Medibank Private Ltd
Annual Report 2022

Plain-text annual report

Annual Report 2022 Doing more for better health Contents Medibank Group – our story 2022 highlights Chair’s message CEO’s message Delivering value to stakeholders through our strategy Deliver leading experiences Differentiate our insurance business Expand in health 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 4 5 6 8 12 16 20 22 30 33 35 48 51 73 74 75 76 77 78 120 121 122 131 133 133 Sustainability Report 2022 For healthy futures 2022 full year results Investor presentation 18 August 2022 David Koczkar – Chief Executive Officer Mark Rogers – Group Executive Chief Financial Officer & Group Strategy Medibank Private Limited ABN 47 080 890 259 Annual Report 2022 Doing more for better health This report is part of our suite of reporting for the 2022 financial year. You can find more information about our performance in our Full Year Results Investor Presentation and Sustainability Report Cover – Medibank employee and Live Better member, Ella at Half Moon Bay, Victoria. Ella is an active Live Better member who enjoys weight training, meditating through the Smiling Minds app, walking her dog and spending time with her young family. Medibank Group – our story We’re a health company working to create Better Health for Better Lives by providing the best health and wellbeing experience for people across Australia. Building upon our 46-year history as one of Australia’s leading health insurers, our Medibank and ahm brands now support millions of customers to manage their health and wellbeing through personalised products and services. We’re investing in preventative health and reimagining healthcare to give people greater choice, better access and more control over their care. We’re partnering with doctors, hospitals and governments to deliver care in new ways – and growing and developing new health services through our Amplar Health business. We’re also working together to drive the change within Australia’s healthcare system to help ensure it can support our generation and those to come. Purpose Vision Better Health for Better Lives The best health and wellbeing for Australia Values Customer obsessed Show heart Brilliance together Break boundaries Strategy Growing as a health company Deliver leading experiences Differentiate our insurance business Expand in health Our brands Health insurance Diversified insurance Travel Pet Life Car and home Health services Health and wellbeing including Live Better Preventative programs Clinical homecare and virtual care Investments in primary care, virtual care and health system navigation support Investments in no gap healthcare programs Sustainability focus areas Customer health Employee health Community health Environmental health Governance Annual Report 2022 1 2022 highlights Customer 3.96m total customers at 30 June 2022 27.45% market share (+14 bps since FY21) $5.4b total claims paid c. $682m total COVID financial support to date – includes c. $368m customer give backs 60.9k (+3.2%) reported net resident policyholder growth 45.345.3 (+8.2) Medibank 42.442.4 (-0.6) ahm customer advocacy (average Service NPS) c. 568k customers engaged with Live Better and preventative programs Services supported 1.21.2m+m+ 24.724.7m+m+ 476476k+k+ hospital admissions extras services surgical procedures Health services 10,086 (+40%) customers engaged with preventative health programs 7,239 (-5%) c. 7,239 customers used Medibank at Home $10m investment in health tech company Medinet c. 3.53.5mm 3,245 3,245 virtual health interactions patients used My Home Hospital since Jan 2021 launch 2 Medibank Our performance $393.9m (-10.7%) Group net profit after tax 7.3 cps (+5.8%) final ordinary dividend fully franked 13.4 cps (+5.5%) total ordinary dividend fully franked $6,859.8m Health Insurance segment revenue $321.8m Medibank Health segment revenue -$24.8m net investment income / loss Composition of 2022 segment operating profit 92.992.9% $592.6m Health Insurance 7.17.1% $45.5m Medibank Health c. $15m in productivity savings 7.97.9⁄⁄ 1010 employee engagement All data is presented on a statutory basis 33,768768 including around 11,300300 employees health professionals Headcount at 30 June 2022 Annual Report 2022 3 Chair’s message Mike Wilkins AO 4 Medibank Creating greater value for our customers, community and shareholders has always been important to Medibank and we have sought to again deliver this over the past 12 months – guided by our purpose of Better Health for Better Lives and our commitment to being a responsible and sustainable business that is contributing to our society. As a result of this focus, we have grown policyholder numbers, achieved record levels of customer advocacy and created double- digit growth in Medibank Health, to deliver another strong result. We have done this while maintaining a focus on productivity and costs as part of our ongoing disciplined approach to growing and running our business. While Health Insurance operating profit and Medibank Health segment profit both increased, our net profit after tax of $393.9 million was down 10.7% on last year. This was as a result of financial market volatility, which led to a $24.8 million loss in net investment income. Our capital position remains strong and the Board determined a final fully franked ordinary dividend of 7.3 cents per share, bringing the total full year dividend to 13.4 cents per share fully franked. Throughout the pandemic we have committed to, and continued to, support our customers and the community. Through the COVID Care at Home program we deliver with Calvary, we have now helped around 165,000 people and we continue to support the broader public health response to COVID. Part of this support for our customers has been our commitment to return known permanent net claims savings due to COVID to them. Our total COVID support now stands at around $682 million including our recent premium give back and the deferral of our most recent premium increases for seven months. At Medibank we are working to drive real change in our communities as we seek to achieve our 2030 Vision to create the best health and wellbeing for Australia. A key component of this is our focus on environmental, social and governance issues (ESG). This year we refreshed our ESG materiality assessment, to ensure we were focusing on the sustainability issues that our customers, employees, shareholders and the wider community believe are most important for us to address. Chief among these is the ongoing need for affordable, innovative and personalised healthcare. This is underlying the work we are doing to give people greater access, choice and control of their healthcare, such as expanding our no gap program and growing our Live Better and preventative health programs, developing new extras products and building partnerships with health professionals to provide new care settings and models of delivery. How we work, and the culture that we cultivate is paramount to delivering for our customers and for you, our owners. To this end we continue to champion diversity and inclusion across our business, through our Future Fit way of working, our focus on employee health and wellbeing, and our values-based culture in support of our continuing desire to be an employer of choice. It’s pleasing to report that women hold 44% of both Board and senior leadership roles and we further enhanced our parental leave policy this year. In addition to launching our first Human Rights Policy, we reinforced our commitment to improving prosperity and addressing health equity for First Nations People through our fifth Reconciliation Action Plan. We also released our second Accessibility and Inclusion Plan outlining our approach to supporting people living with a disability. We accelerated our commitment to Net Zero that we first announced in September 2021, bringing forward our timelines and setting a pathway to achieve Net Zero by 2040 (including Net Zero against our Scope 1 and 2 emissions by 2025) on our current business as usual operations. We have also begun exploring our investment portfolio’s greenhouse gas emissions exposure so we can work towards setting science-based targets to create a pathway to Net Zero across our investment portfolio. You can find more detail on this in our Sustainability Report 2022. I’m proud of Medibank and the role that it plays in our community. David Koczkar and the executive team have shown great leadership throughout another challenging year and I would like to thank and congratulate them, along with everyone at Medibank, for all that they have done and achieved in 2022. I would also like to express my gratitude to my fellow directors for their wise counsel and to all our shareholders for your ongoing support. Together, we continue working to make a difference to the health and wellbeing of our customers, our people and our community. CEO's message 2022 has seen Medibank deliver another strong result, reflecting the work of our amazing team and their unwavering focus on our customers. It is a year that our company can be truly proud of. We saw standout customer growth of 3.2%, increasing our resident policyholders by nearly 61,000. Most of our new customers were younger people and those taking out cover for the first time. We also saw strong growth in Medibank Health as we focused on supporting the health and wellbeing needs of our customers and community. Differentiating our core insurance business is central to our strategy. Our two brands, combined with one of the most extensive provider networks in the industry, continues to set us apart from others as we offer leading products and services across the full spectrum of our customers' needs in health. Customer retention over the past two years across the Medibank Group has been stronger than at any point in the decade previously, and high levels of customer advocacy and brand leadership among the top health insurers show our customers are valuing the support we provide. We have managed to achieve this growth despite the fact that this year has been tough for many people as the impacts of COVID continue to be felt and costs of living rise. What is clear is that health has remained top of mind with a record number of people wanting greater choice and control and electing to participate in the private health system. Our strategy to grow as a health company is enabling us to deliver for our customers not only today, but is also setting us up to do the same into the future. Delivering leading experiences continues to be key. For our customers, we’re focused on making things better for them. Our digital and analytics capabilities are supporting more self-service interactions as customer preference increasingly shifts towards technology. These same capabilities are enabling more personalised conversations with customers to better support their health and wellbeing. Of course, none of this would be possible without our team. I am pleased to report that our people remain highly engaged, driven in part by the launch of our 2030 Vision to deliver the best health and wellbeing for Australia, including progressing our sustainability agenda. The growing number of customers engaging with our Live Better and preventative programs reflects the unmet need in the community and the role we can play to provide support to fill this gap. As we expand in health, our focus in areas such as virtual health, mental health and integrated care offers tremendous benefits for our customers, community and the health system at large. The same can be said of our investments in new care settings including our no gap network, which we more than doubled over the year. Our rebranded Health Services business, Amplar Health, is focused on these opportunities as we look to meet the needs of our customers and our government and community partners. We are also seeking to drive change across the health system so it is fit and sustainable for the future. For health insurers these changes will help keep premium increases low for our customers, improve access to private health, and in turn alleviate pressure on the stretched public system. Some challenges require a rethink of the status quo. Other challenges require reform. Prostheses reform is a prime example of this, with a chance to deliver up to $900 million of savings to consumers in the private system over the next four years. With challenges, come opportunity, and I want to thank our people for managing both incredibly well throughout the year. Their commitment and focus continue to be the driving force as we support our customers, and take our next steps to deliver the best health and wellbeing for Australia. I also want to thank Mike and the Board, and of course all our shareholders whose ongoing support enables these steps to be made. David Koczkar Annual Report 2022 5 Delivering value to stakeholders through our strategy Impacts and trends influencing our stakeholders Customers Employees Community Shareholders Government / health system Impacts of COVID Flexibility and health and wellbeing Highly competitive talent market Pressure on household budgets Health and wellbeing Higher customer experience expectations Simple, personalised digital service Impacts of COVID Sustainable financial returns Pressure on health system Climate change Equality, diversity and inclusion Expectation of businesses to contribute to society Transparency in reporting Growing chronic disease and ageing Environmental, social and governance (ESG) issues – Net Zero, diversity and inclusion and data privacy and technology Healthcare worker shortages and burnout Acceleration of new care settings – telehealth and virtual care How we’re responding to deliver value through our strategy We’re supporting our customers’ health and wellbeing, offering greater healthcare access, choice and control and creating a more connected experience We’re empowering our people to achieve their best through flexible working, health and wellbeing support, with a culture that celebrates diversity and inclusion We’re addressing some of Australia’s biggest health and community concerns such as loneliness, mental health, reconciliation, climate change, and diversity and inclusion We’re delivering sustainable returns to our shareholders while meeting the expectations of our customers and community by embedding ESG practices in our strategy We’re driving change to reshape Australia’s health system, investing in prevention and partnering with doctors, hospitals and governments on new care models to support the long-term sustainability of our health system 6 Medibank The material issues our stakeholders care most about Affordable, innovative and personalised healthcare Engaged, purpose- led culture, attract and retain talent Diverse and inclusive workforce Support healthy communities Work together to build a stronger and more sustainable health system Environmental health and climate change Ethical and sustainable business Our strategy – growing as a health company Deliver leading experiences Differentiate our insurance business Expand in health Create personalised and connected customer experiences Empower our people Collaborate with our communities to make a difference Deliver more value, choice and control for customers Offer products and services to meet all customer needs Leverage our dual brands and provider networks Focus growth on prevention and integrated care models Scale and connect our health businesses Bring benefits back to our core Better Health for Better Lives Annual Report 2022 7 Deliver leading experiences Our goals: Our FY22 milestones > Create personalised and connected customer experiences > Empower our people > Collaborate with our communities to make a difference Target Achieved Customer advocacy Service NPS (average) >35 Medibank >35 ahm 45.3 (+8.2) 42.4 (-0.6) Employee advocacy (eNPS) Place to work Products and services ≥+24 ≥+19 +27 +29 8 Medibank We’re working to deliver a brilliant experience every time for our customers, by investing in our digital capabilities, engaging our people in our purpose and vision, and helping improve the communities we are part of. The strong technology foundations we’ve built are enabling us to have deeper, more meaningful relationships with our customers that are helping them better manage their health and wellbeing. A better experience across every channel We’ve risen to meet our customers’ changing expectactions – delivering information personalised to their own needs, the benefits that come from connected experiences and the control and ease offered by self-service tools and support. This year, we’ve achieved our highest ever customer advocacy service NPS scores for Medibank and were above target for ahm. We are also leading our health insurer peers on brand advocacy. Like most companies, we experienced workforce challenges throughout the year, which we managed by enabling our customer channels and Amplar Health team members to work across multiple channels and by improving the effectiveness of our digital self-service channels to provide the support our customers expect of us. Our Amplar Health team undertook over 440,000 digital COVID Care assessments this year, assisted by other team members. We checked in with more than half a million customers to make sure their health cover was delivering to their needs. We’ve invested in our analytics capabilities to help us tailor the information and support we offer to our customers, so it is personalised to deliver greater value. We’ve also been piloting health clinicians working in a number of our retail stores to enable more detailed conversations about healthcare and support programs available. We’ve continued enhancing our digital customer experience. We’ve expanded the range of claims and payments that can be done through the My Medibank app and introduced authenticated messaging to make it quicker for people to access support. We continued integrating more Live Better functionality, making it easier for customers to manage their health and wellbeing in a single digital experience. Around 70% of ahm customers have logged in to the app or website this year, as we made it easier to pay digitally, revamped the claims experience and introduced on-the-spot orthodontics claims. We’ve also seen more people take up digital membership cards with both Medibank and ahm cards available on both iOS and Android platforms. The convenience and simplicity of our self- service channels has seen them continue to grow and increasingly become the support channel of choice, managing more than 40% of all Medibank service queries this year. We’ve added new functionality to our online messaging service to guide people through payments and claims queries. We’ve also strengthened our privacy and data security capabilities and requirements to ensure our customers are better protected. We’re bringing Medibank to our customers through VANgo – our mobile store on wheels that has been travelling throughout regional and rural Queensland to provide a face-to-face experience for customers in areas where stores aren’t close by. VANgo has been so popular, we will soon have two more vans travelling through WA and northern Victoria/southern New South Wales. c. 504504kk customer check ins c. 1.41.4mm c. 4040% customers registered for My Medibank app of Medibank service interactions through self-service channels 1.5m+ people have engaged in free Live Better events and activities since 2017 Annual Report 2022 9 Deliver leading experiences Inspiring our people to deliver It is the passion and commitment of our people that enables us to deliver for our customers – they are the heart and soul of who we are and what we do. Already strongly committed to our purpose and values-based culture, the launch of our bold new 2030 Vision this year – to create the best health and wellbeing for Australia – has inspired and motivated our people even further. Our people are also empowered by our Future Fit ways of working, which we’ve continued to evolve, drawing on the lessons learnt through the pandemic. They choose where they work, based on what they are doing and where it’s best to get that work done. This is one of the reasons our people continue to be so highly engaged. Our employee survey this year highlighted how much our team value the approach to flexibility we offer and feel well supported in their health and wellbeing and opportunities for professional development. In a highly competitive market for talent, people are attracted to our purpose, our progressive way of working, and our caring and inclusive workplace. We remain strongly committed to showing leadership on diversity and inclusion. We continued to champion gender equality with more than 40% of women in both senior leadership and Board positions and maintained a genderpay equity of less than 1% this year. We’ve strengthened cultural awareness and understanding among our people, launching our 5th Reconciliation Action Plan (RAP) this year and working with the Australian Indigenous Doctors’ Association (AIDA) and members of the Health RING (a network of health organisations) to support a more culturally safe health sector. We’ve also set ourselves a new target of $1 million (inc GST) in Aboriginal and Torres Strait Islander business procurement spend each year by 2025. The launch of our 2nd Accessibility and Inclusion Plan built upon our work to create an inclusive, safe and disability confident workplace. We introduced accessible membership cards for Medibank customers, launched our 1st disability awareness training module, and began piloting a support program for employees caring for ageing parents or someone with a disability or chronic illness. 4444% of Board roles held by women 4444% 1 1,674,674 163 163 of senior leadership roles held by women employees participated in cultural awareness training employees self-identify as living with disability 10 Medibank Building better communities We’re committed to supporting the health of our community and making a positive contribution to help address the issues we face as a society. We reached our goal of engaging 1.5 million people in our free Live Better events and activities, 10 months ahead of schedule. The many free activities we supported included online dance classes in collaboration with the Sydney Dance Company, family mindfulness activities through our partnership with Smiling Mind, and health and wellbeing classes as part of the Medibank Feel Good program in Brisbane. Since 2016, we've been partnering with parkrun Australia to make exercise and community engagement something everyone could enjoy. More than 750,000 people have participated in parkrun's free weekly events since 2011. We know the positive social impact parkrun has on communities, particularly so in terms of tackling loneliness, and this year we extended our partnership to 2025. We raised the public conversation about loneliness as part of our 10-year commitment to helping address an issue that our research showed is impacting more than half the people in Australia, based on our latest survey results. We launched the podcast series We Are Lonely to explore the theme of loneliness and drive positive conversations around mental health and wellbeing. Featuring interviews with the likes of actor Hugo Weaving and musician Darren Hayes, the podcast has been listened to by more than 55,000 people to date. We launched our Better Minds hub to provide a range of resources about mental health and wellbeing, as well as an app featuring wellbeing checks, mental fitness training and one-on-one coaching sessions. We also undertook research to better understand the longer-term implications COVID is having on the mental health and wellbeing of young people. We continued to drive health research and patient advocacy initiatives; partnering with universities and research leaders, industry and advocacy groups. We supported 25 projects this year, including a University of Sydney program assessing the use of digital health services to help people in rural and remote communities manage musculoskeletal pain. In addition to supporting our customers through our COVID financial support package and give back program, we helped customers impacted by the floods in New South Wales and Queensland with assistance packages including policy suspensions and financial support to cover premiums for up to three months. We know we have a role to play in fighting climate change, which is why we’ve brought forward our Net Zero commitment to 2040 and set science-based targets to achieve Net Zero on Scope 1 and 2 emissions by 2025 and a 50% reduction in Scope 3 emissions by 2030. Our pathway is based on Medibank Group’s current business-as-usual operations and does not account for any future partnership and investment activity. Our investment portfolio is also currently out of scope, but we are working to create a pathway to Net Zero for this. We’re actively working to protect human rights and help prevent modern slavery. This year we strengthened our commitment to ensuring respect and equality for our customers, employees, communities and suppliers with the launch of our 1st Human Rights Policy. We also published our 2nd Modern Slavery Statement, which detailed the extension of our risk assessments to our hospital partners and overseas agents that distribute products on our behalf. c. $$1.11.1mm invested in research 1 July 2021 to 30 June 2022 More than 5555k+ k+ people have listened to the We Are Lonely podcast to date For more information about the work we’re doing in the community and our commitments to sustainability, see our Sustainability Report 2022 Annual Report 2022 11 Differentiate our insurance business Our goals: Our FY22 milestones > Deliver more value, choice and control for customers > Offer products and services to meet all customer needs > Leverage our dual brands and provider networks Net policyholder growth Market share – FY24 aspiration Target 3.1-3.3% Up 25-75bps Health Insurance productivity delivered $40m including $15m in FY22 Achieved +3.2% 27.45% (+14bps since FY21) c. $15m 12 Medibank As the impacts of the pandemic persist in our health system and the broader community, people are continuing to prioritise their health, even though cost of living pressures are increasing. They are looking to us to provide real value and support for their health and wellbeing, and we are delivering – with products and services that do more for our customers and growing our network of partners and providers to better meet their needs. 70% of our new customers are younger people and those new to industry People have responded to the choice we are providing through our two distinct brands and we increased our market share by 14 basis points. Younger people and those new to industry made up around 70% of our new customers this year. Together our Medibank and ahm brands now represent 27.45% of people with private health insurance. Ongoing COVID support for our customers As COVID continued to impact our customers’ ability to access healthcare services, we returned around $368 million in COVID permanent net claims savings to customers through cash give backs and deferring premium increases. We also rolled over extras annual limits for ahm customers. In total we’ve now provided around $682 million in COVID customer support since the pandemic first began and we continue to assess known permanent net claims savings due to COVID to return to our customers in the future. Products and services built for better We’ve listened to our customers and refined our products and services to offer greater value. We launched a new suite of extras cover products to give customers the flexibility to be able to choose and pay for the services they want. In doing so we've introduced a new, intuitive way for new customers to buy the health insurance that best meets their needs, and have seen increased levels of satisfaction for these products. We partnered with doctors and hospitals to expand our short stay network, forming a new partnership with Healthe Care to grow our no gap program. By October 2022, we will have 24 hospitals across seven states and territories participating in our no gap program, which covers selected procedures such as hip and knee replacements and endoscopies with no medical out-of-pocket costs and the opportunity to recuperate at home, where clinically appropriate. Almost two thirds of Medibank customers will live within 25km of a no gap site by October 2022 and we’re now expanding the program to new procedures, including some general surgery procedures. We were also the first major health insurer to adopt the Federal Government’s voluntary age dependent reforms, extending the age that young adults can stay on their parents’ policy from 24 years old until their 31st birthday. 3.963.96mm customers at 30 June 2022 c. 6464% of Medibank customers to live within 25km of a no gap hospital by October 2022 24 hospitals in 7 states in our no gap network by October 2022 1,200 $$1,200 average out-of-pocket cost savings for patients in our no gap joint replacement program Annual Report 2022 13 Differentiate our insurance business As borders began to reopen, we saw strong growth in the number of overseas students, workers and visitors choosing our health insurance options. We enhanced our Overseas Student Health Cover products to provide greater support for international students, introducing an online GP service within the app and launching a student rewards program to help students to save money, find work and enhance their skills and knowledge. This year, Canstar named Medibank and ahm joint winners of its Outstanding Value Award for overseas health cover. Better value Our Members’ Choice Advantage network has delivered around $31.2 million in out-of-pocket savings this year, providing better value, more cost transparency and a wider range of services to our customers. In July this year, we expanded this network to include physiotherapy, chiropractic, podiatry, acupuncture and remedial massage and we now cover more types of services than any other health insurer. Through our Live Better Rewards program, we’re rewarding our customers for looking after their health by visiting one of our Members’ Choice Advantage dentists or optical providers or shopping with our partners like Fitbit, Brooks, Amcal Pharmacy or HelloFresh. Customers have also been able to redeem points on products and services from our growing range of partners including adidas, Apple and more. c. $$31.231.2mm out-of-pocket savings through Members’ Choice Advantage network 14 Medibank The program is helping us improve customer engagement and retention, with our data showing customers participating in Live Better are more likely to stay with us. We were one of the first insurers to introduce COVID benefits to our travel insurance cover when travel restrictions lifted this year. We also supported customers to better protect their pets, simplifying access to pet insurance by integrating it into the My Medibank app and improving our cover options – for which we were recognised by the Canstar Award for outstanding value pet insurance. We’ve paid $5.4 billion in claims and this year’s annual health insurance premium increase, which we postponed for seven months, was our lowest in 21 years. We also continued to manage our own costs, delivering around $15 million in cost savings this year as part of our target to deliver $40 million in productivity savings between FY22 and FY24. Advocating for reform We’ve worked to encourage healthcare reforms that could reduce costs and improve sustainability across the system, increase care options where clinically appropriate and make private health insurance more affordable through improved incentives. We’ve continued to strongly advocate for prostheses reform, which presents an opportunity to deliver around $900 million in cumulative savings over four years to private health consumers. While we anticipate the Federal Government’s agreement with medical device manufacturers will see real price reductions flow through the health system over the next four years, more needs to be done as Australians continue to pay some of the highest prices for medical devices in the world. We remain committed to returning the prostheses reform savings realised to our customers through lower premium increases. Prostheses costs are around 3030% higher than in NZ, France or the UK Private Healthcare Australia $$5.45.4bb total claims paid Lowest average premium increase in 21 years years deferred for 7 months until 1 Nov 2022 c. $$1515mm in productivity savings Annual Report 2022 15 Expand in health Our goals: > Focus growth on prevention and integrated care models > Scale and connect our health businesses > Bring benefits back to our core 10,086 10,086 people enrolled in preventative health programs 1 1 in in 44 Medibank joint replacement patients are having rehab at home 16 Medibank Together with doctors, hospitals and governments, we’re creating new models of care that are better for patients and better for Australia’s health system. We’re working to drive down costs, offer more choice and improve the healthcare experience for our customers and for patients across the country. We’re supporting healthcare innovation, building partnerships with others in the healthcare system and investing in companies that are utilising technology to make healthcare simpler, easier and more accessible. c. 27% of Medibank customers going to hospital were supported by Health Concierge Helping our customers be better The latest census data highlighted one of the biggest challenges facing our health system – Australia’s ageing population and the growing number of people with one or more chronic health conditions. This is why we are so invested in preventative healthcare, helping our customers and our communities to stay healthy and avoid unnecessary hospital treatments. More than half a million people have joined our Live Better program which is designed to encourage and reward people for healthy actions. Through the Live Better app we have been running preventative health campaigns, rewarding customers for getting flu and COVID vaccinations, taking their blood pressure or having skin checks. We also developed a children’s eye check challenge after research highlighted the increased use of screens during the pandemic was leading to an increase in childhood myopia. Our preventative health programs continue to grow with enrolments increasing by more than 40% across our eight programs this year. Results from our Better Knee, Better Me program demonstrate up to four out of five participants experienced clinically significant improvements in knee pain, and the program – developed with the University of Melbourne – received the inaugural Australian Clinical Trials Alliance (ACTA) Industry Partnership Award this year. We have now launched a new pilot that aims to help people manage osteoarthritis hip pain that utilises the same successful approach. Our Medibank Type 2 Diabetes program has also seen promising early results and feedback from participants. Our Health Concierge team supported almost 27% of Medibank customers going to hospital this year and launched two new pilots. Our Dietician Support service is designed to help elderly people going to hospital who are at risk of malnutrition. In July 2022 we also launched our Mental Health Concierge that prepares customers and their family for a psychiatric admission and supports them throughout their experience. As well, many of our corporate customers are looking to us for support with developing health and wellbeing programs tailored to the needs of their employees. From customised preventative programs and virtual health solutions, to specialised mental health support, we are helping businesses, organisations and universities to better support their people. Our FY22 milestones Customers engaged with Live Better* Medibank Health segment profit Target c. 480k Replace the reported FY18 $30m operating profit of Garrison by FY22** Achieved c. 568k (+55%) $45.5m (FY18: $47.3m) * Includes total customers who have engaged with our preventative health offering, including Live Better Rewards, Live Better Activities, preventative health programs and any new offerings developed ** Milestone updated to align with Medibank Health segment profit and to reflect FY21 statements that the temporary travel insurance earnings impact is expected to be largely offset by the contribution from investments in FY22 Annual Report 2022 17 Making healthcare personal As we work to create more options that give people greater access, choice and control over their healthcare, we reshaped our health services business this year under the new name, Amplar Health. Through Amplar, we’ve continued to support patients in both the private and public health systems by growing and developing the health services we deliver and invest in – virtual health, homecare, short stay hospitals, primary care and allied health. The Amplar team is also focusing on ways to improve health system navigation and create a more digitally connected healthcare experience for our customers. Central to this work is the partnerships we have built across the business with doctors, hospitals and health stakeholders. During the year we invested $10 million in leading health technology company Medinet, expanded the My Home Hospital program we deliver for Wellbeing SA in a joint venture with Calvary, and assisted the Myhealth GP network to expand their network of local GP practices, as well as helping strengthen their clinical operations and core business processes. We also continued working with a group of more than 40 doctors to develop a new short stay hospital in Melbourne which we expect to open in 2024. 