assist
programs
Z Z
Z
2 million+
health engagement
interactions
36,865
CareComplete patients to date
Annual Report 2020 9
Navigating the
healthcare system
We want to be a trusted healthcare partner
for our customers. Our healthcare system
is complex, so we’re making it easier for our
customers to make more informed healthcare
decisions. Regardless of whether a customer
chooses to connect with us in person, on the
phone or online, we aim to deliver a great
experience every time.
To help customers going to hospital, we
launched Hospital Assist, an online hub of
information and practical support tools for
every stage of the hospital journey. As well, our
Health Concierge team continued to proactively
reach out to customers planning a hospital visit
to guide them through the process and options
available, a service we extended this year to
families with children who required surgery.
We added more functionality to our My Medibank
app to help customers manage their cover and
their health, like the ability to book appointments
directly with our Members’ Choice Advantage
optical provider, Specsavers and some dentists.
We also introduced digital membership cards
for Android users for Medibank and ahm and
are trialling claim payments platform Lantern
Pay with chemists, which allows customers to
claim non-PBS prescription items on the spot.
We introduced Helping Hand – a new program
for our customer service and sales team
designed to improve our quality of service.
We checked in with 542,298 customers to
ensure they were on the right level of cover
for their needs, while also making it easier for
customers to find and compare cover online.
We also worked to improve our digital support
experience, introducing messaging – an online
chat service that allows customers to respond
to a conversation in their own time and other
self-service features to make it simple for
customers to get what they need.
We’re pleased that our ongoing commitment
to deliver excellent customer service has been
recognised, with customer advocacy increasing
for both ahm and Medibank and ahm receiving
the Roy Morgan Customer Satisfaction Award
for Major Private Health Insurer of the Year.
As well, our share of industry complaints
remains consistently below our market share.
customer advocacy
31.8 (+7.0) Medibank
41.2 (+2.7) ahm
average Service NPS
542,298
customer check-ins
40% increase
in number of hospital
admissions supported
through Health Concierge
72% Medibank
90% ahm
of customers have
registered for a
digital account
ahm – keeping it simple
Our ahm premise is insurance
that is simple, easy and affordable.
This year, the team redesigned the
online experience to make it easier
for customers to choose the health
insurance cover right for them.
Using customer feedback, they
developed steps to guide people
through the process, ensuring only
the most relevant options were
presented. They also made it simpler
for customers to assess their cover
against other options and change
if preferred. Since its launch, more
than 10,000 customers have accessed
the site to review their cover online.
10 Medibank
3.27%
our lowest
average premium
increase in
19 years
(postponed for
6 months)
c. $10 million
out-of-pocket costs
saved through
Members’ Choice
Advantage
dental network
$1 million+
in rewards for
Live Better customers
during COVID-19
c. $20 million
productivity savings
Better value
We’re working to make our products and services
deliver more for our customers. We know for many
people, affordability is a big challenge – this year more
than most. We’ve focused on simplifying and enhancing
our cover options, enriching our loyalty program to
recognise and reward loyal customers and ensuring
that what we offer customers through our Medibank
and ahm brands is unmatched in market.
More than $5.5 billion in benefits were payable to
customers this year. Our Members’ Choice Advantage
dental network saved our customers approximately
$10 million in out-of-pocket costs and we expanded
the program to optical services this year. We also
announced our lowest average premium increase in
19 years, before postponing premium increases for
six months as part of our COVID-19 support package.
Our Live Better rewards program was rated the best
loyalty program of all major health funds by members
in the 2019 Ipsos Survey. Eligible customers can earn
Live Better reward points, using them towards a gift
card, savings of $200 on their health cover or more
on their extras – simply by taking a broad range of
healthy actions or shopping with many of our health
and wellbeing partners. Over $1 million in rewards
have been earned this year during COVID-19.
We continued enhancing our services for priority
customers who have been with us for 10 years or
more, seeing customer advocacy levels improve for
these customers as a result. We also made it easier
and more affordable for our customers to manage
a broad array of their insurance needs – with access
to discounted life, travel and pet insurance.
We have built strong partnerships with corporate
Australia, supporting the health insurance needs of
many organisations, while also working with them on
employee wellbeing initiatives. In an Australian first,
we established a strategic partnership with La Trobe
University, to invest in research opportunities, provide
additional training and job opportunities and support
the creation of health and wellbeing hubs.
We’re managing our own costs, delivering around
$20 million of savings through our productivity program
this year, and are targeting a further $50 million over
the next three years. Our payment integrity program
is helping keep premiums affordable by identifying,
recovering and preventing improper payments and
claims. We also renegotiated a number of contracts
with hospital groups this year, working to encourage
quality, safety and improved efficiencies, so we can
further improve the affordability of private healthcare.
Our dual brand strategy is a real differentiator in
the market, with our Medibank and ahm brands
delivering flexibility, broad customer coverage
and price competitiveness.
Annual Report 2020 11
better
healthcare
1,500
health professionals
in our business
8,620
patients received
in-home care
Ken’s story
– Rehab at Home
When Ken had a right knee
replacement, he chose
to do his post-surgery
rehab through Medibank
at Home. Working with his
physio, he practised his
exercises around the house
– squatting while washing
the dishes or walking up
and down the steps to his
back porch. Being able to
recover in the comfortable
surrounds of home, and not
inconveniencing his family
to take him to his rehab
appointments was a relief
for Ken, and gave him back
the freedom to spend more
time doing what he loves,
like working in his backyard.
12 Medibank
We’re working on innovative ways to deliver healthcare
at a lower cost to patients, improve the experience
and ensure quality health outcomes.
ICON
More affordable healthcare
From in-home care to virtual hospital in the
home services and telehealth, we’ve been
growing our health services capabilities.
We’re improving options for people to receive
care at home or in the community, working
in partnership with doctors, hospitals and
governments across Australia.
Delivering care outside of the hospital
environment is key to providing affordable
healthcare in Australia. It can provide the same
quality of care, offers patients greater choice
and convenience and helps free up hospital beds
for those who need them most. This year, we
provided in-home care to more than 8,000 people.
Our Medibank at Home group of programs
and trials cared for 5,854 customers this year
and continued expanding. We launched a
home-based palliative care pilot program in
partnership with St Vincent’s Private Hospital
Brisbane and focused on building new
partnerships, recently signing with WorkSafe
Victoria to provide rehab in the home services.
We’re also working to grow our hospital in
the home services, this year providing 259
virtual hospital beds to patients who chose
treatment at home instead of hospital. We
trialled a new approach to providing mental
health care, working with a state government on
a Mental Health Rapid Hospital Avoidance trial.
It utilised in-home care to reduce the need for
a patient to be admitted to hospital or enable
them to leave earlier.
We partnered with Nexus Hospitals to trial hip
and knee joint replacement surgery with no gap
fees for patients. The program utilises in-home
care to support a shorter stay in hospital, where
clinically appropriate. Early results for those
who have taken part are very positive and the
program is expanding nationally, in partnership
with several other hospital providers.
COVID-19 accelerated demand for telehealth
services this year and our experience
operating community support services such as
1800RESPECT and Nurse on Call in Victoria, as
well as providing services to clients including
healthdirect Australia and Beyond Blue,
positioned us well to support the government’s
coronavirus helplines. We see huge potential
for telehealth – we have integrated it into many
of the preventative health programs we offer
customers. All up, we employed an additional
680 temporary frontline clinicians to support
our telehealth programs.
We now have more than 1,500 health
professionals working across Medibank
providing care to people at home, on the phone,
online and in the community. They are driving
our transition to a broader healthcare company.
259
virtual
hospital beds
approximately
680
temporary
frontline
clinicians
employed
Annual Report 2020 13
PUBLIC PRIVATE
DUAL
HEALTH
SYSTEM
To improve participation, an increase to the
Medicare Levy Surcharge continues to be
under consideration by the government. We’ve
advocated for employer-funded private health
insurance and the need to do more to encourage
younger people to join and keep private
health insurance – such as increasing the age
threshold so young adults can remain on their
family health insurance policy until they turn 30.
Given budgetary constraints, we understand
that a number of these initiatives that come at
a cost to the budget may not be a short-term
priority for government, but providing some
fresh incentive for young Australians will be
essential to protect Australia’s high quality
dual health system.
Our health system is built upon a partnership
between the public and private systems. This
year’s pandemic has highlighted how important
that partnership is to ensure Australia can
quickly respond to changing healthcare needs.
Reforming the system
Australia’s healthcare sector was put to the test
by COVID-19 and has delivered strong outcomes.
In response to the pandemic, we enhanced
our products, our services and our systems,
provided more options for patients to receive
care in the home and the community, and
focused on preventative health.
COVID-19 has highlighted the value of telehealth
and in-home care, which are important elements
of the value we offer our customers. We now
need to ensure these services are integrated
into our healthcare system, to facilitate better
options for non-urgent care to be delivered
outside of hospitals, at a lower cost. But
that’s not all we’re focused on.
We’ve also continued our work with the
government and the health sector to help
achieve meaningful industry change, to
improve affordability and hence boost
private health insurance participation.
We’ve seen positive impacts from the
government taking progressive steps in
implementing reforms, but we believe more
is needed and urgently. For example, tackling
higher than necessary prostheses prices,
which are often substantially higher in the
private system than they are in the public,
is crucial given the already inflated price in
Australia relative to other parts of the world.
More can also be done to ensure health
practices funded by the Medicare Benefits
Scheme and private health insurers reflect
modern clinical evidence, which will improve
health outcomes for patients. That is why we’ve
encouraged the government to act quickly on
the Medicare Benefits Schedule (MBS) review.
And we continue to support efforts by the
government to enhance MBS payment integrity
so that unnecessary claims are not being paid
by either taxpayers or private health insurers.
14 Medibank
Yvonne’s story
– In-home care
A Medibank customer of
34 years, Yvonne started
receiving haemodialysis at
home in November last year, to
help manage her kidney disease.
Before this, her husband Leigh
would drive her 40 minutes each
way to hospital for treatment.
Including the haemodialysis and
prep-time, it was often a six-hour
round trip, three times a week.
Yvonne found treatment at home
more convenient and got to
know her renal nurse, Jeff, well.
“I felt less fatigued, and had
several more good days where
we could be a normal family.
Dialysis was fitting into our
lives, rather than the other
way around.” In July, Yvonne
received a kidney transplant.
Annual Report 2020 15
better business
51%
Group and senior
executives are female
71%
employees worked
flexibly (pre-COVID-19)
Jono’s story –
Flexible working
Training and Facilitation
Manager Jono says
Medibank’s approach to
flexible working has enabled
him to seamlessly transition
to working from home during
COVID-19. “It’s helped me
support my family and lead
my team to my best ability”.
16 Medibank
We’re connecting our people to our purpose and becoming a more
sustainable business, so that we can better support the health
and wellbeing of our community and play our part in protecting
our planet. You can find out more in our Sustainability Report 2020.
Engaging our people to make a bigger impact
At the heart of every decision we make and every
product and service we provide, lies our strong
purpose-led culture. It’s what brings us together
as a community – one team focused on our
purpose of Better Health for Better Lives.
We’ve worked hard to build a culture that
energises and inspires our people to be at their
best. We know our people are more engaged
when we are true to the three pillars that
guide our culture – customers first, values
and inclusion and health and wellbeing.
OUR CULTURE
customers
first
values and
inclusion
health and
wellbeing
We’re now seeing the longer-term benefits of
our approach, with an analysis of three years of
customer and employee advocacy data showing
that when our people are happier at work, our
customer satisfaction increases.
Our flexible working approach has been
instrumental in helping our people better work
towards their own health and wellbeing goals. It
also enabled us to quickly adapt to virtual working
this year. We still have one of the best parental
leave policies in Australia and continue to see
men increase their take up of this opportunity
and our employees feel more engaged as a
result of the flexibility they are offered.
We remain committed to gender equality and
this year became a signatory to the Women’s
Empowerment Principles, developed by the
UN Women and UN Global Compact. We’ve
also been working to improve inclusion and
access for people with a disability, developing
an online toolkit to help our people better
support employees and customers with
a disability and reviewing our knowledge
management system to ensure our team
can more confidently meet these needs.
Teams participated in ethical dilemma-based
decision making training this year – challenged
with real life customer scenarios and asked to
consider whether what we could do, was what we
should do. Our Customer Obsessed program also
saw team members listen in on customer calls,
visit retail stores and hospitals and talk directly
with customers – this year 1,800 non-customer
facing team members made thank you calls
to customers. It helps our people keep focused
on the needs of our customers no matter
which part of the business they work in.
People from across the business take part,
including members of our Board.
To help our people be at their best, we
continued to refine our learning and
development opportunities and introduced
new initiatives to better support our people,
including a 24/7 Employee Health Support Line,
financial wellbeing program, mindfulness and
meditation activities and Feel Good Grants
to support employee health and wellbeing
initiatives. We made our workplace safer,
launching StaySafe – a new system to keep
our people safe when working, wherever
their workplace may be.
60%
of talent pipeline
are female
-0.7%
gender pay gap
Five times
Employer of Choice
for Gender Equality
Gold Member
Australian Network
on Disability
Top three
Best Workplace
for New Dads
THANK
YOU
1,800
employees made
Thank You calls
to customers
Annual Report 2020 17
Helping Australia get healthy
We want our community to be able to thrive mentally
and physically and believe we have an important role to
play in helping people achieve this. We do this through
investing in health research, supporting community
activities and promoting healthy behaviours.
We understand that mental health is one of the
biggest issues facing Australians and we’ve worked
to increase access to support services to improve
mental wellbeing. Through our delivery of telehealth
counselling with Beyond Blue, 1800RESPECT, our
24/7 mental health support line for customers
and our partnership with Smiling Mind, we’re able
to support the community at any time, wherever
they are based. We’re also developing a long term
approach to help address one of Australia’s growing
concerns – loneliness. We have engaged some of
Australia’s leading researchers and experts to help
us build a 10-year plan to tackle loneliness and will
soon survey more than 2,000 Australians to help us
better understand the impact of chronic loneliness
on our mental and physical health.
We want all Australians to lead healthier lives.
We see the impact chronic disease has within our
community and feel the pressure it has placed on
Australia’s healthcare system. We know that many
chronic diseases such as obesity, arthritis and
back pain can be prevented through leading
healthier lives, so we’re investing in research
through our Better Health Foundation, supporting
17 projects this year, in addition to funding projects
researching the impact of COVID-19. We also gave
more than $2 million this year to support hundreds
of free, active and social activities throughout
Australia as part of our Live Better program.
We continue working to improve health equality for
Indigenous Australians through our Reconciliation
Action Plan. We’re now in our ninth year of working
with the Wadeye community in the Northern
Territory, this year helping develop a cultural health
camp for Aboriginal women within the community.
We’ve also been building new partnerships with
the Australian Indigenous Doctors’ Association to
increase the cultural safety of our services for our
Aboriginal and Torres Strait Islander customers.
And in a year that has been anything but normal,
with fires that ravaged communities and an
infectious virus, we’ve been there to provide
financial support to customers.
315,000
people took part in Live Better
community activities
$2 million+
to support free
Live Better activities
18 Medibank
Community investment*
Workplace giving 1.2%
Climate 1.1%
Employee volunteering 1.3%
Community donations 0.2%
Indigenous health equity 2.2%
Community health
sponsorships
5.8%
Health & medical
research/training
18.7%
* numbers have been rounded
to one decimal place
Childhood obesity
6.4%
Mental health
63.1%
Building a sustainable future
We believe in climate change and recognise the
link between the environment and the health
and wellbeing of our community. We’re becoming
a more environmentally sustainable business,
finding ways to minimise our footprint and
helping the transition to a low carbon economy.
Our new Environmental Policy elevates the
environment in our decision making, highlighting
the areas where we believe we can make the
biggest impact. We’ve now decided to report
against the framework of the Task Force on
Climate-related Financial Disclosures, and
we’re tracking our performance and progress
in a transparent manner.
We aim to work with suppliers who reflect our
approach and have ethical and sustainable
business practices. To support this, we’ve been
finalising our first Modern Slavery Statement
which details what we’re doing to ensure
modern slavery and human trafficking are not
occurring within our supply chains. One of the
key components of our Reconciliation Action Plan
is the support of Indigenous businesses through
procurement and this year we exceeded our target
to increase our spend with Indigenous businesses
by 25% annually over the three-year plan.
We want to make a positive impact in the
lives of our customers, our people, our
shareholders and our broader community, as
well as on our environment. We believe the
best way to do this is through responsible and
sustainable business practices. We worked with
employees, customers, shareholder groups,
community partners, government and industry
representatives to undertake a materiality
assessment to identify the big issues most
relevant to help us do that.
These material topics align with our ongoing
support of the United Nations Sustainable
Development Goals, and form the basis of
our new sustainability strategy. This focuses
on how we can work together to create a
sustainable future where everyone can live
their healthiest life.
Find out more about what we are doing to make
an impact in our first Sustainability Report.
Carbon neutral
certified under the
Australian Government’s
Climate Active program
9 years
working with the
Wadeye community in
the Northern Territory
$400,000
spent with Indigenous
businesses
Annual Report 2020 19
our sustainability highlights
FY20 highlights
$185+ million COVID-19 support package for
customers including financial hardship support,
extending health cover and postponing premium
increases
Developed Hospital Assist
Extended Health Concierge service
to paediatric admissions
Managed 250,000 COVID-19 related calls
Partnered with Smiling Mind
Donated $5 million to Beyond Blue
340,000 views of Live Better at Home
free video content
Launched short stay no gap joint replacement
surgery trial with Nexus Hospitals
8,620 patients received in-home care
Provided 259 virtual hospital beds
Launched home-based palliative care pilot
with St Vincent’s Hospital Brisbane
Launched Heart Health at Home
Lowest average premium increase in 19 years
(postponed for six months)
Developing a 10-year initiative
to help tackle loneliness
Targets / next steps
Provide more than 300 virtual
hospital beds by end of FY22
Double the uptake of our Live Better
and Health Assist programs by FY22,
while ensuring every customer* has at
least one personalised health interaction
Raise awareness of the size and scale
of loneliness as a mental and physical
health issue through a comprehensive
community awareness campaign
Ensure healthy lives
and promote wellbeing
for all ages
Material topics
– Affordable healthcare
– Trusted healthcare, customer-
centred products and services
– Healthcare innovation,
personalisation and choice
– Healthy and engaged
communities
– Supporting mental health
51% of Group and senior executives are female
Employer of Choice by the Workplace Gender
Equality Agency (WGEA), fifth year in a row
-0.7% gender pay gap
25% male participation in parental leave
Became a signatory to the Women’s
Empowerment Principles (WEPs)
Launched 1800RESPECT’s Financial Abuse
Toolkit and Escape Bag Checklist
Top three Best Workplace for New Dads
Targets / next steps
Ensure at least 40% of senior leaders
and Board members are women
Maintain at least 40% women
across our manager workforce
Improve the representation of men
in our non-manager workforce
Achieve gender equality
and empower all
women and girls
Material topic
– Diverse and inclusive workforce
Finalising first Modern Slavery Statement
84% employee engagement pre COVID-19
(rose to 91% in April)
Launched 24/7 Employee Health Support Line
and introduced financial wellbeing support
71% of employees worked flexibly
(pre COVID-19)
Signed four-year Enterprise Agreement
Invested in AUSMED clinical professional
development program and created a
Clinical Careers Pathway Hub
Launched new incident and hazard reporting
system – StaySafe
Introduced new Code of Conduct training module
Targets / next steps
Employee engagement target
of 85%, and employee advocacy
(eNPS) target of ≥19 in FY21
Improve support to employees
with caring responsibilities
Deliver $20 million in productivity
savings in FY21
* based on the number of policyholders that consent to
contact for marketing purposes, some exclusions may apply.
Excludes new joins and customer lapses over the period.
Promote sustained, inclusive
and sustainable growth, full
and productive employment
and decent work for all
Material topics
– Sustainable supply chains
– Engaged purpose-led culture,
attract and retain talent
– Healthy and safe workers
– Privacy and data security
– Corporate governance
20 Medibank
Reduce inequality within
and among countries
Material topics
– Indigenous engagement
– Disability access and inclusion
Take urgent action to combat
climate change and its impacts
Material topic
– Address the impacts of climate
change through environmental
sustainability
Strengthen the means of
implementation and revitalise
the global partnership for
sustainable development
Material topics
– Contribute to public policy
– Ethical business
FY20 highlights
9 year partnership with Wadeye community
Co-designed a women’s cultural health camp
attended by 100 women in Wadeye
Developed Australia Day module for employees
Top three in Australian Network on
Disability Access and Inclusion Index
Gold tier service provider in ACON Pride
in Health + Wellbeing Equality Index
$400,000 spent with Indigenous businesses
Targets / next steps
Upskilled customer service team
to work with the National Relay Service
Improved accessibility of our websites
and apps for people with a disability
Launched 1800RESPECT’s Disability
Pathways Project
10% of employees took part in
Indigenous cultural awareness training
Increase the representation and
self-reported engagement of:
• Indigenous employees (targeting
at least 32 employees) in FY21
• employees with a disability in FY21
Ensure 50% of employees participate
in online Indigenous cultural awareness
training in FY21
Review, assess and consult to progress
our Reconciliation Action Plan
Board endorsed new sustainability strategy
and launched our first Sustainability Report
Carbon neutral
Launched our new Environmental Policy
Working to report against the Task Force for
Climate-related Financial Disclosures (TCFD)
Updated our Motor Vehicles Policy to
ensure all new fleet vehicles are hybrid
Invested $24.5 million in green bonds
to support sustainable projects
Ongoing low carbon domestic and
international equity investments
Targets / next steps
Further enhance our alignment
to the TCFD
Remain committed to being
carbon neutral across our
Scope 1, 2 and 3 emissions for FY21
Worked with hospitals to improve
patient experiences
$1.2 million to fund 17 research projects
in partnership with 12 organisations
Launched OptimalMe –
Australia’s first pre-pregnancy to post-birth
study with Monash University
Launched Baby Sleep Support Line pilot
with Tresillian
Established a strategic partnership with
La Trobe University
Marked 4 years of partnership with the
Grattan Institute
Indigenous partnerships:
• Wadeye community
• Adam Goodes’ IDIC
• Supply Nation
• Australian Indigenous Doctors’ Association
• Thamarrurr Indigenous Youth Corporation
Community partnerships:
• parkrun Australia
• Smiling Mind
• Feel Good Program, Brisbane
• OneWave
• Live Life Get Active
• Bold and Beautiful Swim Squad, Manly
• Laughter Clubs Victoria
• No Lights No Lycra
• Stephanie Alexander Kitchen
Garden Foundation
• Red Cross
• Beyond Blue
• Kookaburra Kids
Targets / next steps
Review the strategic focus of the
Medibank Better Health Foundation
to ensure it reflects the current health
landscape and our strategic priorities
Annual Report 2020 21
Operating and financial review
1. About Medibank
2. Financial and operating performance
Medibank Private Limited (Medibank) is a leading private
health insurer in Australia. Our core business is Health
Insurance, whereby we underwrite and distribute private
health insurance policies under the Medibank and ahm
brands. Medibank Health complements our Health Insurance
business by leveraging our experience and expertise to provide
and coordinate health services to support our customers and
the community. Medibank Health also includes travel, life and
pet insurance products. As we maintain assets to satisfy our
regulatory reserves, we also generate investment income
from our portfolio of investment assets.
Medibank was founded in 1976 as a private health insurer
owned and operated by the Australian Government. We have
operated on a for-profit basis since 2009. On 25 November
2014, Medibank was sold by the Australian Government
by way of an initial public offering (IPO) and listed on the
Australian Securities Exchange. As at 30 June 2020, we
had 3,536 full-time equivalent (FTE) employees, including
1,188 health professionals.
References to “2019”, “2020” and “2021” are to the financial
years ended on 30 June 2019, 30 June 2020 and 30 June 2021
respectively, unless otherwise stated. The “Group” refers
to the consolidated entity, consisting of Medibank and its
subsidiaries. NPAT refers to net profit after tax.
The disruption caused by COVID-19 in 2020 will continue
to impact Medibank’s financial and operating performance
in 2021. Despite the challenging external environment,
particularly in the fourth quarter of 2020, our business
has proved resilient. Our people are highly engaged, our
balance sheet remains strong, we have made good progress
on growing policyholder numbers, on managing our own
expenses and setting up Medibank Health for growth.
2.1 Group summary income statement
Year ended 30 June ($m)
Group revenue from external customers1
Health Insurance operating profit
Medibank Health operating profit1
Segment operating profit
Corporate overheads
Group operating profit – continuing operations
Net investment income
Amortisation of intangibles
Other income/(expenses)
Profit before tax
Income tax expense
NPAT – continuing operations
NPAT – discontinued operations
NPAT – total operations
Effective tax rate2
EPS (cents)2
Underlying NPAT3
Underlying EPS (cents)3
Dividend per share (cents)
Dividend payout ratio3
1. Excludes discontinued operations.
2. Calculated on total operations.
2020
6,769.6
470.6
27.8
498.4
(37.4)
461.0
2.4
(9.0)
(4.2)
450.2
(134.6)
315.6
(0.6)
315.0
29.9%
11.4
366.7
13.3
12.0
90%
2019
6,655.8
542.5
22.1
564.6
(36.1)
528.5
102.8
(8.7)
(6.3)
616.3
(178.6)
437.7
21.0
458.7
29.0%
16.7
447.9
16.3
13.10
80%
Change
1.7%
(13.3%)
25.8%
(11.7%)
3.6%
(12.8%)
(97.7%)
3.4%
(33.3%)
(27.0%)
(24.6%)
(27.9%)
(102.9%)
(31.3%)
90bps
(31.3%)
(18.1%)
(18.1%)
(8.4%)
12.5%
3.
Dividend payout ratio based on underlying NPAT, normalised for growth asset returns, including property from 2020, to historical long-term expectations
and credit spread movements.
22 Medibank
Group operating profit from continuing operations decreased
by $67.5 million or 12.8%, from $528.5 million in 2019
to $461.0 million in 2020. This was largely due to Health
Insurance operating profit, which fell by $71.9 million or
$50.3 million after tax.
Net investment income was down $100.4 million to
$2.4 million in 2020, in line with the performance of
benchmark indices, reflecting challenging market conditions
for both our growth and defensive asset portfolios.
Other income and expenses fell by $2.1 million due to lower
merger and acquisition costs and in line with 2019, higher
directors’ and officers’ insurance charges were the major
driver of the increase in corporate costs.
The decrease in Health Insurance operating profit and net
investment income resulted in a $122.1 million or 27.9%
decrease in NPAT – continuing operations from $437.7 million
in 2019 to $315.6 million in 2020. The current period effective
tax rate for the Group was up 90 basis points to 29.9% in 2020,
reflecting adjustments to investment income during the period.
The key reasons for the movements in the Health Insurance
and Medibank Health results, as well as net investment
income, are outlined in this report.
Health Insurance
Year ended 30 June ($m)
Health Insurance premium revenue
Net claims expense (including risk equalisation)
Gross profit
Management expenses
Operating profit
Gross margin
Management expense ratio
Operating margin
2020
6,545.6
(5,531.6)
1,014.0
(543.4)
470.6
15.5%
8.3%
7.2%
2019
6,464.7
(5,362.1)
1,102.6
(560.1)
542.5
17.1%
8.7%
8.4%
Change
1.3%
3.2%
(8.0%)
(3.0%)
(13.3%)
(160bps)
(40bps)
(120bps)
Health Insurance premium revenue increased by 1.3% from
$6,464.7 million in 2019 to $6,545.6 million in 2020. This
increase reflects nine months of the 3.30% premium increase
which was implemented on 1 April 2019. However, in the second
half of 2020, we implemented a number of measures to support
our customers through the COVID-19 pandemic, including a
six-month postponement of the 1 April 2020 premium increase
and a financial hardship package. These measures impacted
revenue to 30 June 2020 by approximately $80 million.
In a market with industry growth continuing to slow, our
customer base remained stable at 3.76 million compared
to 3.77 million in 2019. It is pleasing that our market share
has grown by four basis points over the year, driven by our
dual brand strategy and improved customer retention.
Medibank’s market share was 26.9% as at 30 June 2020.
At a fund level, our net resident policyholder numbers
increased by 10,600 or 0.6% on a reported basis, down
20 basis points from the 0.8% growth in 2019. A total of
18,200 policyholders suspended their policies as at 30 June
2020 under financial hardship options available to Medibank
and ahm customers. Without this impact, policyholder
growth would have been 1.6% on an adjusted basis. These
suspensions are expected to be largely temporary. While
overall acquisition rates were down 60 basis points, retention
improved by 140 basis points. The fall in acquisition rates
was largely due to COVID-19 restrictions which resulted in
the closure of the Medibank retail network for most of the
fourth quarter. Improvement in retention rates reflects lower
premium rate rises and the six-month postponement of our
1 April 2020 premium increase. It also reflects our increased
focus on integrating health and wellbeing into our customers’
experience and a range of other initiatives, such as our
investment in the Medibank brand’s Live Better program and
Members’ Choice Advantage dental network; while in ahm,
we continued to transfer learnings from the Medibank
brand. The ahm brand saw a 7.3% increase in net resident
policyholders on a reported basis, with strong growth across
both direct and aggregator channels.
Medibank’s net claims expense increased by $169.5 million,
or 3.2%, to $5.5 billion, reflecting a 2.5% increase in gross
claims, which includes $67 million of lower than expected
ancillary claims due to COVID-19, alongside a significant
reduction in risk equalisation receipts. Net claims expense
also includes a $297.1 million claims liability which is in
recognition of claims from 2020 that have likely been deferred.
In 2020, Medibank paid $5.2 billion in benefits to customers.
After adjusting for the impact of provisions and the COVID-19
claims liability, underlying claims growth was 3.0%. Risk
equalisation receipts continued to be lower year-on-year, due
to strong growth in our ahm customer base and lower than
industry claims growth. The average net claims expense per
policy unit was up 2.8% in 2020.
Health Insurance gross profit was down $88.6 million, or
8.0%, to $1,014.0 million, with 1.3% premium revenue growth
offset by a 3.2% increase in net claims expense. This result
includes a $22.3 million strengthening of the 30 June 2020
claims provision, compared to a $9.7 million provision release
12 months ago, as well as a $13.0 million COVID-19 impact.
Overall, the Health Insurance gross margin before allowance
for management expenses was down 160 basis points from
17.1% in 2019 to 15.5% in 2020.
Annual Report 2020 23
Operating and financial review
Management expenses decreased by $16.7 million or 3.0%
as a result of reductions in both cash and non-cash expenses.
Depreciation and amortisation decreased by $4.3 million after
the useful life of our SAP IT systems was extended from
seven to ten years, while deferred acquisition cost
amortisation was $1.9 million lower, reflecting tightly
managed acquisition costs. Operating expenses were down
$10.5 million to $459.6 million, with circa $20 million in
productivity savings offsetting approximately 2.0% expense
inflation. COVID-19 related expenses, including a $5.0 million
donation to Beyond Blue, were offset by lower incentive
payments. We have committed to an additional $50 million
in productivity savings over the next three years, including
$20 million in 2021. There was a 40 basis point improvement
in the management expense ratio from 8.7% in 2019 to 8.3%
in 2020, which is expected to improve further with continued
revenue growth and our productivity program.
Our Health Insurance operating profit of $470.6 million was
13.3% lower than 2019, with our Health Insurance operating
margin down 120 basis points from 8.4% in 2019 to 7.2% in 2020.
Medibank Health
Medibank Health includes the provision of health
management, telehealth services for government and
corporate customers, and hospital care in the home delivered
through one of Australia’s leading national providers, Home
Support Services (HSS), which we acquired in August 2018.
With the acquisition of HSS, our capability in health services
has been further strengthened and will see more choice in the
market for Medibank customers as well as for other payors
– both public and private. We also provide in-home services
through Medibank at Home, care coordination through our
CareComplete programs and Medibank Health Concierge
service, and mobile allied health services. Medibank Health
also includes the sale of travel, life and pet insurance products.
The role of Medibank Health is to strengthen and complement
our core Health Insurance business and enhance customer
loyalty. We do this by helping customers navigate the health
system to get the care they need to better manage their
health and wellbeing.
In 2020, Medibank Health revenue from continuing operations
increased by 17.2%, or $39.7 million, to $270.0 million,
reflecting strong growth across all business lines, including
$5.8 million from our Live Better program partners and an
additional two-month contribution from HSS of $6.2 million.
There was a $5.0 million uplift in management expenses
resulting from further investment in our continuing
businesses, including approximately $8.0 million from our
in-home care and Live Better businesses. We also incurred
$1.6 million in management expenses due to the additional
two-month contribution from HSS. The increase in
management expenses was partly offset by approximately
$7.0 million in cost savings, stemming from a simplified
operating model that was implemented in late 2019.
24 Medibank
Medibank Health operating profit from continuing operations
increased by $5.7 million, or 25.8%, to $27.8 million in 2020,
with the operating margin up 70 basis points to 10.3%.
Gross margin was down 240 basis points to 41.2%, which
was offset by a reduction in the management expense ratio
from 34.0% in 2019 to 30.9% in 2020.
Net investment income
Medibank’s investment portfolio was $2.8 billion as at
30 June 2020. This investment portfolio, which includes
$2.6 billion relating to the fund portfolio, provides liquidity
to cover insurance liabilities related to the Health Insurance
business and satisfies Medibank’s obligations to maintain
regulatory reserves to meet health claims and to fund
ongoing operations.
Net investment income decreased by $100.4 million to
$2.4 million in 2020, due to the negative impact on investment
asset valuations as a result of the heightened market volatility
related to COVID-19, and lower interest rate environment
relative to last year.
Our domestic and international equity investment portfolios
remain aligned with socially responsible investment
principles.
2.2 Group financial position
Medibank’s net asset position decreased by $121.5 million
or 6.3% to $1,813.9 million as at 30 June 2020.
Some of the major movements in the consolidated statement
of financial position include:
• An increase in cash and cash equivalents driven by increased
cash holdings as a result of deferred COVID-19 claims.
• A decrease in financial assets as a result of lower valuations
in the investment portfolio.
• An increase in property, plant and equipment due to
recognition of Medibank leases on the balance sheet,
offset by the increase in trade and other payables which
includes the related lease liability.
• An increase in claims liabilities due to recognition of the
COVID-19 claims liability, offset by an increase in deferred
tax assets associated with the temporary tax treatment
of the COVID-19 claims liability.
As at 30 June 2020, Medibank’s consolidated statement of
financial position remained debt free.
2.3 Capital management and dividends
Medibank’s capital management objective is to maintain a strong
financial risk profile and capacity to meet financial commitments.
Our total Health Insurance business-related capital was 13.2% of
premium revenue after the allowance for determined but unpaid
dividends, as at 30 June 2020. This was marginally above
the top end of Medibank’s target range of 11%-13%.
In November 2018, the Australian Prudential Regulatory
Authority (APRA) announced its intention to harmonise the
health insurance capital framework with Life and General
Insurance Capital (LAGIC) standards. We are well placed to
implement this framework as our Capital Management Policy
is already closely aligned with LAGIC. Effective from 2020
we have reduced our target capital range from 12%-14%
of premium revenue, to 11%-13% of premium revenue.
Dividends paid or payable in respect of profits from the
financial year totalled 12.0 cents per share fully franked,
amounting to $330.5 million comprising:
• An interim ordinary dividend of 5.70 cents per share fully
franked, amounting to $157.0 million paid on 26 March 2020
in respect of the six-month period ended 31 December 2019.
• A final ordinary dividend of 6.30 cents per share fully
franked, amounting to $173.5 million to be paid on
24 September 2020 in respect of the six-month period
ended 30 June 2020.
The full year 2020 ordinary dividend represents a 90% payout
ratio of underlying NPAT, normalising for investment market
returns. This is in line with the outlook statement provided in
our half year results announcement, where we advised the
market that the dividend payout ratio was expected to be at
or above the top end of our annual payout ratio range of
between 75% and 85% of underlying NPAT.
2.4 Management changes
There were no changes to Medibank’s Executive Leadership
Team in 2020.
3. Strategy and future prospects
Medibank’s purpose is ‘Better Health for Better Lives’.
As an organisation, we are committed to improving the
health and wellbeing of Australians and helping people
lead better quality lives. By working to provide affordable
and quality health outcomes, we seek to sustainably build
our customer base and grow shareholder value.
Our strategy remained unchanged in 2020 as we continued
to focus on leveraging our dual brand strategy to create a
competitive advantage in health insurance and transforming
into a broader healthcare company. Delivering for our
customers and broadening the relationships we have with
them through expanded offerings remained a key focus.
Medibank’s offering has been strengthened by growing our
capability to proactively understand and address the needs
of our customers.
Aligned with our strategy to personalise customer experience,
we scaled Live Better and increased engagement in our
rewards program. We also partnered with Specsavers to
improve eye health, affordability and choice for Medibank
customers through our Members’ Choice Advantage optical
offering. Further, eligible Live Better rewards members with
extras cover now have access to an industry-leading no gap
range and the ability to earn Live Better points on optical
purchases. Through a collaboration with our health and
wellbeing partners, members can now earn Live Better points
when they shop at Specsavers, Amcal Pharmacy, HelloFresh,
Fitbit, Brooks Running and Onsport.
During the COVID-19 pandemic we launched Live Better at
Home nationwide, giving all Australians access to free online
programs including workout videos, cooking demonstrations
and guided meditation, aimed at helping the community
stay active and healthy. The program has attracted more
than 340,000 views since its launch. Medibank also brought
together its broad range of health services to develop
COVID-19 Health Assist, a program providing customised
health and wellbeing support for eligible customers
throughout the COVID-19 pandemic.
Medibank Health significantly scaled its operations in 2020,
implementing a range of new community telehealth support
services in response to the COVID-19 pandemic, including
targeted frontline health advice and support programs. On
top of the existing services we deliver on behalf of our clients
across the country, we employed approximately 680 temporary
frontline clinicians and have handled more than 250,000
COVID-19-related interactions to date.
Affordability remains the greatest challenge for our industry
and is a key issue for our customers. Recognising the
importance of managing costs within the health system,
we maintained strong cost discipline and have delivered
approximately $60 million in productivity savings over the
past three years. We will also target a further $50 million
of productivity across the next three financial years,
including $20 million in 2021.
We continue to play a broader role in supporting alternative
care settings to provide customers with more choice over
how and where their healthcare is delivered and believe
that we are uniquely placed to lead the in-home care market.
In 2020, 8,620 patients used hospital in the home, Rehab
at Home or other pilot programs, of which 5,854 were
Medibank customers.
