NIB Holdings Limited Annual Report 2014

FY2014 Annual Report · NIB Holdings Limited
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ANNUAL REPORT 
2014

Contents

Operating and Financial Review 

Directors’ Report 

Auditor’s Independence Declaration 

Remuneration Report 

Corporate Governance Statement 

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 

Directors’ Declaration 

Independent Auditor’s Report to the Members 

Shareholder Information 

Corporate Directory 

1

12

18

19

42

52

53

54

55

56

57

115

116

118

120

2014 ANNUAL GENERAL MEETING

The Annual General Meeting (AGM) of nib holdings limited 
will be held on Wednesday, 29 October 2014 at 11.00am 
(Australian Eastern Daylight Time) at The Heritage Ballroom, 
The Westin, 1 Martin Place, Sydney NSW 2000

nib holdings limited
ABN 51 125 633 856

Operating and Financial Review

For the year ended 30 June 2014

MESSAGE FROM THE BOARD

Financial year 2014 (FY14) was another year of strong top line premium growth and improved profitability for the Group, albeit 
below our original expectations. Operating profit grew 4.3% to $72.3 million and earnings per share by 3.9% to 15.9 cents, 
compared with 15.3 cents the previous fiscal year. Return on equity remained very impressive at 20.8%. 

As will be evident from this report, it wasn’t entirely smooth sailing for our core Australian Residents Health Insurance (arhi) 
business during FY14. High claims experience, in particular on a new extras only product which saw a gross margin loss of 
$8.8 million during FY14, as well as growing policyholder lapse, were notable headwinds. Our arhi operating profit of $57.0 million 
was down 3.5% on the previous year and saw our net margin decline to just 4.2%, which is outside our target range of 5.0% 
to 5.5%. We’ve moved quickly to redress our arhi profit margin (including a 7.99% average premium increase from 1 April 
2014, however our products still remain price competitive) and we are confident about arhi’s future earnings growth prospects. 
Rising healthcare spending and claims experience however leave no room for complacency. 

Pleasingly, our established adjacent businesses all performed well in FY14. International workers (iwhi) grew earnings by 12.1% 
to $9.4 million. International students (ishi) grew revenue by more than 110% and made a profit for the first time since its inception 
four years ago of $1.9 million. nib New Zealand contributed $7.4 million in earnings and our life and travel insurance lines 
$2.2 million. Collectively, our non-arhi businesses contributed 25.4% of our Group operating profit, compared to 24.0% in FY13. 
The performance of these businesses reflect a real determination by the company to diversify and create enterprise value by 
leveraging existing assets, infrastructure and capability. We continue to explore adjacent business diversification opportunities. 

Investment performance was also strong. We achieved a total return of $29.7 million, which represented a yield of 
approximately 5.6%.

The Board has declared ordinary dividends totalling 11.0 cents per share (fully franked) for the year. This represents a payout 
ratio of 69.2% of consolidated FY14 after tax earnings. The final fully franked ordinary dividend of 5.75 cents per share will 
be paid to shareholders on 3 October 2014.

During the year the new Australian capital standards were announced by our industry regulator (PHIAC). As we have previously 
indicated to shareholders, this resulted in a new capital target for our Australian health insurance businesses and an increase 
in our Group available capital position. As at 30 June 2014, nib’s available capital position (after allowing for the FY14 final 
fully franked ordinary dividend payment of $25.2 million) was $58.2 million. The Board has decided $39.5 million of this will 
be returned to shareholders by a FY14 fully franked special dividend of 9.0 cents per share. The remaining available capital of 
approximately $18.7 million will be reserved for potential investments that form part of our strategic planning. 

In May this year, the Federal Government released the report of its National Commission of Audit. The report was welcomed by 
us as it clearly supported an enhanced future role for private health insurance in our healthcare system. How we actually pursue 
and commercialise the opportunity is not without its challenges, not withstanding Government policy and regulatory change. 
But we are undoubtedly moving down a path of greater private health insurance involvement and funding responsibility. 

I’d like to thank our leadership team and all employees for their efforts during FY14 and commend them on another solid result. 
Since its listing on the ASX in 2007, nib has delivered cumulative average EPS growth of 20.5%, which actually understates 
performance given the significant release of capital by way of special dividends. Total shareholder return* since listing up until the 
end of FY14 was more than 475%, compared to approximately 9% for the S&P/ASX200. 

I’d also like to thank and acknowledge the contribution our Board of Directors are making in guiding and overseeing the 
company’s performance. The Board has an excellent working relationship with our executive management team and 
engagement with business fundamentals. We’re as excited about the future prospects of the company as ever. 

Yours sincerely

Steve Crane
Chairman

*  TSR rebased to 100 (assumes capital returns and dividends re-invested at the payout date).

1

2014 annual reportINTRODUCTION

This report has been prepared in accordance with ASIC Regulatory Guide 247 Effective disclosure in an operating 
and financial review.

REVIEW OF GROUP OPERATIONS

Operations and underlying drivers of performance

($m) 

Net premium revenue 

Net claims incurred (excluding claims handling expenses)

Gross margin

Management expense

Underwriting result

Other income

Other expenses

Operating profit

Net investment return 

Finance costs

Profit before tax 

Tax

NPAT 

EPS (cps) 

ROE (%) 

Operating cash flow

FY14 Group highlights included:

 ¾ Premium revenue up 15.6%

 ¾ Consolidated net operating profit of $72.3 million

 ¾ Earnings per share of 15.9 cents 

 ¾ Return on equity of 20.8%

 ¾ Operating cash flow of $93.7 million

 ¾ Full year ordinary dividend 11.0 cps (fully franked)

2014

2013

1,491.6

(1,255.4)

236.2

15.8%

(162.1)

10.9%

74.1

5.0%

5.7

(7.5)

72.3

29.7

5.6%

(2.7)

99.2

(29.4)

69.8

15.9

1,290.4

(1,089.6)

200.8

15.6%

(127.0)

9.8%

73.8

5.7%

3.1

(7.6)

69.3

28.8

5.8%

(1.4)

96.7

(29.5)

67.2

15.3

Change

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(165.8)

35.4

(35.1)

0.3

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3.0

0.9

(1.4)

2.5

0.1

2.6

0.6

% 

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27.6

0.5

82.8

(1.2)

4.3

3.0

98.6

2.6

(0.4)

3.9

3.9

20.8%

93.7

21.6%

20.0

73.7

367.6

 ¾ Special dividend 9.0 cps (fully franked) reflecting capital management releasing $39.5 million of available capital

As explained in the Chairman’s introduction, these results reflected a weak underwriting performance in our Australian Resident 
Health Insurance (arhi) business measured against recent historical standards. Reduced profitability in our arhi business was 
however, more than offset by improved performance in other established business segments.

arhi remains at the core of our business and we expect future growth and improved profitability. We expect the private health 
insurance (PHI) market as a whole will continue to grow at a rate ahead of GDP and that nib will expect to grow above system 
as it has consistently in the past. Anticipating the weaker arhi profitability, in April 2014 we increased premiums on average by 
7.99% and are undertaking a wide range of initiatives throughout the business designed to better control claims costs inflation. 
It is arguably our biggest challenge. 

2

nib holdings limitedOperating and Financial Review continuedFor the year ended 30 June 2014We are looking to grow future revenue and earnings across all business segments and actively exploring new business 
opportunities which allow us to leverage our brand, distribution and other capabilities. During the course of FY14 we launched 
nib Options, a business that facilitates customers receiving major dental and cosmetic surgery treatment in Australia and 
overseas. nib Options is seeking to ride the global trend of people crossing international borders for healthcare services and 
treatment. It is not an insurance or underwriting product, rather a single fee for bundled services. There is a heavy emphasis 
on quality, reliability and safety. 

Other non-underwritten business lines, including life and travel insurance, continue to be popular with our customers, with 
commissions up 14.1% to $2.2 million.

During the reporting period our investment portfolio delivered returns above our annual internal benchmarks, primarily on the 
back of strong equity market performance. While our portfolio’s exposure to equities is only 9.7%, net investment return for the 
12 month period was $29.7 million or 5.6%. As at 30 June 2014, our total investment assets were $581.7 million (including our 
head office building).