7,239 7,239 customers used Medibank at Home 3,245 3,245 patients used My Home Hospital since Jan 2021 c. 7979kk Better Minds hub users and app downloads 18 Medibank Expand in healthRedesigning healthcare for our customers We partnered with Myhealth and Medinet to launch a new telepsychology clinic pilot designed to reduce the wait time to access a psychologist from three months to two weeks, that utilises video consultations supported by an innovative phone and digital concierge support program. We’ve continued to invest in our telehealth capabilities and expand our virtual care technology. Through our joint venture with Calvary we created a COVID Care at Home program that utilised remote monitoring and artificial intelligence to assist local health authorities to support around 165,000 COVID patients across New South Wales, Victoria, Queensland and Western Australia this year. We also helped take the pressure off emergency departments and support local hospitals through the Nurse Triage and After Hours GP programs that we deliver on behalf of healthdirect. We worked closely with one of our largest corporate clients to implement virtual GP services, health management programs and provide 24/7 care to support their fly in fly out and regional and rural employees in remote parts of Australia. In addition to providing our own 24/7 general health and mental health phone support lines for our customers, we have continued to deliver the NSW Mental Health Line, and after a decade of delivering 1800RESPECT and Beyond Blue, our contracts came to an end this year. Community support for homecare has continued to increase, despite services being impacted by COVID restrictions on elective surgery. We cared for more than 7,000 people in the comfort of their home this year, and our My Home Hospital service, delivered on behalf of Wellbeing SA through a joint venture with Calvary, expanded to provide a broader range of treatments and care to patients in additional areas near Adelaide. $$1010mm investment in health tech company Medinet c. 3.53.5mm virtual health interactions c. 165165kk patients supported through joint Calvary-Medibank COVID Care at Home Annual Report 2022 19 Our sustainability highlights FY22 highlights Giving back to customers c. $368m in COVID permanent net claims savings through cash give backs and postponing premium increases for 7 months c. $682m total COVID financial support package to date Rolling over unclaimed ahm FY22 extras annual limits for another year More than doubled our no gap network (including short stay) across 7 states and territories c. 568k customers engaged with Live Better and preventative programs c.7.2k customers used Medibank at Home c. $31.2m out-of-pocket savings through Members’ Choice Advantage network Managed c.3.5m virtual health interactions Supported c.165k patients through COVID Care at Home program delivered with Calvary Lowest average premium increase in 21 years Invested $10m in health technology company, Medinet c.79k Better Minds hub users and app downloads c.100k+ people engaged with the Smiling Mind Families program Launched We Are Lonely podcast series to raise awareness of loneliness Rewarded 70k+ Live Better members for getting COVID vaccinations 40k+ customers accessed free flu vax vouchers Women represent 44% of Group and senior leaders 44% of our Board are women Maintained gender pay equity of less than 1% 24% of parental leave taken by men 11th globally in Equileap Gender Equality Index Employer of choice by WGEA, 7th year in a row Certified as a Family Friendly Workplace by UNICEF Published 1st Human Rights Policy Published 2nd Modern Slavery Statement Paid community leave and charity gift voucher donations to support employees to get COVID vaccinations Extended modern slavery risk assessments of suppliers Sought independent limited assurance of selected ESG metrics c. 85% of employees worked flexibly COVID care and pregnancy support programs extended to employees In the top 25% of companies globally for employee health and wellbeing engagement (Q1 2022 Peakon global benchmark) Extended commitments to partner with Aboriginal and Torres Strait Islander businesses in RAP c. $596k (inc GST) spend with Aboriginal and Torres Strait Islander businesses Ensure healthy lives and promote wellbeing for all ages Material topics Affordable, innovative and personalised healthcare Support healthy communities Achieve gender equality and empower all women and girls Material topics Diverse and inclusive workforce Engaged, purpose-led culture, attract and retain talent Promote sustained, inclusive and sustainable growth, full and productive employment and decent work for all Material topics Engaged, purpose-led culture, attract and retain talent Ethical and sustainable business 20 Medibank FY22 highlights Increased employee engagement among Aboriginal and Torres Strait Islander employees 163 employees identified as having a disability Piloted a carers support program for employees Published 2nd Accessibility and Inclusion Plan Reduce inequality within and among countries Material topics Diverse and inclusive workforce Ethical and sustainable business Ranked 11 on the Australian Network on Disability Access & Inclusion index Published 5th RAP 11 years partnering with the Wadeye community in NT 1,674 employees participated in cultural awareness training Take urgent action to combat climate change and its impacts Material topic Environmental health and climate change Strengthen the means of implementation and revitalise the global partnership for sustainable development Material topics Ethical and sustainable business Work together to build a stronger and more sustainable health system Support healthy communities Accelerated commitment to achieving Net Zero by 2040 including Net Zero against our Scope 1 and 2 emissions by 2025 c.$15m invested in green bonds Begun analysis to understand the sustainability profile of our investment portfolio Maintained our carbon neutral status for our Scope 1, 2 and 3 emissions Ongoing commitment to low carbon domestic and international equity investments Further integration of ESG into enterprise risk management c. $1.1m invested in 25 health research projects Advocated for healthcare system reform Partnered with La Trobe University to research impacts of COVID and health delivery services 6 years partnering with the Grattan Institute 3 years partnering with the Australian Patients Association Community partnerships • parkrun Australia • Smiling Mind • Feel Good Program, Brisbane • Sydney Dance Company • Dr Michael Mosley and The Fast 800 Program Aboriginal and Torres Strait Islander partnerships • Australian Indigenous Doctors’ Association • Thamarrurr Indigenous Youth Corporation • Wadeye community, Northern Territory • Indigenous Defence and Infrastructure Consortium (iDiC) • Supply Nation • Dhiira For more detail see our Sustainability Report 2022 Annual Report 2022 21 Operating and financial review 1. About Medibank Medibank Private Limited (Medibank) is a health company providing health insurance and health services to more than 4 million people 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 providing a number of services: our health services business, which is being rebranded as Amplar Health, supports the healthcare needs of our core Medibank and ahm customers and the broader community; our Live Better program supports customers and the community to make better choices for their health and wellbeing; and we offer a range of diversified insurance products such as travel, life and pet insurance. Additionally, as we maintain assets to satisfy our regulatory reserves, we 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 2022, we had 3,291 full-time equivalent (FTE) employees, including 970 health professionals (excluding employees in associates and joint ventures). 2.1 Group summary income statement Year ended 30 June ($m) Group revenue from external customers Health Insurance operating profit Medibank Health segment profit Segment operating profit Corporate overheads Group operating profit Net investment income/(expense) Amortisation of intangibles Other income/(expenses) Profit before tax Income tax expense Group net profit after tax (NPAT) Effective tax rate Earnings per share (EPS) (cents) Normalisation of growth asset returns Normalisation of defensive asset returns Underlying NPAT1 Underlying EPS (cents)1 Dividend per share (cents) Dividend payout ratio1 2. Financial and operating performance References to “2021”, “2022” and “2023” are to the financial years ended on 30 June 2021, 30 June 2022 and 30 June 2023 respectively, unless otherwise stated. The “Group” refers to the consolidated entity, consisting of Medibank and its subsidiaries. Despite the challenging environment over the last year, our results show continuing momentum in our Health Insurance business and strong growth in Medibank Health, including a meaningful uplift in the contribution from our healthcare partnerships. 2022 7,128.5 592.6 45.5 638.1 (44.0) 594.1 (24.8) (2.0) (7.3) 560.0 (166.1) 393.9 29.7% 14.3 22.7 18.5 435.1 15.8 13.4 84.8% 2021 6,910.4 538.6 31.4 570.0 (41.7) 528.3 120.0 (4.6) (11.4) 632.3 (191.1) 441.2 30.2% 16.0 (31.2) (11.3) 398.7 14.5 12.7 87.7% Change 3.2% 10.0% 44.9% 11.9% 5.5% 12.5% n.m. (56.5%) (36.0%) (11.4%) (13.1%) (10.7%) (50bps) (10.7%) n.m. n.m. 9.1% 9.1% 5.5% (3.3%) 1. Underlying NPAT is statutory NPAT normalised for growth asset returns to historical long-term expectations, credit spread movements and one-off items. Dividend payout ratio based on underlying NPAT 22 Medibank Group operating profit increased by $65.8 million or 12.5%, with $54.0 million or 10.0% growth in Health Insurance operating profit, and $14.1 million or 44.9% growth in Medibank Health segment profit. However, continued volatility within financial markets drove a $24.8 million loss in net investment income compared to a $120.0 million gain in 2021, and as a consequence Group NPAT was down 10.7%. Underlying NPAT, which adjusts for the normalisation of investment returns, increased $36.4 million or 9.1% to $435.1 million. The key reasons for the movements in the Health Insurance and Medibank Health results, as well as net investment income, are outlined in this report. Health Insurance Year ended 30 June ($m) Premium revenue Net claims expense (including risk equalisation) Gross profit Management expenses Operating profit Gross margin Management expense ratio Operating margin 2022 6,859.8 (5,731.1) 1,128.7 (536.1) 592.6 16.5% 7.8% 8.6% 2021 6,680.3 (5,610.8) 1,069.5 (530.9) 538.6 16.0% 7.9% 8.1% Change 2.7% 2.1% 5.5% 1.0% 10.0% 50bps (10bps) 50bps Strong Health Insurance performance was driven by continued policyholder growth, a subdued level of cover downgrading and ongoing cost control, and was achieved despite the impact of border closures on the non-resident health insurance business. Health Insurance revenue grew 2.7% to $6,859.8 million with strong policyholder growth and improved downgrading. When adjusted for our COVID-19 customer support measures of $369.4 million in 2022 and $226.0 million in 2021, underlying revenue grew 4.7%. The resident Health Insurance market remains buoyant with the trend of high quality industry policyholder growth continuing, including new to industry and younger customers. Our reported net resident policyholders increased by more than 60,000 or 3.2% with the Medibank and ahm brands growing 1.9% and 7.3% respectively. The Medibank brand acquisition rate increased 30 basis points, reflecting strong growth in the corporate segment and through digital channels. ahm continued its strong growth trajectory and now has more than 500,000 policyholders, although the acquisition rate was lower than the prior period due to declining sales through aggregator platforms and increased policyholder numbers. Reported net resident policyholder growth FY22 FY21 FY20 FY19 3.2% 4.6% 0.6% 0.8% 0 1 2 3 4 5 The lapse rate for Medibank was stable, while an increase in ahm’s lapse rate in part reflects the benefit of the extras annual limit rollover last year. Despite deteriorating economic conditions, the lapse rate in the second half for both brands improved compared to the second half of 2021, and throughout the year there was no notable increase in policy suspensions. Gross claims expense increased 1.9% and net claims, which includes risk equalisation, increased 2.1%. The risk equalisation payment increased $11.5 million, reflecting our claims growth continuing to be below industry growth and strong policyholder growth in ahm which has a younger and lower claiming customer demographic. There was also a $368.8 million reduction in claims expense with lower than expected claims as a result of COVID-19 and an increase in the deferred claims liability. Underlying resident claims growth per policy unit (which excludes COVID-19 impacts) was 2.3% with the increase in hospital claims more than offset by the reduction in extras claims. Extras claims growth in the prior period was elevated due to investment in additional product benefits, and the modest increase in hospital claims this period reflects sales mix and the benefits of claims initiatives in the prior period. The COVID-19 deferred claims liability, which is in recognition of claims that have likely been deferred since the commencement of COVID-19 restrictions, increased $224.5 million to $448.3 million with lower hospital volumes due to elective surgery restrictions and staff shortages resulting from COVID-19 isolation periods. Overall, COVID-19 had a modest impact of $0.6 million on operating profit with the cost of our customer give back program offset by further permanent claims savings. Removing these COVID-19 impacts, underlying gross profit increased 5.3%. Annual Report 2022 23 Operating and financial review Reported gross profit increased 5.5% to $1,128.7 million with improving revenue and lower claims growth per policy unit in the resident portfolio more than offsetting a decline in the non-resident portfolio. The second half saw a material improvement in gross profit for the non-resident portfolio as the opening of international borders led to an increased student intake. Management expenses were up 1.0% to $536.1 million with approximately $15 million of productivity savings and lower non-cash costs largely offsetting cost inflation of approximately 2.5%, additional statutory costs and growth in non-resident commissions. The growth in non-resident commissions reflects the reopening of borders in the second half. While we expect cost inflation to increase to approximately 3.5% to 4.0% in 2023, this will largely be offset by further productivity savings. Despite this modest increase in management expenses, the increase was lower than the increase in revenue resulting in an improved management expense ratio of 7.8%, or 7.4% on an underlying basis. Going forward we will continue to leverage the benefits of growth and scale to target further modest improvement in the management expense ratio. While we will remain disciplined, we will continue to focus on balancing this objective with our medium-term growth aspirations. Health Insurance management expense ratio 2022 2021 2020 2019 7.8% 7.9% 8.3% 8.7% 0 2 4 6 8 10 Our Health Insurance operating profit of $592.6 million increased 10.0% this year, or 9.5% on an underlying basis, with continued cost discipline and the benefit of increasing scale contributing to a 50 basis point improvement in operating margin. On an underlying basis, operating margin improved 40 basis points to 8.2% due to the 30 basis point improvement in underlying management expense ratio. Medibank Health The role of Medibank Health is to strengthen and complement our core Health Insurance business, support long-term customer retention and to build successful standalone businesses. It includes the provision of health management, telehealth services for government and corporate customers, hospital care in the home, preventative health and wellbeing programs, and diversified insurance products. Our investments in associates and joint ventures also form part of this segment. This includes our non- controlling investments in East Sydney Private Hospital 24 Medibank and Myhealth, a leading operator of primary care clinics, and our joint venture with Calvary to deliver My Home Hospital, a Wellbeing SA service, and COVID Care at Home services. During 2022 there were a number of largely offsetting COVID-19 impacts to Medibank Health. Closed borders continued to impact travel insurance sales, and lockdowns impacted homecare patient numbers and margins, although this was largely offset by the provision of COVID-related services. Revenue increased 13.4% to $321.8 million with strong growth in telehealth and health and wellbeing services, and a strong second half of travel insurance sales, offset by lower homecare revenue due to elective surgery restrictions. Gross margin was down 110 basis points to 40.1% with constrained labour availability impacting labour costs and the ability to deliver services in homecare, and the impact of transitioning out of telehealth contracts. Management expenses increased $3.6 million, including $2 million due to contract exits and other one-off costs, however the management expense ratio improved 240 basis points to 27.5% due to strong revenue growth, reinforcing the opportunity to create scale in this business. With the strong momentum in the remainder of the Medibank Health business and growth opportunity around the needs of the Medibank customer, we expect on average at least 15% organic segment profit growth per annum over the next three years, with the potential for further growth from M&A activity. While revenue and costs will be lower in 2023 as a result of the exit of 1800RESPECT and Beyond Blue telehealth contracts, these contracts did not make a material contribution to 2022 operating profit, which increased 26.7% to $40.8 million and excludes our share of the results of Myhealth and other investments. Medibank Health segment profit improved 44.9% to $45.5 million. Net investment income/(expense) Medibank’s investment portfolio was $3.4 billion as at 30 June 2022. This investment portfolio, which includes $3.2 billion relating to the health fund, 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. It includes additional assets, largely in cash to fund claims deferred due to COVID-19 and customer give back programs, and sits outside our target allocation of growth and defensive assets of 20% and 80% respectively. Volatile investment markets significantly impacted net investment income in both years with a $24.8 million expense in 2022 compared to income of $120.0 million in 2021. The decreased income was driven by the significant correction across equity markets within the growth portfolio assets, and a reduction in income from the defensive portfolio including a $26.5 million loss due to widening of credit spreads, compared to a gain of $16.1 million last year. Our investment portfolio is subject to and compliant with our Responsible Investment Policy. 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 $39.5 million or 2.1% to $1,945.6 million as at 30 June 2022. Some of the major movements in the consolidated statement of financial position include: • An increase in financial assets at fair value to fund our commitment to return permanent net claims savings due to COVID-19 to customers (customer give back programs) and COVID-19 deferred claims liability. • An increase in claims liabilities due to the ongoing recognition of the COVID-19 deferred claims liability. • An increase in unearned premium liability and provisions due to the recognition of customer give back provision relating to the return of permanent net claims savings due to COVID-19 to customers through premium relief and cash returns. As at 30 June 2022, 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. As at 30 June 2022: • Our total Health Insurance business-related capital was $983.7 million; equivalent to 13.0% of premium revenue after the allowance for determined but unpaid dividends. This was at the top end of Medibank’s target range of 11%-13%. • Non-fund required capital was $187.2 million. • Unallocated capital surplus was $148.0 million. In November 2018, the Australian Prudential Regulation Authority (APRA) announced its intention to harmonise the health insurance capital framework with Life and General Insurance Capital (LAGIC) standards. Since then, APRA has consulted with the industry and undertaken a Quantitative Impact Study (QIS). Draft capital standards were released in December 2021 with the intention to release the final standards in September 2022 for implementation on 1 July 2023. We are well placed to implement this framework as our Capital Management Policy is already closely aligned with LAGIC and do not expect it will negatively impact our capital position. Dividends paid or payable in respect of profits from the financial year totalled 13.40 cents per share fully franked, amounting to $369.0 million comprising: • An interim ordinary dividend of 6.1 cents per share fully franked, amounting to $168.0 million paid on 24 March 2022 in respect of the six-month period ended 31 December 2021. • A final ordinary dividend of 7.30 cents per share fully franked, amounting to $201.0 million to be paid on 29 September 2022 in respect of the six-month period ended 30 June 2022. The full year 2022 ordinary dividend represents an 84.8% payout ratio of underlying NPAT, normalising for investment market returns. This is at the top end of our dividend target payout ratio range of between 75% and 85% of underlying NPAT, and reflects our strong capital position. 2.4 Management changes There have been no changes to Medibank’s Executive Leadership Team this year. 3. Strategy and future prospects Medibank’s purpose is Better Health for Better Lives. Our 2030 vision is to create the best health and wellbeing for Australia. By working to provide affordable and quality health outcomes, we seek to sustainably build our customer base and grow shareholder value. Our strategy puts our customers and people at the centre of everything we do. Our strategy – growing as a health company Deliver leading experiences Differentiate our insurance business Expand in health Create personalised and connected customer experiences Empower our people Collaborate with our communities to make a difference Deliver more value, choice and control for customers Offer products and services to meet all customer needs Leverage our dual brands and provider networks Focus growth on prevention and integrated care models Scale and connect our health businesses Bring benefits back to our core Better Health for Better Lives Annual Report 2022 25 Operating and financial review Our employees are our most valuable asset. It is only by empowering our people that we can deliver on our vision, so we’ve built a culture anchored by the three pillars of purpose, people and performance so they can make the greatest impact on our customers and communities. We are committed to ensuring Medibank remains a great place to work, differentiating ourselves in the market through our approach to flexibility and health and wellbeing. We’re embedding our purpose and values throughout our business, and building a highly engaged, skilled team. We’re also committed to driving a culture of wellbeing and supporting the diverse physical, emotional and mental health needs of our people. Since the start of the COVID-19 pandemic we have seen a shift of people in Australia prioritising their health and wellbeing. Combined with heightened pressure on the public health system, this has resulted in private health insurance becoming more compelling for many people including those who were previously uninsured. We have continued to focus on differentiating and growing our health insurance business by leveraging our dual brand strategy to create a competitive advantage. The pandemic has also resulted in an increased awareness and acceptance of integrated care models. We’re partnering with doctors, hospitals and governments to deliver care in new ways – and growing and developing new health services through our Amplar Health business. We have worked hard to deliver our lowest premium increase in 21 years, with premiums scheduled to rise by an average of 3.10% from 1 April 2022. Due to our commitment to return all COVID-19 permanent net claims savings, we deferred this premium increase for seven months to 1 November 2022 for eligible policyholders. Additionally, we have announced a cash give back to eligible customers, which they will receive in September 2022. To date, our total COVID-19 support for our customers stands at around $682 million and has included two rounds of premium deferrals, give backs to customers through premium relief and cash give backs, ancillary limit rollovers for ahm customers, and financial hardship support. We are committed to returning all permanent net claims savings due to COVID-19 to our customers once they are known. We have focused on making our business more efficient and to reduce and eliminate unnecessary costs in the health system, so that we can deliver greater value and choice for our customers. We maintained strong cost discipline and have delivered approximately $55 million of productivity savings over the past three years, including approximately $15 million in 2022, and will continue to target further productivity. Customers are at the heart of what we do and we are working to better support their healthcare needs by providing greater choice and more personalised advice, while helping to reduce out-of-pocket medical costs. We’ve expanded the no gap program to more participating providers across the country to provide eligible customers with the option of paying no out-of-pocket medical costs for a range of selected procedures including hip and knee replacements, endoscopies, and some general surgery procedures. 