NIB Holdings Limited Annual Report 2012

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FY2012 Annual Report · NIB Holdings Limited

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nib holdings limited
Head Office
22 Honeysuckle Drive
Newcastle NSW 2300
abn 51 125 633 856

t 13 14 63
f 02 4925 1999

e nib@nib.com.au
w nib.com.au

27 September 2012

The Manager
Company Announcements
ASX Limited
Level 4, Bridge Street
Sydney NSW 2000

2012 Annual Report – nib holdings limited

Please find attached nib’s 2012 Annual Report which was distributed to nib shareholders
today.

The Annual Report can also be viewed online at nib.com.au/shareholders.

Yours sincerely,

Michelle McPherson
Chief Financial Officer & Company Secretary

ANNUAL
REPORT 2012

Contents

Directors’ Report

Auditor’s Independence Declaration

Corporate Governance Statement

Independent Auditor’s Report to the Members

Directors’ Declaration

Financial Report

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Shareholder Information

Corporate Directory

2012 AnnuAl GenerAl MeetinG

The Annual General Meeting of nib holdings limited
will be held at The Westin, 1 Martin Place, Sydney at 1pm
on Tuesday, 30 October 2012.

Directors’ Report

for the year ended 30 June 2012

The Directors of nib holdings limited (Company) present their
report on the consolidated entity (hereafter as the Group)
consisting of nib holdings limited and the entities it controlled
at the end of, or during, the year ended 30 June 2012.

Directors

The following persons were Directors of nib holdings limited
during the whole of the financial year and up to the date of
this report:

Steve Crane

Harold Bentley

Philip Gardner

Mark Fitzgibbon

Annette Carruthers

Christine McLoughlin

Keith Lynch was Chairman and a Director from the beginning
of the financial year until his retirement on 30 September 2011.

Steve Crane was appointed Chairman on 1 October 2011.

PrinciPAl Activities

During the year the principal continuing activities of the Group
consisted of operating as a private health insurer under the
Private Health Insurance Act 2007.

review of oPerAtions

nib’s vision is to be a leading financier of the nation’s
healthcare spending with a reputation for innovative products,
value for money, outstanding customer service, corporate
social responsibility and strong shareholder returns.

A feature of our results for the 12 months was ongoing strong
underwriting profitability and active capital management.

($m)

HIB Policyholder growth

Premium revenue

Gross margin1

Management Expense2

Underwriting result3

Net investment return

Other income

Other expenses

Profit before tax

Tax

NPAT

EPS (cps)

ROE4 (%)

Operating cash flow

The consolidated profit of the Group for the year, after
income tax expense, was $67.6 million (2011: $65.5 million).
The consolidated profit includes a strong pre-tax underwriting
result of $70.7 million (net margin 6.3%), constituting an
increase of 15.0% on 2011. The underwriting profit increase of
$9.2 million is partially offset by a reduction in net investment
income of $6.5 million due mainly to lower invested capital as
a result of management initiatives.

The underwriting result for FY12 has benefited from the
deferral of commissions of $8.2 million. Without this
deferral, commission expense in FY12 would be $11.3 million
(FY11: $5.5 million) and the pre-tax underwriting result would
have been $62.5 million.

Return on equity (ROE) was 21.7% (FY11: 16.5%) and
earnings per share (EPS) was up 8% to 14.8 cps.

cAPitAl MAnAGeMent

Capital management was a key focus during the year, as nib
seeks to balance the competing goals of optimising capital
and retaining funds for funding potential investments via
mergers and acquisitions.

At 30 June 2012, the Group had net assets of $301.6 million
(June 2011: $411.8 million) and a return on equity of 21.7%,
using average shareholders’ equity over a rolling 12-month
period (2011: 16.5%).

Significant capital management activities during the year
were the Capital Return to shareholders of $75.0 million on
21 July 2011, the special FY11 final dividend of $23.3 million
and the on-market share buy-back of $41.0 million.

FY12

FY11

Change

4.7%

1,123.8

174.6

15.5%

(103.8)

9.2%

70.7

6.3%

25.6

6.0%

3.6

(4.3)

95.6

(28.0)

67.6

14.8

21.7%

134.6

6.0%

1,007.8

159.1

15.8%

(97.6)

9.7%

61.5

6.1%

32.1

6.6%

5.7

(7.5)

91.9

(26.5)

65.5

13.7

16.5%

88.3

116.0

15.5

(6.2)

9.2

(6.5)

(2.1)

3.2

3.7

(1.5)

2.1

1.1

46.3

11.5

9.7

(6.4)

15.0

(20.2)

(36.8)

42.7

4.0

(5.7)

3.2

8.0

52.4

1. Gross margin is calculated as premium revenue less sum of claims expense, RETF levy and state levies.
2. Management expense is calculated as sum of claims handling, acquisition costs and other underwriting expenses.
3. Underwriting result is calculated as gross margin less management expenses.
4. Using average shareholders’ equity over rolling 12-month period.

nib 60 years young
cAPitAl MAnAGeMent CONTINUED

At 30 June 2012, the Group had surplus capital of
$13.3 million above our internal benchmark (after allowing
for the payment of a final dividend of 5.0 cents per share,
totalling $22.0 million, in October 2012). Refer to Note 25(f)
for basis of calculations.

DiviDenDs

Dividends paid to shareholders during the financial year were
as follows:

2012
$000

2011
$000

likely DeveloPMents AnD
exPecteD results froM
oPerAtions

Further information on likely developments in the operations
of the Group has not been included in this Annual Report
because the Directors believe it would be likely to result in
unreasonable prejudice to the Group.

environMentAl reGulAtion

The Group is not subject to any specific environmental
regulation and has not breached any general legislation
regarding environmental matters.

Final dividend for the year
ended 30 June 2011 of
9.0 cents made up of 4.0 cps
ordinary dividend and 5.0 cps
special dividend (2010: 5.0
cents) per fully paid share paid
on 30 September 2011

Interim dividend for the year
ended 30 June 2012 of
4.25 cents (2011: 4.0 cents) per
fully paid share paid 8 April 2012

42,006

24,772

18,912

60,918

18,670

43,442

In addition to these dividends, since the end of the financial
year the Directors have recommended the payment of a final
dividend of $22.0 million (5.0 cps ordinary dividend) to be paid
on 5 October 2012 out of retained profits at 30 June 2012.

Subject to franking credit availability, the Board’s position is
that future dividends will reflect a dividend payout ratio of 60%
to 70% of earnings with additional capacity to pay special
dividends as part of future capital management.

siGnificAnt chAnGes in the stAte
of AffAirs

There were no other significant changes in the nature of
activities conducted by the Group during the year.

MAtters subsequent to the enD
of the finAnciAl yeAr

No matter or circumstance has arisen since 30 June 2012
that has significantly affected, or may significantly affect:

a. the Group’s operations in future financial years; or

b. the results of those operations in future financial years; or

c. the Group’s state of affairs in future financial years.

nib holdings limited 2012 annual reportDirectors’ Report continuedfor the year ended 30 June 2012inforMAtion on Directors

Details of the qualifications, experience, special responsibilities and interests in shares and performance rights of the Directors
are as follows:

Name and qualifications

Steve Crane
BCommerce, FAICD, SF Fin

Mark Fitzgibbon
MBA, MA, ALCA, FAICD

Harold Bentley
MA Hons, FCA, FCIS, FCSA

Chairman, Independent Non-Executive Director
Experience and expertise
A Director since 28 September 2010, appointed Chairman on 1 October 2011. Approximately 40 years
of financial market experience, as well as an extensive background in publicly-listed companies.
Previously the Chief Executive of BZW Australia and ABN AMRO. Member of the RBS Group (Australia)
Advisory Council.

Other current directorships
A Director of nib health funds limited and IMAN Australian Health Plans Pty Limited. Director of Transfield
Services Limited, Bank of Queensland Limited, APA Group and the Taronga Conservation Society
Australia. He is also Chairman of Global Valve Technology Limited.

Former directorships in the last three years
Director of APA Ethane Limited.

Special responsibilities
Chairman of the Board.

Interests in shares and performance rights
Indirect: 115,157 ordinary shares in nib holdings limited held by Depeto Pty Limited.

Managing Director/Chief Executive Officer

Experience and expertise
Joined nib health funds limited in October 2002 as Chief Executive Officer (CEO). Previously CEO of the
national and peak industry bodies for licensed clubs. Before that, held several CEO positions in local
government, including General Manager of Bankstown Council between 1995 and 1999.

Other current directorships
A Director of nib health funds limited, nib health care services pty limited, nib servicing facilities pty
limited and IMAN Australian Health Plans Pty Limited. A Director of the Australian Health Insurance
Association Ltd.

Former directorships in the last three years
Director of the Newcastle Knights Rugby League Football Club and Australian Health Services Alliance.

Special responsibilities
Managing Director/Chief Executive Officer.

Interests in shares and performance rights
Direct: 709,542 ordinary shares in nib holdings limited.

Indirect: 551,600 ordinary shares in nib holdings limited held by Fitz Family fund.

270,280 performance rights under FY10-FY12 Long-Term Incentive Plan which may vest from
1 September 2012.

235,952 performance rights under FY11-FY14 Long-Term Incentive Plan which may vest from
1 September 2014.

217,546 performance rights under FY12-FY15 Long-Term Incentive Plan which may vest from
1 September 2015.

Independent Non-Executive Director

Experience and expertise
A Director since 7 November 2007. Has over 20 years experience in the insurance sector.
Formerly the Chief Financial Officer of Promina Group Ltd and an Audit Manager of
PricewaterhouseCoopers specialising in finance and insurance companies.

Other current directorships
A Director of nib health funds limited and IMAN Australian Health Plans Pty Limited.

Former directorships in the last three years
None.

Special responsibilities
Chairman of the Audit Committee. Member of the Investment Committee and the Risk
and Reputation Committee.

Interests in shares and performance rights
Indirect: 70,000 ordinary shares in nib holdings limited held by Sushi Sake Pty Limited.

nib 60 years younginforMAtion on Directors CONTINUED

Independent Non-Executive Director

Experience and expertise
A Director since 20 September 2007. A general medical practitioner with comprehensive experience
in patient care and clinical risk management. Directorships and representative positions in a range
of national, state and regional health care organisations. Conjoint senior lecturer in the School of
Medicine and Public Health at the University of Newcastle. Member NSW Medical Experts Committee
Avant Pty Ltd.

Other current directorships
A Director of nib health funds limited (since 2003), nib health care services pty limited, IMAN Australian
Health Plans Pty Limited and The Heights Private Hospital Pty Limited. A Director of Aged Care
Investment Services (the Trustee for the AMP Managed Aged Care Investment Trusts), Hunter
Infrastructure and Investment Advisory Board and the NSW Board of the Medical Board of Australia.

Former directorships in the last three years
Director of National Heart Foundation of Australia (NSW Division), National Heart Foundation of Australia
and Haematology and Oncology Clinics of Australia.

Special responsibilities
Chairman of the Risk and Reputation Committee. Member of Audit Committee and the People and
Remuneration Committee.

Interests in shares and performance rights
Direct: 1,000 ordinary shares in nib holdings limited.
Indirect: 71,500 ordinary shares in nib holdings limited held by Carruthers Future Fund Pty Ltd.

Independent Non-Executive Director

Experience and expertise
A Director since 28 May 2007. Current Chief Executive Officer of The Wests Group Australia and
an adjunct lecturer in the Faculty of Business and Law at the University of Newcastle.

Other current directorships
A Director of nib health funds limited since 2005. A Director of IMAN Australian Health Plans Pty Limited.
A Director of Newcastle Airport Limited.

Former directorships in the last three years
None.

Special responsibilities
Chairman of the Investment Committee. Member of the Audit Committee and the People and
Remuneration Committee.

Interests in shares and performance rights
Indirect: 108,000 ordinary shares in nib holdings limited held by Sutton Gardner Pty Ltd.

Independent Non-Executive Director

Experience and expertise
A Director since 20 March 2011. Over 25 years experience as a financial services and legal executive
with iconic brands in financial services (AMP and IAG), telecommunications (Optus) and professional
services industries in Australia, the UK and Asia.

Other current directorships
A Director of nib health funds limited and IMAN Australian Health Plans Pty Limited. Director of
Whitehaven Coal Limited, Westpac’s Life and General Insurance Business (Australia/New Zealand),
The Australian Nuclear Science and Technology Organisation (ANSTO) and St James Ethics Centre.
Deputy Chairman of The Smith Family.

Former directorships in the last three years
Director of the AMP Foundation and TAC (Transport Accident Commission).

Special responsibilities
Chairman of the People and Remuneration Committee. Member of the Risk and Reputation Committee
and the Audit Committee.

Interests in shares and performance rights
Indirect: 57,500 shares in nib holdings ltd held by Dundas Street Investments Pty Ltd.

Name and qualifications

Dr Annette Carruthers
MBBS (Hons), FRACGP,
FAICD, GradDipAppFin

Philip Gardner
B.Comm, CPA, CCM,
FAICD, JP

Christine McLoughlin
BA/LLB (Hons) FAICD

nib holdings limited 2012 annual reportDirectors’ Report continuedfor the year ended 30 June 2012coMPAny secretAry

The Company Secretary is Mrs Michelle McPherson, BBUS (Accounting) (UTS), CA, GAICD. Mrs McPherson was appointed to
the position of Company Secretary on 1 September 2008. She is currently the Chief Financial Officer and Deputy Chief Executive
Officer of the Group, a Director of the Newcastle Port Corporation and the Hunter Valley Research Foundation, and a member of
the advisory board to the Faculty of Business and Law at the University of Newcastle.

MeetinGs of Directors

The number of meetings of the Group’s Board of Directors and of each Board committee held during the year ended
30 June 2012, and the numbers of meetings attended by each Director were:

NAME

S Crane1

M Fitzgibbon1

H Bentley2

A Carruthers

P Gardner

C McLoughlin

K Lynch3

Board

Audit Committee

Risk and
Reputation
Committee

People and
Remuneration
Committee

Investment
Committee

Held

Attended

Held

Attended

Held

Attended

Held

Attended

Held

Attended

–

1. Attendance at Committee meetings in an ex-officio capacity.
2. Attendance at People and Remuneration Committee meetings in an ex-officio capacity.
3. 100% attendance until retirement.

nib 60 years youngreMunerAtion rePort

Message from the Board

The Board remains committed to ensuring that nib’s remuneration practices are properly aligned with shareholder value
creation over the short and long-term, and that these practices work to appropriately motivate, reward and retain executives.

Dear Shareholder,

We are pleased to present our 2012 Remuneration Report (Report) which covers the remuneration arrangements for our
executives for the financial year ending 30 June 2012 and summarises some of the changes we are proposing to make for the
coming year. The People and Remuneration Committee (Committee) has continued to monitor our remuneration frameworks,
policies and practices to ensure they align with the Group’s strategic objectives, market expectations and regulatory requirements.

Financial Year Ended 30 June 2012

In this year’s Report we have improved the clarity and presentation of our remuneration policies, practices and outcomes. This
includes a table (page 10) showing actual remuneration awarded to the Managing Director/Chief Executive Officer (MD/CEO) and
executives during the 2012 financial year. This supplements the statutory disclosures we are required to make.

There were no changes to the remuneration framework in FY12 from FY11.

2012 saw nib produce a sound result in a challenging competitive environment and this is reflected in the remuneration of our
executives, notably:

STI awards determined against set performance indicators were below last year; the MD/CEO STI award was 42.2% and for

the other executives an average of 39.1% reflecting the overall performance of the Group over the year;

The FY10 to FY12 LTI performance rights vesting at 100% as a result of cumulative growth in EPS in excess of 25% over the

last three years; and

TSR over the last three years has been top quartile.

Recognising that performance rights have been awarded in each year under the LTIP, it should be noted that in 2010 the duration
of the LTI was increased from three years to four years and as a consequence there will be no vesting event for executives in FY14.

The Upcoming Financial Year (FY13)

Consistent with our normal process, during the year the Board appointed independent remuneration consultants, Aon Hewett,
to assist with a review of the Group’s short-term and long-term incentive programs, and benchmarking our executive and Non-
Executive Director remuneration to a defined comparator group (page 10).

As a result of the remuneration review the following key changes have been made to executive and Non-Executive Director
remuneration for FY13:

The MD/CEO’s contractual and remuneration arrangements have been varied to be more aligned with market practice and
the benchmarking we have done. In particular, we have changed his contract from a fixed term, which would have ended in
June 2013, to be an open contract. We have also sought to start to close the gap in his total remuneration, which is currently
below the market median, by increasing his Total Fixed Remuneration by 8% and monetising his car allowance referable
to motor vehicle operating costs (now $55,000). His LTI will be increased to 80% of TFR (from 55%) and this combination
brings his overall package in line with the benchmark median. We will seek shareholder approval at the upcoming AGM for
his LTI Grant. We have also included clawback arrangements for the benefit of the Group along the lines proposed by the
Corporations Act in his contract;

The DCEO/CFO’s contract has also been changed from a fixed-term contract to be an open contract with similar provision to

the MD/CEO, including clawback arrangements;

Key Performance Indicators for STI for all executives will include a clearly defined customer satisfaction indicator in addition to

the other financial performance indicators directly linked to nib’s strategy. For FY13 the STI metrics are:

20% for a leadership component; and

80% linked to the following key performance indicators:

– Consolidated premium revenue.

– Consolidated underwriting profit.

– International business underwriting profit.

– Net promoter score (NPS), a measure of customer satisfaction.

– Earnings per share.

nib holdings limited 2012 annual reportDirectors’ Report continuedfor the year ended 30 June 2012 30% of STI payments to executives will be deferred into shares for one year to focus executives on sustained group

performance, and serve as a retention mechanism;

The LTI performance hurdles for FY13 will still be EPS and TSR linked. Amendments made to LTI arrangements to:

enable participants who are “good leavers” to continue to hold a pro rata number of unvested performance rights

following cessation of their employment which will vest subject to testing against performance hurdles on the applicable
vesting date;

provide the Board with the right to lapse unvested performance rights of executives who breach an ongoing confidentiality

or non-compete obligation they owe nib.

We will seek approval at the 2012 AGM for participation of the MD/CEO in the LTI.

Non-Executive Directors will be required to hold a minimum of 50% of the total annual base Director’s fee as shares to be

accumulated within three years of appointment based on the share price and fees at the date of joining the Board.

As Chairman of our People and Remuneration Committee, I will continue to consider all aspects of the Group’s remuneration
framework to ensure it meets the expectations of our external stakeholders, while continuing to motivate and reward our
employees. We will continue to engage with our key stakeholders regarding remuneration. As always, we welcome your
feedback on our progress.

Yours sincerely,

Christine McLoughlin
People and Remuneration Committee Chairman

nib 60 years youngreMunerAtion rePort CONTINUED

Contents

Key terms used in this report

Who this report covers

Performance drives remuneration at nib

Key features of our remuneration
for the financial year ended 30 June 2012

Our remuneration governance

Actual remuneration received for the financial year
ended 30 June 2012

Executive reward at nib

How reward was linked to performance this year

Terms of executive contracts

Detailed disclosure of executive remuneration
(statutory tables)

Non-Executive Director remuneration

Detailed disclosure of Non-Executive remuneration
(statutory tables)

Who this report covers

Key terms used in this report

FY11

financial year ended 30 June 2011

FY12

financial year ended 30 June 2012

FY13

financial year ended 30 June 2013

Group nib holdings limited consolidated entity

KMP

key management personnel (those Directors and
executives who have responsibility for planning,
directing and controlling the activities of nib, either
directly or indirectly)

KPI

key performance indicator

LTIP

long-term incentive plan

NPAT net profit after tax

STI

TFR

TSR

short-term incentive

total fixed remuneration

total shareholder return

This report presents the remuneration arrangements for nib’s Key Management Personnel (including Non-Executive Directors)
and five highest paid Group executives.

Executive Director

Mark Fitzgibbon

Managing Director/Chief Executive Officer (MD/CEO)

Other Executives

Matthew Henderson

Group Executive Corporate and International Business (GECIB)

Melanie Kneale

Chief Operating and Technology Officer (COTO) (to 1/6/2012)

Rhoderic McKensey

Chief Customer Officer (CCO)

Michelle McPherson

Deputy Chief Executive Officer/Chief Financial Officer (DCEO/CFO)

Brendan Mills

Chief Information Officer (CIO) (from 1/6/2012 to 30/6/2012)

Non-Executive Directors

Steve Crane

Harold Bentley

Chairman, Independent Non-Executive Director

Chairman Audit Committee, Independent Non-Executive Director

Annette Carruthers

Chairman Risk and Reputation Committee, Independent Non-Executive Director

Philip Gardner

Chairman Investment Committee, Independent Non-Executive Director

Christine McLoughlin

Chairman People and Remuneration Committee, Independent Non-Executive Director

nib holdings limited 2012 annual reportDirectors’ Report continuedfor the year ended 30 June 2012Performance drives remuneration at nib

The Remuneration Report demonstrates the linkage
between nib’s actual performance and payments to KMP.
Across a range of metrics nib has outperformed relevant
benchmarks since listing and has consistently achieved
policyholder growth ahead of industry average.

Key features of our remuneration for the
financial year ended 30 June 2012

There were no significant changes to FY12 remuneration.
Changes to remuneration for FY13 reflect the evolution of
nib’s remuneration arrangements to continue to align with
current best practice.

Sustained growth in underwriting profit combined with
effective capital management has seen strong performance
in the key metrics of EPS and TSR as reflected in the
graphs below.

Earnings per share since listing

Earnings per share (EPS)

For the majority of executives, total fixed remuneration
increased by approximately 3.3%, in line with CPI. The
exception to this was the increase awarded to the CCO,
Rhod McKensey, following an organisational restructure
that occurred in May 2011 and resulted in an increase in
responsibility for the CCO.

14.8

13.7

12.4

FY11 TFR
$

FY 12
Increase in
TFR

FY12 TFR
$

)
s
p
c

(

e
r
a
h
s

r
e
p
s
t
n
e
c

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00

5.2

4.7

2008 *

2009

2010

2011

2012

* 2008 underwriting result normalised for demutualisation and listing costs.

Total shareholder return since listing

300

250

200

150

100

)

0
0
1

f
o
e
s
a
b

(

x
e
d
n

nib

All Ords Accumulation Index

S&P/ASX 200 Accumulation Index

Small Ords Accumulation Index

S&P/ASX 300 Accumulation Index

147.1%

-24.5%
-24.8%
-25.0%
-39.7%

0
Nov 07

May 08

Nov 08

May 09

Nov 09

May 10

Nov 10

May 11

Nov 11

May 12

Source: IRESS (as at 29 June 2012).
Note: Assumes capital returns and dividends are re-invested at the payout date.

Rhoderic McKensey (CCO)

296,250

26.6%

375,000

In addition to the changes in total fixed remuneration,
the DCEO/CFO was awarded an increase in target
STI opportunity from 40% to 60% in recognition of the
responsibilities of the combined role.

FY12 STI awards to executives included the use of discretion
in determining the FY12 STI awarded to Melanie Kneale on
redundancy following an organisational restructure. That STI
was fully paid in cash, and represented an estimate at the
time paid.

Our remuneration governance

The People and Remuneration Committee has been
established by the Board and reviews and makes
recommendations to the Board on the remuneration
strategy for the Group. The Committee seeks advice from
external remuneration consultants and specialists.

The Committee has responsibilities in the areas of
remuneration, diversity and human resources strategy. The
Committee Charter is available on the nib website. The
Committee is comprised of independent, Non-Executive
Directors only.

In fulfilling its duties, the Committee engages an independent
remuneration consultant every second year to provide
benchmarking of market remuneration levels for executives
and Non-Executive Directors. Aon Hewitt was engaged to
conduct the most recent review in May 2012 and as a result
the Board is recommending changes to remuneration from
July 2012.

nib 60 years young

reMunerAtion rePort CONTINUED

In summary, the scope of the work undertaken by Aon Hewitt included:

Undertaking a review and market benchmarking of Non-Executive Directors fees and remuneration arrangements for senior

executives against relevant peer group;

Working with the Board to define a relevant peer group for comparison. The principles used for the updated peer group

selection, were:

By Sector – focus on financial services, healthcare, consumer discretionary, as well as technology based services and

commercial services. This filter eliminated sectors such as resources, materials and manufacturing companies.

Financial Metrics:

– Market capitalisation of approximately half and twice the size of nib.

– Revenues – for companies that fell within the above market capitalisation ranges but with revenues more than two

times nib revenues were excluded.

This resulted in a peer group comprising 28 companies.

Conducting a review of nib’s remuneration structure to provide advice on the design and operation of Short and Long-Term
Incentive Plans (STI, LTI) in light of recent legal and governance changes and market trends. The review considered the
guidelines and expectations of both retail and institutional investors

The fees paid to Aon Hewitt for the work undertaken total $34,874.