We have also recently announced a 49% minority shareholding
in East Sydney Private Hospital. Our investment will fund
the capital investment and operational costs required for
the hospital and doctors to scale their short stay model of
care. The short stay model minimises the time a patient
spends in hospital, where clinically appropriate, by giving
them the option to recover and rehabilitate in the comfort of
their home with full in-home support by nurses, allied health
practitioners and personal carers. It is a doctor-led alternative
to traditional long hospital stays that can help alleviate
pressure on the health system, health insurance premiums
and out-of-pocket costs. The investment demonstrates our
intention to invest to support the roll out of the model. It also
complements Medibank’s no gap joint replacement pilot that
is underway in Melbourne, and which has recently expanded
to hospitals in Sydney, Brisbane and Adelaide.
Annual Report 2020 25
Operating and financial review
We made pleasing progress against our 2020 strategic pillars
and milestones, which we will continue to build on in 2021.
While our strategy and strategic pillars remain unchanged,
we have updated some of our priorities for 2021. In the year
ahead, our focus will shift more towards embedding and
scaling our existing health and wellbeing offers into our
customers’ experience. We will have an even sharper focus
on enhancing value by moderating health system cost growth,
particularly in a post-COVID-19 environment. Continuing to
offer more choice to our customers and reducing out-of-
pocket costs remains a priority, with clinically led alternative
ways of delivering care a key part of the solution. To achieve
this, we will continue to strengthen and broaden our
partnerships with healthcare providers and corporates.
Aligned with our updated priorities and reflecting on our
progress, we have revised several of our milestones for
2021. Firstly, we have broadened our customer advocacy
milestone to include employee experience, reflecting the
importance of our people’s engagement and the impact this
has on growing our company. We have expanded our health
interactions milestone, which is a critical component of our
product and services differentiation. This milestone includes
health education, prevention through Live Better interactions
and support through Medibank Health Assist interactions.
We have also refined our health insurance growth milestone
and updated our productivity agenda. Our in-home care and
Medibank Health milestones remain unchanged for 2021.
The impact of COVID-19 in 2021 cannot be predicted with
any certainty; however Medibank remains positioned for
growth. We will leverage our dual brand strategy to build
competitive advantage in health insurance and continue
our transformation to be a broader healthcare company.
This has been the right strategy for our business and
will continue to inform our decision making as we
navigate through the challenges and uncertainty of the
COVID-19 pandemic. Aligned with this overarching
strategy, our milestone objectives and priorities for
2021 are detailed below.
Strategic
pillar
Deliver differentiated products
and services for customers
Continue to improve healthcare
value for customers
Expand the offering for customers
and grow the business
FY21
priorities
• Leverage our dual brand
strategy to grow
competitive advantage
• Personalise and integrate
more health and wellbeing
into our customers’
experience
• Focus on promoting better
value care and improving
customer outcomes by providing
greater choice and transparency
• Work with stakeholders to
reduce out of pocket costs and
target lower premium increases
• Enhance and scale our
• Facilitate a shift to alternative
loyalty offering to recognise
and reward membership
• Simplify and enhance
our cover options
ways of delivering care to
enhance patient experience
and reduce costs
• Refocus our payment integrity
program towards prevention
over recovery
• Strengthen and broaden
our partnerships
• Grow corporate and reposition
our non-resident and diversified
offerings for rebound and future
growth
• Build scale, co-design and grow
our health services capability
in conjunction with health
providers and third-party payors
• Targeted inorganic growth
for Medibank Health and
Health Insurance in a stressed
operating environment
Enablers
People
| Data insights
| Technology
26 Medibank
FY21 Milestone scorecard
Objectives
Measures and targets
1. Customer and employee
advocacy
Continue to achieve a high
level of advocacy by delivering
exceptional experiences for
our customers and employees
Customer advocacy
(average Service NPS)
Medibank
ahm
FY19
24.8
38.5
FY20
31.8
41.2
FY21
target
>30
>40
Employee advocacy
Engagement
eNPS
FY19
85%
+29
FY20
84%
+19
Apr 20
91%
N/A
FY21
target
≥85%
≥+19
2. Health and wellbeing
Education
Prevention
Support
differentiation
Double the uptake of
Medibank’s Live Better and
Health Assist programs by
FY22 while ensuring every
customer1 has at least
one personalised health
interaction through the year
FY22
target
FY20
FY20
FY22
target
Health
engagement
interactions
c. 2m > 2m
Live Better
engaged
customers2
c. 500k > 1m
Health
Assist
Interactions3
FY22
target
FY20
74k
>150k
3. Health insurance growth
Policyholder growth
By brand
Market share
We aim to increase market
share and achieve total
policyholder growth4 of
>1% assuming a flat market,
including an aspiration to
grow the Medibank brand
during FY21
1 July 19 – 30 June 20
+0.6% / +10.6k
FY21 Target:
>1% policyholder growth4
Medibank: -1.3% / -17.8k
ahm: +7.3% / +28.4k
1H20
up 8bps
2H20
down 4bps
4. In-home care
Total
Medibank customers
Virtual hospital beds more
than 300 by end of FY22
30 June 19
c. 200 beds
30 June 20
259 beds
30 June 22
target >300 beds
30 June 2020
5,854 Medibank customers serviced by 201 beds
5. Medibank Health
Medibank Health segment operating profit
By FY22 organically replace
the reported FY18 $30m
operating profit of Garrison
FY18 (baseline)5 FY19
$47.3m
$22.1m
FY20
$27.6m
6. Productivity
Productivity delivered
FY21 productivity target of
$20m and additional $30m
during FY22 – FY23
FY18 – FY19
c. $40m
FY20
c. $20m
FY21
Target $20m
FY22 – FY23
Target $30m
1. Based on number of policyholders that consent to contact for marketing purposes, some exclusions may apply. Excludes new joins and customer lapses
over the period.
2. Includes the number of customers who have downloaded Live Better and enrolled for rewards plus Live Better at Home interactions.
3. Includes Health Concierge, 24/7 Support, CareComplete, Medibank at Home, Better Knee, Better Me, Heart Health at Home and other new program
interactions.
4. Excluding the impact of policyholder suspensions due to COVID-19 financial hardship.
5. Includes the $30m operating profit of Garrison.
Annual Report 2020 27
Operating and financial review
4. Material business risks
The material business risks which could affect Medibank’s operations, business strategies and financial prospects are
summarised below.
The COVID-19 pandemic has, and will continue in 2021 to, impact Medibank’s material business risks. Medibank continuously
monitors the uncertainty introduced by COVID-19 and its impact on its risk profile, both on financial and non-financial risks.
Where appropriate, Medibank has strengthened its internal control system to address increased risk exposures caused by
the pandemic in relation to its operational, financial and strategic risks.
Risk description
Risk management strategy
Strategic
The risk that we are unable
to identify and execute the
right strategic initiatives and
projects on target and on
time that deliver measurable
and agreed outcomes to
support our goals.
Operational
The risk of financial loss
resulting from inadequate
or failed internal processes,
people and systems or from
external events.
Medibank’s strategic risks are identified and assessed as part of our annual strategic
planning process and endorsed by the Board. Key strategic risks identified include loss of
private health insurance customers, healthcare costs and utilisation, regulatory risk, and
execution of non-private health insurance growth.
These risks influence the prioritisation of investments and resources in the Corporate Plan,
which is approved by the Board. To effectively understand and assess some key strategic
risks that are broad in nature (e.g. regulatory and customer risks), we undertake detailed
analysis on threats or opportunities that specific scenarios may pose to our business.
Medibank has established risk management policies and procedures for identifying,
assessing, monitoring and reporting operational risks and controls. This includes the
important areas of information security, technology, business continuity, outsourcing,
fraud, people, and health and safety risks. Management of operational risk is overseen
by divisional risk committees, the Executive Risk Committee and the Board’s Risk
Management Committee.
Credit
Exposure to this risk is primarily through Medibank’s investment portfolio.
The risk of financial loss
due to counterparties failing
to meet all or part of their
contractual obligations.
Capital & liquidity
The risk of not being able to
meet financial commitments
as and when they are due
and in complying with APRA
prudential standards on
solvency and liquidity.
Market & investment
The risk of adverse financial
impact market factors e.g.
foreign exchange rates,
interest rates and equity
prices.
This risk is managed through the application of the Investment Management Policy. The
effective implementation of this policy is overseen by the Board’s Investment and Capital
Committee to ensure that credit risk is managed in line with the risk appetite set by the Board.
Medibank has a Board-approved Liquidity Management Policy and a Board-endorsed plan
designed to ensure it meets or exceeds regulatory solvency requirements and is able to
meet all payments as and when they fall due. Liquidity risk is managed by our treasury
function through daily cash management of cash flows and liquid asset positions and
projected future cash flows, supported by actuarial forecasts that take into account
anticipated seasonality as well as stressed market conditions.
Medibank has a Board-approved Investment Management Policy. The Board’s Investment
and Capital Committee oversees the investment process and compliance with investment
mandates, performance against benchmarks and asset allocation.
Our strategic asset allocation is weighted largely towards defensive assets and with limits
applied to illiquid assets.
28 Medibank
Risk description
Risk management strategy
Insurance
The risk of misestimation
of incurred and expected
costs, frequency and
severity of insured events.
The Board approves the Pricing Policy, which includes pricing and profitability objectives
and forms a key part of the Capital Management Plan. Medibank’s objective is to support
customer growth through balancing the offer of competitive value to all customers
with profitability objectives and the need to meet capital management and regulatory
requirements.
Insurance risk is a key part of regular portfolio monitoring and where experience
deviates from target or breaches minimum thresholds, response plans are formulated
and implemented.
Clinical
The risk of unexpected,
adverse clinical outcomes
from a health service
provided by Medibank,
or a third party acting on
behalf of Medibank.
Clinical risk arises from clinical services that Medibank provides and procures, the provision
of health-related information, and customer health initiatives.
We have implemented a clinical governance and quality management framework that
defines the principles, structures and processes that underpin service quality, continuous
improvement and patient safety. Medibank has appointed a Chief Medical Officer, supported
by a clinical governance team, to provide oversight and assurance. The Risk Management
Committee and Board receive regular reporting on the performance of clinical risk
management.
Regulatory compliance
Failure to comply with
regulatory requirements.
Medibank has established a compliance management system. It incorporates a structured
approach to managing its key regulatory obligations, and systems and procedures for
identifying and remediating compliance incidents.
Annual Report 2020 29
Directors
From L to R: Anna Bligh, Christine O'Reilly, Craig Drummond, David Fagan, Elizabeth Alexander, Linda Bardo Nicholls, Tracey Batten, Mike Wilkins
and Peter Hodgett.
Name and title
Biography
Elizabeth Alexander AO
Chairman and Independent
Non-executive Director
Elizabeth was appointed a director in October 2008 and Chairman in March 2013. She is
Chairman of the Nomination Committee and a member of the Audit Committee and the
Risk Management Committee.
BCom, FAICD, FCA, FCPA
Age: 77
Elizabeth is currently Chairman of DEXUS Wholesale Property Limited, and a director of
the IOOF Foundation and the Victorian Registration and Qualifications Authority.
As a former partner at PricewaterhouseCoopers (1977 to 2002), Elizabeth specialised in the
area of risk management and corporate governance. Elizabeth was previously a director of
DEXUS Funds Management Limited as part of the DEXUS Property Group (January 2005 to
October 2017), Boral Limited and Amcor Limited, and Chairman of CSL Limited. She is a
former Chair of the Australian Prudential Regulation Authority’s Risk and Audit Committee.
Elizabeth is also a former National President of CPA Australia and the Australian Institute
of Company Directors, and a former member of the Takeovers Panel. She is a former
Chancellor of the University of Melbourne and Chair of its Finance Committee.
Craig was appointed Chief Executive Officer in July 2016.
Prior to joining Medibank, Craig was Group Executive Finance and Strategy of National
Australia Bank (NAB), having joined NAB in November 2013. At NAB, his focus was the
strategic realignment and repositioning of the bank, its balance sheet and its performance
management systems. Prior to NAB, Craig was Chief Executive Officer and Country Head
of Bank of America Merrill Lynch (Australia). Earlier in his career, Craig joined JBWere, a
leading Australian stockbroker and wealth manager, in equity research and subsequently
held roles including Chief Operating Officer, Chief Executive Officer and Executive Chairman
of Goldman Sachs JBWere.
Craig is a director of the Geelong Football Club Limited. He is also a member of the Finance
Committee of the Ian Potter Foundation Limited.
Craig Drummond
Chief Executive Officer
BCom, FCA, SF Fin
Age: 59
30 Medibank
Name and title
Biography
Dr Tracey Batten
Independent Non-executive
Director
MBBS, MHA, MBA, FAICD, FRACMA
Age: 54
Tracey was appointed a director on 28 August 2017. She is a member of the Risk
Management Committee and the People and Remuneration Committee.
Tracey has extensive experience in the health services sector, with strong commercial,
business and change leadership skills.
Tracey is currently a director of Abano Healthcare Group Limited, the National Institute
of Water and Atmospheric Research in New Zealand and the New Zealand Accident
Compensation Corporation.
Most recently, Tracey was the Chief Executive of the Imperial College Healthcare NHS
Trust in the United Kingdom. In that role, Tracey focused on change leadership, in particular
improving organisational culture and strengthening patient safety and experience.
Tracey also oversaw the implementation of a range of digital initiatives as Chief Executive.
Tracey is a former Chief Executive of St Vincent’s Health Australia, which runs a group of
public hospitals, private hospitals and aged care facilities.
Anna was appointed a director in December 2012. She is a member of the Investment
and Capital Committee and the People and Remuneration Committee.
Anna is currently the Chief Executive Officer of the Australian Banking Association and
a director of the International Banking Federation (IBFed).
Anna has extensive experience in leadership and public policy, including in the fields of
healthcare, finance, infrastructure and project management. She has held several roles
in the Queensland Government, including Premier, Treasurer, Minister for Finance,
Minister for State Development, Minister for Trade and Innovation and Minister for
Education. She was also a member of the Queensland Cabinet Budget Review Committee
for 11 years. Anna was a director of Bangarra Dance Theatre Australia.
David was appointed a director in March 2014. He is Chairman of the Risk Management
Committee and a member of the Investment and Capital Committee and the Nomination
Committee.
David is a highly experienced commercial lawyer. He held a variety of leadership positions
at Clayton Utz culminating in the role of Chief Executive Partner for nine years. In this role,
David had responsibility and accountability for leadership and transformation, strategy,
finance, stakeholder engagement, and governance, including risk management. During
David’s tenure as Chief Executive Partner, Clayton Utz entrenched itself as a first class top
tier commercial law firm. David also chaired the Medibank Privatisation Committee which
operated during 2014 in preparation for the privatisation process. David is a former director
and Chair of the Audit Committee of The Global Foundation, a former director of Grocon
Funds Management Group and the Hilco Group and a former member of the advisory
board of Chase Corporate Advisory.
David is currently a director of PayGroup Limited (since November 2017). He is Chair of
BDO Group Holdings Limited, a director and Chair of the Audit and Risk Committee of
UBS Grocon Real Estate Investment Management Pty Ltd and a member of the ASIC
Corporate Governance Consultative Panel.
Peter was appointed a director in June 2013. He is Chairman of the Investment and Capital
Committee, and a member of the Audit Committee and the Nomination Committee.
Previously, Peter worked for AMP for more than 20 years in a wide variety of business and
functional roles, including Chief Actuary during its demutualisation, General Manager
of Human Resources and Strategy, and as Global Director of Finance and Operations for
Henderson Global Investors in the United Kingdom. He was also a director (until June 2019)
of Colonial First State Investments Limited, Colonial Mutual Superannuation Pty Limited
and Avanteos Investments Limited.
Anna Bligh AC
Independent Non-executive
Director
BA (QLD)
Age: 60
David Fagan
Independent
Non-executive Director
LLB, LLM, GAICD
Age: 63
Peter Hodgett
Independent
Non-executive Director
BSc (Hons)
Age: 65
Annual Report 2020 31
Directors
Name and title
Biography
Linda Bardo Nicholls AO
Independent
Non-executive Director
BA, MBA (Harvard), FAICD
Age: 72
Christine O’Reilly
Independent
Non-executive Director
BBus
Age: 59
Mike Wilkins AO
Independent
Non-executive Director
BCom, MBA, FAICD, FCA
Age: 63
Linda was appointed a director in March 2014. She is Chairman of the People and
Remuneration Committee and a member of the Nomination Committee.
Linda has more than 30 years of experience as a senior executive and director in banking,
insurance and funds management in Australia, New Zealand and the United States.
She is currently Chairman of Japara Healthcare Limited (since March 2014) and a director
of Inghams Group Limited (since November 2016). Linda is also Chairman of the Board of
Melbourne Health and a member of the Museums Board of Victoria.
Linda’s previous directorships include Fairfax Media Limited (February 2010 to December
2018), Pacific Brands Limited (October 2013 to July 2016), Sigma Pharmaceuticals Limited
(December 2005 to December 2015) and Healthscope Limited, as Chairman (October 2008
to October 2010) and a director (January 2000 to October 2010).
Christine was appointed a director in March 2014. She is Chairman of the Audit Committee
and a member of the Risk Management Committee and the Nomination Committee.
Christine is currently a director of CSL Limited (since February 2011), Transurban Group
(since April 2012), Stockland (since August 2018) and the Baker Institute.
Christine has more than 30 years of financial and infrastructure experience both in Australia
and internationally in various roles including as Co-head of Unlisted Infrastructure at
Colonial First State Global Asset Management and Chief Executive and Managing Director of
GasNet Australia Group. Christine’s early career includes eight years in investment banking
and audit experience with Price Waterhouse, where she qualified as a chartered accountant.
Mike was appointed a director in May 2017. He is a member of the Risk Management
Committee and the Investment and Capital Committee.
Mike is the Chairman (since March 2020) and a director (since November 2016) of QBE
Insurance Group Limited. He is also a director of Scentre Group Limited (since April 2020).
Mike has more than 30 years of experience in financial services, predominantly in Australia
and Asia. He served as Managing Director and Chief Executive Officer at Insurance Australia
Group (November 2007 to November 2015), Managing Director and Chief Executive Officer at
Promina Group Limited and Managing Director at Tyndall Australia Limited. He also served
as Acting Chief Executive Officer (April 2018 to December 2018), Executive Chairman (April
2018 to June 2018) and a director (September 2016 to February 2020) of AMP Limited. He was
previously a director of Maple-Brown Abbott Limited, Alinta Limited, The Geneva Association
and the Australian Business and Community Network.
Company Secretary
Name and title
Biography
Mei Ramsay
Group Executive –
Legal, Governance &
Regulatory Affairs and
Company Secretary
BA, LLB, LLM
32 Medibank
Mei was appointed Group Executive – Legal, Governance & Regulatory Affairs in September
2016 and has been the Company Secretary for Medibank Private Limited since 2014. Mei
previously held the position of Group General Counsel from 2011.
She is responsible for leading the legal and governance functions, including compliance,
regulatory affairs and company secretariat, and providing legal and corporate governance
advice to Medibank’s Board, Chief Executive Officer and senior management.
Mei has more than 20 years of experience in the legal profession, both as a senior in-house
legal adviser for multinational and international companies, as well as a private practitioner.
Prior to joining Medibank, Mei was the General Counsel and Company Secretary for the Asia
Pacific region at Cummins Inc, and before that held various senior legal positions at Coles
Myer Ltd and Southcorp Limited. Mei started her legal career at Arnold Bloch Leibler and
also worked as a Senior Associate at Minter Ellison.
Mei is currently the Vice President of the Association of Corporate Counsel (ACC) Australia,
a member of the Executive of the ACC GC100 and former Chair of the ACC GC100, and a
member of Chief Executive Women.
Executive leadership team
From L to R: Mei Ramsay, John Goodall, Andrew Wilson, Craig Drummond, David Koczkar, Mark Rogers and Kylie Bishop.
Name and title
Kylie Bishop
Group Executive –
People & Culture
BA (Hons) Psy, MOrgPsych
John Goodall
Group Executive –
Technology & Operations
BSc (Hons)
Biography
Kylie was appointed Group Executive – People & Culture in July 2013.
She is a registered psychologist, specialising in organisational psychology and is responsible
for leading the key people functions across Medibank. This includes talent, capability and
culture, performance and rewards, shared services, workplace relations, health, safety and
wellbeing, employee communications, community and environment, social and governance.
Kylie is responsible for leading Medibank’s cultural transformation program focused
on customer first, inclusion and values, and health and wellbeing – bringing Medibank’s
‘Better Health for Better Lives’ purpose to life for all employees.
Kylie began her career in human resource consulting and prior to joining Medibank in 2010,
held senior positions with National Australia Bank (NAB).
Kylie is currently a director of Basketball Victoria.
John was appointed Group Executive – Technology & Operations in December 2016.
He is responsible for Medibank’s core IT platforms, property, procurement and operations
with a focus on leveraging our systems, processes and information to deliver enhanced
service outcomes for Medibank’s customers.
John has more than 25 years of experience working in and leading IT functions across the
retail and financial services industries and utilising technology to drive business growth
and align business systems and processes to customer needs.
Prior to joining Medibank, John held the role of General Manager Enterprise Technology
at Sportsbet, and before his time at Sportsbet he spent 20 years at GE Capital Australia
and New Zealand where he held a number of roles, including Chief Information Officer.
Annual Report 2020 33
Name and title
Biography
David Koczkar
Group Executive –
Chief Customer Officer
BCom, PG Dip Finance, MAICD
Mark Rogers
Group Executive –
Chief Financial Officer
BEng (Hons), BSc
Dr Andrew Wilson
Group Executive –
Healthcare & Strategy
MBBS, MM, FRANZCP, FACHSE
David was appointed Group Executive – Chief Customer Officer in September 2016. Prior
to that he held the role of Chief Operating Officer from March 2014 and was Acting Chief
Executive Officer between April 2016 and June 2016.
He is responsible for Medibank's consumer businesses, including the Resident and Overseas
Health and Diversified Insurances portfolios and the ahm business. David is accountable
for Medibank’s health and wellbeing offerings, all key customer touchpoints, including
the Group’s retail, customer contact and digital channels, and the customer strategy and
analytics, sales and marketing and portfolio management functions.
Prior to joining Medibank, David was the Group Chief Commercial Officer at Jetstar where
he was responsible for the airline group’s network management, sales and marketing,
customer channels and commercial operations, including as a director of Jetstar Pacific
(Vietnam), Jetstar Hong Kong and NewStar (Singapore) JV businesses.
David has more than 25 years of strategy, customer and commercial experience,
including previous work in the strategy consulting and financial services industries.
Mark was appointed Group Executive – Chief Financial Officer in January 2017.
Mark is responsible for the finance, actuarial, treasury and investor relations functions
across Medibank and has more than 20 years of experience spanning health and financial
services.
Before joining Medibank, Mark held the role of General Manager, Group Performance
and Planning at National Australia Bank (NAB) since 2013, where he was responsible for
management reporting, performance management, planning and forecasting, and capital
allocation. Preceding this, Mark was General Manager, Group Development.
Prior to this, Mark was responsible for Group Strategy and Development for the Mayne
Group, a diversified healthcare, pharmaceuticals and pharmacy business, where he was
accountable for the management of the Group’s strategy, capital management and mergers
and acquisitions. Prior to that role, Mark led Group Investor Relations at Mayne Group.
Mark is a director of East Sydney Private Hospital.
Andrew was appointed Group Executive – Healthcare & Strategy in September 2016, having
previously held the role of Executive General Manager – Provider Networks & Integrated
Care since 2013.
Andrew is responsible for Medibank’s Group strategy and the Medibank Health Solutions
business, which provides health services on behalf of business and government, including
in-home care and services into residential aged care. He is also responsible for Medibank’s
healthcare purchasing, relationships with providers and enhanced care initiatives to support
members in primary and community settings.
Andrew has 25 years of experience in the health system, and remains a practising clinician
and lecturer. He was a founder and Co-president of McKesson Asia-Pacific, which was
acquired by Medibank in 2010.
Andrew is a director of East Sydney Private Hospital and a director of Private Healthcare
Australia Limited.
34 Medibank
Corporate governance statement
Medibank was founded in 1976 as a private health insurer
and was operated by the Australian Government. In 1998,
Medibank Private Limited became the operating entity with
the Commonwealth of Australia as the sole shareholder. In
2014 the Australian Government sold Medibank by way of an
initial public offering, and divested all its shares in Medibank.
Medibank listed on the Australian Securities Exchange (ASX)
on 25 November 2014.
The Board is committed to improving our customers’
experience and providing them with greater value. In line with
this, the Board seeks to ensure that Medibank is properly
managed to protect and enhance shareholder interests, and
that Medibank, its directors, officers and employees operate
in an appropriate environment of corporate governance.
The Board has a framework in place for governing Medibank. This
includes adopting internal controls, risk management processes
and corporate governance policies and practices, designed to
promote responsible management and ethical conduct.
During the year, Medibank had in place policies and practices
which comply with the recommendations in the ASX Corporate
Governance Council Corporate Governance Principles and
Recommendations (CGPRs), 3rd edition, and is in the process
of updating its policies and practices to comply with the
recommendations of the 4th edition of the CGPRs in 2021. As a
registered private health insurer, Medibank also complies with a
governance standard issued by the Australian Prudential Regulation
Authority (APRA). The key corporate governance practices
applied at Medibank are described in this statement and the key
corporate governance policies are available on the corporate
governance section of our website at www.medibank.com.au.
Governance structure
The governance and performance of Medibank is overseen by the Board elected by the shareholders.
Medibank Private Limited Board
Oversees management of Medibank on behalf of shareholders
Audit
Committee
Oversees
financial
reporting
Risk Management
Committee
Oversees current
and future risk
management
Investment
and Capital
Committee
Oversees investment
and capital management
activities
People and
Remuneration
Committee
Oversees key
remuneration and people
policies and practices
Nomination
Committee
Oversees board
and committee
membership and
succession planning
Chief Executive Officer
Responsible for the day-to-day management of Medibank and implementation of the strategic objectives
Executive Leadership Team
Supports the Chief Executive Officer with running the business and delivering on the strategic objectives
Roles and responsibilities of the Board and management
The Board provides overall strategic guidance for Medibank
and effective oversight of management. Responsibility for the
governance of Medibank, including establishing and monitoring
key performance goals, rests with the Board. The Board
monitors the operational performance and financial position
of Medibank, as well as overseeing the business strategy and
approving strategic goals. In performing its role, the Board is
committed to ensuring sound corporate governance practices.
The Board Charter, which is available on our website,
articulates the Board’s roles and responsibilities, its
membership and operation, and which responsibilities may
be delegated to committees or to management. Specific
responsibilities have been reserved by the Board in key areas
of strategy, governance (including disclosure), executive
appointments, financial approvals and reporting, risk
management and culture. The Board has established standing
committees to assist in performing its responsibilities.
These committees examine particular issues in detail and
make recommendations to the Board. A description of these
committees can be found on pages 38 to 40.
The Chief Executive Officer (CEO) has responsibility for
managing the day-to-day affairs of Medibank. The CEO, with
the support of the Executive Leadership Team (ELT), manages
Medibank in accordance with the Board-approved Corporate
Plan, the corporate strategy and Medibank’s policies within the
risk appetite set by the Board. A detailed delegation of authority
framework defines the decision making and expenditure limits
that apply at various levels of management.
Annual Report 2020 35
Corporate governance statement
Key areas of focus for the Board in 2020
Corporate governance (including COVID-19)
• Oversight of COVID-19 impacts and response, including:
– Ensuring the health and wellbeing of our customers,
people and the community.
– Customer givebacks and hardship policies.
– Accounting and regulatory responses, including in
relation to claims liability and capital stress testing.
– Business continuity management.
– Managing retail stores and offices in a safe manner.
• Oversight of the enhancement of the enterprise risk
and compliance management framework and risk and
compliance culture, including review and monitoring of
financial and non-financial material risks and emerging
risks and the coordination of the first review by the
Appointed Auditor as required by APRA Prudential
Standard CPS510.
• Oversight of environmental, social and governance
(ESG) strategy and the governance framework, including
implementing measures to update policies and processes
to comply with the 4th edition of the CGPRs.
Strategy and execution
• Review of strategy, including evaluation of opportunities for:
– Enhancement of customer experience.
– Improving affordability for customers.
– Expansion of health and care services.
– Improvement of customer health outcomes.
• Oversight of acquisitions and organic growth initiatives
to support execution of strategy.
• Review and approval of Corporate Plan, budget
and performance targets and oversight of business
performance against these targets.
People, remuneration and culture
• Oversight of our people and our culture, including
monitoring of the remuneration framework and ensuring
we have a strong people agenda focused on skills
development.
• Review of Board composition, including consideration
of succession planning.
• Oversight of succession planning for the executive
leadership team.
Structure and composition of the Board
The Board comprises nine directors in total – eight
non-executive directors, including a non-executive
Chairman, and the CEO.
The Chairman of the Board is responsible for providing
leadership to the Board and Medibank as a whole.
The Chairman’s other key responsibilities are outlined
in the Board Charter.
36 Medibank
As announced on 20 August 2020, Elizabeth Alexander AO (an
independent, non-executive director) will retire as Chairman
of the Board and as a director of Medibank, and will be
replaced as Chairman by Mike Wilkins AO, effective 1 October
2020. Mike Wilkins is an independent, non-executive director
who has served on the Board since May 2017.
Biographies of the directors, including their skills, experience
and year of appointment, are set out on pages 30 to 32 of the
annual report. Details of directors’ attendance at Board and
committee meetings during the year ended 30 June 2020
are on page 46. The length of service of the non-executive
directors ranges from two years and 11 months to 11 years
and 10 months.
Independence
Directors are expected to bring an independent judgement
to bear on all Board decisions. A director is considered
independent if they are a non-executive director who is not
a member of management, and are free of any business or
other relationship that could materially interfere with the
exercise of their unfettered and independent judgement or
could reasonably be perceived to do so.
Each director provides periodic updates of their interests,
positions, associations and relationships, and all directors
must keep the Board advised on an ongoing basis of any
interest that could potentially conflict with those of Medibank.
Directors will be required to abstain from participating in
discussions or voting on any matters in which they have,
or may be perceived to have, a material personal interest.
The Board regularly assesses the independence of each
director in light of the interests disclosed. The Board
has assessed the interests, positions, associations and
relationships of each director as at the date of this statement.
It has determined that all non-executive directors satisfy the
independence criteria recommended by the ASX Corporate
Governance Council and prescribed by APRA.
To provide an opportunity for independent discussion, the
non-executive directors meet without management present
at the commencement of each Board meeting.
Appointment and re-election of directors
Medibank’s Constitution provides that a director may be
appointed by the Board, and if so, is subject to election
by shareholders at the annual general meeting (AGM)
following their appointment if they wish to remain a director
(other than the CEO). Individuals may also be nominated
by shareholders to stand for election as a director at the
AGM. The Constitution requires an election of directors
at each AGM, and a director must retire and may stand for
re-election by the third AGM following the director’s election.
Anna Bligh, Tracey Batten and Mike Wilkins will retire and
offer themselves for re-election at the upcoming AGM
on 12 November 2020. Further information about these
directors is set out on pages 30 to 32 of the annual report,
and in the notice of annual general meeting.
Before appointing a person as a director, the Board
undertakes checks as to that person’s character, experience
and background, including criminal and bankruptcy checks.
Medibank has a ‘Fit and Proper Policy’ that complies with
APRA’s Fit and Proper Prudential Standard. This standard
requires that a person in a position of responsibility, including
a director, be assessed prior to appointment (or in some
cases, as soon as possible after appointment) and on an
ongoing basis as to whether the person meets the fit and
proper requirements. The person must have the appropriate
skills, experience and knowledge to perform the role and
act with the requisite character, diligence, honesty, integrity
and judgement.
Upon appointment, each non-executive director enters into a
service agreement setting out the terms of their appointment.
This includes the requirement to build a shareholding in
Medibank in order to align the interests of directors with those
of shareholders. The Minimum Shareholding Policy requires
non-executive directors to acquire shares equal to the value
of one year’s base fee after tax over a period of five years.
As part of the appointment process, Medibank enters into a
deed of indemnity, insurance and access with each director.
Each director is indemnified against liability in connection
with their role as a director and Medibank is required to
maintain a directors’ and officers’ insurance policy. The deed
confirms and extends the director’s general law rights of
access to Board papers and other records of Medibank.
Director induction, continuing education and access
to information
The Board is committed to enhancement of the capabilities
of each director and the performance of the Board generally.
Upon joining the Board, all new non-executive directors
undertake a full, formal and tailored induction program.
The program includes meetings with the Chairman, CEO,
ELT and senior leaders on Medibank’s business, strategy and
operation. The Board is provided with ongoing professional
development opportunities during the year. This involves
formal briefing sessions on a range of subjects by key
stakeholders, including regulators and industry experts, to
provide deeper insights on industry context and trends. This
also includes visits to Medibank’s contact centres and retail
centres, customer engagement, conference attendance,
and participation in the management-led Enterprise Risk
Committee and Divisional Risk Committees.
The directors have complete and open access to the CEO,
ELT and senior management following consultation with the
CEO. A director may, following consultation with and consent
from the Chairman, seek independent professional advice at
Medibank’s expense in respect of any matter connected with
the discharge of the director’s responsibilities. Directors also
have direct access to the advice and services of the Company
Secretary, who is accountable to the Board through the
Chairman, and advises the Board and the Chairman on all
governance matters.
Board skills, experience and diversity
The Nomination Committee regularly reviews the balance of
skills, experience, independence, knowledge and diversity of
the Board, and is committed to ensuring that the directors
collectively have the appropriate skills mix. The evolution
of the mix of skills and diversity of the Board is a long-
term process and must reflect the current and emerging
challenges for the organisation. The Nomination Committee
takes into account the organisation’s strategic areas of
focus, customer needs and external environment, including
stakeholder sentiment, and assesses these various factors
to ensure that an appropriate balance of skills and diversity
is achieved on the Board.
• Expertise and experience in developing and implementing
strategy and financial and risk management are seen as
critical skills required for the Board to be able to effectively
govern and oversee the organisation. As a result these
skills are widely held by the Board members.
• Our core business of the provision of private health
insurance products with an unwavering focus on our
customers means that the Board must have skills and
experience in the insurance sector as well as in customer
facing businesses for Medibank to be successful. Board
members have expertise in both these areas from a
number of different industry sectors, including the general
insurance and healthcare sectors.
• Our vision to become a healthcare company and our
recent acquisitions in the healthcare delivery sector make
it critical for the Board to have members with experience
in the delivery of healthcare services. This is captured in
the collective experience of our directors, ranging from
operational expertise through to strategic oversight.
• Health industry reform is not only inevitable, but also vital
for the ongoing sustainability of our healthcare system. To
play a role in this area, the Board must have members with
experience and expertise in both building and maintaining
government relations and influencing policy creation.
Once again the Board has a number of highly experienced
individuals in this area.
• Finally, the Board has identified as critical enablers, skills
in human resources and remuneration and technology,
and has ensured that the Board has covered these areas
of expertise in constituting the current Board.
The skills and expertise that the Board has identified as
relevant to the performance of its role and the success of
the organisation are summarised in the Board skills matrix.
The very nature of diversity means that not all members of
the Board have all the skills listed below to the same degree.
However, the Board believes the current mix of expertise and
experience of members of the Board creates a diverse range
of views and perspectives, and results in the Board providing
effective governance, oversight and strategic leadership for
Medibank.
Annual Report 2020 37
Corporate governance statement
Board skills matrix
Board performance evaluation
Strategy
Developing and implementing organisational strategies,
and appropriately challenging management on delivery
of strategic objectives
Financial and capital management
Proficiency in financial accounting and reporting,
corporate finance, internal financial controls, corporate
funding and capital management and investments, and
understanding of associated risks
Risk management, governance and compliance
Establishing risk management frameworks, setting the
risk appetite, and overseeing organisational risk culture
Overseeing operations in a complex regulated
environment, and demonstrating commitment to the
highest governance standards
Insurance and healthcare sector experience
Knowledge, experience and expertise in the insurance
industry and healthcare sector
Customer experience and marketing
Developing product and/or customer management
strategies, and experience in marketing
Human resources and executive remuneration
Understanding the link between strategy, culture,
performance, long-term shareholder value creation
and remuneration outcomes
Government relations and public policy
Interacting with government and regulators and being
involved in public policy decisions
Technology
Understanding technology and innovation, and overseeing
development and implementation of initiatives to enhance
productivity and customer experiences
The Nomination Committee is responsible for reporting on
the evaluation of the performance of the Chairman, Board,
committees and individual directors to the Board. The
evaluation is conducted annually either through an internal
review process or an external process.
In 2020, the Chairman of the Nomination Committee led
an internal Board evaluation by way of a detailed directors’
survey seeking feedback in the areas of the role of the
Board, people on the Board, procedures and practices, and
behaviours. Following the survey, the Board discussed and
evaluated the outcomes and committed to relevant action
items. The performance evaluation of the Board included
assessment of the handling by committees of the issues
and challenges which arose during the year.
The Chairman continues to be responsible for the assessment
of each individual non-executive director’s performance
and contribution. The Chairman met with each of the
non-executive directors in 2020 to review their performance
and training needs.
Committees of the Board
The Board has established five standing committees to
assist in the execution of its responsibilities – the Audit
Committee, Risk Management Committee, Investment and
Capital Committee, People and Remuneration Committee
and Nomination Committee. Each committee is governed by
a charter setting out the committee’s role, responsibilities,
membership and processes. The membership, roles and
responsibilities of each committee are summarised in the
table below. The charters can be accessed on our website.
The relevant qualifications and experience of the members of
each committee can be found in the director biographies on
pages 30 to 32 of the annual report. The number of meetings
of each committee, and the individual attendance of their
members, are provided on page 46.
Composition
Key roles and responsibilities
• At least three members, all of whom
• Overseeing and reviewing the integrity of external
are non-executive directors, a majority
of whom are independent directors and
at least one of whom is a member of
the Risk Management Committee.
• Structured so that members are all
financially literate, and between them
have accounting and financial expertise
and experience and an understanding
of Medibank’s industries.
financial reporting and financial statements.
• Endorsing and recommending the appointment
and removal of, and reviewing the terms of
engagement, performance and independence
of external auditors.
• Reviewing management processes for
compliance with relevant laws, regulations
and other accounting and external reporting
requirements.
Committee
membership
as at 20 August 2020
Audit Committee
• Christine O’Reilly
(Chairman)
• Elizabeth Alexander
• Peter Hodgett
38 Medibank
Committee
membership
as at 20 August 2020
Audit Committee
continued from
previous page
Risk Management
Committee
• David Fagan
(Chairman)
• Elizabeth Alexander
• Tracey Batten
• Christine O'Reilly
• Mike Wilkins
Composition
Key roles and responsibilities
• The chairman must be an independent
non-executive director, and must not be the
chairman of the Board (but the chairman
of the Board may sit on the committee).