26 Medibank Our no gap network, which includes a short stay care model, has continued to grow with 64% of Medibank customers to live within 25km of a no gap site by October 2022. The network includes East Sydney Private Hospital, which we have a 49% interest in. We also continue to work with a group of more than 40 doctors on the development of Adeney Private Hospital – a short stay surgical facility in Melbourne due to open in 2024. The My Home Hospital service delivers hospital level care to patients in their homes in Adelaide and surrounding areas. This year the service expanded to provide a broader range of treatments and operate in additional areas in South Australia. A Wellbeing SA service delivered by a joint venture between Calvary and Medibank, My Home Hospital utilises remote monitoring technology to enable clinicians to track the clinical status of admitted patients and allows the care team to stay in touch 24/7. More than 3,200 patients have used the service since launch in January 2021. In the future, opportunities exist to use market leading technology platforms, like those used for My Home Hospital, across public and private settings. We continue to work with GPs given the vital role they play in primary health. Our investment in the Myhealth Medical Group supports GPs to enhance the health and quality of life of their patients which helps reduce high-cost hospital admissions and alleviate pressure on the health system. The investment also gives the GPs access to additional capabilities to improve data analytics and information management and enables Myhealth to continue its rapid growth. There were 106 Myhealth clinics at the end of 2022 and further growth will be supported by investment in greenfield practices and acquisition of existing practices. Our investment in digital health services company Medinet to support the virtual capability and connectivity of GPs and their patients also reflects our support for primary care in the community. We have deepened relationships with our customers through other avenues and we have seen substantial growth in members supported in navigating and managing their health. More than 40,000 customers, equating to approximately 27% of customers going to hospital, were supported by our telephone and digital Health Concierge, and we’re trialling the introduction of specialist health concierge clinicians across five Victorian stores to engage with customers on the many health and wellbeing support options available to access. We’ve made progress in mental health solutions with the Better Minds hub and app attracting approximately 79,000 users and app downloads. We also launched a telepsych clinic pilot this year in partnership with Myhealth and Medinet, and partnered to deliver out-of-hospital care models for mental health. Our Members’ Choice network is one of the largest health provider networks in Australia, and offers better value, more cost transparency and a wider range of services to our customers. Customers using our Members’ Choice Advantage for their dental and optical needs saved approximately $31.2 million in out-of-pocket costs in 2022. We have now expanded the network to also include physio, chiro, podiatry, acupuncture, and remedial massage, covering more types of services than any other health insurer. Our Live Better program continues to scale, with more than 522,000 Live Better Rewards participants, and we are targeting more than 800,000 participants in FY25. We are continuing to integrate the Live Better app into the My Medibank app to provide a single digital health experience across health insurance and health and wellbeing. We are also integrating Live Better into preventative health, acquisition and retention journeys to evolve the way we inform and inspire customers about health and wellbeing, making it even more relevant, accessible and easy to use. We’ve invested in growing our suite of preventative healthcare programs designed to support our customers stay healthy and avoid unnecessary treatments, and have seen more than 10,000 enrolments in our programs, an increase of more than 40% over the past 12 months. Our national Better Knee, Better Me program was awarded the Australian Clinical Trials Alliance (ACTA) inaugural Industry Partnership Award this year. Following the success of Better Knee, Better Me, we recently launched a Better Hip pilot that aims to help people manage osteoarthritis hip pain. The macroeconomic environment and ongoing impacts of COVID-19 cannot be predicted with any certainty in 2023. Although we are seeing rising inflation impacting the cost of items such as groceries and fuel, and households navigating a higher interest rate environment, Medibank remains positioned for growth with strong customer advocacy, positive policyholder growth outlook, a continued focus on cost discipline, and a strong balance sheet to support our growth ambitions. In the year ahead we will build on further understanding our customers’ needs to develop a broader and deeper relationship with them and their health. We will continue to differentiate and add value to the core health insurance proposition by strengthening our product range, and leveraging our technology and data capabilities to deliver increasingly personalised propositions. We will work with partners and providers to deliver more proactive and preventative healthcare to support affordability, drive down costs, and improve the choice and experiences for our customers. We will embed and scale our existing health assets to deliver earnings growth in their own right, utilising the synergies between the individual assets as well as the core Health Insurance business and expedite health system change. Connection between our various health assets will be key to delivering a better and more customer/patient- centric health experience. Our strategy is the right strategy for our business and will continue to inform our decisions. Aligned with our strategy, our milestones are detailed below. FY23 – FY25 milestones Pillars Milestones Deliver leading experiences Customer advocacy: Service NPS (average) Employee advocacy: eNPS FY22 Medibank 45.3 42.4 ahm FY23 benchmark1 >35 >35 Place to work Products and services FY22 +27 +29 FY23 benchmark2 ≥+24 ≥+26 Differentiate our insurance business Market share3 – updated for FY23 Q3FY22 27.35% (+4bps since FY21) FY25 aspiration Up 25-75 bps on FY22 Health Insurance productivity delivered FY22 c. $15m FY22-FY24 target $40m (including $15m in FY22) Expand in health Health and wellbeing Medibank Health segment profit Live Better Rewards participants Preventative program participants4 FY22 FY25 target c. 522k > 800k FY22 $45.5m c. 10k > 50k FY23-FY25 target Average at least 15% p.a. organic segment profit growth Aim to invest $150 - $250m in total to grow Medibank Health inorganically as suitable opportunities arise over the next 3 years 1. Benchmark reflects sustaining service levels while continuing to digitise the service delivery model 2. FY23 benchmark has been corrected from originally reported in operating and financial review in FY22 Appendix 4E and Financial Report issued on 18 August 2022 and includes the global average benchmark for Place to Work eNPS and the historical trend for Products and Services eNPS. 3. APRA PHI quarterly data to March-22 4. Includes total customers who have engaged with eitght preventative health programs (e.g. Better Knee, Better Me, Better Hip) and any new offerings developed Annual Report 2022 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 to have in 2023, the potential to impact Medibank’s material and strategic 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 governance, monitoring and internal control system to address increased risk exposures caused by the pandemic in relation to its operational, financial and strategic risks. Risk 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 (including regulatory compliance) The risk of financial loss resulting from inadequate or failed internal processes, people and systems or from external events Mitigations 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. We have 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. We have established compliance management policies and procedures for identifying and managing regulatory obligations and incidents that may arise. Management of operational risk is overseen by divisional risk committees, the Executive Risk Committee and the Board’s Risk Management Committee. Material sustainability categories Customer health Community health Employeer health Environmental health Governace Credit The risk of financial loss due to counterparties failing to meet all or part of their contractual obligations Exposure to this risk is primarily through Medibank’s investment portfolio. 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. 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 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. Governace Governace 28 Medibank Risk Mitigations Market & investment The risk of adverse financial impact market factors e.g. foreign exchange rates, interest rates and equity prices Insurance The risk of misestimation of incurred and expected costs, frequency and severity of insured events Clinical The risk of unexpected, adverse clinical outcomes from a health service provided by Medibank, or a third party acting on behalf of Medibank We have 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. The Board approves the Pricing Policy, which includes pricing and profitability objectives and forms a key part of the Capital Management Plan. Our 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 treatment plans are formulated and implemented in response to any potential for deviation from target measures. 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. Our Chief Medical Officer, supported by a clinical governance team, provides oversight and assurance. The Risk Management Committee and Board receive regular reporting on the performance of clinical risk management. Material sustainability categories Governace Governace Customer health Community health Customer health Employee health Community health Environmental health Governance For further information about our material categories please see our Sustainability Report 2022. This Operating and Financial Review is dated as at 18 August 2022. Annual Report 2022 29 Directors 44%* are women 11%* were born overseas 100%* identify primarily as Australian (non-Aboriginal and Torres Strait Islander) *Including CEO Top L to R: Mike Wilkins, David Koczkar, Tracey Batten. Middle L to R: Anna Bligh, Gerard Dalbosco, Peter Everingham. Bottom L to R: David Fagan, Kathryn Fagg, Linda Bardo Nicholls. Name and title Biography Mike Wilkins AO Chair and Independent Non-executive Director Mike was appointed a director in May 2017 and Chair effective 1 October 2020. He is Chair of the Nomination Committee and a member of the Investment and Capital Committee and the People and Remuneration Committee. BCom, MBA, FAICD, FCA Age: 65 Mike is the Chair (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. David Koczkar David was appointed Chief Executive Officer in May 2021. Chief Executive Officer BCom, PG Dip Finance, MAICD Age: 49 He commenced at Medibank in 2014, holding the roles of Chief Operating Officer from March 2014 and then Group Executive – Chief Customer Officer from September 2016, where he was responsible for the Health Insurance and Diversified financial portfolios, Live Better and the ahm business. David was also appointed Acting Chief Executive Officer between April 2016 and June 2016. Prior to joining Medibank, David was the Group Chief Commercial Officer at Jetstar where he was responsible for the airline group’s commercial businesses, sales and marketing and customer channels and served as a director of Jetstar Pacific (Vietnam), Jetstar Hong Kong and NewStar (Singapore) JV airlines. David has more than 25 years of strategy, customer, commercial and operational experience, including previous work in the strategy consulting and financial services industries. 30 Medibank Name and title Biography Dr Tracey Batten Independent Non-executive Director MBBS, MHA, MBA, FAICD, FRACMA Age: 56 Tracey was appointed a director in August 2017. She is Chair of the People and Remuneration Committee and a member of the Risk Management Committee and the Nomination Committee. Tracey has extensive experience in the health services sector, with strong commercial, business and change leadership skills. Tracey is currently a director of EBOS Group Limited (since July 2021), the National Institute of Water and Atmospheric Research in New Zealand and the New Zealand Accident Compensation Corporation, and a former director of Abano Healthcare Group. Anna Bligh AC Independent Non-executive Director BA (QLD) Age: 62 Gerard Dalbosco Independent Non-executive Director M.AppFin, B.Comm, FCA, FFIN, GAICD Age: 59 Peter Everingham Independent Non-executive Director BEc, MBA, GAICD Age: 53 Tracey was previously 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 Risk Management Committee and the Investment and Capital 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 (2012-2020) and is currently a non-executive director of Australian Plays Transform. Gerard was appointed a director in May 2021. He is Chair of the Audit Committee and a member of the Risk Management Committee and the Nomination Committee. Gerard held a number of senior leadership roles as a Partner of EY until September 2020. His most recent role was Melbourne Managing Partner where he led a large team responsible for EY’s go-to-market and client service strategies. Prior to this, Gerard held other roles at EY including Asia Pacific Managing Partner – Markets and Co-Deputy CEO where he led EY’s client-serving activities across the Asia Pacific market. He was also Oceania Managing Partner and CEO, and Oceania Managing Partner of Transaction Advisory Services where he was responsible for EY’s Transaction Advisory Services business across Oceania. Gerard is currently Chair of Melbourne Archdiocese Catholic Schools. He has previously held roles as a director and Chair of the Finance & Audit Committee of Mercy Health & Aged Care, director and member of the Finance Committee of Berry Street Victoria and director and Co-Deputy Chair of the Committee for Melbourne. Peter was appointed a director in March 2022. He is a member of the Audit Committee and the People and Remuneration Committee. Peter has over 25 years of corporate experience and is highly respected in the digital sector, having held senior executive roles in that sector for 18 years. His senior leadership experience includes key roles at companies with a strong consumer and technology focus. Peter is currently a director of Super Retail Group Limited (since December 2017), the owner of several notable Australian brands including BCF, Macpac, Rebel and Supercheap Auto. He is also a director of WWF Australia. He was previously a director of iCar Asia Limited (July 2017 to May 2022), Managing Director of the international division of Seek Limited (and concurrently Chair of Seek’s subsidiary, Zhaopin), a director of ME Bank and IDP Education Ltd, and a senior executive for Yahoo! in Australia and Southeast Asia. Annual Report 2022 31 Directors Name and title Biography David Fagan Independent Non-executive Director LLB, LLM, GAICD Age: 65 Kathryn Fagg AO Independent Non-executive Director FTSE, BE (Hons), MCom (Hons), Hon.DBus, Hon.DChemEng, GAICD Age: 61 David was appointed a director in March 2014. He is Chair of the Risk Management Committee and a member of the Audit Committee and the Nomination Committee. David was a commercial lawyer for over 40 years. 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, the Hilco Group and UBS Grocon Real Estate Investment Management Australia Pty Limited 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 and a member of the ASIC Corporate Governance Consultative Panel. Kathryn was appointed a director in March 2022. She is a member of the Audit Committee and the People and Remuneration Committee. Kathryn is a highly respected director and Chair with significant, wide-ranging senior commercial and operational experience. She is currently a director of National Australia Bank Ltd (since December 2019), Djerriwarrh Investments Ltd (since May 2014) and she is the Chair of CSIRO. In the non-for- profit sector, she is Chair of Watertrust Australia Ltd and Breast Cancer Network Australia, a director of The Myer Foundation, the Grattan Institute and the Champions of Change Coalition. Kathryn was a non-executive director of Boral Limited from September 2014 to July 2021 including as Chair from July 2018, a non-executive director of Incitec Pivot Limited from April 2014 to December 2019, and a member of the board of the Reserve Bank of Australia from 2013 to 2018. She is a former President of Chief Executive Women (CEW), a former Chair of Parks Victoria and the Melbourne Recital Centre and a former board member of the Australian Centre for Innovation, and has held senior executive roles at Linfox, Bluescope Steel and ANZ. Linda Bardo Nicholls AO Linda was appointed a director in March 2014. She is Chair of the Investment and Capital Committee and a member of the Risk Management Committee and the Nomination Committee. Independent Non-executive Director 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. BA, MBA (Harvard), FAICD Age: 74 She is currently a director of Inghams Group Limited (since November 2016). Linda is also Chair of the Board of Melbourne Health and a member of the Museums Victoria Board. Linda’s previous directorships include Japara Healthcare Limited as Chair (March 2014 to November 2021), Fairfax Media Limited and Sigma Pharmaceuticals Limited. Company Secretary Name and title Biography Mei Ramsay Group Executive – Legal, Governance & Compliance and Company Secretary BA, LLB, LLM Mei was appointed Group Executive – Legal, Governance & Compliance (previously 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 25 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 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. 32 Medibank Executive Leadership Team 25%* are women 50%* were born overseas 75%* identify primarily as Australian (non-Aboriginal and Torres Strait Islander) Top L to R: David Koczkar, Kylie Bishop, Rob Deeming. Middle L to R: John Goodall, Milosh Milisavljevic, Mei Ramsay. Bottom L to R: Mark Rogers, Andrew Wilson. *Including CEO Name and title Biography Kylie Bishop Group Executive – People, Culture & Sustainability Kylie has held the position of Group Executive – People, Culture & Sustainability (previously People & Culture) with Medibank since 2013. She is a registered psychologist, specialising in organisational psychology and is responsible for leading the key people functions, as well as environment, social and governance across Medibank. This includes culture, talent and capability, performance and rewards, shared services, talent acquisition, diversity and inclusion, workplace relations, health, safety and wellbeing, employee experience and community. Rob Deeming Group Executive – Customer & Brands Kylie is responsible for leading Medibank’s culture and new ways of working program focused on purpose and inclusion, customer first and health and wellbeing. This includes leading the design and build of a new Melbourne workspace to be delivered in 2024. 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 also currently a non-executive director of Melbourne Health and Basketball Victoria, and was previously a director with Rugby Victoria. Rob was appointed Group Executive – Customer & Brands in June 2021. He is responsible for the Medibank and ahm brands and our customer channels, as well as our digital platforms and capabilities. He is accountable for growing and sustaining Medibank’s consumer businesses, and creating leading customer experiences to improve the advocacy, engagement and experience for our customers. Prior to this role, Rob held the role of Senior Executive within Medibank since August 2020 where he was responsible for leading ahm, Australia’s fastest growing private health insurance brand. Rob has extensive experience in entrepreneurial leadership, leading consumer brands and growing digital-led businesses. Before joining Medibank Rob was the CEO of Billy, a multi award-winning hardware/software business supporting older people living independently at home across Australia and the US. In this role he built and led the vision, strategy and team for the business alongside the two technical founders. Rob also spent several years in commercial leadership roles at Jetstar and Qantas. At Jetstar, he led the commercial teams that looked after the digital channels, as well as the ancillary products and hotels businesses. Prior to this he was the CEO of the travel booking engine, Jetsetter, with teams based in New York, Boston and London. Rob led the sale of Jetsetter to TripAdvisor in 2013. Annual Report 2022 33 Executive Leadership Team Name and title Biography John Goodall Group Executive – Technology & Operations 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 improved, personalised digital experiences 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. Milosh Milisavljevic Group Executive – Customer Portfolios Milosh was appointed Group Executive – Customer Portfolios in June 2021. He is responsible for Medibank‘s customer portfolios, including member health programs, Live Better and diversified insurance portfolios. He is also accountable for growing and sustaining Medibank’s consumer, corporate and overseas portfolios, managing our relationship with our provider network and diversifying our propositions to improve the quality of life and health of our customers. Milosh joined Medibank in 2016 and has held a number of roles, most recently as the Senior Executive Customer Strategy & Portfolio. In these roles he led Medibank’s customer strategy, commercial transformation, product innovation and portfolio management, strategic partnerships and data science. Milosh has extensive experience leading customer focused and data driven transformations across health, media and telecommunications industries, including proposition innovation and new business growth. Prior to joining Medibank, Milosh held senior roles at SEEK and McKinsey & Company. Mark Rogers Group Executive – Chief Financial Officer & Group Strategy Mark was appointed Group Executive – Chief Financial Officer & Group Strategy in May 2021. Previous to this, he held the role of Group Executive – Chief Financial Officer since January 2017. Mark is responsible for the finance, actuarial, treasury, internal audit and investor relations functions across Medibank as well as strategy development and M&A. He has more than 20 years of global experience across the healthcare, pharmaceuticals and financial services sectors. 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 Private Healthcare Australia Limited and East Sydney Private Hospital, and Chairman of Myhealth Medical Group. Dr Andrew Wilson Group Executive – CEO Amplar Health Andrew was appointed Group Executive – CEO Health Services (now Amplar Health) in May 2021. Previous to this, he held the roles of Group Executive – Healthcare & Strategy since September 2016 and Executive General Manager – Provider Networks & Integrated Care since 2013. He is responsible for Medibank’s growing role as a broader health services provider. This includes responsibility for the health services we deliver on behalf of business and government, including telehealth, virtual healthcare, in-home care, and services into residential aged care. Andrew is also responsible for Medibank’s hospital and healthcare investments and joint venture healthcare partnerships, which support both Medibank customers and other Australians in acute care 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 Calvary Medibank JV Pty Ltd, Myhealth Medical Group and Medinet Australia Pty Ltd. He is also a director of a joint venture between Medibank and specialists to develop a private hospital facility in Kew, Melbourne. 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 Medibank 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. Governance structure 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), 4th edition. As a registered private health insurer, Medibank also complies with the CPS 510 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 medibank.com.au. 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 (including approval and monitoring of the corporate strategy and performance objectives); governance (including disclosure); appointment, performance evaluation and remuneration of the CEO and other senior executives, including the Company Secretary; approving the Code of Conduct and overseeing Medibank’s purpose, culture and values; financial approvals and reporting; risk management, compliance and workplace health and safety; and culture (including diversity and inclusion). 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 40 to 41. Annual Report 2022 35 Corporate governance statement 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. Key areas of focus for the Board in 2022 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. – Ensuring we don’t profit from COVID-19 by returning any permanent net claims savings via customer give backs and hardship policies. – Accounting and regulatory responses, including in relation to claims liability and capital stress testing. – Business continuity management. – Continuing to ensure safe workplaces and practices in our retail stores, offices and while delivering health care in customer homes and residential aged care facilities. • 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. • Setting environmental, social and governance (ESG) strategy, including net zero pathway. • Oversight of our people frameworks, ensuring we provide a safe environment for our people focused on health and wellbeing and diversity and inclusion. • Oversight of talent attraction, development and retention, including succession planning for the executive leadership team. • Review of remuneration framework and reward governance practices in preparation for the implementation of APRA Prudential Standard CPS 511 in FY24. Structure and composition of the Board The Board comprises nine directors in total – eight non-executive directors, including a non-executive Chair, and the CEO. The Chair of the Board is responsible for providing leadership to the Board and Medibank as a whole. The Chair’s other key responsibilities are outlined in the Board Charter. The current Chair is Mike Wilkins AO, an independent non- executive director who has served as Chair since October 2020 and on the Board since May 2017. The current CEO is David Koczkar, who commenced in the role in May 2021. Biographies of the directors, including their skills, experience and year of appointment, are set out on pages 30 to 32 of the Annual Report 2022. Details of directors’ attendance at Board and committee meetings during the year ended 30 June 2022 are on page 49. The length of service of the non-executive directors ranges from four months to nine years and eight months. Non-executive director tenure profile Strategy and execution • Review of strategy, including growing as a health company and evaluation of opportunities to execute on our strategic pillars and key objectives. >9 years (1 director) • Oversight of investments, partnerships and organic growth initiatives to support execution of the strategy. 6-9 years (2 directors) • Oversight of the group’s capital management policies and level of capital, including review and implementation of APRA’s new capital standards (expected to apply 1 July 2023). <3 years (3 directors) 3-6 years (2 directors) • Review and approval of the Corporate Plan, budget and performance targets and oversight of business performance against these targets. People, remuneration and culture • Oversight of Medibank’s 2030 Vision, values, strategy and culture. • Oversight of new CEO transition and alignment of executive leadership team (ELT) roles. • Review of Board composition and consideration of succession planning, including selection of new non-executive directors. 36 Medibank 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. It has determined that all non- executive directors are independent in accordance with the principles outlined by the ASX Corporate Governance Council and APRA and as set out in Medibank’s Board Charter. 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. David Fagan and Linda Bardo Nicholls will retire and offer themselves for re-election at the upcoming AGM on 16 November 2022, while Kathryn Fagg and Peter Everingham will stand for election at the upcoming AGM, having been appointed on 31 March 2022. Further information about these directors is set out on pages 30 to 32 of the Annual Report 2022, 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 enhancing the capabilities of each director and the performance of the Board generally. Upon joining the Board, all new non-executive directors undertake a tailored induction program. This includes meetings with the Chair, CEO, ELT and senior leaders on Medibank’s business, strategy and operation. The Board is provided with ongoing professional development opportunities during the year to maintain the skills and knowledge needed to effectively perform their role. 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 retail stores, customer engagement, conference attendance, and participation in the management-led Executive Risk Committee and Divisional Risk Committees. The professional development program is periodically reviewed by the Nomination Committee to ensure it meets the needs of the directors. 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 Chair, 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 directly accountable to the Board through the Chair, and advises the Board and the Chair 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. The skills and expertise that the Board has identified as relevant to the performance of its role and the success of the organisation, along with the collective strength of the Board for each skill, are summarised in the Board skills matrix. Annual Report 2022 37 Corporate governance statement 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. During the reporting period, the Nomination Committee considered the mix of skills on the Board given the above considerations, and appointed Ms Kathryn Fagg and Mr Peter Everingham to the Board effective 31 March 2022. Ms Fagg and Mr Everingham have significant experience and a proven track record of delivery, and strengthen the Board’s collective skills and expertise. Board skills matrix Skills and experience Collective strength1 Strategy Experience in developing and implementing organisational strategies, and appropriately challenging management on delivery of strategic objectives Financial acumen and capital management Strong financial acumen and proficiency in corporate finance and internal financial controls and/or experience in overseeing corporate funding, capital management and investments Corporate transactions and major projects Experience in overseeing complex business transactions and major projects, including mergers and acquisitions (and integration of those acquisitions) Risk and compliance management Experience in establishing risk and compliance management frameworks, setting the risk appetite, and overseeing organisational risk culture Governance Experience in establishing and overseeing operations in a complex regulated environment, and demonstrated commitment to the highest governance standards Insurance and healthcare industry experience Experience in the insurance and/or healthcare industry Customer Experience in developing product and/or customer management strategies, marketing and/or digitised customer initiatives Moderate Strong Very Strong Moderate Strong Very Strong Moderate Strong Very Strong Moderate Strong Very Strong Moderate Strong Very Strong Moderate Strong Very Strong Moderate Strong Very Strong 38 Medibank Skills and experience Collective strength1 People and culture Understanding the link between strategy, culture, performance, long-term shareholder value creation and remuneration outcomes Government relations and public policy Interacting with government and/or regulators and/or involvement in public policy decisions Technology Understanding technology and innovation (including associated risks), and experience with businesses that have developed and implemented technology based initiatives to enhance productivity and/or customer experiences Moderate Strong Very Strong Moderate Strong Very Strong Moderate Strong Very Strong 1. This represents the collective strength of the Board including David Koczkar, CEO. 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 2022. The number of meetings of each committee, and the individual attendance of their members, are provided on page 49. Board performance evaluation The Nomination Committee is responsible for reporting on the evaluation of the performance of the Chair, Board, committees and individual directors to the Board. The evaluation is conducted annually either through an internal review process or an external process. In 2022, the Chair 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. The internal Board evaluation in 2022 followed the external Board evaluation that was undertaken in 2021. 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 Chair continues to be responsible for the assessment of each individual non-executive director’s performance and contribution. The Chair met with each of the non- executive directors in 2022 to review their performance and professional development needs. Annual Report 2022 39 Corporate governance statement Committee membership as at 18 August 2022 Audit Committee1 • Gerard Dalbosco (Chair) • Peter Everingham • David Fagan • Kathryn Fagg Composition Key roles and responsibilities • 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 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. • The chair must be an independent non- executive director and must not be the chair of the Board (but the chair of the Board may sit on the committee). • Overseeing and reviewing the integrity of external 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. • Overseeing and reviewing internal and external audit processes and internal control framework. Risk Management Committee2 • David Fagan (Chair) • Tracey Batten • Anna Bligh • Gerard Dalbosco • Linda Bardo Nicholls • 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. • 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. • The chair must be an independent non- executive director and must not be the chair of the Board (but the chair of the Board may sit on the committee). • 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 Committee3 • At least three members, all of whom are • Assisting and advising the Board on capital and non-executive directors. investment related matters. • Linda Bardo Nicholls • The chair must be an independent non- • Overseeing the investment strategy and Capital (Chair) • Anna Bligh • Mike Wilkins executive director, appointed by the Board. Management Policy. • Monitoring the effectiveness of the investment process. • Authorising delegated investment decisions. 1. Gerard Dalbosco was appointed Chair of the Audit Committee effective 18 November 2021, following Christine O’Reilly’s retirement from the Board. Peter Everingham and Kathryn Fagg were appointed members of the Audit Committee effective 31 March 2022. Mike Wilkins was a member of the Audit Committee during the period from 18 November 2021 until his retirement from the Committee effective 31 March 2022. 2. Anna Bligh was appointed to the Risk Management Committee effective 31 March 2022. Linda Bardo Nicholls was appointed to the Committee effective 1 June 2022. Christine O’Reilly was a member of the Committee until her retirement from the Board effective 18 November 2021. 3. Linda Bardo Nicholls was appointed to the Investment and Capital Committee as Chair effective 1 June 2022. David Fagan was a member of the Committee until his retirement from the Committee effective 1 June 2022. Peter Hodgett was Chair of the Committee until his retirement effective 18 November 2021. 