Actual remuneration received for the financial year ended 30 June 2012

LTI granted in FY09 fully vested on achieving performance hurdles. Only partial STI was paid reflecting operating result as
measured against KPIs for the year.

Executive KMP remuneration details prepared in accordance with statutory requirements and accounting standards are
contained in the Detailed disclosure of executive remuneration (statutory tables) (page 16) of this report.

The diagram below outlines the remuneration structure for the executives covered in this report for FY12.

Total potential reward

Total fixed remuneration
(cash salary plus benefits) +

Short-term incentive (STI),
being cash and shares held
in escrow

+ Long-term incentive (LTI)

being performance rights =

Total potential reward

Fixed

Variable

The table below shows the key elements of total reward in FY12 as the cash elements actually available to each executive in FY12
as well as the value of equity held in escrow (not subject to forfeiture conditions), and equity from former years that vested in
FY12 and which was originally reported under accounting standards in the year it was granted.

Mark Fitzgibbon

Matthew Henderson

Melanie Kneale (to 1/6/12)4

Rhoderic McKensey

Michelle McPherson

Brendan Mills

STI applicable to the FY12 year2

Total fixed
remuneration1
$

570,526

294,405

361,213

375,000

395,817

201,682

Shares held in
escrow2
$

LTI vested in
FY123
$

Total reward
(received or
available)
$

43,303

7,183

–

10,125

17,891

500

586,565

1,301,434

–

307,852

126,721

182,902

–

330,322

763,940

552,346

668,174

222,564

Cash
$

101,040

28,734

94,875

40,500

71,564

20,382

2,198,643

357,095

79,002

1,204,040

3,838,780

1. Total fixed remuneration comprises Cash Salaries and fees and superannuation.
2. STI accrued relating to the FY12 year.
3. Value of shares issued during the year on exercise of performance rights. Reflects a movement in share price from $0.77 (at grant date) to $1.44 (at vesting) at 100% vesting.
4. STI based on estimate at time of redundancy and fully paid in cash.

nib holdings limited 2012 annual reportDirectors’ Report continuedfor the year ended 30 June 2012Executive reward at nib

Fixed remuneration

Fixed remuneration for executives is determined with
reference to a benchmarking process and consideration
of the expertise of the individual in the role.

The fixed remuneration may be delivered as a combination
of cash, vehicle capital allowance, other allowances and
benefits (inclusive of FBT, if appropriate) and superannuation.
In addition to the above remuneration, the Group incurs
operating costs and FBT for executive vehicles given frequent
required use of the vehicles for business purposes. For FY13,
consistent with the results of the benchmarking, TFRs have
been adjusted to compensate for this allowance as no vehicle
operating costs will be reimbursed from 1 July 2012 onwards.

nib’s executive reward is designed to reward and motivate
executives, and align their interests with shareholders.

The objective of executive remuneration arrangements is to
ensure that nib’s remuneration practices are properly aligned
with shareholder value creation over the short and long-term,
and that these practices work to appropriately motivate,
reward and retain executives.

The remuneration framework provides a mix of fixed and
variable remuneration with a blend of short-term and
long-term incentives. There are three components of total
remuneration:

fixed remuneration, comprising base remuneration

package, benefits and superannuation;

short-term incentives, based on predetermined Key

Performance Indicator (KPI) targets established by the
Board and an assessment of leadership; and

longer-term incentives, based on predetermined TSR and

EPS performance established by the Board.

Our remuneration mix

The FY12 target remuneration mix was as follows:

15%

20%

15%

24%

30%

61%

50%

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100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

26%

28%

46%

MD/CEO

GECIB

COTO

CCO

DCEO/CFO

CIO

Longer-term performance incentives opportunity
Short-term performance incentives opportunity
Base remuneration package and benefits

As part of nib’s ongoing remuneration review process this has
been revised for the upcoming financial year (FY13).

Variations in target remuneration mix between the executive
roles are reflective of the responsibilities of the roles.

nib 60 years young

reMunerAtion rePort CONTINUED

Short-term incentives for the financial year ended 30 June 2012

Two-thirds of the STI was determined with reference to verifiable financial performance and one-third referable to a leadership
assessment for each executive.

The Board is responsible for assessing the performance of the MD/CEO and the MD/CEO is responsible for assessing the
performance of the other executives (with approval of the resulting STIs by the Board following a recommendation from
the Committee).

The actual level of STI paid to each executive is determined at the end of the financial year based on the executives’ achievement
of specific KPIs and an annual performance review. The cash component of the bonuses is payable on or before 15 September
each year in respect of the prior financial year.

Each executive has a target STI opportunity. A portion of the awarded STI each year must be held in escrow for one year as
performance shares.

Mark Fitzgibbon

Matthew Henderson

Melanie Kneale1

Rhoderic McKensey

Michelle McPherson

Brendan Mills

FY12 Maximum
potential STI
as a % of TFR

Proportion of
actual FY12
STI to be held
in escrow for
one year

60%

40%

60%

40%

30%

20%

1. FY12 STI paid on redundancy for Melanie Kneale was awarded 100% as cash. No portion was issued as performance shares.

The specific KPIs and weighting for FY12 for each executive are:

Mark
Fitzgibbon
(MD/CEO)

Matthew
Henderson
(GECIB)

Melanie
Kneale
(COTO)

Rhoderic
McKensey
(CCO)

Michelle
McPherson
(DCEO/CFO)

Brendan
Mills
(CIO)

Consolidated underwriting profit

Consolidated premium revenue

EPS

Policyholder growth

Gross margin HIB

International business underwriting profit

70%

20%

10%

40%

10%

50%

10%

20%

50%

10%

40%

70%

20%

10%

60%

10%

20%

10%

The short-term performance incentives may be adjusted up or down in line with under or over achievement against the target
performance levels.

The percentage of the maximum STI that was awarded and the percentage that was unrealised are set out below.

FY12 STI Bonus

FY11 STI Bonus

Awarded
%

Forfeited
%

Awarded
%

Forfeited
%

42.2%

30.5%

63.3%

33.8%

37.7%

30.5%

39.6%

57.8%

69.5%

36.7%

66.2%

62.3%

69.5%

60.4%

89.5%

83.8%

75.7%

80.0%

88.3%

99.2%

86.1%

10.5%

16.2%

24.3%

20.0%

11.7%

0.8%

13.9%

Mark Fitzgibbon

Matthew Henderson

Melanie Kneale1

Rhoderic McKensey

Michelle McPherson

Brendan Mills

1. Based on estimate at time of redundancy and fully paid in cash.

nib holdings limited 2012 annual reportDirectors’ Report continuedfor the year ended 30 June 2012Long-term incentives for the financial year
ended 30 June 2012

Vesting of performance rights is subject to nib holdings limited
EPS hurdle as follows:

LTIs focus executives on sustained EPS and TSR
performance. LTIs granted in FY09 will fully vest in
September 2012 as performance hurdles were met.

EPS Hurdle CAGR
from base EPS

Percentage of
performance
rights vesting

FY10 –FY12
LTIP

The nib LTIP is designed to align the interests of executives
and shareholders and to assist nib in the attraction, motivation
and retention of executives.

LTIP participants are granted performance rights, which
enable the executive to acquire shares in nib for nil
consideration if performance conditions are met and the
employees are still employed by nib at the end of the vesting
period.

The vesting date may be accelerated at the Board’s
discretion in the event of death of a participant, cessation
of employment for other reasons; including total and
permanent disablement, redundancy, retirement. The vesting
date will also be accelerated on separation; and takeover,
reconstruction or amalgamation.

Participation in the plan is at the Board’s discretion and
no individual has a contractual right to participate in the plan
or to receive any guaranteed benefits.

As allowed for by the LTIP Rules, the Board exercised
its discretion in respect of Melanie Kneale to determine
that vesting of the FY10 to FY12 performance rights be
accelerated based on expected results for FY12, and that
performance rights in respect of FY11 to FY14 and FY12
to FY15 lapse as a result of redundancy on 1 June 2012.

Recognising that performance rights have been awarded in
each year under the LTIP, it should be noted that the change
made in 2010 saw the duration of the LTI move from three
years to four years and as a consequence there will be no
vesting event in FY14.

Performance rights prior to 1 July 2010

The FY10 to FY12 LTI is the last tranche of the three year LTIs.

These rights are subject to earnings per share growth
targets (EPS Hurdle) over a three year period as determined
by the Board. For the MD/CEO the maximum target bonus
opportunity is 55% of total fixed remuneration. For other
executives the maximum entitlement is 25%.

The principle used in setting the EPS Hurdles is to use the
prior financial year’s normalised EPS as a base and apply
a range of compound annual growth rates in EPS from
10% to 25%, which in turn determines the percentage of
Performance Rights that will vest on 1 September following
the end of the relevant three year period. No Performance
Rights will vest if the compound annual growth rate (CAGR)
is below 10%. There is no re-testing of performance.

Base EPS

25% CAGR

20% CAGR

15% CAGR

10% CAGR

Nil to less than 10% CAGR

100%

75%

50%

25%

4.7 cps

9.2 cps

8.1 cps

7.1 cps

6.3 cps

nil

For the purpose of the calculation, 25% to 50% will be discrete thresholds, with
performance above the 50% entitlement calculated on a pro rata basis to a
maximum entitlement of 100%.

Once vested, these performance rights granted remain
exercisable for a period of two years and four months.

Performance rights from 1 July 2010

Significant changes made to the LTIP from 1 July 2010 were:

introducing of a relative total shareholder return (TSR)

which applies to half of the LTI allocation;

extending the performance period to four years; and

the requirement for 50% of the LTI to have a two year
escrow period which extends beyond termination.

The performance rights will vest in accordance with the
achievement of the following vesting conditions:

Vesting Condition 1

Vesting Condition 2

50% of the performance rights
(Tranche 1)

50% of the performance rights
(Tranche 2)

Total shareholder return targets
(TSR Hurdle) for the relevant
performance period are met

Earnings per share growth
targets (EPS Hurdle) for the
relevant performance period
are met

TSR Hurdle (Tranche 1)

The TSR Hurdle applies to half of the LTI allocation. The TSR
Hurdle measures the growth in the price of nib securities plus
nib cash distributions and compares this to the shareholder
returns from the peer group of companies. In order for the
Tranche 1 performance rights to vest, the TSR of nib will be
compared to companies in the S&P/ASX 300 (the peer group)
over the performance period.

The percentage of Tranche 1 performance rights that vest is
determined as follows:

nib’s TSR performance compared
to the relevant peer group

Performance of Tranche 1
performance rights vesting

> = 75th percentile

> = 50th percentile to
74th percentile

< 50th percentile

100%

Pro-rata straight line vesting
between 50% and 100%

nib 60 years youngreMunerAtion rePort CONTINUED

EPS Hurdle (Tranche 2)

The EPS Hurdle applies to 50% of the LTI allocation.
Vesting of performance rights is subject to nib holdings
limited EPS hurdle as follows:

EPS Hurdle CAGR
from base EPS

Percentage of
performance
rights vesting

FY11 – FY14
LTIP

FY12 – FY15
LTIP

How reward was linked to performance
this year

The components of remuneration that are linked to
performance are the STI and the LTIP. Two-thirds of the
STI are determined with reference to verifiable financial
performance and one-third referable to a leadership
assessment for each executive.

Results against verifiable financial performance KPIs are
detailed in the table below.

Base EPS

25% CAGR

20% CAGR

15% CAGR

10% CAGR

Nil to less than 10% CAGR

12.4 cps

13.7 cps

100%

30.3 cps

33.4 cps

KPI

Result

75%

50%

25%

25.7 cps

28.4 cps

21.7 cps

23.9 cps

18.2 cps

20.0cps

nil

Consolidated
underwriting profit

No award for this KPI as target
did not include benefit of deferred
acquisition costs accounting treatment
or allowance for restructure costs.
Actual consolidated underwriting
results reflected a challenging
competitive environment

Consolidated premium
revenue

FY12 consolidated premium revenue
up 11.5% on FY11

EPS

Award reflects performance at
both a profitablity and capital
management level.

Policyholder growth HIB No award for this KPI with net HIB

Gross margin HIB

International business
underwriting result

policyholder growth at 4.7% in
challenging competitive environment

FY12 gross margin HIB up 6.3%
on FY11

No award for this KPI primarily due to
impact of $1.4m loss on international
students business

The graph below illustrates the link between payments made
under the STI plan and growth in the underwriting result.

STI payable in respect of financial year
($000)

Underwriting result
($m)

800.0

700.0

600.0

500.0

400.0

300.0

200.0

100.0

0.0

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

2008*

STI

2009

2010

2011

2012

Underwriting result
2012 underwriting result normalised for deferred acquisition costs

* 2008 underwriting result normalised for demutualisation and listing costs.

For the purpose of the calculation, 25% to 50% will be discrete thresholds, with
performance above the 50% entitlement calculated on a pro rata basis to a
maximum entitlement of 100%.

If vesting conditions are met, the performance rights will
vest on 1 September following the end of the measurement
period. On the vesting date, holders will be either issued or
transferred shares in nib for each vested performance right.
There is no re-testing of performance.

One half of any shares awarded will be required to be held
in escrow for a period of two years even if termination of
employment occurs during that period.

The graph below shows the EPS hurdles for all LTIPs since
nib’s listing.

LTI EPS Hurdles

)
s
p
c

(

S
P
E

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

EPS
100% vesting
75% vesting
50% vesting
25% vesting

2008*
5.2

2009
4.7

2010
12.4
14.0
12.4
10.9
9.6

2011
13.7
10.1
8.9
7.9
6.9

2012
14.8
9.2
8.1
7.1
6.3

2013

2014

2015

30.3
25.7
21.7
18.2

33.4
28.4
23.9
20.0

There is no vesting event in respect of the FY13 result reflecting the move from
three year LTI targets to four year LTI targets.

For the FY13 LTI grant the EPS hurdles will be recalibrated to
more closely align with general market conditions.

nib holdings limited 2012 annual reportDirectors’ Report continuedfor the year ended 30 June 2012
Terms of executive contracts

Termination payments

nib executives currently have fixed-term contracts. The
Board has varied the MD/CEO and CFO contract so they
are no longer fixed-term (effective 17 August 2012). It is
proposed to progressively migrate other executive contracts
to open contracts in line with market best practice.

Executive contracts summarise employment terms and
conditions, including remuneration arrangements and
compensation.

The table below provides a summary of the agreements.

Service
agreement
effective

1 July 2010

Mark Fitzgibbon
(MD/CEO)

Michelle McPherson
(DCEO/CFO)

1 July 2010

Brendan Mills
(CIO)

1 June 2012

Matthew Henderson
(GECIB)

1 May 2011

Rhoderic McKensey
(CCO)

4 March 2011

Term of
agreement

Termination
provision

Open
contract with
notice period

1 May 2011
to 30 June
2014

Three years
ending 30
June 2014

The
agreement
may be
terminated
early by nib
health funds
limited giving
notice with
immediate
effect or by
the relevant
executive
giving three
months
notice

Up until 30 June 2012, executives were entitled to a payout
of the remaining term of their service agreements upon
termination (other than for gross misconduct), up to a
maximum of 12 months total fixed remuneration. For those
executives with open contracts the Group may terminate the
executive’s contract with 12 months written notice and may
make a payment in lieu of all or part of the notice period.

The executive may also receive the following benefits upon
termination:

a pro rata STI payment based on the period of the financial
year during which the Executive worked and the Board’s
assessment of the Executive’s performance against the
key performance indicators as at the date of termination.

the Board may determine that all or a portion of unvested
performance rights of a participant of the LTIP are to be
vested upon termination.

The Group received member approval at the 2011 Annual
General Meeting of the Group for the payment of termination
benefits which may exceed the 12 month salary limit on
termination benefits under the Corporations Act 2001 (Cth).
The Board has determined that this approval will only be relied
upon for people who were executives at the date of approval.

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nib holdings limited 2012 annual reportDirectors’ Report continuedfor the year ended 30 June 2012

From 1 July 2012, the share ownership requirement for
Non-Executive Directors has been changed. Going forward,
Directors will be required to hold a minimum of 50% of the
total annual base Director’s fee to be accumulated within
three years of appointment based on the share price and
fees at the date of joining the Board.

Retirement allowances for Directors

There are no retirement allowances for Non-Executive
Directors other than for Directors appointed by nib health
funds limited before 24 November 2005.

Dr A. Carruthers is the only current Non-Executive Director
that is eligible for a retirement allowance.

Dr A. Carruthers is entitled to a lump sum retirement benefit
based on number of years of service. The benefit is calculated
based on 80% of the average Director’s fee (paid from any
company in the Group) for the last three years multiplied by
a factor based on years of service. The factor based on years
of service was frozen at 24 November 2005. The factor for
Dr A. Carruthers is 0.71.

At 30 June 2012 the following retirement benefits were
provided for:

Annette Carruthers

$66,134

Non-Executive Director remuneration

Fees and payments to Non-Executive Directors reflect the
responsibilities of the position and market comparisons.

Non-Executive Director fees

Fees and payments to Non-Executive Directors reflect the
responsibilities of the position and market comparisons.
Non-Executive Directors’ fees are reviewed annually by
the Committee and approved by the Board.

Non-Executive Directors’ fees are determined within the
$1,100,000 aggregate Directors fee pool limit, which was
approved by shareholders in September 2007. Directors’
fees and superannuation are paid out of this pool. Additional
compensation of travel allowances, non-monetary benefits
and retirement benefits are not included in this pool.

The following fees have applied:

Base fees

Chairman

Other Non-Executive Directors

Additional fees*+

Committee – Chairman

Committee – member

2012
$

2011
$

196,270

89,871

26,660

10,330

190,000

87,000

20,000

10,000

* The Chairman of the Board does not receive additional fees for involvement

in committees.

+ No fees are paid to any Non-Executive Director for membership of the

Nomination Committee.

From 1 July 2012, Directors’ fees have increased by an
average of 4% and Chairman’s fee has been increased
to $215,000.

Refer to principle 2 in the Corporate Governance Statement
for committee membership.

Share ownership by Non-Executive Directors

Non-Executive Directors do not receive share options.
Historically, to promote alignment with shareholders, the
Board resolved to apply a minimum shareholding requirement
in nib shares for Non-Executive Directors. The current
minimum shareholding requirement until 30 June 2012 was
20% of base fees (excluding the superannuation component)
in nib holdings limited shares.

The requirement to take a portion of annual Directors’
fees in shares was calculated as a cumulative amount,
having regard to nib shares acquired by Directors directly
or indirectly. All current Non-Executive Directors comply
with this requirement as at 30 June 2012.

nib 60 years young

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nib holdings limited 2012 annual reportDirectors’ Report continuedfor the year ended 30 June 2012

shAres unDer PerforMAnce riGhts

Unissued ordinary shares of nib holdings limited under performance rights at the date of this report are as follows:

Date performance rights granted

Expiry date

Issue price of shares

28 January 2010

27 May 2011

21 December 2011

31 December 2014

1 September 2014

1 September 2015

nil

Number under
performance right

416,516

467,878

443,333

Shares may be issued or acquired on-market at the election of the Company.

No performance right holder has any right under the performance rights to participate in any other share issue of the Company
or any other entity.

non-AuDit services

The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s
expertise and experience with the Group are important.

Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services during the year
are disclosed in Note 31 – Remuneration of Auditors.

The Board of Directors has considered the position and, in accordance with advice received from the Audit Committee, is
satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set
out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

all non-audit services have been reviewed by the Audit Committee to ensure that they did not impact the impartiality and

objectivity of the auditor;

none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics

for Professional Accountants.

insurAnce of officers

During the financial year, the Group paid a premium in respect of a contract insuring the Directors and officers of the Group
against liability incurred as such a Director or officer, other than conduct involving wilful breach of duty in relation to the Group, to
the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and
the amount of the premium.

AuDitor’s inDePenDence DeclArAtion

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on
page 23.

chief executive officer/chief finAnciAl officer DeclArAtion

The Chief Executive Officer and the Chief Financial Officer have given the declarations to the Board concerning the Group’s
financial statements required under section 295A(2) of the Corporations Act 2001 and Recommendation 7.3 of the ASX
Corporate Governance Council’s Corporate Governance Principles and Recommendations.

nib 60 years youngrounDinG of AMounts

The company is of a kind referred to in ASIC Class Order 98/100, issued by the Australian Securities and Investments
Commission, relating to the “rounding off” of amounts in the Directors’ report and financial report. Amounts in the Directors’
report and financial report have been rounded off to the nearest thousand dollars in accordance with that Class Order.

This report is made in accordance with a resolution of the Directors.

On behalf of the Board,

Steve Crane
Director

Newcastle, NSW
17 August 2012

Harold Bentley
Director

nib holdings limited 2012 annual reportDirectors’ Report continuedfor the year ended 30 June 2012Auditor’s Independence Declaration

year ended 30 June 2012

Auditor’s Independence Declaration
Auditor’s Independence Declaration

As lead auditor for the audit of
the best of my knowledge and belief, there have been:
the best of my knowledge and belief, there have been:

audit of nib holdings limited for the year ended 30 June 2012

30 June 2012, I declare that to

no contraventions of the auditor independence requirements of the Corporations Act 2001
no contraventions of the audito
relation to the audit;

Corporations Act 2001 in

; and

no contraventions of any applicable code of professional conduct in relation to the
no contraventions of any applicable code of professional

conduct in relation to the audit.

This declaration is in respect of nib holdings limited and the entities it controlled during
This declaration is in respect of

controlled during the period.

John Campion
Partner
PricewaterhouseCoopers

Newcastle
17 August 2012

PricewaterhouseCoopers, ABN 52 780 433 757
PricewaterhouseCoopers, ABN 52 780 433 757
PricewaterhouseCoopers Centre, 26 Honeysuckle Drive, PO Box 798, NEWCASTLE NSW 2300
PricewaterhouseCoopers Centre, 26 Honeysuckle Drive, PO Box 798, NEWCASTLE NSW 2300
PricewaterhouseCoopers Centre, 26 Honeysuckle Drive, PO Box 798, NEWCASTLE NSW 2300
T: +61 2 4925 1100, F: +61 2 4925 1199, www.pwc.com.au
T: +61 2 4925 1100, F: +61 2 4925 1199, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.
Liability limited by a scheme approved under Professional Standards Legislation.

nib 60 years youngCorporate Governance Statement

for the year ended 30 June 2012

This Corporate Governance Statement for nib holdings limited
(nib) sets out details of nib’s corporate governance practices
for the year ended 30 June 2012 (FY12).

The nib Board and management are committed to achieving
and demonstrating the highest standards of corporate
governance and ensuring compliance with the ASX Corporate
Governance Council’s Corporate Governance Principles and
Recommendations.

Further information about nib’s governance policies and
practices are available from the corporate governance
information section on the nib shareholder website,
nib.com.au/shareholders

PrinciPle 1 – lAy soliD
founDAtions for MAnAGeMent
AnD oversiGht

1.1 Functions reserved to the Board and

delegations to management.

The nib Board has a number of important responsibilities
under the Corporations Act, ASX Listing Rules and nib’s
Constitution.

The responsibilities of the nib Board and management are
identified in the following ways:

Board Charter

The nib Board is responsible for the governance of the
nib Group. The Board Charter sets out the role and
responsibilities of the Board, the responsibilities that
have been delegated to committees of the Board or to
management, as well as the membership and the operation
of the Board.

Specifically, the Charter reserves the following specific
responsibilities to the Board:

Strategy – overseeing the development of nib’s corporate

strategy, reviewing and approving strategy plans and
performance objectives consistent with the corporate
strategy, reviewing the assumptions and rationale
underlying the strategy plans and performance objectives,
and monitoring the implementation of the strategy plans.

Oversight of management – appointment and (if
appropriate) removal of senior executives, including
the MD/CEO, the Chief Financial Officer and Company
Secretary, approving senior executive remuneration
policies and practices and monitoring performance.

Shareholders – facilitating the effective exercise of

shareholder rights, and effective communication with
shareholders and reporting to shareholders.

Other stakeholders – establishing and monitoring

policies governing nib’s relationship with other
stakeholders and the broader community.

Ethics – actively promoting ethical decision making, and
establishing and maintaining a Code of Conduct to guide
nib Directors and employees in meeting standards of
practice necessary to maintain confidence in nib’s integrity.

Oversight of financial and capital management –
reviewing and approving nib’s annual and half yearly
financial reports, establishing and overseeing nib’s
accounting and financial management systems, capital
management and the dividend policy.

Compliance and risk management – establishing
and overseeing nib’s system for compliance and risk
management.

The Board Charter is available on our website, nib.com.au

Board Committee Charters

The nib Board currently has five standing committees
(Audit Committee, People and Remuneration Committee,
Nomination Committee, Risk and Reputation Committee and
the Investment Committee). The Board has delegated certain
responsibilities to these standing committees. The details of
their responsibilities are set out in the Committee Charters.