Gross profit drivers

290

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3

2014 annual report 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REVIEW OF GROUP OPERATIONS continued

Financial Position

($m) 

Assets

Cash and cash equivalents

Receivables

Financial assets at fair value through profit or loss

Deferred acquisition costs

Property, plant and equipment

Intangible assets

Other assets

Total assets

Liabilities

Payables

Borrowings

Outstanding claims liability

Unearned premium liability

Premium payback liability

Other liabilities

Total liabilities

Net assets

Total equity

2014

2013

$m 

% 

Change

148.7

44.9

410.8

40.0

48.0

95.2

10.5

798.1

111.4

66.8

93.7

114.2

40.8

14.9

441.7

143.1

51.9

351.8

27.2

41.7

91.3

5.3

712.3

99.2

62.4

81.4

93.4

40.2

9.5

386.2

356.4

326.2

356.4

326.2

5.7

(7.0)

59.0

12.8

6.2

3.9

5.2

85.8

12.2

4.4

12.2

20.8

0.5

5.4

55.6

30.2

30.2

4.0

(13.5)

16.8

47.0

15.0

4.3

97.0

12.0

12.3

7.0

15.0

22.2

1.3

57.1

14.4

9.3

9.3

Group net profit after tax (NPAT) was $69.8 million, compared to $67.2 million last year, with earnings per share of 15.9 cents 
and return on equity of 20.8%.

This strong financial performance has allowed the Board to declare full year ordinary dividends for the 2014 financial year of 
11.0 cents per share, fully franked (FY13: 10.0 cents per share). This represents a payout ratio of 69.2% of full year net profit 
after tax. This is consistent with our dividend policy of paying fully franked dividends representing 60% to 70% of full year net 
profit after tax. nib also declared a special dividend reflecting a $39.5 million capital management initiative of 9.0 cents per share 
(fully franked).

Operating cash flow increased to $93.7 million for the year ended 30 June 2014 (30 June 2013: $20.0 million). FY13 operating 
cash flow was abnormally low as a result of a high level of prepayments of premium revenue in FY12. This was due to the 
implementation of the Australian Government Rebate means testing.

Our current gearing ratio is 15.8% (debt-to-debt plus equity), with the debt put in place to fund the acquisition of TOWER 
Medical Insurance Limited in New Zealand during the 2013 financial year. In search of an optimal capital structure, nib has an 
appetite to raise debt up to a level that achieves a long-term average gearing ratio of 30% with a short to medium term target 
of 25% based on business as usual, with the remaining 5% available for strategic mergers and acquisitions opportunities, 
noting that for a significant transaction gearing may be above 30% for a short time if necessary to effect the transaction. While 
it is contemplated that this level of gearing would accompany a major strategic investment, there is some scope for increased 
gearing through recapitalisation.

4

nib holdings limitedOperating and Financial Review continuedFor the year ended 30 June 2014AUSTRALIAN RESIDENTS HEALTH INSURANCE

Financial performance and business review

($m) 

Policyholder growth

Net premium revenue 

Net claims incurred (excluding claims handling expenses)

Gross margin

Management expense

Underwriting result

Other income

Operating profit

2014

3.1%

1,314.5

(1,152.3)

162.2

12.3%

(106.4)

8.1%

55.8

4.2%

1.2

0.1%

57.0

4.3%

Change

2013

$m 

% 

4.6%

1,187.2

(1,030.0)

157.2

13.2%

(98.2)

8.3%

59.0

5.0%

0.0

0.0%

59.0

5.0%

127.2

(122.3)

4.9

(8.2)

(3.3)

1.2

(2.1)

10.7

11.9

3.1

8.3

(5.5)

–

(3.5)

arhi had a mixed year with strong sales and top line performance hampered by higher than expected claims experience, 
including on a new extras only product, as well as policyholder lapse. For the full year we generated more than 71,000 
policyholder sales and posted annual policyholder growth of 3.1%. This compares favourably to our expectation of the overall 
industry average of 2.5% to 3.0% and is the 13th consecutive year nib has achieved above-industry net policyholder growth. 
More than 50% of our policyholder sales for the 2014 financial year were to customers aged 40 years and under, which 
continues to reflect our level of marketing investment towards this demographic and the success of those campaigns.

Highlights from the arhi business include:

 ¾ Annual net policyholder growth of 3.1% (industry growth: 2.7%)

 ¾ Premium revenue growth up 10.7% to $1.3 billion

 ¾ Claims expenses (excluding risk equalisation) up 11.5% to $961.7 million

 ¾ Management expenses up 8.3%, equating to a management expense ratio of 8.1%

 ¾ Operating profit of $57.0 million, down 3.5% on the 2013 financial year on the back of high claims inflation

 ¾ Other income includes $1.2 million one-off provider contract sign-on fee

Claims inflation remains easily the most significant challenge confronting arhi. Claims costs grew 11.5% (excluding risk 
equalisation), while our contribution to the industry system of risk equalisation grew 13.8% to $190.6 million. Controlling claims 
inflation within an overall macro-environment of rising healthcare spending is problematic. Nevertheless, there is a wide range 
of efforts underway to ensure utilisation of healthcare services are appropriate and the costs of services no more than they 
should be.

Despite increasing investment in customer acquisition, our management expense ratio of 8.1% is comparable with the 2013 
financial year’s result of 8.3%. Monitoring and managing costs as well as continually improving operational efficiencies remain 
priorities for us in order to maintain our price competitiveness.

While we remain appreciative of the Commonwealth Government’s support for private health insurance, a number of regulatory 
and policy changes have not assisted the arhi performance. In particular, the income testing of the Australian Government 
Rebate and lifting of the Medicare Levy Surplus income thresholds have contributed towards slower system growth and higher 
customer lapse. 

In June 2014, we announced a new distribution alliance with leading over-50s insurance brand, Apia. As a result, Apia now 
offers its own branded private health insurance products designed and tailored specifically for its over-50s target market. 

We also launched an innovative website, Whitecoat, to help consumers make more informed choices about purchasing 
decisions. Developed over three years, the website contains the contact details of approximately 30,000 ancillary providers 
with information and comments from nib customers about their service experience. Almost 100,000 users have visited the site 
– whitecoat.com.au – since its launch in November. 

5

2014 annual reportINTERNATIONAL STUDENTS HEALTH INSURANCE

Financial performance and business review

($m) 

2014

2013

Policyholder growth
Net premium revenue 
Net claims incurred (excluding claims handling expenses)
Gross margin

Management expense

Underwriting result

Other income

Operating profit

187.2%
9.2
(5.1)
4.2
45.4%
(2.7)
29.1%
1.5
16.3%
0.4
4.2%
1.9
20.6%

173.9%
4.4
(3.4)
1.0
22.7%
(1.1)
24.5%
(0.1)
 (1.8%)
0.0
0.0%
(0.1)
 (1.8%)

Change

% 

110.8
48.9
322.1

150.4

2,010.1

–

2,506.3

$m 

4.9
(1.7)
3.2

(1.6)

1.6

0.4

2.0

nib entered the market for international students more than four years ago keen to take advantage of growing student numbers 
and the compulsory requirement for them to have health insurance.

The 2014 financial year was significant for us, making our first operating profit. This was on the back of increased scale and 
a business strategy that is separating us from our competitors. Our operating profit of $1.9 million compared favourably 
with a loss of around $0.1 million in the 2013 financial year.

It will be evident that profitability reflects strong policyholder growth with more than 26,000 international students now covered, 
compared to just over 9,000 at the end of financial year 2013. Premium revenue grew more than 110% to $9.2 million.

We expect the market for international students to remain strong and nib to grow our share. With increasing scale and a more 
focused business strategy we also expect to improve margins.

INTERNATIONAL WORKERS HEALTH INSURANCE

Financial performance and business review 

($m) 

2014

2013

Policyholder growth
Net premium revenue 
Net claims incurred (excluding claims handling expenses)
Gross margin

Management expense

Underwriting result

Other income

Operating profit

5.7%
28.7
(11.9)
16.9
58.6%
(7.4)
25.8%
9.4
32.9%
0.0
0.0%
9.4
32.9%

9.7%
27.6
(11.8)
15.9
57.4%
(7.4)
26.9%
8.4
30.5%
0.0
0.0%
8.4
30.5%

Change

$m 

1.1
(0.1)
1.0

0.0

1.0

0.0

1.0

% 

4.0
0.8
6.3

(0.3)

12.1

–

12.1

Despite a softening Australian labour market, our international workers health insurance (iwhi) continued to grow. As at 
30 June 2014, nib provided health cover to more than 19,000 migrant workers in Australia compared to just over 18,000 
at the beginning of the year. Premium revenue was up 4.0% to $28.7 million.

Profit margins within the business remain strong, with iwhi’s 2014 financial year net margin of 32.9% (FY13: 30.5%). iwhi’s net  
operating profit for the period of $9.4 million (FY13: $8.4 million) accounted for 13.1% of our Group operating profit.

The 2015 financial year will see increased investment in marketing and distribution to further grow our share of the skilled 
migrant worker market and, as a result, further grow Group earnings.