• At least three members, all of whom are
non-executive directors, a majority of
whom are independent directors and at
least one of whom is a member of the
Audit Committee.
• Structured to have the necessary
knowledge and a sufficient understanding
of Medibank’s industries.
• The chairman must be an independent
non-executive director, and must not
be the chairman of the Board (but the
chairman of the Board may sit on the
committee).
• Overseeing and reviewing internal and external
audit processes and internal control framework.
• Approving and recommending to the Board the
adoption of policies and procedures on risk
oversight and management to ensure effective
risk management systems are in place.
• Ensuring that Medibank has in place a robust
risk management framework and procedure
to support the effective identification and
management of risks.
• Evaluating the adequacy and effectiveness of
the management and reporting and control
systems associated with material risks.
• Establishment and monitoring of Medibank’s
overall risk appetite.
• Monitoring and review of Medibank's risk culture.
• Oversight of, and monitoring progress against,
Medibank's sustainability strategy.
• Oversight and prior endorsement of the
appointment and replacement of the
Chief Risk Officer.
Investment and
Capital Committee
• At least three members, all of whom
• Assisting and advising the Board on capital
are non-executive directors.
and investment related matters.
• Peter Hodgett
(Chairman)
• Anna Bligh
• David Fagan
• Mike Wilkins
People and
Remuneration
Committee
• Linda Bardo Nicholls
(Chairman)
• Tracey Batten
• Anna Bligh
• The chairman must be an independent
non-executive director, appointed by
the Board.
• Overseeing the investment strategy and
Capital Management Policy.
• Monitoring the effectiveness of the investment
process.
• Authorising delegated investment decisions.
• At least three members, all of whom
• Reviewing and overseeing people and
are non-executive directors, a majority
of whom are independent directors and
at least one of whom is a member of
the Risk Management Committee.
• The chairman must be an independent
non-executive director, appointed by
the Board.
organisational culture strategies, including
employee engagement, values and behaviours.
• Reviewing the remuneration framework and
arrangements for the non-executive directors,
CEO and ELT.
• Reviewing executive succession planning, talent
management, industrial relations and diversity
strategies.
• Reviewing and overseeing key incentive schemes
and equity incentive plans.
• Setting measurable objectives for diversity.
• Reviewing and monitoring Medibank’s health,
safety and wellbeing performance.
Annual Report 2020 39
Corporate governance statement
Committee
membership
as at 20 August 2020
Nomination
Committee
Composition
Key roles and responsibilities
• At least three members, all of whom are
• Director selection and appointment.
independent directors.
• Director induction and professional development.
• Elizabeth Alexander
• The chairman of the Board will be the
chairman of the committee.
(Chairman)
• David Fagan
• Peter Hodgett
• Linda Bardo Nicholls
• Christine O'Reilly
• Board composition.
• Board succession planning.
• Performance evaluation of the Board,
committees and individual directors.
Executive Leadership Team
The CEO, supported by the ELT, is responsible for the day-
to-day management and performance of Medibank. The ELT
profiles and accountabilities are set out on pages 33 to 34. The
ELT members have a clear understanding of their roles and
responsibilities through position descriptions and a structured
performance management system. Each ELT member has
entered into a service agreement with Medibank which sets out
the terms of their employment. The remuneration policies and
practices applying to the ELT as key management personnel
are detailed in the remuneration report from page 48.
The Whistleblower Policy protects whistleblowers from
victimisation or disadvantage as a response to making
reports. A whistleblower reporting service called Medibank
Alert is available through an external provider, enabling
whistleblowers to report conduct anonymously, or limit who
is informed of their identity. Ethical conduct is further
supported by corporate policies, including in the areas of
anti-bribery, anti-corruption and conflicts of interest.
Medibank has a health and safety management system
in place to ensure it meets legislative requirements and
proactively addresses its key risks in health and safety.
The remuneration report (from page 48) contains the
performance measures applied to ELT members and the
process for the annual evaluation of their performance.
A performance evaluation was undertaken during 2020
in accordance with that process for each person who
was an ELT member as at 30 June 2020.
Ethical standards
Central to the Board’s governance framework is a culture
of ethical behaviour based on Medibank’s key values.
These values are intended to guide the way employees
work together and engage with customers, business
partners, governments and the wider community, and
are supported by a range of policies and procedures.
The Medibank Code of Conduct, available on our website,
sets out the way employees, including directors and
executives, work and the practical principles and minimum
standards of expected behaviour. Responsibilities include
behaving in a manner that promotes health, safety and
wellbeing, that fosters relationships of trust and respect, that
avoids conflicts of interest (including not offering or accepting
secret commissions or bribes) and that respects privacy and
protects confidential information. Medibank has different
approaches to dealing with breaches of the Code of Conduct
depending on the circumstances. Identification and reporting
of all conduct that is inappropriate or exposes Medibank to
unacceptable loss or risk is encouraged.
40 Medibank
Following the acquisition of Home Support Services (HSS),
we are continuing to progress the alignment of the HSS
health and safety management practices with those of
Medibank. The Health, Safety and Wellbeing Policy underpins
our objective of preventing injury and illness through a culture
of health promotion, injury prevention and early intervention.
The Share Trading Policy, available on our website and
described on page 55, applies to directors, executives,
employees and contractors. Restrictions include blackout
periods during which trading in Medibank shares by directors,
executives and specific corporate employees is prohibited.
These periods apply in the lead up to the release of financial
results and at other times as required.
Diversity and inclusion
Medibank is committed to creating an inclusive culture that
acknowledges and embraces difference in all its forms and
ensures that every voice is heard. Medibank recognises that
all employees are different, and these differences benefit our
customers, employees, shareholders and the community.
The Board has adopted a Diversity and Inclusion Policy that
supports and facilitates an inclusive environment. The policy
outlines the role of the People and Remuneration Committee in
recommending to the Board measurable objectives for diversity
and annually assessing progress against these. The policy is
reviewed annually and is available on Medibank’s corporate
website. A diversity and inclusion strategy supports the policy
and sets out the measurable objectives established by the Board.
The Board emphasises the importance of having a gender
diverse leadership team, which is supported by Medibank’s
commitment to having and maintaining at least 40%
female representation in the Senior Leader population.
As at 30 June 2020 the actual representation was 51%.
In May 2020 Medibank completed the reporting of its gender
equality indicators under the Workplace Gender Equality Act
2012 (Cth). The reports can be accessed on the corporate
website. As at 30 June 2020, the respective proportions of
men and women on the Board, in senior executive positions
and across the whole organisation were as follows:
Position
Board (excluding CEO)
Group executives*
Senior executives**
Group & senior executive total
Senior managers
Other managers
Non-managers
Overall (excluding Board)
Female
5
2
31
33
91
328
2,402
2,854
Male
3
5
27
32
113
303
670
1,118
Undefined
2
8
10
% Female
63%
29%
53%
51%
45%
52%
78%
72%
* Group executive positions refer to the CEO and the Executive Leadership Team (ELT). All of the ELT report directly to the CEO.
** Senior executive positions include all roles classified as senior executive as part of Medibank’s broad based banding framework. As at 30 June 2020,
they represent the 58 most senior positions across the Group outside of Group executive roles.
In 2019 the Board set measurable objectives for achieving diversity at Medibank, including gender diversity, and committed to
reporting progress achieved against these in the 2020 corporate governance statement. The table below shows our progress
against these objectives:
Measurable objective
Progress towards achievement
Medibank will remain committed
to ensuring a representation of at
least 40% women across our senior
leadership population.
Medibank will continue its
commitment to supporting those
on parental leave and increasing
the number of males taking
parental leave.
As at June 2020, Medibank had achieved 51% female representation in Group
and senior executive roles, and 50% across all manager roles.
In 2018, Medibank’s parental leave approach was refreshed to remove references
to ‘primary’ and ‘secondary’ carers, allowing all prospective parents equal access
to 14 weeks’ paid parental leave. In 2020, the proportion of men taking parental
leave greater than two weeks was 10 times higher than before the policy was
refreshed, at 25%. While this is 5% lower than in 2019, this remains broadly
in line with male representation at Medibank. Medibank will continue to highlight
the experiences of men and women on parental leave to encourage broader uptake
of parental leave, particularly for men.
In 2020, Medibank continued its focus on supporting employees on parental leave,
with more than 200 employees enrolled in our parental leave support programs.
Employees returning from parental leave continue to report engagement levels that
are 3% higher than other employees, as measured via My Voice, Medibank’s annual
engagement survey.
Medibank will continue its focus on
increasing the representation and
self-reported engagement of:
• Employees with a disability.
• Aboriginal and Torres Strait
Islander employees.
Medibank continued to progress against the actions outlined in our Accessibility &
Inclusion Plan, which aims to improve the experiences of our people and customers
with disabilities, while creating a disability confident culture. Based on an employee
self-report measure as part of Medibank’s annual employee engagement survey,
6% of employees identify as having a disability, down by 1.1% from 2019. This
compares to a representation of approximately 9% in the general working
population. Engagement for this group remained stable, at 81%.
Progress against Medibank’s fourth Reconciliation Action Plan (RAP) has also
continued, focused on strengthening cultural awareness and understanding of
Indigenous issues across Medibank, and providing sustainable opportunities for
Indigenous Australians.
Annual Report 2020 41
Corporate governance statement
Measurable objective
Progress towards achievement
continued from previous page
The number of employees who identify as Aboriginal and Torres Strait Islander
has increased from four in 2019 to 17 as at 30 June 2020, representing 0.5% of
Medibank’s population. This compares to a representation of 2% in the general
Australian workforce. Engagement for this group as measured through My Voice
was 64%, slightly down (4%) from the last historical benchmark for this population
in 2018.
In FY21 we will continue our focus on the representation of Indigenous Australians
through our newly launched Aboriginal Employee Network, delivering cultural
awareness training to our employees, and the development of cultural safety protocols.
Medibank will continue to externally
benchmark diversity and inclusion
practices, including via ACON’s
Pride in Health + Wellbeing
Equality Index and AND’s Access
and Inclusion Index.
On the Australian Network on Disability’s (AND) Access and Inclusion Index, Medibank
continued to perform strongly, ranked within the top three Australian organisations
for the inclusion of people with disabilities in FY20. Medibank also continued our
participation in ACON’s Pride in Health + Wellbeing Equality Index to further improve
the inclusiveness of our insurance and health services for LGBTI customers, and
was recognised as a Gold tier service provider in 2020. Medibank was also named an
Employer of Choice for Gender Equality by WGEA for the fifth year running.
For 2021, the Board has set the following measurable
objectives for achieving diversity at Medibank, including gender
diversity, and is committed to reporting progress achieved
against these in the 2021 corporate governance statement:
1. Medibank will remain committed to ensuring a
representation of at least 40% women across our senior
leadership population, and at least 40% of women
on the Medibank Board.
2. Medibank will aim to improve the gender balance
across our manager and non-manager population by
maintaining at least 40% women across our manager
workforce and improving the representation of men
in our non-manager workforce.
3. Medibank will continue its focus on increasing the
representation and self-reported engagement of:
a. Aboriginal and Torres Strait Islander employees
(with a target set of at least 32 employees); and
b. Employees with a disability
4. Medibank will improve the support available to
employees with caring responsibilities for elderly
parents, people with a disability or chronic condition.
Market and shareholder communication
Market disclosure
We promote investor confidence and the rights of
shareholders by ensuring the immediate disclosure
of market sensitive information regarding Medibank.
The measures to further these commitments are detailed
in the Disclosure and Communication Policy approved
by the Board, which is available on our website.
This policy is designed to facilitate compliance with
Medibank’s obligations under the ASX Listing Rules and
the Corporations Act 2001 (Cth) by assigning authorisation
processes for market announcements, and reserving certain
matters for approval by the Board. Processes for engagement
with analysts and investors are detailed in the policy as well
as the assignment of spokespersons for market and media
communications. Awareness and compliance is promoted by
compulsory periodic online employee training and additional
information sessions for those likely to become aware of
potentially market sensitive information.
The Board is supported by a management Disclosure
Committee responsible for considering potentially market
sensitive information and monitoring Medibank’s disclosure
processes and reporting framework. The Disclosure
Committee Charter is available within the Disclosure and
Communication Policy.
Information about Medibank and its governance
Our website provides information about Medibank and
its corporate governance, and an investor centre that
provides information specifically for prospective and existing
Medibank shareholders which links to Medibank’s results,
investor presentations, annual reports, share price, ASX
announcements and AGM materials. We also maintain a
shareholder calendar of upcoming events within the investor
centre, along with information to assist investors in managing
their shareholdings. Medibank’s share register is managed by
Computershare Investor Services Pty Limited which provides
an accessible online platform for shareholders to access and
manage their shareholdings.
42 Medibank
Medibank encourages shareholders to receive
communications securely by email for reasons of speed,
security, environmental friendliness and cost reductions.
Unless a shareholder elects to receive information by post,
Medibank communicates with shareholders via email and
other electronic channels, including providing notices of
meetings and facilitating online voting on the AGM resolutions.
Investor engagement
We conduct briefings, meetings, telephone calls and webcasts
for institutional and retail investors, analysts and proxy
advisors to provide a greater understanding of the business
and results. Investor briefings and ad hoc meetings with
institutional and retail investors, analysts and proxy advisors
provide a forum for two-way communications between
Medibank and the investment community. During the year, we
participated and presented at a number of conferences and
investor events, including the Macquarie Asia Conference in
September 2019, the UBS Australia Conference in November
2019 and the Macquarie Australia Conference in May 2020.
We generally communicate with the investment community
through the CEO, the Chief Financial Officer (CFO) and the
Senior Executive – Corporate Finance. We also communicate
through the Chairman for governance and remuneration issues
and the Company Secretary and Group Executive – People
& Culture for environmental, social and governance issues.
Feedback from engagement with the investor community
is communicated to the Board at each Board meeting.
In all communications with investors, analysts and media,
only publicly available information and information that is
not market sensitive is discussed. In order to ensure that
all shareholders have equal and timely access to material
information concerning Medibank, advance notification of
investor and analyst results briefings is announced via the
ASX. The briefing materials are released first via the ASX and
then on the investor centre section of our website, together
with a recording of the half and full year results briefing.
Shareholder meetings
The Board encourages shareholders to attend the AGM
and to take the opportunity to ask questions. Given the
health risks and government restrictions associated with
the COVID-19 pandemic, the Board has decided to hold
the 2020 AGM virtually. Shareholders will be able to attend,
participate and vote in the AGM via an online platform.
The meeting is also accessible via a live webcast and
a teleconference facility, and then made available on
our website.
The external auditor attends the AGM and is available at the
meeting to answer questions relevant to the auditor’s report.
We provide shareholders with a clear and concise notice of
meeting, setting out the business to be considered, including
all material information relevant to the election or re-election
of directors. These materials, together with the presentations
at the AGM and the voting results, are released to the ASX
and then made available on our website.
Integrity of financial reporting
The Board has a strong commitment to the integrity and
quality of its financial reporting and its systems for risk
management, compliance and internal control.
The role of the Audit Committee is to provide a non-executive
review of the effectiveness of Medibank’s internal control,
financial reporting and risk management framework, to
assist the Board in carrying out its accounting, auditing,
and financial reporting responsibilities.
The Audit Committee currently comprises three non-
executive directors. The chairman of the committee is an
independent non-executive director who is not the chairman
of the Board. Committee members are appointed based
on their qualifications and experience to ensure that the
committee can adequately discharge its duties. The current
committee comprises directors with accounting and financial
expertise and experience, who between them have a deep
understanding of the health and insurance industries, and
includes at least one director who is a member of the Risk
Management Committee. Any director may attend Audit
Committee meetings. Representatives of management and
the manager responsible for internal audit may attend Audit
Committee meetings by standing invitation, and the Chief
Actuary and external auditors are invited as required.
Financial reporting assurances
The preparation of the full year and half year financial
statements is subject to a detailed process of review and
approval by the Board supported by the Audit Committee.
As required under section 295A of the Corporations Act 2001
(Cth), the Board receives a declaration from the CEO and
the CFO that the financial records of the company have been
properly maintained and that the financial statements and
notes comply with accounting standards and give a true and
fair view of the consolidated entity’s financial position and
performance for the financial period. This includes a written
declaration that their opinion has been formed on the basis
of a sound system of risk management and internal control,
operating effectively in all material respects in relation to
financial reporting risks.
This declaration was received by the Board prior to approving
the financial statements for the half year ended 31 December
2019 and the full year ended 30 June 2020.
Internal audit
Medibank has an internal audit function. The purpose of
the internal audit function is to provide the Board and Audit
Committee with an independent evaluation of the adequacy
and the effectiveness of Medibank’s financial and risk
management framework. The rolling 12-month Internal
Audit Plan, which is approved by the Audit Committee, is
developed using a risk-based approach and is driven by
Medibank’s strategy, risk profile and assurance priorities.
Annual Report 2020 43
Corporate governance statement
The Internal Audit Charter provides the internal audit team
unrestricted access to review all activities of the business. The
internal audit function is supplemented by the engagement of
external subject matter experts when required.
The head of the internal audit function is the Senior Executive
– Internal Audit. To ensure the independence of the internal
audit function the role reports directly to the Audit Committee
chairman, with a direct communication line to the CEO and
administrative reporting line to the CFO. The Senior Executive
– Internal Audit (in addition to their standing invitation to
attend Audit Committee meetings) reports to each Audit
Committee meeting on progress against the rolling 12 month
Internal Audit Plan, audit findings and recommendations,
business insights and the status of management actions.
Risk management
Medibank’s risk management framework encompasses
the systems, structures, policies, processes and people
that manage risks across the business. It guides risk
management activities across the business to effectively
identify, assess, manage, monitor and report risks. The
framework is implemented through the three lines of defence
model and its effectiveness is assessed by the internal audit
function on an annual basis in accordance with the Risk
Management Committee Charter. A review of the framework
was completed for 2020.
A key component of the framework is the definition of
Medibank’s risk appetite by the Board which informs
management's decision making process.
Medibank continues to operate and strengthen enterprise
risk management practices in alignment with the
requirements outlined in the APRA Prudential Standard
CPS220 – Risk Management.
Material business risks are discussed in the operating
and financial review on pages 28 to 29 of the annual report
and can be broadly categorised as strategic, credit, capital
and liquidity, market and investment, insurance, clinical,
operational and regulatory compliance. Medibank’s
management of environmental and social sustainability risks
is discussed in our Sustainability Report. We recognise the
science of climate change and its impact on human health.
Governance
The Board has overall responsibility for Medibank’s risk
management framework including setting the risk appetite
for Medibank. The Board reviews the risk management
framework at least annually and satisfies itself that
management has developed and implemented a sound
system of risk management and internal control to
effectively manage risk across the business in line
with regulatory and statutory requirements.
The Risk Management Committee assists the Board in
overseeing the implementation of the risk management
framework. Currently, the committee comprises five non-
executive directors, at least one of whom is a member of the
Audit Committee and at least one of whom is a member of
the People and Remuneration Committee. The chairman of
the committee is an independent non-executive director who
is not the chairman of the Board. Committee members are
appointed based on their qualifications and experience to
ensure that the committee can adequately discharge its duties.
Risk management plays an important role in remuneration
outcomes. For an incentive award to be made to any
employee, a risk, compliance and behaviour gateway must be
achieved. Further, all employees have a risk KPI incorporated
into their performance scorecard under the company-wide
‘I Perform Better’ performance framework. More information
on the relationship between risk and remuneration can be
found in the remuneration report on pages 55 to 56.
The Board is further assisted by the Investment and
Capital Committee, which oversees the implementation
and monitoring of the investment strategy and Capital
Management Policy approved by the Board, including
monitoring the effectiveness of the investment process
in achieving optimum return relative to risk.
The Executive Risk Committee and Divisional Risk
Committees are management committees that assist the
CEO with the oversight of risk management activities across
the business to ensure material risks are managed in line
with the approach defined in the risk management strategy
and the risk appetite set by the Board.
Medibank has adopted a three lines of defence approach
to define risk management roles, responsibilities and
accountability.
First line: Management is accountable for identifying,
assessing, monitoring and managing material risks in the
business. They are responsible for decision making and the
execution of business activities, whilst managing risk to
ensure it is in line with the Board’s risk appetite and strategy.
Second line: The enterprise risk and compliance functions
provide objective advice and challenge to the first line on risk
and control activities and provide assurance and guidance
on the design and implementation of appropriate risk
management activities.
Third line: The internal audit function provides independent
assurance to the Audit Committee and the Board on the
adequacy and effectiveness of the risk management
framework, financial reporting processes and internal control
and compliance systems operating in the first and second line.
This corporate governance statement is accurate and up to
date as at 20 August 2020 and has been approved by the Board.
44 Medibank
Directors’ report
For the financial year ended 30 June 2020
The directors of Medibank Private Limited (Medibank)
present their report on the consolidated entity consisting
of Medibank and the entities it controlled (collectively
referred to as the Group) for the year ended 30 June 2020.
References to 2019 and 2020 are to the financial years
ended on 30 June 2019 and 30 June 2020 respectively
unless otherwise stated.
Directors
The names of directors in office during the year and up to
the date of this directors’ report, unless stated otherwise,
are as follows:
• Elizabeth Alexander AO – Chairman
• Craig Drummond – Chief Executive Officer
• Dr Tracey Batten
• Anna Bligh AC
• David Fagan
• Peter Hodgett
• Linda Bardo Nicholls AO
• Christine O’Reilly
• Mike Wilkins AO
Effective 1 October 2020, Elizabeth Alexander AO will retire as
Chairman and as a director of Medibank, and Mike Wilkins AO
will become the Chairman of the Medibank Board.
Principal activities
The principal activities of the Group during the financial year
were as a private health insurer, underwriting and distributing
private health insurance policies under its two brands,
Medibank and ahm. Medibank is also a provider of health
related services through the Medibank Health businesses,
which capitalise on Medibank’s experience and expertise,
and support the Health Insurance business. There were
no significant changes in the nature of those activities
during the year.
Operating and financial review
Details of the operating and financial review of the Group
including a review of operations during the year and results
of those operations is included in the operating and financial
review on pages 22 to 29.
Significant changes in state of affairs
There were no significant changes in the state of affairs
of the Group during the year.
Events since end of financial year
No matter or circumstance has arisen since the end of
the financial year that has significantly affected, or may
significantly affect, Medibank’s operations, or the results
of those operations, or Medibank’s state of affairs in future
financial years.
Future developments
Details of developments in Medibank’s operations in future
financial years and the expected results of those operations
are included in the operating and financial review on pages 25
to 27.
Dividends
Dividends paid or determined by Medibank during and since
the end of the year are set out in Note 6 to the financial
statements and further set out below:
• The following dividends were determined and paid
on 26 September 2019 to shareholders registered on
5 September 2019:
– A fully franked final ordinary dividend of 7.40 cents per
share in respect of the six-month period to 30 June 2019.
– A fully franked special dividend of 2.50 cents per share.
• A fully franked interim ordinary dividend of 5.70 cents
per share was determined in respect of the six-month
period to 31 December 2019 and paid on 26 March 2020
to shareholders registered on 4 March 2020.
• A fully franked final ordinary dividend of 6.30 cents per
share has been determined in respect of the six-month
period to 30 June 2020, payable on 24 September 2020
to shareholders registered on 3 September 2020.
Directors’ qualifications, experience and
special responsibilities
Details of each director’s qualifications, experience and
special responsibilities are set out on pages 30 to 32 and
form part of the directors' report.
Annual Report 2020 45
Directors’ report
For the financial year ended 30 June 2020
Directors’ attendance at meetings
The table below shows the number of Board and committee meetings held and the number of meetings attended by directors
during the year.
Director
Board
(scheduled)
Board
(unscheduled)
Audit
Committee
Elizabeth Alexander
Dr Tracey Batten
Anna Bligh
Craig Drummond
David Fagan
Peter Hodgett
Linda Bardo Nicholls
Christine O’Reilly
Mike Wilkins
A
9
9
9
9
9
9
9
9
9
B
9
9
9
9
9
9
9
9
9
A
11
11
11
11
11
11
11
11
11
B
11
9
9
11
11
11
10
10
11
A
5
5
5
B
5
5*
5*
5*
5
3*
5
4*
Risk
Management
Committee
B
A
6
6
6
6
5*
6
4*
4*
6
6
6
6
6
Investment
and Capital
Committee
A
4
4
4
4
B
4*
3*
4
4*
4
4
3*
3*
4
Nomination
Committee
B
A
2
2
2*
2
2
2
2
2
2
1
2
2*
A
Indicates the number of meetings held during the time the director held office or was a member of the committee during the year.
4
4
People and
Remuneration
Committee
B
A
4*
4
4
4*
4*
1*
4
3*
4*
4
B
Indicates the number of meetings attended during the period.
*
Indicates that the director attended committee meetings by invitation.
In addition, ad-hoc committees were convened for special
purposes, including in relation to financial reporting, selection
of the new Chairman, and other matters.
Options and performance rights
During the financial year, 3,338,273 performance rights
were issued to senior executives pursuant to Medibank’s
Performance Rights Plan. No performance rights have
been issued since the end of the financial year up to the
date of this directors’ report.
During the financial year, 1,068,721 performance rights
became eligible to vest and were exercised. Further
information regarding performance rights is included
in the remuneration report from page 48.
Directors’ interests in securities
The relevant interests of directors in Medibank securities
at the date of this directors’ report were:
Performance
rights
Ordinary
shares
124,786
50,000
44,623
732,578
47,016
67,800
45,000
69,930
59,013
Director
Elizabeth Alexander
Dr Tracey Batten
Anna Bligh
Craig Drummond
David Fagan
Peter Hodgett
Linda Bardo Nicholls
Christine O’Reilly
Mike Wilkins
46 Medibank
Environmental regulation
The Group’s operations are not subject to any particular
or significant environmental regulation under either
Commonwealth or State law.
Indemnification and insurance of directors
and officers
The Medibank Constitution permits Medibank to indemnify,
to the maximum extent permitted by law, every person who
is or has been a director or officer or senior manager of
the Group. The indemnity applies to liabilities incurred by a
person in the relevant capacity (except liability for legal costs).
The indemnity may however also apply to certain legal costs
incurred in obtaining advice or defending legal proceedings.
Further, the Medibank Constitution permits Medibank to
maintain and pay insurance premiums for a director and
officer liability insurance covering every person who is or
has been a director or officer or senior manager of the Group,
to the extent permitted by law.
Consistent with the provisions in Medibank’s Constitution,
Medibank has entered into deeds of indemnity, insurance and
access with current and former directors. Under these deeds,
Medibank:
2,488,836
• Indemnifies current and former directors against liabilities
incurred as a director to the maximum extent permitted by law.
• Is required to maintain a directors’ and officers’ insurance
policy covering current and former directors against
liabilities incurred in their capacity as directors. Disclosure
of the insurance premium and the nature of the liabilities
covered by the insurance are prohibited by the contract of
insurance.
• Grants current and former directors access to Medibank’s
records for the purpose of defending any relevant action.
Auditor’s independence declaration
Remuneration report
The remuneration report on pages 48 to 72 forms part
of the directors’ report.
Rounding of amounts
The amounts contained in this directors’ report and in the
financial report have been rounded to the nearest hundred
thousand dollars (where rounding is applicable) unless
specifically stated otherwise under the relief available
pursuant to ASIC Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191. Medibank is an entity to which
that relief applies.
This report is made in accordance with a resolution of
the directors.
Elizabeth Alexander AO
Chairman
Craig Drummond
Chief Executive Officer
20 August 2020
Melbourne
A copy of the auditor’s independence declaration given
by PricewaterhouseCoopers in relation to its compliance
with independence requirements of section 307C of the
Corporations Act is set out on page 122.
Non-audit services
The Group may decide to employ its external auditor,
PricewaterhouseCoopers, on assignments additional
to its statutory audit duties, where the auditor’s
expertise and experience with the Group are important.
PricewaterhouseCoopers will only be engaged to provide a
permissible non-audit service where there is a compelling
reason for it to do so, and will not be engaged to perform
any service that may impair or be perceived to impair its
judgement or independence.
PricewaterhouseCoopers did not provide any non-audit
services to the Group during the year.
The amounts paid or payable for services provided by
PricewaterhouseCoopers were:
Year ended 30 June – $’000
Audit fees
Assurance services fees:
Audit of regulatory returns
Accounting and other
assurance services
Total Audit and other
assurance services fees
Non-audit service fees
Total
2020
1,581.1
2019
1,529.8
342.2
178.4
64.3
-
1,987.6
-
1,987.6
1,708.2
204.7
1,912.9
Annual Report 2020 47
Remuneration report
For the financial year ended 30 June 2020
Dear Shareholder,
Medibank is pleased to present its remuneration report
for 2020 which describes how non-executive directors
and Executive Leadership Team (ELT) members are paid.
Included in this report is the variable remuneration outcomes
for the ELT after considering Company results, individual
performance and the expectations of our customers,
shareholders and the community.
Our remuneration strategy has been developed to ensure
remuneration is fair and competitive with reward outcomes
aligned to the achievement of Medibank and individual
performance measures. In 2020 the Board continued to focus
on a governance framework that aligns remuneration with
regulatory requirements, the interests of our shareholders,
and meets community and customer expectations.
As a broader healthcare company with a clear purpose of
‘Better Health for Better Lives’, the Board is proud of how
Medibank has supported our customers, employees and
the broader community through these challenging times
of COVID-19.
For our customers, Medibank announced a support package
of more than $185 million that included the postponement
of premium increases for six months, expanded hospital
coverage, and financial hardship support that extends into
FY21. Our employees were provided access to two weeks paid
COVID leave and we are pleased to confirm that no Medibank
employee has had their position adversely impacted as a
direct result of COVID-19. Notably, Medibank has supported
its customers and employees without accessing any form
of taxpayer funded government relief. For the broader
community, Medibank has had a crucial role in supporting the
community, providing seven coronavirus helplines as well as
supporting the Victorian Government’s response to the second
outbreak in Victoria. Medibank also donated $5 million to
Beyond Blue to support their vital work in helping Australians
deal with the growing mental health impact of the pandemic.
Medibank’s support of our customers, employees and the
broader community through COVID-19 has not shielded the
organisation from the external impacts to our operations
and financial performance in 2020. While the Board is proud
of how the ELT and our employees have responded to the
crisis, the impact of COVID-19 on Medibank’s 2020 financial
outcomes has required some difficult remuneration decisions.
With this context, outlined below are Medibank’s remuneration
decisions with respect to 2020. Importantly, the Board has
chosen not to exercise any discretion with respect to executive
incentive outcomes, despite the impact of many external
factors that were outside of management control. The Board
determined that the outcomes outlined below and throughout
this report were appropriate with consideration of the current
economic conditions and social environment created by
COVID-19, and balancing the interests of executives with
our customers, shareholders and the community.
48 Medibank
Remuneration decisions at a glance
• All ELT members met their individual risk, compliance
and behaviour gateways for 2020.
• No short-term incentive (STI) awards made to ELT
members in relation to 2020.
• 50% vesting of Medibank’s 2018 long-term incentive (LTI)
in line with the terms of grant.
• ELT remuneration and non-executive director fees
maintained at their current levels.
Short-term incentives
In context of the extraordinary circumstances of COVID-19,
Medibank delivered a solid operational and financial
performance in 2020 with behaviours aligned to our values
and purpose of ‘Better Health for Better Lives’. This
performance is highlighted by Medibank’s ability to deliver
a full year dividend to shareholders despite the challenging
environment. However, Medibank’s performance against our
Company STI measures of Group operating profit, Health
Insurance revenue growth and Brand Net Promoter Score
(NPS) all fell below target performance. Further, Medibank
did not meet the STI financial gateway, which for 2020 was a
Group operating profit target. These performance outcomes
resulted in no 2020 STI awards made to ELT members.
While the Board is satisfied that this outcome is appropriate
and in line with Medibank’s reward framework, it is important
to acknowledge the performance of the ELT in steering
Medibank through unprecedented challenges in 2020.
Aside from the comprehensive support Medibank has
delivered to our customers, employees and the broader
community in response to COVID-19, a major achievement
in 2020 has been Medibank’s exceptional delivery of private
health insurance reform through the Gold, Silver, Bronze
or Basic product suite. The leadership of our executives
is further evidenced in Medibank’s seamless transition
to a fully virtual working environment for our office-based
workforce, leading to an employee engagement score
of 91, exceeding pre-COVID-19 levels.
Nevertheless, the Board understands the importance of
striking the right balance between executive incentive
outcomes and the expectations of our customers,
shareholders and the community. Therefore, the Board
elected not to exercise discretion, and the 2020 STI
outcomes for ELT members reflect the design of
Medibank’s reward framework.
Long-term incentives
Medibank’s 2018 LTI was tested following the completion
of the performance period on 30 June 2020 and resulted in
a vesting outcome of 50% in line with the terms of grant.
This outcome reflects no vesting against the earnings per
share compound annual growth rate (EPS CAGR) measure,
and full vesting against the relative total shareholder
return (TSR) measure, with a performance rank at the
75th percentile against our comparator group.
ELT remuneration and non-executive
director fees
ELT member remuneration and non-executive director
fees have been maintained at their current levels following
a review against the median of Medibank’s market
comparator group. The Board considered this to be an
appropriate outcome with consideration of the current
economic conditions and social environment of COVID-19,
and the positioning of ELT members and non-executive
directors against the benchmark data.
Shareholders are encouraged to vote to adopt the report
at our annual general meeting in November.
Yours sincerely,
Linda Bardo Nicholls AO
Chairman, People and Remuneration Committee
Contents
1. Key management personnel overview
2. Summary of remuneration outcomes
3. Medibank’s remuneration strategy
4. Remuneration governance
4.1 The role of Board in remuneration
4.2 Executive remuneration policies
5. Risk and remuneration
5.1 Risk culture
5.2 Alignment of remuneration with prudent risk-taking
5.3 Consequence management
6. Executive remuneration components
6.1 2020 target remuneration mix
6.2 Total fixed remuneration
6.3 Short-term incentive
6.4 Long-term incentive
7. Linking remuneration and performance in 2020
7.1 2020 STI performance scorecard
7.2 Medibank’s 2020 financial performance
7.3 2020 STI awards
7.4 2018 LTI Plan outcomes
8. 2020 actual remuneration
9. Statutory remuneration tables
9.1 Statutory remuneration table
9.2 Performance-related remuneration statutory table
10. Executive Leadership Team equity awards
10.1 ELT equity award transactions
10.2 ELT members’ ordinary shareholdings
11. Non-executive director remuneration strategy
and framework
11.1 Non-executive director remuneration
11.2 Non-executive director superannuation
11.3 Shareholding policy for non-executive directors
12. Non-executive director statutory remuneration table
13. Non-executive director ordinary shareholdings
14. Medibank’s comparator groups
Annual Report 2020 49
Remuneration report
For the financial year ended 30 June 2020
1. Key management personnel overview
Medibank’s key management personnel (KMP) includes all non-executive directors and executives who have authority
and responsibility for planning, directing and controlling the activities of Medibank.
In 2020, KMP were as follows:
Executive Leadership Team (ELT) member
Craig Drummond
Kylie Bishop
John Goodall
David Koczkar
Chief Executive Officer
Full-year
Group Executive
– People & Culture
Full-year
Group Executive
– Technology & Operations
Group Executive
– Chief Customer Officer
Full-year
Full-year
Mei Ramsay
Mark Rogers
Andrew Wilson
Group Executive
– Chief Financial Officer
Group Executive
– Healthcare & Strategy
Full-year
Full-year
Group Executive
– Legal, Governance
& Regulatory Affairs
Full-year
Non-executive directors
Elizabeth Alexander
Tracey Batten
Anna Bligh
David Fagan
Chairman
Full-year
Non-executive director
Non-executive director
Non-executive director
Full-year
Full-year
Full-year
Peter Hodgett
Linda Bardo Nicholls
Christine O’Reilly
Mike Wilkins
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Full-year
Full-year
Full-year
Full-year
50 Medibank
2. Summary of remuneration outcomes
Key remuneration outcomes for Executive Leadership Team (ELT) members and non-executive directors during the year
are summarised below, with more detailed information contained throughout the report.
Executive Leadership Team
Component
Outcomes
Fixed
remuneration
Short-term
incentive
(STI)
Long-term
incentive
(LTI)
• Fixed remuneration of ELT members, including the Chief Executive Officer, Craig Drummond,
have been maintained at current levels
• No STI awards made to ELT members in relation to 2020
• STI target percentages for ELT members, including the CEO, have been maintained at current levels
• Medibank’s 2018 LTI was tested following the completion of the performance period on 30 June 2020
and resulted in a vesting outcome of 50% in line with the terms of grant
• This outcome reflects no vesting against the earnings per share compound annual growth rate
(EPS CAGR) measure, and full vesting against the relative total shareholder return (TSR) measure,
with a performance rank at the 75th percentile against our comparator group
• LTI opportunity percentages for ELT members, including the CEO, have been maintained at
current levels
Non-executive directors
Component
Decisions
Non-executive
director
fees
• Non-executive director base and committee fees have been maintained at current levels
• Based on this decision, Medibank’s aggregate non-executive director fee spend will remain at
$1,940,000 in 2021
• The total fee pool approved by shareholders at the annual general meeting in 2018 remains
unchanged
Annual Report 2020 51
Remuneration report
For the financial year ended 30 June 2020
3. Medibank’s remuneration strategy
At Medibank, we believe that remuneration is a key influencer
of behaviour and can be used as a tool to reinforce our
culture. Our people are guided by our strong set of values
which are anchored to the core pillars of our culture –
customer focus, health and wellbeing and values and
inclusion. These are what we focus on every day so we can do
the right thing by our employees, customers and community.
Our remuneration strategy has been developed to focus
Executive Leadership Team (ELT) members on responsibly
executing Medibank’s strategy, role-modelling behaviours
that strengthen our values-based culture and achieving
business objectives that increase value for our customers
and shareholders. Supporting this strategy, our remuneration
framework is designed to link reward to business outcomes,
individual performance and behaviour, and to support Medibank’s
long-term financial soundness and risk management framework.
The diagram below illustrates the relationship between
Medibank’s remuneration strategy, reward framework
and the timeline of when 2020 remuneration is delivered
to ELT members.