The Committee Charters are available on our website,
nib.com.au

Delegation of Authority

The MD/CEO of nib is responsible for the day to day
management of the business and its operations, with the
Board delegating authority to the MD/CEO to perform this
function. The MD/CEO has, in turn, approved sub-delegations
of authority for nib management. Any matters that fall outside
of the delegations of authority must be brought to the Board
for approval.

1.2 nib has, in this statement, set out the

process for evaluating the performance of
senior executives.

In accordance with Clause 2.3 of the Board Charter,
the Board regularly monitors the performance of senior
executives and the implementation of strategy against
measurable and qualitative indicators. The performance of the
MD/CEO is evaluated and assessed by the Board, assisted
by the People and Remuneration Committee, each year. This
process was followed in FY12.

The MD/CEO conducts performance reviews of nib senior
executives (Key Management Personnel) by comparing
performance against agreed measures, examining the
effectiveness and quality of the individual, both as a
divisional leader and in their individual capacity, and
assessing whether various expectations of stakeholders
have been met. This process was followed for FY12.

nib holdings limited 2012 annual report1.3 nib provides the information indicated
in the Guide to reporting on Principle 1.

nib complies with Recommendations 1.1, 1.2 and 1.3.

The following information is available on our website,
nib.com.au:

Board Charter;

Committee Charters for the Audit Committee,

People and Remuneration Committee, Risk and
Reputation Committee, Nomination Committee
and Investment Committee.

PrinciPle 2 – structure the boArD
to ADD vAlue

2.1 nib’s Board comprises a majority of

independent Directors.

There are currently six Directors on nib’s Board; five
Non-Executive Directors, all of whom are independent,
and one Executive Director, being the nib CEO, who is also
appointed as the Managing Director. The Board Charter
requires that all Directors should bring an independent
judgment to bear on all Board decisions.

At the date of this report, the Board comprises:

Mr steven crane (Chairman; Non-Executive Director/
Independent)
Appointed: 28 September 2010
Appointed as Chairman: 1 October 2011

Mr Mark fitzgibbon (Managing Director/CEO)
Appointed: 28 May 2007

Mr harold bentley (Non-Executive Director/Independent)
Appointed: 7 November 2007

Dr Annette carruthers (Non-Executive Director/Independent)
Appointed: 20 September 2007

Mr Philip Gardner (Non-Executive Director/Independent)
Appointed: 28 May 2007

Ms christine Mcloughlin (Non-Executive Director/
Independent)
Appointed: 20 March 2011

The Director’s profiles appear at page 3 of this Annual Report.

Directors’ Independence

In accordance with the ASX Corporate Governance Principles
and Recommendations, the Board is comprised of a majority
of independent, Non-Executive Directors. As noted previously,
the Board Charter requires that all Directors bring an
independent judgment to bear on all Board decisions.

The Board has adopted specific principles in relation to
Directors’ independence, which are set out in the Board
Charter. These state that, when determining independence,
a Director must be a Non-Executive and the Board should
consider whether the Director:

is free from any business or other relationship which could,
or could reasonably be perceived to, materially interfere
with the Director’s independent exercise of their judgment;

is a substantial shareholder of nib or an officer of,

or otherwise associated directly with, a substantial
shareholder of nib;

is, or has been employed in, an executive capacity by

nib or any other group member within three years before
commencing to serve on the Board;

within the last three years has been a principal of a material
professional adviser or a material consultant to nib or any
other group member, or an employee materially associated
with the service provided is a material supplier or customer
of nib of any other group member, or an officer of or
otherwise associated directly or indirectly with a material
supplier or customer; or

has a material contractual relationship with nib or another

group member other than as a Director of nib.

A professional adviser, consultant, supplier or customer
will be considered to have a material contractual relationship
with nib if:

from the perspective of a nib Director, the business

relationship is significant (directly or indirectly) to their own
circumstances.

from the perspective of nib, the relationship is one that

has the potential, if disrupted, to have a significant impact
on nib’s business operations as assessed by the other
Directors.

On appointment, each Director is required to provide
information for the Board to assess their independence as
part of their consent to act as a Director. The Board regularly
assesses the independence of each Director in light of the
interests disclosed by them. Each independent Director must
provide the Board with all relevant information and keep this
information up-to-date.

The Board has determined that all current Non-Executive
Directors, including the Chairman, are independent and free
of any relationship which may conflict with the interests of nib
and the Group in accordance with the approved criteria for
assessing independence.

Conflicts of interest

Directors must avoid conflicts of interest except in those
circumstances permitted by the Corporations Act. Directors
are required to disclose any conflicts of interest in matters
considered by the Board and, unless the Board resolves
otherwise, must not participate in Board discussions or vote
on the matter.

nib 60 years youngPrinciPle 2 – structure the boArD
to ADD vAlue CONTINUED

2.2 nib’s Chairman is an independent Director.

The nib Board Charter requires the Chairman to be an
independent Non-Executive Director. Mr Steven Crane, who
is an independent Non-Executive Director, was appointed
Chairman of nib on 1 October 2011.

The Chairman’s specific responsibilities include (as set out in
the Charter):

candidate has been found, that person is appointed by the
Board, either to fill a casual vacancy or as an addition to the
Board, in accordance with nib’s Constitution. The Director
must stand for election by shareholders at the next annual
general meeting (AGM).

Non-Executive Directors receive a letter of appointment
setting out the terms and conditions of their appointment.
Directors are expected to participate in any induction or
orientation programs on appointment, and any continuing
education or training arranged for them.

leading the Board in reviewing and discussing Board

Appointment and re-election of Directors

At each AGM, there must be an election of Directors and
at least one Director (excluding the Managing Director)
must retire, including any Director who has been appointed
since the previous AGM. Retiring Directors are eligible for
re-election. A Director must retire from office at least every
three years.

Before each AGM, the Board will assess the performance of
any Director standing for re-election and will determine their
recommendation to shareholders on the re-election of the
Director. The Board (excluding the Chairman) conducts the
review of the Chairman.

Evaluation of Board and Committee performance

The Board undertakes an annual self-assessment of its
collective performance, the performance of the Chairman,
individual Directors and of its committees. The performance
assessment process conducted in FY12 was conducted in-
house. The Chairman formally discusses the results of the review
with the individual Directors. At that meeting, the Chairman
and the individual Director also discuss the effectiveness of the
Board and its contribution to the Group, Board discussion, and
the composition of the Board and committees.

Each of the Board’s committees reviews their performance
from time to time, or whenever there are major changes to
the committee structure of nib. The Risk and Reputation
Committee undertook a self-assessment in FY12. As part
of this exercise, each committee also sought the input of
management and external stakeholders who regularly attend
committee meetings.

Independent professional advice and access to
company information

Following consultation with the Chairman, Directors and
Board committees have the right, in connection with their
duties and responsibilities, to seek independent professional
advice at nib’s expense and have the right of access to all
relevant information in relation to nib and to senior executives.
At the time of appointment, each Director enters into a Deed
of Access, Insurance and Indemnity with nib.

matters;

ensuring the efficient organisation and conduct of the

Board’s function;

overseeing that membership of the Board is skilled and

appropriate for nib’s needs;

promoting constructive relations between Board members

and between the Board and management;

ensuring that independent Directors meet separately
at least annually to consider, among other things,
management’s performance; and

reviewing corporate governance matters with the

Company Secretary and reporting on those matters to
the Board.

2.3 At nib, the role of the Chairman and CEO
is not exercised by the same individual.

As previously noted, Mr Steven Crane is the Chairman and
Mr Mark Fitzgibbon is the MD/CEO.

2.4 The nib Board has established
a Nomination Committee.

The Nomination Committee is a standing committee of the nib
Board. The Nomination Committee includes all Non-Executive
Directors. The Nomination Committee assists the Board and
makes recommendations on the selection and appointment
of Directors, the process of evaluating Director performance,
the composition of the Board, and succession planning for
the Board. The Committee ensures that Directors bring a
variety of perspectives, experiences, skills and diversity in
the best interests of nib.

2.5 nib discloses in its Nomination Charter

and in this statement, the process for
evaluating the performance of the Board,
its committees and individual Directors.

The Nomination Charter sets out the responsibilities,
composition, structure, membership requirements and
procedures for appointing members to the Board.

Selection and appointment of Directors

When a vacancy on the Board arises, the Nomination
Committee identifies candidates with appropriate skills,
experience and expertise and makes recommendations
to the Board. When the Board considers that a suitable

nib holdings limited 2012 annual reportCorporate Governance Statement continuedfor the year ended 30 June 20122.6 nib provides the information indicated in
the Guide to reporting on Principle 2.

nib complies with Recommendations 2.1, 2.2, 2.3, 2.4, 2.5
and 2.6.

The following information is available on our website,
nib.com.au:

Board Charter;

Committee Charters for the Audit Committee,

People and Remuneration Committee, Risk and
Reputation Committee, Nomination Committee and
Investment Committee.

PrinciPle 3 – ProMote ethicAl AnD
resPonsible Decision MAkinG

All employees, including the Board and senior management,
are expected to uphold the highest levels of integrity and
professional behaviour in their relationships with the Group’s
stakeholders. A summary of the Group’s core codes and
policies, which apply to all employees, are set out in this
corporate governance statement. These policies and codes
are available on the nib website, nib.com.au.

3.1 nib has a Code of Conduct in place and
discloses the code on our website.

nib has adopted a Code of Conduct which applies to all
Directors, officers, employees, contractors, consultants and
associates of nib and all entities within the Group. The Code
of Conduct sets out ethical standards and rules of the Group
and provides a framework to guide compliance with legal and
other obligations to stakeholders. The Code of Conduct is
reviewed annually and was updated on 14 February 2012. The
Code of Conduct is available on our website, nib.com.au.

3.2 nib has a Diversity Policy in place and

discloses the Diversity Policy on our
website, nib.com.au. The Diversity Policy
includes the requirement for the Board
to establish measurable objectives
for achieving gender diversity and for
the Board to assess annually both the
objectives and progress in achieving them.

nib’s Diversity Policy sets out our approach to diversity in
the workplace and provides a framework to achieve nib’s
diversity goals.

The Board and management believe that nib’s commitment to
this policy contributes to achieving nib’s corporate objectives
and embeds the importance and value of diversity within the
culture of nib.

nib believes that the promotion of diversity on the Board,
in senior management and within all levels of the nib Group:

broadens the pool for recruitment of high quality Directors

and employees;

is likely to support employee retention;

through the inclusion of a variety of skill-sets, is likely to
encourage greater innovation and improve the quality of
decision-making, productivity and teamwork;

enhances customer service and market reputation through
a workforce that respects and reflect the diversity of our
customers; and

is in line with best practice corporate governance

responsibilities.

3.3 The nib Board has set measureable

objectives for achieving gender diversity
in accordance with its Diversity Policy
and discloses progress towards
achieving them.

The Board of nib is committed to achieving diversity in accordance
with its Diversity Policy. Set out below are the measureable
objectives set by the Board for achieving gender diversity.

Objective

Details

Timeframe

Results as at 30 June 2012

Recruitment
and selection

Ongoing

Ensure that employees and Directors are
selected from diverse candidate pools.
A shortlist will be compiled for all management,
executive and Board positions with at least one
serious female candidate to be present on every
shortlist. If this is not possible, there must be
objective reasons to support this. Candidates
will be interviewed by a diverse group of people
through the process.

In line with our recruitment policy, all candidates
are selected based on merit and interviewed by a
diverse selection panel including human resources,
the recruitment managers and team leaders.

Recruitment vacancies are advertised through
seek.com.au, local and national publications,
industry websites, nib.com.au and where necessary
through recruitment agencies.

nib 60 years youngPrinciPle 3 – ProMote ethicAl AnD resPonsible Decision MAkinG CONTINUED

Objective

Details

Timeframe

Results as at 30 June 2012

Representation Set goals, timeframes and succession plans to
improve the number of women in management
roles in the business. At a minimum:
40% of managers and team leaders;

June 2014

55.6% of managers and team leaders are women;

30% of business unit managers;

15% of business unit managers are women;

30% of executives;

Two Non-Executive Directors; and

One member of the People and

Remuneration Committee.

Development
and
Succession

Introduce mentoring, coaching and succession
programs that support and encourage women
to expand their skills as part of their professional
development and to prepare them to take on
management and executive roles.

June 2012

Flexible work
practice

Develop a flexible work practices policy and
engender a culture of support for flexible
work practices where possible and required;
Educate managers on strategies for supporting
and managing flexible work arrangements
successfully.

June 2012

October 2012

20% of executives are women;

Two female Non-Executive Directors on the Board;

and

Two female Non-Executive Directors are on the

People and Remuneration Committee.

A mentoring program has been designed, however,
not yet implemented. The program will be used
as a development tool for the purposes of sharing
knowledge, experience and insight with respect
to a particular area of expertise.

Employee professional career development is
discussed and documented within their individual
performance review and plan.

We provide a number of programs in our Learning
Curriculum to help develop employees, and
source external training to develop specific skills
and knowledge. Employees also have access to
Education Assistance which provides financial
support towards formal education to broaden
job-related knowledge or to obtain professional
certification.

As part of nib’s professional career development in
FY12, nib awarded scholarships to three women to
undertake a research program of their own choice.

We offer the ability for flexible work arrangements
to employees, including part-time hours (either on a
permanent or temporary basis), the ability to change
start and finish times to meet domestic requirements
and, where possible, working from home.

The flexibility provided by the remote agent
workforce (RAW) meets the needs of a diverse
workforce both in terms of working hours and
environment.

3.4 nib has in this statement, set out the proportion of women employees across the whole of the

organisation, women in senior executive positions and women on the Board.

nib’s commitment to diversity is reflected in the composition of the current Board and executive management.

At 30 June 2012, 74.6% of nib’s total workforce was female.

3.5 nib provides the information indicated in the Guide to reporting on Principle 3.

nib complies with Recommendations 3.1, 3.2, 3.3, 3.4 and 3.5.

The following information is available from our website, nib.com.au:

Code of Conduct;

Diversity Policy.

nib holdings limited 2012 annual reportCorporate Governance Statement continuedfor the year ended 30 June 2012

PrinciPle 4 – sAfeGuArD inteGrity
in finAnciAl rePortinG

reviews the processes that the MD/CEO and the CFO

have in place to support their certifications to the Board;

4.1 The Board of nib has established an

Audit Committee.

The Audit Committee is a standing committee of the nib
Board. The Audit Committee operates in accordance with
its Charter. The Audit Committee Charter is available on
our website, nib.com.au.

4.2 nib’s Audit Committee:

consists only of Non-Executive

Directors;

consists only of independent Directors;
is chaired by an independent Director,
who is not Chairman of the Board.

The Audit Committee includes members who have
appropriate financial experience and understanding of
the private health insurance industry. There are currently
three members of the Audit Committee: Mr Harold Bentley
(Committee Chairman), Dr Annette Carruthers and
Mr Philip Gardner. Ms Christine McLoughlin served on
the Audit Committee from 20 March 2011 to 30 June 2012.
The Board Chairman is not a member of the Committee
and attends meetings in an ex-officio capacity.

Details of the skills, experience and expertise of the Audit
Committee members is set out on pages 3 and 4 of this report.

The Audit committee held eight meetings in FY12.

nib’s Audit Committee has a
formal charter.

The Audit Committee Charter sets out the role and
responsibility of the Audit Committee.

The role of the Audit Committee is to assist the Board by
reviewing and making recommendations to the Board in
relation to:

the appointment, remuneration, independence,

competence and performance of nib’s external audit
function;

the integrity of nib’s financial statements and other material

regulatory documents;

compliance with relevant financial reporting standards
and ASX listing obligations and accounting policies
adopted by nib;

the propriety of related party transactions (if any); and

monitoring compliance with nib’s capital management plan.

In fulfilling its role, the Audit Committee:

receives regular reports from management, the external
auditors, the Appointed Actuary and, if required, the
internal auditors;

meets with external auditors and the Appointed Actuary on
a regular basis and has issued a standing invitation to the
external auditor to attend all meetings of the Audit Committee;

reviews any significant disagreements between the
auditors and management, irrespective of whether
they have been resolved;

meets separately with the external auditors and the
Appointed Actuary at least twice a year without the
presence of management; and

provides the external auditors and the Appointed Actuary
with a clear line of direct communication at any time
to either the Chairman of the Audit Committee or the
Chairman of the Board.

The Audit Committee has authority, within the scope of its
responsibilities, to seek any information it requires from any
employee or external party, including the Appointed Actuary.

The Audit Committee Charter is available on our website,
nib.com.au.

PrinciPle 5 – MAke tiMely AnD
bAlAnceD Disclosure

5.1 nib has written policies designed to ensure
compliance with the ASX Listing Rule
disclosure requirements and to ensure
accountability at a senior executive level
for that compliance and disclosure those
policies or summary of those policies.

nib has a Disclosure and Communication Policy and
Disclosure and Materiality Guidelines, which are provided to
all officers and relevant employees upon appointment and are
available on the nib website. nib has established a Disclosure
Committee which is responsible for managing nib’s disclosure
obligations under the ASX Listing Rules. The Disclosure
Committee comprises the MD/CEO, CFO, Company
Secretary, Corporate Affairs and Investor Relations Manager,
and Legal Counsel.

nib is committed to providing relevant up-to-date information
to its shareholders and other stakeholders in accordance
with its obligations under the ASX Listing Rules and the
Corporations Act. In meeting its continuous disclosure
obligations, nib works to ensure that its announcements
are presented in a factual, clear and balanced way and that
all shareholders have equal and timely access to material
information concerning nib.

nib’s Company Secretary has been nominated as the person
responsible for communications with the ASX.

5.2 nib provides the information indicated
in the Guide to reporting on Principle 5.

nib complies with Recommendations 5.1 and 5.2.

The following information is available on our website,
nib.com.au:

nib’s Disclosure and Communication Policy;

Disclosure and Materiality Guidelines.

nib 60 years youngPrinciPle 6 – resPect the riGhts
of shAreholDers

PrinciPle 7 – recoGnise
AnD MAnAGe risk

6.1 nib has a Disclosure and Communication
Policy in place for promoting effective
communication with shareholders
and encouraging their participation at
general meetings. The Disclosure and
Communication Policy is available on
our website, nib.com.au.

nib’s Disclosure and Communication Policy sets out the way
in which nib communicates to shareholders.

The Board and management aim to ensure that shareholders
are informed of all information necessary to fully assess the
performance of the Group. nib has a dedicated shareholder
website that can be found at nib.com.au/shareholders. This
website provides relevant information for shareholders in
a dedicated place and in an easy-to-navigate manner. All
information disclosed to the ASX is posted on the shareholder
website soon after release to the market by the ASX.

7.1 nib has established policies for the

oversight and management of material
business risks. The Risk Policy is available
on our website, nib.com.au.

Management is responsible for designing, implementing and
reporting on the adequacy of nib’s risk management and
internal control system. The Board has established a Risk
and Reputation Committee (refer to the Board Committees
section on page 3) and the committee’s role includes
reviewing and making recommendations to the Board in
respect of nib’s system of risk management.

nib’s Risk Policy and Risk Management Framework have
been developed to enable the Board to have reasonable
assurance that:

established corporate and business strategies and

objectives are achieved;

risk exposures are identified and adequately monitored

Shareholder participation

and managed;

The Board of nib is committed to communicating effectively
with shareholders and making it easy to participate in general
meetings. Shareholders may elect to receive information
electronically as it is posted on nib’s shareholder website
(the website provides information about how to make this
election). Alternatively, a shareholder may elect to receive
company reports and shareholder documents, such as the
Notice of Annual General Meeting, by post.

Shareholders are encouraged to attend the AGM and use the
opportunity to ask questions at the meeting. If a shareholder
is unable to attend the AGM, the shareholder can appoint a
proxy to attend and vote on their behalf/or using any other
means included in the Notice of Meeting. Questions can be
lodged prior to the AGM by completing the relevant form
accompanying the Notice of Meeting. nib responds in writing
to any shareholder who submits a written question. Notices of
Meeting and accompanying explanatory notes aim to clearly,
concisely and accurately set out the nature of the business to
be considered at the meeting. nib places Notices of General
Meetings and accompanying explanatory material on the
nib website. In 2011, shareholders were also able to view the
AGM via a webcast available on nib’s website. Shareholders
will be able to watch and listen to the business of the 2012
AGM by webcast from the nib website.

6.2 nib provides the information indicated
in the Guide to reporting on Principle 6.

nib complies with Recommendations 6.1 and 6.2.

nib’s Disclosure and Communication Policy is available on
our website, nib.com.au.

significant financial managerial and operating information

is accurate, relevant, timely and reliable; and

there is an adequate level of compliance with policies,

standards, procedures and applicable laws, regulations
and licences.

nib’s Risk Policy and Risk Management Framework is
based on the Australian/New Zealand Standard (AS/
NZS ISO 31000:2009) for risk management and also
the internationally recognised Committee of Sponsoring
Organisations of the Treadway Commission (COSO)
Enterprise Risk Management Framework.

The Board and senior management consider and set nib’s
strategic and operational objectives as part of the annual
strategy and budget planning review. As part of the strategy
setting, the Board and senior management consider these
obligations in the context of nib’s risk appetite – the acceptable
balance of growth, risk and return for nib. There may be a
number of different strategies designed to achieve desired
growth and return goals, each having different risks.

As a means of informing the business of the outcomes
expected from the strategy, the Board and senior
management develop key performance indicators and risk
assessments for each objective. These are intended to
provide the Board with greater assurance that nib remains
within its strategy and risk appetite and provides guidance
about nib’s ability to achieve its objectives.

nib holdings limited 2012 annual reportCorporate Governance Statement continuedfor the year ended 30 June 2012The Risk Management Framework includes the Board’s
statement of risk appetite for the four main types of risk that
are likely to affect nib’s ability to deliver its strategic objectives.
At a high level these are:

Financial Risk – the risks associated with achieving nib’s
financial targets, including revenue and income growth,
and capital management targets. These risks include
model risk, credit risk, liquidity risk, market risk, investment
risk, pricing risk and claims risk.

Operational Risk – the risk that arises from normal

operations, project management, inadequate or failed
internal processes, people, systems, fraud or from external
events.

Strategic Risk – the risk of changing government policies

and new legislation on nib’s business (sovereign risk),
strategic plan risk, reputation risk and product design.

Regulatory and Compliance Risk – the risk of failing to
comply with nib’s legal and regulatory requirements and
nib’s internal policies and procedures.

7.2 nib’s Board has required management
to design and implement the risk
management and internal control systems
to manage nib’s material business risks
and to report to the Board on whether
those risks are being managed effectively.

The Board and the Risk and Reputation Committee
receive regular reports on key enterprise risks that may
impede nib in meeting its business objectives. During FY12,
management provided reports to support the Risk and
Reputation Committee’s and the Board’s assessment of the
effectiveness of nib’s Risk Management Framework and the
management of material business risks. In addition, the Audit
Committee monitors the Group’s financial risks and reports
to the Board on the adequacy of the Group’s internal controls
as they apply to financial reporting, financial management
systems, accounting and business policies to minimise any
financial risks.

In addition to monthly compliance statements, quarterly
internal control questionnaires are completed by all
divisional and business unit managers (except the CFO).
The quarterly reports are reviewed by nib’s finance team as
part of nib’s six monthly and annual reporting and to achieve
compliance with section 295A of the Corporations Act and
Recommendation 7.3.

The MD/CEO and CFO provide annual formal statements to
the Board to the effect that:

nib’s financial reports are complete and present a true and
fair view, in all material respects, of the financial condition
and operational results of nib and are in accordance with
relevant accounting standards; and

nib’s practices are founded on a sound system of risk

management and internal compliance and control which
implements the policies adopted by the Board and nib’s
risk management and internal compliance and control is
operating efficiently and effectively in all material respects.

Internal audit

nib has a dedicated internal audit function that assists with the
identification and control of key enterprise risks. The internal
audit function for FY12 was performed by Deloitte Touche
Tohmatsu. The internal auditor provides an independent and
objective internal audit review of nib’s risks and key controls
and how nib’s processes and technology are operated and
managed to provide the best outcomes for nib.

The nib Strategic Internal Audit plan for the year is developed
using a risk based approach. The annual cycle includes a risk
assessment from which the annual plan is developed by the
internal auditors in conjunction with the Risk and Reputation
Committee and nib management to ensure alignment with
identified key enterprise risks. An assurance map that links key
risks with the relevant assurance providers forms the basis of
the internal audit plan, and internal audit reviews performed
ensure nib identifies opportunities for process improvement.

Internal audit reports in relation to key enterprise risks are
also considered at meetings of the Risk and Reputation
Committee. Representatives from the internal auditors
regularly attend meetings of the Risk and Reputation
Committee to present internal audit report and answer
questions from the committee.