6

nib holdings limitedOperating and Financial Review continuedFor the year ended 30 June 2014nib NEW ZEALAND 

Financial performance and business review

($m) 

Policyholder growth

Net premium revenue 

Net claims incurred (excluding claims handling expenses)

Gross margin

Management expense

Underwriting result

Other income

Operating profit

Change

2013 
7 months

$m 

% 

–

71.1

(44.5)

26.7

37.5%

(20.3)

28.5%

6.4

9.0%

0.0

0.0%

6.4

9.0%

68.1

(41.8)

26.3

95.7

93.9

98.5

(25.3)

124.6

1.0

0.0

1.0

15.6

–

15.6

2014

(0.1%)

139.2

(86.2)

53.0

38.1%

(45.6)

32.8%

7.4

5.3%

0.0

0.0%

7.4

5.3%

nib acquired TOWER Medical in November 2012 and therefore the FY14 results are not directly comparable with FY13, which 
was only a seven month result. Nevertheless, we were pleased with the $7.4 million in operating profit the business contributed to 
the Group especially given the large investment being made in modernising and growing the business. The FY14 operating profit 
benefited from lower than forecast claims experience.

FY14 was a year focused upon transitioning, integration and business building.

nib New Zealand operates as a wholly owned subsidiary of nib holdings with its own Board of Directors and executive team. 
Progress during the year was prodigious and included:

 ¾ The recruitment of a new executive management team

 ¾ The migration of all IT and operational systems such as claims processing, call centre and HR systems from TOWER

 ¾ Total business rebranding to nib New Zealand

 ¾ The development of a suite of Direct-To-Consumer (DTC) products and their market launch. DTC now is our biggest sales 

channel (in terms of policies), accounting for 40.6% of all sales in FY14 (FY14 policyholder sales of 10,513)

 ¾ A new distribution partnership with Fidelity Life, New Zealand’s third-largest life insurer, to sell a bundled health and life 

insurance product

While launching our DTC strategy has been a key priority for the business, enhancing the relationship we have with financial 
advisors and further growing the advisor channel has also been in strong focus. In February, nib launched a new range of 
advisor-only products, which were the first of their type ever offered in New Zealand. The product range has received a top 
“5-star” rating from an independent insurance rating house.

Lapse, both at an industry level and for nib New Zealand, remains problematic. Prior to acquiring the business in 2012, 
nib New Zealand’s lapse rate was double the industry average at more than 10%.

nib is attempting to play a role in growing market participation and its share of the market especially by positioning itself as a 
challenger brand and investing in growth. While the New Zealand economy is robust, there are concerns about the current heavy 
reliance on the public health care system and we are excited about our sales prospects across all distribution channels. 

7

2014 annual reportnib OPTIONS

Financial performance and business review

($m) 

Other income

Other expenses

Operating profit

2014

2013

0.4

(2.9)

(2.5)

(683.3%)

–

–

–

Change

$m 

0.4

(2.9)

(2.5)

% 

–

–

–

After more than two years in development, nib Options was launched in March 2014.

nib Options facilitates customers receiving cosmetic surgery and major dental treatment by highly reputable clinical specialists 
and facilities, both in Australia and overseas. It is a fee-for-service product that provides safe, simple and reliable choices 
for consumers wishing to undertake cosmetic and major dental procedures in Australia or overseas. It is not a health 
insurance offering.

nib Options is only in its infancy and made a $2.5 million loss in the 2014 financial year as we invested in creating the business. 
Efforts to date have largely focused upon developing marketing plans, systems, resources and hospital networks. FY15 will also 
see investment in further building the business including significant marketing investment and acceleration of business activity.

BUSINESS STRATEGIES AND PROSPECTS

nib’s Business Strategy sets out seven key levers that we believe will increase earnings and grow enterprise value.

1.  Grow our arhi business organically at circa 10% annual premium growth (4-5% per annum policyholder growth) through 

building national brand presence and with an emphasis on <40 market (Virgin Green), >55 market (Virgin Silver), other tactical 
niche opportunities and improved policyholder retention. 

2.  Position and develop our new business in New Zealand as a challenger and grow the market and our market share.

3.  Grow our inbound international workers and students businesses and create a “global cover” for insuring outbound long stay 

Australians and New Zealanders.

4.  Grow nib Options to capture and commercialise burgeoning demand in Australia and Asia for medical travel, especially 

cosmetic surgery. 

5.  Ensure across the nib Group that the design, payment and management of benefits better meets the needs of policyholders, 

as well as our strategic and commercial objectives. 

6.  Pursue increased customer satisfaction, productivity and efficiency through continual process improvement and ongoing 

investment in technology. 

7.  Actively develop a high performance organisational culture and the engagement of our people. 

Aligned to nib’s Business Strategy, our key performance targets are:

 ¾ Group premium revenue growth

 ¾ Group operating profit 

 ¾ Non-arhi contribution to profit

 ¾ Net promoter score (NPS)

 ¾ Earnings per share

 ¾ Return on equity

 ¾ Total shareholder return

8

nib holdings limitedOperating and Financial Review continuedFor the year ended 30 June 2014Principal risks and uncertainties 

nib has established policies for the oversight and management of material business risks. Further information regarding how 
nib recognises and manages risk is detailed in Principle 7 of our Corporate Governance Statement (pages 42 to 50). In addition, 
nib’s Risk Policy is available on our website at nib.com.au

Principal risks and uncertainties include:

General economic conditions 

Claims inflation and fraud

Performance of adjacent (non-
Australian Residents Health Insurance) 
businesses

Investment market performance

Competition in the health insurance 
industry

Pricing risk

Risk equalisation trust fund 
arrangements

Changes in government policy 
or legislation

nib’s performance is impacted by Australian economic conditions such as 
inflation, interest rates, consumer and business spending and employment 
rates which are outside nib’s control. The environment in which nib operates 
may experience challenging conditions as a result of general uncertainty about 
future Australian and international economic conditions.

nib is subject to significant claims inflation which may not be adequately 
covered by premium price increases and/or product design changes. 
Key sources of claims inflation risk include the renewal of key provider contracts 
on acceptable terms, service utilisation rates, services related to complex and 
costly members (usually with chronic diseases), claims leakage, provider and 
member fraud, public hospital claiming, as well as general provider behaviour, 
which results in a weakening of nib’s gross margin and overall profitability. 

In recent years, in addition to focussing on its Australian regulated health 
insurance business, nib has diversified its business and identified adjacent 
earnings opportunities, such as international students, international workers, 
nib New Zealand and nib Options. 

These adjacent businesses now make a meaningful contribution to nib’s 
operating result and as a result, the performance of these businesses could 
significantly affect nib’s profits.

A substantial proportion of nib’s profits are generated from its investment 
portfolio. Consequently, investment performance significantly affects nib’s 
profits and financial position.

The industry in which nib operates is competitive. The actions of competitors 
could result in a reduction in the rate of growth of nib, a decline in the number 
of people insured by nib and/or declining profit margins.

Australian health insurance premiums are currently required to be approved 
by the Minister for Health. Historically, nib and other health funds have only 
raised premiums once a year. There is a risk that nib’s application for a change 
in its premium rates may only receive approval at a level lower than originally 
requested, or may be rejected by the Minister. Such an amendment or rejection 
may have a negative impact on nib’s operating and financial performance.

Since 1 April 2007, risk equalisation arrangements have applied to the 
registered health insurance industry in Australia. These arrangements, replaced 
the previous reinsurance arrangements. Under these arrangements, all 
registered health insurers effectively provide reinsurance support so that the 
industry as a whole shares the hospital costs of high risk groups, irrespective 
of whether those claims are attributable to a policyholder of a particular fund.

The business environment in which nib operates is heavily regulated. The 
Australian Federal Government currently provides a number of regulatory 
incentives to encourage participation by the public in private health insurance 
including the:

a.   Federal Government Rebate;

b.  Lifetime Health Cover; and

c.  Medicare Levy Surcharge.

The Federal Government has and may in the future change these regulatory 
incentives from time to time through changes to such things as policy and 
legislation. There is a risk that such changes may have a negative impact 
on the private health insurance industry and nib.