40 Medibank Composition Key roles and responsibilities Committee membership as at 18 August 2022 People and Remuneration Committee4 • Tracey Batten (Chair) • Peter Everingham • Kathryn Fagg • Mike Wilkins • 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 Risk Management Committee. • The chair must be an independent non- executive director, appointed by the Board. • Reviewing and overseeing people and organisational culture strategies, including employee engagement, values and behaviours. • Reviewing and making recommendations to the Board on the remuneration framework, policy and arrangements for the non-executive directors, CEO, ELT and certain nominated personnel. • Reviewing executive succession planning, talent management, industrial relations and diversity strategies. • Reviewing and overseeing key incentive schemes and equity incentive plans. • Recommending to the Board the measurable objectives for diversity. • Reviewing and monitoring Medibank’s health, safety and wellbeing performance. • Director selection and appointment. • Director induction and professional development. • Board composition. • Board succession planning and renewal. • Performance evaluation of the Board, committees and individual directors. Nomination Committee5 • Mike Wilkins (Chair) • Tracey Batten • Gerard Dalbosco • David Fagan • At least three members, comprising the chair of the Board and the chair of each standing Board committee (unless the Board resolves otherwise). • All members of the committee must be independent directors. • The chair of the Board will be the chair of • Linda Bardo Nicholls the committee. 4. Tracey Batten was appointed Chair of the People and Remuneration Committee effective 31 March 2022. Peter Everingham and Kathryn Fagg were appointed to the Committee effective 31 March 2022. Linda Bardo Nicholls was Chair of the Committee until 31 March 2022, and a member of the Committee until her retirement from the Committee effective 1 June 2022. Anna Bligh was a member of the Committee until her retirement from the Committee effective 31 March 2022. 5. Gerard Dalbosco was appointed to the Nomination Committee effective 18 November 2021. Tracey Batten was appointed to the Committee effective 31 March 2022. Linda Bardo Nicholls was a member of the Committee until her retirement from the Committee effective 31 March 2022, and rejoined the Committee effective 1 June 2022. Executive Leadership Team The CEO, supported by the ELT, is responsible for the day-to-day management and performance of Medibank. ELT members have a clear understanding of their roles and responsibilities through position descriptions and a structured performance management system. Profiles and accountabilities for ELT members are set out on pages 33 to 34. Each ELT member has entered into a service agreement with Medibank which sets out the terms of their employment. Remuneration policies and practices applying to the ELT are detailed in the remuneration report from page 51. The remuneration report from page 51 contains the performance measures applied to Executive KMP members and the process for the annual evaluation of their performance. The same process is also undertaken for the annual performance of each other ELT member. A performance evaluation was undertaken during 2022 in accordance with that process for each ELT member. Values and ethical standards Central to the Board’s governance framework is a culture of integrity and ethical behaviour based on Medibank’s key values: Customer Obsessed; Show Heart; Brilliance Together; and Break Boundaries. 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. Our values are further articulated on our website and in the Sustainability Report 2022. Annual Report 2022 41 Corporate governance statement Key policies Details of key policies supporting our commitment to integrity and ethical behaviour are set out below. Copies of each policy can be found on our website. Purpose Key provisions Code of Conduct Whistleblower Policy Anti-Bribery and Corruption Policy Medibank employees are required to conduct their activities ethically and with integrity. The Code of Conduct sets out the ethical standards that are expected of all directors, managers, employees and contractors in their dealings with customers, suppliers and each other. Medibank is committed to a culture where our people are encouraged to speak up if something doesn’t look right, and to support them when they do. The Whistleblower Policy establishes what is reportable conduct, how to contact Medibank Alert, and the protections available to whistleblowers. Medibank has zero tolerance for bribery and corruption. The Anti-Bribery and Corruption Policy describes conduct that is prohibited for directors, employees and contractors when conducting business on behalf of Medibank, and how breaches can be reported. Share Trading Policy The Share Trading Policy describes restrictions on buying and selling Medibank shares for the Board, the ELT, senior executives and other Medibank employees. 42 Medibank Requires directors, managers, employees and contractors to behave with high standards of personal integrity, and in a manner that: • complies with applicable laws, standards and internal policies; • promotes health, safety and wellbeing; • fosters relationships of trust, accountability and transparency; • avoids conflicts of interest (including not offering or accepting inducements, secret commissions or bribes); and • respects privacy and protects confidential information. Sets out the types of conduct that can be disclosed, who may make a disclosure under the policy and what to include in a report. Sets out support and protection available to whistleblowers, and the processes for managing whistleblower complaints (including key roles and responsibilities). Requires that directors, employees and contractors: • not offer, pay or accept inducements, bribes, kickbacks, secret commissions or improper payments, or engage in corrupt business practices; • not accept gifts, hospitality or anything of value which may have obligations attached; • not offer or give anything of value, or solicit any inducement, that may conflict with their work or duties to Medibank; and • ensure approved grants and donations are appropriately recorded. Prohibits directors, executives and employees from dealing in Medibank or other securities if they possess inside information. Prohibits trading by directors, executives and certain restricted employees in Medibank securities during blackout periods, which apply in the lead-up to the release of financial results and at other times as required. Breaches and reporting Sets out different approaches to dealing with breaches of the Code, depending on the circumstances – including raising concerns with immediate or senior managers, the People, Culture & Sustainability team, the CEO, or via the Whistleblower Policy. Breaches of the Code of Conduct are reported to the People and Remuneration Committee. Provides details of the Medibank Alert whistleblower service, which is available through an external provider, enabling whistleblowers to report anonymously or limit who is informed of their identity. Material incidents reported under the the policy are reported to the Risk Management Committee. Requires requests for bribes or facilitation payments to be reported to the Chief Risk Officer. Requires other breaches or potential breaches to be reported to the Chief Risk Officer or the Whistleblower Hotline. Breaches of the policy are reported to the Risk Management Committee. Details the penalties at law for breaches of insider trading laws and the consequences as a director or employee for a breach of law and the policy. Ethical conduct is also supported by a range of other corporate policies, including in the areas of health, safety and wellbeing and modern slavery. Copies of these policies are also available on our website. The Health, Safety and Wellbeing Policy underpins our objective of preventing injury and illness and inspiring our people to eat, move and feel good in a way that works for them. 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. 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 employees, shareholders, customers 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 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% women representation in the Group and senior executive population and on our Board. As at 30 June 2022, the actual representation across Group and senior executives was 44%. In June 2022, 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 2022, the respective proportions of men and women on the Board, in senior executive positions and across the whole organisation were as follows: Position Board (including CEO) Group Executives (including CEO)1 Senior executives2 Group and senior executive total Senior managers Other managers Non-managers Overall (including Board) Women Men Other % Women 4 2 22 24 100 353 2,258 2,739 5 6 24 30 115 292 578 0 0 0 0 1 1 8 1,019 10 44% 25% 48% 44% 46% 55% 79% 73% 1. Group Executive positions refer to the CEO and the Executive Leadership Team (ELT). All of the ELT report directly to the CEO. 2. Senior executive positions include all roles classified as senior executives as part of Medibank’s broad based banding framework. Annual Report 2022 43 Corporate governance statement In 2021 the Board set measurable objectives for achieving diversity at Medibank, including gender diversity, and committed to reporting progress achieved against these in the 2022 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, and at least 40% women on the Medibank Board. 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. Medibank will continue to focus on the representation of Aboriginal and Torres Strait Islander employees with a target set of at least 42 employees (approx. 1.4% of our organisation) and their improved self-reported engagement through the delivery of a new Reconciliation Action Plan. Medibank will cultivate a disability confident culture leading to an increase in the representation and self-reported engagement of employees with a disability. As at June 2022, women represented 44% of Group and senior executive roles (down from 50% in FY21). Representation of women on the Medibank Board is still above target at 44% (including the CEO), aligned with FY21. Women represented 53% of all manager roles (excluding Group and senior executives), up from 51% in FY21 and 79% of non-manager positions (compared to 77% in FY21). This is largely driven by our Health Services and Homecare divisions (now Amplar Health) where women made up 87% of the non-manager workforce, compared to other Medibank divisions which sit at 63%. This is in line with the broader Australian health workforce, which is comprised of approximately 80% women1. In FY22, the number of employees identifying as Aboriginal and Torres Strait Islander in our annual engagement survey decreased to 25 people, which equates to 0.9% of survey respondents2 and 17 employees less than our target of 42 employees. This may be reflective of a reduction in overall participation in the survey. Engagement for this cohort was 8.1 which is above the Medibank average of 7.9 and above FY21’s result of 6.9. Through the launch of our fifth Reconciliation Action Plan this year, we have set out our key focus areas from 2022 – 2024, including 16 new actions with deeper delivery accountability across the business. Cultural capability has been identified as a key priority and we are working on the development of a cultural responsiveness framework to provide practical and appropriate guidelines for the development and growth of cultural safety within Medibank, to be delivered by the end of this year. In FY22, the number of employees identifying as having a disability in our annual engagement survey rose to 163 people, which equates to 5.9% of survey respondents2, an increase from 4% in FY21. Engagement for this cohort was 7.7, which is below the Medibank average of 7.9 and 0.1 lower than FY21’s result of 7.8. We continued to focus on the inclusion of people with disabilities through the development of our second Accessibility and Inclusion Plan. It details our areas of focus for the next three years, including the creation of an inclusive, safe and disability confident workplace. As part of this focus, we launched our first disability awareness training module at the end of 2021. We are now working to include this training in our onboarding and annual compliance training programs. Medibank will provide a market leading comprehensive and targeted support carers package to improve the engagement of employees with caring responsibility for elderly parents, or person with a disability or chronic condition. A significant proportion of our people have caring responsibilities; either elderly parents, or a family member with a disability or chronic condition (19.3%, as measured by our employee survey). In FY21 we began developing a targeted carers support package, including a carers support network. This year, we launched a carers information hub and piloted a carers support program with a small group of employees, which we will review in FY23 to determine its potential to scale to all employees. 1. Workplace Gender Equality Agency (2020). Australia’s gender equality scorecard. 2. Based on employee engagement survey response rate of 76% (2,758) from 3,628 employees invited to participate. 44 Medibank For 2023, 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 2023 corporate governance statement: Medibank will remain committed to ensuring a representation of at least 40% women across our executive leadership and senior leadership populations, and at least 40% of women on the Medibank Board. 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. Medibank will continue to focus on increasing the representation and engagement of Aboriginal and Torres Strait Islander employees with a target set of at least 43 employees (approx. 1.6% of survey respondents) as self-reported in our annual engagement survey. Medibank will continue to focus on increasing the representation and engagement of employees with disability with a target set of at least 178 employees (approx. 6.5% of survey respondents) as self-reported in our annual engagement survey. Medibank will provide a market leading comprehensive and targeted support carers package to improve the engagement of employees with caring responsibility for elderly parents, or person 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. The policy also requires the Board to receive copies of all material market announcements promptly after they have been made. 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. Medibank’s full year financial reports are audited, and our half year financial reports reviewed, by our external auditor. For other periodic corporate reports, such as the annual report and sustainability report, relevant subject matter experts confirm the factual accuracy of relevant statements; final reports are also reviewed by senior executives who have the knowledge and skills to verify the accuracy of the information. Periodic corporate reports are reviewed and where appropriate, approved by the Board prior to publication. 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 (Computershare) which provides an accessible online platform for shareholders to access and manage their shareholdings. 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 and through its share registry, Computershare, communicate 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 Citi Australia and New Zealand Annual Investment Conference and the Credit Suisse Asia Pacific ESG Conference in October 2021, the Morgan Stanley Private Healthcare Forum in April 2022 and the Macquarie Australia Conference in May 2022. Annual Report 2022 45 Corporate governance statement We generally communicate with the investment community through the CEO, the Group Executive – CFO & Group Strategy and the Senior Executive – Investor Relations. We also communicate through the Chair for governance and remuneration issues and the Company Secretary and Group Executive – People, Culture & Sustainability for environmental, social and governance issues. Feedback from engagement with the investor community is communicated to the Board at each Board meeting. meetings. Representatives of management and the Senior Executive – 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. 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. We also release the materials for new and substantive investor and analyst presentations to the ASX before the presentation starts. Shareholder meetings The Board encourages shareholders to attend the AGM and to take the opportunity to ask questions. In 2022 and subject to any COVID-19 related restrictions at that time, investors will be able to attend the meeting in person at an accessible venue in Melbourne, or virtually, with the ability to vote and ask questions at the venue or online; the meeting will also be webcast live and made available on our website. All substantive resolutions at the meeting are decided by a poll and not by a show of hands. 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 an objective, 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. Details of the composition and key roles and responsibilities of the Audit Committee are set out on page 40. In addition to the members of the Audit Committee, any director may attend 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 which is operating effectively in all material respects. This declaration was received by the Board prior to approving the financial statements for the half year ended 31 December 2021 and the full year ended 30 June 2022. Internal audit Medibank has an internal audit function that provides the Board and Audit Committee with an independent evaluation of the adequacy and the effectiveness of Medibank’s financial and risk management framework. The 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. 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 Chair, 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 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 46 Medibank implemented through the three lines of defence model and its effectiveness is assessed by the internal audit function on an annual basis with a full comprehensive review on a three yearly basis in accordance with the Risk Management Committee Charter and APRA Prudential Standard CPS 220. The annual review of the framework was completed in 2022, with the three yearly comprehensive review having been undertaken in 2021. The Risk Management Committee reviews the documents comprising the risk management framework at least yearly and regularly monitors the framework’s effectiveness. A key component of the framework is the definition of Medibank’s risk appetite by the Board which informs management's decision making process. The annual and three yearly reviews of the framework consider whether the framework is sound and Medibank is operating with due regard to the risk appetite set by the Board. 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 risks Material business risks are those risks deemed to have a significant impact on Medibank’s operations, financial prospects and business objectives. These are discussed in the operating and financial review on pages 28 to 29 of the Annual Report 2022. The material risks are strategic, credit, capital and liquidity, market and investment, insurance, clinical, operational and regulatory compliance. Environmental, social and governance risks Medibank’s risk management framework also applies to the environment, social and governance (ESG) risks (including climate risk). Medibank’s material ESG topics, as identified in our social and governance framework, have been mapped to our material risks in the operating and financial review on pages 28 to 29 of the Annual Report 2022. Medibank commissioned an independent external review to assess our exposures to climate change risks in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The review did not identify material exposures at this time for Medibank; however, the outcomes of the review, and Medibank’s response, have been reported on pages 53 to 59 of the Sustainability Report 2022. Further detail on Medibank’s approach to sustainability and ESG issues can also be found in the Sustainability Report 2022. 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. Information about the committee’s membership can be found on page 40; 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 51 to 72. 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 18 August 2022 and has been approved by the Board. Annual Report 2022 47 Directors’ report For the financial year ended 30 June 2022 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 2022. References to 2021 and 2022 are to the financial years ended on 30 June 2021 and 30 June 2022 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: Current: • Mike Wilkins AO – Chair • David Koczkar – Chief Executive Officer • Dr Tracey Batten • Anna Bligh AC • Gerard Dalbosco 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. Details of subsequent events are set out in Note 20(d). 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 • Peter Everingham (appointed effective 31 March 2022) • David Fagan • Kathryn Fagg AO (appointed effective 31 March 2022) 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: • Linda Bardo Nicholls AO Former: • Peter Hodgett (retired effective 18 November 2021) • Christine O’Reilly (retired effective 18 November 2021) 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 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. • A fully franked final ordinary dividend of 6.90 cents per share was determined in respect of the six-month period to 30 June 2021, payable on 30 September 2021 to shareholders registered on 9 September 2021. • A fully franked interim ordinary dividend of 6.10 cents per share was determined in respect of the six-month period to 31 December 2021 and paid on 24 March 2022 to shareholders registered on 7 March 2022. • A fully franked final ordinary dividend of 7.30 cents per share has been determined in respect of the six-month period to 30 June 2022, payable on 29 September 2022 to shareholders registered on 8 September 2022. Directors’ qualifications, experience and special responsibilities Details of the qualifications, experience and special responsibilities of each director and company secretary in office as at the date of this report are set out on pages 30 to 32 and form part of the directors’ report. 48 Medibank 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. All directors may attend committee meetings even if they are not a member of the relevant committee. The table below does not include the attendance of directors at committee meetings where they were not a committee member. Board (scheduled) 11 Board (unscheduled) 2 Audit Committee 4 Risk Management Committee 6 Investment and Capital Committee 4 People and Remuneration Committee 4 Nomination Committee 4 A 11 11 11 11 3 11 3 5 11 11 5 B 11 11 11 11 3 11 3 5 11 10 5 A 2 2 2 2 2 2 2 0 2 2 0 B 2 2 2 2 2 2 2 0 2 1 0 A 2 - - 4 1 3 1 1 - - 1 B 2 - - 4 1 3 1 1 - - 1 A - 6 1 6 - 6 - - - - 3 B - 6 1 6 - 6 - - - - 3 A 4 - 4 - - 4 - 2 - - - B 4 - 4 - - 4 - 2 - - - A 4 4 3 - 1 - 1 - - 3 - B 4 4 3 - 1 - 1 - - 3 - A 4 1 - 3 - 4 - 1 - 4 1 B 4 1 - 3 - 4 - 1 - 4 1 Director Mike Wilkins1 Dr Tracey Batten2 Anna Bligh3 Gerard Dalbosco4 Peter Everingham5 David Fagan6 Kathryn Fagg7 Peter Hodgett8 David Koczkar Linda Bardo Nicholls9 Christine O’Reilly10 A Indicates the number of meetings held during the time the director held office or was a member of the committee during the year. B Indicates the number of meetings attended during the time the director held office or was a member of the committee during the year. 1 2 Tracey Batten was appointed a member of the Nomination Committee effective 31 March 2022. 3 Anna Bligh was appointed a member of the Risk Management Committee effective 31 March 2022 and retired as a member of the People and Mike Wilkins was appointed a member of the Audit Committee effective 18 November 2021 and retired as a member of that committee effective 31 March 2022. Remuneration Committee effective 31 March 2022. 4 Gerard Dalbosco was appointed a member of the Nomination Committee effective 18 November 2021. 5 Peter Everingham was appointed as a director and a member of the Audit Committee and People and Remuneration Committee effective 31 March 2022. 6 David Fagan was appointed a member of the Audit Committee effective 18 November 2021 and retired as a member of the Investment and Capital Committee effective 1 June 2022. 7 Kathryn Fagg was appointed as a director and a member of the Audit Committee and People and Remuneration Committee effective 31 March 2022. 8 Peter Hodgett retired as a director effective 18 November 2021. 9 Linda Bardo Nicholls was appointed a member of the Risk Management Committee and the Investment and Capital Committee effective 1 June 2022, retired as a member of the People and Remuneration Committee effective 1 June 2022 and retired as a member of the Nomination Committee effective 31 March 2022 and was re-appointed as a member of the Nomination Committee effective 1 June 2022. 10 Christine O’Reilly retired as a director effective 18 November 2021. In addition, ad-hoc committees were convened for special purposes, including in relation to financial reporting and other matters. Directors’ interests in securities The relevant interests of directors in Medibank securities at the date of this directors’ report were: Options and performance rights During the financial year, 3,542,600 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, 825,420 performance rights became eligible to vest and were exercised. Further information regarding performance rights is included in the remuneration report from page 51. Director Mike Wilkins David Koczkar Dr Tracey Batten Anna Bligh Gerard Dalbosco Peter Everingham David Fagan Kathryn Fagg Peter Hodgett* Linda Bardo Nicholls Christine O’Reilly* Performance rights 1,208,604 Ordinary shares 100,000 858,734 50,000 44,623 72,832 40,000 47,016 32,750 67,800 45,000 69,930 * Peter Hodgett and Christine O’Reilly retired from the Board effective 18 November 2021, and their ordinary shareholding information is as at that date. Annual Report 2022 49 Directors’ report For the financial year ended 30 June 2022 Environmental regulation Non-audit services 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, secretary, 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, secretary, 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 and secretaries of the Group. Under these deeds, Medibank: • Indemnifies current and former directors and secretaries against liabilities incurred as a director or secretary, as the case may be, to the maximum extent permitted by law. • Maintains a directors’ and officers’ insurance policy covering current and former directors and secretaries against liabilities incurred in their capacity as directors or secretaries, as the case may be. 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 and secretaries access to Medibank’s records for the purpose of defending any relevant action. Auditor’s independence declaration A copy of the auditor’s independence declaration given by PricewaterhouseCoopers (PwC) in relation to its compliance with independence requirements of section 307C of the Corporations Act is set out on page 121. During the year, PwC, the Group’s external auditor, performed certain other services to the Group in addition to its statutory responsibilities as auditor. Details of the amounts paid or payable to PwC for non-audit services provided by it during the year are set out in Note 19 Auditor’s remuneration. Based on advice provided by the Audit Committee, the directors are satisfied that the provision of non-audit services during the year by PwC is compatible with the general standard of independence for auditors imposed by the Corporations Act, and that the provision of the non-audit services did not compromise the auditor independence requirements of the Corporations Act, for the following reasons: • All non-audit services provided were approved in accordance with the process set out in Medibank’s policies, including being reviewed by the Audit Committee to ensure that provision of the services did not impact the integrity and objectivity of the auditor. • The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board. Remuneration report The remuneration report on pages 51 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. Mike Wilkins AO Chairman 18 August 2022 Melbourne David Koczkar Chief Executive Officer 50 Medibank Remuneration report For the financial year ended 30 June 2022 Contents 1. Key management personnel overview 2. Summary of remuneration outcomes 3. Medibank’s remuneration strategy 4. 5. 6. 7. Remuneration governance 4.1 The role of the Board in remuneration 4.2 Executive remuneration policies Risk and remuneration 5.1 Risk culture 5.2 Alignment of remuneration with prudent risk-taking 5.3 Consequence management Executive KMP remuneration components 6.1 2022 target remuneration mix 6.2 Total fixed remuneration (TFR) 6.3 Short-term incentive (STI) 6.4 Long-term incentive (LTI) Linking remuneration and performance in 2022 7.1 2022 short-term incentive (STI) performance scorecard 7.2 Medibank’s 2022 financial performance 7.3 2022 STI awards 7.4 2020 long-term incentive plan outcomes 8. 2022 actual remuneration (Non-IFRS disclosure) 9. Statutory remuneration tables 9.1 Statutory remuneration table 9.2 Performance-related remuneration statutory table 10. Executive KMP equity awards 10.1 Executive KMP equity award transactions 10.2 Overview of unvested equity awards and fair value assumptions 11. Non-executive director remuneration and framework 11.1 Non-executive director remuneration 11.2 Non-executive director superannuation 11.3 Shareholding policy for non-executive directors 12. 2022 non-executive director remuneration statutory table 13. Non-executive director ordinary shareholdings 14. Medibank’s comparator group Annual Report 2022 51 Remuneration report For the financial year ended 30 June 2022 On behalf of the Board, I am pleased to present Medibank’s remuneration report for 2022 which describes how non- executive directors and Executive Key Management Personnel (Executive KMP) are paid. Included in this report are the fixed and variable remuneration outcomes for Executive KMP, which were determined after considering the Company’s results and their individual performance. Our remuneration strategy has been developed to ensure remuneration is fair and competitive. During 2022 the Board continued to focus on a framework that rewards responsible behaviours, aligns remuneration with performance outcomes and regulatory requirements, and has regard for the expectations of our customers, shareholders and the community. As a health company working to create Better Health for Better Lives by providing the best health and wellbeing experience for people across Australia, the Board is proud of how Medibank has continued to support our customers, employees and the broader community. Despite the challenging environment over the last year, Medibank has delivered a strong result. As part of the standing commitment to not profit from COVID-19, the company continued to support customers and returned $369.4 million of permanent net claims savings during the year. Our business performance was driven by continued policyholder growth, ongoing cost control, momentum in our Medibank Health businesses and an uplift in contributions from our healthcare investments, all of which helped deliver strong growth in Group operating profit. Changes to key management personnel As stated last year, following the changes to Medibank’s Executive Leadership Team (ELT) composition and changes in ELT operation effective 1 July 2021, the Board assessed which ELT members had the requisite authority and responsibility within the Medibank Group to meet the definition of key management personnel (KMP) as set out in AASB 124 – Related Party Disclosures for the purposes of our remuneration reporting obligations. As a result of these changes, from 1 July 2021, Medibank’s Executive KMP are the CEO, Group Executive – CFO & Group Strategy, Group Executive – CEO Amplar Health and Group Executive – Customer Portfolios. Changes to the Board During September 2021 Medibank announced that non- executive directors Christine O’Reilly and Peter Hodgett would not stand for re-election and would retire from the Board at the conclusion of the Annual General Meeting on the 18 November 2021. Both directors joined prior to Medibank’s public listing in 2014 and played a critical role in Medibank’s transformation over the past eight years into a health company. Following the retirements of Peter and Christine, Medibank announced in February 2022 the appointment of Kathryn Fagg AO and Peter Everingham as non-executive directors effective 31 March 2022. Kathryn is a highly respected director and chair with significant, wide-ranging senior commercial and operational experience. Peter brings deep corporate and strategy experience, particularly as an executive in the digital and consumer sectors. As Medibank continues to grow and increase its focus on delivering for our customers, the Board is pleased to be able to appoint two new directors with such extensive experience and proven track records. Remuneration decisions at a glance • All Executive KMP met their individual risk, compliance and behaviour gateways for 2022. • Discretion was exercised to reduce short-term incentive (STI) outcomes to Executive KMP members from an average of 84% to 72% of their maximum opportunity considering the challenging social and economic environment and the expectations of our shareholders, customers and the broader community. • The final vesting outcome for the FY20 long-term incentive (LTI) is pending the release of market share data by APRA, however there will be partial vesting in accordance with the plan rules against the total shareholder return (TSR) performance hurdle. • Fixed remuneration for Executive KMP increased by an average of 3.7% for 2023. • Non-executive director aggregate fees have been increased by 3% for 2023 and remain below the approved total fee pool of $2,300,000. 