7.3 nib’s Board has received assurance from
the Chief Executive Officer and Chief
Financial Officer that a declaration in
accordance with s295A of the Corporations
Act is founded on a sound system of risk
management and internal control and that
the system is operating effectively in all
material respects in relation to reporting
financial risks.

In August 2012, the Board of nib received a statement
in relation to FY12 full year report and results from the
MD/CEO and the CFO covering the matters set out in
section 295A of the Corporations Act and in accordance
with Recommendation 7.3.

7.4 nib provides the information indicated in
the Guide to reporting on Principle 7.

nib complies with Recommendations 7.1, 7.2, 7.3 and 7.4.
The Board and its standing committees have received reports
from management in accordance with Recommendations 7.2
and 7.3.

nib’s Risk Policy is available on our website, nib.com.au.

nib 60 years youngThe terms of the Long-Term Incentive Plan were amended by
the Board in FY11 to incorporate a four year vesting period.
In August 2012 the Board adopted new LTIP rules to include
good leaver provisions. Further information in relation to nib’s
remuneration practices for executives is provided as part of
the Remuneration Report (page 6 of this Annual Report).

Remuneration for Non-Executive Directors is fixed. Board
and Committee fee rates are reviewed by the People and
Remuneration Committee and approved by the Board.
The total annual remuneration paid to Non-Executive
Directors must not exceed the fee pool set by shareholders
at the AGM. The current maximum annual remuneration
was set at $1.1 million by shareholders in September 2007.
Further information in relation to nib’s remuneration practices
for Non-Executive Directors is provided as part of the
Remuneration Report (page 6 of this Annual Report).

8.4 nib provides the information indicated in
the Guide to reporting on Principle 8.

nib complies with Recommendations 8.1, 8.2, 8.3 and 8.4.

The following documents are available from our website,
nib.com.au:

People and Remuneration Committee Charter;

nib Trading Policy.

PrinciPle 8 – reMunerAte fAirly
AnD resPonsibly

8.1 The nib Board has established a People and

Remuneration Committee.

The People and Remuneration Committee is a standing
committee of the nib Board. The People and Remuneration
Committee operates in accordance with its charter.
The People and Remuneration Committee Charter is
available on our website, nib.com.au.

8.2 nib’s People and Remuneration Committee
is structured so that it consists only of
Non-Executive independent Directors, has
an independent Chairman and has at least
three members.

The People and Remuneration Committee includes members
who have appropriate experience and understanding of the
private health insurance industry. There are three members
of the People and Remuneration Committee: Ms Christine
McLoughlin (Committee Chairman), Dr Annette Carruthers
and Mr Philip Gardner.

Details of the skills, experience and expertise of the People
and Remuneration Committee members is set out on page 3
of this Annual Report.

The People and Remuneration Committee held six meetings
in FY12.

8.3 nib clearly distinguishes the structure of
Non-Executive Directors’ remuneration
from that of executive Directors and
senior executives.

The People and Remuneration Committee reviews
remuneration of senior executives and Non-Executive
Directors every year. Every second year, the committee
engages an independent remuneration consultant in relation
to executive remuneration and market rates to assist it in
making recommendations to the Board for nib’s remuneration
practices and the structure of Non-Executive Directors’
remuneration and the remuneration of senior executives.

The remuneration of senior executives (who are Key
Management Personnel), including the MD/CEO, have the
following remuneration components:

base salary;

statutory entitlements (including superannuation and long

service leave, as applicable);

a short-term incentive (subject to performance thresholds);

and

a long-term incentive (subject to performance thresholds).

nib holdings limited 2012 annual reportCorporate Governance Statement continuedfor the year ended 30 June 2012Independent Auditor’s Report

to the members of nib holdings limited

Independent auditor’s report to the members of
nib holdings limited

Report on the financial report
We have audited the accompanying financial report of nib holdings limited (the company), which
comprises the balance sheet as at 30 June 2012, and the income statement, the statement of
comprehensive income, statement of changes in equity and statement of cash flows for the year ended
on that date, a summary of significant accounting policies, other explanatory notes and the directors’
declaration for the nib holdings limited group (the consolidated entity). The consolidated entity
comprises the company and the entities it controlled at the year's end or from time to time during the
financial year.

Directors’ responsibility 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 is free from material misstatement, whether due to fraud or error. In Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the
audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial report in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.

Our procedures include reading the other information in the Annual Report to determine whether it
contains any material inconsistencies with the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.

PricewaterhouseCoopers, ABN 52 780 433 757
PricewaterhouseCoopers Centre, 26 Honeysuckle Drive, PO Box 798, NEWCASTLE NSW 2300
T: +61 2 4925 1100, F: +61 2 4925 1199, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

nib 60 years youngIndependence
In conducting our audit, we have complied with the independence requirements of the Corporations
In conducting our audit, we have complied with the independence requirements of the
In conducting our audit, we have complied with the independence requirements of the
Act 2001.

Auditor’s opinion
In our opinion:

(a)

the financial report of nib holdings limited is in accordance with the
the financial report of
including:

is in accordance with the Corporations Act 2001,

(i)

(ii)

giving a true and fair view of the consolidated entity’s financial position as at
giving a true and fair view of the
2012 and of

performance for the year ended on that date; and
and of its performance for the year ended on that date; and

consolidated entity’s financial position as at 30 June

complying with Australian Accounting Standards (including the Australian
complying with Australian Accounting Standards (including the Australian
complying with Australian Accounting Standards (including the Australian
Corporations Regulations 2001; and
Accounting Interpretations) and the Corporations Regulations 2001
Accounting Interpreta

(b)

with International Financial Reporting Standards
the financial report and notes also comply with International Financial Reporting Standards
the financial report and notes
as disclosed in Note 1.
as disclosed in Note

emuneration Report
Report on the Remuneration
emuneration report included in pages 6 to 20 of the directors’ report for the
We have audited the remuneration
The directors of the company are responsible for the preparation and
ended 30 June 2012. The directors of the company are responsible for the preparation and
The directors of the company are responsible for the preparation and
emuneration report in accordance with section 300A of the
presentation of the remuneration
eport, based on our audit
ility is to express an opinion on the remuneration report, based on our audit
2001. Our responsibility is to express an opinion on the
conducted in accordance with Australian Auditing Standards.
conducted in accordance with Australian Auditing Standards.

eport in accordance with section 300A of the Corporations Act

of the directors’ report for the year

Auditor’s opinion
In our opinion, the remuneration
complies with section 300A of the

section 300A of the Corporations Act 2001.

emuneration report of nib holdings limited for the year

year ended 30 June 2012,

PricewaterhouseCoopers

John Campion
Partner

Newcastle
17 August 2012

nib holdings limited 2012 annual reportIndependent Auditor’s Report continuedto the members of nib holdings limitedDirectors’ Declaration

for the year ended 30 June 2012

In the Director’s opinion:

a. the financial statements and notes set out on pages 36 to 89 are in accordance with the Corporations Act 2001, including:

i. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting

requirements; and

ii. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the

financial year ended on that date; and

b. there are reasonable grounds to believe that nib holdings limited will be able to pay its debts as and when they become due

and payable.

Note 1(a) confirms that financial statements also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.

The Directors have been given declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A
of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the Directors.

On behalf of the Board,

Steve Crane
Director

Newcastle, NSW
17 August 2012

Harold Bentley
Director

nib 60 years young
Financial Report

for the year ended 30 June 2012

contents

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements:

1. Summary of Significant Accounting Policies

2. Critical Accounting Judgements and Estimates

3. Actuarial Assumptions and Methods

18. Borrowings

19. Outstanding Claims Liability

20. Unearned Premium Liability

21. Unexpired Risk Liability

22. Current Tax Liabilities

23. Provision for Employee Entitlements

24. Deferred Tax Liabilities

25. Contributed Equity

26. Retained Profits

Private Health Insurance Contracts
– Risk Management Policies and Procedures

27. Reserves

28. Dividends

5. Segment Reporting

6. Revenue and Other Income

7. Expenses

Income Tax

9. Cash and Cash Equivalents

10. Receivables

11. Financial Assets at Fair Value through Profit or Loss

12. Deferred Acquisition Costs

13. Available-for-Sale Financial Assets

14. Deferred Tax Assets

15. Property, Plant and Equipment

16. Intangible Assets

17. Payables

29. Commitments for Expenditure

30. Contingent Liabilities

31. Remuneration of Auditors

32. Notes to the Statement of Cashflows

33. Controlled Entities

34. Events Occurring after the Balance Sheet Date

35. Related Parties

36. Key Management Personnel Disclosures

37. Share-Based Payments

38. Solvency and Capital Adequacy Reserves

39. Earnings per Share

40. Parent Entity Financial Information

41. Company Details

nib holdings limited 2012 annual reportConsolidated Income Statement

for the year ended 30 June 2012

Premium revenue

Claims expense

RETF levy

State levies

Claims handling expenses

Net claims incurred

Acquisition costs

Other underwriting expenses

Underwriting expenses

Underwriting result

Investment income

Other income

Investment expenses

Other expenses

Profit before income tax

Income tax expense

Profit for the year

Earnings per share for profit from continuing operations attributable
to the ordinary equity holders of the company

Basic earnings per share

Diluted earnings per share

Earnings per share for profit attributable to the ordinary equity holders
of the company

Basic earnings per share

Diluted earnings per share

Notes

2012
$000

2011
$000

1,123,808

1,007,848

(765,436)

(159,980)

(23,823)

(17,390)

(693,162)

(132,744)

(22,874)

(16,134)

(966,629)

(864,914)

(36,080)

(50,368)

(86,448)

(36,611)

(44,821)

(81,432)

70,731

61,502

26,500

3,556

(860)

(4,270)

95,657

(28,017)

67,640

33,453

5,750

(1,327)

(7,462)

91,916

(26,453)

65,463

Cents

14.8

13.7

The above Consolidated Income Statement should be read in conjunction with the accompanying notes.

nib 60 years youngConsolidated Statement
of Comprehensive Income

for the year ended 30 June 2012

Profit for the year

Other comprehensive income

Revaluation of land and buildings

Change in fair value of available for sale financial assets

Income tax related to components of other comprehensive income

Other comprehensive income for the year, net of tax

Notes

2012
$000

2011
$000

67,640

65,463

27(b)

8(c)

1,245

–

(374)

871

706

(237)

552

Total comprehensive income for the year attributable
to equity holders of nib holdings limited

68,511

66,015

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

nib holdings limited 2012 annual reportConsolidated Balance Sheet

as at 30 June 2012

ASSETS

Current assets

Cash and cash equivalents

Receivables

Financial assets at fair value through profit or loss

Deferred acquisition costs

Total current assets

Non-current assets

Receivables

Deferred acquisition costs

Available-for-sale financial assets

Deferred tax assets

Property, plant and equipment

Intangible assets

Total non-current assets

Total assets

LIABILITIES

Current liabilities

Payables

Borrowings

Outstanding claims liability

Unearned premium liability

Current tax liabilities

Provision for employee entitlements

Total current liabilities

Non-current liabilities

Unearned premium liability

Provision for employee entitlements

Total non-current liabilities

Total liabilities

Net assets

EQUITY

Contributed equity

Retained profits

Reserves

Total equity

The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.

Notes

2012
$000

2011
$000

86,673

70,208

356,774

2,140

160,772

49,469

319,293

–

515,795

529,534

10,000

20,000

6,711

2,206

2,124

42,104

38,905

102,050

–

2,206

6,554

41,858

39,098

109,716

617,845

639,250

86,690

2,594

74,993

135,867

6,884

2,144

77,230

3,603

65,883

65,202

10,894

3,657

309,172

226,469

5,799

1,276

7,075

–

991

316,247

227,460

301,598

411,790

27,581

271,954

2,063

301,598

42,193

367,595

2,002

411,790

nib 60 years young
Consolidated Statement of Changes in Equity

for the year ended 30 June 2012

Balance at 1 July 2010

42,437

347,358

1,606

391,401

Contributed
Equity
$000

Retained
Profits
$000

Notes

Reserves
$000

Total
Equity
$000

Profit for the year

Changes in fair value of available-for-sale financial assets,
net of tax

Revaluation of property, net of tax

Total comprehensive income for the year

Transactions with owners in their capacity as owners:

Share buy-back

Share buy-back – performance rights and bonus share rights

Employee performance rights – value of employee services

Dividends paid

Balance at 30 June 2011

Balance at 1 July 2011

Profit for the year

Revaluation of property, net of tax

Total comprehensive income for the year

Transactions with owners in their capacity as owners:

Capital return and transaction costs net of tax

Share buy-back

Shares acquired by the nib Holdings Ltd Share Ownership
Plan Trust

Share buy-back – performance rights and bonus share rights

Employee performance rights – value of employee services

Dividends paid

27(b)

25(b)

27(b)

28(a)

27(b)

25(b)

25(d)

27(b)

28(a)

65,463

–

65,463

–

65,463

(244)

(1,784)

–

(244)

–

(43,442)

(45,226)

494

552

–

(552)

396

–

(156)

494

66,015

(2,028)

(552)

396

(43,442)

(45,626)

42,193

367,595

2,002

411,790

42,193

367,595

2,002

411,790

–

67,640

–

67,640

(9,123)

(4,964)

(525)

–

(14,612)

(66,288)

(36,075)

–

(60,918)

(163,281)

–

871

–

(1,069)

259

–

(810)

67,640

871

68,511

(75,411)

(41,039)

(525)

(1,069)

259

(60,918)

(178,703)

Balance at 30 June 2012

27,581

271,954

2,063

301,598

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

nib holdings limited 2012 annual reportConsolidated Statement of Cash Flows

for the year ended 30 June 2012

Cash flows from operating activities

Receipts from policyholders and customers (inclusive of goods and services tax)

1,189,656

1,024,410

Notes

2012
$000

2011
$000

Payments to policyholders, suppliers and employees (inclusive of goods and services tax)

Dividends received

Interest received

Distributions received

Transactions costs relating to acquisition of business

Interest paid

Income taxes paid

Net cash inflow (outflow) from operating activities

32(b)

Cash flows from investing activities

Proceeds from disposal of other financial assets at fair value through the profit and loss

Payments for other financial assets at fair value through the profit and loss

Proceeds from sale of investment properties

Proceeds from sale of property, plant and equipment and intangibles

Payments for property, plant and equipment and intangibles

15,16

Proceeds from sale of Eye Care business

Payment for acquisition of business

Net cash (outflow) inflow from investing activities

Cash flows from financing activities

Payments for share buy-back

Payments for capital return

Payments for employee performance & bonus share rights

Payments for shares acquired by the nib Holdings Ltd Share Ownership Plan Trust

Dividends paid to the company’s shareholders

Net cash inflow (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

Reconciliation to Consolidated Balance Sheet

Cash and cash equivalents

Borrowings

25(b)

27(b)

25(d)

28(a)

32(a)

(1,048,789)

140,867

12,714

8,816

–

(8)

(27,795)

134,631

134,116

(167,265)

10,000

(5,730)

250

–

(28,585)

(41,039)

(75,585)

(1,069)

(525)

(60,918)

(179,136)

(73,090)

157,169

84,079

(942,516)

81,894

9,373

16,172

(1,056)

(2)

(18,129)

88,280

322,666

(373,393)

–

(5,230)

250

(23,211)

(78,911)

(2,028)

–

(552)

–

(43,442)

(46,022)

(36,653)

193,822

157,169

86,673

(2,594)

84,079

160,772

(3,603)

157,169

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

nib 60 years young
Notes to the Consolidated
Financial Statements

for the year ended 30 June 2012

1. suMMAry of siGnificAnt AccountinG Policies

Subsidiaries are all entities over which the parent has the
power to govern the financial and operating policies, generally
accompanying a shareholding of more than one-half of the
voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are
considered when assessing whether the Group controls
another entity.

Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are de-consolidated
from the date that control ceases.

The acquisition method of accounting is used to account for
the acquisition of subsidiaries by the Group (refer to Note 1(j)).

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 changed where
necessary to ensure consistency with the policies adopted
by the Group.

ii. Employee Share Trust

The Group has formed a trust to administer the Group’s
executive management short-term incentive and long-term
incentive share plans. This trust is consolidated, as the
substance of the relationship is that the trust is controlled
by the Group.

Shares held by the nib Holdings Ltd Share Ownership Plan
Trust are disclosed as treasury shares and deducted from
contributed equity.

c. Segment reporting

Operating segments are reported in a manner consistent
with the internal reporting provided to executive management.
The chief operating decision maker, who is responsible for
allocating resources and assessing performance of the
operating segments, has been identified as the CEO/MD.

d. Revenue recognition

Revenue is measured at the fair value of the consideration
received or receivable. Amounts disclosed as revenue are
net of amounts collected on behalf of third parties.

The Group recognises revenue when the amount of revenue
can be reliably measured, it is probable that future economic
benefits will flow to the entity and specific criteria have been
met for each of the Group’s activities as described below.
The Group bases its estimates on historical results, taking
into account the type of customer, the type of transaction
and the specifics of each arrangement.

The principal accounting policies adopted in the preparation
of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years
presented, unless otherwise stated. The financial statements
are for the consolidated entity consisting of nib holdings
limited and its subsidiaries.

a. Basis of preparation

These general purpose financial statements have been
prepared in accordance with Australian Accounting
Standards and interpretations issued by the Australian
Accounting Standards Board and the Corporations Act 2001.
nib holdings limited is a for-profit entity for the purpose of
preparing the financial statements.

i. Compliance with IFRS

The consolidated financial statements of nib holdings limited
group also comply with International Financial Reporting
Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).

ii. Historical cost convention

These financial statements have been prepared under the
historical cost convention, as modified by the revaluation
of available-for-sale financial assets, financial assets and
liabilities at fair value through profit or loss, certain classes
of property, plant and equipment and investment properties.

iii. Critical accounting estimates

The preparation of financial statements requires the use
of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of
applying the Group’s accounting policies. The areas involving
a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the financial
statements are disclosed in Note 2.

iv. Functional and presentation currency

The consolidated financial statements are presented in
Australian dollars, which is nib holdings limited’s functional
and presentation currency.

v. Comparative information

When the presentation or classification of items in the
financial statements is amended, comparative amounts have
been reclassified.

b. Principles of consolidation

i. Subsidiaries

The consolidated financial statements incorporate the assets
and liabilities of all subsidiaries of nib holdings limited (“parent
entity”) as at 30 June 2012 and the results of all subsidiaries
for the year then ended. nib holdings limited and its
subsidiaries together are referred to in this financial report
as the Group.

nib holdings limited 2012 annual reportRevenue is recognised for the major business activities as
follows:

i. Premium revenue

Premium revenue comprises premiums from private health
insurance contracts held by policyholders.

Premium revenue is recognised when it has been earned.
Premium revenue is recognised from the attachment date
over the period of the contract. The attachment date is from
when the insurer accepts the risk from the insured under the
insurance contract. Revenue is recognised in accordance
with the pattern of the incidence of risk expected over the
term of the contract.

The proportion of the premium received or receivable
not earned in the income statement at the reporting
date is recognised in the balance sheet as an unearned
premium liability.

Premiums on unclosed business are brought to account
using estimates based on payment cycles nominated by
the policyholder.

ii.

Investment income

Net fair value gains or losses on financial assets classified as
at fair value through profit or loss are recognised in the period.

Rental revenue from leasing of investment properties is
recognised in the period in which it is receivable, as this
represents the pattern of service rendered through the
provision of the properties.

iii.

Interest income

Interest income is recognised using the effective interest
method. When a receivable is impaired, the Group reduces
the carrying amount to its recoverable amount, being the
estimated future cash flow discounted at the original effective
interest rate of the instrument, and continues unwinding the
discount as interest income. Interest income on impaired
loans is recognised using the original effective interest rate.

e. Unexpired risk liability

At each reporting date, the adequacy of the unearned
premium liability is assessed by considering current estimates
of all expected future cash flows relating to future claims
against current private health insurance contracts.

If the sum of the present value of the expected future cash
flows relating to future claims plus the additional risk margin to
reflect the inherent uncertainty in the central estimate exceeds
the unearned premium liability, less related intangible assets
and related deferred acquisition costs, then the unearned
premium is deemed to be deficient, with the deficiency being
recorded in the income statement. The company applies a
risk margin to achieve the same probability of sufficiency for
future claims as is achieved by the estimate of the outstanding
claims liability, refer to Note 1(f).

f. Outstanding claims liability

The liability for outstanding claims is measured as the
central estimate of the expected future payments against
claims incurred but not settled at the reporting date under
private insurance contracts issued by the Group, with an
additional risk margin to allow for the inherent uncertainty
in the central estimate.

The expected future payments include those in relation to
claims reported but not yet paid and claims incurred but not
yet reported, together with allowances for Risk Equalisation
Trust Fund consequences and claims handling expenses.

g. Acquisition costs

Acquisition 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 income statement in
subsequent reporting periods.

Deferred acquisition costs are amortised systematically
in accordance with the expected pattern of the incidence
of risk under the insurance contracts to which they relate.
This pattern of amortisation corresponds to the earning
pattern of the corresponding premium revenue.

h. Income tax

The income tax expense or revenue for the period is the tax
payable on the current period’s taxable income based on the
applicable income tax rate for each jurisdiction adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.

Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amount
in the consolidated financial statements. However, the
deferred income tax is not accounted for if it arises from 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. Deferred income
tax is determined using tax rates (and laws) that have been
enacted or substantially enacted by the reporting date and are
expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.

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.

nib 60 years young1. suMMAry of siGnificAnt AccountinG Policies CONTINUED

Deferred tax liabilities and assets are not recognised 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 the
temporary differences and it is probable that the differences
will not reverse in the foreseeable future.

Leases in which a significant portion of the risk and rewards
of ownership are not transferred to the Group as lessee
are classified as operating leases. Payments made under
operating leases (net of any incentives received from the
lessor) are charged to the profit or loss on a straight-line basis
over the period of the lease.

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. 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.

nib holdings limited and its wholly-owned Australian controlled
entities implemented the tax consolidation legislation. As a
consequence, these entities are taxed as a single entity and
the deferred tax assets and liabilities of these entities are set
off in the consolidated financial statements.

Current and deferred tax is recognised in 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.

Investment allowance

Companies within the Group may be entitled to claim
special tax deductions for investments in qualifying assets
(investment allowances). The Group accounts for such
allowances as tax credits, which means that the allowance
reduces income tax payable and current tax expense.
A deferred tax asset is recognised for unclaimed tax
credits that are carried forward as deferred tax assets.

i. Leases

Leases of property, plant and equipment, where the Group
has substantially all the risks and rewards of ownership, are
classified as finance leases. Finance leases are capitalised
at the lease’s inception at the lower of the fair value of the
leased property and the present value of the minimum
lease payments. The corresponding rental obligations,
net of finance charges, are included in other short-term
and long-term payables. Each lease payment is allocated
between the liability and finance cost. The finance cost is
charged to the profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The property, plant
and equipment acquired under finance leases is depreciated
over the shorter of the asset’s useful life and the lease term.

Lease income from operating leases where the Group is the
lessor is recognised in the profit or loss on a straight-line basis
over the lease term.

j. Business combinations

The acquisition method of accounting is used to account for
all business combinations, including business combinations
involving entities or businesses under common control,
regardless of whether equity instruments or other assets are
acquired. The consideration transferred for the acquisition of a
subsidiary comprises the fair values of the assets transferred,
the liabilities incurred and the equity interests issued by the
Group. The consideration transferred also includes the fair
value of any contingent consideration arrangement and the
fair value of any pre-existing equity interest in the subsidiary.
Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination, are with
limited exceptions, measured initially at their fair values at
the acquisition date. On an acquisition-by-acquisition basis,
the Group recognises any non-controlling interest in the
acquiree either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s net identifiable assets.

The excess of the consideration transferred, the amount
of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in
the acquiree over the fair value of the Group’s share of the net
identifiable assets acquired is recorded as goodwill. If those
amounts are less than the fair value of the net identifiable
assets of the subsidiary acquired and the measurement of
all amounts has been reviewed, the difference is recognised
directly in profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is
deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange.
The discount rate used is the entity’s incremental borrowing
rate, being the rate at which a similar borrowing could be
obtained from an independent financier under comparable
terms and conditions.

Contingent consideration is classified either as equity or a
financial liability. Amounts classified as a financial liability are
subsequently remeasured to fair value with changes in fair
value recognised in profit or loss.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012k. Impairment of assets

2. Shares, fixed interest securities, options and units in

trusts listed on stock exchanges are initially recognised
at cost and the subsequent fair value adjustment is taken
as the quoted bid price of the instrument at the balance
sheet date.

All purchases and sales of financial assets that require
delivery of the asset within the timeframe established by
regulation or market convention (“regular way” transactions)
are recognised at trade date, being the date on which the
company commits to buy or sell the asset.