9

2014 annual reportBUSINESS STRATEGIES AND PROSPECTS continued

nib has a business strategy of pursuing merger and acquisition opportunities. 
The pursuit of merger and acquisition opportunities carries with it risks and 
there is no guarantee that such a strategy will be successful.

nib is subject to a high degree of regulation concerning how private health 
insurers conduct their health insurance business. Private health insurers 
must be registered and must comply with a variety of obligations in relation 
to the conduct of that business, including a requirement to have appointed 
actuaries, compliance with prudential, solvency and capital adequacy 
standards, exclusion of disqualified persons from management and a 
number of reporting and notification obligations. If nib does not comply with 
the regulatory requirements that apply to it, it may suffer a penalty, such as 
a fine or an obligation to pay compensation. In some cases, a regulator may 
cancel or suspend its authority to conduct business. A significant failure to 
comply with regulatory requirements may also give rise to adverse comment 
by the press and other industry commentators, negatively affecting nib’s 
financial performance.

nib maintains provisions for claims incurred but not settled, including claims 
reported but not yet paid and claims incurred but not yet reported. Although 
nib seeks to maintain claims provisions at a level to ensure a relatively high 
probability of sufficiency, the establishment of appropriate provisions is an 
inherently uncertain process.

nib is exposed to a variety of operational and general business risks. Exposure 
to unexpected financial and non-financial losses arising from the way in which 
nib conducts its business operations may have an adverse effect on earnings 
and assets of nib as well as its reputation.

nib’s success depends largely on its key personnel, including senior 
management. The inability to access and retain services of a significant number 
of such employees could disrupt nib’s business.

The Federal or State Governments may introduce further or increase taxes, 
duties (including stamp duty on insurance policies) or other imposts or 
introduce amendments to existing legislation, which may result in an adverse 
impact on nib and the health insurance industry.

The health insurance industry relies increasingly on technology to conduct 
an efficient and cost effective business. nib faces the risk, in common with 
other participants, that further technology changes will be required which 
could result in an increase in costs. In addition, information technology 
systems risks include complete or partial systems failure, lack of systems 
capacity, inadequacy to meet changing business requirements, inappropriate 
or unauthorised systems access and unsuccessful systems integrations. 
Any major failure or inadequacy in the information technology systems could 
materially affect nib’s business.

At any time, nib could be involved in civil proceedings in courts of various 
jurisdictions. nib may also be exposed to litigation in the future over claims 
which may affect its business. To the extent that these risks are not covered 
by nib’s insurance policies, litigation or the costs of responding to these legal 
actions or suggested legal action could have a material adverse impact on 
nib’s financial position, earnings and share price.

It is not possible to predict or identify all future events which may impact 
adversely on nib’s profitability or financial position.

Merger or acquisition opportunities

Compliance with regulation

Estimation of claims provisions

Operational risk

Loss of key personnel

Tax treatment

Technology

Litigation and legal action

Future events

10

nib holdings limitedOperating and Financial Review continuedFor the year ended 30 June 2014FIVE-YEAR SUMMARY

Consolidated Income Statement

Net premium revenue 

Net claims incurred

Gross margin

Management expenses

Underwriting result

Other income

Other expenses

Operating profit

Net investment return 

Finance costs

Profit before tax 

Tax

NPAT 

Consolidated Balance Sheet

Total assets

Equity

Debt

Share Performance

Number of shares

Weighted average number of shares – basic

Weighted average number of shares – diluted

Basic earnings per share

Diluted earnings per share

Share price at year end

Dividend per share – ordinary

Dividend per share – special

Dividend payout ratio – ordinary

Dividend payout ratio – combined ordinary 
and special

Other financial data

ROE 

Operating cash flow

m

m

m

cps

cps

$

cps

cps

%

%

%

2014
$m

2013
$m

2012
$m

2011
$m

1,491.6

(1,255.4)

236.2

(162.1)

74.1

5.7

(7.5)

72.3

29.7

(2.7)

99.2

(29.4)

69.8

798.1

356.4

66.8

439.0

439.0

439.0

15.9

15.9

3.26

11.00

9.00

69.2%

1,290.4

(1,089.6)

200.8

(127.0)

73.8

3.1

(7.6)

69.3

28.8

(1.4)

96.7

(29.5)

67.2

712.3

326.2

62.4

439.0

439.0

439.0

15.3

15.3

2.13

10.00

0.00

65.0%

1,123.8

(949.2)

174.6

(103.8)

70.7

3.6

(4.3)

70.0

25.6

0.0

95.7

(28.0)

67.6

617.8

301.6

0.0

439.0

458.3

458.3

14.8

14.8

1.50

9.25

0.00

1,007.8

(848.7)

159.1

(97.6)

61.5

5.8

(7.5)

59.8

32.1

0.0

91.9

(26.5)

65.5

639.3

411.8

0.0

466.7

478.5

478.5

13.7

13.7

1.45

8.00

5.00

2010
$m

901.4

(767.9)

133.5

(86.4)

47.1

1.3

(5.8)

42.5

44.5

0.0

87.0

(25.4)

61.5

588.0

391.4

0.0

495.4

495.8

495.8

12.4

12.4

1.25

7.00

0.00

60.0%

57.0%

56.4%

125.8%

65.0%

60.0%

92.7%

56.4%

20.8%

93.7

21.6%

20.0

21.7%

134.6

16.5%

88.3

16.3%

66.3

11

2014 annual reportDirectors’ Report

For the year ended 30 June 2014

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 2014.

DIVIDENDS

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

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

Lee Ausburn was appointed as a Non-Executive Director 
on 13 November 2013.

Final dividend for the year ended 
30 June 2013 of 5.0 cents (2012: 
5.0 cents) per fully paid share 
paid on 4 October 2013

Interim dividend for the year 
ended 30 June 2014 of 
5.25 cents (2013: 5.0 cents) 
per fully paid share paid on 
4 April 2014

2014
$000

2013
$000

21,946 

21,949 

23,045 

44,991 

21,950 

43,899 

PRINCIPAL ACTIVITIES

The principal continuing activities of the Group consisted 
of operating as a private health insurer covering Australian 
residents, New Zealand residents and international visitors 
and students.

During the year, the Group broadened its business 
operations with the facilitation of access to cosmetic 
treatment. Known as nib Options, the Group will leverage 
the brand and distribution to support and grow the market 
for cosmetic, dental and surgical treatment both overseas 
and here in Australia.

REVIEW OF OPERATIONS

Information on the operations and financial position of the 
Group and its business strategies and prospects is set out in 
the Operating and Financial Review on pages 1 to 11 of this 
Annual Report.

SIGNIFICANT CHANGES IN THE STATE 
OF AFFAIRS

Significant changes in the state of affairs of the Group during 
the financial year were as follows:

PHIAC introduced new capital standards during FY14. The  
capital adequacy standard was effective from 31 March 2014 
and the solvency standard from 1 July 2014.

Available capital increased during the year as a result of the 
new PHIAC capital standards. After reviewing the Group’s 
available capital position, a fully franked special dividend of 
9.0 cents per share ($39.5 million) has been declared and 
will be paid in October 2014. 

In addition to these dividends, since the end of the financial 
year the Directors have recommended the payment of a 
fully franked final dividend of $64.8 million (14.75 cents per 
fully paid share, made up of 5.75 cents per share ordinary 
dividend and 9.0 cents per share special dividend) to be paid 
on 3 October 2014 out of retained profits at 30 June 2014.

Subject to franking credit availability, the Board’s position 
is that future ordinary 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.

MATTERS SUBSEQUENT TO THE END OF 
THE FINANCIAL YEAR

No matter or circumstance has arisen since 30 June 2014 
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.

LIKELY DEVELOPMENTS AND EXPECTED 
RESULTS FROM OPERATIONS

Additional comments on expected results on operations of 
the Group are included in this Annual Report under Operating 
and Financial Review on pages 1 to 11.

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

12

nib holdings limitedINFORMATION ON DIRECTORS

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

Steve Crane 

Chairman Independent Non-Executive Director

BCommerce, FAICD, 
SF Fin

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 CIMB (Australia) 
Advisory Council.

Other current directorships

Director of Transfield Services Limited, Bank of Queensland Limited, APA Group, including APT Pipelines 
Limited 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.

Subsidiary boards and special responsibilities

Chairman of the Board. A Director of nib health funds limited and IMAN Australian Health Plans 
Pty Limited.

Interests in shares and performance rights

Indirect: 200,000 ordinary shares in nib holdings limited held by Depeto Pty Limited.

Mark Fitzgibbon

Managing Director/Chief Executive Officer

MBA, MA, ALCA, FAICD

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

None.

Former directorships in the last three years

Director of Newcastle Knights Rugby League Football Club, Australian Health Services Alliance and 
Australian Health Insurance Association Ltd.

Subsidiary boards and special responsibilities

Director of nib health funds limited, nib health care services pty limited, nib servicing facilities pty limited, 
The Heights Private Hospital Pty Limited, IMAN Australian Health Plans Pty Limited, nib nz holdings 
limited, nib nz limited, nib options pty limited, RealSurgeons Pty Ltd and RealSelf Pty Ltd.

Interests in shares and performance rights

Direct:  840,424 ordinary shares in nib holdings limited.

Indirect:  595,621 ordinary shares in nib holdings limited held by Fitz Family Fund.