52 Medibank The new APRA regulatory standard on remuneration (CPS511) comes into effect on 1 July 2023 for private health insurers. Medibank has begun a conversation with APRA and determined that changes will be required to increase incentive deferral, enhance the use of non-financial performance measures and strengthen our clawback and malus policy to satisfy the new requirements. The Board will consider enhancements to the remuneration framework during 2023 to ensure that it remains competitive whilst meeting regulatory obligations. Short-term incentives Medibank delivered another strong result driven by continued policyholder growth, double-digit growth in Medibank Health and remaining disciplined in how we grow and run our business. Consistent with prior years, the Board adjusted outcomes to normalise for COVID-19 related impacts (both negative and positive) to ensure that executives are rewarded fairly for their efforts. Following this assessment, Group operating profit exceeded target, whilst Health Insurance revenue growth and Customer Net Promoter Score (cNPS) exceeded stretch expectations. With consideration of the challenging social and economic environment and the expectations of our shareholders, customers and the broader community, the Board exercised its discretion to reduce Executive KMP incentive outcomes from 84% to 72% of their maximum opportunity. Long-term incentives Testing of the performance hurdles associated with Medibank’s FY20 long-term incentive (LTI) plan is partially complete and will be finalised following the release of market share data. Following the three-year performance period which concluded on 30 June 2022 both the earnings per share (EPS) and total shareholder return (TSR) hurdles were tested, with no vesting against the EPS measure and partial vesting against the TSR measure with a performance rank at the 53rd percentile against our comparator group. Performance against the market share hurdle will be tested following the release of June market share data by APRA in late August 2022. Final FY20 LTI vesting results will be mentioned at the 2022 Annual General Meeting (AGM) and included in the 2023 remuneration report. Executive KMP remuneration and non-executive director fees Following a review of fixed remuneration levels of Executive KMP members against the median of Medibank’s market comparator group, the fixed remuneration of Executive KMP was increased by an average of 3.7%, effective 1 July 2022. This includes a remuneration increase for the Chief Executive Officer (CEO), David Koczkar of 3.3%. Board and committee fees were also reviewed against the median of Medibank’s market comparator group with a 3% increase in Board and Committee fees agreed. These changes are the first in three years, and the aggregate fee spend for non-executive directors remains below the total fee pool of $2,300,000 approved by shareholders in the annual general meeting in 2018. Shareholders are encouraged to vote to adopt the report at our annual general meeting in November. Yours sincerely, Dr Tracey Batten Chair, People and Remuneration Committee Annual Report 2022 53 Remuneration report For the financial year ended 30 June 2022 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 2022, KMP were as follows: Key management personnel David Koczkar Chief Executive Officer Full-year Mark Rogers Group Executive – Chief Financial Officer & Group Strategy Full-year Non-executive directors Mike Wilkins Chair Full-year Tracey Batten Non-executive director Full-year Anna Bligh Non-executive director Full-year Gerard Dalbosco Non-executive director Full-year Milosh Milisavljevic Group Executive – Customer Portfolios Full-year Andrew Wilson Group Executive – CEO Amplar Health Full-year Peter Everingham Non-executive director From 31 March 2022 David Fagan Non-executive director Full-year Kathryn Fagg Non-executive director From 31 March 2022 Linda Bardo Nicholls Non-executive director Full-year Peter Hodgett Non-executive director Retired 18 November 2021 Christine O'Reilly Non-executive director Retired 18 November 2021 Former KMP 54 Medibank 2. Summary of remuneration outcomes Key remuneration outcomes for Executive KMP and non-executive directors during the year are summarised below, with more detailed information contained throughout the report. Executive key management personnel Fixed remuneration • Fixed remuneration for Executive KMP including the CEO increased by an average of 3.7% effective 1 July 2022. • Fixed remuneration of the Chief Executive Officer (CEO), David Koczkar was increased by 3.3% to $1,550,000, effective 1 July 2022. Short-term incentive (STI) • STI awards for Executive KMP reflected Group operating profit exceeding target expectations and both Health Insurance revenue growth and Customer Net Promoter Score (cNPS) performance exceeding stretch expectations. • Discretion was exercised by the Board to reduce the 2022 STI outcomes for Executive KMP from an average of 84% of their maximum opportunity to 72%. • 50% of STI awards for Executive KMP are deferred for 12 months in the form of performance rights. • STI target percentages for Executive KMP members, including the CEO, have been maintained at current levels. Long-term incentive (LTI) • Testing of the performance hurdles associated with Medibank’s FY20 long-term incentive (LTI) Plan is partially complete and will be finalised following the release of market share data by APRA in late August 2022. • There was no vesting against the EPS CAGR measure and partial vesting against the relative TSR measure, with a performance rank at the 53rd percentile against our comparator group. • Performance against the market share hurdle will be tested following the release of June market share data by APRA in late August 2022. • LTI opportunity percentages for Executive KMP members, including the CEO, have been maintained at current levels. Non-executive directors Non-executive director fees • The annual base fee for the Chair was increased by 3% to $458,500, and the annual base fee for other non-executive directors was increased by 3% to $170,000, both effective 1 July 2022. • Committee chair fees and committee membership fees were increased by 3% effective 1 July 2022 to $41,200 and $20,600 respectively. • The aggregate non-executive director fee spend remains below the approved total fee pool of $2,300,000. Annual Report 2022 55 Remuneration report For the financial year ended 30 June 2022 3. Medibank’s remuneration strategy At Medibank, we believe that remuneration has a key influence on behaviour and is a valuable 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 – our purpose, our people and customers and our performance. We focus on our values every day to ensure we do the right thing by our customers, our people and the community. Our remuneration strategy has been developed to focus our people 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 2022 remuneration is delivered. Medibank’s remuneration strategy Focus employees on responsibly executing Group strategy to increase customer and shareholder value with behaviours aligned to 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 employees for the achievement of business outcomes aligned with Medibank’s culture Align the interests of executives with increasing long-term customer and shareholder value Medibank’s total target reward framework Total fixed remuneration (TFR) • Determined with reference to capability, experience, the complexity of the role, as well as median pay levels of Medibank’s comparator group • Paid on a fortnightly basis in base salary and superannuation Gateways Performance measures Delivery Short-term incentive (STI) Long-term incentive (LTI) • Individuals must pass a risk, compliance and behaviour gateway to be eligible for an STI or LTI award • Financial Gateway (STI only) – Medibank must achieve a baseline Group operating profit target for an STI to be awarded • Group operating profit • Health Insurance revenue growth • Customer Net Promoter Score (cNPS) • Role-specific metrics • Earnings per share compound annual growth rate • Relative total shareholder return • Growth of Medibank’s private health insurance market share • 50% cash • 50% performance rights deferred for 12 months • Three-year deferred performance rights 2022 remuneration timeline FY22 FY23 FY24 TFR Base salary + super STI Cash Deferred Relative total shareholder return LTI Earnings per share compound annual growth rate Private Health Insurance market share growth 50% 50% 35% 35% 30% date earned date granted eligible for payment or vesting 56 Medibank 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 four 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 & Sustainability 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 49 of the directors’ report. 4.2.1 Performance evaluation of Executive KMP members At the outset of each performance year, the Board determines the measures against which Executive KMP will be assessed. The measures are a combination of Medibank (Company) and role-specific (individual) performance measures that are aligned to the achievement of Medibank’s customer and financial milestones set out in the Annual Report 2022. Aligned with Medibank’s Group-wide performance framework ‘I Perform Better’, the role-specific measures for Executive KMP 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 Executive KMP then form the basis for the Big Goals adopted by their leadership team members and respective teams to ensure all employees across the Group are working towards a shared and consistent strategy. At the completion of the performance year, Executive KMP are individually assessed against the risk, compliance and behaviour gateway which is outlined in section 6.3. KMP are then attributed an individual performance outcome against a 5-point rating scale (with a minimum rating of 3 required to receive a short-term incentive (STI) award) that assesses Executive KMP performance and behaviours against business outcomes and achievement of role-specific performance measures. The individual performance ratings of Executive KMP are then combined with performance against Company measures to determine STI outcomes. 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 Executive KMP is outlined in section 6.2. Reviewing and overseeing Medibank’s key people and culture strategies, including employee engagement, values, behaviours and diversity and inclusion Ensuring that Medibank’s performance and remuneration practices are consistent with the risk management framework and drive appropriate behaviours and a values-based culture P&RC Reviewing employee remuneration arrangements with consideration for behaviours, regulatory compliance, customer outcomes, community expectations 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, workplace relations and payroll integrity Independent remuneration consultant • Ernst & Young provides information to assist the P&RC in making remuneration decisions and recommendations to the Board • The work undertaken by Ernst & Young in 2022 did not constitute a remuneration recommendation Annual Report 2022 57 Remuneration report For the financial year ended 30 June 2022 The CEO provides his performance assessment of each Executive KMP, and other ELT members, to the Board for consideration. The Chair, 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's performance, customer outcomes, community and shareholder expectations. 4.2.2 Clawback and malus 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, fraud or dishonesty by the employee. • Any behaviour, act or omission by the employee that impacts on the Group’s reputation or long-term financial soundness. • A material 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, lapse previously deferred and unvested performance-based rewards, or otherwise alter an employee’s remuneration 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. While clawback provisions allow an organisation to recover a performance-based award after it has been paid out (or share awards vested), malus provisions allow the organisation to reduce or cancel the award before it has been paid out. 4.2.3 Executive shareholding requirements Executive KMP 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 Executive Leadership Team. The policy does not require a person 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 person (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 2022, progress towards the minimum shareholding requirement for each Executive KMP is provided below: Executive KMP David Koczkar Milosh Milisavljevic Mark Rogers Andrew Wilson Minimum shareholding requirement $1 Value of eligible shareholdings as at 30 June 2022 $2 1,500,000 780,000 1,000,000 1,000,000 2,790,886 78,384 1,275,154 3,234,137 Minimum shareholding requirement timeline Requirement satisfied 22 June 2026 Requirement satisfied Requirement satisfied 1. Minimum shareholding requirement based on each persons’ total fixed remuneration (TFR) as at 30 June 2022. 2. Holding value is calculated with reference to the total number of eligible shares or performance rights held by each person, multiplied by the closing price of Medibank’s shares on 30 June 2022 ($3.25). 4.2.4 Share Trading Policy 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. In addition, non-executive directors, all senior executives 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. 58 Medibank 4.2.5 Termination provisions in Executive KMP contracts All current Executive KMP are employed under ongoing contracts with notice periods set at 3 months (employee) and 6 months (employer), or in the case of the CEO, 6 months (both employee and employer). Termination provisions included in Executive KMP contracts are limited to 6 months payment of fixed remuneration, in lieu of notice. If an Executive KMP 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. Medibank risk culture framework Decision making and challenge Communication and escalation Leadership e Risk b h a v iours in a c t i o Alignment with purpose and values R i s k a r c hitecture a n d f o Performance management and incentives n n u ndatio Knowledge and capabilities Risk appetite and strategy 5. Risk and remuneration A key focus for Medibank’s Board and the 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. We recently updated our risk culture framework, and our current suite of measurements (behavioural metrics and survey responses) fully align with the framework elements and risk behaviours to ensure they provide the right insights and conditions for positive action. The risk culture framework, outlined below, articulates the key elements that influence and shape our risk culture in terms of behaviours and practices. Our risk culture framework 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 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 Responsibility and accountability Risk governance and oversight Annual Report 2022 59 Remuneration report For the financial year ended 30 June 2022 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 five-point rating scale (with a minimum rating of three 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 (RMC). As part of this review the RMC 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 & Sustainability and Group Executive – Legal, Governance & Compliance 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 Executive KMP (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 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 the performance period and potential termination. In 2022, 5 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 4 individuals in 2022 had their employment terminated following an incident of misconduct. Further details on consequence management can be found in our Sustainability Report 2022. 6. Executive KMP remuneration components Target remuneration for Executive KMP 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 2022 target remuneration mix The 2022 target remuneration mix for Medibank’s KMP is shown below. David Koczkar Milosh Milisavljevic Mark Rogers Andrew Wilson 28.6% 14.3% 14.3% 42.9% 43.5% 14.1% 14.1% 28.3% 43.5% 14.1% 14.1% 28.3% 43.5% 14.1% 14.1% 28.3% Fixed STI cash Deferred STI (equity) LTI (equity) 60 Medibank 6.2 Total fixed remuneration (TFR) • Ensure that the risks in respect of their position are well Total fixed remuneration (TFR) 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. Further details of Medibank’s comparator group of companies is outlined in section 14 of this report. The table below outlines the current TFR settings for Executive KMP. 6.2.1 Total fixed remuneration Executive KMP David Koczkar Milosh Milisavljevic Mark Rogers Andrew Wilson 30 June 2022 $ 1,500,000 780,000 1,000,000 1,000,000 1 July 2022 $ 1,550,000 825,000 1,035,000 1,020,000 6.3 Short-term incentive (STI) 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 executive, the following gateways must be achieved: Risk, compliance and behaviour gateway Individually assessed, the risk, compliance and behaviour gateway requires executives to: • Adhere to Medibank’s Code of Conduct which covers standards of behaviour and conduct which includes anti- harassment, anti-discrimination and anti-bribery and corruption obligations. 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 which includes privacy, cyber-security, health and safety, bullying and harassment, bribery and corruption and meeting our legal, ethical and governance requirements. managed. Multiple factors are considered when assessing risk management (including environment, social and corporate governance and climate risks where relevant), 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. Assessment of the risk, compliance and behaviour gateway is also subject to feedback provided by the Chief Risk Officer, Group Executive – People, Culture & Sustainability and Group Executive – Legal, Governance & Compliance as outlined in section 5.2. Financial gateway • Assessed at the Group level, Medibank must achieve a baseline Group operating profit target for an STI to be awarded. 6.3.2 STI performance measurement The Board determines 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, executives are then assessed against the company and role-specific performance measures to determine STI award outcomes. There is a threshold level of performance for each Medibank and role-specific measure as set by the Board that needs to be achieved for an STI award to be paid (for that element of the award). For an executive 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 behaviours aligned with Medibank’s purpose and values. For an executive 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 behaviours aligned with Medibank’s values and purpose. This would represent exceptional performance, well above that of Medibank’s strategic plan. Annual Report 2022 61 Remuneration report For the financial year ended 30 June 2022 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 Executive KMP 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 Executive KMP is divided by the volume weighted average share price (VWAP) of Medibank shares to determine the number of units granted. For the 2022 deferred STI component the VWAP will be calculated on the 10 trading days up to and including 15 September 2022. 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 Executive KMP, 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 2022, the performance measures were: • Group operating profit (excluding investment income). • Health Insurance premium revenue growth. • Customer Net Promoter Score (cNPS). • Role-specific metrics. 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 2022. Actual target values are not disclosed as this is considered commercially sensitive information. 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 Executive KMP 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 executive leaves Medibank? If an executive 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. 62 Medibank 6.3.4 Annual STI opportunity The target and maximum annual STI opportunity as a percentage of total fixed remuneration for each Executive KMP is outlined in the table below. Executive KMP David Koczkar Milosh Milisavljevic Mark Rogers Andrew Wilson 2022 & 2023 Target Maximum 100% 65% 65% 65% 150% 100% 120% 120% 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 executives 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 executives over the three-year deferral period. What is the performance period for 2022 LTI plan? The performance period for the 2022 LTI plan is three financial years commencing 1 July 2021. 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 executives 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 executive 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 participant 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 2022 LTI plan, the number of performance rights granted to each participant was determined using the volume weighted average price of Medibank shares on the ASX during the 10 trading days up to and including, 30 June 2021. This average price was $3.13. What gateways apply to the LTI plan? Each participant must meet the risk, compliance and behaviour gateway prior to being granted LTI. Further detail on this gateway is outlined in section 6.3.1. Annual Report 2022 63 Remuneration report For the financial year ended 30 June 2022 What are the performance hurdles under the 2022 LTI plan? Performance rights issued under the 2022 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 2021 and the performance period for the EPS performance hurdle will run for 3 years from 1 July 2021 through to 30 June 2024. 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 2022 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 executive 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 a participant leaves Medibank? If a participant 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 a participant 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. 64 Medibank The annual LTI allocation value as a percentage of TFR for each Executive KMP is outlined in the table below. at the end of the performance period, as set out in the following vesting schedule: 6.4.2 Annual LTI allocation Executive KMP LTI allocation value as % of TFR 2022 & 2023 David Koczkar Milosh Milisavljevic Mark Rogers Andrew Wilson 150% 65% 65% 65% 6.4.3 LTI hurdles explained 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. For the 2022 LTI offer, the Board also considered the uncertainty surrounding the economic and social impact of COVID-19 on Medibank’s operating environment and the PHI landscape more broadly. 2022 EPS performance rights (35% of award) In this context, the Board approved maintaining a threshold EPS CAGR target of 3% for the 2022 LTI grant and maintaining the vesting schedule that applied to the 2021 LTI offer. Details of the vesting schedule are outlined in the table below: Medibank’s EPS CAGR over the performance period Percentage of EPS performance rights that vest Less than 3% EPS CAGR Between 3% and 7% EPS CAGR 7% EPS CAGR or greater Nil Straight-line pro rata vesting between 50% 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. 2022 TSR performance rights (35% of award) 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 2022 TSR performance rights to vest, Medibank must achieve the threshold TSR ranking over the performance period. The percentage of the 2022 TSR performance rights that vest, if any, will be based on Medibank’s TSR ranking Medibank’s TSR rank in the 2022 comparator group Percentage of TSR performance rights that vest Less than 50th percentile Between the 50th and 75th percentile At or above 75th percentile Nil 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. The entities comprising the 2022 comparator group are determined at the commencement of the performance period. If the ordinary shares or stock of a member of the 2022 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. 2022 market share performance rights (30% of award) The Board approved maintaining a threshold private health insurance (PHI) market share growth target of 25 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 Between 25 basis points 75 basis points At or above 75 basis points Nil Straight-line pro rata vesting between 50% and 100% 100% Annual Report 2022 65 Remuneration report For the financial year ended 30 June 2022 7. Linking remuneration and performance in 2022 7.1 2022 short-term incentive (STI) performance scorecard The following table details the 2022 STI performance scorecard measures, weightings and assessment. Measure Description Individually assessed, Executive KMP 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 (including environment, social and corporate governance and climate risks where relevant) 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 & Sustainability and Group Executive – Legal, Governance & Compliance as outlined in section 5.2. Medibank must achieve a baseline of financial performance, as determined by the Board for the performance period. In 2022, this baseline financial performance was a Group operating profit target. 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. Risk, compliance and behaviour gateway Financial gateway Group operating profit Weighting GE-CEO Amplar Health Other Executive KMP 2022 Outcomes CEO Gateway Gateway Gateway All achieved Gateway Gateway Gateway Met 45% 22.5% 35% Above 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. Customer Net Promoter Score (cNPS) cNPS is a key customer advocacy metric that measures the likelihood of people recommending Medibank or ahm to their families and friends. 20% 15% 25% 20% 12.5% 20% Above stretch Above stretch Aligned to one or more of the following milestones: 1. Deliver leading experiences – Continue to achieve a high level of advocacy by delivering exceptional experiences for our customers and employees. 2. Differentiate our insurance business – we aim to increase market share, achieve net policyholder growth of 3.1% to 3.3% (including continued growth in the Medibank brand) and to deliver FY22 productivity target of $15 million (plus an additional $25 million during FY23-FY24) 3. Expand in health – replace the reported FY18 $30 million operating profit of Garrison and achieve 480,000 customers engaged with Live Better Role-specific big goals 66 Medibank 15% 50% 20% Ranging between ‘on-target’ to ‘ahead of target’ 7.2 Medibank’s 2022 financial performance Medibank’s 2022 annual financial performance is provided in the table below in addition to the average 2022 STI award achieved by Executive KMP, as a percentage of maximum opportunity. This table illustrates the relationship between the key indicators of shareholder wealth creation and STI outcomes for Executive KMP. 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 Executive KMP STI as a percentage of maximum opportunity 2022 2.7% $594.1m $393.9m 13.4 cents p/s $3.16 $3.25 2021 2.1% $528.3m $441.3m 12.7 cents p/s $2.99 $3.16 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 72% 70% 0% 56% 58% 1. 2019 Group operating profit of $558.7 million includes $30.2 million of operating profit attributable to discontinued operations. 7.3 2022 STI awards The table below provides a summary of STI awards for the 2022 performance year. Executive KMP David Koczkar Milosh Milisavljevic Mark Rogers Andrew Wilson Total STI achieved $ 1,722,456 604,826 844,084 769,912 STI cash (50%) $ 861,228 302,413 422,042 384,956 STI deferred (50%) $ 861,228 302,413 422,042 384,956 Total STI achieved as % of target 115% 119% 130% 118% Total STI achieved as % of max opportunity 77% 78% 70% 64% 7.4 2020 Long-term incentive plan outcomes The performance period for the 2020 LTI plan concluded on 30 June 2022. The table below outlines the final outcome against the EPS CAGR and Relative TSR (expressed as a compound annual rate of return) performance hurdles and associated vesting percentage for each. Testing of the market share performance hurdle will be completed following the release of market share information by APRA. Performance hurdle EPS CAGR Relative TSR Market Share Total 2020 LTI vesting percentage Weighting 35% 35% 30% Outcome 0.2% 53rd percentile Pending1 Vesting percentage 0% 56% Pending Pending 1. To be confirmed following the release of APRA market share data in late August 2022 Medibank’s 2020 LTI was tested following the completion of the performance period on 30 June 2022. EPS CAGR and Relative TSR hurdles were assessed in line with the terms of the plan and the Board did not exercise discretion in determining the outcome. The total number of rights vesting will be confirmed once testing against the market share hurdle is completed. The performance rights under the 2020 LTI Plan that do not vest as a result of the performance hurdle outcomes not being met will lapse immediately. The 2021 and 2022 LTI plans remain in restriction and will be assessed against their performance hurdles at the completion of the 2023 and 2024 financial years respectively. Annual Report 2022 67 Remuneration report For the financial year ended 30 June 2022 8. 2022 actual remuneration (Non-IFRS disclosure) The table below represents the 2022 ‘actual’ remuneration for Executive KMP and includes all cash payments made in relation to 2022, in addition to deferred short-term incentive (STI) awards that vested in 2022. 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 for Executive KMP is presented in section 9. Base salary and superannuation $ 1,500,000 778,825 1,000,000 999,846 Cash STI for performance to 30 June 2022 $ 861,228 302,413 422,042 384,956 Total cash payments in relation to 2022 $ 2,361,228 1,081,238 1,422,042 1,384,802 Deferred equity awards that vested in 20221 $ 229,609 34,065 172,352 242,225 Total 2022 actual remuneration $ 2,590,837 1,115,303 1,594,394 1,627,027 Equity awards that lapsed in 20222 $ 487,913 72,379 366,241 514,720 Executive KMP David Koczkar Milosh Milisavljevic Mark Rogers Andrew Wilson 1. Deferred equity awards that vested in 2022 relate to the 2019 LTI performance rights that vested during the year. 2. Equity awards that lapsed in 2022 relate to the portion of the 2019 long-term incentive (LTI) performance rights that lapsed following the testing of the performance hurdles in July 2021. 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 Executive KMP. In contrast to the table in section 8 that details 2022 actual remuneration, the table below includes accrual amounts for equity awards being expensed throughout 2022 that are yet to, and may never, be realised. Short-term benefits Post-employment benefits Long-term benefits Equity-based benefits Other Short-term incentive (STI) $ Other $ Non-monetary benefits $2 Superannuation $ Leave $3 Deferred STI $ Performance rights $4 Termination benefits $ Total remuneration $ Executive KMP Financial year Salary $1 David Koczkar Milosh Milisavljevic5 Mark Rogers Andrew Wilson 2022 2021 2022 2021 2022 2021 2022 2021 1,523,622 1,027,440 754,326 21,818 980,097 882,649 971,537 963,798 Former Executive KMP 861,228 364,896 302,413 4,772 422,042 335,405 384,956 331,296 Craig Drummond Total Executive KMP6 2021 2022 1,555,477 871,312 4,229,582 1,970,639 2021 4,451,182 1,907,681 - - - - - - - - - - - 21,838 18,895 14,833 212 15,836 17,457 20,614 22,936 15,364 73,121 74,864 27,500 47,627 22,650 174,791 27,500 40,033 740 8 23,749 64,362 21,802 146,945 25,000 60,576 25,096 33,501 - - - - - - - - 1,279,338 512,839 299,655 1,762 649,377 458,958 626,895 498,587 25,096 51,868 871,312 1,227,715 103,749 212,598 - 2,855,265 95,384 407,113 871,312 2,699,861 - - - - - - - - - - - 3,761,153 2,121,511 1,438,760 29,312 2,155,463 1,863,216 2,089,578 1,875,214 4,618,144 9,444,954 10,507,397 1. Salary includes annual base salary paid on a fortnightly basis and annual leave entitlements accrued, but not taken, during the year 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 annual leave entitlements accrued, but not taken, during the year which are not expected to be taken in the next 12 months. Comparatives have been revised to represent the movement in annual leave entitlements accruals. 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 AASB 2 Share-based Payments. 5. The remuneration figures disclosed for Milosh Milisavljevic for 2021 reflect the period from his commencement as a KMP on 22 June 2021. 