In cases where the point between trade and settlement
exceeds this time frame, the transaction is recognised at
settlement date. Financial assets are derecognised when
the rights to receive future cash flows from the assets
have expired, or have been transferred, and the Group
has transferred substantially all the risks and rewards of
ownership.

Investments and other financial assets of nib holdings limited
are also designated as at fair value through the profit or loss
as they are managed and their performance is evaluated on a
fair value basis, in accordance with a documented investment
policy, and information is provided internally on that basis to
the entity’s Key Management Personnel.

ii.

Investment properties

Certain freehold land and buildings are classified as
investment properties where they are held for the purposes
of resale or where they are leased to external parties.

Investment properties are initially recorded at fair value
being acquisition cost. Costs incurred subsequent to initial
acquisition are capitalised when it is probable that future
economic benefits in excess of the originally assessed
performance of the asset will flow to the Group.

Subsequent to initial recognition as assets and once
completed, investment properties are revalued to fair value
as determined by external independent valuers, on a periodic
basis, but at least every three years. Investment properties
are maintained at a high standard and, as permitted by
accounting standards, the properties are not depreciated.

Changes in fair value are recognised in the profit or loss as
part of investment income.

Goodwill and intangible assets that have an indefinite useful
life and are not subject to amortisation are tested annually
for impairment, or more frequently if events or changes in
circumstances indicate that they might be impaired. Other
assets 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 to sell and value in
use. 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 (cash-
generating units). Non-financial assets other than goodwill
that suffered an impairment are reviewed for possible reversal
of the impairment at each reporting date.

l. Assets backing private health

insurance liabilities

As part of the investment strategy the Group actively
manages its investment portfolio to ensure that a portion
of its investments mature in accordance with the expected
pattern of future cash flows arising from private health
insurance liabilities.

With the exception of property, plant and equipment, and
the investment in unlisted equity securities, the Group has
determined that all assets of nib health funds limited are held
to back private health insurance liabilities and their accounting
treatment is described below.

Investments and other financial assets

The Group classifies its financial assets into financial assets at
fair value through profit or loss and available for sale financial
assets, (refer to Note 1(p)).

a. Financial assets at fair value through profit or loss

Financial assets are designated at fair value through profit or
loss. Initial recognition is at fair value, being acquisition cost,
in the balance sheet and subsequent measurement is at fair
value with any resultant fair value gains or losses recognised
in the profit or loss.

Details of fair value for the different types of financial assets
and liabilities are listed below:

1. Cash and cash equivalents, and bank overdrafts are
carried at face value of the amounts deposited or
drawn. The carrying amounts of cash assets and bank
overdrafts approximate their fair value. For the purpose
of the presentation in the consolidated statement of cash
flows, cash includes cash on hand, deposits held at call
with financial institutions, net of bank overdrafts;

nib 60 years young1. suMMAry of siGnificAnt AccountinG Policies CONTINUED

iii. Amounts due from policyholders

Amounts due from policyholders are initially recognised at
fair value, being the amounts due. They are subsequently
measured at fair value which is approximated by taking this
initially recognised amount and reducing it for impairment
as appropriate.

A provision for impairment of receivables is established when
there is objective evidence that nib health funds limited will not
be able to collect all amounts due according to the original
terms of the receivables. The amount of the provision is the
difference between the asset’s carrying amount and the value
of estimated future cash flows. The impairment charge is
recognised in the profit or loss.

m. Cash and cash equivalents other than

those included in assets backing private
health insurance liabilities

For the purpose of the presentation in the consolidated
statement of cash flows, cash and cash equivalents includes
cash on hand, deposits held at call with financial institutions,
other short-term, highly liquid investments with original
maturities of three months or less that are readily convertible
to known amounts of cash and which are subject to an
insignificant risk of changes in value, and bank overdrafts.
Bank overdrafts are shown within borrowings in current
liabilities on the balance sheet.

n. Receivables other than those included

in assets backing private health
insurance liabilities

Trade and other receivables are recognised initially at
fair value and subsequently measured at amortised cost
using the effective interest rate method, less provision
for impairment.

Collectability of trade and other receivables is reviewed on
an ongoing basis. Debts which are known to be uncollectible
are written off by reducing the carrying amount directly.
An allowance account (provision for impairment) is used
where there is objective evidence that the Group will not
be able to collect all amounts due according to the original
terms of the receivables.

The amount of the impairment loss is recognised in profit
or loss within other expenses. When a receivable for which
an impairment allowance had been recognised becomes
uncollectible in a subsequent period, it is written off against
the allowance account. Subsequent recoveries of amounts
previously written off are credited against other expenses in
profit or loss.

o. Non-current assets (or disposal groups)

held for sale and discontinued operations

Non-current assets (or disposal groups) are classified as held
for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use.
They are measured at the lower of their carrying amount and
fair value less costs to sell, except for assets such as deferred
tax assets, assets arising from employee benefits, financial
assets and investment property that are carried at fair value
and contractual rights under insurance contracts, which are
specifically exempt from this requirement.

An impairment loss is recognised for any initial or subsequent
write-down of the asset (or disposal group) to fair value
less costs to sell. A gain is recognised for any subsequent
increases in fair value less costs to sell of an asset (or disposal
group), but not in excess of any cumulative impairment
loss previously recognised. A gain or loss not previously
recognised by the date of the sale of the non-current asset
(or disposal group) is recognised at the date of de-recognition.

Non-current assets (including those that are part of a
disposal group) are not depreciated or amortised while they
are classified as held for sale. Interest and other expenses
attributable to the liabilities of a disposal group classified as
held for sale continue to be recognised.

Non-current assets classified as held for sale and the
assets of a disposal group classified as held for sale are
presented separately from the other assets on the balance
sheet. The liabilities of a disposal group classified as held
for sale are presented separately from other liabilities on the
balance sheet.

A discontinued operation is a component of the entity that
has been disposed of or is classified as held for sale and
represents a separate major line of business or geographical
area of operations, and is part of a single co-ordinated plan
to dispose of such a line of business or area of operations,
or is a subsidiary acquired exclusively with a view to resale.
The results of discontinued operations are presented
separately in the statement of comprehensive income.

p. Available-for-sale financial assets

Available-for-sale financial assets, comprising principally
marketable equity securities, are non-derivatives that are
either designated in this category or not classified in any of
the other categories. They are included in non-current assets
unless management intends to dispose of the investment
within 12 months of the reporting date. Investments are
designated as available-for-sale if they do not have fixed
maturities and management intends to hold them for the
medium to long-term.

Initial recognition is at fair value, being acquisition cost, in
the balance sheet and subsequent measurement is at fair

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012value with any resultant fair value gains or losses recognised
in other comprehensive income. When securities classified
as available-for-sale are sold, the accumulated fair value
adjustments recognised in other comprehensive income
are reclassified to profit or loss as gains and losses from
investment securities.

The Group assesses at the end of each reporting period
whether there is objective evidence that a financial asset or
group of financial assets is impaired. In the case of equity
securities classified as available-for-sale, a significant or
prolonged decline in the fair value of a security below its cost
is considered as an indicator that the securities are impaired.
If any such evidence exists for available-for-sale financial
assets, the cumulative loss – measured as the difference
between the acquisition cost and the current fair value,
less any impairment loss on that financial asset previously
recognised in profit or loss – is reclassified from equity and
recognised in profit or loss as a reclassification adjustment.
Impairment losses recognised in profit or loss on equity
instruments classified as available-for-sale are not reversed
through profit or loss.

q. Property, plant and equipment

Land and buildings (except for investment properties – refer
to Note 1(l)(ii)) are shown at fair value, based on periodic, but
at least triennial, valuations by external independent valuers,
less subsequent depreciation for buildings. Any accumulated
depreciation at the date of revaluation is eliminated against
the gross carrying amount of the asset and the net amount
is restated to the revalued amount of the asset. All other
property, plant and equipment are stated at historical cost
less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with
the item will flow to the Group and the cost of the item can be
measured reliably. The carrying amount of a replaced part is
derecognised. All other repairs and maintenance are charged
to profit or loss during the reporting period in which they are
incurred.

Increases in the carrying amounts arising on the revaluation of
land and buildings are credited, net of tax, to other reserves
in the shareholders’ equity. To the extent that the increase
reverses a decrease previously recognised in profit or loss,
the increase is first recognised in profit or loss. Decreases that
reverse previous increases of the same asset are first charged
against the revaluation reserves directly in equity to the extent
of the remaining reserve attributable to the asset; all other
decreases are charged to profit or loss.

Land is not depreciated. Depreciation on other assets is
calculated using the straight-line method to allocate their cost
or revalued amounts, net of their residual values, over their
estimated useful lives, as follows:

Buildings

25 to 40 years

Plant and equipment

3 to 20 years

Leasehold improvements

3 to 5 years

The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate at each reporting date.

An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount (see Note 1(k)).

Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in profit
or loss. When revalued assets are sold, it is Group policy to
transfer the amounts included in other reserves in respect of
those assets to retained earnings.

Intangible assets

i. Goodwill

Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group’s share of the net identifiable
assets of the acquired subsidiary at the date of acquisition.
Goodwill on acquisitions of subsidiaries is included in
intangible assets. Goodwill is not amortised. Instead, goodwill
is tested for impairment annually, and is carried at cost less
accumulated impairment losses.

ii. Software

Costs incurred in developing products or systems and
costs incurred in acquiring software and licences that
will contribute to future period financial benefits through
revenue generation and/or cost reduction are capitalised to
software. Costs capitalised include external direct costs of
materials and service and direct payroll and payroll related
costs of employees’ time spent on the project. Amortisation
is calculated on a straight-line basis over periods generally
ranging from two and a half years to five years.

iii. Brands and trademarks

Brands and trademarks have an infinite useful life and are
carried at cost less accumulated impairment losses.

iv. Customer Contracts

Customer contracts acquired as part of a business
combination are recognised separately from goodwill.
The customer contracts are carried at their fair value at
the date of acquisition less accumulated amortisation and
impairment losses. Amortisation is calculated based on the
timing of projected cash flows of the contracts over their
estimated useful lives, which is approximately four years.

nib 60 years young1. suMMAry of siGnificAnt AccountinG Policies CONTINUED

s. Payables

These amounts represent liabilities for goods and services
provided to the Group prior to the end of the financial year
which are unpaid. These amounts are unsecured and are
usually paid within 30 days of recognition.

t. Employee benefits

i. Short-term obligations

Liabilities for wages and salaries, including non-monetary
benefits and annual leave are recognised in payables in
respect of employees’ services up to the reporting date and
are measured at the amounts expected to be paid when the
liabilities are settled. Liabilities for non-accumulating sick leave
are recognised when the leave is taken and measured at the
rate paid or payable.

ii. Other long-term employee benefit obligations

The liability for long service leave is the amount of the future
benefit that employees have earned in return for their service
in the current and prior periods. The liability is calculated
using expected future increases in wage and salary rates
and expected settlement dates, and is discounted using
the rates attached to Commonwealth Government Bonds
at the balance sheet date which has the maturity dates
approximating to the terms of nib’s obligations.

iii. Bonus plans

A liability for employee benefits in the form of bonus plans
is recognised in other creditors when at least one of the
following conditions is met:

there are formal terms in the plan for determining the

amount of the benefit, or

the amounts to be paid are determined before the time

of completion of the financial report, or

past practice gives clear evidence of the amount of the

obligation.

Liabilities for bonus plans are expected to be settled within
12 months and are measured at the amounts expected to be
paid when they are settled.

possibility of withdrawal. The liabilities for termination
benefits are recognised as current provisions, as liabilities
for termination benefits are expected to be settled within
12 months of reporting date.

vi. Share-based payments

Share-based compensation benefits are provided to
employees via the nib holdings limited Long-Term Incentive
Plan, the employee share acquisition (tax exempt) plan, the
nib Salary Sacrifice Plan and Matching Plan and the Short-
Term Performance Incentive. Information relating to these
plans is set out in Note 37.

The fair value of performance rights granted under the nib
holdings Long-Term Incentive Plan is recognised as an
employee benefit 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
but excludes the impact of any service and non-market
performance vesting conditions and the impact of any
non-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 vesting period, which is the period over
which all of the specified vesting conditions are to be satisfied.
At the end of each period, the Group revises its estimate of
the number of performance rights that are expected to vest
based on the non-marketing vesting conditions. It recognises
the impact of the revision to original estimates, if any, in profit
or loss, with a corresponding adjustment to equity.

The nib holdings Long-Term Incentive Plan is administered
by the nib Holdings Ltd Share Ownership Plan Trust; see
Note 1(b)(ii). When the performance rights are exercised,
the trust transfers the appropriate amount of shares to the
employee.

Under the Employee Share Acquisition (tax exempt) Plan,
the nib Salary Sacrifice Plan and Matching Plan and the Short-
Term Performance Incentive, shares are acquired on-market
and expensed.

iv. Retirement benefit obligations

u. Contributed equity

Directors’ retirement benefits are provided for in the financial
statements. Non-Executive Directors of nib health funds
limited employed before 24 November 2005 are entitled
to a lump sum retirement benefit based on number of
years service. Non-Executive Directors commencing after
24 November 2005 are not entitled to retirement benefits.

v. Termination benefits

Liabilities for termination benefits, not in connection with the
acquisition of an entity or operation, are recognised when a
detailed plan for the terminations has been developed and
a valid expectation has been raised with those employees
affected that the terminations will be carried out without

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new
shares are shown in equity as a deduction, net of tax, from
the proceeds.

If the entity reacquires its own equity instruments, for
example as the result of a share buy-back, those instruments
are deducted from equity and the associated shares are
cancelled. No gain or loss is recognised in the profit or loss
and the consideration paid including any directly attributable
incremental cost (net of income taxes) is recognised directly
in equity.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012v. Dividends

Provision is made for the amount of any dividend declared,
being appropriately authorised and no longer at the discretion
of the entity, on or before the end of the financial year but not
distributed at balance date.

w. Earnings per share

i. Basic earnings per share

Basic earnings per share are calculated by dividing:

the profit attributable to equity holders of the company,

excluding any costs of servicing equity other than
ordinary shares

by the weighted average number of ordinary shares

outstanding during the financial year.

ii. Diluted earnings per share

Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into account:

the after income tax effect of interest and other financing
costs associated with dilutive potential ordinary shares,
and

the weighted average number of additional ordinary

shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.

x. Goods and Services Tax (GST)

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 balance sheet.

Cash flows are presented on a gross basis. The GST
components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the
taxation authority, are presented as operating cash flow.

y. Reverse acquisition accounting policy

Post demutualisation, the formation of the Group has been
accounted for as a business combination. AASB 3 Business
Combinations deals with the bringing together of separate
businesses into one reporting entity. When a new entity (legal
entity) is formed to effect a business combination, an entity
that existed before the combination must be identified as the
acquirer. This is commonly referred to as a reverse acquisition.

nib health funds limited has been deemed to be the
accounting acquirer of nib holdings limited (the legal parent).

Accordingly, under the reverse acquisition requirements of
AASB 3, the consolidated financial statement of nib holdings
limited are the continuing accounts of nib health funds limited
as accounting acquirer of the legal parent.

The financial information incorporates the assets and
liabilities of all entities deemed to be acquired by nib health
funds limited, including nib holdings limited and the results
of these entities for the period from which those entities are
accounted for as being acquired by nib health funds limited.
The assets and liabilities of the entities acquired by nib health
funds limited were recorded at fair value and the assets and
liabilities of nib health funds limited were maintained at their
book value. The impact of transactions between entities in
the Group is eliminated in full.

z. Parent entity financial information

The financial information for the parent entity, nib holdings
limited, disclosed in Note 40 has been prepared on the same
basis as the consolidated financial statements, except as set
out below.

Investments in subsidiaries, associates and joint
venture entities

Investments in subsidiaries, associates and joint venture
entities are accounted for at cost in the financial statements
of nib holdings limited. Dividends received from associates
are recognised in the parent entity’s profit or loss, rather
than being deducted from the carrying amount of these
investments.

ii. Tax consolidation legislation

nib holdings limited and its wholly-owned Australian controlled
entities have implemented the tax consolidated legislation.

The head entity, nib holdings limited, and the controlled
entities in the tax consolidated group account for their own
current and deferred tax amounts. These tax amounts are
measured as if each entity in the tax consolidated group
continues to be a standalone taxpayer in its own right.

In addition to its own current and deferred tax amounts,
nib holdings limited also recognises the current tax liabilities
(or assets) and the deferred tax assets arising from unused
tax losses and unused tax credits assumed from controlled
entities in the tax consolidated group.

The entities have also entered into a tax funding agreement
under which the wholly-owned entities fully compensate nib
holdings limited for any current tax payable assumed and
are compensated by nib holdings limited for any current
tax receivable and deferred tax assets relating to unused
tax losses or unused tax credits that are transferred to nib
holdings limited under the tax consolidation legislation.
The funding amounts are determined by reference to
the amounts recognised in the wholly-owned entities’
financial statements.

nib 60 years young1. suMMAry of siGnificAnt AccountinG Policies CONTINUED

The amounts receivable/payable under the tax funding
agreement is due upon receipt of the funding advice from
the head entity, which is issued as soon as practicable after
the end of each financial year. The head entity may also
require payment of interim funding amounts to assist with its
obligations to pay tax instalments.

Assets or liabilities arising under tax funding agreements
with the tax consolidated entities are recognised as current
amounts receivable from or payable to other entities in
the Group.

Any difference between the amounts assumed and amounts
receivable or payable under the tax funding agreement are
recognised as a contribution to (or distribution from) wholly-
owned tax consolidated entities.

aa. Rounding of amounts

The company is of a kind referred to in Class order 98/100,
issued by the Australian Securities and Investments
Commission, relating to the “rounding off” of amounts in the
financial report. Amounts in the financial report have been
rounded off in accordance with that Class order to the nearest
thousand dollars, or in certain cases, the nearest dollar.

bb. New accounting standards and

interpretations

Certain new accounting standards and interpretations have
been published that are not mandatory for 30 June 2012
reporting periods. The Group’s assessment of the impact of
these new standards and interpretations is set out below.

i. AASB-9 Financial Instruments and AASB 2009-11
Amendments to Australian Accounting Standards
arising from AASB 9 (effective from 1 January 2013)

AASB 9 Financial Instruments addresses the classification
and measurement of financial assets and is likely to affect the
Group’s accounting for its financial assets. The standard is
not applicable until 1 January 2013 but is available for early
adoption. The Group is yet to assess its full impact. However,
initial indications are that it may affect the Group’s accounting
for its available-for-sale financial assets, since AASB 9 only
permits the recognition of fair value gains and losses in other
comprehensive income if they relate to equity investments
that are not held for trading. The Group has not yet decided
when to adopt AASB 9.

ii. AASB 2011-4 Amendments to Australian

Accounting Standards to Remove Individual Key
Management Personnel Disclosure Requirements
(effective 1 July 2013)

In July 2011 the AASB decided to remove the individual Key
Management Personnel (KMP) disclosure requirements from
AASB 124 Related Party Disclosures, to achieve consistency
with the international equivalent standard and remove
a duplication of the requirements with the Corporations
Act 2001. While this will reduce the disclosures that are
currently required in the notes to the financial statements, it
will not affect any of the amounts recognised in the financial
statements. The amendments apply from 1 July 2013 and
cannot be adopted early. The Corporations Act requirements
in relation to remuneration reports will remain unchanged for
now, but these requirements are currently subject to review
and may also be revised in the near future.

iii. AASB 13 Fair Value Measurement and AASB 2011-

8 Amendments to Australian Accounting Standards
arising from AASB 13 (effective 1 January 2013)

AASB 13 was released in September 2011. It explains how to
measure fair value and aims to enhance fair value disclosures.
The company has yet to determine which, if any, of its current
measurement techniques will have to change as a result
of the new guidance. It is therefore not possible to state
the impact, if any, of the new rules on any of the amounts
recognised in the financial statements. However, application
of the new standard will impact the type of information
disclosed in the notes to the financial statements. The
Group does not intend to adopt the new standard before its
operative date, which means that it would be first applied in
the annual reporting period ending 30 June 2014.

iv. AASB 2011-9 Amendments to Australian

Accounting Standards – Presentation of Items of
Other Comprehensive Income (effective 1 July 2012)

In September 2011, the AASB made an amendment to AASB
101 Presentation of Financial Statements which requires
entities to separate items presented in other comprehensive
income into two groups, based on whether they may be
recycled to profit or loss in the future. This will not affect the
measurement of any of the items recognised in the balance
sheet or the profit or loss in the current period. The Group
intends to adopt the new standard from 1 July 2012.

There are no other standards that are not yet effective and
that are expected to have a material impact on the entity in
the current or future reporting periods and on foreseeable
future transactions.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 20122. criticAl AccountinG JuDGeMents AnD estiMAtes

The Group makes estimates and assumptions in respect of
certain key assets and liabilities. Estimates and judgments
are continually evaluated and are based on historical
experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. The key areas in which critical estimates are
applied are described below.

Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any
impairment in accordance with the accounting policy stated in
Note 1(k). The recoverable amounts of cash-generating units
have been determined based on value-in-use calculation.
These calculations require the use of assumptions. Refer to
Note 16 for details of these assumptions.

Deferred acquisition costs

In accordance with AASB 1023 General Insurance Contracts,
acquisition costs which lead to future benefits are 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 income statement in subsequent
reporting periods.

These deferred acquisition costs are amortised systematically
in accordance with the pattern of the incidence of risk under
the related insurance contract.

nib incurs up front commission costs that will give rise to
future premium revenue and are able to be directly associated
with a particular insurance contract. These costs are deferred
and amortised over the life of the insurance contract.

There are two key assumptions required to recognise the
acquisition costs over the life of the insurance contract:

1. The period of the insurance contract is assumed to be the
average length of insurance for nib policyholders who are
the subject of an upfront commission.

2. The average length of insurance for nib policyholders who
are the subject of an upfront commission is calculated
by extrapolating historical lapse rates for that group of
policyholders.

In order to allow for the inherent distortion created by
extrapolating historical data the extrapolated life of
policyholders used to determine the average contract
life has been truncated to 10 years.

The ultimate liability arising from claims made
under private health insurance contracts

Provision is made at the period end for the liability for
outstanding claims which is measured as the central
estimate of the expected payments against claims incurred
but not settled at the reporting date under private health
insurance contracts issued by the Group. The expected future
payments include those in relation to claims reported but
not yet paid and claims incurred but not yet reported. This
‘central estimate’ of outstanding claims is an estimate which
is intended to contain no intentional over or under estimation.
For this reason the inherent uncertainty in the central estimate
must also be considered and a risk margin is added. The
estimated cost of claims includes allowances for Risk
Equalisation Trust Fund (RETF) consequences and claims
handling expense. The Group takes all reasonable steps to
ensure that it has appropriate information regarding its claims
exposures. However, given the uncertainty in establishing
claims provisions, it is likely that the final outcome will prove to
be different from the original liability established.

In calculating the estimated cost of unpaid claims the Group
uses estimation techniques based upon statistical analysis
of historical experience. Allowance is made, however, for
changes or uncertainties which may create distortions in
the underlying statistics or which might cause the cost of
unsettled claims to increase or reduce when compared with
the cost of previously settled claims, including changes in
the Group’s processes which might accelerate or slow down
the development and/or recording of paid or incurred claims,
compared with the statistics from previous periods.

The calculation is determined taking into account one month
of actual post balance date claims.

The risk margin is based on an analysis of the past experience
of the Group. This analysis examines the volatility of past
payments that is not explained by the model adopted to
determine the central estimate. This past volatility is assumed
to be indicative of the future volatility. The central estimates
are calculated gross of any risk equalisation recoveries.
A separate estimate is made of the amounts that will be
recoverable from or payable to the RETF based upon the
gross provision.

Details of specific assumptions used in deriving the
outstanding claims liability at year end are detailed in Note 3.

nib 60 years young3. ActuAriAl AssuMPtions AnD MethoDs

Actuarial methods

The outstanding claims estimate is derived based on three valuation classes, namely hospital and prostheses services
combined, medical services, and general treatment. This analysis is supplemented by more granular analysis within classes
as appropriate.

In calculating the estimated cost of unpaid claims for the Health Insurance Business (HIB), two methods are used. For service
months April 2012 and earlier for hospital and medical, and for all months for general treatment, a chain ladder method is used;
this assumes that the development pattern of the current claims will be consistent with historical experience. For hospital and
medical, for the service months of May 2012 and June 2012 the Bornhuetter-Ferguson method is used, which progressively
blends payment experience and prior forecasts of incurred costs.

For International Students Business (ISB), the Bornhuetter-Ferguson method is used for all service months for hospital and
medical, and the chain ladder method for general treatment.

A chain ladder method is used for all service months for the International Workers Business (IWB) valuation of the cost of
unpaid claims.