MEDIBANK REMUNERATION STRATEGY
Focus ELT members on responsibly executing Group strategy to increase customer
and shareholder value with behaviours aligned with Medibank’s values and purpose
Attract and retain
key talent through
competitive and fair
fixed remuneration
Incentivise high
performance through
variable, at-risk
payments
Reward ELT members
for the achievement of
business outcomes aligned
with Medibank's culture
Align the interests of ELT
members with increasing
long-term customer and
shareholder value
MEDIBANK’S TOTAL TARGET REWARD FRAMEWORK
REMUNERATION
COMPONENTS
Total fixed remuneration
(TFR)
Short-term incentive
(STI)
Long-term incentive
(LTI)
AWARDED
Cash and superannuation
50% cash and 50%
performance rights
deferred for 12 months
Three-year deferred
performance rights
MEDIBANK’S REWARD FRAMEWORK
STI
LTI
2020 PERFORMANCE MEASURES & GATEWAYS
• Risk, compliance and behaviour gateway
• Financial gateway
• Group operating profit
• Health Insurance
revenue growth
• Brand Net Promoter
Score (NPS)
• Role-specific metrics
• Earnings per share
compound annual
growth rate
• Relative total
shareholder return
• Growth of Medibank's
Private Health Insurance
market share
2020 REMUNERATION TIMELINE
TFR
STI
Cash STI – 50%
Deferred STI – 50%
Relative total shareholder return – 35%
LTI
Earnings per share compound annual growth rate – 35%
Private Health Insurance market share growth – 30%
FY20
FY21
FY22
52 Medibank
Date paid
Date earned
Date granted
Vesting date
4. Remuneration governance
4.2 Executive remuneration policies
Medibank has a robust governance framework in place to
ensure that our remuneration and performance practices are
fair, reasonable and aligned with the requirements outlined in
our risk management framework. Our governance framework
also considers regulatory compliance, customer outcomes,
community expectations and the delivery of sustainable
shareholder value.
4.1 The role of the Board in remuneration
The People and Remuneration Committee (P&RC) is a
committee of the Board. The diagram below outlines the role
of the P&RC in assisting and advising the Board on people
and culture policies and practices, including remuneration.
While there are three permanent members of the P&RC,
a standing invitation exists to all non-executive directors
to attend meetings. The Chief Executive Officer (CEO) and
Group Executive – People & Culture are also invited to attend
P&RC meetings, except where matters associated with their
own performance or remuneration are considered. Specific
governance activities with respect to the P&RC include
regular reviews of the P&RC Charter to ensure consideration
of changing regulations, guidelines and best practice and an
annual audit of committee minutes against the P&RC Charter.
For P&RC meeting attendance information, refer to the table
on page 46 of the directors’ report.
4.2.1 Performance evaluation of Executive Leadership
Team (ELT) members
At the outset of each performance year, the Board determines
the measures against which ELT members will be assessed.
The measures are a combination of Medibank (Company)
and role-specific performance measures that are aligned
to the achievement of Medibank’s customer and financial
milestones set out in the annual report. Aligned with
Medibank’s Group wide performance framework ‘I Perform
Better’, the role-specific measures for ELT members are
known as ‘Big Goals’ (an acronym for Bold, Impactful Goals).
Big Goals are designed to be ambitious, aspirational and shift
expectations from delivering at a base level against core job
requirements to driving strong, impactful performance. The
Big Goals adopted by each ELT member then form the basis
for the Big Goals adopted by their leadership team members
and their respective teams to ensure all employees across the
Group are working towards a shared and consistent strategy.
At the completion of the performance year, ELT members
are individually assessed against the risk, compliance and
behaviour gateway which is outlined in section 6.3. ELT
members are then attributed an outcome against a 5-point
rating scale (with a minimum rating of 3 required to receive a
short-term incentive (STI) award) that assesses ELT member
performance and behaviours against business outcomes
and achievement of role-specific performance measures.
The individual performance ratings of ELT members are then
combined with performance against Company measures to
determine STI outcomes.
Reviewing and overseeing
Medibank’s key people and
organisational strategies,
including employee
engagement, values,
behaviours and diversity
and inclusion.
Ensuring that Medibank’s
remuneration practices
are consistent with the
risk management
framework and drive
appropriate behaviours.
P&RC
Reviewing remuneration
for senior executives and
non-executive directors
with consideration for
behaviours, regulatory
compliance, customer
outcomes and
shareholder value.
Reviewing and monitoring
Medibank’s strategies
for executive succession,
talent acquisition
and retention.
Reviewing and monitoring
Medibank’s health, safety
and wellbeing strategy
and performance,
workplace relations
and payroll integrity.
Independent remuneration
advisor
• KPMG provides information
to assist the P&RC in making
remuneration decisions
and recommendations
to the Board
• The work undertaken by
KPMG in 2020 did not
constitute a remuneration
recommendation
Annual Report 2020 53
Remuneration report
For the financial year ended 30 June 2020
With respect to fixed remuneration adjustments,
consideration is given to role-specific performance,
experience, the complexity of the role and Medibank’s
market comparator group. Additional detail on STI
performance measures are included in sections 6 and 7 of
this report and further information on fixed remuneration
levels for ELT members is outlined in section 6.2.
The CEO provides his performance assessment of each ELT
member to the Board for consideration. The Chairman, in
consultation with the Board, assesses the performance,
behaviour and conduct of the CEO. The Board has ultimate
discretion over final individual performance outcomes for all
ELT members to ensure alignment with Medibank performance,
customer outcomes and shareholder expectations.
4.2.2 Clawback of executive performance-based
remuneration
Medibank has an Executive Remuneration Clawback Policy
that provides discretion to the Board to reduce, cancel, or
recover (clawback) any performance-based awards made
to a senior executive employee in certain circumstances
and subject to applicable laws, including the following:
• Serious misconduct or fraud by the employee.
• Unsatisfactory performance by the employee to the
detriment of strategic Medibank objectives.
• Error in the calculation of a performance measure
related to performance-based remuneration.
• A misstatement of the Group’s financial statements.
• The Board becomes aware of any other action or behaviour
that it determines (acting in good faith) has resulted in the
employee receiving an inappropriate benefit.
The Executive Remuneration Clawback Policy provides that if
any of these events have occurred in the previous five financial
years, the Board may, in its absolute discretion, withhold
an employee’s performance-based payments, require the
repayment of all, or part of, previous performance-based
awards, or require the forfeiture of previously deferred
and unvested performance-based rewards subject to
applicable laws. In addition to a stand-alone policy,
Medibank’s remuneration clawback provisions are outlined
in executive employment contracts and employee equity offer
documentation.
4.2.3 Executive shareholding requirements
ELT members are subject to a Minimum Shareholding Policy
that is designed to strengthen their alignment with customers
and shareholders by requiring them to hold Medibank
shares with a value equivalent to 100% of their annual fixed
remuneration within five years of appointment to the ELT.
The policy does not require an ELT member to purchase
shares, however they are restricted from selling their vested
employee equity holdings (other than to satisfy income tax
obligations) until they meet the minimum shareholding
requirement.
All Medibank shares and unvested performance rights that
are subject to a tenure-based hurdle held by, or on behalf
of, the ELT member (for example within a family trust or
self-managed superannuation fund where they are the
beneficial owner) will count towards satisfaction of the
minimum shareholding requirement.
As at 30 June 2020, progress towards the minimum
shareholding requirement for each ELT member is
provided below:
ELT member
Craig Drummond
Kylie Bishop
John Goodall
David Koczkar
Mei Ramsay
Mark Rogers
Andrew Wilson
Minimum
shareholding
requirement $1
Value of eligible
shareholdings as
at 30 June 2020 $2
1,534,000
580,000
555,000
960,000
555,000
800,000
960,000
2,795,596
1,212,313
363,506
2,418,174
440,732
790,717
2,424,035
Minimum
shareholding
requirement timeline
Requirement satisfied
Requirement satisfied
5 December 2021
Requirement satisfied
14 September 2021
3 January 2022
Requirement satisfied
1. Minimum shareholding requirement based on ELT members’ total fixed remuneration (TFR) as at 30 June 2020.
2. Holding value is calculated with reference to the total number of eligible shares or performance rights held by each ELT member, multiplied by the closing
price of Medibank’s shares on 30 June 2020 ($2.99).
54 Medibank
4.2.4 Share Trading Policy
5. Risk and remuneration
We have a Share Trading Policy to ensure that all employees
understand their obligations in relation to dealing in Medibank
shares. The Share Trading Policy describes restrictions
on buying and selling Medibank shares for non-executive
directors and other Medibank employees.
In addition, non-executive directors, ELT members, all
senior leaders and employees with potential access to inside
information are deemed to be ‘Restricted Employees.’ They
are required to seek approval before dealing in Medibank
shares and are subject to share trading blackouts prior to
financial result announcements and other times, as required.
The policy also prohibits employees from entering into
transactions relating to Medibank shares which limit their
economic risks, including in relation to the long-term incentive
(LTI) Plan and equity-based component of the STI Plan.
Our Share Trading Policy can be found within the corporate
governance section on our website.
4.2.5 Termination provisions in ELT member contracts
All current ELT members are employed under ongoing
contracts with notice periods set at three months (employee)
and six months (employer), or in the case of the CEO, six
months (employee) and 12 months (employer). Termination
provisions included in ELT member contracts are limited
to six months payment of fixed remuneration, in lieu of
notice, or 12 months payment of fixed remuneration in the
case of the CEO.
If an ELT member is assessed by the Board as a ‘good leaver’
(meaning they cease employment by reason of death, serious
disability, permanent incapacity, retirement, redundancy or
with Board approval), the cash STI award in respect of the
performance year in which they leave would be paid on a
pro rata basis at the end of the STI performance period. The
deferred component of the STI award will be paid in cash
(rather than performance rights) on a pro rata basis with
payment deferred until 12 months following the payment of
the cash component. Any previously deferred STI remains
restricted until the applicable vesting date, unless determined
otherwise by the Board. Performance rights issued as LTI
are retained on a pro rata basis by a ‘good leaver’. Retained
performance rights remain unvested and subject to the
same vesting conditions that will be assessed at the end of
the performance period. Further details of the termination
provisions that relate to the STI and LTI plans are detailed
in section 6 of this report.
A key focus for Medibank’s Board and People and
Remuneration Committee (P&RC) is ensuring our
remuneration policies and practices are consistent with
our risk management framework, aligned with prudent
risk taking and support the effective management of
financial and non-financial risks.
5.1 Risk culture
An engaged culture is contingent on alignment between
purpose, values, behaviours and strategic direction. With
a focus on ensuring we do the right thing for our people,
customers and community, Medibank’s purpose and
values provide guidance for the behaviours we expect of
our employees. Our strong purpose and values focus is the
cornerstone of our organisational culture and has been
consistently positive over a six-year cultural transformation.
This builds on Medibank’s Code of Conduct which sets out the
way we work at Medibank and outlines practical principles and
standards of behaviour and conduct which are expected of all
Medibank employees. As further guidance, Medibank’s risk
culture framework clearly articulates the behaviours employees
are expected to exhibit from a risk culture perspective. As an
organisation, we are committed to not only complying with
legal obligations, but also acting ethically and responsibly
in relation to our people, customers and the community.
The behaviours that support our risk culture include:
We actively challenge risk decisions to
ensure benefit for our customers, our
employees, our brand and our shareholders
We escalate risk issues without fear
or favour
We all own risk issues
We expect that all our risk and reward
discussions are viewed through our
values and business goals
We learn from our experiences and
mistakes to ensure we do better
Annual Report 2020 55
Remuneration report
For the financial year ended 30 June 2020
5.2 Alignment of remuneration with prudent
risk taking
We believe that the effective alignment of remuneration
with the risk appetite set by the Board is critical to our
remuneration strategy and framework. Under Medibank’s
Group-wide performance framework ‘I Perform Better’, at the
end of each financial year all employees are assessed against
their personal scorecard, which is a combination of financial
and non-financial measures, including performance against
their risk, compliance and behaviour obligations. Through the
performance assessment process, both positive and negative
risk, compliance and behaviour outcomes are considered as
part of a holistic performance assessment. Employees are
then attributed an outcome against a 5-point rating scale
(with a minimum rating of 3 required to receive a short-term
incentive (STI) award) that focuses on behaviours, business
outcomes and achievement of role-specific performance
measures. This then informs remuneration and performance-
based incentive outcomes for the period.
The management of financial and non-financial risks by
senior executives is reviewed by the Risk Management
Committee and considers the effective operation of divisional
risk committees, incident identification, audit findings,
remediation actions, health and safety, and feedback on risk
culture from employees. In addition, the Chief Risk Officer,
Group Executive – People & Culture and Group Executive –
Legal, Governance & Regulatory Affairs are specifically tasked
with notifying the Board of any relevant risk and compliance
outcomes and/or conduct which may impact performance and
remuneration outcomes for ELT members (including the CEO)
and other senior executives.
Further, as outlined throughout this report, Medibank’s
executive reward framework includes long-term deferral
across both our STI Plan and long-term incentive (LTI) Plan to
ensure risk outcomes are considered over extended periods.
5.3 Consequence management
A well understood and consistently applied consequence
management process is a key part of our risk culture and
ensures risk, compliance and behaviour outcomes are aligned
with remuneration outcomes. Consequences of employees
breaching Medibank’s Code of Conduct are clearly articulated
and may include an employee attending further training
or counselling, a formal written warning being applied, or
in certain circumstances, termination of employment. The
issue of a final written warning automatically results in the
employee being given an ‘unsatisfactory’ performance rating
for the relevant performance period, meaning the individual
is ineligible for any performance-based reward outcome or
fixed remuneration increase. Medibank’s individual incentive
plan rules also clearly articulate that failure to meet the risk,
compliance and behaviour gateway in any given performance
period will consequently lead to ineligibility for an incentive
award for a period of 12 months and potential termination.
In 2020, 31 employees were issued with final written warnings
following a breach of Medibank’s Code of Conduct, or another
Medibank Group policy. In all cases, each employee received
a performance rating of ‘unsatisfactory’ and was ineligible
for any applicable performance-based incentive or fixed
remuneration increase. A further 21 individuals in 2020
had their employment terminated following an incident of
misconduct.
56 Medibank
6. Executive remuneration components
Target remuneration for Executive Leadership Team
(ELT) members is designed to reward sustained business
performance with behaviours aligned with Medibank’s values
and purpose that benefits both customers and shareholders.
The Board aims to find a balance between:
• Fixed and at-risk remuneration.
• Short-term and long-term remuneration.
• Remuneration delivered in cash and deferred equity.
6.1 2020 target remuneration mix
The 2020 target remuneration mix for the Chief Executive Officer (CEO) and other ELT members is shown below.
Chief Executive Officer
Group Executive
– People & Culture
Group Executive
– Technology & Operations
Group Executive
– Chief Customer Officer
Group Executive – Legal,
Governance & Regulatory Affairs
Group Executive
– Chief Financial Officer
Group Executive
– Healthcare & Strategy
28.6%
14.3%
14.3%
42.8%
46.5%
46.5%
43.5%
46.5%
43.5%
43.5%
12.8%
12.8%
27.9%
12.8%
12.8%
27.9%
14.1%
14.1%
28.3%
12.8%
12.8%
27.9%
14.1%
14.1%
28.3%
14.1%
14.1%
28.3%
Fixed
STI cash
Deferred STI (equity)
LTI (equity)
6.2 Total fixed remuneration (TFR)
6.2.1 2020 and 2021 total fixed remuneration
This is the fixed portion of remuneration and includes base
salary and employer superannuation contributions. Fixed
remuneration is determined with reference to the executive’s
capabilities, experience, the complexity of the role, as well
as median pay levels for similar roles at companies in the
ASX 11-100 (excluding mining and energy companies). This
ensures that fixed remuneration is set at competitive levels
and enables Medibank to attract and retain high quality
executives.
Following a review of fixed remuneration against the
median of Medibank’s market comparator group, ELT
fixed remuneration has been maintained at current levels.
The Board considered this to be an appropriate outcome
with consideration of the current economic and social
environment of COVID-19, and the positioning of ELT
members against the benchmark data.
Details of 2020 and 2021 fixed remuneration levels for all
ELT members are provided below:
ELT member
Craig Drummond
Kylie Bishop
John Goodall
David Koczkar
Mei Ramsay
Mark Rogers
Andrew Wilson
Total fixed remuneration 2020 and 2021 $
1,534,000
580,000
555,000
960,000
555,000
800,000
960,000
Annual Report 2020 57
Remuneration report
For the financial year ended 30 June 2020
6.3 Short-term incentive (STI)
6.3.2 STI performance measurement
STI is an at-risk element of remuneration, which is designed
to reward executives for the creation of customer and
shareholder value during the financial year. Executives must
pass two separate gateways to participate in the plan. Once
both gateways are achieved, executives have the opportunity
to earn a percentage of their fixed remuneration as an
incentive, based on company and individual performance.
6.3.1 STI gateways
For an STI award to be made to an ELT member, the following
gateways must be achieved:
Risk, compliance and behaviour gateway
Individually assessed, the risk, compliance and behaviour
gateway requires ELT members to:
• Adhere to Medibank’s Code of Conduct which covers
standards of behaviour and conduct. Our Code of Conduct
requires all employees to not only comply with our legal
obligations, but also to act ethically and responsibly in
relation to our customers, colleagues and the community.
• Complete all mandatory compliance training.
• Ensure that the risks in respect of their position are well
managed. Multiple factors are considered when assessing
risk management, which differ based on an executive’s
role. Common elements include the effective operation
of divisional risk committees, incident identification,
audit findings, remediation actions, health and safety,
and feedback on risk culture from employees.
• Feedback provided by the Chief Risk Office, Group
Executive – People & Culture and Group Executive – Legal,
Governance & Regulatory Affairs as outlined in section 5.2.
Financial gateway
• Assessed at the Group level, Medibank must achieve a
baseline of financial performance as determined by the
Board for the performance period. In 2020, this baseline
financial performance was a Group operating profit target.
At the start of the 2020 financial year, the Board determined
challenging levels of performance for each Medibank and
role-specific STI performance measure. When setting
performance expectations, the Board considers numerous
factors, including Medibank’s strategic objectives, prior year
performance, the external environment, customer outcomes
and shareholder expectations. The Board also ensures that
performance levels are set for the current year in the context
of achieving longer term customer and financial strategic
goals. Further detail on each performance measure is
outlined in section 7.1.
At the completion of the performance year, an assessment
is first made on the achievement of the STI gateways. If
achieved, ELT members are then assessed against the
company and role-specific performance measures to
determine STI award outcomes. As an example, for an
ELT member to achieve a target STI award, performance
against Medibank and role-specific measures must be at
the target level of performance as set by the Board (for that
element of the award) and delivered with behaviour aligned
with Medibank’s purpose and values. Achievement of target
performance would be in line with Medibank’s corporate
plan and shareholder expectations.
For an ELT member to achieve a stretch STI award (therefore,
award at maximum), performance against all Medibank
and role-specific measures must be at or above stretch
performance as set by the Board (for that element of the
award) and delivered with behaviour aligned with Medibank’s
values and purpose. This would represent exceptional
performance, well above that of Medibank’s strategic plan
and shareholder expectations.
58 Medibank
6.3.3 Key features of the STI Plan
Over what period is
performance assessed?
How are STI payments
delivered?
The STI performance period is the financial year 1 July to 30 June.
50% of STI awarded to ELT members is paid as cash, with the remaining 50% deferred
for 12 months (deferred STI). Deferred STI is provided in the form of 12-month deferred
performance rights.
When are STI payments
made?
The cash component of STI is paid following the release of audited financial results,
with performance rights for the deferred STI component granted shortly thereafter.
What method is used to
determine the number of
performance rights granted
to each participant as part
of the deferred STI?
Performance rights under the STI Plan are granted at face value. The deferred STI value
for each ELT member is divided by the volume weighted average share price (VWAP) of
Medibank shares to determine the number of units granted.
For the 2020 deferred STI component the VWAP will be calculated on the 10 trading days
up to and including 17 September 2020.
Are deferred STI
performance rights entitled
to receive a dividend
payment?
Deferred STI performance rights do not attract dividends during the deferral period. To align
participant outcomes with shareholders, on vesting of these performance rights additional
Medibank shares are granted to ensure each participant receives a benefit equivalent to any
dividends paid during the deferral period.
What gateways apply to
the STI Plan?
For an STI award to be made to an ELT member, both the risk, compliance and behaviour
gateway, and the financial gateway must be achieved. Further detail on these gateways is
outlined in section 6.3.1.
What are the performance
measures under the
STI Plan?
Performance measures under the STI Plan are determined by the Board at the
commencement of each performance period. For 2020, the performance measures were:
• Group operating profit (excluding investment income).
• Health Insurance premium revenue growth.
• Brand Net Promoter Score (NPS).
• Role-specific metrics.
Further detail on each performance measure is outlined in section 7.1.
Does Medibank disclose
STI performance targets?
Due to the commercially sensitive nature of STI performance targets, we do not believe it is
in the best interests of Medibank or shareholders to disclose this information. Section 7.1
of this report provides a detailed description of Medibank’s STI performance measures and
a description of how the organisation has performed against each measure in 2020.
Does Medibank have a
clawback policy that
applies to the STI Plan?
Medibank has an Executive Remuneration Clawback Policy that provides discretion to the
Board to reduce, cancel, or recover (clawback) any award made under the STI Plan to an
ELT member in certain circumstances subject to applicable laws. Further detail on this
policy is outlined in section 4.2.2.
What happens to STI
entitlements if an ELT
member leaves Medibank?
If an ELT member is a ‘good leaver’ (meaning they cease employment by reason of death,
serious disability, permanent incapacity, retirement, redundancy, or with Board approval),
pro rata payment of STI applies.
In what circumstances are
STI entitlements forfeited?
Section 4.2.5 provides additional information on the treatment of STI for people deemed
as ‘good leavers’ by the Board.
In the event an ELT member is not considered a ‘good leaver’ (meaning they cease
employment for any reason other than death, serious disability, permanent incapacity,
retirement, redundancy or with Board approval), the ELT member will forfeit any payment
under the STI Plan, including any unvested deferred STI grants, unless otherwise
determined by the Board.
Annual Report 2020 59
Remuneration report
For the financial year ended 30 June 2020
6.3.4 Annual STI opportunity
The target and maximum annual STI opportunity as a percentage of TFR for ELT members is outlined in the table below.
ELT member
Craig Drummond
Kylie Bishop
John Goodall
David Koczkar
Mei Ramsay
Mark Rogers
Andrew Wilson
2020 and 2021
Target
Maximum
100%
55%
55%
65%
55%
65%
65%
150%
100%
100%
100%
100%
100%
100%
6.4 Long-term incentive (LTI)
LTI is an at-risk element of remuneration designed to reward executives for delivering sustainable business performance
over the long term. Given the nature of the private health insurance industry and the fact that it is highly regulated, the
Board considers it appropriate to measure long term performance over a three-year period. Each year executives are eligible
to receive an LTI which is calculated as a percentage of their fixed remuneration. This incentive is subject to performance
hurdles, that will be tested at the end of the three-year performance period. Based on performance against these hurdles
a percentage of the incentive will be retained by the executive with the remainder being forfeited.
6.4.1 Key features of the LTI Plan
What is the aim of the
LTI Plan?
The Medibank LTI Plan is designed to:
• Align the interests of ELT members more closely with the interests of customers and
shareholders, by providing an opportunity for those executives to receive an equity
interest in Medibank through the granting of performance rights.
• Assist in the motivation, retention and reward of ELT members over the three-year
deferral period.
What is the performance
period for 2020 LTI Plan?
The performance period for the 2020 LTI Plan is three financial years commencing 1 July
2019. A three-year performance period strikes a balance between providing a reasonable
period to align reward with shareholder return and the LTI acting as a vehicle for executive
motivation and retention.
What are performance
rights?
Performance rights issued to ELT members under the LTI Plan are conditional rights for
the participant to subscribe for fully paid ordinary shares in Medibank.
What method is used to
determine the number of
performance rights granted
to each participant?
Each performance right entitles the ELT member to subscribe for one ordinary share if the
performance hurdles are met at the conclusion of the performance period. No amount is
payable by the participant upon exercise of the performance rights once they have vested.
Performance rights under the LTI Plan are granted at face value. Each ELT member receives
a percentage of their fixed remuneration in LTI (refer to section 6.4.2 for details). This amount
is then divided by the face value of Medibank shares.
For the 2020 LTI Plan, the number of performance rights granted to each ELT member was
determined using the volume weighted average price of Medibank shares on the ASX during
the 10 trading days up to and including, 28 June 2019. This average price was $3.46.
What gateways apply to
the LTI Plan?
For an LTI award to be granted to an ELT member, the following gateway must be met
prior to grant:
• Risk, compliance and behaviour gateway – Individually assessed, ELT members must
adhere to the Medibank Code of Conduct (which covers the minimum standards of
behaviour and conduct), ensure the risks in respect of their position are well managed,
and must complete all mandatory compliance training.
60 Medibank
What are the performance
hurdles under the 2020
LTI Plan?
Performance rights issued under the 2020 LTI Plan are subject to three separate
performance hurdles:
• 35% of the performance rights are subject to a performance hurdle based on Medibank’s
earnings per share compound annual growth rate (EPS CAGR) over the performance
period. The starting point for EPS will be calculated using Medibank’s underlying profit as
at 30 June 2019 and the performance period for the EPS performance hurdle will run for
three years from 1 July 2019 through to 30 June 2022. Further detail on the profit measure
used in the calculation of EPS is provided in section 6.4.3.
• 35% of the performance rights are subject to a relative total shareholder return (TSR)
performance hurdle, measured over the performance period. Medibank’s relative TSR will
be compared to a comparator group comprising companies with a market capitalisation
positioned within the ASX 11-100 (excluding mining and energy companies).
• 30% of the performance rights are subject to a performance hurdle based on the
growth of Medibank’s private health insurance market share (as reported by APRA)
over the performance period.
These performance hurdles were chosen by the Board as they are aligned with the
interests of our customers and shareholders and represent well understood and
transparent mechanisms to measure performance and provide a strong link between
executive reward and shareholder wealth creation.
The performance hurdles under the 2020 LTI Plan have threshold levels which need to
be achieved before vesting commences. Details of these thresholds are outlined in the
vesting schedule in section 6.4.3.
When do the performance
rights vest?
Performance hurdles are assessed as soon as practicable after the completion of the
relevant performance period. The number of performance rights that vest (if any) will
be relative to the achievement against the performance hurdles. See section 6.4.3 for
the vesting schedule associated with each performance hurdle.
Are the performance
hurdles re-tested?
No. Performance hurdles are only tested once at the end of the performance period.
Any performance rights that remain unvested at the end of the performance period are
immediately forfeited.
Are LTI performance
rights entitled to receive
a dividend payment?
LTI performance rights do not attract a dividend during the performance period, as they
are still subject to performance hurdles that will determine the number of rights that
convert to ordinary Medibank shares.
Does Medibank have
a clawback policy that
applies to the LTI Plan?
Medibank has an Executive Remuneration Clawback Policy that provides discretion to the
Board to reduce, cancel, or recover (clawback) any award made under the LTI Plan to an
ELT member in certain circumstances subject to applicable laws. Further detail on this policy
is outlined in section 4.2.2.
What happens to LTI
entitlements if an ELT
member leaves Medibank?
If an ELT member is a ‘good leaver’ (meaning they cease employment by reason of death,
serious disability, permanent incapacity, retirement, redundancy, or with Board approval), a
portion of the performance rights held (granted, but not vested) by that participant on cessation
of employment will be forfeited on a pro rata basis according to a formula which takes into
account the length of time the participant has held the performance rights relative to the
performance period for the grant. The retained performance rights will remain unvested and
will be tested at the end of the performance period against the existing performance hurdles.
In what circumstances
are LTI entitlements
forfeited?
LTI entitlements are forfeited if performance hurdles are not met. In the event an ELT
member is not considered a ‘good leaver’ (meaning they cease employment for any reason
other than death, serious disability, permanent incapacity, retirement, redundancy or with
Board approval), the performance rights held (granted, but not vested) by that participant
on cessation of employment will be automatically forfeited.
Annual Report 2020 61
Remuneration report
For the financial year ended 30 June 2020
The annual LTI allocation value as a percentage of TFR for ELT members is outlined in the table below.
6.4.2 Annual LTI allocation
ELT member
Craig Drummond
Kylie Bishop
John Goodall
David Koczkar
Mei Ramsay
Mark Rogers
Andrew Wilson
2020 and 2021
LTI allocation value as % of TFR
150%
60%
60%
65%
60%
65%
65%
6.4.3 LTI hurdles explained
2020 EPS performance rights
Each year, the Board reviews the LTI targets and vesting
conditions in the context of Medibank’s operating
environment. The Board is committed to setting targets
which are appropriately challenging for management to
meet while not being unattainable and which ultimately
support the delivery of strong outcomes for our customers
and shareholders.
In this context, the Board approved a threshold EPS CAGR
target of 3% for the 2020 LTI grant. The number of EPS
performance rights that vest on achievement of the threshold
EPS CAGR target will be 33.33% of the EPS performance
rights. The EPS CAGR target that must be met for 100% of
the EPS performance rights to vest has been set at 9%.
Details of the vesting schedule are outlined in the table below:
In line with the Board’s approach to regularly review
Medibank’s remuneration framework, Medibank’s 2020 LTI
offer included a strategic customer measure, Customer
Growth, with a weighting of 30%. For the 2020 LTI offer, the
Customer Growth performance hurdle will be measured by
the growth of Medibank’s private health insurance market
share (as reported by APRA) over the three-year performance
period. PHI market share is an independently assessed
measure that is well understood, is a lead indicator that
drives long-term value and creates tension with the existing
measures of EPS CAGR and relative TSR. The Board believes
this approach creates a more balanced LTI hurdle mix that
reflects the importance of PHI market share as a positive
indicator of our ‘Customers First’ focus.
Medibank’s EPS CAGR over
the performance period
Percentage of EPS
performance rights that vest
Less than 3% EPS CAGR
At 3% EPS CAGR
Between 3% and
9% EPS CAGR
9% EPS CAGR or greater
Nil
33.33%
Straight-line pro rata vesting
between 33.33% and 100%
100%
Medibank’s performance against the EPS hurdle is calculated
based on the compound annual growth rate (CAGR) of
Medibank’s EPS over the performance period. EPS is based
on underlying profit, which adjusts statutory net profit after
tax (NPAT) where appropriate, for short-term outcomes that
are expected to normalise over the medium to longer term,
most notably in relation to the level of gains or losses from
investments, due to the limited control that management
has over these outcomes. As outlined to shareholders in
Medibank’s 2019 Notice of Meeting, the baseline EPS for
the 2020 LTI offer was 15.5 cents per share, aligned with
Medibank’s 2019 underlying NPAT of continuing operations
of $426.9m. The CAGR from this base will be calculated on
Medibank’s fully diluted EPS using Medibank’s underlying
NPAT for the year ending 30 June 2022. As set out in the table
above, the resulting CAGR will determine the level of vesting
for the EPS performance rights.
62 Medibank
The entities comprising the 2020 comparator group are
determined at the commencement of the performance
period. If the ordinary shares or stock of a member of the
2020 comparator group is not quoted on the ASX at the
end of the performance period (for example if the member
has been delisted for any reason), then it will be excluded
from calculations of the TSR calculation, unless the Board,
acting in good faith and in its absolute discretion, determine
otherwise. In exercising its discretion, the Board may have
regard to such matters it deems relevant including (but not
limited to) the length of time that the member was quoted
on the ASX during the performance period.
2020 market share performance rights
Introduced as a vesting condition for the 2020 LTI offer, the
Board has approved a threshold private health insurance
(PHI) market share growth target of 25 basis points. The
number of market share performance rights that vest on
achievement of the threshold PHI market share target has
been set at 33.33% of the market share performance rights.
The PHI market share growth target that must be met for
100% of the market share performance rights to vest has
been set at 75 basis points. Details of the vesting schedule
are set out below:
Medibank’s PHI
market share growth
Percentage of market share
performance rights that vest
Less than 25 basis points
Equal to 25 basis points
Greater than 25 basis points
and up to 75 basis points
At or above 75 basis points
Nil
33.33%
Straight-line pro rata vesting
between 33.33% and 100%
100%
2020 TSR performance rights
Medibank’s TSR will be compared against companies within
the ASX 11-100 (excluding mining and energy companies),
which is the same comparator group used for executive and
non-executive remuneration benchmarking. For any of the
2020 TSR performance rights to vest, Medibank must achieve
the threshold TSR ranking over the performance period.
The percentage of the 2020 TSR performance rights that
vest, if any, will be based on Medibank’s TSR ranking at the
end of the performance period, as set out in the following
vesting schedule:
Medibank’s TSR rank in the
2020 comparator group
Percentage of TSR
performance rights that vest
Less than 50th percentile
Equal to 50th percentile
Greater than 50th and
up to 75th percentile
At or above 75th percentile
Nil
50%
Straight-line pro rata vesting
between 50% and 100%
100%
The TSR of Medibank and other companies within the
comparator group, expressed as a compound annual rate
of return, will be comprised of:
a) The change in share price of each company over the
performance period. The change in share price is
calculated using the volume weighted average price
(VWAP) of each entity over the 20 trading days leading up
to and including the performance period start and end
dates. The VWAP at the end of the performance period
will be adjusted for any stock splits that occur during the
performance period.
b) The value of all dividends and other shareholder benefits
paid by each company during the performance period
assuming that:
i.
The dividends and shareholder benefits are reinvested
in the relevant company at the closing price of the
securities on the date the dividend or shareholder
benefit was paid.
ii. Franking credits are disregarded.
Annual Report 2020 63
Remuneration report
For the financial year ended 30 June 2020
7. Linking remuneration and performance 2020
7.1 2020 short-term incentive (STI) performance scorecard
The following table details the 2020 STI performance scorecard measures, weightings and assessment as applied to the
Chief Executive Officer (CEO) and other Executive Leadership Team (ELT) members.
Measure
Description
Weighting
Other ELT
members
CEO
2020
performance
assessment
Risk, compliance
and behaviour
gateway
Individually assessed, ELT members must adhere to Medibank’s
Code of Conduct, ensure that the risks in respect of their position
are well managed and complete all mandatory compliance
training.
Medibank’s Code of Conduct requires all employees to not only
comply with our legal obligations, but also to act ethically and
responsibly in relation to our customers, colleagues and the
community.
The management of risks is reviewed by the Risk Management
Committee and considers the effective operation of divisional risk
committees, incident identification, audit findings, remediation
actions, health and safety, feedback on risk culture from
employees, and feedback provided by the Chief Risk Officer,
Group Executive – People & Culture and Group Executive – Legal,
Governance & Regulatory Affairs as outlined in section 5.2.
Gateway Gateway
All achieved
Financial
gateway
Medibank must achieve a baseline of financial performance, as
determined by the Board for the performance period. In 2020, this
baseline financial performance was a Group operating profit target.
Gateway Gateway
Not met
Group operating
profit
Group operating profit represents the core financial measure
for the annual STI Plan and reflects the Board’s belief that it
is the best measure of underlying business performance and
value created for customers and shareholders over the
performance period.
45%
35%
Below target
Health Insurance
premium
revenue growth
Measured alongside the core metric of Group operating profit, the
focus of this measure is sustainable and profitable revenue growth
to ensure optimal value creation for customers and shareholders.
20%
25%
Below target
Brand Net
Promoter
Score (NPS)
Brand NPS is a key customer advocacy metric that measures
the likelihood of people recommending Medibank or ahm to their
families and friends. Medibank Group’s weighted NPS data (which
includes ahm data) is compared against Medibank’s largest
competitors (Bupa, NIB and HCF) over the same period.
NPS outcomes for both Medibank and our competitors are
independently assessed and calculated.
20%
20%
Below target
64 Medibank
Measure
Description
Weighting
Other ELT
members
CEO
2020
performance
assessment
Role-specific
Big Goals
Aligned to one or more of the following milestones:
1. Customer advocacy – drive Service and Brand NPS for
Medibank and ahm to be best in class
2. Health interactions – by 2020 every Medibank customer has at
least one health interaction through the year with our company
(includes CareComplete, Medibank at Home, Health Concierge,
Health Advice Line, and personalised health communications)
3. PHI growth – Medibank brand volumes to stabilise by end of
FY20 and grow during FY21
15%
20%
4. Medibank at Home – more than 300 virtual hospital beds
by the end of FY22
5. Medibank Health – Organically replace the FY18 $30m
operating profit of Garrison by FY22
6. Productivity – FY20 productivity target of $20m and a further
$30m during FY21-FY22
Progress against each of these milestones is outlined on
page 25 to 27 of the operating and financial review.
Ranging
between
‘on-track’
to ‘ahead
of target’
7.2 Medibank’s 2020 financial performance
Medibank’s 2020 annual financial performance is provided in the table below in addition to the average 2020 STI award achieved
by ELT members, as a percentage of maximum opportunity. This table illustrates the relationship between the key indicators of
shareholder wealth creation and STI outcomes for ELT members.
Measure
Health Insurance premium revenue growth
Group operating profit1
Group net profit after tax (NPAT)
Dividend
Share price as at 1 July
Share price as at 30 June
Average ELT STI as a percentage
of maximum opportunity
2020
1.3%
$461.0m
$315.0m
12.0 cents p/s
$3.49
$2.99
2019
2.4%
$558.7m
$458.7m
13.1 cents p/s
$2.92
$3.49
2018
1.2%
$548.8m
$445.1m
12.7 cents p/s
$2.80
$2.92
2017
1.2%
$500.5m
$449.5m
12.0 cents p/s
$2.95
$2.80
2016
4.0%
$505.5m
$417.6m
11.0 cents p/s
$2.01
$2.95
0%
56%
58%
44%
59%
1 2019 Group operating profit of $558.7m includes $30.2m of operating profit attributable to discontinued operations.
7.3 2020 short-term incentive (STI) awards
As outlined in the performance scorecard in 7.1, Medibank did not meet the STI financial gateway or target performance against
each of the core Company measures. As a result, no 2020 STI awards were made to ELT members. The table below reflects
these outcomes.
ELT member
Craig Drummond
Kylie Bishop
John Goodall
David Koczkar
Mei Ramsay
Mark Rogers
Andrew Wilson
Total STI
achieved
$
0
0
0
0
0
0
0
STI
cash (50%)
$
0
0
0
0
0
0
0
STI deferred
(50%)
$
0
0
0
0
0
0
0
Total STI
achieved
as % of target
0%
0%
0%
0%
0%
0%
0%
Total STI
achieved
as % of max
opportunity
0%
0%
0%
0%
0%
0%
0%
Annual Report 2020 65
Remuneration report
For the financial year ended 30 June 2020
7.4 2018 long-term incentive plan outcomes
The performance period for the 2018 LTI Plan concluded on 30 June 2020. The table below outlines the final outcome against
each performance hurdle and associated vesting percentage for each hurdle, and the LTI Plan.
Performance hurdle
EPS CAGR
Relative TSR
Total 2018 LTI vesting percentage
-4.4%
75th percentile
Outcome Vesting percentage
0.0%
100.0%
50.0%
Medibank’s 2018 LTI was tested following the completion of the performance period on 30 June 2020. Both performance
hurdles were assessed in line with the terms of the plan and the Board did not use discretion in determining the final outcome.