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

 217,545 performance rights under FY12-FY15 Long-Term Incentive Plan which may vest from 
1 September 2015. 

 331,765 performance rights under FY13-FY16 Long-Term Incentive Plan which may vest from 
1 September 2016.

 273,786 performance rights under FY14-FY17 Long-Term Incentive Plan which may vest from 
1 September 2017.

13

2014 annual report 
 
 
 
INFORMATION ON DIRECTORS continued

Harold Bentley

Independent Non-Executive Director

MA Hons, FCA, FCSA, 
FGIA

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

None.

Former directorships in the last three years

None.

Subsidiary boards and special responsibilities

Director of nib health funds limited, IMAN Australian Health Plans Pty Limited, nib nz holdings limited and 
nib nz limited. Chairman of the Audit Committee, and Member of the Investment Committee and the Risk 
and Reputation Committee. Chairman of the nib nz holdings limited’s Audit Committee and Chairman of 
nib nz limited’s Board, Audit, Risk and Compliance Committee (BARCC).

Interests in shares and performance rights

Indirect:  100,000 ordinary shares in nib holdings limited held by Sushi Sake Pty Limited.

Dr Annette Carruthers

Independent Non-Executive Director

MBBS (Hons), FRACGP, 
FAICD, GradDipAppFin

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 
& Public Health at the University of Newcastle. Member of the NSW Medical Experts Committee Avant 
Pty Ltd.

Other current directorships

Director of Hunter Infrastructure and Investment Advisory Board, the NSW Board of the Medical Board of 
Australia and Hunter Primary Care Ltd.

Former directorships in the last three years

Director of National Heart Foundation of Australia (NSW Division) and Aged Care Investment Services 
(the Trustee for the AMP Managed Aged Care Investment Trusts).

Subsidiary boards and special responsibilities

Director of nib health funds limited (since 2003), nib health care services pty limited, IMAN Australian 
Health Plans Pty Limited, The Heights Private Hospital Pty Limited, nib nz holdings limited and nib nz 
limited. Chairman of the Risk and Reputation Committee, Member of the Audit Committee and Member 
of the nib nz limited’s Board, Audit, Risk and Compliance Committee (BARCC).

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.

Philip Gardner

Independent Non-Executive Director

B.Comm, CPA, CCM, 
FAICD, JP 

Experience and expertise

A Director since 28 May 2007. Current Chief Executive Officer of The Wests Group Australia.

Other current directorships

Director of Enigma Communications Pty Ltd and Hunter Funds Management Pty Ltd.

Former directorships in the last three years 

A Director of Newcastle Airport Limited.

Subsidiary boards and special responsibilities

A Director of nib health funds limited (since 2005) and IMAN Australian Health Plans Pty Limited. 
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.

14

nib holdings limitedDirectors’ Report continuedFor the year ended 30 June 2014Christine McLoughlin

Independent Non-Executive Director

BA/LLB (Hons) FAICD

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

Director of Whitehaven Coal Limited and Westpac’s Insurance Businesses (retiring in September 2014). 
Member of the Minter Ellison Advisory Board. Chairman of Australian Payments Council. Director of 
St James Ethics Centre. Deputy Chairman of The Smith Family. 

Former directorships in the last three years

Director of the AMP Foundation, TAC (Transport Accident Commission) and The Australian Nuclear 
Science and Technology Organisation (ANSTO).

Subsidiary boards and special responsibilities

A Director of nib health funds limited and IMAN Australian Health Plans Pty Limited. Chairman of the 
People and Remuneration Committee and Member of the Risk and Reputation Committee.

Interests in shares and performance rights

Indirect:  97,500 shares in nib holdings limited held by Dundas Street Investments Pty Ltd.

Lee Ausburn

Independent Non-Executive Director

MPharm, BPharm, Dip 
Hosp Pharm, GAICD 

Experience and expertise

A Director of nib holdings limited since November 2013. With more than 30 years’ experience in 
pharmaceuticals, she is an experienced Non-Executive Director with a wealth of knowledge in the global 
health industry.

Other current directorships

Australian Pharmaceutical Industries Ltd and SomnoMed Ltd. She is also Vice President of the Pharmacy 
Foundation at the University of Sydney.

Former directorships in the last three years

Director of NSW Health’s Clinical Excellence Commission and of Agency for Clinical Innovation.

Subsidiary boards and special responsibilities

A Director of nib health funds limited and IMAN Australian Health Plans Pty Limited. Member of the 
Risk and Reputation Committee and the People and Remuneration Committee.

Interests in shares and performance rights

Indirect:  20,000 ordinary shares in nib holdings limited held by Leedoc Pty Ltd.

COMPANY SECRETARIES

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 Hunter Valley Research Foundation and Hunter Valley Grammar School, a member of the 
advisory board to the Faculty of Business and Law at the University of Newcastle and a member of the University of Newcastle 
Foundation Advisory Board. Mrs McPherson is also a member of the Council of the University of Newcastle.

Ms Roslyn Toms (BA (Hons) (UCAN,UTS)/ LLB (UNSW)) also serves as a Company Secretary. Ms Toms was appointed 
as a Company Secretary on 29 April 2013. She is currently General Counsel of the Group and is also responsible for Risk 
& Compliance and serves as a Company Secretary of other nib Group companies. Ms Toms has over 10 years’ experience 
as a lawyer in business, government and private practice. 

15

2014 annual reportMEETINGS OF DIRECTORS

The number of meetings of nib holdings limited’s Board of Directors and of each Board committee held during the year ended 
30 June 2014 and the numbers of meetings attended by each Director were:

NAME

S Crane2

M Fitzgibbon2

L Ausburn3,4

H Bentley

A Carruthers4

P Gardner

C McLoughlin

Board1

Audit Committee

Risk and 
Reputation 
Committee

People and 
Remuneration 
Committee

Investment 
Committee

Held

Attended

Held

Attended

Held

Attended

Held

Attended

Held

Attended

14

14

9

14

14

14

14

14

14

9

14

14

12

14

10

10

 – 

10

10

10

–

10

10

–

10

10

9

–

4

4

2

4

4

–

4

4

4

2

4

4

–

4

5

5

2

–

3

5

5

5

5

2

–

3

5

5

–

4

–

4

–

4

–

–

3

–

4

–

4

–

1.  Two of the Board meetings that took place were unscheduled meetings.
2.  Attendance at Committee meetings in an ex-officio capacity.
3.  L Ausburn joined the Board of Directors on 13 November 2013 and has attended all Board meetings since her appointment.
4.  A Carruthers resigned from PARCO on 1 January 2014 and L Ausburn was appointed to PARCO on the same day.
5.  The Nomination Committee appointed L Ausburn as a Director via a circular resolution.

nib’s Non-Executive Directors participated in a number of site visits, work-related functions and staff events during the course 
of the year in Newcastle, Sydney and Auckland.

REMUNERATION REPORT

The Remuneration Report is set out on pages 19 to 41 of the Annual Report and forms part of this Report.

ENVIRONMENTAL REGULATION

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

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

27 May 2011

21 December 2011

19 November 2012

29 November 2013

1 September 2014

1 September 2015

1 September 2016

1 September 2017

Issue price
of shares

Number under 
performance right

nil

nil

nil

nil

 412,534 

 392,307 

 553,236 

 559,057 

Shares may be issued or acquired on-market at the election of the Company. It is anticipated the performance rights will be 
satisfied through on-market share purchases administered by the nib Holdings Ltd Share Ownership Plan Trust.

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.

16

nib holdings limitedDirectors’ Report continuedFor the year ended 30 June 2014NON-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 34 – 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 in Note 34, did not compromise the auditor independence requirements of the Corporations Act 2001 for the 
following reasons:

 ¾ 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;

 ¾ 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 18.

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.

ROUNDING 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
22 August 2014

Harold Bentley
Director

17

2014 annual reportAuditor’s Independence Declaration

For the year ended 30 June 2014

Auditor’s Independence Declaration

As lead auditor for the audit of nib holdings limited for the year ended 30 June 2014, I declare that to
the best of my knowledge and belief, there have been:

a)

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

b)

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

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

John Campion
Partner
PricewaterhouseCoopers

Newcastle
22 August 2014

PricewaterhouseCoopers, ABN 52 780 433 757
Level 3, 45 Watt Street, 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.

18

nib holdings limitedRemuneration Report

For the year ended 30 June 2014

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 having regard to the dynamics of the health insurance and financing sector. The Board has taken 
into account shareholder feedback on remuneration structure and governance and continues to work to appropriately attract, 
reward, motivate and retain executives.