Actuarial assumptions

The following assumptions have been made in determining the outstanding claims liability for claims incurred 12 months to the
following dates:

2012

2011

Hospital

Medical

Ancillary

Hospital

Medical

Ancillary

Health Insurance

Assumed proportion paid to date

Expense rate

Discount rate

Risk equalisation rate

Risk margin

International Students

Assumed proportion paid to date

Expense rate

Discount rate

Risk margin

International Workers

Assumed proportion paid to date

Expense rate

Discount rate

Risk margin

91.8%

2.2%

0.0%

32.6%

5.0%

85.2%

2.2%

0.0%

5.0%

85.8%

8.0%

0.0%

10.0%

88.4%

2.2%

0.0%

32.6%

5.0%

83.6%

2.2%

0.0%

5.0%

86.8%

8.0%

0.0%

10.0%

95.8%

2.2%

0.0%

5.0%

95.5%

2.2%

0.0%

5.0%

83.6%

8.0%

0.0%

10.0%

92.1%

2.5%

0.0%

29.5%

5.0%

92.1%

2.5%

0.0%

5.0%

84.1%

8.0%

0.0%

7.5%

88.4%

2.5%

0.0%

29.5%

5.0%

88.4%

2.5%

0.0%

5.0%

84.7%

8.0%

0.0%

7.5%

95.7%

2.5%

0.0%

5.0%

95.7%

2.5%

0.0%

5.0%

81.1%

8.0%

0.0%

7.5%

The risk margin of 5.0% (2011: 5.0%) for HIB and ISB, and 10% (2011: 7.5%) for IWB of the underlying liability has been estimated
to equate to a probability of adequacy of approximately 95% (2011: 95%).

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012Process used to determine assumptions

Sensitivity analysis – insurance contracts

i. Summary

The Group conducts sensitivity analysis to quantify the
exposure to risk of changes in the key underlying variables.
The valuations included in the reported results are calculated
using certain assumptions about these variables as disclosed
above. The movement in any key variable will impact the
performance and equity of the Group. The tables below
describe how a change in each assumption will affect the
insurance liabilities.

Variable

Impact of movement in variable

Chain Ladder
Development
Factors

Bornhuetter-
Ferguson Unpaid
Factors

Expense rate

Risk equalisation

Risk margin

An increase or decrease in the chain
ladder factors would lead to a higher or
lower projection of the ultimate liability and
a corresponding increase or decrease in
claims expense respectively.

An increase or decrease in the level of
unpaid would lead to a higher or lower
projection of the ultimate liability and a
corresponding increase or decrease on
claims expense respectively.

An estimate for the internal costs
of handling claims is included in the
outstanding claims liability. An increase or
decrease in the expense rate assumption
would have a corresponding impact on
claims expense.

An estimate for the risk equalisation cost
is included in the outstanding claims
liability. An increase or decrease in the
risk equalisation allowance would have a
corresponding impact on RETF Levy.

An estimate of the amount of uncertainty in
the determination of the central estimate.
An increase or decrease in the risk margin
would have a corresponding impact on
claims expense.

A description of the processes used to determine these
assumptions is provided below:

i. Chain Ladder Development Factors

Chain ladder development factors were selected based
on observations of historical claim payment experience.
Particular attention was given to the development of the most
recent 12 months.

ii. Bornhuetter-Ferguson Unpaid Factors

Bornhuetter-Ferguson Unpaid Factors were selected based
on historical patterns of payment (by development) to ultimate
incurred claims. That is, the proportion of ultimate incurred
claims to be paid by development month is selected based
on observations from the historical development. This “unpaid
proportion” is then multiplied by a prior forecast of incurred
claims for each service month to determine the outstanding
claims estimate.

iii. Expense rate

Claims handling expenses were calculated by reference
to past experience of total claims handling costs as a
percentage of total past payments.

iv. Discount rate

As claims for health funds are generally settled within one
year, no discounting of claims is applied as the difference
between the undiscounted value of claims payments and the
present value of claims payments is not likely to be material.

v. Risk equalisation allowance

In simplified terms, each organisation is required to contribute
to the risk equalisation pool or is paid from the pool to
equalise their hospital claims exposure to members aged
over 55 years of age and in respect of high cost claims.
This is the allowance made in respect of the claims incurred
but not yet paid.

vi. Risk margin

The risk margin has been based on an analysis of the past
experience of the Group. This analysis examined the volatility
of past payments that has not been explained by the model
adopted to determine the central estimate. This past volatility
has been assumed to be indicative of the future volatility and
has been set at a level estimated to equate to a probability of
adequacy of 95% (June 2011: 95%).

nib 60 years young3. ActuAriAl AssuMPtions AnD MethoDs CONTINUED

ii. Impact of key variables

Recognised amounts in the financial statements

Variable

Chain Ladder Development Factors

Bornhuetter-Ferguson Unpaid Factors

Expense rate

Risk equalisation allowance

Risk margin

Profit

Equity

2012
$000

67,640

Movement in
variable

Adjustments
$000

Adjusted
amounts
$000

Adjustments
$000

+0.5%

-0.5%

+2.0%

-2.0%

+1.0%

-1.0%

+2.5%

-2.5%

+1.0%

-1.0%

(3,452)

3,452

(2,368)

2,368

(586)

586

(1,147)

1,147

(713)

713

64,188

71,092

65,272

70,008

67,054

68,226

66,493

68,787

66,927

68,353

(3,452)

3,452

(2,368)

2,368

(586)

586

(1,147)

1,147

(713)

713

2012
$000

301,598

Adjusted
amounts
$000

298,146

305,050

299,230

303,966

301,012

302,184

300,451

302,745

300,885

302,311

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 20124. PrivAte heAlth insurAnce contrActs – risk MAnAGeMent Policies

AnD ProceDures

The financial condition and operation of the Group are affected by a number of key financial risks including insurance risk,
interest rate risk, credit risk, market risk, liquidity risk, financial risk and fiscal risk, and non-financial risks including sovereign
risk, operational risk, regulatory and compliance risk. Notes on the Group’s policies and procedures in respect of managing the
financial risks are set out in this note below.

a. Objectives in managing risks arising from private health insurance contracts and policies for

mitigating those risks

nib’s Board of Directors determines the Group’s overall risk appetite and approves the risk management strategies, policies
and practices to ensure that risks are identified and managed within the context of this appetite.

The Group’s risk management framework manages risks through:

The establishment of the Audit Committee and the Risk and Reputation Committee to assist the Board in the execution of

its responsibilities:

The Audit Committee’s responsibilities include:

– reviewing the annual reports and other financial information distributed externally;

– recommending the appointment and remuneration of the external auditor;

– reviewing the performance and independence of the external auditor; and

– reviewing the Group’s systems and procedures for compliance with legal and regulatory requirements as they relate

to the integrity of the Group’s financial statements and other material regulatory documents.

The Risk and Reputation Committee’s responsibilities include:

– assisting the Board to review the effectiveness of the Group’s system of internal control;

– recommending the appointment and remuneration of the internal auditor;

– reviewing the performance and independence of the internal auditor;

– monitoring the risk management system; and

– reviewing the Group’s systems and procedures for compliance with legal and regulatory requirements other than those

monitored by the Audit Committee.

The Group’s internal policies and procedures designed to mitigate such risks:

The maintenance and use of management information systems which provide up to date, reliable data on the risks which

the business is exposed to at any point in time.

Actuarial models, using information from the management information systems, are used to calculate premiums and

monitor claims patterns. Past experience and statistical methods are used as part of the process.

A rigorous approach to product design to mitigate the risk of the Group being exposed to adverse selection.

Maintenance of reserves in excess of solvency and capital adequacy regulatory requirements.

An investment strategy which delivers a diversified portfolio with a heavier weighting to defensive assets versus growth assets.

Internal audit which provides independent assurance to senior management and Directors regarding the adequacy of controls

over activities where the risks are perceived to be high.

Regular risk and compliance reporting.

And the application of standards for solvency and capital adequacy legislated under division 140 and 143 of the Private Health

Insurance Act 2007 (the Act):

The Solvency and Capital Adequacy Standards are established under the Act, and are an integral component of the

prudential reporting and management regime for registered private health insurers.

These standards impose a two tier capital requirement on private health insurers with each tier considering the capital

requirements in a different set of circumstances.

The first tier – solvency – is intended to ensure the basic solvency of the fund (that is, in the unlikely event of a wind-up);

at any time on a run-off, the fund’s financial position is such that the insurer will be able to meet, out of the fund’s assets,
all liabilities incurred for the purposes of the fund as those liabilities become due.

The second tier – capital adequacy – is intended to secure the financial soundness of the health benefits fund on a

going concern basis, in particular its ability to remain solvent for at least the next three years. It is expected that in most
circumstances this second tier will provide an additional buffer of capital above the minimum solvency requirement.

nib 60 years young4. PrivAte heAlth insurAnce contrActs – risk MAnAGeMent Policies

AnD ProceDures CONTINUED

b. Insurance risk

The provision of private health insurance in Australia is governed by the Act. Private health insurance business (HIB) is the primary
focus of the Act which governs the provision of Complying Health Insurance Products (CHIP). Under the Act, Registered Private
Health Insurers may also provide health-related business as prescribed, and nib provides International Students Cover (ISB) and
International Workers Cover (IWB) in this respect. The industry is shaped by a number of regulatory factors:

Community Rating: The principle of community rating prevents private health insurers from improperly discriminating
between people who are or who wish to become insured, on the basis of their health status, age, race, gender, religious
beliefs, sexuality, frequency of need of health care, lifestyle or claims history. Community rating applies to CHIP and ISB, but
not to IWB.

Risk Equalisation: The risk equalisation scheme seeks to share the risks among all registered health insurers by

averaging out the cost of hospital treatment across the industry. Money is then transferred from private health insurers with
younger healthier members with lower average claims payments (such as nib) to those insurers with older and less healthy
membership and which have higher average claims payments. The scheme applies to all health insurance business (CHIP)
but does not apply to ISB or IWB.

Coverage Requirements: The Act limits the types of treatments that private health insurers can offer as part of their

health insurance business (CHIP). ISB products coverage requirements are set out in a Deed between the insurer and the
Commonwealth, while the health services offered under IWB cover are largely at the discretion of the insurer.

Premium Approval: Under the Act, insurers can only increase CHIP premiums with the approval of the Minister. The Minister

must approve the amounts unless she is satisfied that the change would be contrary to the public interest. Insurers can
ordinarily only seek one premium increase per annum. ISB products can raise premiums in line with the requirements set out
in the Deed, which is also ordinarily annually and requires notification to the Department of Health and Ageing. IWB product
premiums are not regulated by the Act or under any Deed with the Commonwealth.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012c. Credit risk

Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, financial assets and deposits
with banks and financial institutions, as well as credit exposures to policyholders, Medicare Australia (Health Insurance
Contribution (HIC) rebate) and entities that have purchased discontinued operations under deferred settlement terms. nib only
deals with major banks in Australia which are independently rated with a minimum rating of ‘A-1’. nib receives advice from its
asset consultant, MLC Implemented Consulting, who provide a rating of investment managers to nib as part of their advice.
Credit risk for premium receivables is minimal due to the diversification of policyholders. The HIC rebate receivable is due from
a government organisation under legislation.

A deferred settlement arrangement is in place for the sale of the Newcastle Private Hospital for $30 million payable in three
instalments on 9 July 2011, 9 July 2012 and 9 July 2013, with $20 million outstanding at 30 June 2012. The deferred settlement
arrangement is covered by a mortgage over the property. Other deferred settlement credit risks are covered by bank guarantees
from the purchaser. The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date
is the carrying amount, net of any provisions for impairment loss, as disclosed in the balance sheet and notes to the financial
statements. The Group does not have any material credit risk to any single debtor or group of debtors under financial instruments
entered into.

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit
ratings (if available) or to historical information about counterparty default rates.

Other Receivables

Counterparties without external credit rating

Group 1 – new debtors (less than six months)

Group 2 – existing debtors (more than six months) with no defaults in the past

Group 3 – existing debtors (more than six months) with some defaults in the past.
All defaults were fully recovered.

Total Other Receivables

Cash at Bank and short-term bank deposits

A-1

Financial assets at fair value through profit or loss

Short term deposits

A-1

Interest-bearing securities

AAA

BBB

Sub Inv Grade

Unclassified

2012
$000

2011
$000

26,805

402

34,831

–

26,809

35,233

86,673

160,772

100,000

80,000

105,527

103,698

44,815

39,530

10,985

4,909

843

51,630

33,349

11,348

4,049

831

306,609

284,905

nib 60 years young4. PrivAte heAlth insurAnce contrActs – risk MAnAGeMent Policies

AnD ProceDures CONTINUED

d. Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding
through an adequate amount of committed credit facilities and the ability to close-out market positions. The Group manages
liquidity risk by continuously monitoring forecast and actual cash flows and holds a high percentage of highly liquid investments.

Borrowings in the balance sheet refer to the bank overdraft. The bank overdraft comprises the closing positive balances of the
bank account, adjusted for unpresented cheques and outstanding deposits. There are no overdraft facilities.

Maturities of financial liabilities

The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the
reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Group at 30 June 2012

≤ 1 month
$000

1 – 3 months
$000

3 – 12 months
$000

1 – 5 years
$000

>5 years
$000

Financial Liabilities

Trade creditors

Other payables

Borrowings

Group at 30 June 2011

Financial Liabilities

Trade creditors

Other payables

Borrowings

e. Market risk

i. Price risk

4,873

34,951

2,594

42,418

4,651

32,422

3,603

40,676

–

2,140

–

2,140

–

2,288

–

2,288

–

Total
Contractual
Cashflows
$000

Carrying
amount
$000

4,873

37,091

2,594

44,558

4,873

37,091

2,594

44,558

4,651

34,710

3,603

42,964

4,651

34,710

3,603

42,964

The Group is exposed to equity securities price risk. This arises from investments held by the Group and classified on the
balance sheet as either available-for-sale or at fair value through profit or loss. The Group is not exposed to commodity price risk.

To manage its price risk the Group has adopted an investment strategy which delivers a diversified portfolio with a heavier
weighting to defensive assets versus growth assets.

Post-tax profit for the year would increase/decrease as a result of gains/losses on equity securities classified as at fair value
through profit or loss. Other components of equity would increase/decrease as a result of gains/losses on equity securities
classified as available-for-sale.

Refer to the table on page 59 that summarises the sensitivity of the Group’s financial assets and financial liabilities to price risk
and interest rate risk.

ii. Fair value interest rate risk

The Group does not have long-term borrowings. The Group’s interest rate risks arise from receivables, financial assets at fair
value through profit and loss and cash and cash equivalents. Receivables arising from the deferred settlement of discontinued
operations sold are subject to 90 day bank bill rates. All other receivables are non-interest bearing. There is an interest-
bearing component of financial assets at fair value through profit and loss. nib receives advice from its asset consultant, MLC
Implemented Consulting. The Group has adopted an investment strategy that delivers a diversified portfolio with a heavier
weighting to defensive assets versus growth assets. Defensive assets consist of Australian and overseas fixed interest
investments and cash and cash equivalents.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012Summarised sensitivity analysis

The table below summarises the sensitivity of the Group’s financial assets to interest rate risk and other price risk:

Interest Rate Risk

Other Price Risk

-100bps

+100bps

-10% unit price

+10% unit price

Carrying
amount
$000

Profit
$000

Equity
$000

Profit
$000

Equity
$000

Profit
$000

Equity
$000

Profit
$000

Equity
$000

Group at 30 June 2012

Financial assets

Cash and cash equivalents

Other receivables

Financial assets at fair value
through profit or loss

86,673

26,809

(607)

(188)

(607)

(188)

607

188

607

188

–

356,774

2,458

(2,458)

(3,512)

3,512

–

3,512

154

Unlisted equity securities

2,206

–

(154)

–

Total Increase/(decrease)

1,663

(1,663)

(3,512)

(3,666)

3,512

3,666

Group at 30 June 2011

Financial assets

Cash and cash equivalents

Other receivables

Financial assets at fair value
through profit or loss

160,772

35,233

(1,125)

(247)

(1,125)

(247)

1,125

247

1,125

247

–

319,293

2,357

(2,357)

(2,407)

2,407

Unlisted equity securities

2,206

Total Increase/(decrease)

–

985

–

985

–

(154)

–

154

(985)

(2,407)

(2,561)

2,407

2,561

Methods and assumptions used in preparing sensitivity analysis

The post-tax effect on profit and equity of movements in both interest rate and price has been calculated using ‘reasonably
possible’ changes in the risk variables, based on recent interest rate and market movements.

An interest rate change of 100 basis points will directly affect interest received on cash and cash equivalents and other
receivables. An interest rate change of 100 basis points will inversely affect the unit price of fixed interest investments; this
change has been calculated by multiplying the average duration of underlying investments in each portfolio by the interest rate
change. All other investments are not directly affected by interest rate changes but would be revalued through profit or loss or
equity as their unit price changes.

nib 60 years young4. PrivAte heAlth insurAnce contrActs – risk MAnAGeMent Policies

AnD ProceDures CONTINUED

f. Fair value measurement

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for
disclosure purposes.

AASB7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value
measurement hierarchy:

a. quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);

b. 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 2); and

c. inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).

The following tables present the Group’s assets and liabilities measured and recognised at fair value at 30 June 2012 and
30 June 2011.

Group at 30 June 2012

Assets

Cash and cash equivalents and deposits at call

Financial assets at fair value through profit or loss

Short term deposits

Securities

Available-for-sale financial assets

Unlisted equity securities

Total assets

Group at 30 June 2011

Assets

Cash and cash equivalents and deposits at call

Financial assets at fair value through profit or loss

Short term deposits

Securities

Available-for-sale financial assets

Unlisted equity securities

Total assets

Level 1
$000

Level 2
$000

Level 3
$000

Total
$000

86,673

100,000

256,062

–

442,735

160,772

80,000

238,485

–

479,257

–

712

2,206

2,918

–

808

2,206

3,014

–

86,673

100,000

256,774

2,206

445,653

160,772

80,000

239,293

2,206

482,271

The fair value of financial instruments traded in active markets (such as financial assets at fair value through profit and loss)
is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group
is the current bid price. These instruments are included in level 1.

The fair value of financial instruments that are not traded in active markets (for example available-for-sale financial assets) is
determined using valuation techniques. The Group use a variety of methods and makes assumptions that are based on market
conditions existing at each balance date. These instruments are included in level 2.

The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values due
to their short-term nature.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 20125. seGMent rePortinG

a. Description of segments

Management has determined the operating segments based on the reports reviewed by the MD/CEO that are used to make
strategic decisions.

The MD/CEO considers the business from a product perspective and has identified three reportable segments. Health Insurance
consists of nib’s core product offering within the Australian private health insurance industry. Health Related consists of two
separate segments – International Students Business (ISB) and International Workers Business (IWB).

nib entered the ISB market on 4 January 2010 and commenced reporting overseas student health cover as a separate segment
for management purposes in July 2010. The IWB segment was established following the acquisition of the business and assets
of IMAN International Pty Ltd on 30 September 2010.

Although the ISB segment does not meet the quantitative thresholds required by AASB 8, management has concluded that
the segment should be reported, as it is closely monitored by the MD/CEO as a potential growth segment and is expected to
contribute to Group revenue in the future.

b. Segment information provided to executive management

The segment information provided to the MD/CEO for the reportable segments is as follows:

2012

2011

Health
Insurance
$000

International
Students
$000

International
Workers
$000

Total
$000

Health
Insurance
$000

International
Students
$000

International
Workers
$000

Total
$000

Premium revenue

Claims expense

RETF levy

State levies

Claims handling expenses

1,095,640

(751,942)

(159,980)

(23,823)

(15,860)

3,010

(2,876)

–

25,158

1,123,808

991,306

(10,618)

(765,436)

(685,294)

–

(159,980)

(132,744)

(23,823)

(17,390)

(22,874)

(14,922)

(74)

(1,456)

Net claims incurred

(951,605)

(2,950)

(12,074)

(966,629)

(855,834)

Acquisition costs

Other underwriting expenses

Underwriting expenses

(33,471)

(45,947)

(79,418)

(891)

(521)

(1,412)

(1,718)

(3,900)

(5,618)

(36,080)

(50,368)

(86,448)

(35,328)

(40,364)

(75,692)

550

(241)

–

(118)

(359)

(458)

(784)

(1,242)

15,992 1,007,848

(7,627)

(693,162)

–

(1,094)

(132,744)

(22,874)

(16,134)

(8,721)

(864,914)

(825)

(3,673)

(4,498)

(36,611)

(44,821)

(81,432)

Underwriting result

64,617

(1,352)

7,466

70,731

59,780

(1,051)

2,773

61,502

Depreciation and amortisation

5,519

–

1,720

7,239

5,105

–

1,719

6,824

The MD/CEO assesses the performance of the operating segments based on net margin. This measurement basis excludes the
effects of non-recurring expenditure from the operating segments such as integration costs. Furthermore, investment income
and expenditure are not allocated to segments as this type of activity is driven by the central treasury function, which manages
the cash position of the Group.

A reconciliation of segment underwriting result to operating profit before income tax is provided as follows:

Segment underwriting result

Investment income

Other income

Investment expenses

Other expenses

Profit before income tax from continuing operations

2012
$000

70,731

26,500

3,556

(860)

(4,270)

95,657

2011
$000

61,502

33,453

5,750

(1,327)

(7,462)

91,916

No information regarding segment assets and liabilities is provided to the MD/CEO with the exception of Outstanding
Claims Liabilities.

nib 60 years young6. revenue AnD other incoMe

Premium revenue

Investment income

Rent received

Interest

Net realised gain/(loss) on financial assets at fair value through profit or loss

Net unrealised gain/(loss) on financial assets at fair value through profit or loss

Dividends

Other income

Sundry income

Trust distribution from nib demutualisation overseas policyholders and unverified policyholders trust

7. exPenses

Expenses by function

Claims handling expenses

Investment expenses

Acquisition costs

Other underwriting expenses

Other expenses

2012
$000

2011
$000

1,123,808

1,007,848

–

12,455

9,908

4,100

26,500

3,556

–

3,556

11,914

21,987

(545)

33,453

2,218

3,532

5,750

2012
$000

2011
$000

17,390

860

36,080

50,368

4,270

16,134

1,327

36,611

44,821

7,462

Total expenses (excluding direct claims expenses)

108,968

106,355

Expenses by nature

Employee costs

Depreciation and amortisation

Net loss on disposal of property, plant and equipment and investment properties

(Appreciation)/impairment of property, plant and equipment

Operating lease rental expenses

Marketing expenses

Marketing expenses – commissions

Merger and acquisition costs

Electronic claims processing fees

Consultancy fees

Legal expenses

Share registry expenses

Investment expenses

Other

Total expenses (excluding direct claims expenses)

50,517

7,263

(454)

2,667

21,416

3,063

3,435

2,789

555

1,541

860

44,698

6,838

220

(2,236)

2,610

21,943

5,546

3,117

3,235

1,949

562

1,507

1,327

15,223

108,968

15,039

106,355

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012
8. incoMe tAx

a. Income tax expense

Recognised in the income statement

Current tax expense

Deferred tax expense

Under (over) provided in prior years

Income tax expense is attributable to:

Profit from continuing operations

Aggregate income tax expense/(benefit)

Notes

2012
$000

2011
$000

23,859

4,230

(72)

28,017

24,868

1,544

26,453

28,017

26,453

Deferred income tax (revenue) expense included in income tax expense comprises:

Decrease (increase) in deferred tax assets

(Decrease) increase in deferred tax liabilities

3,258

972

4,230

1,476

1,544

b. Numerical reconciliation of income tax expense

to prima facie tax payable

Profit from continuing operations before income tax expense

95,657

91,916

Tax at the Australian tax rate of 30% (2011: 30%)

28,697

27,575

Tax effect of amounts which are not deductible (taxable) in calculating taxable income:

Net assessable trust distributions

Non-assessable income

Other deductible expenses

Other non-deductible expenses

Adjustments for current tax of prior periods

Imputation credits and foreign tax credits

Income tax expense

132

–

(397)

164

(72)

(507)

–

(184)

(420)

406

(965)

28,017

26,453

c. Tax expense relating to items of other comprehensive income

Gain on revaluation of land and buildings

Change in value of available for sale financial assets

27(b)

374

–

374

212

237

d. Amounts recognised directly to equity

Aggregate current and deferred tax arising in the reporting period and not recognised in
net profit or loss or other comprehensive income but directly debited or credited to equity:

Net deferred tax – debited (credited) directly to equity

25(a)

(174)

–

nib 60 years young9. cAsh AnD cAsh equivAlents

Cash at bank and cash on hand

Short-term deposits and deposits at call

a. Risk exposure

2012
$000

36,181

50,492

86,673

2011
$000

59,784

100,988

160,772

The Group’s exposure to interest rate risk is discussed in Note 4. The maximum exposure to credit risk at the reporting date is
the carrying amount of each class of cash and cash equivalents mentioned above.