The performance rights under the 2018 LTI Plan that did not vest as a result of the performance hurdle outcomes not being
met lapse immediately.
The 2019 and 2020 LTI plans remain in restriction and will be assessed against their performance hurdles at the completion
of the 2021 and 2022 financial years respectively.
8. 2020 actual remuneration
The table below represents the 2020 ‘actual’ remuneration for Executive Leadership Team (ELT) members and includes all
cash payments made in relation to 2020, in addition to deferred short-term incentive (STI) awards that vested in 2020. Statutory
remuneration disclosures prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards differ
to the numbers presented below, as they include (among other benefits) expensing for equity grants that are yet to realise
or may never be realised. The statutory remuneration table in respect of the ELT members is presented in section 9.
Base salary
and
superannuation
$
1,534,000
580,000
555,000
960,000
555,000
800,000
960,000
Cash STI for
performance
to 30 June
2020
$
-
-
-
-
-
-
-
Total cash
payments
in relation
to 2020
$
1,534,000
580,000
555,000
960,000
555,000
800,000
960,000
Deferred
equity awards
that vested in
20201
$
1,631,261
264,812
246,023
490,367
257,026
280,893
545,940
Total
2020 actual
remuneration
$
3,165,261
844,812
801,023
1,450,367
812,026
1,080,893
1,505,940
Equity awards
that lapsed in
20202
$
(2,043,365)
(267,000)
(234,608)
(486,997)
(269,278)
(313,312)
(543,078)
ELT member
Craig Drummond
Kylie Bishop
John Goodall
David Koczkar
Mei Ramsay
Mark Rogers
Andrew Wilson
1. Deferred equity awards that vested in 2020 relate to the 2017 LTI performance rights that vested during the year and the deferred STI performance rights
in respect of the 2018 performance year that vested during the year.
2. Equity awards that lapsed in 2020 relate to the portion of the 2017 long-term incentive (LTI) performance rights that lapsed following the testing of the
performance hurdles in July 2019.
66 Medibank
9. Statutory remuneration tables
9.1 Statutory remuneration table
The following table has been prepared in accordance with Section 300A of the Corporations Act 2001 and details the statutory
accounting expense of all remuneration-related items for the Executive Leadership Team (ELT) members. In contrast to the
table in section 8 that details 2020 actual remuneration, the table below includes accrual amounts for equity awards being
expensed throughout 2020 that are yet to, and may never be realised by the ELT member.
Short-term benefits
Post-employment
benefits
Long-term
benefits
Equity-based
benefits
Other
ELT member
Financial
year
Salary
$1
STI
$
Other
$
Non-monetary
benefits
$2
Superannuation
$
Leave
$3
Performance
rights
$4
Termination
benefits
$
Total
remuneration
$
Craig Drummond
2020 1,567,526
-
2019
1,473,782
690,200
Kylie Bishop
John Goodall
David Koczkar
Mei Ramsay
Mark Rogers
Andrew Wilson
Total ELT
remuneration
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
555,459
-
509,067
151,975
530,146
-
478,524
130,125
919,211
-
865,933
295,875
503,330
-
504,792
130,125
759,523
-
715,747
222,000
935,307
-
935,000
280,800
2020 5,770,502
-
2019
5,482,845 1,901,100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,296
25,612
13,209
12,992
12,721
12,483
19,444
15,059
14,224
19,660
13,246
17,051
16,273
23,180
25,192
25,000
25,192
24,872
25,192
25,000
21,174
20,533
25,192
25,000
21,174
20,533
25,192
25,000
47,723
37,725
40,978
13,625
15,821
13,000
58,896
22,237
50,019
28,208
84,014
48,023
25,593
23,375
663,660
1,839,316
123,040
306,650
110,038
287,392
230,115
556,530
109,952
288,443
178,851
389,727
225,710
587,667
108,413
126,037
168,308
323,044
1,641,366
165,938
186,193
4,255,725
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,323,397
4,091,635
757,878
1,019,181
693,918
946,524
1,248,840
1,776,167
702,717
996,228
1,056,808
1,413,081
1,228,075
1,875,022
8,011,633
12,117,838
1. Salary includes annual base salary paid on a fortnightly basis and accrued but untaken annual leave entitlements which are expected to be taken in
the next 12 months.
2. Non-monetary benefits may include death, total and permanent disablement insurance, salary continuance insurance, subsidised Medibank health
insurance and fringe benefits that are on the same terms and conditions that are available to all employees of the Group.
3. Long-term leave comprises an accrual for long service leave and accrued but untaken annual leave entitlements which are not expected to be taken
in the next 12 months.
4. Performance rights include equity-based remuneration incurred during the relevant financial year. The values are based on the grant date fair value
amortised on a straight-line basis over the performance period and any reversals required by ASSB 2 Share-based payments.
9.2 Performance-related remuneration statutory table
The following table provides an analysis of the non-performance-related (fixed remuneration) and performance-related
(short-term incentive (STI) and long-term incentive (LTI)) components of the 2020 remuneration mix for Medibank’s ELT
members as detailed in the ‘statutory remuneration table’.
Non-performance-related Performance-related remuneration
ELT member
Craig Drummond
Kylie Bishop
John Goodall
David Koczkar
Mei Ramsay
Mark Rogers
Andrew Wilson
Financial
year
Fixed
remuneration1
Cash
STI
Deferred
STI2
2020
2020
2020
2020
2020
2020
2020
71.4%
83.8%
84.1%
81.6%
84.3%
83.1%
81.7%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
14.9%
10.0%
9.4%
11.8%
9.3%
10.5%
11.4%
LTI3
13.7%
6.2%
6.5%
6.6%
6.4%
6.4%
6.9%
Total performance-related
remuneration
28.6%
16.2%
15.9%
18.4%
15.7%
16.9%
18.3%
1. Fixed remuneration includes the accounting expense from all columns of the ‘statutory remuneration table’ other than ‘cash STI’ and ‘performance rights’.
2. Deferred STI includes the 2020 accounting expense of the 2019 and 2020 deferred STI components within the ‘performance rights’ column of the
‘statutory remuneration table’.
3. LTI includes the 2020 accounting expense of the 2018, 2019 and 2020 LTI component within the ‘performance rights’ column of the
‘statutory remuneration table’.
Annual Report 2020 67
Remuneration report
For the financial year ended 30 June 2020
10. Executive Leadership Team (ELT) equity awards
10.1 ELT equity award transactions
Details of 2020 ELT equity award transactions and outstanding holdings granted in previous years are set out below.
ELT member
Award type
Craig Drummond
2020 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
Kylie Bishop
2020 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
John Goodall
2020 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
David Koczkar
2020 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
Mei Ramsay
2020 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
Mark Rogers
2020 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
Andrew Wilson
2020 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
Units
granted
Grant
date
Vesting and
exercise date1
Unit price
at grant $2
Fair value
at grant $3
Units
%
$
Units
%
$
Vested
Lapsed
665,028
202,404
790,720
277,008
830,684
765,306
100,578
44,567
117,524
51,257
119,132
100,000
96,242
38,159
112,370
48,927
113,718
87,868
180,346
86,766
203,264
95,637
198,284
182,396
96,242
38,159
112,370
48,765
113,340
100,854
150,288
65,102
152,576
51,444
149,458
117,346
180,346
82,346
214,432
106,389
220,576
203,400
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
2.23
1.91
1.91
1.90
1.78
2.23
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1.90
1.78
2.23
1.91
1.90
1.78
2.23
1.91
1.90
1.78
2.23
1.91
1.90
1.78
2.23
1.91
1.90
1.78
2.23
1.91
1.90
1.78
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
277,008
100
950,137
191,327
25
681,124
573,979
75
2,043,365
51,257
100
175,812
25,000
25
89,000
75,000
75
267,000
48,927
100
167,820
21,967
25
78,203
65,901
75
234,608
95,637
100
328,035
45,599
25
162,332
136,797
75
486,997
48,765
100
167,264
25,214
25
89,762
75,640
75
269,278
51,444
100
176,453
29,337
25
104,440
88,009
75
313,312
106,389
100
364,914
50,850
25
181,026
152,550
75
543,078
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Unvested balance
at 30 June 20204
Units
665,028
202,404
790,720
$
1,483,012
690,198
1,506,322
830,684
1,578,300
100,578
44,567
117,524
224,289
151,973
223,883
119,132
226,351
96,242
38,159
112,370
214,620
130,122
214,065
113,718
216,064
180,346
86,766
203,264
402,172
295,872
387,218
198,284
376,740
96,242
38,159
112,370
214,620
130,122
214,065
113,340
215,346
150,288
65,102
152,576
335,142
221,998
290,657
149,458
283,970
180,346
82,346
214,432
402,172
280,800
408,493
220,576
419,094
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1. The vesting and exercise dates represent the earliest possible date the performance rights may vest, being the end of the performance period.
The actual vesting and exercise date will be at a time and manner determined by the Board, with Medibank to notify the holder at that time.
Any performance rights that do not vest at this point will immediately expire.
2. The unit price at grant represents the price used to determine the number of units granted, in line with Medibank’s methodology of granting
equity awards at face value. Unit prices have been rounded to the nearest cent.
68 Medibank
10. Executive Leadership Team (ELT) equity awards
10.1 ELT equity award transactions
Details of 2020 ELT equity award transactions and outstanding holdings granted in previous years are set out below.
Units
granted
Grant
date
Vesting and
exercise date1
Unit price
at grant $2
Fair value
at grant $3
2.23
-
1.91
-
1.90
1.78
2.23
-
1.91
-
1.90
1.78
2.23
-
1.91
-
1.90
1.78
2.23
-
1.91
-
1.90
1.78
2.23
-
1.91
-
1.90
1.78
2.23
-
1.91
-
1.90
1.78
2.23
-
1.91
-
1.90
1.78
ELT member
Award type
Craig Drummond
2020 LTI performance rights
Kylie Bishop
2020 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
2019 deferred STI performance rights
2019 LTI performance rights
2018 deferred STI performance rights
2018 LTI performance rights
2017 LTI performance rights
John Goodall
2020 LTI performance rights
David Koczkar
2020 LTI performance rights
Mei Ramsay
2020 LTI performance rights
Mark Rogers
2020 LTI performance rights
Andrew Wilson
2020 LTI performance rights
665,028
202,404
790,720
277,008
830,684
765,306
100,578
44,567
117,524
51,257
119,132
100,000
96,242
38,159
112,370
48,927
113,718
87,868
180,346
86,766
203,264
95,637
198,284
182,396
96,242
38,159
112,370
48,765
113,340
100,854
150,288
65,102
152,576
51,444
149,458
117,346
180,346
82,346
214,432
106,389
220,576
203,400
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
28/11/2019
28/11/2019
06/12/2018
06/12/2018
27/12/2017
01/03/2017
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
01/07/2022
18/09/2020
01/07/2021
19/09/2019
01/07/2020
01/07/2019
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
3.46
3.41
2.91
2.90
2.77
2.94
Vested
Lapsed
Units
-
-
-
277,008
-
191,327
-
-
-
51,257
-
25,000
-
-
-
48,927
-
21,967
-
-
-
95,637
-
45,599
-
-
-
48,765
-
25,214
-
-
-
51,444
-
29,337
-
-
-
106,389
-
50,850
%
-
-
-
100
-
25
-
-
-
100
-
25
-
-
-
100
-
25
-
-
-
100
-
25
-
-
-
100
-
25
-
-
-
100
-
25
-
-
-
100
-
25
$
-
-
-
950,137
-
Units
-
-
-
-
-
%
-
-
-
-
-
$
-
-
-
-
-
681,124
573,979
75
2,043,365
-
-
-
175,812
-
89,000
-
-
-
167,820
-
78,203
-
-
-
328,035
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
75,000
75
267,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
65,901
75
234,608
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
162,332
136,797
75
486,997
-
-
-
167,264
-
89,762
-
-
-
176,453
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
75,640
75
269,278
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
104,440
88,009
75
313,312
-
-
-
364,914
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Unvested balance
at 30 June 20204
Units
665,028
202,404
790,720
-
$
1,483,012
690,198
1,506,322
-
830,684
1,578,300
-
100,578
44,567
117,524
-
-
224,289
151,973
223,883
-
119,132
226,351
-
96,242
38,159
112,370
-
-
214,620
130,122
214,065
-
113,718
216,064
-
180,346
86,766
203,264
-
-
402,172
295,872
387,218
-
198,284
376,740
-
96,242
38,159
112,370
-
-
214,620
130,122
214,065
-
113,340
215,346
-
150,288
65,102
152,576
-
-
335,142
221,998
290,657
-
149,458
283,970
-
180,346
82,346
214,432
-
-
402,172
280,800
408,493
-
220,576
419,094
1. The vesting and exercise dates represent the earliest possible date the performance rights may vest, being the end of the performance period.
The actual vesting and exercise date will be at a time and manner determined by the Board, with Medibank to notify the holder at that time.
Any performance rights that do not vest at this point will immediately expire.
3. The fair value at grant has been based on a valuation by independent external consultants in accordance with accounting standard AASB 2 Share Based
Payments. The fair values for the 2018, 2019 and 2020 long-term incentive (LTI) grants are used for accounting purposes only as all LTI grants are made
using the face value, as outlined in section 6.4. Unit prices have been rounded to the nearest cent.
2. The unit price at grant represents the price used to determine the number of units granted, in line with Medibank’s methodology of granting
4. The unvested balance has been determined by multiplying the balance of short-term incentive (STI) performance rights at 30 June 2020 by the unit price
equity awards at face value. Unit prices have been rounded to the nearest cent.
at grant, and the balance of LTI performance rights at 30 June 2020 by the fair value at grant.
Annual Report 2020 69
181,026
152,550
75
543,078
-
-
Remuneration report
For the financial year ended 30 June 2020
10.2 ELT members’ ordinary shareholdings
Details of the ordinary shareholdings of ELT members and their related parties are provided in the table below.
ELT member
Craig Drummond
Kylie Bishop
John Goodall
David Koczkar
Mei Ramsay
Mark Rogers
Andrew Wilson1
Balance
30 June 2019
Shares received
on vesting of
performance rights2
Net movement of
shares due to other
changes3
Balance
30 June 2020
256,041
283,115
18,573
732,921
33,821
117,048
642,979
476,537
77,774
72,342
144,067
75,422
82,304
160,389
-
-
(7,500)
(155,000)
-
-
(75,000)
732,578
360,889
83,415
721,988
109,243
199,352
728,368
1. Includes 139,571 adjustment to opening balance.
2. Shares received on the vesting of deferred STI performance rights include the additional Medibank shares credited to ELT members upon the
vesting of the 2018 deferred STI performance rights as a benefit equivalent to any dividends paid during the deferral period. For further information,
please refer to section 6.3.3.
3. Net movement of shares relates to acquisition and disposal transactions by the ELT member and their related parties during the year.
11. Non-executive director remuneration and framework
Non-executive director fees are determined by the Board and
reflect the role, market benchmarks and Medibank’s objective
to attract highly skilled and experienced independent non-
executive directors. All non-executive directors are required to
hold shares in Medibank to align with shareholder interests.
11.1 Non-executive director remuneration
Component Delivered
Description
Base fee
Cash and
superannuation
Committee
fees
Cash and
superannuation
The base fee represents
remuneration for service on
the Medibank Board. The
base fee for the Chairman
represents the entire
remuneration for that role.
Committee fees represent
remuneration for chairing,
or membership of,
Board committees.
11.1.1 Non-executive director fee cap
Under Medibank’s Constitution, the total fees paid in any
financial year to all non-executive directors for their services
(excluding, for these purposes, the salary of any executive
director) must not exceed, in aggregate, the amount fixed at
Medibank’s annual general meeting in 2018 at $2,300,000
per annum (fee cap).
11.1.2 2020 and 2021 non-executive director
remuneration
Under Medibank’s Constitution, the Board is responsible for
determining the total amount paid to each non-executive
director as remuneration for their services. In making this
determination, the Board has taken into account the level
of work required for the role and has regard to the median
remuneration paid to non-executive directors of companies
positioned within the ASX 11-100 (excluding mining and
energy companies).
In context of the current economic and social environment of
COVID-19, and the position of non-executive directors against
the median of the benchmark group, non-executive director
base and committee fees have been maintained at their current
levels for 2021. Based on this decision, Medibank’s aggregate
non-executive director fee spend for 2021 will remain at
$1,940,000. Non-executive director fees applicable throughout
2020 and 2021 are set out in the table below:
Position
Chairman
Non-executive directors
Committee chairman fees
Audit Committee
Risk Management Committee
People and Remuneration Committee
Investment and Capital Committee
Committee membership fees
Audit Committee
Risk Management Committee
People and Remuneration Committee
Investment and Capital Committee
Fees 2020 & 2021 $
445,000
165,000
40,000
40,000
40,000
40,000
20,000
20,000
20,000
20,000
70 Medibank
11.2 Non-executive director superannuation
11.3 Shareholding policy for non-executive directors
Medibank meets its obligations under the Superannuation
Guarantee legislation by paying superannuation contributions
in respect of non-executive directors to their nominated
complying superannuation funds up to the concessional
contribution limits. Superannuation contributions for non-
executive directors are drawn from the overall fees paid to
non-executive directors.
Medibank has a Minimum Shareholding Policy that requires
non-executive directors to acquire shares with a value equal
to one year’s base fee after tax over a period of five years.
Non-executive directors do not participate in, or receive,
any performance-based remuneration as part of their
role and do not participate in any equity plans that operate
within Medibank.
As permitted under the Superannuation Guarantee
legislation, non-executive directors who sit on multiple
boards can elect to be exempt from the superannuation
guarantee where contributions are likely to take them over
the annual concessional contribution limit of $25,000. If a
non-executive director applies and receives an exemption
from superannuation guarantee payments, Medibank will
make those payments in cash.
As at 30 June 2020, all non-executive directors have either
met the minimum shareholding requirement, or are on
track to do so, within the five-year period. Further details
of current non-executive director shareholdings are
provided in section 12.
12. 2020 non-executive director remuneration statutory table
Non-executive director
Elizabeth Alexander
Tracey Batten
Anna Bligh
David Fagan
Peter Hodgett
Linda Bardo Nicholls
Christine O’Reilly
Mike Wilkins
Total non-executive director remuneration
Short-term benefits
Cash salary
and fees
$
Non-
monetary1
$
Financial
year
Post-
employment
benefits
Super-
annuation
$
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
427,250
424,469
188,655
181,735
188,654
181,735
207,061
198,174
207,061
198,174
198,026
182,648
217,346
198,174
188,655
181,735
1,822,708
1,746,844
-
-
2,729
2,608
3,119
3,013
2,618
3,355
3,728
2,872
2,888
3,497
2,602
3,075
3,612
4,087
21,296
22,507
21,174
20,533
17,923
17,265
17,922
17,265
19,671
18,827
19,672
18,827
8,551
17,352
9,385
18,827
17,922
17,265
132,220
146,161
Total
$
448,424
445,002
209,307
201,608
209,695
202,013
229,350
220,356
230,461
219,873
209,465
203,497
229,333
220,076
210,189
203,087
1,976,224
1,915,512
1. Non-monetary benefits may include death, total and permanent disablement insurance, salary continuance insurance, subsidised Medibank health
insurance and fringe benefits that are on the same terms and conditions that are available to all Medibank employees.
Annual Report 2020 71
Remuneration report
For the financial year ended 30 June 2020
13. Non-executive director ordinary shareholdings
Non-executive director
Elizabeth Alexander
Tracey Batten
Anna Bligh
David Fagan
Peter Hodgett
Linda Bardo Nicholls
Christine O’Reilly
Mike Wilkins
Balance
30 June
2019
124,786
34,285
39,323
47,016
67,800
45,000
69,930
59,013
Acquired
during the
year
-
15,715
5,300
-
-
-
-
-
Balance
30 June
2020
124,786
50,000
44,623
47,016
67,800
45,000
69,930
59,013
Minimum
shareholding
requirement
$1
Value of eligible
shareholdings
as at 30 June
2020 $2
Minimum
shareholding
requirement timeline
222,500
82,500
82,500
82,500
82,500
82,500
82,500
82,500
373,110
149,500
Requirement satisfied
Requirement satisfied
133,423
Requirement satisfied
140,578
Requirement satisfied
202,722
Requirement satisfied
134,550
Requirement satisfied
209,091
176,449
Requirement satisfied
Requirement satisfied
1. Minimum shareholding requirement based on annual non-executive director base fees for 2020 and an assumed tax rate of 50%.
2. Value has been calculated with reference to the total number of eligible shares held by each non-executive director, multiplied by the closing price
of Medibank’s shares on 30 June 2020 ($2.99).
14. Medibank’s comparator groups
Detailed below are a list of energy and mining companies
that have been excluded from one or more of Medibank’s
comparator groups for the period 2018-2021. As explained
throughout this report, these comparator groups have been
used for the purposes of benchmarking executive and non-
executive director remuneration and for the assessment
of Medibank’s relative total shareholder return (TSR)
performance under its LTI Plan.
Excluded companies
Rio Tinto Limited
Origin Energy Limited
Oil Search Limited
Newcrest Mining Limited
Caltex Australia Limited
Santos Limited
Fortescue Metals Group Limited
Alumina Limited
BlueScope Steel Limited
Iluka Resources Limited
South32 Limited
Woodside Petroleum Limited
Evolution Mining Limited
Northern Star Resources Limited
Oz Minerals Limited
Washington H Soul Pattinson and Company Limited
Whitehaven Coal Limited
Viva Energy Group Limited
Beach Energy Limited
72 Medibank
Note that a blank cell for any given year denotes the
company was either outside the ASX 11-100 or was no
longer considered exclusively as an energy and mining
company for that year.
2018
2019
2020
2021
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Financial report
Consolidated financial statements
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
page 74
page 75
page 76
page 77
Notes to the financial statements
SECTION 1
Basis of
preparation
page 78
1. Basis of
preparation
SECTION 2
Operating
performance
page 79
2. Segment
information
3. Insurance
underwriting
result
4. Deferred
acquisition costs
5. Unearned premium
liability
6. Shareholder
returns
SECTION 3
Investment portfolio
and capital
page 90
SECTION 4
Other assets
and liabilities
page 101
SECTION 5
Other
page 109
7. Investment
portfolio
8. Financial risk
management
9. Working capital
10. Contributed
equity and reserves
11. Property, plant
and equipment
12. Intangible assets
13. Provisions
and employee
entitlements
Signed reports
Directors’ declaration
Auditor's independence declaration
Independent auditor’s report
14. Income tax
15. Group structure
16. Share-based
payments
17. Key management
personnel
remuneration
18. Leases
19. Auditor’s
remuneration
20. Other
page 121
page 122
page 123
Annual Report 2020 73
Consolidated statement of comprehensive income
For the financial year ended 30 June 2020
Continuing operations
Revenue
Health Insurance premium revenue
Medibank Health revenue
Other income
Expenses
Claims expense
Medical services expense
Employee benefits expense
Office and administration expense
Marketing expense
Information technology expense
Professional service expense
Lease expense
Depreciation and amortisation expense
Finance expense
Note
2020
$m
2019
$m
2(b) 3(a)
13(a)(ii)
18
18
6,554.7
214.9
6,769.6
6,470.7
185.1
6,655.8
7.4
6.4
(5,486.6)
(27.0)
(429.0)
(82.6)
(94.1)
(72.1)
(7.5)
-
(126.9)
(3.4)
(6,329.2)
(5,323.6)
(18.3)
(412.1)
(82.4)
(100.2)
(66.8)
(11.0)
(30.2)
(104.1)
-
(6,148.7)
Profit before net investment income and income tax
447.8
513.5
Net investment income
Profit for the year before income tax
Income tax expense
Profit for the year from continuing operations
Discontinued operations
Profit/(loss) after tax for the year from discontinued operations
Profit for the year
Other comprehensive income, net of tax
Items that will not be reclassified to profit or loss
Actuarial gain/(loss) on retirement benefit obligation
Total comprehensive income for the year, net of tax, attributable to members
of the parent arising from:
Continuing operations
Discontinued operations
Total operations
Basic and diluted earnings per share attributable to ordinary equity holders
of the Company
Continuing operations
Total operations
6(b)
6(b)
The above statement should be read in conjunction with the accompanying notes.
74 Medibank
7(a)
2.4
102.8
450.2
616.3
14(a)
(134.6)
315.6
(178.6)
437.7
15(c)
(0.6)
21.0
315.0
458.7
(0.2)
(0.2)
(0.1)
(0.1)
315.4
(0.6)
314.8
Cents
11.5
11.4
437.6
21.0
458.6
Cents
15.9
16.7
Consolidated statement of financial position
As at 30 June 2020
Current assets
Cash and cash equivalents
Trade and other receivables
Financial assets at fair value
Deferred acquisition costs
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred acquisition costs
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Claims liabilities
Unearned premium liability
Tax liability
Provisions and employee entitlements
Total current liabilities
Non-current liabilities
Trade and other payables
Claims liabilities
Unearned premium liability
Deferred tax liabilities
Provisions and employee entitlements
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
The above statement should be read in conjunction with the accompanying notes.
Note
9(b)
7(b)
4
11
12
4
14(c)
9(c)
3(b)
5
13
9(c)
3(b)
5
14(c)
13
2020
$m
2019
$m
871.4
207.1
1,994.7
34.5
22.9
3,130.6
112.2
386.0
43.6
84.0
7.4
633.2
656.5
283.9
2,130.7
35.2
24.2
3,130.5
49.3
405.9
44.4
-
0.7
500.3
3,763.8
3,630.8
320.2
628.3
671.1
57.7
73.6
1,750.9
84.2
10.9
75.0
-
28.9
199.0
370.0
364.2
682.8
21.3
79.2
1,517.5
33.9
13.4
87.8
13.2
29.6
177.9
1,949.9
1,695.4
1,813.9
1,935.4
10
85.0
22.4
1,706.5
1,813.9
85.0
24.4
1,826.0
1,935.4
Annual Report 2020 75
Consolidated statement of changes in equity
For the financial year ended 30 June 2020
Contributed
equity
$m
85.0
Note
Reserves
$m
21.5
Retained
earnings
$m
1,722.7
Total
equity
$m
1,829.2
458.7
(0.1)
458.6
(355.3)
(2.9)
5.8
1,935.4
-
-
-
458.7
(0.1)
458.6
(355.3)
-
-
1,826.0
(4.7)
1,821.3
(4.7)
1,930.7
315.0
(0.2)
314.8
315.0
(0.2)
314.8
(429.6)
-
-
1,706.5
(429.6)
(3.2)
1.2
1,813.9
-
(2.9)
5.8
24.4
-
24.4
-
-
-
-
(3.2)
1.2
22.4
Balance at 1 July 2018
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Dividends paid
Acquisition and settlement of share-based payment, net of tax
Share-based payment transactions
Balance at 30 June 2019
Adjustment on adoption of AASB 16 Leases, net of tax
Balance at 1 July 2019
18
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Dividends paid
Acquisition and settlement of share-based payment, net of tax
Share-based payment transactions
Balance at 30 June 2020
-
-
-
-
-
-
85.0
-
85.0
-
-
-
-
-
-
85.0
The above statement should be read in conjunction with the accompanying notes.
76 Medibank
Consolidated statement of cash flows
For the financial year ended 30 June 2020
Cash flows from operating activities
Premium receipts
Medibank Health receipts
Other receipts
Payments for claims and levies
Payments to suppliers and employees
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Investment expenses
Proceeds from sale of financial assets
Purchase of financial assets
Purchase of businesses
Purchase of plant and equipment
Purchase of intangible assets
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Purchase of shares to settle share-based payment
Lease principal and interest payments
Dividends paid
Net cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
The above statement should be read in conjunction with the accompanying notes.
Note
2020
$m
2019
$m
9(d)
18
6,522.7
299.3
5.5
(5,233.2)
(827.9)
(194.0)
572.4
27.8
(4.6)
1,648.4
(1,533.1)
-
(3.2)
(26.1)
109.2
6,462.7
714.7
5.8
(5,309.1)
(1,240.2)
(217.8)
416.1
42.9
(4.6)
2,219.5
(2,009.1)
(70.1)
(9.8)
(39.7)
129.1
(3.8)
(33.3)
(429.6)
(466.7)
(3.5)
-
(355.3)
(358.8)
214.9
186.4
656.5
470.1
871.4
656.5
Annual Report 2020 77
Notes to the consolidated financial statements
30 June 2020
SECTION 1. BASIS OF PREPARATION -
Overview
This section outlines the basis on which the Group’s financial statements are prepared. Specific accounting policies
are described in the note to which they relate.
Note 1: Basis of preparation
(a) Corporate information
Medibank Private Limited (“Medibank”) is a for-profit
company incorporated in Australia, whose shares are
publicly traded on the Australian Securities Exchange (ASX).
The financial statements of Medibank for the financial year
ended 30 June 2020 were authorised for issue in accordance
with a resolution of the directors on 20 August 2020. The
directors have the power to amend and reissue the financial
statements.
(b) Basis of preparation
The financial statements are general purpose financial
statements which:
• Are for the consolidated entity (“the Group”) consisting
of Medibank (“parent entity”) and its subsidiaries.
Refer to Note 15(a) for the full group structure.
• Have been prepared in accordance with Australian
Accounting Standards, other authoritative pronouncements
of the Australian Accounting Standards Board (AASB),
International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board
(IASB) and the Corporations Act 2001.
• Have been prepared under the historical cost convention,
with the exception of financial assets measured at fair
value, claims liabilities and lease liabilities which are
measured at the present value of expected future payments.
• Have been rounded off in accordance with ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument
2016/191 to the nearest hundred thousand dollars unless
otherwise stated.
• Adopt all new and amended accounting standards
that are mandatory for 30 June 2020 reporting periods.
Refer to Note 20(a) for further information.
• Do not apply any pronouncements before their operative
date. Refer to Note 20(b) for further information on the
new standards and interpretations which have been issued
but are not effective for 30 June 2020 reporting periods.
• Include, where necessary, updates to prior year
comparatives for changes in classification of amounts
in the current reporting period.
(c) Critical accounting estimates and judgements
The preparation of financial statements requires the use
of certain critical accounting estimates. It also requires
management to exercise judgement in the process of
applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements, are disclosed in the following notes:
• Note 3: Insurance underwriting result
• Note 4: Deferred acquisition costs
• Note 12: Intangible assets
• Note 14: Income tax
• Are presented in Australian dollars, which is
Medibank’s functional and presentation currency.
Note 3 and Note 14 include a new accounting judgement
in relation to the COVID-19 claims liability.
78 Medibank
SECTION 2. OPERATING PERFORMANCE -
Overview
This section explains the operating results of the Group for the year, and provides insights into the Group’s result by
reference to key areas, including:
• Results by operating segment.
• Insurance underwriting result.
• Shareholder returns.
Note 2: Segment information
Segment Reporting Accounting Policy
Operating segments are identified based on the separate financial information that is regularly reviewed by the Chief
Operating Decision Maker (CODM). The term CODM refers to the function performed by the Chief Executive Officer (CEO)
in assessing performance and determining the allocation of resources across the Group.
(a) Description of segments
Segment information is reported on the same basis as
the Group’s internal management reporting structure at
the reporting date. Transactions between segments are
carried out on an arm’s length basis and are eliminated
on consolidation. The Group is not reliant on any one
major customer.
For the financial year ended 30 June 2020, the Group was
organised for internal management reporting purposes
into two reportable segments, Health Insurance and
Medibank Health.
Health Insurance
Medibank Health
Offers private health insurance products including hospital cover and ancillary cover, as stand-
alone products or packaged products that combine the two. Hospital cover provides members with
health cover for hospital treatments, whereas ancillary cover provides members with health cover
for healthcare services such as dental, optical and physiotherapy. The segment also offers health
insurance products to overseas visitors and overseas students.
Private Health Insurance Premium Revenue Recognition Accounting Policy
Premium revenue is measured at the fair value of the consideration received or receivable and is
recognised on a straight-line basis between the date Medibank accepts the insurance risk and the
date the premium has been paid up to. Premium revenue is classified as an unearned premium
liability in the consolidated statement of financial position when it relates to future financial periods.
Derives its revenue from a range of activities including contracting with government and corporate
customers to provide health management services, as well as providing a range of telehealth services
in Australia. In addition, the Group distributes travel, life and pet insurance products on behalf of
other insurers as part of a broader strategy to retain members and leverage its distribution network.
Medibank Health Revenue Recognition Accounting Policy
Medibank Health revenue is recognised when services are provided to the customer and at an
amount the Group will be entitled to receive in relation to providing the services. A contract liability
is recognised within trade and other payables in the consolidated statement of financial position
when the Group has an obligation to transfer services to a customer for which it has already received
consideration from the customer (or an amount of consideration is receivable). Contract liabilities
are recognised as Medibank Health revenue when the services are provided.
Annual Report 2020 79
(b) Segment information provided to the CEO
The CEO measures the performance of the Group's reportable segments based on the operating profit of the segments.
The segment information provided to the CEO for the year ended 30 June 2020 is as follows:
Health Insurance
Medibank Health
$542.5m
$6,464.7m
$470.6m
$6,545.6m
$27.8m
$270.0m
$22.1m
$230.3m
2019
2020
2019
2020
Revenue
Operating profit
Revenue from
continuing operations
Operating profit
from continuing operations
30 June 2020
Revenues
Total segment revenue
Inter-segment revenue
Note
2(c)(iii)
Health
Insurance
$m
Medibank
Health
$m
Total
$m
6,545.6
-
270.0
(46.0)
6,815.6
(46.0)
Revenue from external customers from continuing operations
6,545.6
224.0
6,769.6
Operating profit from continuing operations
470.6
27.8
498.4
Items included in segment operating profit:
Depreciation and amortisation1
30 June 2019
Revenues
Total segment revenue
Inter-segment revenue
(105.2)
(7.9)
(113.1)
Health
Insurance
$m
Medibank
Health
$m
Total
$m
6,464.7
-
230.3
(39.2)
6,695.0
(39.2)
Note
2(c)(iii)
Revenue from external customers from continuing operations
6,464.7
191.1
6,655.8
Operating profit from continuing operations
542.5
22.1
564.6
Items included in segment operating profit:
Depreciation and amortisation1
(90.0)
(4.3)
(94.3)
1. Total segment depreciation and amortisation for 30 June 2020 includes depreciation on right-of-use assets of $22.8 million. Refer to Note 18 for further
information on leases.
80 Medibank
Notes to the consolidated financial statements30 June 2020
(c) Other segment information
(i) Segment operating profit or loss
A reconciliation of the operating profit from continuing operations to the profit for the year before income tax from continuing
operations of the Group is as follows:
Total segment operating profit from continuing operations
Unallocated to operating segments:
Corporate operating expenses
Group operating profit from continuing operations
Net investment income
Acquisition intangible amortisation
Mergers and acquisitions expenses
Other income/(expenses)
Note
2020
$m
498.4
2019
$m
564.6
7(a)
(37.4)
(36.1)
461.0
528.5
2.4
(9.0)
(1.3)
(2.9)
102.8
(8.7)
(4.2)
(2.1)
Profit for the year before income tax from continuing operations
450.2
616.3
(ii) Other items
(iii) Loyalty program
Segment private health insurance premium revenue is
after $9.1 million (2019: $6.0 million) of transfers between
the Group’s other operating segments in relation to the
loyalty program.
(iv) Segment assets and segment liabilities
No information regarding segment assets and segment
liabilities has been disclosed, as these amounts are not
reported to the CEO for the purpose of making strategic
decisions.
(v) Geographic information
Segment revenue based on the geographical location of
customers has not been disclosed, as the Group derives
all of its revenues from its Australian operations.
Segment operating profit excludes the following:
• Corporate operating expenses of $37.4 million (2019:
$36.1 million) relating to the Group's corporate function.
• Net investment income, which comprises:
– Interest and distribution income and related investment
management expenses (refer to Note 7(a)), as this
arises from investments which are managed by a
central treasury function.
– Net gains and losses on disposals of and fair value
movements on financial assets and liabilities (refer
to Note 7(a)), as they are not indicative of the Group's
long-term performance.
• Acquisition intangible amortisation of $9.0 million
(2019: $8.7 million) not allocated to segments.
• Expenses in relation to mergers and acquisitions which
are not allocated to the operating activities of the Group’s
segments.
• Other income/(expenses) of $2.9 million (2019: $2.1 million)
which do not relate to the current year’s trading activities
of the Group’s segments, comprising primarily net sublease
rent and a one-off lease transition adjustment (refer to
Note 18 for further information).
Annual Report 2020 81
Note 3: Insurance underwriting result
This note presents the Group’s insurance underwriting result and provides information on the Group’s claims liabilities,
which comprise the outstanding claims liability, the COVID-19 claims liability and the provision for bonus entitlements.
2020 underwriting result after expenses
$6,545.6m
100%
$(5,532.4)m
84.5%
$(542.6)m
8.3%
$470.6m
7.2%
Private health insurance premium revenue
Net claims incurred
Underwriting expenses
Underwriting result after expenses
Insurance Contracts Accounting Policy
An insurance contract arises when the Group accepts
significant insurance risk from another party by agreeing
to compensate them from the adverse effects of a specified
uncertain future event. The significance of insurance
risk depends on both the probability and magnitude of
an insurance event.
Once insurance cover has been classified as an
insurance contract, it remains an insurance contract
for the remainder of its lifetime, even if the insurance
risk significantly reduces during the period.
With the exception of travel, life and pet insurance,
for which the Group does not act as an underwriter, all
other types of insurance cover are insurance contracts.
In the current year, a specific COVID-19 claims liability
has been recorded for deferred claims that were a result
of surgeries and other health services being restricted
for policyholders as a result of the COVID-19 pandemic.
Medibank has an obligation to settle these claims over
future periods.
(a) Insurance underwriting result
Private health insurance premium revenue
Claims expense
Claims incurred
COVID-19 deferred claims – hospital
COVID-19 deferred claims – ancillary
State levies
Net Risk Equalisation Special Account rebates
Net claims incurred excluding claims handling costs on outstanding
claims liabilities
Movement in claims handling costs on outstanding claims liabilities
Net claims incurred
Underwriting expenses
Underwriting result after expenses
(i) Private health insurance premium revenue and underwriting
expenses are after $9.1 million of transfers between the
Group’s other operating segments (2019: $6.0 million).
(ii) Claims incurred are prior to elimination of transactions
with the Group’s other operating segments of
$45.8 million (2019: $38.5 million).