Dear Shareholder,

We are pleased to present our 2014 Remuneration Report (Report) which covers the remuneration arrangements for our 
Executives for the financial year ending 30 June 2014 (FY14) 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, the increasingly competitive operating 
environment, multi-segment operations, nib’s planned growth in adjacent businesses, market expectations and regulatory 
requirements. Being open to engaging with our shareholders and taking account of shareholder feedback is an important part 
of this process.

Financial Year Ended 30 June 2014 

During the year, we implemented the changes detailed in last year’s Remuneration Report. 

Fixed remuneration adjustments took into account incumbent experience for the position, differences from market remuneration 
levels, and the Board’s policy to ensure remuneration remains appropriate to attract, reward, motivate and retain. Incentive 
opportunity adjustments reflect the potential the executive has to impact company performance. In summary, the key 
adjustments made during the year after a review of these factors were:

 ¾ Total Fixed Remuneration (TFR) for each of the Managing Director/Chief Executive Officer and Chief Financial Officer/Deputy 

Chief Executive Officer was increased by 8%

 ¾ TFR for the Group Manager Australian Residents Health Insurance was increased by 4% and the maximum Long-Term 

Incentive (LTI) opportunity was increased from 30% to 40% of TFR

 ¾ TFR for the Chief Information Officer was increased by 12%

In light of the growth in nib’s business, particularly our strategy to grow adjacent businesses, we continued to strengthen our 
Executive team with the appointment of Justin Vaughan as Group Manager Benefits and Provider Relations. Recruitment is 
underway for a new Group Manager International and New Business.

FY14 saw the approach to Executive Short-Term Incentive (STI) targets enhanced with the inclusion of key milestone targets 
specific to roles in the new and developing areas of the business – IT, nib New Zealand, Benefits and Provider Relations, and 
International and New Business – to ensure stronger alignment with delivery against nib’s strategy.

The FY14 LTI grants were made following shareholder approval of the Managing Director/Chief Executive Officer grant at the 
2013 AGM and reflected the three key changes communicated in the FY13 Remuneration Report, being:

 ¾ Measuring the TSR performance against the ASX200 (previously ASX300) to reflect the Board’s expectations of performance, 

the company’s size and shareholder feedback

 ¾ Setting long-term EPS hurdles annually

 ¾ Amending the LTI Plan Rules to allow for board discretion to be used in a change of control scenario rather than 

automatic vesting

At the 2013 AGM shareholders voted to support an increase in the Non-Executive Director (NED) fee pool from $1.1 million 
to $1.5 million. This increase in the NED pool provides sufficient scope for possible Board expansion and ongoing flexibility 
over the next five years. In this regard and due to the growth and diversification of the business, the Board decided to add 
an additional Director with specific Asian business development and marketing experience. As a result the Board, with 
the assistance of a specialist recruitment firm, appointed Lee Ausburn as an additional Director on 13 November 2013. 
Ms Ausburn is an experienced Non-Executive Director with a successful career in the global health industry, with extensive 
knowledge and experience throughout Asia. Ms Ausburn’s appointment not only complements the current skills set of the nib 
Board but also the company’s business operations and expansion strategy. For the Board generally, there was also an increase 
in NED fees from 1 July 2013 of 3.92% plus an additional 0.25% superannuation (SGC) contribution, which was in line with 
nib workforce increases.

19

2014 annual reportMESSAGE FROM THE BOARD continued

For the nib Group, FY14 was another year of building. The team has remained incredibly focused and diligent in a competitive 
sector. This result is reflected in the STI remuneration of our Executives. 

STI awards as a percentage of maximum are determined against set performance indicators and for the Chief Executive 
Officer New Zealand, the Chief Information Officer and the Group Manager Benefits and Provider Relations these performance 
indicators include key milestones. The Managing Director/Chief Executive Officer STI award was 67% and for the other 
Executives an average of 71% reflecting the overall performance, including achievement of key milestones of the Group over 
the year (refer to page 27).

Claw back arrangements remain in place for the Managing Director/Chief Executive Officer and Deputy Chief Executive Officer/
Chief Financial Officer.

As previously advised, the duration of the LTI was altered from three to four years in the FY11 grant in response to shareholder 
feedback. As a consequence of the transition there was no vesting of LTI for Executives in FY14. As a result, when comparing 
KMP remuneration for FY13 and FY14, it would appear KMP have received a material decrease in FY14 remuneration. However, 
this is primarily the result of no vesting of performance rights for FY13 due to the movement to a four year (from a three year) 
grant in FY11. The FY11 grant that was in respect of performance over the four years to 30 June 2014 is eligible for vesting on 
1 September 2014 (FY15). There will be no vesting for the 50% EPS component of the FY11 LTI grant due to EPS being below 
the minimum threshold. The 50% TSR component will fully vest.

As with previous Reports, to help shareholders understand how we remunerate our Senior Executives we have again included a 
table (page 25) showing actual remuneration awarded to the Managing Director & Chief Executive Officer and Executives during 
FY14. This supplements our statutory disclosures shown on page 33.

The Upcoming Financial Year (FY15)

During the year the Board appointed independent remuneration adviser, Guerdon Associates, to assist with a review of the 
Group’s Short-Term and Long-Term incentive programs and benchmarking our remuneration to a defined comparator group 
(page 24). 

In benchmarking executive remuneration the Board identified some anomalies for our Executives in relation to market median 
levels and incentive structures arising from success in growing relative company value, the improved ability of executives to 
manage increased complexity that this brings, and the potential impact they have on company results. The Board has decided 
to adjust remuneration to address these and importantly to reflect the geographic expansion and increased complexity of the 
business. The following key changes have been made for the upcoming year:

 ¾ The Managing Director/Chief Executive Officer’s remuneration increased to be at least in line with the benchmark median 
of the defined comparator group. TFR has been increased by 10% to $800,000, maximum Short-Term Incentive has been 
increased to 80% (from 60%) and maximum Long-Term Incentive has been increased to 100% (from 80%). As explained in 
the 2013 report, over the longer term we plan to move the Managing Director/Chief Executive Officer’s total remuneration 
closer to the 75th percentile reflecting growth of the business in line with our business strategy and with that the added 
complexity of managing the business. We will continue to progressively address this with the goal of the Managing Director/
Chief Executive Officer being positioned over time around the 75th percentile of benchmarked companies. We will again seek 
shareholder approval at the upcoming AGM for the Managing Director/Chief Executive Officer’s LTI Grant for the coming year.

 ¾ The Deputy Chief Executive Officer/Chief Financial Officer’s remuneration arrangements were varied to align with the 

benchmarking and increased responsibility. TFR was increased by 7% to $505,000, maximum Short-Term Incentive remained 
at 60% and maximum Long-Term Incentive was increased to 50% (from 40%). 

 ¾ TFR for other executives was increased between 10% and 14% to more closely align with the benchmarking and increased 

complexity. Maximum Short-Term Incentive for the Group Manager Australian Residents Health Insurance has been increased 
to 60% (from 50%), and for the Chief Executive Officer New Zealand, Chief Information Officer and Group Manager Benefits 
and Provider Relations increased to 50% (from 40%). Maximum Long-Term Incentive has been increased to 40% (from 25%) 
for the Chief Information Officer and Group Manager Benefits and Provider Relations.

 ¾ Executive STI terms and conditions effective from the STI period commencing 1 July 2014 have been amended as follows:

 – To increase the amount of any STI award required to be in the form of shares from 30% to 50%, with dividends accruing 

to the Executive during the deferral period.

 – To move from the current requirement that the share component of the STI be deferred for one year to a deferral period 

of two years, with half of the deferred shares vesting after one year and the second half vesting after two years.

 – To introduce a real risk of forfeiture during the deferral period.

20

nib holdings limitedRemuneration Report continuedFor the year ended 30 June 2014With the exception of the fee for the Chairman of the Audit Committee, all other fees for Non-Executive Directors have been 
increased by the expected average for nib individual agreement employees of 3.75%, plus an additional 0.25% superannuation 
(SGC) contribution. Based on the benchmarking provided by Guerdon Associates, and the increased requirements of the 
role flowing from both regulatory changes and nib now also having offshore operations, the fee for the Chairman of the Audit 
Committee has been increased from $23,000 to $30,000 p.a. 

The Board, with the assistance of Guerdon Associates, considered if changes should be made to the LTI hurdles. In particular 
the Board considered the introduction of a capital return hurdle, however, we decided that the LTI hurdles for FY15 should remain 
consistent with those used for the FY14 LTI grant that is relative TSR and EPS. The EPS hurdle for the LTI is set annually.

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, retain and reward our 
employees. We will continue to engage with our key stakeholders regarding remuneration. We thank our Executives and their 
teams for their commitment to nib and, as always, we welcome your feedback.