10. receivAbles

Current

Premium receivable

Health Insurance Contribution (HIC) rebate receivable

Other receivables

Provision for impairment loss

Prepayments

Non-Current

Other receivables

2012
$000

2011
$000

4,405

47,434

16,809

(366)

1,926

70,208

4,542

27,770

15,233

(240)

2,164

49,469

10,000

20,000

The Health Insurance Contribution (HIC) rebate has abnormally increased as a result of a high level of prepayments of premium
revenue in May and June 2012.

a. Impaired receivables

As at 30 June 2012 current receivables of the Group with a nominal value of $0.366 million (2011: $0.240 million) were impaired.
The individually impaired receivables relate to premium receivables.

The ageing of these receivables is as follows:

1 to 3 months

3 to 6 months

Over 6 months

Movements in the provision for impairment of receivables are as follows:

At 1 July 2011

Provision for impairment recognised during the year

Receivables written off during the year as uncollectible

Unused amount reversed

2012
$000

267

366

2012
$000

240

126

–

366

2011
$000

240

–

240

2011
$000

241

–

(1)

240

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012b. Past due but not impaired

As of 30 June 2012 and 2011 no receivables were past due but not impaired.

c . Interest rate risk

Information about the Group’s exposure to interest rate risk in relation to other receivables is provided in Note 4.

d. Fair value and credit risk

Due to the short-term nature of current receivables, their carrying amount is assumed to approximate their fair value.

The fair values and carrying values of non-current receivables are as follows:

Other receivables

2012

2011

Carrying
Amount
$000

10,000

Fair Value
$000

10,000

Carrying
Amount
$000

20,000

Fair Value
$000

20,000

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above.

e. Risk exposure

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivable mentioned above.
The Group holds a mortgage over the property for the deferred settlement of the Newcastle Private Hospital. Refer to Note 4 for
more information on the risk management policy of the Group and the credit quality of the Group’s receivables.

11. finAnciAl Assets At fAir vAlue throuGh Profit or loss

Financial assets are designated at fair value through profit or loss and include the following:

Equity securities

Interest-bearing securities

Short term deposits

2012
$000

50,165

206,609

100,000

356,774

2011
$000

34,388

204,905

80,000

319,293

Changes in fair values of financial assets at fair value through profit or loss are recorded in investment income in profit or loss in
Note 6.

a. Risk exposure

Information about the Group’s exposure to price risk and interest rate risk is provided in Note 4.

nib 60 years young12. DeferreD Acquisition costs

Current

Deferred acquisition costs

Non-current

Deferred acquisition costs

Movements in the deferred acquisition costs are as follows:

Balance at beginning of year

Acquisition costs deferred during the year

Amortisation expense

2012
$000

2,140

6,711

2012
$000

–

9,599

(748)

8,851

2011
$000

–

2011
$000

–

Acquisition costs incurred in prior years were not deferred as they were not material. See Note 1(g) for more information.

Acquisition costs deferred during the year includes costs relating to the abnormal increase in prepayments of premium revenue
in May and June 2012 of $647,750.

13. AvAilAble-for-sAle finAnciAl Assets

Available-for-sale financial assets include the following classes of financial assets:

unlisted equity securities

a. Unlisted securities

2012
$000

2011
$000

2,206

Unlisted securities are traded in inactive markets. Their fair value is determined based on valuation techniques and the price of
shares traded, where available, during the financial year ended 30 June 2012.

b. Impairment and risk exposure

None of the financial assets are either past due or impaired.

All available-for-sale assets are denominated in Australian currency. For an analysis of the sensitivity of available-for-sale financial
assets to price risk refer to Note 4.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 201214. DeferreD tAx Assets

The balance comprises temporary differences attributable to:

Notes

Depreciation

Share issue expenses

Employee benefits

Outstanding claims

Demutualisation costs

Unrealised losses on investments

Other

Doubtful debts

Asset revaluation

Provisions

Merger & acquisition costs

Sub-total other

Total deferred tax assets

Set-off of deferred tax liabilities pursuant to set-off provisions

Net deferred tax assets

Deferred tax assets to be recovered within 12 months

Deferred tax assets to be recovered after more than 12 months

2012
$000

289

–

1,684

418

–

277

2,668

104

240

731

377

2011
$000

432

505

1,632

416

1,034

1,526

5,545

613

881

467

1,452

2,033

4,120

7,578

(1,996)

2,124

2,275

1,845

4,120

(1,024)

6,554

6,498

1,080

7,578

Movements

At 1 July 2010

(Charged)/credited to the income
statement

(Charged)/credited directly to equity

Acquisition of subsidiary

At 30 June 2011

Depreciation
$000

Share issue
expenses
$000

Employee
benefits
$000

Outstanding
claims
$000

Demutual-
isation
costs
$000

Unrealised
losses on
investments
$000

Other
$000

Total
$000

1,120

1,179

1,337

371

2,306

1,363

1,479

9,155

(663)

(25)

–

432

(674)

–

159

–

136

–

(1,272)

163

–

766

(212)

–

(1,476)

(237)

136

505

1,632

416

1,034

1,526

2,033

7,578

At 1 July 2011

432

505

1,632

416

1,034

1,526

2,033

7,578

(Charged)/credited to the income
statement

(Charged)/credited directly to equity

At 30 June 2012

(143)

–

289

(505)

–

1,684

–

418

(1,034)

(1,249)

–

277

(381)

(200)

1,452

(3,258)

(200)

4,120

nib 60 years young
15. ProPerty, PlAnt AnD equiPMent

Land &
Buildings
$000

Plant &
Equipment
$000

Leasehold
Improvements
$000

Fair value/Cost

Balance at 1 July 2010

Additions

Acquisition of IMAN

Disposals

Revaluations

Balance at 30 June 2011

Balance at 1 July 2011

Additions

Disposals

Revaluations

Balance at 30 June 2012

Depreciation and impairment losses

Balance at 1 July 2010

Depreciation charge for the year

Disposals

Revaluations

Balance at 30 June 2011

Balance at 1 July 2011

Depreciation charge for the year

Disposals

Revaluations

Balance at 30 June 2012

Carrying amounts

At 30 June 2011

At 30 June 2012

2,661

50,491

37,473

–

906

38,415

–

(209)

38,206

(724)

(1,331)

–

1,413

(642)

(1,297)

–

1,907

(32)

7,679

890

115

(239)

–

8,445

1,500

(321)

–

9,624

(4,435)

(1,128)

228

–

(5,335)

(1,343)

220

–

3,218

294

–

(852)

–

2,660

181

(180)

–

(2,178)

(358)

851

–

(1,685)

(385)

173

–

Total
$000

48,370

1,220

115

(1,091)

906

49,520

1,681

(501)

(209)

(7,337)

(2,817)

1,079

1,413

(7,662)

(3,025)

393

1,907

(8,387)

(6,458)

(1,897)

37,773

38,174

3,110

3,166

975

764

41,858

42,104

a. Valuations of land and buildings

The valuation basis of land and buildings is fair value being the amounts for which the properties could be exchanged between
willing parties in an arm’s length transaction, based on current prices in an active market for similar properties in the same
location and condition. Freehold land and buildings at 22 Honeysuckle Drive was valued by a member of the Australian Property
Institute as at 18 June 2012. Other freehold land and buildings were independently valued by a member of the Australian
Property Institute as at 31 December 2010. It is the opinion of the Directors that these valuations represent the fair value of the
properties at 30 June 2012.

b. Carrying amounts that would have been recognised if land and buildings were stated at cost

If freehold land and buildings were stated at cost on an historical cost basis, the amounts would be as follows:

Cost

Accumulated depreciation

Net book amount

2012
$000

41,479

(4,901)

36,578

2011
$000

41,479

(3,645)

37,834

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 201216. intAnGible Assets

Fair value/Cost

Balance at 1 July 2010

Additions

Acquisition of IMAN

Disposals

Balance at 30 June 2011

Balance at 1 July 2011

Additions

Disposals

Balance at 30 June 2012

Amortisation and impairment losses

Balance at 1 July 2010

Amortisation charge for the year

Disposals

Balance at 30 June 2011

Balance at 1 July 2011

Amortisation charge for the year

Disposals

Balance at 30 June 2012

Carrying amounts

At 30 June 2011

At 30 June 2012

Goodwill
$000

Software
$000

Brands and
Trandemarks
$000

Customer
Contracts
$000

7,067

–

18,380

–

25,447

–

25,447

–

20,636

4,010

1,156

(1,376)

24,426

4,049

(15)

28,460

(15,266)

(2,862)

1,376

(16,752)

(3,272)

(20,013)

–

4,044

–

4,044

–

3,093

–

3,093

4,044

3,093

–

4,044

3,093

–

(1,160)

–

(1,160)

(966)

–

(2,126)

Total
$000

27,703

4,010

26,673

(1,376)

57,010

4,049

(15)

61,044

(15,266)

(4,022)

1,376

(17,912)

(4,238)

(22,139)

25,447

7,674

8,447

4,044

1,933

967

39,098

38,905

a. Impairment tests for goodwill

Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to operating segments.

Goodwill

At 30 June 2012

At 30 June 2011

Health
Insurance
Business
$000

International
Students
Business
$000

International
Workers
Business
$000

7,067

–

18,380

Total
$000

25,447

The recoverable amount of a CGU is determined based on a value-in-use calculation, and the recoverable amount exceeds the
carrying value of the goodwill. The value-in-use calculation uses cash flow projections based on financial budgets and forecast
forward projections approved by management covering a three-year period.

nib 60 years young16. intAnGible Assets CONTINUED

b. Key assumptions used for value-in-use calculations

The assumptions used for the cash flow projections for the first three years are in line with the current Board approved budget
and forecast forward projections. Key assumptions include membership growth, claims ratio and the discount factor.

Membership growth is calculated by forecasting the number of sales each month based on budgeted advertising and
promotions spend, less the number of expected lapses each month. Claims ratios are targeted that generate price increases
that maintain price competitiveness, cover expected increases in claims costs, do not adversely affect the funds capital
adequacy position and enable funding of future business growth.

Cash flows beyond the three-year period are extrapolated to 10 years assuming a conservative growth factor of zero. The Group
has applied a post-tax discount rate to discount the forecast future attributable post tax cash flows. The discount rate applied of
8.18% represents the 10 year Australian bond rate of 2.98% plus a risk adjustment of 5.2%. This equates to a pre-tax discount
rate of 11.22%.

17. PAyAbles

Trade creditors

Other payables

RETF payable*

Annual leave payable

2012
$000

4,873

37,091

41,384

3,342

86,690

2011
$000

4,651

34,710

34,501

3,368

77,230

* Risk Equalisation Trust Fund (RETF) Levy represents expenses incurred under Risk Equalisation Trust Fund arrangements which are provided for within the legislation to

support the principle of community rating.

a. Amounts not expected to be settled within the next 12 months

Annual leave payable is accrued annual leave. The entire amount is presented as current, since the Group does not have an
unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the
full amount of accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not to be
expected to be taken within the next 12 months.

Annual leave obligation expected to be settled after 12 months

18. borrowinGs

bank overdraft

2012
$000

599

2011
$000

563

2012
$000

2,594

2011
$000

3,603

The bank overdraft comprises the closing positive balance of the bank account, adjusted for unpresented cheques and
outstanding deposits.

The Group has a line-of-credit facility for corporate credit cards issued to nib employees for a total of $2.0 million. Outstanding
amounts as at 30 June 2012 are included in Current Liabilities – Payables under Trade Creditors.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 201219. outstAnDinG clAiMs liAbility

a. Outstanding claims liability

Outstanding claims – central estimate of the expected future payment for claims incurred

Risk Margin

Claims handling costs

Gross outstanding claims liability

Outstanding claims – expected payment to the *RETF in relation to the central estimate

Risk Margin

Net outstanding claims liability

2012
$000

55,780

2,941

1,320

60,041

14,240

712

74,993

2011
$000

49,894

2,594

1,317

53,805

11,502

576

65,883

* Risk Equalisation Trust Fund (RETF) Levy represents expenses incurred under Risk Equalisation Trust Fund arrangements which are provided for within the legislation to
support the principle of community rating.

b. Risk margin

The central estimate of outstanding claims (including those that have been reported but not yet settled and which have been
incurred but not yet reported) is an estimate which contains no intentional over or under estimation. For this reason the inherent
uncertainty in the central estimate must also be considered.

The risk margins have been based on an analysis of the past experience of the Group. This analysis examined the volatility of
past payments that has not been explained by the model adopted to determine the central estimate. This past volatility has been
assumed to be indicative of the future volatility.

The outstanding claims estimate is derived based on three valuation classes, namely Hospital and Prostheses services
combined, Medical services, and General Treatment. This analysis is supplemented by more granular analysis within classes as
appropriate.

For ISB, the Bornhuetter-Ferguson method is used for all service months for hospital and medical, and the chain ladder method
for general treatment.

A chain ladder method is used for all service months for the IWB valuation of the cost of unpaid claims.

As claims for health funds are generally settled within one year, no discounting of claims is usually applied as the difference
between the undiscounted value of claims payments and the present value of claims payments is not likely to be material.
Accordingly, reasonable changes in assumptions would not have a material impact on the outstanding claims balance.

nib 60 years young19. outstAnDinG clAiMs liAbility CONTINUED

Changes in the gross outstanding claims can be analysed as follows:

Gross outstanding claims at beginning of period

Administration component

Risk margin

Central estimate at beginning of period

Change in claims incurred for the prior year

Claims paid in respect of the prior year

Claims incurred during the year (expected)

Claims paid during the year

Central estimate at end of period

Administration component

Risk margin

Gross outstanding claims at end of period

20. uneArneD PreMiuM liAbility

Current

Unearned premium liability

Non-current

Unearned premium liability

Movements in the unearned premium liability are as follows:

Unearned premium liability as at 1 July

Deferral of premiums on contracts written in the period

Earning of premiums written in previous periods

Unearned premium liability as at 30 June

2012
$000

53,805

(1,317)

(2,594)

49,894

(666)

(49,228)

765,926

(710,146)

55,780

1,320

2,941

60,041

2011
$000

50,698

(1,178)

(2,414)

47,106

(3,259)

(43,847)

695,924

(646,030)

49,894

1,317

2,594

53,805

2012
$000

2011
$000

135,867

65,202

5,799

–

2012
$000

65,202

141,666

(65,202)

141,666

2011
$000

54,443

65,202

(54,443)

65,202

Unearned premium liability has abnormally increased as a result of a high level of prepayments of premium revenue in May and
June 2012.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 201221. unexPireD risk liAbility

No deficiency was identified as at 30 June 2012 and 2011 that resulted in an unexpired risk liability needing to be recognised.

22. current tAx liAbilities

Current tax payable

23. Provision for eMPloyee entitleMents

Current

Long service leave

Termination benefits

Retirement benefits

Non-current

Long service leave

2012
$000

2011
$000

6,884

10,894

2012
$000

1,475

603

2,144

1,276

2011
$000

1,695

1,216

746

3,657

991

a. Amounts not expected to be settled within the next 12 months

The current provision for long service leave and retirement benefits includes all unconditional entitlements where employees
have completed the required period of service and also those where employees are entitled to pro-rata payments in certain
circumstances. The entire amount is presented as current, since the Group does not have an unconditional right to defer
settlement. However, based on past experience, the Group does not expect all employees to take the full amount of the provision
or require payment within the next 12 months. The following amounts reflect leave that is not to be expected to be taken or paid
within the next 12 months.

Long service leave obligation expected to be settled after 12 months

Retirement benefit obligation expected to be settled after 12 months

2012
$000

1,223

1,289

2011
$000

1,351

1,414

nib 60 years young24. DeferreD tAx liAbilities

The balance comprises temporary differences attributable to:

Prepayments

Deferred acquisition costs

Income receivables

Customer contracts

Total deferred tax liabilities

Notes

2012
$000

2011
$000

1,435

260

290

1,996

(1,996)

–

411

1,585

1,996

–

435

580

1,024

(1,024)

–

1,024

–

1,024

Total
$000

928

1,024

972

–

1,996

Set-off of deferred tax liabilities to set-off provisions

Net deferred tax liabilities

Deferred tax liabilities to be settled within 12 months

Deferred tax liabilities to be settled after more than 12 months

Movements

At 1 July 2010

(Charged)/credited to the income statement

Acquisition of subsidiary

At 30 June 2011

At 1 July 2011

(Charged)/credited to the income statement

(Charged)/credited directly to equity

At 30 June 2012

Prepayments
$000

Deferred
acquisition
costs
$000

Income
receivable
$000

Customer
contracts
$000

(2)

–

1,435

–

1,435

418

–

435

(175)

–

260

–

(348)

928

580

(290)

–

290

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 201225. contributeD equity

a. Share capital

Ordinary shares

Fully paid

Other equity securities

Treasury shares

Total contributed equity

b. Movements in share capital

2012
$000

2011
$000

28,106

42,193

(525)

–

27,581

42,193

Date

Details

No of shares

Price $

$000

1 July 2010

Opening balance

495,431,427

Oct 2010

Shares bought back on-market and cancelled

(137,105)

$1.24

26 Nov 2010

Overseas and Unverified Shareholders Trust shares cancelled

Dec 2010

June 2011

Shares bought back on-market and cancelled

Reverse acquisition adjustment for share buy-back

30 June 2011

Balance

21 July 2011

Capital return

Transactions costs arising on capital return

Deferred tax credit recognised directly to equity

Reverse acquisition adjustment for capital return

Shares bought back on-market and cancelled

Reverse acquisition adjustment for share buy-back

Jan 2012

Feb 2012

Mar 2012

Apr 2012

30 June 2012

Balance

Reverse acquisition accounting policy

(27,078,540)

(1,450,030)

(32,642)

466,733,110

–

(230,155)

(8,508,479)

(14,000,000)

(4,990,294)

439,004,182

42,437

(170)

–

(1,812)

(46)

1,784

42,193

$1.25

$1.40

$0.16

(75,004)

$1.49

$1.48

$1.46

$1.54

(581)

174

66,288

(344)

(12,593)

(20,420)

(7,682)

36,075

28,106

Post demutualisation, the formation of the Group has been accounted for as a business combination. AASB 3 Business
Combinations deals with the bringing together of separate businesses into one reporting entity. When a new entity (legal entity) is
formed to effect a business combination, an entity that existed before the combination must be identified as the acquirer. This is
commonly referred to as a reverse acquisition where nib health funds limited has been deemed to be the accounting acquirer of
nib holdings limited (the legal parent).

Accordingly, under the reverse acquisition requirements of AASB 3, the consolidated financial statement of nib holdings limited
are the continuing accounts of nib health funds limited as accounting acquirer of the legal parent.

The financial information incorporates the assets and liabilities of all entities deemed to be acquired by nib health funds limited,
including nib holdings limited and the results of these entities for the period from which those entities are accounted for as being
acquired by nib health funds limited. The assets and liabilities of the entities acquired by nib health funds limited were recorded at
fair value and the assets and liabilities of nib health funds limited were maintained at their book value. The impact of transactions
between entities in the Group is eliminated in full.

nib 60 years young25. contributeD equity CONTINUED

c. Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the
number of and amounts paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon
a poll each share is entitled to one vote.

d. Treasury shares

Treasury shares are shares in nib holdings limited that are held by the nib Holdings Ltd Share Ownership Plan Trust (trust) for the
purpose of issuing shares under the Group’s executive management STI and LTIPs. See Note 36 for more information.

Date

Details

1 July 2011

Opening balance

Acquisition of shares by the Trust

Employee share issue

30 June 2012

Balance

e. Share buy-back

No. of shares

$000

–

338,000

–

338,000

–

525

–

525

During the financial year, the company cancelled 27,728,928 ordinary shares purchased on-market as part of the Group’s
capital management initiatives announced in the 2008 Annual Report. This has been finalised. The shares were acquired for
$41,039,234 at an average price of $1.49 per share, with prices ranging from $1.44 to $1.54. Of the total cost of $41,039,234,
$4,964,727 was deducted from ordinary share equity and the remaining $36,074,507 was deducted from retained profits
representing the portion of shares assumed to be purchased from policyholders under the reverse acquisition requirements
of AASB 3 Business Combinations.

f. Capital risk management

The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can
continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure
to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce debt.

nib health funds limited

nib health funds limited is required to comply with the Solvency and Capital Adequacy Standards under Schedule 2 and 3 of the
Private Health Insurance (Health Benefits Fund Administration) Rules 2007, the Rules are made for the purposes of Part 4-4 of
the Private Health Insurance Act 2007.

To comply with the capital adequacy standard nib health funds limited must ensure that at all times the value of capital equals or
exceeds the capital adequacy requirement (Section 5.1 of the Capital Adequacy Standard), failure to do so represents a breach
of the Private Health Insurance Act 2007.

nib health fund limited has a capital management plan which establishes a benchmark for capital held in excess of the regulatory
requirement; the aim is to keep a sufficient buffer in line with the Board’s attitude to and tolerance for risk. The benchmark capital
adequacy coverage ratio is 1.3x (2011: 1.3x).

Any capital in excess of the benchmark, taking a 12 month forward looking view, will be reduced by way of dividend to
nib holdings limited. nib health funds limited paid dividends of $12,000,000 and $14,200,000 to nib holdings limited in
December 2011 and June 2012 respectively.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012The surplus assets over benchmark at 30 June 2012 and 30 June 2011 were as follows:

Total Assets nib health funds limited

Capital Adequacy Requirement

Surplus Assets for Capital Adequacy

Capital Adequacy Coverage Ratio

Internal benchmark

Internal benchmark requirement

Surplus assets over internal benchmark

2012
$000

556,392

419,691

136,701

1.33

1.30

545,598

10,794

2011
$000

431,891

320,262

111,629

1.35

1.30

416,341

15,550

On 2 July 2012 the Private Health Insurance Administration Council released proposed changes to their regulatory capital
requirements for industry consultation. The Group is currently reviewing the proposed changes.

nib holdings limited

The Group is targeting a ROE of 15%, and the ROE as at 30 June 2012 is 21.7% (2011: 16.5%). While improvement to ROE can
be made through increased profitability, it is also important that capital be managed appropriately, therefore, if funds are not
required for strategic reasons the Group will consider a range of capital management initiatives.

Capital management initiatives undertaken during the financial year included:

a Capital Return of $75.0 million was approved at a General Meeting on 5 July 2011 and paid on 21 July 2011.

the on-market buy-back announced on 29 August 2008 was finalised under which nib holdings during the year purchased

and subsequently cancelled 27,728,928 shares at a total cost of $41.039 million.

At 30 June 2012 the Group had surplus capital of $13.3 million above our internal benchmark (after allowing for the payment
of a final dividend of 5.0 cents per share, totalling $22.0 million, in October 2012).

Below is a reconciliation of total assets to surplus capital as at 30 June 2012:

Total assets

Less: Health fund capital required (based on projection over next 12 months)

International Workers intangibles

Other liabilities

Final dividend

Surplus capital

26. retAineD Profits

Balance at the beginning of the financial year

Net profit

Transfer from share capital

Dividends

Balance at the end of the financial year

2012
$m

617.8

(557.1)

(24.5)

(0.9)

(22.0)

13.3

2012
$000

367,595

67,640

(102,363)

(60,918)

271,954

2011
$000

347,358

65,463

(1,784)

(43,442)

367,595

nib 60 years young27. reserves

a. Reserve comprises

Revaluation surplus – property, plant and equipment

Available-for-sale financial assets

Share-based payments

Share-based payments exercised

b. Movements in reserves

Revaluation surplus – property, plant and equipment

Balance at the beginning of the year

Transfer to retained profits on sale of property

Property revaluation – gross

Deferred tax

Balance at the end of the financial year

Available-for-sale financial assets

Balance at the beginning of the year

Revaluation – gross

Deferred tax

Balance at the end of the financial year

Share-based payments

Balance at the beginning of the year

Performance right expense

Bonus share rights expense

Transfer to share-based payments exercised reserve on exercise of performance rights

Transfer to share-based payments exercised reserve on exercise of bonus share rights

Balance at the end of the financial year

Share-based payments exercised

Balance at the beginning of the year

Transfer from share-based payments reserve on exercise of performance rights

Transfer from share-based payments reserve on exercise of bonus share rights

Exercise of performance rights

Exercise of bonus share rights

Balance at the end of the financial year

Notes

2012
$000

1,763

494

625

(819)

2,063

2012
$000

892

–

1,245

(374)

1,763

494

–

494

872

259

–

(506)

–

625

(256)

506

(1,069)

–

(819)

2011
$000

892

494

872

(256)

2,002

2011
$000

834

–

(25)

892

–

706

(212)

494

772

396

–

(228)

(68)

872

–

228

(442)

(110)

(256)

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012c. Nature and purpose of reserves

Revaluation surplus – property, plant and equipment

The property, plant and equipment revaluation surplus is used to record increments and decrements on the revaluation of
non-current assets as described in Note 1(q).