(iii) Net claims incurred consists of amounts paid and
payable to hospital, medical and ancillary providers
82 Medibank
Note
(i)
(ii)
(iv)
(iv)
(iii)
(i)
2020
$m
6,545.6
2019
$m
6,464.7
(5,190.8)
(234.4)
(62.7)
(51.6)
7.9
(5,354.2)
-
-
(50.4)
42.5
(5,531.6)
(5,362.1)
(0.8)
(5,532.4)
-
(5,362.1)
(542.6)
(560.1)
470.6
542.5
which consists of claims paid and payable, changes
in claims liabilities, change in amounts receivable
from and payable to the Risk Equalisation Special
Account, applicable state levies, costs incurred in health
management services and the COVID-19 claims liability.
(iv) This balance relates to the COVID-19 claims liability.
Refer to Note 3(b) for further information.
Notes to the consolidated financial statements30 June 2020 Health Insurance Premium Revenue Recognition
Accounting Policy
Premium revenue is recognised in the consolidated
statement of comprehensive income when the amount
can be reliably measured and it is probable that future
economic benefits will flow to the entity. Premium revenue
is measured at the fair value of the consideration received
or receivable and is recognised on a straight-line basis
between the date Medibank accepts the risk from the
insured under the insurance contract and the date the
premium has been paid up to.
Premium revenue includes the movement in the premiums
in arrears which is assessed based on past experience of
the likelihood of collection. Premium revenue is classified
as an unearned premium liability in the consolidated
statement of financial position when it relates to future
financial periods.
The Australian Government contributes a rebate towards
eligible policyholders' premiums and pays this directly to the
Group. This rebate is recognised within premium revenue
in the consolidated statement of comprehensive income.
Rebates due from the government but not received at
balance date are recognised as trade and other receivables.
Net Risk Equalisation Special Account Levies and
Rebates Accounting Policy
Under legislation, all private health insurers must
participate in the Risk Equalisation Special Account in
which all private health insurers share the cost of the
eligible claims of members aged 55 years and over, and
claims meeting the high cost claim criteria.
The Australian Prudential Regulation Authority (APRA)
determines the amount payable to or receivable from the
Risk Equalisation Special Account after the end of each
quarter. Estimates of amounts payable or receivable are
provided for periods where determinations have not yet
been made. This includes an estimate of risk equalisation
for unpresented and outstanding claims.
(b) Gross claims liability
Current
Outstanding claims liability – central estimate
COVID-19 claims liability
Risk margin
Claims handling costs
Claims liability – provision for bonus entitlements
Gross claims liability
Non-current
Outstanding claims liability – central estimate
Risk margin
Claims handling costs
Claims liability – provision for bonus entitlements
Gross claims liability
Note
(i,ii)
(vi)
(i,iii)
(iv)
(v)
(c)
(i,ii)
(i,iii)
(iv)
(v)
(c)
2020
$m
284.4
297.1
27.1
8.6
617.2
11.1
628.3
2.1
0.2
0.1
2.4
8.5
10.9
2019
$m
318.4
-
25.3
7.7
351.4
12.8
364.2
2.4
0.3
-
2.7
10.7
13.4
Claims Liability Accounting Policy
The outstanding claims liability provides for claims received
but not assessed and claims incurred but not received. It is
based on an actuarial assessment that considers historical
patterns of claim incidence and processing. It is measured
as the central estimate of the present value of expected
future payments arising from claims incurred at the end
of each reporting period under insurance cover issued
by the Medibank health fund, plus a risk margin
reflecting the inherent uncertainty in the central estimate.
The expected future payments are discounted to present
value using a risk-free rate.
The liability also allows for an estimate of claims handling
costs, which comprise all direct expenses of the claims
department and general administrative costs directly
attributable to the claims function. These include internal
and external costs incurred from the negotiation and
settlement of claims.
Annual Report 2020 83
Claims Liability Accounting Policy continued
COVID-19 Claims Liability
The COVID-19 claims liability is based on the best estimate,
taking into account relevant risks and uncertainties, of
expenditure required to settle claims deferred as a result
of surgeries and other health services being restricted
for policyholders as a result of the COVID-19 pandemic.
Medibank has an obligation to settle these claims as
they become known in future periods. The claims liability
has been estimated on the basis of actual claims versus
expected claims during the period in which health services
were restricted, which was from March to June 2020
inclusive (the COVID-19 period). This took into account
an estimate of the procedures and services deferred into
the next financial period. The expected claims experience
is based on observable daily claim amounts immediately
preceding the COVID-19 restrictions, taking into account
changes in the customer base during the COVID-19 period.
The Group will continue to reassess the extent of any deferred
claims as a result of any ongoing or future restrictions.
Key estimate
The outstanding claims liability estimate is based on the hospital, ancillary and overseas claim categories.
Hospital and overseas
Calculated using statistical methods adopted for all services months but with service levels
for the most recent service month (hospital) or two service months (overseas) being based
on the latest forecast adjusted for any observed changes in payment patterns.
Ancillary
Calculated using statistical methods adopted for all service months.
The critical assumption in determining the outstanding claims liability is the extent to which claim incidence and
development patterns are consistent with past experience. Adjustments are then applied to reflect any unusual or abnormal
events that may affect the estimate of claims levels such as major variability to claims processing volumes.
The process for establishing the outstanding claims liability involves consultation with internal actuaries (including the
Chief Actuary), claims managers and other senior management. The process includes monthly internal claims review
meetings attended by senior management.
(i) Outstanding
The central estimate is an estimate of the level of claims liability.
claims liability
– central
estimate
Key estimate
The central estimate is based on statistical analysis of historical experience which assumes an
underlying pattern of claims development and payment. The final selected central estimate is based
on a judgemental consideration of this analysis and other qualitative information, such as claims
processing delays. The central estimate excludes the impact of the Risk Equalisation Special
Account. A separate estimate is made of levies payable, to and recoveries from, the Risk Equalisation
Special Account.
(ii) Discounting
The outstanding claims liability central estimate is discounted to present value using the three-month
risk-free rate of 0.10% per annum which equates to a reduction in the central estimate of less than
$0.1 million (2019: 1.20%, $0.5 million).
(iii) Risk margin
An overall risk margin considers the uncertainty surrounding the outstanding claims liability. The
risk margin applied to the Group’s outstanding claims central estimate (net of risk equalisation) at
30 June 2020 is 9.2% (2019: 7.8%). The increase in the risk margin is reflective of the uncertainty in
the claims environment and the risk inherent in the actuarial model due to changing service and
payment patterns as a result of COVID-19 restrictions on surgeries and other health services.
Key estimate
The risk margin is based on an analysis of past experience, including comparing the volatility of past
payments to the adopted central estimate. The risk margin has been estimated to equate to the
Group’s objective of achieving a probability of adequacy of at least 95% (2019: 95%). The risk margin
is not applied to the COVID-19 claims liability. Relevant risks and uncertainties have been taken into
account in determining the best estimate of the COVID-19 claims liability.
84 Medibank
Notes to the consolidated financial statements30 June 2020 (iv) Claims
handling costs
The allowance for claims handling costs at 30 June 2020 is 3.0% of the outstanding claims liability
(2019: 2.5%). The increase in the claims handling cost allowance is reflective of costs incurred and
the relative fixed cost nature of handling claims.
(v) Claims liability
– provision
for bonus
entitlements
Certain private health insurance products (Package Bonus, Ultra Bonus and Membership Bonus)
include benefits that carry forward. Package Bonus carries forward unused benefit entitlements
in a calendar year for five calendar years. Membership Bonus carries forward unused benefit
entitlements in a calendar year for 10 calendar years. Ultra Bonus carries forward unused benefit
entitlements without limit.
The Group’s claims liabilities include a provision to cover expected future utilisation of these benefit
entitlements of the current membership.
Key estimate
The bonus provision includes the total entitlement available to members under the terms of the
relevant insurance policies, less any amounts utilised, with a probability of utilisation based on
past experience and current claiming patterns applied. The true cost of these entitlements cannot
be known with certainty until any unclaimed entitlements are processed.
(vi) COVID-19
claims
liability
The liability relates to claims deferred as a result of surgeries and other health services being
restricted for policyholders during the COVID-19 pandemic period. This impacted health services
for hospital, ancillary and overseas claims.
Key estimate
This liability is calculated by comparing the estimate of the insured surgeries and other procedures
that were expected to occur during the period March 2020 to June 2020 (the COVID-19 period) and
the actual insured surgeries and other procedures that occurred during this time. Risks and
uncertainties have been taken into account in the measurement of the liability and are reflected
in the key inputs and judgements.
The key judgements and inputs into this liability estimate include:
• Statistical analysis of the expected claims level at the Single Equivalent Unit per policy (PSEU)
during the COVID-19 period.
• The expected claims level was based on the six monthly rolling cost per PSEU observed up until
the period immediately preceding the COVID-19 pandemic restrictions (February 2020), adjusted
for the average actual number of PSEUs during the COVID-19 period.
• The expected rate that deferred insured surgeries and other procedures will be caught up, which
is based on the analysis and expert opinion of the Chief Medical Officer and internal analysis.
The expected claims deferral rate is 100% (2019: not applicable) for hospital claims and 50%
(2019: not applicable) for ancillary claims.
• This liability only includes insured surgeries and other health services that will ultimately be
performed for policyholders of the Group.
(c) Reconciliation of movement in claims liabilities
Balance at beginning of period (1 July)
Claims incurred during the period
COVID-19 claims liability
Claims paid during the period
Amount (over)/under provided on central estimate
Risk margin
Claims handling costs
Movement in discount rate
Balance at 30 June
Note: Movement includes both current and non-current. Claims incurred and claims settled exclude levies and rebates.
2020
$m
377.6
5,120.0
297.1
(5,180.8)
22.3
1.7
0.8
0.5
639.2
2019
$m
379.8
5,324.5
-
(5,318.0)
(9.7)
0.7
-
0.3
377.6
Annual Report 2020 85
(d) Impact of changes in key variables on the
claims liabilities
Outstanding claims liability
The central estimate, discount rate, risk margin and weighted
average term to settlement are the key outstanding claims
variables. A 10% increase/decrease in the central estimate
would result in a $20.1 million decrease/increase to profit after
tax and equity (2019: $22.4 million). A 1% movement in other
key outstanding claims variables, including discount rate, risk
margin and weighted average term to settlement, would result in
an insignificant decrease/increase to profit after tax and equity.
COVID-19 claims liability
The following describe the individual impacts of changes
in the key estimate on the COVID-19 claims liability:
• A 4% increase/decrease in the expected claims level
would result in a $44.8 million decrease/increase to
profit after tax and equity (2019: not applicable).
result in a $16.4 million decrease/increase to profit after
tax and equity (2019: not applicable). The reasonable
possible range for the hospital deferral assumption is
90-100% (2019: not applicable).
• An increase/decrease of 20 percentage points in the
adopted deferral rate for COVID-19 ancillary claims would
result in a $17.6 million decrease/increase to profit after
tax and equity (2019: not applicable). The reasonable
possible range for the ancillary deferral assumption
is 30-70% (2019: not applicable)
(e) Insurance risk management
The Group provides private health insurance products
including hospital cover and ancillary cover, as stand-
alone products or packaged products that combine the
two, for Australian residents, overseas students studying in
Australia and overseas visitors to Australia. These services
are categorised as two types of contracts: hospital and/or
ancillary cover.
• An increase/decrease of 10 percentage points in the
adopted deferral rate for COVID-19 hospital claims would
The table below sets out the key variables upon which the
cash flows of the insurance contracts dependent.
Type of contract
Detail of contract workings
Nature of claims
Key variables that affect
the timing and uncertainty
of future cash flows
Hospital cover
Ancillary cover
Defined benefits paid for hospital
treatment, including accommodation,
medical and prostheses costs
Hospital benefits defined
by the insurance contract
or relevant deed
Claims incidence
and claims inflation
Defined benefits paid for ancillary
treatment, such as dental, optical
and physiotherapy services
Ancillary benefits defined
by the insurance contract
or relevant deed
Claims incidence
and claims inflation
Insurance risks and the holding of capital in excess of prudential requirements are managed through the use of claims
management procedures, close monitoring of experience, the ability to vary premium rates, and risk equalisation.
Mechanisms to manage risk
Claims
management
Strict claims management ensures the timely and correct payment of claims in accordance with policy
conditions and provider contracts. Claims are monitored monthly to track the experience of the portfolios.
Experience
monitoring
Monthly financial and operational results, including portfolio profitability and prudential capital
requirements, are reported to management committees and the Board. Results are also monitored
against industry for insurance risks and experience trends as published by the regulator, APRA.
Monitoring of claims experience during the COVID-19 period included daily and weekly dashboard reports.
Prudential capital
requirements
All private health insurers must comply with prudential capital requirements to provide a buffer
against certain levels of adverse experience. The Board has a target level of capital which exceeds
the regulatory requirement.
The Group can vary future premium rates subject to the approval of the Minister for Health.
Ability to vary
premium rates
86 Medibank
Notes to the consolidated financial statements30 June 2020 Risk equalisation
Private health insurance legislation requires resident private health insurance contracts to meet
community rating requirements. This prohibits discrimination between people on the basis of
their health status, gender, race, sexual orientation, religious belief, age (except as allowed under
Lifetime Health Cover provisions), increased need for treatment or claims history. To support these
restrictions, all private health insurers must participate in the Risk Equalisation Special Account.
Concentration of
health risk
The Group has health insurance contracts covering hospital and ancillary cover, and private health
insurance for overseas students and visitors to Australia. There is no significant exposure to
concentrations of risk because contracts cover a large volume of people across Australia.
COVID-19 claims
liability
The Group’s Capital Management Policy requires a sufficient level of capital to be held by the Group.
The Group also created a sub-portfolio within the Health Fund Investment Portfolio with the express
purpose of funding the COVID-19 claims liability.
Note 4: Deferred acquisition costs
Movements in the deferred acquisition costs are as follows:
Balance at 1 July
Costs deferred during the year
Amortisation expense
Balance at 30 June
Note: Movement includes both current and non-current.
Deferred Acquisition Costs Accounting Policy
Costs incurred in obtaining health insurance contracts
are deferred and recognised as assets where they can be
reliably measured and where it is probable that they will
give rise to premium revenue that will be recognised in
the consolidated statement of comprehensive income in
subsequent reporting periods.
Deferred acquisition costs are amortised systematically
over the average expected retention period of the insurance
contracts to which they relate. This is in accordance with
the expected pattern of the incidence of risk under the
Key judgement and estimate
The amortisation period of four years has been determined
based on the average expected retention period of
members. The actual retention period of a member can
be longer or shorter than four years. The straight-line
method systematically follows the initial period of customer
tenure with some customers remaining with Medibank
2020
$m
79.6
36.6
(38.1)
78.1
2019
$m
84.9
34.7
(40.0)
79.6
insurance contracts to which they relate and corresponds
to the earning pattern of the corresponding actual and
expected premium revenue. The Group amortises these
costs on a straight-line basis over a period of four years
(2019: four years). The recoverability of deferred acquisition
costs is considered as part of the liability adequacy test
(refer to Note 5). Deferred acquisition costs which are
not included in this test are separately assessed for
recoverability in accordance with the Group’s accounting
policy set out in Note 20(c).
over a longer period of time. The Group maintains data
on the retention period of all members, and performs a
retention period analysis of those who are subject to these
acquisition costs to ensure the period of amortisation
remains appropriate.
Annual Report 2020 87
Note 5: Unearned premium liability
Movement in the unearned premium liability is as follows:
Balance at 1 July
Deferral of premium on contracts written during the year
Earnings of premiums deferred in prior years
Balance at 30 June
Note: Movement includes both current and non-current.
2020
$m
770.6
658.3
(682.8)
746.1
2019
$m
772.9
687.2
(689.5)
770.6
The expected cash outflows and the risk margin in the 30 June 2020 liability adequacy testing (LAT) includes the impacts
of COVID-19. The LAT did not result in the identification of any deficiency as at 30 June 2020 and 2019. The LAT is not
sensitive to reasonably plausible changes in key assumptions applied.
Unearned Premium Liability Accounting Policy
The proportion of premium received that has not been
earned at the end of each reporting period is recognised
in the consolidated statement of financial position as an
unearned premium liability. The unearned premium liability
is released to the consolidated statement of comprehensive
income as revenue in accordance with Note 3(a) over the
term of the insurance cover.
Unexpired Risk Liability Accounting Policy
A liability adequacy test is required to be performed in
respect of the unearned premium liability and insurance
contracts renewable before the next pricing review
(constructive obligation). The purpose of the test is to
determine whether the insurance liability, net of related
deferred acquisition costs, is adequate to cover the present
value of expected cash outflows relating to future claims
arising from rights and obligations under current insurance
coverage. An additional risk margin is included in the test
to reflect the inherent uncertainty in the central estimate.
The liability adequacy test is performed at the level of a
portfolio of contracts that are subject to broadly similar
risks and that are managed together as a single portfolio.
The unearned premium liability is deemed to be
deficient where:
Present value of the
expected future cash
outflows relating to
future claims
add
Additional risk margin
to reflect the inherent
uncertainty in the
central estimate
Unearned premium
liability
less
greater
than
Related intangible
assets
=
Deficiency
less
Related deferred
acquisition costs
The entire deficiency is recorded immediately in the
statement of comprehensive income. The deficiency is
recognised first by writing down any related intangible
assets and then related deferred acquisition costs, with
any excess being recorded in the consolidated statement
of financial position as an unexpired risk liability.
Deferred acquisition costs which are not included in this
test are separately assessed for recoverability and are
amortised in accordance with the Group’s accounting
policy set out in Note 4.
Note 6: Shareholder returns
(a) Dividends
(i) Dividends paid or payable
2020
2019 final fully franked dividend
2019 final fully franked special dividend
2020 interim fully franked dividend
2019
2018 final fully franked dividend
2019 interim fully franked dividend
88 Medibank
Cents per fully
paid share
7.40
2.50
5.70
7.20
5.70
$m
Payment date
203.8
68.9
157.0
26 September 2019
26 September 2019
26 March 2020
198.3
157.0
27 September 2018
28 March 2019
Notes to the consolidated financial statements30 June 2020
(ii) Dividends not recognised at the end of the reporting period
On 20 August 2020, the directors determined a final fully franked ordinary dividend for the six months ended 30 June 2020 of
6.3 cents per share. The dividend is expected to be paid on 24 September 2020 and has not been provided for as at 30 June 2020.
(iii) Franking account
Franking credits available at 30 June 2020 for subsequent reporting periods based on a tax rate of 30% are $215.7 million
(2019: $203.8 million).
(iv) Calculation of dividend paid
Medibank’s target dividend payout ratio for the 2020 financial year is 75-85% (2019: 70-80%) of full year normalised net profit
after tax (underlying NPAT). Normalised net profit after tax is calculated based on statutory net profit after tax adjusted for
short-term outcomes that are expected to normalise over the medium to longer term, most notably in relation to the level of
gains or losses from investments and movement in credit spreads, and for one-off items, especially those that are non-cash,
such as impairments.
Profit for the year – after tax
Normalisation for growth asset returns
Normalisation for defensive asset returns – credit spread movement
Underlying NPAT
2020
$m
315.0
43.2
8.5
366.7
2019
$m
458.7
(7.9)
(2.9)
447.9
Dividends Accounting Policy
A liability is recorded for any dividends determined on or before the reporting date, but have not been distributed at that date.
(b) Earnings per share
Attributable to ordinary equity holders of the Company
Profit for the year attributable to ordinary equity holders of the Company ($m)
Basic and diluted earnings per share attributable to ordinary equity holders of the Company (cents)
2020
2019
315.0
11.4
458.7
16.7
Attributable to continuing operations
Profit for the year attributable to ordinary equity holders of the Company ($m)
Basic and diluted earnings per share attributable to ordinary equity holders of the Company (cents)
315.6
11.5
437.7
15.9
Weighted average number of ordinary shares used in calculating basic and diluted earnings per share 2,754,003,240 2,754,003,240
Basic Earnings Per Share Accounting Policy
Basic earnings per share (EPS) is calculated by dividing
the profit attributable to equity holders of Medibank,
excluding any costs of servicing equity other than ordinary
shares, by the weighted average number of ordinary shares
outstanding during the reporting period, adjusted for bonus
elements in ordinary shares issued during the reporting
period and excluding treasury shares.
Diluted Earnings Per Share Accounting Policy
Diluted EPS adjusts the figures used in the determination
of basic EPS to take into account:
• The after income tax effect of any interest and other
financing costs associated with dilutive potential
ordinary shares.
• The weighted average number of additional ordinary
shares that would have been outstanding assuming
the conversion of all dilutive potential ordinary shares.
Annual Report 2020 89
SECTION 3. INVESTMENT PORTFOLIO AND CAPITAL -
Overview
This section provides insights into the Group’s exposure to market and financial risks, and outlines how these risks
are managed. This section also describes how the Group’s capital is managed.
Note 7: Investment portfolios
This note contains information on the Group’s net investment
income and the carrying amount of the Group’s investments.
Medibank has established two investment portfolios for
managing its investment assets, the Health Fund Investment
Portfolio and the Non-Health Fund Investment Portfolio.
The Chief Financial Officer (CFO) is responsible for the
management of the Health Fund Investment Portfolio in
accordance with the requirements of the Board approved
Capital Management Policy, APRA regulatory requirements
and the overall objective of achieving a capital base that is
both stable and liquid. The asset allocation of Medibank’s
Health Fund Investment Portfolio is skewed towards defensive
assets (less risky and generally lower returning) rather than
growth assets (riskier but potentially higher returning). The
Board has maintained the short-term target asset allocation
for the Health Fund Investment Portfolio at 20%/80% for
growth and defensive assets. The long-term target asset
allocation remains at 25%/75% for growth and defensive
assets. During, and because of, the COVID-19 pandemic the
Fund created a sub-portfolio of the Health Fund Investment
Portfolio (the Short-term Operational Cash sub-portfolio)
consisting of exclusively defensive assets with the express
purpose of funding the COVID-19 liability. Given its short-
term nature, this sub-portfolio is managed separate from
the Target Asset Allocation (TAA) framework. This portfolio
is permitted to invest in bank deposits, short-term domestic
money market securities with a minimum credit rating of
A-1+ and fixed income securities with a minimum credit
rating of AA-.
The Non-Health Fund Investment Portfolio was established
to provide the Group with additional liquidity and financial
flexibility. The CFO is responsible for the management of
the Non-Health Fund Investment Portfolio in accordance
with the Board’s approved Investment Management Policy,
investment strategy and delegation from the Investment and
Capital Committee. This portfolio resides outside of the health
fund and is not subject to the same regulatory requirements
as the Health Fund Investment Portfolio. The Non-Health
Fund Investment Portfolio is permitted to invest in bank
deposits, short-term domestic money market securities with
a minimum credit rating of A-1+ and fixed income securities
with a minimum credit rating of AA-.
This note provides information on the net investment income
and the carrying amounts of the investment assets residing
in the Health Fund Investment Portfolio (including the
sub-portfolio) and the Non-Health Fund Investment Portfolio.
Health Fund
Investment
Portfolio
Non-Health
Fund Investment
Portfolio
Total
847.0
185.0
170.5
-
47.2
-
1,527.9
(185.0)
-
217.7
466.8
2,841.7
676.5
185.0
1,480.7
(185.0)
466.8
2,624.0
Portfolio composition 30 June 2020 ($m)
Cash portfolio
Cash and cash equivalents (as reported in the statement of financial position)1,3
Cash investments with longer maturities2
Fixed income portfolio
Fixed income (as reported in the statement of financial position)4
Less cash investments with longer maturities
Growth portfolio
Equities and investment trusts
Total investment portfolio
90 Medibank
Notes to the consolidated financial statements30 June 2020 Portfolio composition 30 June 2019 ($m)
Cash portfolio
Cash and cash equivalents (as reported in the statement of financial position)1,3
Cash investments with longer maturities
Fixed income portfolio
Fixed income (as reported in the statement of financial position)4
Less cash investments with longer maturities
Growth portfolio
Equities and investment trusts
Total investment portfolio
Health Fund
Investment
Portfolio
Non-Health
Fund Investment
Portfolio
538.0
219.3
1,554.5
(219.3)
514.5
2,607.0
26.6
61.7
61.7
(61.7)
-
88.3
Total
564.6
281.0
1,616.2
(281.0)
514.5
2,695.3
1. Cash and cash equivalents as reported in the statement of financial position also include operational cash of $24.4 million (2019: $91.9 million).
2. Cash investments with longer maturities include a $110.2 million change in the classification of maturities of highly liquid financial instruments.
3. Cash and cash equivalents in the Health Fund Investment Portfolio includes $236.5 million (2019: nil) in relation to the Short-term Operational Cash
sub-portfolio.
4. Fixed income in the Health Fund Investment Portfolio includes $60.6 million (2019: nil) relating to the Short-term Operational Cash sub-portfolio.
The Health Fund Investment Portfolio excluding the Short-term Operational Cash sub-portfolio comprises the following:
Growth
Australian equities
International equities
Property
Infrastructure
Defensive
Fixed income
Cash
Portfolio
composition
30 June
2020
Portfolio
composition
30 June
2019
Target
asset
allocation
6.3%
6.5%
7.0%
0.3%
20.1%
5.1%
6.5%
6.0%
2.1%
19.7%
5.0%
6.0%
7.0%
2.0%
20.0%
53.0%
26.9%
79.9%
100.0%
51.3%
29.0%
80.3%
100.0%
52.0%
28.0%
80.0%
100.0%
Health Fund Investment Portfolio
Australian equities
$146.8m
Cash
$625.0m
Infrastructure
$5.9m
International equities
$151.6m
Property
$162.5m
Fixed income
$1,235.1m
Financial Assets at Fair Value Accounting Policy
Investments in listed and unlisted equity securities held
by Medibank’s health insurance fund are accounted for
at fair value through profit or loss (FVTPL). Fixed income
investments held by Medibank’s health insurance fund
are also accounted for at FVTPL, as the Group applies the
fair value option to eliminate an accounting mismatch.
Transaction costs relating to these financial assets are
expensed in the consolidated statement of comprehensive
income. These assets are subsequently carried at fair value,
with gains and losses recognised within net investment
income in the consolidated statement of comprehensive
income. Financial assets at FVTPL, consist of externally
managed equity trusts and direct mandates, and an
internally managed fixed income portfolio.
Fixed income investments not held by Medibank’s health
insurance fund are accounted for at fair value through
other comprehensive income (FVOCI), as the objective
of these assets is to collect contractual cash flows and
to sell the assets if required, and the contractual cash
flows are solely payments of principal and interest.
Annual Report 2020 91
Financial Assets at Fair Value Accounting Policy continued
These assets are initially and subsequently carried
at fair value, with gains and losses recognised within
equity in other comprehensive income until the asset is
derecognised. When the assets are derecognised, the
cumulative gain or loss previously recognised in other
comprehensive income is reclassified from equity to profit
or loss as a reclassification adjustment. Interest income
accrues using the effective interest method and is included
within net investment income in the consolidated statement
of comprehensive income.
For financial assets classified at FVOCI, the Group applies
the general impairment approach under AASB 9, which
requires recognition of a loss allowance based on either
12-month expected credit losses or lifetime expected
credit losses depending on whether there has been a
significant increase in credit risk since initial recognition.
Expected credit losses do not reduce the carrying amount
of the financial asset in the statement of financial position,
which remains at fair value. Instead, a loss allowance
is recognised in other comprehensive income as the
accumulated impairment amount.
Key judgement and estimate
Fair value measurement may be subjective, and investments
are categorised into a hierarchy depending on the level of
subjectivity involved. The hierarchy is described in (b).
The fair value of level 2 financial instruments is determined
using a variety of valuation techniques, which make
assumptions based on market conditions existing at the
end of each reporting period. Valuation methods include
quoted market prices or dealer quotes for similar
instruments, yield curve calculations using the mid yield,
vendor or independent developed models.
The fair value of level 3 financial instruments is determined
using inputs that are not based on observable market data.
(a) Net investment income
Net investment income is presented net of investment management fees in the consolidated statement of comprehensive income.
Interest1
Trust distributions
Investment management fees
Net gain/(loss) on fair value movements on financial assets
Net gain/(loss) on disposal of financial assets
Net investment income
2020
$m
29.7
29.5
(4.6)
(53.0)
0.8
2.4
2019
$m
47.3
42.2
(4.6)
5.2
12.7
102.8
1. Includes interest income of $1.7 million (2019: $1.7 million) relating to financial assets at fair value through other comprehensive income
(Non-Health Fund Investments).
Net Investment Income Accounting Policy
Gains or losses arising from changes in the fair value of
the financial assets at FVTPL category are presented in the
consolidated statement of comprehensive income within
net investment income in the period in which they arise.
Trust distribution income derived from financial assets
at FVTPL is recognised in the consolidated statement of
(b) Fair value hierarchy
comprehensive income as part of net investment income
when the Group’s right to receive payments is established.
Interest income from financial assets accrues using the
effective interest method and is also included in
net investment income.
The fair value of the Group’s investments are measured according to the following fair value measurement hierarchy:
• Level 1: Quoted prices (unadjusted current bid price) in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices).
• Level 3: Inputs for the asset or liability that are not based on observable market data.
92 Medibank
Notes to the consolidated financial statements30 June 2020
The following tables present the Group’s financial assets measured and recognised at fair value on a recurring basis.
30 June 2020
Financial assets at fair value through profit or loss
Australian equities1
International equities1
Property1
Infrastructure
Fixed income
Financial assets at fair value through other
comprehensive income – Fixed income
Balance at 30 June 2020
30 June 2019
Financial assets at fair value through profit or loss
Australian equities1
International equities1
Property1
Infrastructure1
Fixed income
Financial assets at fair value through other
comprehensive income – Fixed income
Balance at 30 June 2019
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
-
-
-
-
97.9
-
97.9
-
-
0.6
-
95.1
-
95.7
146.8
151.6
162.5
-
1,382.8
47.2
1,890.9
132.2
169.8
156.1
55.8
1,459.4
61.7
2,035.0
-
-
-
5.9
-
-
5.9
-
-
-
-
-
-
-
146.8
151.6
162.5
5.9
1,480.7
47.2
1,994.7
132.2
169.8
156.7
55.8
1,554.5
61.7
2,130.7
1.
Australian equities, international equities and property are categorised within level 2 of the fair value measurement hierarchy as they are indirectly held through
unit trusts. In 2019, infrastructure was also categorised within level 2 of the fair value measurement hierarchy as it was indirectly held through unit trusts.
The Group’s other financial instruments, being trade and other
receivables and trade and other payables, are not measured
at fair value. The fair value of these instruments has not been
disclosed as due to their short-term nature, their carrying
amounts are assumed to approximate their fair values.
The Group did not measure any financial assets or financial
liabilities at fair value on a non-recurring basis at 30 June 2020.
The Group recognises transfers into and transfers out of fair value
hierarchy levels from the date of effect of the transfer. There were
no transfers between level 1 and level 2 during the year.
Fair value measurements using significant
unobservable market data (level 3)
During the year, the Group purchased $5.9 million of
infrastructure financial assets which are held in unlisted
unit trusts. The fair value of these financial assets is based
on the discounted cashflow methodology. The inputs in this
methodology are not based on observable market data, which
results in the financial assets being classified as level 3 in the
fair value measurement hierarchy.
Note 8: Financial risk management
This note reflects risk management policies and procedures
associated with financial instruments and capital and insurance
contracts. The Group’s principal financial instruments comprise
cash and cash equivalents, which are short-term money market
instruments, fixed income (floating rate notes, asset-backed
securities, syndicated loans, fixed income absolute return funds
and hybrid investments), property, infrastructure, Australian
equities and international equities.
A strategic asset allocation is set and reviewed at least
annually by the Board, which establishes the maximum
and minimum exposures in each asset class. Transacting
in individual instruments is subject to delegated authorities
and an approval process which is also established and
reviewed by the Investment and Capital Committee. At
no time throughout the period will trading of derivative
instruments for purposes other than risk management
be undertaken, unless explicitly approved by the Investment
and Capital Committee. The Group was in compliance
with this policy during the current and prior financial year.
A 10% increase/decrease in the discount rate in the valuation
methodology of the investment would decrease/increase the
fair value of the financial asset by $0.6 million.
The main risks arising from the Group’s financial instruments
are interest rate risk, foreign currency risk, price risk, credit
risk and liquidity risk.
There were no transfers in or out of level 3 during the year.
Primary responsibility for consideration and control of
financial risks rests with the Investment and Capital
Committee under the authority of the Board.
Annual Report 2020 93
The Board reviews and agrees policies for managing each of the risks identified, including the setting of limits for trading in
derivatives, foreign currency contracts and other instruments. Limits are also set for credit exposure and interest rate risk.
(a) Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market prices.
(i) Interest rate risk
Description
The risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in
market interest rates.
At balance date, the Group had exposure to the risk of changes in market interest rates in respect of its
cash and cash equivalents and fixed income investments. Both classes of financial assets have variable
interest rates and are therefore exposed to cash flow movements if these interest rates change.
Exposure
At balance date, the Group’s cash and cash equivalents (2020: $871.4 million, 2019: $656.5 million) and
fixed income investments (2020: $1,527.9 million, 2019: $1,616.2 million) were exposed to Australian
variable interest rate risk. The Group regularly analyses its interest rate exposure and resets interest
rates on longer-term investments every 90 days on average. At balance date, the Group’s fixed income
investments had a modified duration of 0.6 years (2019: 0.8 years).
Sensitivity
50 bps increase/decrease in interest rates for the entire reporting period, with all other variables remaining
constant, would have resulted in a $3.9 million increase/decrease to profit after tax and equity (2019:
$3.4 million). The sensitivity analysis has been conducted using assumptions from published economic data.
(ii) Foreign currency risk
Description
The risk that the fair value of a financial instrument will fluctuate because of changes in foreign
exchange rates.
All of the Group’s investments with a non-AUD currency exposure are fully economically hedged,
except for international equities which has a 50% target hedge ratio.
At 30 June 2020, $76.0 million (2019: $83.9 million) of the international equities portfolio, within
financial assets at fair value through profit or loss, had net exposure to foreign currency movements.
A 10% increase/decrease in foreign exchange rates, with all other variables remaining constant, would
have resulted in a $5.9 million decrease/increase to profit after tax and equity (2019: $6.5 million).
Balance date risk exposures represent the risk exposure inherent in the financial instruments.
The risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in market prices, whether those changes are caused by factors specific to the individual financial
instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
The Group is exposed to price risk in respect of its fixed income investments primarily due to
movements in credit spreads. This risk is managed through active management of credit exposures
and credit spread duration.
The Group’s equity price risk arises from investments in property, infrastructure, Australian equities and
international equities. It is managed by setting and monitoring objectives and constraints on investments,
diversification plans and limits on investments in each country, sector and market.
Exposure
Sensitivity
(iii) Price risk
Description
94 Medibank
Notes to the consolidated financial statements30 June 2020 Sensitivity
These investments are exposed to short-term fluctuations in price with their fair value movements
being recorded in the consolidated statement of comprehensive income. Price risk is managed by
taking a longer-term view of the investment portfolio.
The following sensitivity analysis is based on the equity price risk exposures on average balances
at balance date. It shows the effect on profit after tax and equity if market prices had moved, with all
other variables held constant.
Australian equities
International equities
Property
Infrastructure
2020
$m
2019
$m
+10.0%
9.5
11.1
10.9
1.1
-10.0%
(9.5)
(11.1)
(10.9)
(1.1)
+10.0%
9.6
11.9
11.0
3.7
-10.0%
(9.6)
(11.9)
(11.0)
(3.7)
In relation to fixed income investments, a 25 bps increase/decrease in credit spreads, with all other
variables remaining constant, would have resulted in a $6.1 million decrease/increase to profit after
tax and equity (2019: $6.2 million). Balance date risk exposures represent the risk exposure inherent
in the financial instruments.
(b) Credit risk
(i) Cash and cash equivalents and financial assets at fair value through profit or loss
Description
The risk of potential default of a counterparty, with a maximum exposure equal to the carrying amount
of these instruments. Credit risk arises from the financial assets of the Group and credit risk exposure
is measured by reference to exposures by ratings bands, country, industry and instrument type.
Exposure
The Investment Management Policy limits the majority of internally managed credit exposure to
A- or higher rated categories for long-term investments, and A2 or higher for short-term investments
(as measured by external rating agencies such as Standard & Poor’s). Departures from this policy
and the appointment of external managers require Board approval.
The Group does not have any financial instruments to mitigate credit risk and all investments are
unsecured (except for covered bonds, asset-backed securities and mortgage-backed securities).
However, the impact of counterparty default is managed through the use of Board approved limits
by counterparty and rating and diversification of counterparties.
Sensitivity
The Group’s cash and fixed income portfolio is subject to counterparty exposure limits. These limits
specify that no more than 25% (2019: 25%) of the cash portfolio can be invested in any one counterparty
bank and no more than 10% (2019: 10%) in any one counterparty corporate entity. In the Group’s fixed
income portfolio, the maximum amounts that can be invested in any one counterparty bank and any one
counterparty corporate entity are 50% (2019: 50%) and 15% (2019: 15%) of the portfolio respectively.
As at 30 June 2020 and 2019, the counterparty exposure of the Group was within these limits.
(ii) Trade and other receivables
Description
Due to the nature of the industry and value of individual policies, the Group does not request any collateral
nor is it the policy to secure its premiums in arrears and trade and other receivables. The Group regularly
monitors its premiums in arrears and trade and other receivables, with the result that exposure to bad
debts is not significant. The credit risk in respect to premiums in arrears, incurred on non-payment
of premiums, will only persist during the grace period of 63 days as specified in the Fund Rules when
the policy may be terminated. The Group is not exposed to claims whilst a membership is in arrears,
although a customer can settle their arrears up to the 63 day grace period and a claim for that arrears
period will be paid. Trade and other receivables are monitored regularly and escalated when they fall
outside of terms. The use of debt collection agencies may be used to obtain settlement.
Exposure
There are no significant concentrations of premium credit risk within the Group.
Annual Report 2020 95
(iii) Counterparty credit risk ratings
The following tables outline the Group’s credit risk exposure
at 30 June 2020 by classifying assets according to credit
ratings of the counterparties. AAA is the highest possible
rating. Assets that fall outside the range AAA to BBB are
classified as non-investment grade.
The table highlights the short-term rating as well as the
equivalent long-term rating bands as per published Standard
& Poor’s correlations. The Group’s maximum exposure
to credit risk at balance date in relation to each class of
recognised financial asset is the carrying amount of those
assets in the consolidated statement of financial position.
Within the not rated fixed income portfolio, $290.1 million
(2019: $297.4 million) is invested in unrated unit trusts,
of which the majority of the underlying securities held
are investment grade assets and Senior Loans.