Yours sincerely

Christine McLoughlin
People and Remuneration Committee Chairman

21

2014 annual reportCONTENTS

Key terms used in this Report 

Who this Report covers 

Performance drives remuneration at nib 

Our remuneration governance 

Actual remuneration received for the financial year 
ended 30 June 2014 

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) 

Equity instruments held by Key Management Personnel 

22

22

23

24

25

25

30

32

33

37

39

40

KEY TERMS USED IN THIS REPORT

FY12 

financial year ended 30 June 2012

FY13 

financial year ended 30 June 2013

FY14 

financial year ended 30 June 2014

FY15 

financial year ended 30 June 2015

AGM  Annual General Meeting

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 

LTI 

key performance indicator

long-term incentive

LTIP 

long-term incentive plan

NPAT  net profit after tax

STI 

short-term incentive

TFR 

total fixed remuneration

TSR 

total shareholder return

WHO THIS REPORT COVERS

This Report presents the remuneration arrangements for nib’s Key Management Personnel.

Executive Director

Mark Fitzgibbon

Other Executives

Michelle McPherson

Rhod McKensey

Rob Hennin

Brendan Mills

Justin Vaughan

Marc Nourse 
(commenced 6/1/2014 until 11/4/2014) 

Independent Non-Executive Directors

Managing Director/Chief Executive Officer (MD/CEO)

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

Group Manager Australian Residents Health Insurance (GMARHI)

Chief Executive Officer – New Zealand (CEO NZ)

Chief Information Officer (CIO)

Group Manager Benefits and Provider Relations (GMBPR)

Group Manager International and New Business (GMINB)

Steve Crane

Chairman

Lee Ausburn 
(commenced 13 November 2013)

Harold Bentley 

Annette Carruthers 

Philip Gardner

Christine McLoughlin

Member Risk and Reputation Committee and People and Remuneration Committee

Chairman Audit Committee, Chairman Board Audit Risk and Compliance Committee 
New Zealand, Director New Zealand subsidiaries, Member Investment Committee, and 
Risk and Reputation Committee

Chairman Risk and Reputation Committee, Director New Zealand subsidiaries and 
Member Audit Committee

Chairman Investment Committee, Member Audit Committee and People and 
Remuneration Committee

Chairman People and Remuneration Committee, Member Risk and Reputation 
Committee

22

nib holdings limitedRemuneration Report continuedFor the year ended 30 June 2014PERFORMANCE DRIVES REMUNERATION AT nib

The Remuneration Report shows how nib’s actual performance is linked to the payments to our Executives. Across a range 
of metrics nib have performed strongly and consistently since listing and has achieved sustained policyholder growth ahead 
of industry average.

Sustained growth in consolidated operating 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

)
s
p
c

(

e
r
a
h
s

r
e
p
s
t
n
e
c

18

16

14

12

10

8

6

4

2

0

13.7

14.8

12.4

15.3

15.9

5.2

4.7

2008 *

2009

2010

2011

2012

2013

2014

*2008 underwriting result normalised for demutualisation and listing costs.

Total shareholder return since listing

nib

All Ords Accumulation Index

S&P/ASX 200 Accumulation Index

S&P/ASX 300 Accumulation Index

700

600

500

400

300

200

100

0

475.2%

8.8%
7.1%
6.8%

Nov 07

Sep 08

Jul 09

May 10

Mar 11

Dec 11

Oct 12

Aug 13

Jun 14

Rebased to 100. Source: IRESS (as at 30 June 2014)

Since nib’s listing on ASX in November 2007, the Total Shareholder Return (TSR) of the S&P/ASX All Ordinaries, S&P/ASX200 
and S&P/ASX300 indices have performed broadly in line with each other (S&P/ASX All Ordinaries: 6.8%, S&P/ASX200: 8.8%, 
S&P/ASX300: 7.1%) compared to nib (TSR of 475.2%). Assumes capital returns and dividends are re-invested at the payout date. 

23

2014 annual report 
 
 
OUR REMUNERATION GOVERNANCE

The People and Remuneration Committee (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, human resources strategy, succession planning and 
employee engagement. 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. Guerdon Associates was engaged 
to conduct the most recent review which was completed in May 2014, and as a result the Board has made changes to 
remuneration from 1 July 2014 as outlined above. 

In summary, the scope of the work undertaken by Guerdon Associates included:

 ¾ Undertaking a review and benchmarking of remuneration arrangements against relevant peer group;

 ¾ Working with the Board to define a relevant peer group for comparison for Executive remuneration. The principles used 

for the updated peer group selection were:

 – Given it is not possible in Australia to have remuneration comparator companies consist of insurance companies 
of a similar size to nib, comparator companies were chosen based on size and broad operational parameters.

 – The primary peer group was chosen based on market capitalisation and pre-tax profit broadly being between 50% 

and 200% of nib, with nib positioned around the middle of the group.

 – The peer group included companies from the following sector and industries:

 – Health insurance companies

 – Other insurance companies

 – Other finance sector companies

 – Consumer discretionary (including gaming companies given their highly regulated operating environment)

 – Healthcare companies

 – Supplementary comparator companies were used for specialist positions, e.g. Chief Information Officer. Supplementary 

companies were not necessarily chosen based on market capitalisation. Business unit heads were chosen based on size 
of the business unit and Chief Information Officer were chosen with reference to the online component of the business

 – The primary peer group contained 20 companies and a further 25 companies were represented in the supplementary 

comparator company group.

 ¾ Undertaking a review of alternative LTI measures, with consideration of capital efficiency as an LTI measure. After extensive 
consideration the Board decided not to adopt a capital efficiency LTI metric this year. As shareholders are aware the capital 
requirements for health insurers have changed recently. The Board will consider the appropriateness of performance hurdles 
each year.

No remuneration recommendations as defined under Division 1, Part 1.2.98 (1) of the Corporations Act, were made by 
Guerdon Associates.

24

nib holdings limitedRemuneration Report continuedFor the year ended 30 June 2014ACTUAL REMUNERATION RECEIVED FOR THE FINANCIAL YEAR ENDED 30 JUNE 2014

Actual remuneration paid during FY14 included payment of the FY13 STI. The duration of the LTI was altered from three to four 
years in the FY11 grant and as a result no LTI vested during FY14, so not like to like. Only a partial FY13 STI was paid reflecting 
the 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 33) of this Report.

The diagram below outlines the remuneration structure for the Executives covered in this Report for FY14.

Total potential reward

Total fixed remuneration 
(cash salary, 
superannuation, plus 
insurance cover)

+

Short-Term Incentive 
(STI), being cash and 
deferral into shares 
(from FY14 STI plan)

+

Long-Term 
Incentive (LTI) being 
performance rights

=

Total potential reward

Fixed

Variable

The table below shows the key elements of total reward in FY14 as the cash elements actually received by each Executive in 
FY14 as well as the value of equity held in escrow (not subject to forfeiture conditions), and equity from former years that vested 
in FY14 and which was originally reported under accounting standards in the year it was granted. No LTI performance rights 
vested in FY14 due to the performance period for the rights granted in FY11 onwards being extended to four years.

Mark Fitzgibbon

Michelle McPherson

Rhod McKensey

Rob Hennin

Brendan Mills

Justin Vaughan (from 1/8/13)

Marc Nourse (from 6/1/14 to 11/4/14)

STI applicable to the FY13 year 
paid in Sept 2013 (FY14)2

Total fixed 
remuneration1
$

Cash
$

Shares held in 
escrow
$

LTI vested in 
FY143
$

725,500

472,000

421,000

313,491

280,000

246,884

109,288

117,077

76,134

77,112

–

29,925

–

–

50,176

32,629

33,048

–

12,825

–

–

2,568,163

300,248

128,678

–

–

–

–

–

–

–

–

Total reward 
(received or 
available)
$

892,753

580,763

531,160

313,491

322,750

246,884

109,288

2,997,089

1.  Total fixed remuneration comprises Cash Salaries and fees and superannuation.
2.  FY13 STI paid in the FY14 year.
3.  No LTI performance rights vested in FY14 due to the performance period for the rights granted in FY11 being extended to four years so not like to like.

EXECUTIVE REWARD AT nib

nib’s Executive reward is designed to attract, reward and motivate and retain Executives, as well as 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: 

 ¾ fixed remuneration, comprising base remuneration package, superannuation and insurance cover;

 ¾ short-term incentives, based on predetermined Key Performance Indicator (KPI) targets established by the Board and an 

assessment of leadership; and

 ¾ longer-term incentives, based on predetermined TSR and EPS performance established by the Board.