Available-for-sale financial assets

Changes in the fair value of investments, such as equities, classified as available-for-sale financial assets, are taken to the
available-for-sale revaluation reserve as described in Note 1(p). Amounts are recognised in profit and loss when the associated
assets are sold or impaired.

Share-based payments

The share-based payments reserve is used to recognise the fair value of performance rights and bonus share rights issued
to employees but not exercised.

Share-based payments exercised

The share-based payments exercised reserve is used to recognise the difference between fair value of performance rights
and bonus share rights accumulated in the share based payments reserve and cost of exercising the rights.

28. DiviDenDs

a. Ordinary shares

Final dividend for the year ended 30 June 2011 9.0 cents per fully paid ordinary share, made up of
4.0 cps ordinary dividend and 5.0 cps special dividend (2010: 5.0 cents) paid on 30 September 2011

Fully franked based on tax paid @ 30%

Interim dividend for the year ended 30 June 2012 of 4.25 cents (2011: 4.0 cents) paid on 8 April 2012

Fully franked based on tax paid @ 30%

Total dividends provided for or paid

b. Dividends not recognised at year end

In addition to the above dividends, since year end the Directors have recommended the payment
of a final dividend of 5.0 cents per fully paid ordinary share, made up of 5.0 cps ordinary dividend
(2011: 9.0 cps, made up of 4.0 cps ordinary dividend and 5.0 cps special dividend) fully franked based
on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 5 October
2012 out of retained profits at 30 June 2012, but not recognised as a liability at year end, is

2012
$000

2011
$000

42,006

24,772

18,912

60,918

18,670

43,442

2012
$000

2011
$000

21,950

42,006

nib 60 years young28. DiviDenDs CONTINUED

c. Franked dividends

The franked portion of the final dividends recommended after 30 June 2012 will be franked out of existing franking credits or out
of franking credits arising from the payment of income tax in the year ending 30 June 2012.

Franking credits available for subsequent financial years to equity holders
of parent entity based on a tax rate of 30%

2012
$000

2011
$000

16,499

18,365

The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:

a. Franking credits that will arise from the payment of the amount of the provision for income tax;

b. Franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and

c. Franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.

29. coMMitMents for exPenDiture

a. Operating lease commitments

Commitments for minimum lease payments in relation to non-cancellable operating leases
are payable as follows:

– not longer than one year

– longer than one year and not longer than five years

– longer than five years

b. Capital expenditure commitments

Payable:

– not longer than one year

c. Remuneration commitments

Commitments for the payment of salaries, wages and other remuneration under long-term
employment contracts in existence at the reporting date but not recognised as liabilities.

– not longer than one year

2012
$000

2011
$000

2,211

4,113

1,056

7,380

2012
$000

260

2,051

3,535

1,236

6,822

2011
$000

712

2012
$000

2011
$000

2,084

1,880

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 201230. continGent liAbilities

nib health funds limited has given an undertaking to extend financial support to nib servicing facilities pty limited and nib health
care services pty limited by subordinating repayment of debts owed by the entities to nib health funds limited, in favour of all
other creditors. This undertaking has been provided as a result of each of these subsidiaries experiencing deficiencies of capital
and reserves, and is intended to enable the entities to continue their operations and fulfil all financial obligations now and in the
future. The undertaking is provided for a minimum period of 12 months from 17 August 2012, or if earlier, to the date of sale of the
entities should this occur.

nib holdings limited and nib health funds limited have indemnified the trustee under the nib demutualisation overseas
policyholders and unverified policyholders trust deed dated 19 July 2007, in respect of all liabilities, costs and expenses incurred
in execution of the trust. The trust was wound up and all trust funds were distributed during the 2011 financial year.

nib holdings limited has provided a guarantee and indemnity to the National Australia bank on behalf of IMAN Australian Health
Plans Pty Limited in respect of transactional banking services. Liability under the indemnity is limited to $3,028,885.

31. reMunerAtion of AuDitors

1. Audit services

PricewaterhouseCoopers Australian firm:

Audit and review of financial report and other audit work under the Corporations Act 2001

Total remuneration for audit services

341,200

367,400

2012
$

2011
$

2. Non-audit services

Audit-related services

PricewaterhouseCoopers Australian firm:

Audit of regulatory returns

Total remuneration for audit-related services

Taxation services

PricewaterhouseCoopers Australian firm:

Tax compliance services

Total remuneration for taxation services

Other services

PricewaterhouseCoopers Australian firm:

Accounting advice and support

Review of regulatory returns

Total remuneration for other services

Total remuneration for non-audit services

Total remuneration for audit and non-audit services

42,300

56,300

105,660

371,629

21,000

20,045

41,045

58,700

10,000

68,700

189,005

496,629

530,205

864,029

nib 60 years young32. notes to the stAteMent of cAshflows

a. Reconciliation of cash

For the purpose of the statement of cash flows, cash includes cash on hand and in banks net of outstanding bank overdrafts.
Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items on the balance
sheet as follows:

Cash and cash equivalents

Bank overdraft

Note

2012
$000

86,673

(2,594)

84,079

2011
$000

160,772

(3,603)

157,169

b. Reconciliation of profit after income tax to net cash inflow from operating activities

Profit for the year

Net (gain)/loss on disposal of non-current assets

Fair value (gain)/loss on other financial assets through profit or loss

Impairment loss on property, plant and equipment

Non-cash employee benefits expense – share-based payments

Depreciation and amortisation

Change in operating assets and liabilities, net of effect from purchase of controlled entity

Decrease (increase) in receivables

Decrease (increase) in deferred acquisition costs

Decrease (increase) in deferred tax assets

Increase (decrease) in trade payables and unearned premium liability

Increase (decrease) in current tax payable

Increase (decrease) in provisions

Net cash flow from operating activities

2012
$000

2011
$000

67,640

65,463

(4,331)

(454)

259

7,263

(20,989)

(8,851)

4,231

85,924

(4,011)

7,882

220

(4,157)

(2,236)

396

6,838

(8,085)

–

1,755

17,116

6,569

4,401

134,631

88,280

Unearned premium liability has abnormally increased as a result of a high level of prepayments of premium revenue in May and
June 2012.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 201233. controlleD entities

The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities in
accordance with the accounting policy described in Note 1(b):

nib holdings limited

nib health funds limited

nib servicing facilities pty limited

nib health care services limited

The Heights Private Hospital Pty Limited

IMAN Australian Health Plans Pty Limited

nib holdings limited also controls the following trusts:

nib Holdings Ltd Share Ownership Plan Trust

nib salary sacrifice plan and matching plan trust

Place of
Incorporation

Australia

Percentage of shares held

2012
%

100

2011
%

100

34. events occurrinG After the bAlAnce sheet DAte

There have not been any matters or circumstances that have arisen since the end of the financial year that has significantly
affected, or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the
Group in future financial years.

35. relAteD PArties

a. Related party transactions with Key Management Personnel

There were no related party transactions during the year, as there were no transactions where either party had the presence
of control, joint or significant influence to affect the financial and operating policies of the either entity.

b. Transactions with associated companies

There were no associated company transactions during the years ended 30 June 2012 and 2011.

nib 60 years young36. key MAnAGeMent Personnel Disclosures

a. Key Management Personnel compensation

Short-term employee benefits

Post-employment benefits

Other long-term benefits

Termination benefits

Share-based payments

2012
$

2011
$

3,286,697

2,967,252

271,192

26,056

375,578

935,060

293,585

20,513

–

799,127

4,894,583

4,080,477

Detailed remuneration disclosures are provided in the Remuneration Report on pages 6 to 20.

b. Equity instrument disclosures relating to Key Management Personnel

i. Performance rights provided as remuneration and shares issued on exercise of such performance rights

Details of performance rights provided as remuneration and shares issued on the exercise of such performance rights, together
with terms and conditions of the performance rights, can be found in the Remuneration Report on pages 6 to 20.

ii. Performance rights holdings

The numbers of performance rights over ordinary shares in the company held during the financial year by each executive of
nib holdings limited are set out below.

2012

Mark Fitzgibbon

Matthew Henderson

Melanie Kneale

Rhoderic McKensey

Michelle McPherson

Brendan Mills

Total

Balance
at start of
the year

Granted as
compensation

Exercised

Other
forfeitures

Balance
at the end of
the year

Vested and
exercisable

Unvested

866,861

55,344

258,911

195,290

317,889

–

217,546

(360,629)

51,026

64,995

109,766

–

(188,408)

(77,910)

(112,451)

–

723,778

106,370

–

(135,498)

–

81,859

–

182,375

315,204

–

723,778

106,370

–

182,375

315,204

–

1,694,295

508,328

(739,398)

(135,498)

1,327,727

81,859

1,327,727

2011

Balance
at start of
the year

Granted as
compensation

Exercised

Other
forfeitures

Balance
at the end of
the year

Vested and
exercisable

Mark Fitzgibbon

901,351

235,952

(202,831)

(67,611)

866,861

Matthew Henderson

Melanie Kneale

Rhoderic McKensey

Michelle McPherson

Total

–

268,311

154,081

283,165

1,606,908

55,344

70,503

57,529

119,053

538,381

–

(59,927)

(12,240)

(63,247)

–

(19,976)

(4,080)

(21,082)

55,344

258,911

195,290

317,889

(338,245)

(112,749)

1,694,295

–

Unvested

866,861

55,344

258,911

195,290

317,889

1,694,295

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012iii. Share holdings

The number of shares in the company held during the financial year by each Director of nib holdings limited and other Key
Management Personnel of the Group, including their personally related parties, are set out below. There were no shares received
during the reporting period on the exercise of performance rights.

2012

Ordinary shares

Directors of nib Group

Keith Lynch1,2

Harold Bentley

Annette Carruthers

Steve Crane

Philip Gardner

Christine McLoughlin

Other Key Management Personnel of the Group

Mark Fitzgibbon

Matthew Henderson

Melanie Kneale2

Rhoderic McKensey

Michelle McPherson

Brendan Mills

1. Keith Lynch retired as a Chairman and Director on 30 September 2011.
2. Other changes represent that at 30 June 2012 they are no longer a KMP.

2011

Ordinary shares

Directors of nib Group

Keith Lynch

Harold Bentley

Annette Carruthers

Steve Crane

Philip Gardner

Brian Keane2,3

Christine McLoughlin

Other Key Management Personnel of the Group

Mark Fitzgibbon

Matthew Henderson

Melanie Kneale

Rhoderic McKensey

Michelle McPherson

2. Other changes represent that at 30 June 2012 they are no longer a KMP.
3. Brian Keane retired as a Director on 26 October 2010.

Balance
at the start
of the year

Granted
during the
year as
compensation

Other
changes
during
the year

Balance
at the end
of the year

125,951

70,000

58,200

100,000

104,862

37,500

843,130

–

60,910

13,823

189,247

–

468,012

2,210

135,456

100,925

145,470

(125,951)

–

14,300

15,157

3,138

20,000

–

70,000

72,500

115,157

108,000

57,500

(50,000)

1,261,142

–

(196,366)

–

24,852

2,210

–

114,748

334,717

24,852

Balance
at the start
of the year

Granted
during the
year as
compensation

Other
changes
during
the year

Balance
at the end
of the year

100,951

70,000

58,200

–

104,862

61,300

–

530,904

312,226

–

983

1,583

101,000

–

59,927

12,240

88,247

25,000

125,951

–

100,000

–

(61,300)

37,500

–

70,000

58,200

100,000

104,862

–

37,500

843,130

–

60,910

13,823

189,247

nib 60 years young37. shAre-bAseD PAyMents

a. Long-Term Incentive Plan (LTIP)

Performance rights to acquire shares in nib holdings limited are granted to executives under the Long-Term Incentive Plan (LTIP).
Information relating to the LTIP is included in the Remuneration Report on pages 6 to 20.

On 18 May 2012 the nib Holdings Ltd Share Ownership Plan Trust was formed to administer the Group’s executive management
short-term incentive and long-term incentive share plans. This Trust has been consolidated in accordance with Note 1(b)(ii).

Set out below is a summary of performance rights granted under the plan:

2012

Grant date

Expiry date

Balance at
start of the
year
Number

Granted
during the
year
Number

Exercise
price

Forfeited
during the
year
Number

Balance at
the end of
the year
Number

Vested and
exercisable
at end of the
year
Number

31/12/13

31/12/14

1/09/14

1/09/15

30/06/09

28/01/10

27/05/11

21/12/11

2011

Grant date

Expiry date

24/06/08

30/06/09

28/01/10

23/05/11

31/12/12

31/12/13

31/12/14

1/09/14

Exercised
during the
year
Number

(657,539)

(81,859)

Exercised
during the
year
Number

(147,655)

(202,831)

–

657,539

498,375

538,381

–

508,328

–

416,516

467,878

443,333

–

81,859

–

(70,503)

(64,995)

1,694,295

508,328

(739,398)

(135,498)

1,327,727

81,859

Balance at
start of the
year
Number

Granted
during the
year
Number

Exercise
price

Forfeited
during the
year
Number

Balance at
the end of
the year
Number

Vested and
exercisable
at end of the
year
Number

196,872

270,442

657,539

498,375

–

538,381

(49,217)

(67,611)

–

657,539

498,375

538,381

–

1,623,228

538,381

(350,486)

(116,828)

1,694,295

–

b. Employee Share Acquisition (tax exempt) Plan (“ESAP”)

The plan rules were adopted on 11 January 2008 and amended on 3 December 2009. On 6 September 2010 eligible employees
were offered the opportunity to receive part of their salary in the form of shares. All permanent employees who were an
employee as at 6 September 2010 and the date shares were allocated to employees were eligible to participate in the scheme.
Employees may elect not to participate in the scheme.

ESAP is administered by the Board. Shares granted to the employees by the Board were acquired on-market via a third party
trustee plan company.

Under the plan, participating employees were allocated an aggregate market value up to $1,000 worth of fully paid ordinary
shares in nib holdings limited. Subsequent offers under ESAP are at the Board’s discretion.

Shares issued under the scheme may not be sold until the earlier of three years after issue or cessation of employment. In all
other respects shares rank equally with other fully-paid ordinary shares on issue.

Number of shares purchased on market under the plan to participating employees

81,887

88,782

The shares were allocated in two periods. 50% were allocated on 30 August 2011 after nib’s FY11 results presentation at a
volume weighted average price of $1.48. The remaining 50% were allocated on 27 February 2012 after nib’s FY12 half year
results announcement at a volume weighted average price of $1.47.

2012

2011

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 2012c. nib Salary Sacrifice Plan and Matching Plan

The plan rules were adopted on 1 February 2011. On 3 December 2009 business unit managers were offered the opportunity
to receive part of their salary in the form of shares, with an additional amount of shares contributed by the Company.
Employees may elect not to participate in the scheme.

The plan is administered by the Board. Shares granted to the employees by the Board were acquired on-market via a third party
trustee plan company.

Under the plan, participating employees were allocated an aggregate market value up to $10,000 worth of fully paid ordinary
shares in nib holdings limited, made up of $5,000 salary sacrifice and $5,000 matching company component. Subsequent offers
under the plan are at the Board’s discretion.

Shares issued under the scheme may not be sold until the earlier of three or seven years after issue, or cessation of employment.
In all other respects shares rank equally with other fully-paid ordinary shares on issue.

Number of shares purchased on market under the plan to participating employees

111,794

95,434

2012

2011

d. Short-term performance incentive (STI)

All eligible employees have a STI opportunity. For the MD/CEO the maximum target bonus opportunity is 60% of the base
remuneration package with 30% of the calculated entitlement awarded as performance shares to be held in escrow for one
year. For the CFO the maximum target bonus opportunity is 60% of the base remuneration package with 20% of the calculated
entitlement awarded as performance shares to be held in escrow for one year. For other executives the maximum entitlement is
40% of the remuneration package with 20% of the calculated entitlement awarded as performance shares to be held in escrow
for one year.

Shares issued by the trust to the employees are acquired on-market prior to the issue. Shares held by the trust and not yet
issued to employees at the end of the reporting period are shown as treasury shares in financial statements; see Note 25(d).

Shares were purchased on market and brokerage fees are borne by nib.

e. Expenses arising from share-based payments transactions

Shares purchased on market under employee share scheme

Performance rights granted under LTIP

Shares purchased on market under STI

nib salary sacrifice plan and matching plan trust deed

2012
$000

121

259

160

164

704

2011
$000

118

396

157

138

809

38. solvency AnD cAPitAl ADequAcy reserves

nib health funds limited Solvency Reserve, as per the Private Health Insurance (Health Benefits Fund Administration) Rules 2007,
is $100.112 million. Total Health Benefits Fund Assets are $556.392 million, representing a surplus of $141.074 million over the
sum of the Solvency Reserve and total Health Benefits Fund Liabilities ($315.206 million). This equates to a solvency coverage
ratio of 1.34x and a solvency/capital risk multiple of 2.41.

nib health funds limited Capital Adequacy Reserve, as per the Private Health Insurance (Health Benefits Fund Administration)
Rules 2007, is $104.486 million. Total Health Benefits Fund Assets are $556.392 million, representing a surplus of $136.700
million over the Capital Adequacy Reserve and total Health Benefits Fund Liabilities ($315.206 million). This equates to a capital
adequacy coverage ratio of 1.33x and a capital adequacy/risk multiple of 2.31.

nib 60 years young39. eArninGs Per shAre

a. Basic earnings per share

Profit from continuing operations attributable to the ordinary equity holders of the company

Profit from discontinued operations

Profit attributable to the ordinary equity holders of the company

b. Diluted earnings per share

Profit from continuing operations attributable to the ordinary equity holders of the company

Profit from discontinued operations

Profit attributable to the ordinary equity holders of the company

c. Reconciliations of earnings used in calculating earnings per share

Basic earnings per share

Profit from continuing operations

Profit attributable to the ordinary equity holders of the company used
in calculating basic earnings per share

Diluted earnings per share

Profit attributable to the ordinary equity holders of the company used in
calculating basic earnings per share

Profit attributable to the ordinary equity holders of the company used
in calculating diluted earnings per share

d. Weighted average number of shares used as the denominator

2012
Cents

14.8

–

14.8

2012
Cents

14.8

–

14.8

2011
Cents

13.7

–

13.7

2011
Cents

13.7

–

13.7

2012
$000

2011
$000

67,640

65,463

67,640

65,463

67,640

65,463

67,640

65,463

2012

2011

Weighted average number of ordinary shares used as the denominator in calculating basic earnings
per share

458,305,148

478,458,990

Adjustments for calculation of diluted earnings per share:

Performance rights and bonus share rights

Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share

–

458,305,148

478,458,990

e. Information concerning the classification of shares

i. Performance rights

Performance rights granted to employees under the nib holdings Long-Term Incentive Plan are considered to be potential
ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are
dilutive. The performance rights have not been included in the determination of basic earnings per share. Details relating to
the performance rights are set out in Note 36.

The total 1,327,727 performance rights granted (2011 – 1,694,295) are not included in the calculation of diluted earnings
per share because they are contingently issuable ordinary shares and conditions were not satisfied at 30 June 2012.
These performance rights could potentially dilute basic earnings per share in the future.

nib holdings limited 2012 annual reportNotes to the Consolidated Financial Statements continuedfor the year ended 30 June 201240. PArent entity finAnciAl inforMAtion

a. Summary financial information.

The individual financial statements for the parent entity show the following aggregate amounts:

Balance Sheet

ASSETS

Current assets

Total assets

LIABILITIES

Current liabilities

Total liabilities

NET ASSETS

EQUITY

Share Capital

Share-based payments

Retained Profits

Total Equity

Profit or loss for the year

Total comprehensive income

2012
$000

2011
$000

42,340

458,834

194,913

612,580

7,026

11,435

451,808

601,145

297,178

413,628

(194)

154,824

451,808

616

186,901

601,145

28,841

91,197

28,841

91,197

b. Contingent liabilities of the parent entity

Refer to Note 30.

41. coMPAny DetAils

nib holdings limited is a company limited by shares, incorporated and domiciled in Australia. The registered office of the
company is:

22 Honeysuckle Drive
NEWCASTLE NSW 2300

The Annual Report was authorised for issue by the Directors on 17 August 2012. The company has the power to amend and
reissue the Annual Report.

nib 60 years youngShareholder Information

as at 30 June 2012

The shareholder information set out below was applicable as at 31 August 2012.

A. Distribution of equity securities

Analysis of numbers of equity security holders by size of holding:

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

100,001 and over

There were 16,170 holders of less than a marketable parcel of ordinary shares.

b. equity security holDers

The 20 largest quoted equity security holders

The names of the 20 largest holders of quoted equity securities are listed below:

Name

J P Morgan Nominees Australia Limited

RBC Investor Services Australia Nominees Pty Limited

National Nominees Limited

Citicorp Nominees Pty Limited

HSBC Custody Nominees (Australia) Limited

BNP Paribas Noms Pty Ltd

JP Morgan Nominees Australia Limited

Citicorp Nominees Pty Limited

RBC Investor Services Australia Nominees Pty Limited

M F Custodians Ltd

Bond Street Custodians Limited

Suncorp Custodian Services Pty Limited

UBS Nominees Pty Ltd

Bond Street Custodians Ltd

RBC Investor Services Australia Nominees Pty Limited

Woodross Nominees Pty Ltd

Mr Mark Anthony Fitzgibbon

UBS Wealth Management Australia Nominees Pty Ltd

Skeet Nominees Pty Ltd

Fitzy(NSW) Pty Ltd

Unquoted equity securities

Class of
equity security

67,902

84,953

11,585

621

165,110

Ordinary shares

Number held

Percentage of
issued shares

30,144,603

20,907,258

13,820,139

12,556,151

7,977,674

7,702,253

3,625,380

2,985,315

2,633,395

2,425,319

1,530,000

1,014,251

1,010,471

717,928

706,751

692,007

567,344

544,000

500,000

483,600

6.87%

4.76%

3.15%

2.86%

1.82%

1.75%

0.83%

0.68%

0.60%

0.55%

0.35%

0.23%

0.16%

0.13%

0.12%

0.11%

112,543,839

25.64%

Number
on issue

Number
of holders

Performance rights issued under the nib holdings Long-Term Incentive Plan

1,327,727

nib holdings limited 2012 annual reportc. substAntiAl holDers

The only shareholder with a substantial shareholding as at 31 August 2012 is Perpetual Limited which held shares representing
9.28% of the ordinary shares on issue or 40,730,914 shares (by notice dated 23 August 2012).

D. votinG riGhts

The voting rights attaching to each class of equity securities are set out below:

Ordinary shares

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share
shall have one vote.

Performance rights

No voting rights.

e. securities subJect to voluntAry escrow

Shares taken as short-term incentive bonus held in escrow are detailed below:

Class of equity security

Date escrow period ends

Ordinary shares

2 September 2012

Number on issue

111,814

nib 60 years youngCorporate Directory

for the year ended 30 June 2012

Directors

Chairman
Steven Crane

Managing Director/Chief Executive Officer
Mark Fitzgibbon

Harold Bentley
Annette Carruthers
Philip Gardner
Christine McLoughlin

coMPAny secretAry

Michelle McPherson

executive MAnAGeMent

Managing Director/Chief Executive Officer
Mark Fitzgibbon

Deputy Chief Executive Officer
and Chief Financial Officer
Michelle McPherson

Chief Customer Officer
Rhoderic McKensey

Chief Information Officer
Brendan Mills

Group Executive Corporate and International Business
Matthew Henderson

notice of AnnuAl
GenerAl MeetinG

The Annual General Meeting of nib holdings limited
will be held at The Westin, Sydney at 1pm (AEDT) on
Tuesday, 30 October 2012.

A formal Notice of the Meeting is being distributed with the
annual report.

shAre reGister

Computershare Investor Services Pty Limited
Level 3
60 Carrington Street
Sydney NSW 2000

1300 664 316

stock exchAnGe listinG

nib holdings limited shares (nhf) are listed on the Australian
Securities Exchange.

PrinciPAl reGistereD office
in AustrAliA

22 Honeysuckle Drive
Newcastle NSW 2300

13 14 63

AuDitor

PricewaterhouseCoopers
PricewaterhouseCoopers Centre
26 Honeysuckle Drive
Newcastle NSW 2300

leGAl ADvisers

Mallesons Stephen Jacques
Level 61, Governor Philip Tower
1 Farrer Place
Sydney NSW 2000

bAnkers

St George Bank
4-16 Montgomery Street
Kogarah NSW 2217

website ADDress

nib.com.au

nib holdings limited 2012 annual reportnib 60 years young

nib.com.au