Short-term
Long-term
2020
Cash and cash equivalents
Premiums in arrears
Trade and other receivables
Financial assets
Australian equities
International equities
Property
Infrastructure
Fixed income
Financial assets at fair value through
other comprehensive income
Total
2019
Cash and cash equivalents
Premiums in arrears
Trade and other receivables
Financial assets
Australian equities
International equities
Property
Infrastructure
Fixed income
Fixed income – Non-health fund
investments
Total
A-1+
AAA
$m
-
-
-
-
-
-
-
81.1
A-1+
AA
$m
836.4
-
-
-
-
-
-
483.6
-
81.1
47.2
1,367.2
-
-
-
-
-
-
-
67.7
392.9
-
-
-
-
-
-
563.4
A-1
A
$m
35.0
-
-
-
-
-
-
328.6
-
363.6
158.7
-
-
-
-
-
-
381.6
A-2
BBB
$m
-
-
-
B & below
BB & below
$m
-
-
-
Not rated
$m
-
10.8
196.3
Total
$m
871.4
10.8
196.3
-
-
-
-
271.9
-
271.9
104.9
-
-
-
-
-
-
183.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22.0
146.8
151.6
162.5
5.9
315.5
146.8
151.6
162.5
5.9
1,480.7
-
989.4
47.2
3,073.2
-
9.9
274.0
132.2
169.8
156.7
55.8
336.4
656.5
9.9
274.0
132.2
169.8
156.7
55.8
1,554.5
-
67.7
61.7
1,018.0
-
540.3
-
288.3
-
22.0
-
1,134.8
61.7
3,071.1
Note 9: Working capital
The Group’s working capital balances are summarised in this note.
(a) Capital management
Medibank’s health insurance fund is required to maintain
sufficient capital to comply with APRA’s solvency and capital
adequacy standards. The solvency standard aims to ensure
that the fund has enough cash or liquid assets to meet all
of its liabilities as they become due, even if the cash flow is
‘stressed’. The standard consists of a requirement to hold
a prescribed level of cash, and also mandates a Liquidity
Management Plan.
The capital adequacy standard aims to ensure that there
is sufficient capital within a health insurance fund to enable
the ongoing conduct of the business of the fund.
96 Medibank
The standard consists of a requirement to hold a prescribed
level of assets to be able to withstand adverse experience,
and also mandates a Capital Management Policy. The Capital
Management Policy includes target capital levels, capital
trigger points and corrective action plans.
The health insurance fund is required to comply with these
standards on a continuous basis and report results to APRA
on a quarterly basis. The fund has been in compliance with
these standards throughout the year.
The Board has established a Capital Management Policy
for the health insurance fund. Capital is managed against
this policy and performance is reported to the Board on a
monthly basis.
Notes to the consolidated financial statements30 June 2020 (b) Trade and other receivables
Premiums in arrears
Allowance for impairment loss
Trade receivables
Allowance for impairment loss
Government rebate scheme
Risk Equalisation Special Account
Accrued revenue
Other receivables
Note
(i)
(ii)
2020
$m
14.9
(4.1)
10.8
51.4
(3.2)
48.2
124.2
6.5
14.7
2.7
148.1
2019
$m
13.9
(4.0)
9.9
99.5
(3.2)
96.3
125.0
12.1
39.4
1.2
177.7
Total trade and other receivables
207.1
283.9
Note: Government rebate scheme is non-interest bearing and generally on 15-day terms.
Other balances within trade and other receivables do not
contain impaired assets and are not past due. It is expected
that these other balances will be received when due.
Past due but not considered impaired
(i) Premiums in arrears past due but not impaired at 30 June
2020 for the Group are $10.8 million (2019: $9.9 million).
(ii) Trade receivables past due but not impaired at 30 June
2020 for the Group are $3.7 million (2019: $9.9 million).
Each business unit of the Group has reviewed their
individual debtors and is satisfied that payment will
be received in full.
Trade and Other Receivables Accounting Policy
Trade and other receivables are:
• Recognised initially at fair value.
• Subsequently measured at amortised cost using the effective interest method, less an allowance for impairment loss.
• Presented as current assets except for those with maturities greater than 12 months after the reporting period.
• Non-interest bearing.
• Generally due for settlement within 7 - 30 days.
Collectability of trade receivables is reviewed on an ongoing basis. For trade receivables, the Group applies the simplified
impairment approach under AASB 9, which requires expected lifetime losses to be recognised from initial recognition
of the receivables. Expected lifetime losses are assessed based on historical bad and doubtful debt roll rates adjusted
for forward looking information, where required. When a trade receivable for which an impairment allowance has been
recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Any impairment
loss on trade receivables is recognised within other expenses in the consolidated statement of comprehensive income.
Subsequent recoveries of previously written off trade receivables are credited against other expenses in the consolidated
statement of comprehensive income. Any impairment loss on premiums in arrears is offset against premium revenue.
Annual Report 2020 97
(c) Trade and other payables
Current
Trade creditors1
Other creditors and accrued expenses2
Lease incentives
Other payables3
Total current
Non-current
Lease incentives
Other payables3
Total non-current
Note
18
18
2020
$m
230.2
53.8
27.9
8.3
320.2
81.3
2.9
84.2
2019
$m
275.6
70.4
4.0
20.0
370.0
26.2
7.7
33.9
Terms and conditions relating to the above financial instruments:
1. Trade creditors are non-interest bearing and are normally settled up to 30 days.
2. Other creditors and accrued expenses are non-interest bearing.
3. Other payables include a contract liability in relation to the loyalty program. Refer to the accounting policy in Note 20(c).
Trade and Other Payables Accounting Policy
Trade and other payables, with the exception of lease liabilities, are:
• Recognised initially at their fair value.
• Subsequently measured at amortised cost using the effective interest method.
• Unsecured.
• Presented as current liabilities unless payment is not due within 12 months from the reporting date.
Refer to Note 18 for the accounting policy for lease liabilities.
(d) Reconciliation of profit after income tax to net cash flow from operating activities
Profit for the year
Depreciation
Depreciation of right-of-use assets
Amortisation of intangibles assets
Amortisation of deferred acquisition costs
Net loss/(gain) on disposal of assets
Impairment of trade receivables
Net realised loss/(gain) on financial assets
Net unrealised loss/(gain) on financial assets
Interest income
Trust distribution reinvested
Investment expenses
Interest paid – leases
AASB 16 transition adjustment – recognition of finance subleases
Non-cash share-based payments expense
98 Medibank
Note
18
18
2020
$m
315.0
13.2
27.0
48.6
38.1
-
-
(0.8)
53.0
(29.7)
(29.5)
4.6
3.4
3.3
1.2
2019
$m
458.7
13.2
-
51.1
40.0
0.1
-
(12.7)
(5.2)
(47.3)
(42.2)
4.6
-
-
5.8
Notes to the consolidated financial statements30 June 2020
Change in operating assets and liabilities – continuing operations:
Decrease/(increase) in trade and other receivables
Decrease/(increase) in deferred acquisition costs
Decrease/(increase) in other assets
(Decrease)/increase in net deferred tax liabilities
(Decrease)/increase in trade and other payables
(Decrease)/increase in unearned premium liability
(Decrease)/increase in claims liabilities
(Decrease)/increase in income tax liability
(Decrease)/increase in provisions and employee entitlements
Change in operating assets and liabilities – discontinued operations:
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions and employee entitlements
Note
2020
$m
9.9
(36.7)
(5.4)
(95.5)
(38.6)
(23.5)
261.6
36.3
8.6
66.9
(47.6)
(11.0)
2019
$m
6.3
(34.7)
(7.5)
(4.1)
5.1
(3.3)
(2.1)
(26.1)
(7.6)
7.4
9.3
7.3
Net cash inflow from operating activities
572.4
416.1
Cash and Cash Equivalents Accounting Policy
Cash and cash equivalents are stated at amortised cost which approximates fair value and include cash on hand,
short-term bank bills and term deposits, commercial paper, negotiable certificate of deposit, and other short-term
highly liquid investments with original maturities of three months or less that are readily convertible to known amounts
of cash and which are subject to an insignificant change in value.
For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents include all
cash assets, net of outstanding bank overdrafts.
(e) Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty
in raising funds to meet cash commitments associated with
financial instruments. It may result from either the inability
to sell financial assets quickly at their fair values; or a
counterparty failing on repayment of a contractual obligation;
or insurance liability falling due for payment earlier than
expected; or inability to generate cash inflows as anticipated.
In order to maintain appropriate levels of liquidity, the Health
Fund Investment Portfolio’s target asset allocation is to
hold 28% (2019: 28%) of its total investment assets in cash/
bank deposits and highly liquid short-term money market
instruments and fixed income securities. The Non-Health
Fund Investment Portfolio provides the Group with additional
liquidity and financial flexibility over and above the Fund’s
target allocation.
Trade payables and other financial liabilities mainly originate
from the financing of assets used in ongoing operations
such as property, plant and equipment and investments in
working capital. These assets are considered by the Group
in the overall liquidity risk. To monitor existing financial
liabilities as well as to enable an effective overall controlling
of future risks, the Group has established comprehensive
risk reporting that reflects expectations of management of
expected settlement of financial liabilities.
The tables below reflect all contractually fixed pay-offs for
settlement and interest resulting from recognised financial
liabilities as at 30 June 2020, as well as the respective
undiscounted cash flows for the respective upcoming fiscal
years. Cash flows for financial liabilities without fixed amount
or timing are based on the conditions existing at 30 June 2020.
Annual Report 2020 99
2020
Other trade and other payables1
Lease liabilities2
Total trade and other payables
Claims liabilities
COVID-19 claims liability3
Total claims liabilities
2019
Trade and other payables1
Claims liabilities
Under 6
months
$m
6 to 12
months
$m
292.1
15.3
307.4
310.3
145.7
456.0
358.7
342.3
0.2
14.5
14.7
20.9
151.4
172.3
7.3
22.3
1 to 2
years
$m
0.4
27.8
28.2
6.5
-
6.5
Over 2
years
$m
Total
contractual
cash flows
$m
Carrying
amount
$m
2.5
58.2
60.7
4.4
-
4.4
295.2
115.8
411.0
342.1
297.1
639.2
295.2
109.2
404.4
342.1
297.1
639.2
5.1
8.2
2.6
5.3
373.7
378.1
373.7
377.6
1. Contractual cash flows greater than six months primarily relate to the loyalty program.
2. Refer to Note 18 for further information on lease liabilities.
3. Refer to Note 3(b) for further information on the COVID-19 claims liability.
It is not possible for a company primarily transacting in
insurance business to predict the requirements of funding with
absolute certainty. The theory of probability is applied based on
past observed practices. The amounts and maturities in respect
of insurance liabilities are therefore, based on management’s
best estimate which incorporates statistical techniques and
past experience. It is not possible for the Group to predict the
ongoing restrictions on surgeries and other health services
due to COVID-19 which could result in the maturity profile
of the claims liability extending beyond 12 months.
Note 10: Contributed equity and reserves
(a) Contributed equity
Contributed equity consists of 2,754,003,240 fully paid ordinary
shares at $0.03 per share. Ordinary shares entitle their
holder to one vote, either in person or by proxy, at a meeting
of Medibank, and in a winding up or reduction of capital, the
right to repayment of the capital paid up on the shares.
Ordinary shares entitle their holders to receive dividends and,
in the event of winding up Medibank or reduction of capital,
entitle their holders to participate in the distribution of the
surplus assets of Medibank.
(b) Reserves
Reserve
2020
$m
2019
$m
Nature and purpose of reserve
Equity reserve
17.8
17.8
During the 2009 financial year, the parent entity entered into a restructure
of administrative arrangements, which gave rise to an equity reserve
representing the difference between the book value of the net assets
acquired from Medibank Health Solutions Pty Ltd (formerly Health
Services Australia Pty Ltd) and the total purchase consideration.
Share-based
payment reserve
4.6
6.6
The share-based payments reserve is used to record the cumulative
expense recognised in respect of performance rights issued to key
management personnel. Refer to Note 16 for further information.
Total
22.4
24.4
100 Medibank
Notes to the consolidated financial statements30 June 2020 SECTION 4. OTHER ASSETS AND LIABILITIES -
Overview
This section provides insights into the operating assets used and liabilities incurred to generate the Group’s
operating result.
Note 11: Property, plant and equipment
(a) Closing net book amount
Closing net book amount
Plant and equipment
Leasehold improvements
Assets under construction
Right-of-use assets
Total property, plant and equipment
Note
(b)
(b)
(b)
18
2020
$m
6.1
31.0
3.0
72.1
112.2
(b) Reconciliation of the net book amount at the beginning and end of the period
Plant and
equipment
$m
Leasehold
improvements
$m
Assets under
construction
$m
2020
Gross carrying amount
Balance at 1 July 2019
Additions
Transfers in/(out)
Disposals
Balance at 30 June 2020
Accumulated depreciation and impairment
Balance at 1 July 2019
Depreciation expense
Disposals
Balance at 30 June 2020
2019
Gross carrying amount
Balance at 1 July 2018
Additions
Transfers in/(out)
Disposals
Balance at 30 June 2019
Accumulated depreciation and impairment
Balance at 1 July 2018
Depreciation expense
Disposals
Balance at 30 June 2019
Closing net book amount
As at 30 June 2020
As at 30 June 2019
14.3
0.3
0.4
-
15.0
(5.5)
(3.4)
-
(8.9)
13.2
0.9
0.9
(0.7)
14.3
(2.8)
(3.3)
0.6
(5.5)
6.1
8.8
90.2
1.3
1.7
(0.4)
92.8
(52.0)
(9.8)
-
(61.8)
85.2
4.5
4.0
(3.5)
90.2
(45.6)
(9.9)
3.5
(52.0)
31.0
38.2
2.3
2.8
(2.1)
-
3.0
-
-
-
-
3.6
2.8
(4.1)
-
2.3
-
-
-
-
3.0
2.3
2019
$m
8.8
38.2
2.3
-
49.3
Total
$m
106.8
4.4
-
(0.4)
110.8
(57.5)
(13.2)
-
(70.7)
102.0
8.2
0.8
(4.2)
106.8
(48.4)
(13.2)
4.1
(57.5)
40.1
49.3
Annual Report 2020 101
(c) Property, plant and equipment capital expenditure commitments
Capital expenditure contracted for at the end of the reporting period but not
recognised as liabilities
2020
$m
2019
$m
-
0.9
Property, Plant and Equipment Accounting Policy
Refer to Note 18 for the accounting policy for
right-of-use assets.
Land and buildings (none of which are investment
properties) are shown at fair value less subsequent
depreciation for buildings. Other property, plant and
equipment is stated at historical cost less depreciation.
Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are recognised as an asset when it
is probable that future economic benefits associated
with the item will flow to the Group and the cost of the
item can be measured reliably. All other repairs and
maintenance costs are charged to the consolidated
statement of comprehensive income during the
reporting period in which they are incurred.
Increases in the carrying amounts arising on revaluation
of land and buildings are recognised, net of tax, in other
comprehensive income and accumulated in a reserve in
equity. To the extent that the increase reverses a decrease
previously recognised in the consolidated statement of
comprehensive income, the increase is first recognised
in the consolidated statement of comprehensive income.
Decreases that reverse previous increases of the same
assets are first recognised in other comprehensive income
to the extent of the remaining surplus attributable to the
asset; all other decreases are charged to the consolidated
statement of comprehensive income.
Depreciation
Depreciation is calculated using the straight-line method
over the estimated useful life or lease term as follows:
Land
not depreciated
Assets under construction
not depreciated until in use
Leasehold improvements
the lease term
Buildings
40 years
Plant and equipment
3 - 15 years
The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at the end of each reporting
period.
Disposal
The gain or loss on disposal of property, plant and
equipment is calculated as the difference between the
carrying amount of the asset at the time of disposal and
the net proceeds on disposal (including incidental costs).
These gains or losses are included in the consolidated
statement of comprehensive income. When revalued
assets are sold, it is Group policy to transfer any
amounts included in other reserves in respect of
those assets to retained earnings.
102 Medibank
Notes to the consolidated financial statements30 June 2020
Note 12: Intangible assets
2020
Gross carrying amount
Balance at 1 July 2019
Additions
Transfers in/(out)
Disposals
Balance at 30 June 2020
Accumulated amortisation and impairment
Balance at 1 July 2019
Amortisation expense
Disposals
Balance at 30 June 2020
2019
Gross carrying amount
Balance at 1 July 2018
Additions
Transfers in/(out)
Disposals
Balance at 30 June 2019
Accumulated amortisation and impairment
Balance at 1 July 2018
Amortisation expense
Disposals
Balance at 30 June 2019
Closing net book amount
As at 30 June 2020
As at 30 June 2019
Customer
contracts and
relationships
$m
Goodwill1
$m
Software
$m
Assets under
construction
$m
282.9
-
-
-
282.9
(78.4)
-
-
(78.4)
219.6
63.3
-
-
282.9
(78.4)
-
-
(78.4)
204.5
204.5
89.7
-
-
-
89.7
(72.4)
(9.0)
-
(81.4)
82.8
6.9
-
-
89.7
(63.7)
(8.7)
-
(72.4)
8.3
17.3
426.4
2.5
36.4
-
465.3
(280.5)
(39.6)
-
(320.1)
415.8
1.9
8.7
-
426.4
(238.1)
(42.4)
-
(280.5)
145.2
145.9
Total
$m
837.2
28.7
-
-
865.9
(431.3)
(48.6)
-
(479.9)
730.3
107.7
(0.8)
-
837.2
(380.2)
(51.1)
-
(431.3)
38.2
26.2
(36.4)
-
28.0
-
-
-
-
12.1
35.6
(9.5)
-
38.2
-
-
-
-
28.0
38.2
386.0
405.9
1. In the previous financial year, MH Investment Holdings Pty Ltd acquired a 100% interest in the in-home care business Home Support Services Pty Ltd
(HSS) which resulted in the recognition of goodwill of $63.3 million. The goodwill was allocated to the Home Care group of CGUs, which is comprised
of HealthStrong, HSS and the internally developed businesses of CareComplete and Medibank at Home.
Annual Report 2020 103
(a) Impairment tests for goodwill
Impairment Accounting Policy
Goodwill and intangible assets that have an indefinite useful
life are not subject to amortisation and are tested annually
for impairment, or more frequently if events or changes
in circumstances indicate that they might be impaired. An
impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value
less costs of disposal and its value-in-use. In assessing
value-in-use, the estimated future cash flows are discounted
to their present value using a discount rate that reflects
current market assessments of the time, value of money
and the risks specific to the asset.
For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately
identifiable cash inflows which are largely independent of the
cash inflows from other assets or groups of assets called
cash-generating units (CGUs). Goodwill is allocated to the
CGU, or group of CGUs, at which the goodwill is monitored
and where the synergies of the combination are expected.
(b) Key assumptions and judgements
Below is a CGU-level summary of the Group’s goodwill allocation and the key assumptions made in determining the
recoverable amounts.
Health Insurance
Medibank Health Telehealth
Medibank Health Home Care
Goodwill
allocation
$m
96.2
11.1
97.2
2020
Growth
rate
%
2.5
2.5
2.5
Pre-tax
discount
rate %
10.7
11.3
11.3
Goodwill
allocation
$m
96.2
11.1
97.2
2019
Growth
rate
%
2.5
2.5
2.5
Pre-tax
discount
rate %
13.9
16.2
16.2
Growth rates
and discount
rates
The growth rate disclosed above represents the weighted average growth rate used to extrapolate cash
flows beyond the budget period. The growth rate does not exceed the long-term average growth rate for
the business in which the CGU operates as per industry forecasts.
In performing the recoverable amount calculations for each CGU, the Group has applied post-tax discount
rates to discount the forecast future attributable post-tax cash flows. The equivalent pre-tax discount
rates are disclosed above. The discount rates used reflect specific risks relating to the relevant CGU.
During the period, the Group reassessed the Medibank Health discount rate methodology. The revised
methodology takes into account the long-term risk-free rate and continued diversification of cash flows
within the segment. The revised discount rate has been reasonably benchmarked against the discount
rate profile for ASX listed businesses of similar size. There are no reasonably possible movements in the
discount rate that would result in an impairment loss for any of the CGUs in the current financial year.
Health
Insurance
CGU
The recoverable amount is determined based on value-in-use calculations. These calculations use cash
flow projections based on the Corporate Plan approved by the Board. Cash flows beyond the Corporate
Plan period are extrapolated using the estimated growth rates, with a terminal value assumed in the
calculations.
Key assumptions
• Forecast revenue comprising estimated change in the number of members and future premium
revenue rate rises.
• Forecast claims and operating expenses.
104 Medibank
Notes to the consolidated financial statements30 June 2020 Medibank
Health
Telehealth
CGU
The recoverable amount is based on a value-in-use calculation, which uses a three-year cash flow
projection per the Group’s Corporate Plan approved by the Board. Cash flows that are beyond this
period, but within the period that management can reliably estimate, are extrapolated using the
estimated growth rates. No terminal value has been assumed in the calculations.
Key assumptions
• Forecast revenue for the market sector and specific forecasts for key customer contracts.
• Forecast direct expenses and allocated corporate costs.
• Period over which to assess the forecasts.
The key assumption in the Medibank Health Telehealth CGU is the cash flow forecast. The ability to meet
these cash flows, which are based on the Group’s Corporate Plan, could impact the recoverability of the
CGU. The business model of the CGU is contract based by nature and the forecast cash flows contain
assumptions around expected contract renewals, new wins and losses. This cash flow estimate assumes
that current contract renewal options will be exercised by the customers. This assumption is based on
management’s past experience and knowledge of the market in which the CGU operates.
Medibank
Health Home
Care group
of CGUs
Home Care comprises acquired and internally developed in-home care businesses. Goodwill has been
allocated to the Home Care CGUs as the Group derives strategic and operational synergies, and the
Group monitors business performance at the combined Home Care level.
The recoverable amount is based on a value-in-use calculation, which uses a three-year cash flow
projection per the Group’s Corporate Plan approved by the Board. Cash flows that are beyond this
period, but within the period that management can reliably estimate, are extrapolated using the
estimated growth rates with a terminal value assumed in the calculations.
Key assumptions
• Forecast revenue based on market sector growth, customer contracts and specific volume forecasts
for geographic areas.
• Forecast direct expenses and allocated corporate costs.
• Expected synergies from:
– Single go-to-market approach.
– Integration of the chronic disease management and rehab at home programs.
– Workforce management.
The key assumption in the Medibank Health Home Care group of CGUs is the cash flow forecast. The
ability to meet these cash flows, which are based on the Group’s Corporate Plan, could impact the
recoverability of the CGUs. The business model of the Home Care group of CGUs is volume and contract
based and the forecast cash flows contain assumptions including volumes of services performed across
geographic areas and expected contract renewals, new wins and losses. The cash flow forecast assumes
that service volumes will increase based on geographic growth and new contracts. This assumption is
based on management’s past experience and knowledge of the market in which the CGUs operate.
The expected impact of COVID-19 on the cash flow forecasts has been taken into consideration in determining the recoverable
amounts of the CGUs.
There are no reasonably possible changes in key assumptions that could have resulted in an impairment loss for the Health
Insurance CGU, Medibank Health Telehealth CGU or the Medibank Health Home Care group of CGUs in the current or prior
financial year.
Annual Report 2020 105
(c) Intangible assets capital expenditure commitments
Capital expenditure contracted for at the end of the reporting period
but not recognised as liabilities
Intangible Assets Accounting Policy
Accounting policy
Key estimates
2020
$m
2019
$m
1.7
1.1
Goodwill is not amortised but it is tested for
impairment annually, or more frequently if events
or changes in circumstances indicate that it
might be impaired, and is carried at cost less
accumulated impairment losses.
Software intangibles are carried at cost less
accumulated amortisation and impairment
losses. Costs incurred in acquiring software
and licences (including external direct costs of
materials and service and direct payroll-related
costs of employees’ time spent on the project)
are capitalised where they will contribute to
future financial benefits, through revenue
generation and/or cost reduction.
Amortisation is calculated on a straight-line basis
over the expected useful lives of the software and
is recognised in depreciation and amortisation
expense in the consolidated statement of
comprehensive income. The expected useful lives
of the Group’s software were reassessed during
the financial year and are now 1.5 to 10 years
(2019: 1.5 to 7 years). This change did not have
a material impact on the Group’s amortisation
expense this period.
Customer contracts and relationships acquired
as part of a business combination are carried
at their fair value at the date of acquisition
less accumulated amortisation and
impairment losses.
Amortisation is calculated on a straight-line
basis over the expected useful lives (5 to 12
years) and is recognised in depreciation and
amortisation expense in the consolidated
statement of comprehensive income.
Refer to Note 12(b) above for further information
on the assumptions used in the recoverable
amount calculations.
The estimated useful lives are based on
projected product lifecycles and could change
significantly as a result of technical innovations
and competitor actions.
Customer contracts and relationships are
assessed for indicators of impairment
whenever events or changes in circumstances
indicate that the carrying amount may not be
recoverable.
A key assumption in assessing customer
contracts and relationships for impairment
is the retention of the underlying contracts.
Assumptions are made around renewal of
these contracts, associated cash flows based
on contracted renewal options and the Group’s
commercial and strategic long-term plans.
Goodwill
Software
Customer
contracts and
relationships
106 Medibank
Notes to the consolidated financial statements30 June 2020 Note 13: Provisions and employee entitlements
(a) Employee entitlements
(i) Employee entitlements
Employee entitlements
Current
Non-current
Total employee entitlements
This provision incorporates annual leave, long service leave, termination payments and bonus plans.
(ii) Employee benefits expense
Included in the Group’s employee benefits expense are the following:
Superannuation expense
Other long-term benefits expense
Termination benefits expense
Share-based payment expense
Employee Entitlements Accounting Policy
2020
$m
43.2
21.9
65.1
2020
$m
29.7
5.0
2.7
1.2
2019
$m
45.6
20.8
66.4
2019
$m
28.3
4.5
2.6
5.7
Short-term
obligations
Liabilities for wages and salaries, including non-monetary benefits, are recognised in respect
of employees’ services up to the end of the reporting period and are measured at the amounts
expected to be paid when the liabilities are settled.
Other long-term
employee benefit
obligations –
key estimate
Liabilities for employee entitlements includes long service leave and annual leave which are
not expected to be settled wholly within 12 months after the end of the period. The liabilities
are measured at the present value of expected future payments using the projected unit credit
method, taking into account:
• Expected future wage and salary levels.
• Experience of employee departures.
• Periods of service.
Expected future payments are discounted using market yields at the end of the reporting period,
using corporate bonds with terms to maturity that closely match the estimated future cash outflows.
The obligations are presented as current liabilities in the consolidated statement of financial position
if the Group does not have an unconditional right to defer settlement for at least 12 months after
the reporting date, regardless of when the actual settlement is expected to occur.
Bonus plans
Liabilities for bonuses are based on a formula that takes into consideration the performance of the
employee against targeted and stretch objectives, the profit of the Group and other financial and
non-financial key performance indicators. The Group recognises a provision when it is contractually
obliged or where there is a past practice that has created a constructive obligation.
Termination
benefits
Termination benefits are payable when employment is terminated by the Group before the normal
retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits.
The Group recognises termination benefits at the earlier of the following dates:
• When the Group can no longer withdraw the offer of those benefits.
• When the Group recognises costs for a restructuring that is within the scope of AASB 137 Provisions,
Contingent Liabilities and Contingent Assets and involves the payment of termination benefits.
In the case of an offer made to encourage voluntary redundancy, the termination benefits are
measured based on the number of employees expected to accept the offer. Benefits falling due
more than 12 months after the end of the reporting period are discounted to present value.
Annual Report 2020 107
(b) Provisions
Balance at 1 July 2019
Additional provision
Amounts utilised during the year
Reversal of unused provision
Balance at 30 June 2020
Balance comprised of:
Current
Non-current
Commissions
$m
9.6
6.5
(6.2)
(1.8)
8.1
Restructuring
$m
2.5
0.5
(0.9)
(1.7)
0.4
Make good
$m
2.9
1.6
-
-
4.5
Medical
services
$m
6.5
-
(6.5)
-
-
Other
$m
20.9
12.3
(7.5)
(1.3)
24.4
Total
$m
42.4
20.9
(21.1)
(4.8)
37.4
8.1
-
0.4
-
1.3
3.2
-
-
20.6
3.8
30.4
7.0
(i) Commissions provision
This provision relates to estimated commissions payable
to third parties in relation to the acquisition of health
insurance contracts.
(ii) Restructuring provision
Onerous lease provisions are included in the restructuring
provision where they relate to space that the Group will
no longer continue to utilise as a result of undertaking a
restructuring program. Onerous lease provisions that do
not arise from restructuring programs are classified as
other provisions.
(iii) Make good provision
In accordance with certain lease agreements, the Group
is obligated to restore leased premises to their original
condition at the end of the lease term. Due to the long-term
nature of the liability, there is uncertainty in estimating the
ultimate amount of these costs. The provision has been
discounted to take into account the time value of money
throughout the remaining term of the lease.
(iv) Medical services provision
This provision related to the estimated cost of sub-contracted
medical services incurred but not settled or processed at
balance date in relation to the Garrison Health Services
contract. The provision has a nil balance at 30 June 2020
as services under the contract ceased on 30 June 2019.
Refer to Note 15(c) for further information.
(v) Other provision
The other provision includes other provisions that
have arisen in course of business. Other provisions
at 30 June 2020 include the following:
• Provision for workers compensation of $4.8 million.
• Provision for corporate loyalty benefits of $6.7 million.
The Group has entered into $8.8 million (2019: $7.0 million)
of bank guarantees in relation to its self-insured workers
compensation obligations.
108 Medibank
Provisions Accounting Policy
Provisions are recognised when:
• The Group has a present legal or constructive
obligation as a result of past events.
• It is probable that an outflow of resources will
be required to settle the obligation.
• The amount has been reliably estimated.
Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the
likelihood that an outflow will be required in settlement
is determined by considering the class of obligations as
a whole. A provision is recognised even if the likelihood
of an outflow with respect to any one item included in
the same class of obligations may be small.
Provisions are measured at the present value of
management’s best estimate of the expenditure required
to settle the present obligation at the end of the reporting
period. Expected future payments are discounted using
market yields at the end of the reporting period using
corporate bonds with terms to maturity that match, as
closely as possible, the estimated future cash outflows.
The increase in the provision due to the passage of time
is recognised as interest expense.
(c) Contingent liabilities
From time to time, the Group is exposed to contingent
liabilities which arise from the ordinary course of business,
including:
• Losses which might arise from litigation.
• Investigations from internal reviews and by regulatory
bodies such as the ACCC, ASIC or APRA into past conduct
on either industry-wide or Medibank specific matters.
It is anticipated that the likelihood of any unprovided
liabilities arising is either remote or not material.
Notes to the consolidated financial statements30 June 2020 SECTION 5. OTHER -
Overview
This section includes additional information that must be disclosed to comply with Australian Accounting Standards, the
Corporations Act 2001 and the Corporations Regulations.
Note 14: Income tax
Tax consolidation legislation
Medibank and its wholly-owned Australian controlled
entities are members of a tax consolidated group. As a
consequence, these entities are taxed as a single entity
and the deferred tax assets and liabilities of these entities
are offset in the consolidated financial statements.
The entities in the tax consolidated group entered into a
tax sharing agreement which limits the joint and several
(a) Income tax expense
liability of the wholly-owned entities in the case of a default
by the head entity, Medibank.
The entities have also entered into a tax funding agreement
under which the wholly-owned entities fully compensate
Medibank for any current tax payable and are compensated
by Medibank for any current tax receivable.
Continuing operations
Current tax
Deferred tax1
Adjustment for tax of prior period
Income tax expense reported in the statement of comprehensive income
2020
$m
226.8
(93.9)
1.7
134.6
2019
$m
184.2
(2.9)
(2.7)
178.6
1. Includes deferred tax of $89.1 million (2019: nil) in relation to the COVID-19 claims liability. Refer to Note 3(b) for further information on the COVID-19
claims liability.
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit for the year from continuing operations before income tax expense
Tax at the Australian tax rate of 30%
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Non assessable gains on disposal
Tax offset for franked dividends
Other items
Adjustment for tax of prior period
Income tax expense reported in the statement of comprehensive income
2020
$m
450.2
2019
$m
616.3
135.1
184.9
-
(1.8)
(0.4)
132.9
1.7
134.6
(0.1)
(1.5)
(2.0)
181.3
(2.7)
178.6
Annual Report 2020 109
(c) Deferred tax assets and liabilities
Deferred tax balances comprise temporary differences attributable to items:
Recognised in the income statement
Trade and other receivables
Financial assets at fair value through profit or loss
Deferred acquisition costs
Property, plant and equipment1
Intangible assets
Trade and other payables1
Employee entitlements
Claims liabilities2
Provisions
Business capital costs
Other (liabilities)/assets
Recognised in the income statement
Recognised directly in other comprehensive income
Actuarial loss on retirement benefit obligation
Recognised directly in other comprehensive income
2020
$m
2019
$m
2.1
(16.0)
(23.4)
(22.8)
(16.8)
34.5
19.5
95.0
11.4
0.5
(0.6)
83.4
0.6
0.6
2.2
(27.6)
(23.9)
2.9
(17.2)
10.7
19.6
7.1
9.6
0.6
2.3
(13.7)
0.5
0.5
Net deferred tax (liabilities)/assets
84.0
(13.2)
1. Includes deferred tax in relation to the application of AASB 16 Leases. Refer to Note 18 for further information.
2. Includes deferred tax in relation to the COVID-19 claims liability. Refer to Note 3(b) for further information on the COVID-19 claims liability.
Income Tax Accounting Policy
Current Taxes Accounting Policy
The current income tax charge is calculated on the basis
of the tax laws enacted or substantively enacted at the end
of the reporting period. Management periodically evaluates
positions taken in tax returns with respect to situations in
which applicable tax regulation is subject to interpretation,
and establishes provisions where appropriate.
Deferred Taxes Accounting Policy
Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantially enacted at the end
of each reporting period and are expected to apply when the
related deferred income tax asset is realised or the deferred
income tax liability is settled. Deferred income tax is provided
on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the
consolidated financial statements, other than for the following:
• Where they arise from the initial recognition of goodwill.
• Where they arise from the initial recognition of an
asset or liability in a transaction other than a business
combination that at the time of the transaction affects
neither accounting nor taxable profit or loss.
• For temporary differences between the carrying amount
and tax bases of investments in controlled entities where
the parent entity is able to control the timing of the
reversal of temporary differences and it is probable that
the differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for deductible
temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to
utilise those temporary differences and losses.
Current and deferred tax is recognised in the profit or loss,
except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this
case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
Offsetting balances
Current tax assets and tax liabilities are offset where the
entity has a legally enforceable right to offset and intends
either to settle on a net basis, or to realise the asset and
settle the liability simultaneously. Deferred tax assets and
liabilities are offset when there is a legally enforceable right
to offset current tax assets and liabilities and when the
deferred tax balances relate to the same taxation authority.
Key judgement
The deferred tax asset in relation to the COVID-19 claims liability has been recognised in the consolidated statement
of financial position. Recognition is on the basis that the Group can demonstrate that:
• The temporary difference will reverse when the expected deferred claims are incurred.
• Sufficient profits are forecast to exist to utilise the tax asset in the future.
110 Medibank
Notes to the consolidated financial statements30 June 2020 Note 15: Group structure
(a) Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries,
which are 100% controlled.
Medibank Private Limited
Australian Health
Management Group
Pty Ltd
Medibank Health
Solutions
Pty Ltd
Medibank Private
Employee Share
Plan Trust2
Medibank
Health Solutions
Telehealth
Pty Ltd
Integrated Care
Services
Pty Ltd
Medi Financial
Services
Pty Ltd
Live Better
Management
Pty Ltd
MH Investment
Holdings
Pty Ltd
MH Solutions
Investments
Pty Ltd3
HealthStrong
Pty Ltd
Home Support
Services
Pty Ltd1
These subsidiaries are wholly owned by Medibank Health Solutions Pty Ltd and have been granted relief from the necessity to prepare financial reports
in accordance with the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
1. In the previous financial year, MH Investment Holdings Pty Ltd acquired a 100% interest in the home care business Home Support Services Pty Ltd (HSS).
2. Refer to Note 16(a) for further information on the Employee Share Plan Trust.
3. MH Solutions Investments Pty Ltd was registered on 26 June 2020.
Consolidation Accounting Policy
Subsidiaries are all those entities over which the Group has
control. The Group controls an entity when it is exposed to,
or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through
its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group.
They are deconsolidated from the date that control ceases.
contingent liabilities assumed in a business combination
are, with limited exceptions, measured initially at their
fair values at the acquisition date. The excess of the
consideration transferred and the amount of any non-
controlling interest in the acquiree over the fair value of
the Group’s share of the net identifiable assets acquired,
is recorded as goodwill.
The acquisition method of accounting is used to account
for the acquisition of subsidiaries. The consideration
transferred for the acquisition of a subsidiary comprises
the fair value of the assets transferred and the liabilities
incurred. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and
Intercompany transactions, balances and unrealised
gains on transactions between Group companies are
eliminated. Unrealised losses are also eliminated unless
the transaction provides evidence of the impairment of
the asset transferred. Accounting policies of subsidiaries
are consistent with the policies adopted by the Group.
Annual Report 2020 111
(b) Parent entity financial information
(i) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Statement of financial position
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders' equity
Issued capital
Reserves
Equity reserve
Share-based payment reserve
Retained earnings
Total shareholders' equity
Profit for the year
Total comprehensive income
2020
$m
2019
$m
3,029.6
2,903.8
3,700.3
3,479.1
1,707.3
1,420.3
1,970.4
1,625.0
85.0
85.0
6.3
4.5
1,634.1
1,729.9
6.3
6.6
1,756.2
1,854.1
312.1
437.8
312.1
437.8
(ii) Guarantees entered into by parent entity
(iii) Contingent liabilities of the parent entity
The parent entity has entered into $8.5 million (2019:
$6.8 million) of bank guarantees in relation to its self-
insured workers compensation obligations. Refer to Note
13(b)(v) for further information on the provision for workers
compensation. The parent entity also provided guarantees
in respect of service obligations assumed by members of
the Group. No liability has been recognised in relation to
these guarantees by the parent entity or the Group as the
fair value of the guarantees is not material.
Refer to Note 13(c) for details of the contingent liability
of the parent entity.
(iv) Contractual commitments for the acquisition
of property, plant and equipment
As at 30 June 2020, the parent entity had nil contractual
commitments for the acquisition of property, plant and
equipment (2019: $0.9 million). These commitments are
not recognised as liabilities as the relevant assets have
not yet been received.
Parent Entity Financial Information Accounting Policy
The financial information for the parent entity, Medibank, has been prepared on the same basis as the consolidated
financial statements, except as set out below:
• Investments in subsidiaries are accounted for at cost less accumulated impairment losses in the financial statements
of Medibank.
• Assets or liabilities arising under tax funding arrangements with the tax consolidated entities are recognised
by Medibank as current assets or current liabilities.