6. Total remuneration for FY2021 is $3.16 million less than that disclosed in the 2021 Remuneration Report as it does not include the Total Remuneration amounts of $1.09m for Kylie Bishop, $1.04m for John Goodall and $1.03m for Mei Ramsay who were KMP in 2021. Effective 1 July 2021, following changes to ELT operation effective 1 July 2021, they are no longer deemed KMP. 68 Medibank 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 2022 remuneration mix for Medibank’s Executive KMP as detailed in the ‘statutory remuneration table’. Non-performance-related Performance-related Executive KMP David Koczkar Milosh Milisavljevic Mark Rogers Andrew Wilson Financial year Fixed remuneration1 2022 2022 2022 2022 43.1% 58.2% 50.3% 51.6% Cash STI 22.9% 21.0% 19.6% 18.4% Deferred STI2 16.3% 10.5% 17.6% 17.1% LTI3 17.7% 10.3% 12.5% 12.9% Total performance-related remuneration 56.9% 41.8% 49.7% 48.4% 1. Fixed remuneration includes the accounting expense from all columns of the ‘statutory remuneration table’ other than ‘cash STI’, ‘performance rights’ and ‘deferred STI’. 2. Deferred STI includes the 2022 accounting expense of the 2022 deferred STI components within the ‘performance rights’ and ‘deferred STI’ columns of the ‘statutory remuneration table’. 3. LTI includes the 2022 accounting expense of the 2020, 2021 and 2022 LTI component within the ‘performance rights’ column of the ‘statutory remuneration table’. 10. Executive KMP equity awards 10.1 Executive KMP equity award transactions Details of 2022 Executive KMP equity award transactions and outstanding holdings granted in previous years are set out below. Executive KMP1 David Koczkar Award type2 Balance 1 July 2021 Units Value Units Value Units Value Units Value Acquired during 20223 Vested during 20224 Lapsed during 20225 Other changes Balance 30 June 20226 Long-term incentive 590,232 718,849 1,674,918 65,045 229,609 138,219 487,913 Short-term incentive - 102,787 364,894 Ordinary shares Milosh Milisavljevic Long-term incentive Short-term incentive Ordinary shares 793,689 109,948 - 14,468 Mark Rogers Long-term incentive 501,952 207,667 Short-term incentive - 94,480 Andrew Wilson Ordinary shares Long-term incentive Short-term incentive 343,530 601,400 - Ordinary shares 926,500 - 207,667 93,322 - - - 161,980 377,413 - - - - 483,864 335,404 - 483,864 331,293 - 65,045 9,650 - 9,650 48,825 - 48,825 68,619 - - 229,609 34,065 - 34,065 - - - - 20,504 72,379 - - - - 172,352 103,751 366,241 - 172,352 242,225 - - - - - 145,813 514,720 - - - - - 68,619 242,225 - - - - - - - - - - - - 1,105,817 2,532,485 102,787 364,894 858,734 2,790,886 241,774 554,237 - - 24,118 78,384 557,043 1,257,796 94,480 335,404 392,355 1,275,154 594,635 1,341,431 93,322 331,293 995,119 3,234,137 1. Effective 1 July 2021, Kylie Bishop, John Goodall and Mei Ramsey were no longer deemed KMP and a such their equity award transactions are not reported in the 2022 period. 2. Long-term incentive corresponds to performance rights awarded under the LTI plan that are subject to performance hurdles. Short-term incentive represents performance rights awarded under the STI Plan. Ordinary shares include all Medibank shares held by the executive or related parties. 3. Represents the maximum number of equity awards that may vest to each Executive in respect to their time as KMP during 2022. The minimum potential outcome for the equity awards is 0. The values are calculated using the fair value as at grant date. 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 2020, 2021 and 2022 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. 4. Awards that vested in 2022 relate to the 32% vesting of 2019 LTI award (granted 6 December 2018) following the assessment of performance hurdles. Performance rights that vested were automatically exercised and no payment was required from participants. Executives received one ordinary share for each performance right that vested during the financial year. The value of vested awards is calculated using the closing share price on vesting date. 5. Awards that lapsed in 2022 relate to the 68% of the 2019 LTI award that did not meet the performance hurdle and subsequently lapsed. 6. The value of unvested STI is determined by the number of units at 30 June 2022 multiplied by the unit price at grant. The value of unvested LTI is determined by the number of units at 30 June 2022 multiplied by the fair value at grant. The value of ordinary shares is determined by multiplying the number of ordinary shares at 30 June 2022 by the closing price of Medibank shares on the same date. Annual Report 2022 69 Remuneration report For the financial year ended 30 June 2022 10.2 Overview of unvested equity awards and fair value assumptions All awards are subject to continued employment, malus and clawback provisions. Award 2022 LTI performance rights 2021 Deferred STI performance rights 2021 LTI performance rights 2020 LTI performance rights 2019 LTI performance rights Award type LTI Performance start date 1/07/2021 Performance Performance end date1 Grant date 3/12/2021 30/06/2024 measure Weighting 35% 30% 35% EPS Market share TSR Unit price at grant 3.13 3.13 3.13 Fair value at grant2 2.72 2.72 1.62 STI LTI 1/07/2021 1/07/2020 3/12/2021 15/09/2022 30/06/2023 26/11/2020 LTI 1/07/2019 30/06/2022 28/11/2019 LTI 1/07/2018 30/06/2021 6/12/2018 Service EPS Market share TSR EPS Market share TSR EPS TSR 100% 35% 30% 35% 35% 30% 35% 50% 50% 3.55 3.02 3.02 3.02 3.46 3.46 3.46 2.91 2.91 3.55 2.54 2.54 1.58 2.80 2.80 1.09 2.44 1.37 1. The performance end date represents 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. Performance rights that vest are automatically exercised and no payment is required from participants. Any performance rights that don’t vest at this point will immediately expire. 2. Fair value of LTI performance rights has been calculated as at the start of the performance period. 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 a minimum number of 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 Chair 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 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). Following the annual benchmarking exercise and the position of non-executive directors against the median of the benchmark group, non-executive director base and committee fees have been increased for 2023. Based on the composition of the Board, non-executive director fee spend for 2023 will be $2,019,300 against the approved cap of $2,300,000. Non-executive director fees applicable throughout 2022 and 2023 are set out in the table below: Position Chair Non-executive directors Committee chair fees Audit Committee Risk Management Committee 2022 $ 2023 $ 445,000 458,500 165,000 170,000 40,000 41,200 40,000 41,200 People and Remuneration Committee 40,000 41,200 Investment and Capital Committee 40,000 41,200 Committee membership fees Audit Committee Risk Management Committee 20,000 20,600 20,000 20,600 People and Remuneration Committee 20,000 20,600 Investment and Capital Committee 20,000 20,600 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, people with multiple employers can elect to be exempt from the superannuation guarantee where contributions are likely to take them over the annual concessional contribution cap. 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 2022, all non-executive directors have met the minimum shareholding requirement. Further details of current non-executive director shareholdings are provided in section 13. 12. 2022 non-executive director remuneration statutory table Non-executive director Mike Wilkins Tracey Batten Anna Bligh Gerard Dalbosco2 Peter Everingham5 David Fagan Kathryn Fagg5 Linda Bardo Nicholls Former non-executive directors Elizabeth Alexander3 Peter Hodgett4 Christine O’Reilly4 Total non-executive director remuneration Short-term benefits Post-employment benefits Financial year Cash salary and fees $ Non-monetary1 $ Superannuation $ Total $ 2022 2021 2022 2021 2022 2021 2022 2021 2022 2022 2021 2022 2022 2021 2021 2022 2021 2022 2021 2022 2021 446,711 377,228 191,670 187,935 187,054 187,934 213,703 20,882 47,308 215,023 206,270 47,308 204,643 187,456 107,435 79,846 206,270 87,863 225,865 1,721,129 1,707,275 4,414 3,954 2,703 2,581 3,532 3,296 1,248 - 593 3,019 2,736 - 3,026 3,014 9,434 6,070 3,849 5,355 2,765 29,960 31,629 - 9,352 19,196 17,854 18,734 17,854 4,470 1,984 4,731 21,534 19,596 4,731 - 18,127 6,112 8,053 19,596 - - 81,449 110,475 451,125 390,534 213,569 208,370 209,320 209,084 219,421 22,866 52,632 239,576 228,602 52,039 207,669 208,597 122,981 93,969 229,715 93,218 228,630 1,832,538 1,849,379 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. 2. Gerard Dalbosco’s 2021 remuneration reflects his commencement date as a non-executive director of 21 May 2021. 3. Elizabeth Alexander’s 2021 remuneration reflects her retirement date from the Medibank Board of 1 October 2020. 4. Peter Hodgett’s and Christine O’Reilly’s 2022 remuneration reflects their retirement date from the Medibank Board of 18 November 2021. 5. Kathryn Fagg’s and Peter Everingham’s 2022 remuneration reflects their commencement date as non-executive directors of 31 March 2022. Annual Report 2022 71 Remuneration report For the financial year ended 30 June 2022 13. Non-executive director ordinary shareholdings Balance 30 June 2021 Acquired during the year Other changes Non-executive director Mike Wilkins Tracey Batten Anna Bligh Gerard Dalbosco Peter Everingham4 David Fagan Kathryn Fagg4 100,000 50,000 44,623 24,432 - 47,016 - Linda Bardo Nicholls 45,000 Former non-executive director Peter Hodgett3 Christine O’Reilly3 67,800 69,930 - - - 48,400 - - - - - - - - - - 40,000 - 32,750 - (67,800) (69,930) Balance 30 June 2022 100,000 50,000 44,623 72,832 40,000 47,016 32,750 45,000 - - Minimum shareholding requirement $1 Shareholding Value at 30 June 2022 $2 Minimum shareholding requirement timeline 222,500 82,500 82,500 82,500 82,500 82,500 82,500 82,500 - - 325,000 Requirement satisfied 162,500 Requirement satisfied 145,025 Requirement satisfied 236,704 Requirement satisfied 130,000 Requirement satisfied 152,802 Requirement satisfied 106,438 Requirement satisfied 146,250 Requirement satisfied - - Not applicable Not applicable 1. Minimum shareholding requirement based on annual non-executive director base fees for 2022 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 2022 ($3.25). 3. Peter Hodgett and Christine O’Reilly ceased to be a KMP on 18 November 2021 and therefore their balance at 30 June 2022 has been adjusted to reflect no further holdings as a KMP. 4. Peter Everingham and Kathryn Fagg commenced as non-executive directors on 31 March 2022, and therefore their balance at 30 June 2021 was zero. Both Peter and Kathryn held Medibank shares prior to becoming non-executive directors of Medibank. 14. Medibank’s comparator group As outlined throughout this report, Medibank uses a comparator group 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 long-term incentive (LTI) plan. Medibank’s comparator group is the ASX 11-100, excluding mining and energy companies. In any given year, there may be changes in the mining and energy companies excluded from Medibank’s comparator group due to companies either falling outside the ASX 11-100 or companies no longer being considered exclusively as a mining or energy company. 72 Medibank Financial report Consolidated financial statements Notes to the 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 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 91 Section 4 Other assets and liabilities page 102 Section 5 Other page 110 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 14. Leases 15. Income tax 16. Group structure 17. Related party transactions 18. Share-based payments 19. Auditor’s remuneration 20. Other Signed reports Directors’ declaration Auditor’s independence declaration Independent auditor’s report page 120 page 121 page 122 Annual Report 2022 73 Consolidated statement of comprehensive income For the financial year ended 30 June 2022 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 Depreciation and amortisation expense Finance expense Share of net profit/(loss) from equity accounted investments Note 2022 $m 2021 $m 2(b) 3(a) 3(a) 13(a)(ii) 16(b) 6,881.2 247.3 7,128.5 6,691.1 219.3 6,910.4 1.0 1.8 (5,679.8) (34.7) (467.5) (90.1) (85.9) (73.8) (115.0) (2.4) 4.5 (6,544.7) (5,557.9) (34.0) (439.9) (88.6) (81.4) (72.3) (122.0) (2.8) (1.0) (6,399.9) Profit before net investment income and income tax 584.8 512.3 Net investment income/(expense) 7(a) (24.8) 120.0 Profit for the year before income tax 560.0 632.3 Income tax expense Profit for the year Other comprehensive income Items that will not be reclassified to profit or loss Actuarial gain/(loss) on retirement benefit obligation, net of tax Total comprehensive income for the year, net of tax, attributable to equity holders of the parent Earnings per share attributable to ordinary equity holders of the Parent - basic and diluted (cents) The above statement should be read in conjunction with the accompanying notes. 15(a) (166.1) 393.9 (191.1) 441.2 0.2 0.4 394.1 441.6 6(b) 14.3 16.0 74 Medibank Consolidated statement of financial position As at 30 June 2022 Current assets Cash and cash equivalents Trade and other receivables Financial assets at fair value Deferred acquisition costs Tax receivable Other assets Total current assets Non-current assets Property, plant and equipment Intangible assets Deferred acquisition costs Deferred tax assets Equity accounted investments Other assets Total non-current assets Total assets Current liabilities Trade and other payables Claims liabilities Unearned premium liability Tax liability Customer give back provision Provisions and employee entitlements Total current liabilities Non-current liabilities Trade and other payables Claims liabilities Unearned premium liability 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 15(c) 16(b) 9(c) 3(b) 5 13(c) 13 9(c) 3(b) 5 13 2022 $m 596.7 225.4 2,854.5 35.4 - 19.3 3,731.3 88.4 332.3 47.5 243.6 103.7 6.0 821.5 2021 $m 671.7 215.9 2,311.9 33.6 6.2 18.8 3,258.1 101.7 345.3 47.5 85.9 77.1 8.2 665.7 4,552.8 3,923.8 361.4 860.9 817.5 117.0 178.6 104.6 2,440.0 56.6 10.2 77.3 23.1 167.2 338.2 622.4 697.0 - 103.0 94.7 1,855.3 70.2 9.1 60.4 22.7 162.4 2,607.2 2,017.7 1,945.6 1,906.1 10(a) 10(b) 85.0 25.7 1,834.9 1,945.6 85.0 22.3 1,798.8 1,906.1 Annual Report 2022 75 Consolidated statement of changes in equity For the financial year ended 30 June 2022 Contributed equity $m 85.0 Note Reserves $m 22.4 Retained earnings $m 1,690.4 Total equity $m 1,797.8 441.2 0.4 441.6 (333.2) (5.3) 5.2 1,906.1 393.9 0.2 394.1 (358.0) (2.5) 5.9 1,945.6 - - - - - - 85.0 - - - - - - 85.0 - - - - (5.3) 5.2 22.3 - - - - (2.5) 5.9 25.7 441.2 0.4 441.6 (333.2) - - 1,798.8 393.9 0.2 394.1 (358.0) - - 1,834.9 Balance at 1 July 2020 Profit for the year Other comprehensive income Total comprehensive income for the year Dividends paid Acquisition and settlement of share-based payment, net of tax Share-based payment transactions Balance at 30 June 2021 6(a)(i) Profit for the year Other comprehensive income Total comprehensive income for the year Dividends paid Acquisition and settlement of share-based payment, net of tax Share-based payment transactions Balance at 30 June 2022 6(a)(i) 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 2022 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 equity accounted investments Loan to associate Purchase of plant and equipment Purchase of intangible assets Net cash 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 2022 $m 2021 $m 9(d) 16(b) 16(b) 14 6(a)(i) 7,089.4 274.6 3.3 (5,422.6) (795.9) (200.3) 948.5 14.2 (5.0) 1,349.6 (1,926.2) (21.1) - (7.0) (28.1) (623.6) 6,798.8 234.9 3.8 (5,542.7) (762.5) (250.1) 482.2 16.0 (4.6) 1,081.1 (1,289.6) (71.0) (2.9) (10.9) (24.2) (306.1) (3.1) (38.8) (358.0) (399.9) (5.6) (37.0) (333.2) (375.8) (75.0) (199.7) 671.7 871.4 596.7 671.7 Annual Report 2022 77 Notes to the consolidated financial statements 30 June 2022 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 2022 were authorised for issue in accordance with a resolution of the directors on 18 August 2022. 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 16(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. • Are presented in Australian dollars, which is Medibank’s functional and presentation currency. • Have been rounded 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 2022 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 2022 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 15: Income tax. 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 2022, the Group was organised for internal management reporting purposes into two reportable segments, Health Insurance and Medibank Health. Health Insurance 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. Medibank Health Derives its revenue from a range of activities including contracting with government and corporate customers to provide health management and in-home care 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. 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. 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 2022 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 2022 is as follows. Health Insurance Medibank Health $45.5m $538.6m $6,680.3m $592.6m $6,859.8m $31.4m $283.8m $321.8m 2021 2022 2021 2022 Revenue Operating profit Revenue Operating profit 30 June 2022 Revenue Total segment revenue Inter-segment revenue Health Insurance $m Medibank Health $m Note Total $m 2(c)(iii) 6,859.8 - 321.8 (53.1) 7,181.6 (53.1) Revenue from external customers 6,859.8 268.7 7,128.5 Operating profit 592.6 45.5 638.1 Items included in segment operating profit: Depreciation and amortisation Interest income from loans to associates Share of profit/(loss) from equity accounted investments 16(b) (101.6) - - (7.3) 0.2 4.5 (108.9) 0.2 4.5 30 June 2021 Revenue Total segment revenue Inter-segment revenue Health Insurance $m Medibank Health $m Note Total $m 2(c)(iii) 6,680.3 - 283.8 (53.7) 6,964.1 (53.7) Revenue from external customers 6,680.3 230.1 6,910.4 Operating profit 538.6 31.4 570.0 Items included in segment operating profit: Depreciation and amortisation Interest income from loans to associates Share of profit/(loss) from equity accounted investments 16(b) (104.8) - - (8.3) 0.2 (1.0) (113.1) 0.2 (1.0) 80 Medibank Notes to the consolidated financial statements30 June 2022 (c) Other segment information (i) Segment operating profit or loss A reconciliation of segment operating profit to the profit for the year before income tax of the Group is as follows: Total segment operating profit Unallocated to operating segments: Corporate operating expenses Group operating profit Net investment income/(expense) Acquisition intangible amortisation Mergers and acquisitions expenses Other income/(expenses) Profit for the year before income tax Note 2022 $m 638.1 2021 $m 570.0 (44.0) (41.7) 594.1 528.3 7(a) (24.8) 120.0 (2.0) (1.7) (5.6) (4.6) (5.5) (5.9) 560.0 632.3 (ii) Other items (iii) Loyalty program Segment operating profit excludes the following: • Corporate operating expenses of $44.0 million (2021: $41.7 million) relating to the Group's corporate function. Segment private health insurance premium revenue is after $21.4 million (2021: $10.8 million) of transfers between the Group’s other operating segments in relation to the loyalty program. • Net investment income/(expense), which comprises: (iv) Segment assets and segment liabilities – 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. 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. – 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 $2.0 million (2021: $4.6 million) not allocated to segments. • Expenses in relation to mergers and acquisitions of $1.7 million (2021: $5.5 million) which are not allocated to the operating activities of the Group’s segments. • Other income/(expenses) of $5.6 million (2021: $5.9 million) which do not relate to the current period’s trading activities of the Group’s segments, comprising primarily net sublease rent. Annual Report 2022 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. $6,859.8m 2022 underwriting result after expenses $(5,731.6)m $(535.6)m $592.6m 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. A COVID-19 claims liability has been recorded for deferred claims that were a result of surgeries and other health services which were inaccessible to policyholders due to COVID-19 restrictions. Medibank has an obligation to settle these claims when they occur in future periods. (a) Insurance underwriting result Private health insurance premium revenue Claims expense Claims incurred (Increase)/decrease in COVID-19 claims liability State levies Net Risk Equalisation Special Account payments Net claims incurred excluding claims handling costs Movement in claims handling costs on outstanding claims liabilities Net claims incurred Underwriting expenses Underwriting result after expenses Note (i) (ii) (iv) (iii) 2022 $m 2021 $m 6,859.8 6,680.3 (5,415.0) (224.5) (55.5) (36.1) (5,731.1) (0.5) (5,731.6) (5,606.2) 73.3 (53.3) (24.6) (5,610.8) 0.2 (5,610.6) (535.6) (531.1) 592.6 538.6 (i) Private health insurance premium revenue is after (iii) Net claims incurred consists of amounts paid and $21.4 million (2021: $10.8 million) of transfers between the Group’s other operating segments in relation to the loyalty program and $369.4 million (2021: $103.0 million) in relation to the recognition of customer give backs publicly announced by the Group during the period to return permanent net COVID-19 savings to eligible policyholders (refer to Note 5 and Note 13(c) for further information). payable to hospital, medical and ancillary providers 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. (ii) Claims incurred are prior to elimination of transactions Refer to Note 3(b) for further information. with the Group’s other operating segments of $51.8 million (2021: $52.7 million). 82 Medibank Notes to the consolidated financial statements30 June 2022 Health Insurance Premium Revenue Recognition Accounting Policy Premium revenue is recognised in the consolidated statement of comprehensive income when it is earned. 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. Adjustments made to past premiums are recognised as a reduction in premium revenue. See Note 5 and Note 13(c) for further information. 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 policyholder’s premium 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 in the consolidated statement of financial position. 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 liabilities Non-current Outstanding claims liability - central estimate Risk margin Claims handling costs Claims liability - provision for bonus entitlements Gross claims liabilities Note (i,ii) (vi) (i,iii) (iv) (v) (c) (i,ii) (i,iii) (iv) (v) (c) 2022 $m 359.3 448.3 35.1 8.9 851.6 9.3 860.9 3.1 0.3 0.1 3.5 6.7 10.2 2021 $m 347.2 223.8 33.2 8.5 612.7 9.7 622.4 1.8 0.2 - 2.0 7.1 9.1 Annual Report 2022 83 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 comprises 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. 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 restricted for policyholders as a result of the COVID-19 pandemic. Medibank has an obligation to settle these claims when they occur in future periods. The liability is calculated by comparing the difference between the actual and expected claims since the commencement of COVID-19 restrictions from March 2020. The expected claims level is based on the estimated underlying claims growth per Single Equivalent Unit per policy (PSEU) that would have occurred if the COVID-19 pandemic did not eventuate, taking into account changes in the customer base. The key judgements and inputs to determine the expected claims level are detailed in Note 3(b)(vi). 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 service 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 the outstanding 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 and pre-admission hospital eligibility check volumes. 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 1.81% per annum which equates to a reduction in the central estimate of $0.9 million (2021: 0.03%, less than $0.1 million). 84 Medibank Notes to the consolidated financial statements30 June 2022(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 2022 is 9.4% (2021: 9.4%). 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% (2021: 95%). This risk margin is only applied to the outstanding claims liability, however relevant risks and uncertainties have been taken into account in key assumptions used to estimate the COVID-19 claims liability. (iv) Claims handling costs The allowance for claims handling costs at 30 June 2022 is 2.5% of the outstanding claims liability (2021: 2.5%). (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 COVID-19 claims liability represents the continued and prolonged impact of the COVID-19 pandemic during the period on availability and accessibility to surgeries and other health services. The COVID-19 claims liability includes hospital claims of $405.6 million (2021: $220.2 million), which includes surgical and non-surgical claims, and ancillary claims of $42.6 million (2021: $3.6 million). Key estimate – Hospital The liability is calculated by comparing the difference between the actual and expected volume of insured surgical, non-surgical and ancillary procedures since the commencement of COVID-19 restrictions from March 2020. Any shortfall is deferred into the liability at the applicable claims deferral rate. Utilisation of the liability occurs where actual claims exceed expected claims. The liability has been assessed by geography and modality (claim type) with the deferral of claims (and any subsequent utilisation) varying based on the extent of COVID-19 restrictions. The ancillary liability resets for ancillary claims with expired limits. 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: • The expected claims level at the Single Equivalent Unit per policy (PSEU), which is based on statistical analysis of the estimated underlying claims growth per PSEU that would have occurred if the COVID-19 pandemic did not eventuate. It has then been applied to the average actual number of PSEUs. • The expected rate at which deferred insured surgical and non-surgical 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 analysed based on modality and is 85% (2021: 85%) for surgical claims, 40% (2021: 50%) for non-surgical claims and 50% (2021: 50%) for ancillary claims. • This liability only includes insured surgeries and other health services that will ultimately be performed for policyholders of the Group. Given the extended duration of the COVID-19 pandemic, a policyholder lapse rate has been applied to the surgical and non-surgical claims. This rate is based on the average lapse rate since the commencement of the COVID-19 pandemic. The ancillary liability does not include a lapse rate as it resets when limits expire. Annual Report 2022 85 (c) Reconciliation of movement in claims liabilities Balance at 1 July Claims incurred during the period Increase/(decrease) in 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 2022 $m 631.5 2021 $m 639.2 5,369.8 5,496.1 (i) 224.5 (73.3) (5,348.1) (5,414.4) (8.2) 2.0 0.5 (0.9) (22.0) 6.1 (0.2) - 871.1 631.5 Note: Movement includes both current and non-current. Claims incurred and claims settled exclude levies and rebates. (i) Reconciliation of movement in COVID-19 claims liability The table below provides a reconciliation of the movement in the COVID-19 claims liability during the period. Balance at 1 July 2021 Change in respect of previous period Net change in assumptions1 Net deferral/(utilisation) during the period Balance at 30 June 2022 Hospital $m Ancillary $m 220.2 (8.5) (42.2) 236.1 405.6 3.6 (0.2) - 39.3 42.7 Total $m 223.8 (8.7) (42.2) 275.4 448.3 1. Includes change in expected deferral rate of $19.2 million and changes in other assumptions, including policyholder lapse rate and price indexation. (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 $25.4 million decrease/increase to profit after tax and equity (2021: $24.4 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 $117.9 million decrease/increase to profit after tax and equity (2021: $67.0 million). • An increase/decrease of 10 percentage points in the adopted deferral rate for COVID-19 hospital claims would result in a $54.2 million decrease/increase to profit after tax and equity (2021: $26.8 million). The reasonable possible range for the hospital deferral assumption is 75-100% for surgical claims (2021: 75-100%) and 30-70% for non- surgical and ancillary claims (2021: 30-70%). (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. 86 Medibank Notes to the consolidated financial statements30 June 2022The table below sets out the key variables upon which the cash flows of the insurance contracts are 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 since the commencement of the COVID-19 pandemic includes 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. Ability to vary premium rates Risk equalisation The Group can vary future premium rates subject to the approval of the Minister for Health. 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 and customer give backs. Annual Report 2022 87 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. 2022 $m 81.1 39.6 (37.8) 82.9 2021 $m 78.1 42.3 (39.3) 81.1 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 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 (2021: 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). 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 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. 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 Earning of premiums deferred in prior years Movement in provision for premium deferral Balance at 30 June Note: Movement includes both current and non-current. 2022 $m 757.4 700.9 (697.0) 133.5 894.8 2021 $m 746.1 682.4 (671.1) - 757.4 The unearned premium liability balance at 30 June 2022 includes a provision for premium deferral of $133.5 million (2021: nil). This balance is comprised of an initial recognition of $184.8 million during the period, offset by $51.3 million utilisation. The provision for premium deferral represents amounts owed at balance date in relation to the announcements made by the Group during the period to return permanent net COVID-19 savings to eligible policyholders via a 7 month deferral of the 1 April 2022 premium increase. A separate customer give back provision of $178.6 million (2021: $103.0 million) is recognised in the statement of consolidated position. Refer to Note 13(c) for further information. 88 Medibank Notes to the consolidated financial statements30 June 2022 (a) Liability adequacy test The expected cash outflows and the risk margin in the 30 June 2022 liability adequacy test (LAT) includes the impacts of COVID-19. The LAT did not result in the identification of any deficiency as at 30 June 2022 and 2021. 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 At each balance date, a liability adequacy test is performed to determine whether the unearned premium liability, net of related deferred acquisition costs, is adequate to cover expected future claims arising from current insurance coverage. An additional risk margin is included in the test to reflect the inherent uncertainty in the central estimate. The 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 the present value of the expected future claims, including a risk margin, exceeds the net unearned premium liability. The entire deficiency is recognised immediately in the statement of comprehensive income by first writing down any related intangible assets and then related deferred acquisition costs, with any excess being recognised 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 2022 2021 final fully franked dividend 2022 interim fully franked dividend 2021 2020 final fully franked dividend 2021 interim fully franked dividend Cents per fully paid share 6.90 6.10 6.30 5.80 $m Payment date 190.0 168.0 30 September 2021 24 March 2022 173.5 159.7 24 September 2020 25 March 2021 Annual Report 2022 89 (ii) Dividends not recognised at the end of the reporting period On 18 August 2022, the directors determined a final fully franked ordinary dividend for the six months ended 30 June 2022 of 7.30 cents per share. The dividend is expected to be paid on 29 September 2022 and has not been provided for as at 30 June 2022. (iii) Franking account Franking credits available at 30 June 2022 for subsequent reporting periods based on a tax rate of 30% are $372.7 million (2021: $324.2 million). (iv) Calculation of dividend paid Medibank’s target dividend payout ratio for the 2022 financial year is 75-85% (2021: 75-85%) 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 2022 $m 393.9 22.7 18.5 435.1 2021 $m 441.2 (31.2) (11.3) 398.7 Dividends Accounting Policy A liability is recorded for any dividends determined on or before the reporting date, but that have not been distributed at that date. (b) Earnings per share Basic and diluted earnings per share attributable to ordinary equity holders of the parent (cents) Profit for the year attributable to ordinary equity holders of the parent ($m) 2022 14.3 393.9 2021 16.0 441.2 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. 90 Medibank Notes to the consolidated financial statements30 June 2022 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 provides information on the net investment income/ (expense) and the carrying amounts of the financial assets residing in the two investment portfolios; the Health Fund Investment Portfolio (including the sub-portfolio) and the Non-Health Fund Investment Portfolio. Health Fund Investment Portfolio The Health Fund Investment Portfolio is managed 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. Consequently, the asset allocation of the 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 approved short-term target asset allocation (TAA) for the Health Fund Investment Portfolio is 20%/80% for growth and defensive assets, and the long- term TAA is 25%/75% for growth and defensive assets. During, and because of, the COVID-19 pandemic, the Short- term Operational Cash (STOC) sub-portfolio was created with the purpose of funding the COVID-19 claims liability and the customer give backs. Given the sub-portfolio’s short-term nature, it is managed separately from the TAA framework. This sub-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 assets with a minimum credit rating of AA-. Non-Health Fund Investment Portfolio The Non-Health Fund Investment Portfolio is designed to provide the Group with additional liquidity and financial flexibility. The portfolio resides outside of the health fund and is not subject to the same regulatory requirements as the Health Fund Investment Portfolio. The CFO has delegation from the Investment and Capital Committee to manage the portfolio in accordance with the Board approved Investment Management Policy and investment strategy. 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 assets with a minimum credit rating of AA-. Health Fund Investment Portfolio1 Short-term Operational Cash (STOC) Non-Health Fund Investment Portfolio Portfolio composition 30 June 2022 ($m) Cash portfolio Cash and cash equivalents (as reported in the statement of financial position)2 Cash investments with longer maturities Less cash allocated to the Fixed income portfolio Fixed income portfolio Fixed income (as reported in the statement of financial position) Less cash investments with longer maturities Cash allocated to the Fixed income portfolio Growth portfolio Equities and investment trusts Total investment portfolio 232.2 322.2 (14.4) 1,769.8 (322.2) 14.4 474.7 2,476.7 Total 572.4 541.4 (14.4) 2,379.8 (541.4) 14.4 474.7 326.6 199.4 - 433.8 (199.4) - - 13.6 19.8 - 176.2 (19.8) - - 760.4 189.8 3,426.9 Annual Report 2022 91 Health Fund Investment Portfolio1 Short-term Operational Cash (STOC) Non-Health Fund Investment Portfolio Portfolio composition 30 June 2021 ($m) Cash portfolio Cash and cash equivalents (as reported in the statement of financial position)2 Cash investments with longer maturities Less cash allocated to the Fixed income portfolio Fixed income portfolio Fixed income (as reported in the statement of financial position) Less cash investments with longer maturities Cash allocated to the Fixed income portfolio Growth portfolio Equities and investment trusts Total investment portfolio 428.8 179.0 (37.3) 1,563.6 (179.0) 37.3 488.5 2,480.9 Total 659.9 179.0 (37.3) 1,823.4 (179.0) 37.3 488.5 178.2 - - 52.9 - - 148.6 111.2 - - - - - - 326.8 164.1 2,971.8 1. The Health Fund Investment Portfolio excludes the Short-term Operational Cash (STOC) sub-portfolio. 2. Cash and cash equivalents as reported in the statement of financial position also include operational cash of $24.3 million (2021: $11.8 million). 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 2022 Portfolio composition 30 June 2021 Target asset allocation 5.4% 4.1% 7.4% 2.3% 19.2% 4.8% 6.0% 6.9% 2.1% 19.8% 6.0% 5.0% 7.0% 2.0% 20.0% 59.0% 21.8% 80.8% 100.0% 57.8% 22.4% 80.2% 100.0% 60.0% 20.0% 80.0% 100.0% Health Fund Investment Portfolio International equities $100.7m Cash $540.0m Infrastructure $57.2m Australian equities $133.9m Property $182.9m Fixed income $1,462.0m Financial Assets at Fair Value Accounting Policy Investments in listed and unlisted equity securities held by the Health Fund Investment Portfolio are accounted for at fair value through profit or loss (FVTPL). Fixed income investments held by the Health Fund Investment Portfolio 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. Non-Health Fund Investment Portfolio Fixed income assets held by the Non-Health Fund Investment Portfolio 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. These assets are measured at fair value, with unrealised gains and losses recognised within equity in other comprehensive income. When the assets are derecognised, the cumulative unrealised gain or loss previously recognised in other comprehensive income is reclassified from equity to profit 92 Medibank Notes to the consolidated financial statements30 June 2022Financial Assets at Fair Value Accounting Policy continued or loss. Interest income is recognised within net investment income/(expense) in the consolidated statement of comprehensive income using the effective interest method. For financial assets measured at FVOCI, the Group applies the general impairment approach under AASB 9, which requires the 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 in the valuation techniques used to measure fair value. The hierarchy is described in Note 7(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/(expense) Net investment income/(expense) is presented net of investment management fees in the consolidated statement of comprehensive income. Interest income1 Trust distributions Net gain/(loss) on fair value movements on financial assets Net gain/(loss) on disposal of financial assets Investment management expenses Net investment income/(expense) 2022 $m 17.9 43.1 (93.0) 12.3 (5.1) (24.8) 2021 $m 17.7 38.0 47.8 21.2 (4.7) 120.0 1. Includes interest income of $1.0 million (2021: $0.7 million) relating to financial assets at fair value through other comprehensive income (Non-Health Fund Investments). Net Investment Income/(Expense) Accounting Policy Net investment income/(expense) includes: • Trust distribution income derived from financial assets at FVTPL, which is recognised when the Group’s right to receive payments is established. • Interest income, which is recognised using the • Gains or losses arising from changes in the fair value effective interest method. (b) Fair value hierarchy of financial assets measured at FVTPL. • Investment management fees. The Group’s financial instruments are categorised 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. Annual Report 2022 93 The following tables present the Group’s financial assets measured and recognised at fair value on a recurring basis. 30 June 2022 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 2022 30 June 2021 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 2021 Level 1 $m Level 2 $m Level 3 $m Total $m - - - - 133.9 100.7 - - 53.0 2,150.6 - 176.2 - - 182.9 57.2 - - 133.9 100.7 182.9 57.2 2,203.6 176.2 53.0 2,561.4 240.1 2,854.5 Level 1 $m Level 2 $m Level 3 $m Total $m - - - - 119.3 147.4 - - 82.0 1,630.2 - 111.2 - - 169.3 52.5 - - 119.3 147.4 169.3 52.5 1,712.2 111.2 82.0 2,008.1 221.8 2,311.9 1. Australian equities, international equities, property and infrastructure are indirectly held through unit trusts. The following table presents the changes in level 3 financial instruments during the period. Balance at 1 July 2021 Acquisitions Net unrealised gain/(loss) on fair value movements Infrastructure $m Property $m Total $m 52.5 169.3 221.8 4.3 6.5 10.8 0.4 7.1 7.5 Balance at 30 June 2022 57.2 182.9 240.1 A 10% increase/decrease in the redemption price would decrease/increase the fair value of the level 3 financial assets by $24.0 million. 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. Transfers between fair value hierarchy levels are recognised from the date of effect of the transfer. There were no transfers between the fair value hierarchy levels during the year. Fair value measurements using significant unobservable market data (level 3) The Group’s investments in infrastructure and property financial assets are classified within level 3 of the fair value hierarchy. These assets are held in unlisted unit trusts and are valued at the redemption value per unit as reported by the managers of such funds. They are classified within level 3 of the fair value hierarchy as their fair values are not based on observable market data due to the infrequent trading of these investments which results in limited price transparency. 94 Medibank Notes to the consolidated financial statements30 June 2022Note 8: Financial risk management This note reflects risk management policies and procedures associated with financial instruments. The Group’s principal financial instruments comprise cash and cash equivalents (short-term money market instruments), fixed income assets (floating rate notes, asset-backed securities, syndicated loans, fixed income absolute return funds and hybrid investments), property assets, infrastructure assets, Australian equities and international equities. A strategic asset allocation is set and reviewed at least annually by the Board, and establishes the maximum and minimum exposures in each investment class. Transacting in individual investments is subject to the delegation of authorities and approval process that is established and reviewed by the Investment and Capital Committee (ICC). Trading of derivative instruments for purposes other than risk management cannot be undertaken, unless explicitly approved by the ICC. The Group was in compliance with this policy during the current and prior reporting periods. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, price risk, credit risk and liquidity risk. Primary responsibility for the consideration and control of financial risks rests with the ICC under the authority of the Board. 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. Exposure The Group has exposure to Australian variable and global fixed interest rate risk in respect of its cash and cash equivalents (2022: $596.7 million, 2021: $671.7 million) and fixed income assets (2022: $2,379.8 million, 2021: $1,823.4 million). Both classes of financial assets have variable interest rates and are therefore exposed to cash flow movements if these interest rates change. 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 assets had a modified duration of 0.3 years (2021: 0.5 years). Sensitivity A 50bps increase/decrease in interest rates for the entire reporting period, with all other variables remaining constant, would have resulted in a $6.9 million increase/decrease to profit after tax and equity (2021: $4.4 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. Exposure All of the Group’s financial assets with a non-AUD currency exposure are fully economically hedged, except for International equities which are unhedged. At balance date, international equities financial assets (2022: $100.7 million, 2021: $147.4 million) had net exposure to foreign currency movements. Sensitivity A 10% increase/decrease in foreign exchange rates, with all other variables remaining constant, would have resulted in a $7.8 million decrease/increase to profit after tax and equity (2021: $11.5 million) in the AUD valuation of international equities financial assets. Balance date risk exposures represent the risk exposure inherent in the financial instruments. Annual Report 2022 95 (iii) Price risk Description 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. Exposure The Group is exposed to price risk in respect of its fixed income assets 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. 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 the average monthly balances during the period and shows the impact on profit after tax and equity if market prices had moved, with all other variables held constant. Australian equities International equities Property Infrastructure 2022 $m 2021 $m +10.0% -10.0% +10.0% -10.0% 9.1 8.3 12.3 3.8 (9.1) (8.3) (12.3) (3.8) 8.7 10.1 11.6 2.1 (8.7) (10.1) (11.6) (2.1) In relation to fixed income assets, a 25bps increase/decrease in credit spreads, with all other variables remaining constant, would have resulted in a $5.8 million decrease/increase to profit after tax and equity (2021: $5.9 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. Exposure Credit risk exposure is measured by reference to exposures by ratings bands, country, industry and instrument type. 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 portfolios are subject to counterparty exposure limits. These limits specify that no more than 50% (2021: 50%) of the cash portfolio can be invested in any one counterparty bank and no more than 10% (2021: 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% (2021: 50%) and 15% (2021: 15%) of the portfolio respectively. As at 30 June 2022 and 2021, the counterparty exposure of the Group was within these limits. 96 Medibank Notes to the consolidated financial statements30 June 2022(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, after which 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 then 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 credit risk on trade and other receivables within the Group. (iii) Counterparty credit risk ratings The following tables outline the Group’s credit risk exposure by classifying assets according to the short-term and equivalent long-term credit ratings (as per published Standard & Poor’s correlations) of the counterparties. Assets that fall outside the range AAA to BBB are classified as non-investment grade. 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. Short-term rating Long-term rating 2022 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 2021 Cash and cash equivalents Premiums in arrears Trade and other receivables Financial assets Australian equities International equities Property Infrastructure Fixed income A-1+ AAA $m - - - - - - - A-1+ AA $m 596.7 - - - - - - A-1 A $m A-2 BBB $m B & below BB & below $m Not rated $m - - - - - - - - - - - - - - - - - - - - - Total $m 596.7 6.3 - 6.3 219.1 219.1 133.9 100.7 182.9 57.2 133.9 100.7 182.9 57.2 285.5 819.9 378.8 329.2 7.6 382.6 2,203.6 - 176.2 - - - - 176.2 285.5 1,592.8 378.8 329.2 7.6 1,082.7 3,676.6 - - - - - - - 671.7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8.5 671.7 8.5 207.4 207.4 119.3 147.4 169.3 52.5 119.3 147.4 169.3 52.5 183.2 528.4 293.0 301.3 7.9 398.4 1,712.2 Financial assets at fair value through other comprehensive income - 111.2 - - - - 111.2 Total 183.2 1,311.3 293.0 301.3 7.9 1,102.8 3,199.5 The not rated fixed income assets relate to investments in unrated unit trusts. The majority of the underlying securities held by these unit trusts are investment grade assets and Senior Loans. Annual Report 2022 97 (c) 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 20% (2021: 20%) 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 2022, 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 2022. 2022 Other trade and other payables1 Lease liabilities2 Total trade and other payables Claims liabilities COVID-19 claims liability3 Total claims liabilities 2021 Other trade and other payables1 Lease liabilities2 Total trade and other payables Claims liabilities COVID-19 claims liability3 Total claims liabilities Under 6 months $m 6 to 12 months $m 1 to 2 years $m Over 2 years $m Total contractual cash flows $m Carrying amount $m 329.8 17.7 347.5 389.8 95.9 485.7 309.4 16.1 325.5 376.7 63.5 440.2 1.4 17.4 18.8 23.8 352.4 376.2 0.7 15.4 16.1 21.9 160.3 182.2 2.5 31.8 34.3 6.8 - 6.8 1.1 29.7 30.8 5.5 - 5.5 7.4 15.9 23.3 3.3 - 3.3 3.8 36.4 40.2 3.6 - 3.6 341.1 82.8 423.9 423.7 448.3 872.0 315.0 97.6 412.6 407.7 223.8 631.5 341.1 76.9 418.0 422.8 448.3 871.1 315.0 93.4 408.4 407.7 223.8 631.5 1. Contractual cash flows greater than 6 months primarily relate to the loyalty program. 2. Refer to Note 14 for further information on lease liabilities. 3. The COVID-19 claims liability is specifically funded by the Short-term Operational Cash (STOC) sub-portfolio (refer to Note 7 for further information). 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 COVID-19 claims liability extending beyond 12 months. This liability is specifically funded by the STOC sub-portfolio. 98 Medibank Notes to the consolidated financial statements30 June 2022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 (b) Trade and other receivables to enable the ongoing conduct of the business of the fund. 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. Premiums in arrears Allowance for impairment loss Trade receivables Allowance for impairment loss Government rebate scheme Accrued revenue Other receivables Note (i) (ii) 2022 $m 11.9 (5.6) 6.3 66.7 (2.1) 64.6 137.7 13.4 3.4 154.5 2021 $m 13.2 (4.7) 8.5 59.0 (2.2) 56.8 133.8 13.2 3.6 150.6 Total trade and other receivables 225.4 215.9 Note: Government rebate scheme is non-interest bearing and generally on 15-day terms. Past due but not considered impaired (i) Premiums in arrears past due but not impaired are $6.3 million (2021: $8.5 million). (ii) Trade receivables past due but not impaired are $8.0 million (2021: $8.3 million). Each business unit of the Group has reviewed their individual debtors and is satisfied that payment will be received in full. 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. Trade and Other Receivables Accounting Policy Trade and other receivables are non-interest bearing and generally due for settlement within 7 - 30 days. These receivables are initially measured at fair value and subsequently at amortised cost using the effective interest method, less a loss allowance for expected credit losses. The carrying value of trade and other receivables is considered to approximate fair value, due to the short-term nature of the receivables. Collectability of trade receivables is reviewed on an ongoing basis. The Group applies the simplified impairment approach under AASB 9, where expected lifetime losses are assessed based on historical bad and doubtful debt roll rates and adjusted for forward looking information where required. Uncollectible trade receivables are written off against the allowance account when identified. Any impairment loss on trade receivables is recognised within other expenses in the consolidated statement of comprehensive income. Any impairment loss on premiums in arrears is offset against health insurance premium revenue. Annual Report 2022 99 (c) Trade and other payables Current Trade creditors Other creditors and accrued expenses Lease liabilities Risk Equalisation Special Account Other payables1 Total current Non-current Lease liabilities Other payables1 Total non-current Note 2022 $m 2021 $m 14 14 241.4 239.9 66.2 30.2 16.7 6.9 55.6 28.1 7.7 6.9 361.4 338.2 46.7 9.9 56.6 65.3 4.9 70.2 1. Other payables include a contract liability in relation to the loyalty program. Trade and Other Payables Accounting Policy Trade and other payables, with the exception of lease liabilities, are non-interest bearing and are initially measured at fair value and subsequently at amortised cost using the effective interest method. The carrying value of trade and other payables is considered to approximate fair value, due to the short-term nature of the payables. Refer to Note 3(a) for the Risk Equalisation Special Account accounting policy. Refer to Note 14 for the accounting policy for lease liabilities. 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) Reconciliation of profit after income tax to net cash flow from operating activities Profit for the year Non-cash items Depreciation and amortisation Non-cash share-based payments expense Share of (profit)/loss from equity accounted investments Other non-cash items Investing and financing items Net realised loss/(gain) on financial assets Net unrealised loss/(gain) on financial assets Interest income Trust distributions Investment management expenses Interest paid – leases 100 Medibank Note 16(b) 14 2022 $m 393.9 2021 $m 441.2 115.0 122.0 5.9 (4.5) 1.6 (12.3) 93.0 (17.9) (43.1) 5.1 2.4 5.2 1.0 - (21.2) (47.8) (17.7) (38.0) 4.7 2.8 Notes to the consolidated financial statements30 June 2022 (Increase)/decrease in operating assets Trade and other receivables Deferred acquisition costs Other assets Income tax receivable/liability Net deferred tax assets Increase/(decrease) in operating liabilities Trade and other payables Unearned premium liability Claims liabilities Provisions and employee entitlements Net cash inflow from operating activities Note 2022 $m (11.1) (39.6) 1.7 123.2 (157.1) 34.2 137.4 239.6 81.1 948.5 2021 $m (8.8) (42.3) 6.2 (63.9) 4.3 15.7 11.3 (7.7) 115.2 482.2 Cash and Cash Equivalents Accounting Policy Cash and cash equivalents comprise short-term highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant change in value. These investments have original maturities of three months or less and include cash on hand, short-term bank bills, term deposits and negotiable certificates of deposit. Amounts in cash and cash equivalents are the same as those included in the consolidated statement of cash flows. 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 on a poll, at a general meeting of Medibank, and in a 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, entitle their holders to participate in the distribution of the surplus assets of Medibank. (b) Reserves Equity reserve1 Share-based payments reserve2 Total 2022 $m 17.8 7.9 25.7 2021 $m 17.8 4.5 22.3 1. 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. 2. The share-based payments reserve is used to record the cumulative expense recognised in respect of performance rights issued to participating employees. Refer to Note 18 for further information. Annual Report 2022 101 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 carrying amount Plant and equipment Leasehold improvements Assets under construction Right-of-use assets Total property, plant and equipment (b) Reconciliation of the net carrying amount 2022 Gross carrying amount Accumulated depreciation and impairment Net carrying amount Net carrying amount at 1 July Additions Transfers in/(out) Depreciation expense Net carrying amount at 30 June 2021 Gross carrying amount Accumulated depreciation and impairment Net carrying amount Net carrying amount at 1 July Additions Transfers in/(out) Depreciation expense Net carrying amount at 30 June Note 14 2022 $m 10.0 16.8 7.1 54.5 88.4 Plant and equipment $m Leasehold improvements $m Assets under construction $m 23.6 (13.6) 10.0 10.2 - 1.1 (1.3) 10.0 22.9 (12.7) 10.2 6.1 6.2 1.7 (3.8) 10.2 96.0 (79.2) 16.8 23.7 0.4 2.7 (10.0) 16.8 95.0 (71.3) 23.7 31.0 1.0 1.2 (9.5) 23.7 7.1 - 7.1 4.5 6.4 (3.8) - 7.1 4.5 - 4.5 3.0 4.4 (2.9) - 4.5 2021 $m 10.2 23.7 4.5 63.3 101.7 Total $m 126.7 (92.8) 33.9 38.4 6.8 - (11.3) 33.9 122.4 (84.0) 38.4 40.1 11.6 - (13.3) 38.4 (c) Property, plant and equipment capital expenditure commitments Capital expenditure contracted for at the end of the reporting period but not recognised as liabilities 2022 $m 2021 $m 2.0 0.2 102 Medibank Notes to the consolidated financial statements30 June 2022 Property, Plant and Equipment Accounting Policy Refer to Note 14 for the accounting policy for right-of-use assets. Depreciation Property, plant and equipment is depreciated using the straight-line method over the estimated useful life as follows: Property, plant and equipment is carried at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the item and any subsequent expenditure eligible for capitalisation. Repairs and maintenance costs are recognised in the consolidated statement of comprehensive income during the period in which they are incurred. Plant and equipment Leasehold improvements the lease term Assets under construction not depreciated until in use 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. Note 12: Intangible assets 2022 Gross carrying amount Accumulated amortisation and impairment Net carrying amount Net carrying amount at 1 July Additions Transfers in/(out) Amortisation expense Net carrying amount at 30 June 2021 Gross carrying amount Accumulated amortisation and impairment Net carrying amount Net carrying amount at 1 July Additions Transfers in/(out) Amortisation expense Net carrying amount at 30 June Customer contracts and relationships $m Goodwill $m Software $m Assets under construction $m 282.9 (78.4) 204.5 204.5 - - - 204.5 282.9 (78.4) 204.5 204.5 - - - 204.5 89.7 (88.0) 1.7 3.7 - - (2.0) 1.7 89.7 (86.0) 3.7 8.3 - - (4.6) 3.7 479.4 (379.6) 99.8 111.9 4.5 19.4 (36.0) 99.8 455.5 (343.6) 111.9 124.7 4.1 20.7 (37.6) 111.9 26.3 - 26.3 25.2 20.5 (19.4) - 26.3 25.2 - 25.2 26.2 19.7 (20.7) - 25.2 Total $m 878.3 (546.0) 332.3 345.3 25.0 - (38.0) 332.3 853.3 (508.0) 345.3 363.7 23.8 - (42.2) 345.3 Goodwill Accounting Policy Goodwill is carried at cost less accumulated impairment losses. Goodwill is not amortised and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. Key estimate Refer to Note 12(a) for further information on the assumptions used in the recoverable amount calculations. Annual Report 2022 103 Software Accounting Policy Software is carried at cost less accumulated amortisation and impairment losses. Costs capitalised include external direct costs of acquiring software, licences and service, and payroll related costs of employees’ time spent on the project. Assets are capitalised where there is control of the underlying software asset and 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 (1.5 to 10 years). Customer Contracts and Relationships Accounting Policy 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). 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) Impairment tests for goodwill – key assumptions and judgements Below is a summary of the Group’s goodwill allocation to cash generating unit (CGU) 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 2022 Growth rate % 2.5 1.0 2.5 Pre-tax discount rate % Goodwill allocation $m 11.6 12.4 12.4 96.2 11.1 97.2 2021 Growth rate % 2.5 1.0 2.5 Pre-tax discount rate % 10.5 11.3 11.3 The recoverable amounts of the CGUs are based on value in use (VIU) calculations, which use a three-year cash flow projection per the Group’s Board approved Corporate Plan. A terminal value has been assumed in all the VIU calculations, except for the Medibank Health Telehealth CGU VIU calculation which is based on the expected tenure of current contracts. Estimated future cash flows are discounted using post-tax discount rates which reflect risks specific to each CGU. The equivalent pre-tax discount rates are disclosed above. The growth rates do not exceed the long-term average growth rates for the businesses in which the CGUs operate as per industry forecasts. The key assumptions underpinning the cash flows are specific to each CGU and the industry in which it operates. The assumptions applied are based on management’s past experience and knowledge in the market in which the CGU operates. They include the following: • Health Insurance CGU: Key assumptions include policyholder growth and future premium revenue rate rises, along with claims growth and claims inflation. • Medibank Health Telehealth CGU: The business model of the CGU is contract based by nature and the forecast cash flows contain key assumptions for key customer contracts, including contract renewals, new wins and losses. • Medibank Health Home Care group of CGUs: 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 forecast cash flows contain key assumptions around volumes of services performed across geographic areas, expected contract renewals and new wins and losses. Forecast future cash flows Discount rates Growth rates Other key assumptions 104 Medibank Notes to the consolidated financial statements30 June 2022 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 reporting periods. Impairment Accounting Policy For the purposes of assessing impairment, 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. A CGU is the smallest group of assets that generate separately identifiable cash inflows. An impairment loss is recognised if the asset’s or CGU’s carrying amount exceeds its recoverable amount. The recoverable amount of an asset or CGU is the higher of its fair value less costs of disposal and VIU. In assessing VIU, 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 or CGU. (b) Intangible assets capital expenditure commitments Capital expenditure contracted for at the end of the reporting period but not recognised as liabilities Note 13: Provisions and employee entitlements (a) Employee entitlements (i) Employee entitlements provision Current Non-current Total employee entitlements This provision incorporates annual leave, long service leave, bonus plans and termination payments. (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 2022 $m 2021 $m 0.7 1.9 2022 $m 72.4 13.8 86.2 2022 $m 31.0 4.9 3.3 5.9 2021 $m 69.7 13.0 82.7 2021 $m 30.4 5.4 3.7 5.2 Annual Report 2022 105 Notes to the consolidated financial statements 30 June 2022 Employee Entitlements Accounting Policy 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 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. (b) Provisions Movements in provisions are as follows: Commissions $m Make good $m Workers compensation $m Corporate loyalty benefits $m Contingent consideration $m Balance at 1 July 2021 Additional provision Amounts utilised during the year Reversal of unused provision Balance at 30 June 2022 Balance comprised of: Current Non-current 8.9 7.2 (7.4) - 8.7 8.7 - 5.0 - (0.8) - 4.2 1.4 2.8 5.3 0.5 (1.3) - 4.5 0.7 3.8 10.0 4.2 (3.1) (0.4) 10.7 10.7 - 106 Medibank Other $m Total $m 2.8 2.8 34.7 20.1 (0.3) (12.9) - 5.3 (0.4) 41.5 2.7 5.4 - - 8.1 5.4 2.7 5.3 32.2 - 9.3 (i) Commissions provision This provision relates to estimated commissions payable to third parties in relation to the acquisition of health insurance contracts. (ii) 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. (iii) Workers compensation provision The parent entity is self-insured for workers’ compensation claims. Provisions are recognised based on claims reported and an estimate of claims incurred but not reported. These provisions are determined on a discounted basis, using an actuarial valuation performed at each reporting date. The parent entity has entered into $10.0 million (2021: $10.0 million) of bank guarantees in relation to its self- insured workers compensation obligations. (iv) Corporate loyalty benefits provision This provision relates to estimated incentives payable to third parties in relation to the acquisition of corporate health insurance contracts. (v) Contingent consideration provision Contingent consideration relates to the investment in East Sydney Day Hospital Pty Limited (refer to Note 16(b) for further information). (c) Customer give back provision Movement in the customer give back provision is as follows: Balance at 1 July 2021 Additional provision Amounts utilised during the year Balance at 30 June 2022 Total $m 103.0 184.6 (109.0) 178.6 During the current and prior periods, the Group has announced various customer give backs as part of its commitment to return permanent net COVID-19 savings to eligible policyholders. These give backs are initially recognised as a reduction to Health Insurance premium revenue in the consolidated statement of comprehensive income with the corresponding liability recognised in either the customer give back provision or provision for premium deferral in the unearned premium liability (refer to Note 5) depending on the mechanism used to provide the give back to eligible policyholders. One-time cash payments are recognised in the customer give back provision, and premium deferrals are recognised within the unearned premium liability. The 2021 give back of $103.0 million that was recognised at 30 June 2021 has all been returned to eligible policyholders during the period. The total amount given back was $104.6 million, with the additional $1.6 million recognised in the current period consolidated statement of comprehensive income. Further customer give backs totalling $367.8 million were announced during the current period in relation to a 7 month deferral of the 1 April 2022 premium increase and a one-time cash payment. Of this, $183.0 million has been recognised within the customer give back provision, with $4.4 million of this being paid during the current period. The remaining give back amount of $184.8 million has been recognised in the provision for premium deferral in the unearned premium liability (refer to Note 5). 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. Annual Report 2022 107 (d) 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 state and federal regulators such as the ACCC, ASIC, APRA or other regulatory bodies 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. The Group has issued $17.6m of bank guarantees to third parties for various operational and legal purposes, including $10.0 million (2021: $10.0 million) in relation to its self- insured workers compensation obligations (refer to Note 13(b) (iii)) and other guarantees relating to conditions set out in property agreements. It is not expected that these guarantees will be called upon. Note 14. Leases (a) Group as a lessee 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. As at 30 June 2022, management have determined it is not reasonably certain that any of its leases will be extended or terminated. The table below sets out the carrying amounts of the right-of-use asset and the movements during the year. Balance at 1 July Net additions Depreciation expense Balance at 30 June The table below sets out the carrying amounts of the lease liabilities and the movements during the year. Balance at 1 July Additions Accretion of interest Lease payments Balance at 30 June Balance comprised of: Current Non-current 2022 $m 63.3 19.1 (27.9) 54.5 2022 $m 93.4 19.9 2.4 (38.8) 76.9 30.2 46.7 2021 $m 72.1 18.4 (27.2) 63.3 2021 $m 109.2 18.4 2.8 (37.0) 93.4 28.1 65.3 The maturity profile of the Group's lease liabilities based on contractual undiscounted payments is provided in Note 8(c). 