112 Medibank
Notes to the consolidated financial statements30 June 2020 (c) Discontinued operations
On 19 November 2018, Medibank was informed by the
Australian Government Department of Defence that it had
not been selected as the preferred tenderer for the renewal
of the Garrison Health Services contract. Services under
the contract ceased on 30 June 2019. The Garrison Health
Services contract has been classified as a discontinued
operation at 30 June 2020 in accordance with AASB 5
Non-current Assets Held for Sale and Discontinued Operations.
Results of discontinued operations
Revenue
Expenses
Profit/(loss) for the year before income tax
Income tax expense
2020
$m
6.0
(6.8)
(0.8)
0.2
2019
$m
453.9
(423.7)
30.2
(9.2)
Profit/(loss) after tax attributable to ordinary equity holders of the Company
(0.6)
21.0
Cash flows of discontinued operations
Net cash inflow/(outflow) from operating activities
Net cash inflow from investing activities
Net cash outflow from financing activities
Net cash flows for the year from discontinued operations
(5.0)
-
-
(5.0)
34.8
-
-
34.8
Basic and diluted earnings per share for discontinued operations (cents)
(0.02)
0.76
The 30 June 2019 balance sheet includes the following
amounts in relation to the discontinued operations:
• Assist in the motivation, retention and reward of ELT
and SEG members.
• Trade and other receivables – $66.9 million.
• Trade and other payables – $47.6 million.
• Provisions – $11.0 million.
(d) Related party transactions
Certain key management personnel hold director positions
in other entities, some of which transacted with the Group
during the 2020 financial year. All transactions that occurred
were in the normal course of business. The terms and
conditions of the transactions were no more favourable than
those available, or which might reasonably be expected to be
available, on similar transactions to non-key management
personnel related entities on an arm's length basis. There
have been no loans to directors or specified executives during
the current or prior financial years.
Note 16: Share-based payments
(a) Share-based payments arrangements
Performance rights to acquire shares in Medibank are
granted to Executive Leadership Team (ELT) and Senior
Executive Group (SEG) members as part of Medibank’s
short-term incentive (STI) and long-term incentive (LTI)
plans. The plans are designed to:
• Align the interests of employees participating in the
plan more closely with the interests of customers and
shareholders by providing an opportunity for those
employees to receive an equity interest in Medibank
through the granting of performance rights.
Performance rights granted do not carry any voting rights.
During the 2018 financial year, an Employee Share Plan
Trust was established to manage Medibank's share-based
payments arrangements. Shares allocated by the trust
to employees are acquired on-market prior to allocation.
The Trust held nil shares at 30 June 2020.
(i) LTI offer
Under the LTI Plan, performance rights were granted to
members of the ELT and SEG as part of their remuneration.
Performance rights granted under the LTI Plan are subject
to the following performance hurdles:
• 35% of the performance rights (2019: 50%) will be
subject to a vesting condition based on Medibank’s
absolute earnings per share compound annual growth
rate (EPS CAGR) over the performance period.
• 35% of the performance rights (2019: 50%) will be
subject to a relative total shareholder return (TSR)
vesting condition, measured over the performance
period against a comparator group of companies.
• 30% of the performance rights (2019: not applicable)
will be subject to a performance hurdle based on the
growth of Medibank’s private health insurance market
share (as reported by APRA) over the performance
period (new performance hurdle in 2020).
Annual Report 2020 113
Each performance hurdle under the LTI Plan has a threshold
level of performance which needs to be achieved before
vesting commences. Details of these thresholds are outlined
in the remuneration report. The vesting conditions for
performance rights in grants will be tested over a three-year
performance period commencing on 1 July of the relevant
period. The vesting conditions must be satisfied for the
performance rights to vest. On satisfaction of the vesting
conditions, each performance right will convert into a fully
paid ordinary share on a one-for-one basis.
The number of rights granted in the 2020 grants were
determined based on the monetary value of the LTI award,
divided by the volume-weighted average share price of
Medibank shares on the ASX during the 10 trading days up to
and including 28 June 2019.This average price was $3.46.
(ii) Annual STI offer
Under the Group’s STI Plan, 50% of STI awarded to ELT
members is paid in cash after the announcement of financial
results. The remaining 50% is deferred for 12 months in the
form of performance rights granted under the Performance
Rights Plan. Vesting of deferred performance rights is
conditional on the participant remaining employed by
Medibank until the end of the 12-month deferral period.
On vesting of the performance rights, each performance right
will convert into a share on a one-for-one basis, subject to any
adjustment required to ensure that the participant receives a
benefit equivalent to any dividends paid by Medibank during
the deferral period.
The number of rights to be granted will be determined
based on the monetary value of the STI award, divided by
the volume-weighted average share price over the 10 trading
days up to and including the payment date of cash STI.
Share-based Payment Accounting Policy
The fair value of the performance rights is recognised as
an employee benefits expense, with a corresponding
increase in equity. The total amount to be expensed
is determined by reference to the fair value of the
performance rights granted, which includes any market
performance conditions and the impact of any non-vesting
conditions, but excludes the impact of any service and
non-market performance vesting conditions. Non-market
vesting conditions are included in assumptions about the
number of performance rights that are expected to vest.
The total expense is recognised over the period in which the
performance and/or service conditions are fulfilled (the vesting
period), ending on the date on which the relevant employees
become fully entitled to the award (the vesting date).
At the end of each reporting period, the Group revises its
estimates of the number of awards that are expected to vest
based on the non-market vesting conditions. The impact
of the revision to original estimates, if any, is recognised in
profit or loss, with a corresponding adjustment to equity.
(b) Performance rights – Group
Outstanding at 1 July
Granted
Forfeited1
Exercised2
Lapsed3
Outstanding at 30 June
Exercisable at 30 June
1. Forfeited relates to instruments that lapsed on cessation of employment.
2. Performance rights are exercised as soon as they vest.
3. Lapsed relates to instruments that lapsed on failure to meet the EPS and TSR performance hurdles.
Number of equity
instruments
2019
5,947,911
3,931,547
(305,066)
(1,120,017)
(23,496)
8,430,879
-
2020
8,430,879
3,338,273
(594,482)
(1,068,721)
(1,167,876)
8,938,073
-
114 Medibank
Notes to the consolidated financial statements30 June 2020 (c) Fair value of performance rights granted
Below is a summary of the fair values of the 2019 and 2020
LTI plans and the key assumptions used in determining the
valuation. The fair value was determined in consultation
with the Group’s professional service advisors, KPMG
including key inputs and the valuation methodology for the
performance rights granted. The fair value at grant date
differs for each grant primarily due to the Medibank share
price on that grant date and for the TSR performance rights,
the Medibank share price relative to the comparator group.
Grant date
Date of commencement of
service and performance period
Expected vesting date
Fair value at grant date
TSR
performance
rights
EPS
performance
rights
Market share
performance
rights1
2020
1 July 2019
2019
1 July 2018
2020
1 July 2019
2019
1 July 2018
2020
1 July 2019
1 July 2019
1 July 2018
1 July 2019
1 July 2018
1 July 2019
30 June 2022
$1.09
30 June 2021
$1.37
30 June 2022
$2.80
30 June 2021
$2.44
30 June 2022
$2.80
Share price at grant date
Dividend yield (per annum effective)
Franking rate
Risk free discount rate (per annum)
$3.21
4.0%
100.0%
0.6%
$2.92
4.5%
100.0%
2.1%
$3.21
4.0%
100.0%
n/a
$2.92
4.5%
100.0%
n/a
$3.21
4.0%
100.0%
n/a
Valuation method
Monte Carlo
simulation
model
Monte Carlo
simulation
model
Black-Scholes
option pricing
methodology
Black-Scholes
option pricing
methodology
Black-Scholes
option pricing
methodology
Volatility assumptions (per annum)
Medibank
Comparator group average
Correlation between
comparator companies' TSR
20%
23%
25%
20%
22%
25%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1. A new performance hurdle was introduced in the 2020 LTI plan in relation to Medibank’s private health insurance market share (as reported by APRA).
Refer to Note 16(a)(i) for further information.
Note 17: Key management personnel remuneration
The names of persons who were directors and specified executives of the Group at any time during the financial year
are disclosed in the directors’ report. Detailed remuneration disclosures are provided in the remuneration report.
Short-term benefits
Post-employment benefits
Long-term benefits
Share-based payments
Total key management personnel
2020
$
7,722,918
300,528
323,044
1,641,366
9,987,856
2019
$
9,279,333
312,099
186,193
4,255,725
14,033,350
Annual Report 2020 115
The Group applied the practical expedient and used a single
discount rate to portfolios of leases with reasonably similar
characteristics. The Group’s weighted average incremental
borrowing rate applied to the lease liabilities on 1 July 2019
was 2.86%.
The associated right-of-use assets leases were measured
on a lease-by-lease basis at:
• An amount as if AASB 16 had applied from lease
commencement (but using incremental borrowing rate
at date of transition), with the difference between the asset
and liability being recognised in opening retained earnings
at transition; or
• At an amount equal to lease liability.
The Group applied the practical expedient and relied on
previous assessments on whether leases are onerous.
The provision for onerous lease contracts which was required
under AASB 117 of $3.9 million was derecognised against the
right-of-use assets.
As at 30 June 2020, management have determined it is
not reasonably certain that any of its leases will be extended
or terminated.
Impact on lessor accounting
Two of the Group’s four subleases are classified as finance
leases under AASB 16 as the present value of the lease
payments amounts to substantially all of the fair value of
the underlying asset and the lease terms are for the major
part of the economic life of the underlying asset. As an
intermediate lessor, the Group has accounted for the head
lease and the sublease as two separate contracts.
On transition, as a lessor the Group derecognised $7.5 million
of the right-of-use assets and recognised finance lease
receivables of $10.8 million. The difference of $3.3 million
was recorded in other income within the consolidated
statement of comprehensive income.
Finance lease receivables are presented within other
assets in the consolidated statement of financial position.
Note 18: Leases
Leases are entered into as a means of acquiring access
to corporate and retail property. Rental payments are
generally fixed, with differing clauses to adjust the rental
to reflect increases in market rates. These clauses include
fixed incremental increases, market reviews and inflation
escalation clauses during a lease on which contingent rentals
are determined. No operating leases contain restrictions
on financing or other leasing activities. The Group leases
unused office space under non-cancellable leases
agreements. The leases have varying terms, escalation
clauses and renewal rights.
(a) Transition to AASB 16 Leases
This note explains the impact of the adoption of AASB 16
Leases on the Group’s financial statements and also discloses
the new accounting policies that have been applied from
1 July 2019, where they are different to those applied in prior
periods. The Group has applied the modified retrospective
method of adoption from 1 July 2019, which does not require
restatement of comparative information. The reclassifications
and adjustments arising from the new leasing rules are
recognised in the opening balance sheet at 1 July 2019.
Impact of the new definition of a lease
The Group applied the practical expedient available on
transition to AASB 16 and, for those contracts entered
prior to the date of initial application, did not reassess
whether a contract is or contains a lease.
Impact on lessee accounting
The Group's lease contracts include retail stores and office
spaces. On adoption of AASB 16, the group recognised
lease liabilities in relation to its property leases which
had previously been classified as ‘operating leases’ under
the principles of AASB 117 Leases. These liabilities were
measured at the present value of the remaining lease
payments, discounted using the Group’s incremental
borrowing rate as of 1 July 2019.
Lease payments are generally discounted using the interest
rate implicit in a lease. The Group has concluded this
cannot be readily determined and have used an incremental
borrowing rate, being the rate that the individual lessee
would have to pay to borrow the funds necessary to obtain
an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security
and conditions. In determining the incremental borrowing
rate, the following components were considered:
• Reference rate (incorporating currency, environment, term).
• Financing spread adjustment (incorporating term,
indebtedness, entity, environment).
• Lease specific adjustment (incorporating asset type).
116 Medibank
Notes to the consolidated financial statements30 June 2020 Impact of adoption of AASB 16
Below is a reconciliation of the Group’s operating lease commitments as at 30 June 2019 to the lease liability recognised
as at 1 July 2019:
Operating lease commitments disclosed as at 30 June 2019
Discounted using the Group’s incremental borrowing rate at the date of initial application
Lease liability recognised as at 1 July 2019
Balance comprised of:
Current lease liabilities
Non-current lease liabilities
2020
$m
143.4
(10.9)
132.5
30.9
101.6
The change in accounting policy affected the following
items in the balance sheet on 1 July 2019:
• Prepayments – decreased by $3.5 million
• Finance lease receivables – increased by $10.8 million
• Right-of-use assets – increased by $88.0 million
• Deferred tax assets – increased by $1.3 million
• Trade and other payables – decreased by $30.6 million
• Lease liabilities – increased by $132.5 million
• Provisions – decreased by $3.9 million.
The net impact after tax on retained earnings on 1 July 2019
was a decrease of $4.7 million.
The AASB 16 transition impact was reviewed and revised after
the Group’s Interim Financial Report was published, with the
primary changes being a decrease to the impact on deferred
tax assets of $3.4 million and a corresponding increase in
the net impact on retained earnings of $3.4 million.
Depreciation expense in relation to right-of-use assets
amounted to $27.0 million and finance expenses in relation
to the lease liabilities amounted to $3.4 million in the period.
In the comparative period, lease related expenses were
classified as ‘lease expense’ in the consolidated statement
of comprehensive income.
In the current period, lease payments are classified as cash
flows from financing activities in the consolidated statement
of cash flows. In the comparative period, lease payments
were classified as payments to suppliers and employees.
(b) Summary of lease related balances
Statement of comprehensive income
Depreciation expense on right-of-use assets
Interest paid – leases
Sub-lease income
Statement of financial position
Finance lease receivables
Current
Non-current
Right-of use assets1
Lease liabilities
Current
Non-current
Statement of cash flows
Lease principal payments
Lease interest payments
1. Includes additions to the right-of-use assets during the period of $11.3 million (2019: not applicable).
Note
2020
$m
(27.0)
(3.4)
2.3
1.9
7.0
11
72.1
9(c),(e)
9(c),(e)
27.9
81.3
29.9
3.4
2019
$m
-
-
-
-
-
-
-
-
-
-
Annual Report 2020 117
Leases Accounting Policy
As a lessee
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease by determining whether:
• The contract involves the use of an identified asset
• The Group has the right to direct the use of the asset
The Group recognises a right-of-use asset and a lease
liability at the lease commencement date. The right-of-use
asset is initially measured at cost, which comprises the
initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs
to restore the underlying asset less any lease incentives
received.
The right-of-use asset is subsequently depreciated using
the straight-line method from the commencement date to
the earlier of the end of the useful life of the right-of-use
or the end of the lease term. In addition, the right-of-use
is periodically reduced by impairment losses, if any, and
adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present
value of the lease payments that are not paid at the
commencement date, discounted using the Group’s
incremental borrowing rate.
The interest expense recognised on the lease liability is
measured at amortised cost using the effective interest
method. The lease liability is remeasured when there
is a change in future lease payments, with a corresponding
adjustment made to the carrying amount of the
right-of-use asset (or profit or loss if the carrying amount
of the right-of-use asset has been reduced to zero).
The Group has elected not to recognise right-of-use
assets and lease liabilities for leases of low value assets.
The Group recognises the lease payments associated
with these leases as an expense on a straight-line basis
over the lease term.
As a lessor
The Group acts as an intermediate lessor for two of its
four subleases. The Group’s interest in the head lease and
sublease are accounted for separately. At the sublease
commencement, the Group determines whether it is a
finance or operating lease by assessing whether the lease
transfers substantially all of the risks and rewards of
ownership to the lessee, with reference to the right-of-use
asset arising from the head lease, not with reference to
the underlying asset.
Accounting policies applicable for the comparative period
Operating leases
Leases in which a significant portion of the risks and
rewards of ownership are not transferred to the Group as
lessee are classified as operating leases. Payments made
under operating leases (net of any incentives received from
the lessor) are recorded in the consolidated statement of
comprehensive income on a straight-line basis over the
period of the lease.
Lease incentives
Lease incentives received are recognised as a liability.
Lease payments are allocated between the rental expense
and the reduction of the liability over the term of the lease.
Onerous lease contracts
The Group recognises a provision for losses on lease
contracts (refer to Note 13(b)) when the unavoidable
minimum net costs of meeting the obligations under
the contract exceed the economic benefits expected
to be received under it.
Note 19: Auditor's remuneration
During the year the following fees were paid or payable for services provided by the auditor of Medibank, its related practices
and non-related audit firms:
PricewaterhouseCoopers Australia (PwC):
Amounts received or due and receivable by the Company's auditor for:
- An audit or review of the financial report of the Company and any other entity
within the Group
Other assurance services in relation to the Company and any other entity within the Group:
- Audit of regulatory compliance returns
- Accounting and other assurance services
Other services in relation to the Company and any other entity within the Group:
- Other non-audit services1
Total remuneration of PwC
1. Other services include advisory services in relation to tax and business integration.
118 Medibank
2020
$
2019
$
1,581,094
1,529,841
342,264
64,260
178,430
-
-
204,676
1,987,618
1,912,947
Notes to the consolidated financial statements30 June 2020 Note 20: Other
(a) New and amended standards adopted
Refer to Note 18 for further information on the impact of
adopting AASB 16 Leases.
Other accounting standards became effective for the annual
reporting period commencing on 1 July 2019 but did not have
a material impact on the Group’s accounting policies or on
the consolidated interim financial report.
(b) New accounting standards and interpretations not
yet adopted
Certain new accounting standards have been published that
are not mandatory for 30 June 2020 reporting periods, but
will be applicable to the Group in future reporting periods.
The Group’s assessment of the impact of these new standards
is set out below.
(i) AASB 17: Insurance contracts
This standard is effective for reporting periods beginning on
or after 1 January 2023 and will replace AASB 4 Insurance
Contracts, AASB 1023 General Insurance Contracts and AASB
1038 Life Insurance Contracts. The Group plans to apply AASB
17 for the annual period beginning 1 July 2023.
The standard introduces three new measurement approaches
for accounting for insurance contracts. These include
the Building Block Approach for long-term contracts, the
Premium Allocation Approach for short-term contracts and
a Variable Fee Approach for direct participating products.
The IASB has published a number of amendments which are
designed to minimise the risk of disruption to implementation
and do not change the fundamental principles of the standard.
(c) Other accounting policies
The Group is continuing its assessment of the potential
impact on its consolidated financial statements. Disclosure
changes and impacts on the profit and loss are expected.
(ii) Amendments to References to the Conceptual
Framework in IFRS Standards
The amendments noted below are effective for reporting
periods beginning on or after 1 January 2020 and are not
expected to have a material impact on the Group’s accounting
policies or on the consolidated financial report.
The IASB issued the revised Conceptual Framework (RCF)
in March 2018, and also issued Amendments to References
to the Conceptual Framework in IFRS Standards. The
document contains amendments to IFRS 2, IFRS 3, IFRS 6,
IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC
19, IFRIC 20, IFRIC 22, and SIC-32. Some pronouncements
are only updated to indicate which version of the framework
they are referencing to (the IASC framework adopted by
the IASB in 2001, the IASB framework of 2010, or the new
revised framework of 2018) or to indicate that definitions in
the standard have not been updated with the new definitions
developed in the revised Conceptual Framework.
(iii) Other accounting standards or amendments that
will become applicable in future reporting periods
Other accounting standards or amendments that will become
applicable in future reporting periods are not expected to
have a material impact on the Group’s accounting policies
or on the consolidated financial report.
Impairment of Tangible and Intangible Assets (other than Goodwill) Accounting Policy
Assets other than goodwill and financial assets classified at fair value through other comprehensive income, are tested
for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs of disposal and its value-in-use. In assessing
value-in-use, the estimated future cash flows are discounted to their present value using a discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are
largely independent of the cash inflows from other assets or groups of assets (CGUs).
Financial Assets and Financial Liabilities Accounting Policy
The Group’s financial assets consist of cash and cash equivalents, financial assets at fair value and trade and other
receivables. Management determines the classification of its financial assets at initial recognition based on the business
model test and cash flow characteristics. Purchases and sales of financial assets are recognised on trade-date – the date
on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive
cash flows from the financial assets have expired or have been transferred. The Group’s financial liabilities comprise trade
and other payables. Financial liabilities are classified and measured at amortised cost and derecognised when the Group’s
contractual obligations are discharged, cancelled or expired.
Annual Report 2020 119
Goods and Services Tax (GST) Accounting Policy
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as
part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated
statement of financial position.
Cash flows are presented on a gross basis. The GST component of cash flows arising from investing or financing activities
which are recoverable from, or payable to, the taxation authority, are presented as operating cash flows. Commitments
and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
Loyalty Program Accounting Policy
Where the amount of health insurance premium revenue includes a loyalty component, revenue is allocated to this
component based on the relative estimated stand-alone selling price. The component of loyalty revenue is initially deferred
as a liability on the consolidated statement of financial position, and subsequently recognised in the consolidated statement
of comprehensive income upon redemption when Medibank is obliged to provide the specified goods or services itself.
(d) Events occurring after the reporting period
There have been no events occurring after the reporting period which would have a material effect on the Group’s
financial statements at 30 June 2020.
120 Medibank
Notes to the consolidated financial statements30 June 2020
Directors' declaration
The directors declare that, in the opinion of the directors:
(a) the financial statements and notes set out on pages 73
to 120 are in accordance with the Corporations Regulations
2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial
position as at 30 June 2020 and of its performance
for the financial year ended on that date; and
complying with Australian Accounting Standards,the
Corporations Regulations 2001 and other mandatory
professional reporting requirements; and
Note 1(b) confirms that the financial statements also
comply with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
This declaration has been made after receiving the
declarations required to be made to the directors by the
Chief Executive Officer and Chief Financial Officer in
accordance with section 295A of the Corporations Act 2001
for the year ended 30 June 2020.
This declaration is made in accordance with a resolution
of the directors.
(b) there are reasonable grounds to believe that the
Company and the Group will be able to pay their debts
as and when they become due and payable.
On behalf of the Board,
Elizabeth Alexander AO
Chairman
Craig Drummond
Chief Executive Officer
20 August 2020
Melbourne
Annual Report 2020 121
Auditor's independence declaration
Auditor’s Independence Declaration
As lead auditor for the audit of Medibank Private Limited for the year ended 30 June 2020, I declare
that to the best of my knowledge and belief, there have been:
1.
2.
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Medibank Private Limited and the entities it controlled during the
period.
CJ Heath
Partner
PricewaterhouseCoopers
Melbourne
20 August 2020
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
122 Medibank
Independent auditor’s report
Independent auditor’s report
To the members of Medibank Private Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Medibank Private Limited (the Company) and its controlled entities
(together the Group) is in accordance with the Corporations Act 2001, including:
(a) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial
performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
●
●
●
●
●
●
the consolidated statement of financial position as at 30 June 2020
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial report
section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence
Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Annual Report 2020 123
Independent auditor’s report
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the financial report as a whole, taking into account the geographic and management structure of the
Group, its accounting processes and controls and the industry in which it operates.
Materiality
Audit scope
Key audit matters
For the purpose of our audit we
used overall Group materiality of
$22.5 million, which represents
approximately 5% of the Group’s
profit before tax.
We applied this threshold, together
with qualitative considerations, to
determine the scope of our audit
and the nature, timing and extent
of our audit procedures and to
evaluate the effect of
misstatements on the financial
report as a whole.
We chose Group profit before tax
because, in our view, it is the
benchmark against which the
performance of the Group is most
commonly measured.
We utilised a 5% threshold based
on our professional judgement,
noting it is within the range of
commonly acceptable thresholds.
Our audit focused on where the
Group made subjective
judgements; for example,
significant accounting estimates
involving assumptions and
inherently uncertain future events.
We performed:
● An audit of the financially
significant component of the
Group, being the private
health insurance segment.
● Specific audit procedures over
significant risks and financially
significant balances of the
Medibank Health segment.
Amongst other relevant topics, we
communicated the following k ey
audit matters to the Audit
Committee:
● Recognition and
measurement of the
COVID-19 claims liability
● Estimation of the
outstanding claims liability
● Reliance on automated
processes and controls
●
Impairment test of
goodwill allocated to Home
Care Group of Cash
Generating Units (CGUs)
These are further described in the
Key audit matters section of our
report.
124 Medibank
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report for the current period. The key audit matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. Further, any commentary on the outcomes of a particular audit
procedure is made in that context.
Key audit matter
How our audit addressed the key audit matter
Recognition and measurement of the
COVID-19 claims liability
$297.1m
Refer to note 3 for accounting policy and disclosures
Australia’s federal, state and territory governments put
in place a number of restrictions from March 2020 to
slow the spread of the global Coronavirus (COVID-19)
pandemic. As a result, private health insurers
experienced abnormally low claims volumes due to the
temporary closure of elective surgery and reduced
access to ancillary services during the six months
ended 30 June 2020.
In response, prior to 30 June 2020 the Group publicly
announced and commenced a number of commitments
to policyholders to pass-back any unforeseen
COVID-19 related financial gains that may emerge.
A number of Australian Accounting Standard
requirements were considered by the Group to account
for the impact of the COVID-19 pandemic on claims
volumes, the resulting financial performance of private
health insurers, and the Group’s COVID-19
policyholder commitments.
The Group’s public commitments created an
expectation as at 30 June 2020 that any financial gains
relating to the COVID-19 restrictions on hospital,
overseas and ancillary claims would be temporary. This
gave rise to a constructive obligation to policyholders,
expected to be delivered through the payment of claims
for benefits that were unable to be made prior to 30
June 2020. Accordingly, the Group has recognised a
COVID-19 claims liability as at 30 June 2020 and an
associated claims expense. This COVID-19 claims
liability is included in the financial statement line item
titled ‘Claims liabilities’ recognised on the consolidated
statement of financial position but does not form part
of the outstanding claims liability (refer to the KAM
titled ‘Estimation of outstanding claims liability’).
We performed the following audit procedures, amongst
others:
● Evaluated the design of the Group’s relevant
k ey controls over the COVID-19 provisioning
process and assessed whether a sample of the
relevant k ey controls were operating
effectively throughout the year, including the
impact of the COVID-19 pandemic on relevant
k ey controls.
● Developed an understanding of the Group’s
public announcements and commitments to
financial analysts, shareholders and
policyholders.
● Evaluated the Group’s accounting policy to
recognise the deferral of claims during the
COVID-19 pandemic, and resulting impact on
financial performance, against applicable
Australian Accounting Standard requirements
and private health insurance industry
practices.
● Assessed, on a sample basis, the key data
inputs used in the Group’s modelling and
measurement of the COVID-19 claims
liability.
●
Together with PwC actuarial experts, we:
o Assessed the k ey assumptions
applied by the Group in determining
the impact of COVID-19 restrictions
on hospital, overseas and ancillary
claims deferred to future periods,
including consideration of practices
adopted across the private health
insurance industry.
Annual Report 2020 125
Independent auditor’s report
Key audit matter
How our audit addressed the key audit matter
We considered this a k ey audit matter due to the:
●
●
significant financial impact of the COVID-19
pandemic on claims trends across the private
health insurance industry
judgement required by the Group in
determining the applicable Australian
Accounting Standard requirements to
recognise the impact of COVID-19 restrictions
on claims and resulting impact on financial
performance
• measurement estimation involved in
determining the deferred entitlement to
policyholders for claims not incurred due to
COVID-19 restrictions
•
adequacy of disclosure of the COVID-19
claims liability within the Group’s financial
report.
Estimation of the outstanding claims liability
$322.5m
Refer to note 3 for accounting policy and disclosures
The liability for outstanding claims relates to claims
incurred during the financial year or prior periods but
either not assessed or received by the Group at
year-end.
The liability for outstanding claims is estimated by the
Group as a central estimate but, as is the case with any
accounting estimate, there is a risk that the ultimate
claims paid will differ from the initial estimates. There
is also additional uncertainty relating to the impact of
unprecedented events, such as the COVID-19
pandemic, on claims incurred given the inherent
difficulty in determining the practical effect of such
events on claims emergence patterns.
A risk margin is applied by the Group to reflect the
uncertainty in the estimate. The central estimate and
risk margin combined, which are estimated based on
judgements and actuarial expertise, are intended to
achieve an actuarially defined probability of adequacy
(PoA) of 95% (2019: 95%).
o Considered the appropriateness of
the Group’s methodologies used to
determine claims deferred to future
periods including consideration of
reasonable alternatives.
o On a sample basis, performed
recalculations over the mathematical
accuracy of the Group’s COVID-19
claims liability model.
● Assessed the adequacy of disclosure of the
COVID-19 claims liability in the financial
report against the requirements of the
applicable Australian Accounting Standards.
We performed the following audit procedures, amongst
others:
Controls design and operating effectiveness
● We evaluated the design of the Group’s relevant
k ey controls over the claims reserving process,
tak ing into consideration the impact on a sample
of the relevant key controls of the COVID-19
pandemic (including data reconciliation, data
inputs, data quality, and the Group’s review of the
estimate) and assessed whether these controls
were operating effectively throughout the year.
The Group’s use of actuarial expertise
Together with PwC actuarial experts, we:
● Considered whether the Group’s actuarial
methodologies were consistent with actuarial
practices and those used in the industry.
● On a sample basis, performed recalculations
over the mathematical accuracy of the
Group’s actuarial models.
126 Medibank
Key audit matter
How our audit addressed the key audit matter
The estimation of the outstanding claims liability
involves complex and subjective judgements about
future events, both internal and external to the
business. Primarily, judgement is required by the
Group in order to estimate the:
●
●
●
●
type and amount of claims incurred during the
last two months of financial year but not received
or processed by year end
speed of processing claims by providers issuing
claims on behalf of policyholders
claims cost inflation and medical trends
impacting utilisation of benefits by members
impact of the COVID-19 pandemic on member
claiming patterns.
We considered this a k ey audit matter because of the
significant judgement required by the Group in
estimating claims liabilities, including uncertainty as to
the economic impact of the COVID-19 pandemic, and
because a small change in assumptions can result in a
material change in the estimated liability and
corresponding charge to profit for the year.
Reliance on automated processes and controls
The Group utilises a number of complex and
interdependent Information Technology (IT) systems
to capture, process and report a high volume of
transactions.
We considered this a k ey audit matter because the:
●
●
operations and financial reporting processes of
the Group are heavily reliant on IT systems
underlying IT controls over business processes
are significant to the financial reporting process.
● Assessed the k ey actuarial assumptions used
by the Group in forecasting expected claims
particularly those relating to the two months
prior to the year-end. This included
comparing the k ey actuarial assumptions to
the Group’s historical experience, observable
mark et trends, environmental factors,
estimated payment patterns, member
claiming patterns, and our industry
k nowledge.
● Considered the sensitivity of the estimate to
reasonably plausible alternative service levels
by reference to payment history, recent claims
trends, and COVID-19 environmental factors.
● Assessed the Group’s approach to setting the
risk margin in accordance with the
requirements of Australian Accounting
Standards, including an assessment of the
reasonableness of the Group’s actuarial
calculation of the probability of adequacy.
Claims received after the year-end
• We considered whether actual claiming
activity after year-end supported the k ey
assumptions used by the Group to estimate
the outstanding claims liability at year-end.
We developed an understanding of the Group’s IT
governance framework as well as the internal controls
designed to mitigate the risk of fraud or error over:
●
●
●
●
program development and changes
access to programs and data
computer operations
business process.
Together with PwC IT specialists, we performed the
following procedures, amongst others:
● Considered the impact of the COVID-19
pandemic on the IT control environment.
● Assessed the design and operating effectiveness
of a sample of k ey IT controls that are relevant to
the financial reporting process and our audit.
Annual Report 2020 127
Independent auditor’s report
Key audit matter
How our audit addressed the key audit matter
● Recalculated a sample of k ey automated
calculations within the Group’s systems to test
mathematical accuracy.
● Compared a sample of system generated reports,
which are critical to processing and reporting
financial transactions, back to source data.
Impairment test of goodwill allocated to Home
Care Group of Cash Generating Units (CGUs)
We performed the following procedures, amongst
others:
$97.2m
Refer to note 12 for accounting policy and disclosures
The Group recognised goodwill of $97.2 million in
respect of the acquisition of a number of in-home care
businesses. For the purposes of impairment testing,
this goodwill has been allocated to a group of Cash
Generating Units (CGUs). This group of CGUs is
referred to as the Home Care Group of CGUs (Home
Care).
An impairment assessment is performed annually by
the Group at the Home Care level by comparing the
carrying value of Home Care to the recoverable
amount. The impairment assessment methodology of
Home Care was revised during the period, with
particular emphasis on the discount rate applied.
We considered this to be a k ey audit matter due to the:
●
●
●
●
financial significance of the goodwill allocated to
Home Care which accounts for 48% of the
goodwill balance recognised by the Group.
recoverable amount of Home Care is determined
using a value-in-use model that requires
significant judgement by the Group to estimate
future cash flows based on a number of k ey
assumptions, including revenue forecasts and
expected synergies.
judgements and assumptions, including the
growth rates and discount rate, applied by the
Group in determining the revised impairment
assessment methodology.
effects of the COVID-19 pandemic on the
realisation of planned strategic objectives and the
resulting impact on the performance of Home
Care.
● Developed an understanding of the Home Care
strategy including how performance is managed
and monitored by the Group.
● Developed an understanding of the process by
which the projected future cash flows of Home
Care were developed, including consideration of
expected operational, productivity and financial
synergies, and the practical effects of the
COVID-19 pandemic.
● Considered the level of business performance
monitoring by the Group and assessed whether
the monitoring was performed at the Home Care
level.
● Compared the cash flows included in the
impairment assessment with the three-year
business plan presented to and approved by the
Board.
● Considered whether the cash flow forecasts were
reasonable and were based on supportable
assumptions, by comparing the forecasts to
actual cash flows from previous years.
● Tested the mathematical accuracy of the value-in-
use model and reperformed the Group’s
sensitivity analysis, considering reasonably
possible changes in k ey assumptions.
● Developed an understanding of the impairment
assessment methodology, including judgements
and assumptions applied.
● Compared the growth rate assumed in the cash
flow projects extrapolated beyond three years
(terminal growth rate) to industry research.
● Together with PwC valuation experts, compared
the discount rate assumptions to mark et data,
comparable data, and industry research.
128 Medibank
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report for the year ended 30 June 2020, but does not include the financial report
and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we
obtained included the Operating and Financial Review and the Directors' Report. We expect the
remaining other information to be made available to us after the date of this auditor's report.
Our opinion on the financial report does not cover the other information and we do not and will not
express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
When we read the other information not yet received, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to the directors and use our professional judgement
to determine the appropriate action to take.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing
and Assurance Standards Board website at:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our
auditor's report.
Annual Report 2020 129
Independent auditor’s report
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 48 t0 72 of the directors’ report for the year
ended 30 June 2020.
In our opinion, the remuneration report of Medibank Private Limited for the year ended 30 June 2020
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the remuneration
report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the remuneration report, based on our audit conducted in accordance with Australian
Auditing Standards.
PricewaterhouseCoopers
CJ Heath
Partner
Melbourne
20 August 2020
130 Medibank
Shareholder information
The shareholder information below is current as at 20 August 2020.
Distribution of equity securities
Size of shareholding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 & over
Total
Unmarketable parcels
Number of
shareholders
44,390
145,983
15,088
6,926
184
212,571
Number of
shares
40,334,999
412,779,914
103,882,812
147,519,632
2,049,485,883
2,754,003,240
There were 1,093 holdings of less than a marketable parcel ($500) of shares (175 shares based on a market price of
$2.86 per share) and such holders held a total of 59,954 shares.
20 largest shareholdings
Number of
shares
% of
issued capital
CITICORP NOMINEES PTY LIMITED
1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
2
3
CITICORP NOMINEES PTY LIMITED
4 NATIONAL NOMINEES LIMITED
5 BNP PARIBAS NOMINEES PTY LTD
6 BNP PARIBAS NOMS PTY LTD
7 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
8
9 NAVIGATOR AUSTRALIA LTD
10 AUSTRALIAN EXECUTOR TRUSTEES LIMITED
11 THE SENIOR MASTER OF THE SUPREME COURT
12 UBS NOMINEES PTY LTD
13 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
14 AMP LIFE LIMITED
15 NETWEALTH INVESTMENTS LIMITED
16 BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
17 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
18 NETWEALTH INVESTMENTS LIMITED
19 NATIONAL NOMINEES LIMITED
20 BNP PARIBAS NOMS (NZ) LTD
Total
843,775,076
565,553,382
231,986,783
150,880,935
70,767,066
41,621,581
27,939,044
11,436,005
6,858,618
6,739,696
6,500,000
6,419,250
4,428,496
4,420,770
3,875,287
3,659,226
2,973,110
2,252,577
2,231,402
2,176,759
1,996,495,063
30.64
20.54
8.42
5.48
2.57
1.51
1.01
0.42
0.25
0.24
0.24
0.23
0.16
0.16
0.14
0.13
0.11
0.08
0.08
0.08
72.49
Annual Report 2020 131
Shareholder information
Substantial shareholders
As at 20 August 2020 the following holders had provided a substantial shareholding notice:
Number of shares % of issued capital
166,096,036
137,963,568
6.03
5.01
Name of holder
Blackrock Inc.
The Vanguard Group
Voting rights
At a general meeting of the Company, every shareholder
present (including virtually present) or by proxy, attorney
or representative has one vote on a show of hands and,
on a poll, one vote for each share held.
On-market purchases of shares
During the financial year ended 30 June 2020, 1,088,835
Medibank ordinary shares were purchased on market at
an average price of $3.50 for the purposes of Medibank’s
employee incentive schemes.
On-market share buy-back
There is no current on-market share buy-back.
132 Medibank
Financial calendar
Key dates
Full year results announcement
20 August 2020
Ex-dividend share trading commences
2 September 2020
Record date for final dividend
Payment date for final dividend
Annual general meeting
Half year results announcement
Payment date for interim dividend
3 September 2020
24 September 2020
12 November 2020
February 2021
March 2021
The above dates and payments are subject to confirmation.
Any change will be notified to the Australian Securities Exchange (ASX).
Corporate directory
Company
Share registry
Medibank Private Limited
Registered Office
720 Bourke Street
Docklands Vic 3008
GPO Box 9999
Melbourne VIC 3001
Telephone:
132 331 (within Australia)
+61 3 8622 5780 (outside Australia)
medibank.com.au
Computershare Investor Services
Pty Limited
GPO Box 2975
Melbourne VIC 3001
Telephone:
1800 998 778 (within Australia)
+61 3 9415 4011 (outside Australia)
computershare.com.au
Annual Report 2020 133
no overlap of red spine allowed for fold crease
spine set up as 8 mm
Annual Report 2020
redefining
better
Medibank Private Limited
ABN 47 080 890 259