108 Medibank Notes to the consolidated financial statements30 June 2022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. In determining the incremental borrowing rate, the following components are considered: • Reference rate (incorporating currency, environment, term). • Financing spread adjustment (incorporating term, indebtedness, entity, environment). • Lease specific adjustment (incorporating asset type). 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. (b) Group as a Lessor Finance lease receivables of $4.9 million have been recognised by the Group at 30 June 2022 (2021: $7.0 million). These are presented within other assets in the consolidated statement of financial position. Leases Accounting Policy As a lessor The Group acts as an intermediate lessor for two 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. Annual Report 2022 109 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 15: 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 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. (a) Income tax expense Current tax Deferred tax1 Adjustment for tax of prior period Income tax expense 2022 $m 322.0 (156.6) 0.7 166.1 2021 $m 182.2 8.6 0.3 191.1 1. Current period includes deferred tax of $130.2 million in relation to the movements in the COVID-19 claims liability and provision for customer give backs (including premium deferral). Refer to Note 15(c). (b) Numerical reconciliation of income tax expense to prima facie tax payable 2022 $m 560.0 2021 $m 632.3 168.0 189.7 0.9 (1.6) (1.3) (0.6) 2.8 (1.2) 0.3 (0.8) 165.4 190.8 0.7 166.1 0.3 191.1 Profit for the year 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-deductible expenses Tax offset for franked dividends Share of (profit)/loss from equity accounted investments Other items Adjustment for tax of prior period Income tax expense 110 Medibank Notes to the consolidated financial statements30 June 2022 (c) Deferred tax assets and liabilities Deferred tax balances comprise temporary differences attributable to following 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 equipment Intangible assets Trade and other payables Employee entitlements Claims liabilities1 Provisions2 Business capital costs Other (liabilities)/assets Recognised directly in other comprehensive income Actuarial loss on retirement benefit obligation Net deferred tax assets 2022 $m 2.3 (4.2) (24.9) (17.2) (11.1) 26.9 25.8 139.3 104.1 0.1 2.1 243.2 0.4 0.4 243.6 2021 $m 2.0 (28.4) (24.3) (19.6) (13.0) 30.6 24.8 72.2 40.6 0.3 0.3 85.5 0.4 0.4 85.9 1. Includes deferred tax of $134.5 million (2021: $67.1 million) in relation to the COVID-19 claims liability. Refer to Note 3(b) for further information. 2. Includes deferred tax of $53.6 million (2021: $30.9 million) in relation to the customer give back provision and $40.1 million in relation to the provision for premium deferral recognised in the unearned premium liability. Refer to Note 5 and Note 13(c) for further information. 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. Annual Report 2022 111 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. Note 16: Group structure (a) Group structure The consolidated financial statements incorporate the following entities. All entities, unless otherwise stated, are 100% controlled. Medibank Private Limited Medibank Health Solutions Pty Ltd Australian Health Management Group Pty Ltd Medibank Private Employee Share Plan Trust1 MHSI Pty Ltd2 Medibank Health Solutions Telehealth Pty Ltd MH Investment Holdings Pty Ltd MH Solutions Investments Pty Ltd Live Better Management Pty Ltd Integrated Care Services Pty Ltd MH Operations Pty Ltd2 Medi Financial Services Pty Ltd HealthStrong Pty Ltd East Sydney Day Hospital Pty Ltd (49%) Adeney Private Hospital Pty Ltd (49%) Medinet Australia Pty Ltd (3.85%) Home Support Services Pty Ltd Adeney Private Hospital Pty Ltd (49%) Calvary Medibank JV Pty Ltd (50%) Myhealth Medical Holdings Pty Ltd (49%) SydOrtho Holdings Pty Ltd (50%) 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. These entities are equity accounted investments. Refer to Note 16(b) for further information. 1. Refer to Note 18(a) for further information on the Employee Share Plan Trust. 2. MHSI Pty Ltd and MH Operations Pty Ltd were registered on 9 May 2022. 112 Medibank Notes to the consolidated financial statements30 June 2022 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. (b) Equity accounted investments As at 30 June 2022 the Group held the following investments in associates and joint ventures: Name of company East Sydney Day Hospital Pty Ltd (iii) Calvary Medibank JV Pty Ltd Myhealth Medical Holdings Pty Ltd Adeney Private Hospital Pty Ltd (iii) Medinet Australia Pty Ltd (i) SydOrtho Holdings Pty Ltd (ii) Principal activity Place of incorporation Type Australia Short stay hospital Australia Medical services Australia Medical services Short stay hospital Australia Digital health services Australia Australia Short stay hospital Associate Joint Venture Associate Associate Associate Joint Venture The following table shows the Group’s aggregated interests in equity accounted investments. Balance at 1 July Additions Share of net profit/(loss) for the year Balance at 30 June Ownership interest % 2022 49.00% 50.00% 49.00% 49.00% 3.85% 50.00% 2022 $m 77.1 22.1 4.5 103.7 2021 49.00% 50.00% 49.00% 49.00% - - 2021 $m - 78.1 (1.0) 77.1 (i) Medinet Australia Pty Ltd (iii) Other On 15 March 2022, Medi Financial Services Pty Ltd acquired a 3.85% shareholding in Medinet Australia Pty Ltd, a digital health service provider, for $10.0 million. The Group has significant influence over Medinet as it has 28.5% of the voting power. Other additions during the period comprised: • Non-cash addition of $5.4 million in relation to the increase in the East Sydney Day Hospital Pty Ltd contingent consideration provision (refer to Note 13(b)(v)). • Subscription for an additional $5.2 million of shares in Adeney Private Hospital Pty Ltd (APH) in line with APH’s achievement of milestones. (ii) SydOrtho Holdings Pty Ltd On 16 March 2022, MH Solutions Investments Pty Ltd acquired a 50% shareholding in SydOrtho Holdings Pty Ltd (SydOrtho) for $1.5 million, to develop a hospital in Sydney for short stay surgical procedures. As part of the purchase agreement, the Group may make future equity purchases in SydOrtho up to $13.3 million. These future equity purchases are contingent on SydOrtho achieving certain milestones in the development of the hospital and therefore will only be recognised when the milestones are achieved. Annual Report 2022 113 Equity Accounted Investments Accounting Policy The Group’s associates and joint ventures, which are entities over which the Group has significant influence or joint control, are accounted for using the equity method. Under this method, the investment associate or joint venture is initially recognised at cost and is increased or decreased to recognise the Group’s share of profit or loss. Equity accounting of losses is restricted to the Group’s interest in the associate or joint venture. The Group’s share of profit or loss for the period is reflected in the consolidated statement of comprehensive income. Investments in associates and joint ventures are tested for impairment if an event occurs that has an impact on the estimated future cash flows from the net investment. (c) 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 2022 $m 2021 $m 3,441.7 3,186.5 4,192.8 3,794.7 2,207.1 1,832.2 2,355.8 1,980.2 85.0 85.0 6.3 7.9 1,737.8 1,837.0 377.1 377.1 6.3 4.5 1,718.7 1,814.5 432.7 432.7 (ii) Guarantees entered into by parent entity (iii) Contingent liabilities of the parent entity The parent entity has entered into $10.0 million (2021: $10.0 million) of bank guarantees in relation to its self-insured workers compensation obligations. Refer to Note 13(b)(iii) for further information on the provision for workers compensation. Refer to Note 13(d) for details of the contingent liabilities of the parent entity. (iv) Parent entity capital expenditure commitments Capital expenditure contracted for at the end of the reporting period but not recognised as liabilities Property, plant and equipment Intangible assets 2022 $m 2021 $m 2.0 0.4 0.2 1.6 114 Medibank Notes to the consolidated financial statements30 June 2022 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. Note 17: Related party transactions (a) Transactions with equity accounted investments Transactions with equity accounted investments Claims incurred Services provided Interest received Outstanding balances with related parties Amounts payable Amounts receivable Loan receivable 2022 $m (3.8) 26.6 0.2 (0.1) 1.5 2.9 2021 $m (2.9) 1.7 0.2 - 1.5 2.9 The Group has entered into the following transactions with its equity accounted investments during the year: • Payment of policyholder claims. These transactions are under normal commercial terms. • Receipts in relation to services rendered, largely comprised of services provided to Calvary Medibank JV Pty Ltd for the COVID Care at Home programs. • Reimbursement of costs incurred. (b) Key management personnel remuneration Short-term benefits Post-employment benefits Long-term benefits Share-based payments Total key management personnel 2022 $ 2021 $ 8,024,431 185,198 212,598 2,855,265 11,277,492 10,300,436 281,954 1,420,495 3,515,299 15,518,184 Refer to the Remuneration Report for further details of the composition of the key management personnel. (c) Transactions with other related parties Certain key management personnel hold director positions in other entities, some of which transacted with the Group during the current and prior reporting periods. All transactions that occurred were in the normal course of business on terms and conditions no more favourable than those available on an arm’s length basis. Annual Report 2022 115 Note 18: Share-based payments (a) Share-based payments arrangements Performance rights to acquire shares in Medibank are granted to members of the Executive Leadership Team (ELT), Senior Executive Group (SEG) and other selected senior employees as part of Medibank’s short-term incentive (STI) and long-term incentive (LTI) plans. These plans are designed to: • Align the interests of participating employees 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. • Assist in the motivation, retention and reward of participating employees. 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 2022 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 30 June 2021. This average price was $3.13. Performance rights granted do not carry any voting rights. (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. Medibank has an Employee Share Plan Trust to manage its share-based payments arrangements. Shares allocated by the trust to the employees are acquired on-market prior to allocation. The Trust held nil shares at 30 June 2022. (i) LTI offer Under the LTI plan, performance rights were granted to members of the ELT, SEG and other selected senior employees as part of their remuneration. Performance rights granted under the LTI plan are subject to the following performance hurdles: • 35% of the performance rights will be subject to a vesting condition based on Medibank’s earnings per share compound annual growth rate (EPS CAGR) over the performance period. • 35% of the performance rights 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 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. 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. 116 Medibank Notes to the consolidated financial statements30 June 2022(b) Performance rights – Group Outstanding at 1 July Granted Forfeited1 Exercised2 Lapsed3 Outstanding at 30 June Exercisable at 30 June Number of equity instruments 2022 2021 8,079,042 8,938,073 3,542,600 3,168,794 (1,371,837) (624,784) (825,420) (1,980,272) (1,753,932) (1,422,769) 7,670,453 8,079,042 - - 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 performance hurdles. (c) Fair value of performance rights granted Below is a summary of the fair values of the 2021 and 2022 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 1 July 2021 1 July 2020 1 July 2021 1 July 2020 TSR performance rights EPS and market share performance rights 2022 2021 2022 2021 Date of commencement of service and performance period Expected vesting date Fair value at grant date Share price at grant date Dividend yield (per annum effective) Franking rate Risk free discount rate (per annum) Valuation method Volatility assumptions (per annum) Medibank Comparator group average Correlation between comparator companies' TSR 1 July 2021 1 July 2020 1 July 2021 1 July 2020 30 June 2024 30 June 2023 30 June 2024 30 June 2023 $1.62 $3.14 3.7% 100.0% 0.2% $1.58 $2.97 4.0% 100.0% 0.3% $2.72 $3.14 3.7% 100.0% n/a $2.54 $2.97 4.0% 100.0% n/a Monte Carlo simulation model Monte Carlo simulation model Black-Scholes option pricing methodology Black-Scholes option pricing methodology 20% 32% 30% 28% 35% 25% n/a n/a n/a n/a n/a n/a Annual Report 2022 117 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: - Health consulting services Total remuneration of PwC 2022 $ 2021 $ 1,693,192 1,570,108 281,550 248,280 231,830 15,530 229,780 199,517 2,452,802 2,016,985 Note 20: Other (a) New and amended standards adopted Certain new accounting standards and amendments became effective for the annual reporting period commencing on 1 July 2021 but did not have a material impact on the Group’s accounting policies or on the consolidated 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 2022 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 AASB 17 Insurance Contracts 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 will apply AASB 17 for the annual period beginning 1 July 2023. The standard introduces a new general measurement model for accounting for insurance contracts. However, a simplified premium allocation approach, similar in nature to the Group’s existing measurement basis under AASB 1023 is permitted in certain circumstances (such as for short-duration contracts). The Group has a comprehensive project underway to assess the potential impact on its consolidated financial statements. This includes identifying changes to the Group’s accounting policies, reporting requirements, systems, processes and controls and consideration of industry interpretations and regulatory responses. The Group expects to apply the simplified premium allocation approach to all of its insurance contracts. The Group is considering applying the option provided under AASB 17 for groups of contracts that apply the simplified approach (and have a coverage period of less than one year) to recognise insurance acquisition cash flows as expenses when incurred. This is different to the current approach of amortising acquisition costs over the average expected retention period, however this potential change in treatment is not expected to result in a significant change to measurement. The impact of AASB 17 on the recognition, measurement and classification of the COVID-19 deferred claims liability and customer give backs is currently being evaluated by the Group. All other key estimates and judgements in relation to the measurement of the Group’s claim liabilities are expected to remain largely the same under the new standard. However, it is expected that under AASB 17 there will be substantial changes in presentation of the financial statements and disclosures. (ii) 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. 118 Medibank Notes to the consolidated financial statements30 June 2022(c) Other accounting policies 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. 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. (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 2022. Annual Report 2022 119 Directors' declaration The directors declare that, in the opinion of the directors: (a) the financial statements and notes set out on pages 73 to 119 are in accordance with the Corporations Regulations 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2022 and of its performance for the financial year ended on that date; and (ii) 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 Regulations 2001 for the year ended 30 June 2022. This declaration is made in accordance with a resolution of the directors. (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. On behalf of the Board, Mike Wilkins AO Chair 18 August 2022 Melbourne David Koczkar Chief Executive Officer 120 Medibank Auditor's independence declaration Auditor’s Independence Declaration As lead auditor for the audit of Medibank Private Limited for the year ended 30 June 2022, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) 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 18 August 2022 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 2022 121 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 2022 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 2022 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 significant accounting policies and other explanatory information 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 & 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 Liability limited by a scheme approved under Professional Standards Legislation. 122 Medibank 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 $27 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 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 key audit matters to the Audit Committee: • Continued impact of the COVID-19 pandemic • Estimation of the outstanding claims liability • Impairment test of goodwill allocated to the Home Care group of Cash Generating Units (CGUs) • Reliance on automated processes and controls These are further described in the Key audit matters section of our report. Annual Report 2022 123 Independent auditor’s report 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 Continued impact of the COVID-19 pandemic Estimation of the COVID-19 deferred claims liability (Refer to Note 3: $448.3m) The COVID-19 claims liability relates to expected future payments to customers as a result of the Coronavirus pandemic (COVID-19) preventing access to surgery and other health services (referred herein as ‘COVID-19 restrictions’). The COVID-19 claims liability is calculated by considering: • the difference between actual claims service levels and estimated underlying claims growth that would have occurred in the absence of COVID-19 restrictions (expected claims service level) • the rate at which deferred surgical and non-surgical procedures will catch up in future periods (deferral rate) • variations in the above key assumptions by geography and modality (claim type) • average policyholder lapse rate. Utilisation of the COVID-19 claims liability is assessed with reference to claims levels and the extent of COVID restrictions by geography and modality. The COVID-19 deferred 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 Key Audit Matters titled ‘Estimation of outstanding claims liability’). We considered this a key audit matter due to the: • complexity, significant uncertainties and subjectivity impacting the Group’s estimate of the liability, including: We performed the following audit procedures, amongst others: • Evaluated the design of the Group’s relevant key controls over the COVID-19 provisioning process. • Evaluated the Group’s accounting policy for the deferral of claims due to the COVID-19 pandemic against applicable Australian Accounting Standard requirements, Private Health Insurance (PHI) industry practices and publicly available health services data. • Assessed, on a sample basis, significant data inputs used in the Group’s modelling and estimation of the COVID-19 claims liability (including relevance and reliability of data, appropriateness of data in the context of the applicable financial reporting framework, and potential indicators of management bias). • Analysed claims patterns across key claims attributes (e.g. hospital versus ancillary claims and surgical versus non-surgical). • Together with PwC actuarial experts, we: o Assessed significant assumptions, and any changes to these assumptions, adopted by the Group in determining the impact of continued COVID-19 restrictions on claims deferred to future periods with reference to PHI trends, clinical analysis of deferral expectations and claims patterns with and without COVID-19 restrictions. o Considered the appropriateness of the Group’s methodologies used to determine claims deferred to future periods with reference to PHI actuarial practices. 124 Medibank Key audit matter How our audit addressed the key audit matter o o o o the impact and variability of disruptions to planned insured surgeries and other insured procedures arising from COVID-19 restrictions an absence of historical precedent on which to analyse data due to the impact of COVID-19 on claims patterns the determination of the proportion of claims not incurred that is attributable to COVID-19 restrictions the estimation of the proportion of deferred claims expected to be made post balance date. • the focus on disclosures that are fundamental to understanding the impact of COVID-19 on the Group’s financial report, including the methodology and key assumptions used to estimate the COVID-19 deferred claims liability and the impact of changes in key variables on the COVID-19 deferred claims liability. Recognition of COVID-19 customer give backs (Refer to Note 3: $369.4m, Note 5: $133.5m and Note 13(c): $178.6m) The COVID-19 customer give backs represent the Group’s commitments to return permanent net COVID-19 savings to eligible customers arising from COVID-19 restrictions. COVID-19 customer give backs are recognised with reference to the Group’s publicly announced customer initiatives representing a return of past premiums to eligible policyholders prevented from accessing insured services during the period. The Group’s COVID-19 customer give backs announced during the year are recognised as a reduction in the financial statement line item ‘Health Insurance premium revenue’ on the consolidated statement of comprehensive income. The portion of COVID-19 customer give backs owed to customers as at 30 June 2022 is included in the consolidated statement of financial position as ‘Unearned premium liability’ (Note 5) or ‘Customer give back provision’ (Note 13(c)), depending on the mechanism used to give back to customers. o On a sample basis, performed recalculations over the mathematical accuracy of the Group’s COVID-19 claims liability model. • Assessed the reasonableness 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: • Developed an understanding of the Group’s public announcements and commitments to financial analysts, shareholders and policyholders during the year. • Develop an understanding of the Group’s key controls relevant to estimating and processing the COVID-19 customer give backs. • Assessed the reasonableness of accounting treatment and disclosure of the COVID-19 customer give backs within the Group’s financial report against the requirements of the applicable Australian Accounting Standards, having regard to the Group’s public announcements, give back mechanisms and policyholder eligibility. • Reconciled the amount and nature of customer give back public announcements made by the Group during the year with amounts recognised and disclosed in the Group’s financial report. Annual Report 2022 125 Independent auditor’s report Key audit matter How our audit addressed the key audit matter We considered this a key audit matter due to the impact of the Group’s public announcements on: ● key recognition criteria under applicable Australian Accounting Standards with reference to the nature of commitments made by the Group and eligibility of policyholders ● the classification and disclosure of customer give backs with reference to specific characteristics of the give back mechanisms. Estimation of the outstanding claims liability (Refer to Note 3: $406.8m) 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 continued impact of the COVID-19 pandemic on claims 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% (2021: 95%). 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 claims patterns. • Performed analytics over the proportion of COVID-19 customer give backs recognised as an unearned premium liability (Note 5) versus a customer give back provision (Note 13(c)) by comparing to the give back mechanisms publicly announced by the Group during the year. We performed the following audit procedures, amongst others: Controls design and operating effectiveness • We evaluated the design of the Group’s relevant key controls over the claims reserving process (including data reconciliation, data inputs, data quality, and the Group’s review of the estimate) and assessed, on a sample basis, whether these controls were operating effectively throughout the year Use of actuarial expertise Together with PwC actuarial experts, we: • Assessed, on a sample basis, significant data inputs used in the Group’s modelling and measurement of the central estimate (including relevance and reliability of data, appropriateness of data in the context of the applicable financial reporting framework, and potential indicators of management bias). • Considered whether the Group’s actuarial methodologies were consistent with actuarial practices and those used in the PHI industry. • On a sample basis, performed recalculations over the mathematical accuracy of the Group’s actuarial models. • Considered the impact on the estimate of reasonably plausible alternative assumptions such as changes in service levels, payment history, recent claims trends and COVID-19 environmental factors. 126 Medibank Key audit matter How our audit addressed the key audit matter We considered this a key audit matter because of the significant judgement required by the Group in estimating claims liabilities, including continued uncertainty on member claiming patterns due to 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. Impairment test of goodwill allocated to the Home Care group of Cash Generating Units (CGUs) (Refer to Note 12: $97.2m) The Group recognised goodwill of $97.2 million in respect of a number of in-home care businesses. This goodwill has been allocated to a group of Cash Generating Units (CGUs) referred to as the Home Care CGU (Home Care). An impairment test of Home Care is performed annually by the Group by comparing the carrying value of Home Care to the recoverable amount. We considered this to be a key audit matter due to the: • Assessed the significant 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 significant actuarial assumptions to the Group’s historical experience, observable market trends, environmental factors, estimated payment patterns, member claiming patterns, and our industry knowledge. • 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 PoA. • Assessed the reasonableness of disclosure of the outstanding claims liability in the financial report against the requirements of the applicable Australian Accounting Standards. Claims received after the year end • We considered whether actual claims activity after year end supported the key assumptions used by the Group to estimate the outstanding claims liability at year end. We performed the following procedures, amongst others: • 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 realisation of planned strategic objectives. • 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. Annual Report 2022 127 Independent auditor’s report Key audit matter How our audit addressed the key audit matter • • • financial significance of the goodwill allocated to Home Care which accounts for 48% of the goodwill balance recognised by the Group fact that the 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 key assumptions, including revenue forecasts and expected synergies judgements and assumptions applied by the Group in performing the impairment test, including cash flows forecasts related to the realisation of planned strategic objectives for Home Care over the next three years, discount rates and growth rates. • 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. • Considered the impact on the impairment test of reasonably plausible alternative assumptions, such as achieving cash flow forecasts and changes in the discount rate. • On a sample basis, tested the mathematical accuracy of the value-in-use model. • Assessed the reasonableness of disclosure of the impairment test for Home Care goodwill in the Group financial report against the requirements of the applicable Australian Accounting Standards. Together with PwC valuation experts, we: • Developed an understanding of the Group’s impairment test methodology and key assumptions. • Evaluated the valuation methodology supporting the Group’s impairment analysis against applicable Australian Accounting Standards. • Compared the growth rate assumed in the cash flow projections extrapolated beyond three years to market data and industry research. • Evaluated the Group’s discount rate assumptions against market data, comparable data and industry research. 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 developed an understanding of the Group’s IT governance framework, as well as performing testing over the information technology internal controls designed to mitigate the risk of material errors in the Group’s financial report: We considered this a key 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 • • • • • program development and changes access to programs and data computer operations business process key automated controls and reports. 128 Medibank Key audit matter How our audit addressed the key audit matter • data migration activities which occurred during the year impacted the key IT processes, systems and controls relevant to the financial reporting process. Together with PwC IT specialists, we have evaluated the design and assessed, on a sample basis, the operating effectiveness of key IT controls relevant to the Group’s financial reporting processes. 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 2022, 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. Annual Report 2022 129 Independent auditor’s report 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. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 51 to 72 of the directors’ report for the year ended 30 June 2022. In our opinion, the remuneration report of Medibank Private Limited for the year ended 30 June 2022 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 18 August 2022 130 Medibank Shareholder information The shareholder information below is current as at 18 August 2022. 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 Number of shareholders 43,965 137,328 14,629 7,169 200 Number of shares 39,105,916 385,303,765 101,238,523 151,637,443 2,076,717,593 203,291 2,754,003,240 Unmarketable parcels There were 886 holdings of less than a marketable parcel ($500) of shares (141 shares based on a market price of $3.55 per share) and such holders held a total of 24,109 shares. 20 largest shareholdings 1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 2 3 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED 4 NATIONAL NOMINEES LIMITED 5 BNP PARIBAS NOMS PTY LTD Number of shares 904,623,020 494,010,434 294,226,334 116,099,097 93,624,000 6 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 25,673,694 7 BNP PARIBAS NOMINEES PTY LTD 8 CITICORP NOMINEES PTY LIMITED 9 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 10 BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD 11 AUSTRALIAN EXECUTOR TRUSTEES LIMITED 12 NAVIGATOR AUSTRALIA LTD 13 NETWEALTH INVESTMENTS LIMITED 14 BOND STREET CUSTODIANS LIMITED 15 NETWEALTH INVESTMENTS LIMITED 16 BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM 17 SOLIUM NOMINEES (AUSTRALIA) PTY LTD 18 AUSTRALIAN EXECUTOR TRUSTEES LIMITED 19 NAVIGATOR AUSTRALIA LTD 20 NULIS NOMINEES (AUSTRALIA) LIMITED 25,647,778 20,692,879 9,947,321 6,588,819 5,913,816 4,651,553 4,427,034 3,287,129 3,085,762 2,511,692 1,782,571 1,773,399 1,696,936 1,660,511 % of issued capital 32.85 17.94 10.68 4.22 3.40 0.93 0.93 0.75 0.36 0.24 0.21 0.17 0.16 0.12 0.11 0.09 0.06 0.06 0.06 0.06 Total 2,021,923,779 73.42 Annual Report 2022 131 Shareholder information Substantial shareholders As at 18 August 2022 the following holders had provided a substantial shareholding notice: Number of shares % of issued capital 224,049,642 141,100,861 137,868,557 8.13% 5.12% 5.006% Name of holder BlackRock Group State Street Corporation 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 2022, 825,420 Medibank ordinary shares were purchased on market at an average price of $3.53 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 18 August 2022 Ex-dividend share trading commences 7 September 2022 Record date for final dividend 8 September 2022 Payment date for final dividend 29 September 2022 Annual general meeting 16 November 2022 Half year results announcement February 2023 Payment date for interim dividend March 2023 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 Level 6, 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 2022 133 Medibank Private Limited ABN 47 080 890 259 

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