25

2014 annual reportEXECUTIVE REWARD AT nib continued

Claw back arrangements are in place for the Managing Director/Chief Executive Officer and Chief Financial Officer/Deputy 
Chief Executive Officer. Where the Company becomes aware of a material misstatement of the Company’s financial accounts 
or statements and the Company has awarded the Executive a remuneration increase, a Short-Term Incentive (STI) payment or 
a Long-Term Incentive (LTI) award having regard to financial information which was misstated, the Company may (in its absolute 
discretion) require the Executive to:

 ¾ repay the Company any amount of remuneration, STI or LTI received by the Executive; or

 ¾ forfeit or cancel any remuneration increase, STI or LTI award (whether vested or unvested);

which the Executive would not have received had the Company been aware of the misstatement in the Company’s financial 
accounts or statements at the time such remuneration, STI or LTI award has been paid or awarded to the Executive.

Our remuneration mix

The FY14 target remuneration mix was as follows:

y
t
i
n
u
t
r
o
p
p
o
n
o
i
t
a
r
e
n
u
m
e
r

t
e
g
r
a
t

%

100

90

80

70

60

50

40

30

20

10

0

33%

7%

18%

42%

20%

9%

21%

21%

8%

18%

22%

7%

16%

15%

7%

17%

15%

7%

17%

50%

53%

55%

61%

61%

MD/CEO

DCEO/CFO

GMARHI

CEO NZ

CIO

GMBPR

Longer-term performance incentives opportunity
Short-term performance incentives opportunity – deferred into shares for one year

Short-term performance incentives opportunity – cash
Base remuneration package and benefits  

Variations in target remuneration mix between the executive roles reflect position responsibilities.

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.

Fixed remuneration includes cash salary, superannuation and insurance cover. The fixed remuneration may be salary packaged 
at no additional cost to the company.

Short-term incentives for the financial year ended 30 June 2014

20% referable to a leadership assessment for each Executive and 80% of the STI was determined with reference to set 
performance indicators and for the CEO NZ, the CIO and the GMBPR these performance indicators included key milestones.

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 STI awards 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.

26

nib holdings limitedRemuneration Report continuedFor the year ended 30 June 2014 
 
 
Each Executive has a target STI opportunity. For FY13 and FY14, 30% of the awarded STI each year must be deferred into 
shares for one year. This has been increased to 50% for FY15 onwards with a deferral period of two years, with half the shares 
vesting after one year and the second half after two years subject to a real risk of forfeiture during the deferral period being a 
service condition (refer page 20).

Mark Fitzgibbon

Michelle McPherson

Rhod McKensey

Rob Hennin1

Brendan Mills

Justin Vaughan

FY14 
Maximum 
potential STI  
as a % of TFR

Proportion 
of actual 
FY14 STI to 
be deferred 
into shares for 
one year

60%

60%

50%

40%

40%

40%

30%

30%

30%

30%

30%

30%

1.  FY13 STI will be paid as part of a 14 month FY14 STI covering period 6 May 2013 to 30 June 2014.

The specific KPIs and weighting for FY14 for the MD/CEO and DCEO/CFO which constitutes 80% of their total STI are:

KPI Weighting

Mark Fitzgibbon (MD/CEO)

Michelle McPherson (DCEO/CFO)

Group premium revenue

NZ underwriting profit

Group operating profit

Earnings per share (EPS)

Group management expense 
ratio (excluding acquisition costs)

NPS

10%

10%

50%

20%

nil

10%

nil

nil

50%

20%

20%

10%

The weighting for each of the other KMP has been determined by the MD/CEO and approved by the Committee.

Rob Hennin was appointed as Chief Executive Officer, New Zealand on 6 May 2013. Given less than two months remaining in 
the FY13 year at the date of appointment, it was determined that the first STI measurement period for Mr Hennin would be from 
6 May 2013 to 30 June 2014. Performance indicators for the CEO NZ for the period from appointment to 30 June 2014 included 
a 40% allocation to key milestones linked to the successful integration of TOWER Medical into the nib Group. 

Performance indicators for the CIO and the GMBPR included a 30% allocation to key milestones. As most milestones remain 
commercially sensitive, they are not disclosed.

The short-term performance targets for verifiable financial performance nominate three levels of award (25%, 75%, 100%) with 
pro-rata awards occurring where results fall between these levels.

The percentage of the maximum STI that was awarded and the percentage that was forfeited is set out below. A more detailed 
description of performance against STI KPIs is shown on page 30 in how reward was linked to performance in FY14.

FY14 STI Bonus

FY13 STI Bonus

Awarded
%

Forfeited
%

Awarded
%

Forfeited
%

Mark Fitzgibbon

Michelle McPherson

Rhod McKensey

Brendan Mills

Rob Hennin

Justin Vaughan

67%

68%

51%

78%

91%

65%

70%

33%

32%

49%

22%

9%

35%

30%

41%

41%

54%

43%

n/a

n/a

45%

59%

59%

46%

57%

n/a

n/a

55%

27

2014 annual reportEXECUTIVE REWARD AT nib continued

Long-term incentives for the financial year ended 30 June 2014

LTIs focus executives on sustained EPS and TSR performance. LTIs granted in FY11 covering the four year performance 
period ending 30 June 2014 do not vest until September 2014. There will be no vesting for the 50% EPS component of the 
FY11 LTI grant, with the 50% TSR component to vest fully.

The nib LTIP is designed to align the interests of executives and shareholders and to assist nib to attract, reward, motivate and 
retain Executives.

LTIP participants are granted performance rights that 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. No dividends are 
received on unvested rights.

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 and retirement, on winding up, delisting, change of 
control and reconstruction or amalgamation. The LTIP rules were updated on 25 July 2013 to move away from automatic vesting 
for LTIP offers from FY14 onwards. Prior to FY14, there was automatic vesting on winding up, delisting, change of control and 
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.

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 was no vesting event in FY14.

Performance rights from 1 July 2010

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

 ¾ introducing of a relative total shareholder return (TSR) which applies to half of the LTIP allocation

 ¾ extending the performance period to four years

 ¾ the requirement for 50% of the LTIP 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 LTIP 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/ASX300 (the peer group) over 
the performance period. The peer group will be the S&P/ASX200 for grants from 1 July 2013 to reflect the Board’s expectations 
of performance, the company’s size and shareholder feedback.

nib’s TSR performance compared to the relevant peer group

Performance of Tranche 1 performance rights vesting

>= 75th percentile

100%

>= 50th percentile to 74th percentile

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

< 50th percentile

0%

28

nib holdings limitedRemuneration Report continuedFor the year ended 30 June 2014EPS Hurdle (Tranche 2)

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

Percentage of 
performance 
rights vesting

EPS Hurdle: 
CAGR from 
base EPS

FY11-FY14 
LTIP

EPS Hurdle: 
CAGR from 
base EPS

FY12-FY15 
LTIP

EPS Hurdle: 
CAGR from 
base EPS

FY13-FY16 
LTIP

EPS Hurdle: 
CAGR from 
base EPS

FY14-FY17 
LTIP

Base EPS

 12.4 cps 

Base EPS

 13.7 cps 

Base EPS

 14.8 cps 

Base EPS

100%

75%

50%

25%

0%

25%

20%

15%

10%

<10%

 30.3 cps 

 25.7 cps 

 21.7 cps 

 18.2 cps 

25%

20%

15%

10%

 33.4 cps 

 28.4 cps 

 23.9 cps 

 20.0 cps 

15%

12.5%

10%

7.5%

 nil 

<10%

 nil 

<7.5%

 25.8 cps 

 23.6 cps 

 21.6 cps 

 19.7 cps 

 nil 

15%

10%

7%

3%

<3%

 15.3 cps 

 26.8 cps 

 22.4 cps 

 20.1 cps 

 17.2 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%

For the FY14-FY17 LTIP the EPS CAGR hurdles were updated to reflect the strategy and maturity of the business. EPS hurdles 
and performance levels for future LTI grants will be set annually. This permits the Board to take into account regulatory pricing 
re-sets and a focus on performance sustainability over a long-term period.

If vesting conditions are met, the performance rights will vest on 1 September following the end of the measurement period. On 
the vesting date, Executives who hold vested performance rights 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 performance of nib since listing, and demonstrates how challenging the EPS targets are for 
grants of LTI made in FY11 and FY12. For the FY13 and FY14 grants cumulative average growth rate targets were updated to 
reflect the strategy and maturity of the business. Variability in investment returns from year to year impacts EPS, with EPS targets 
being set based on an assumption that on average over time investment returns will be in line with benchmark.

35

30

25

20

15

10

5

0

)
s
p
c
(

S
P
E

25% EPS
CAGR

25% EPS
CAGR

15% EPS
CAGR

15% EPS
CAGR

FY11 – FY14 LTIP

FY12 – FY15
LTIP

FY13 – FY16
LTIP

FY14 – FY17
LTIP

14.8

15.3

15.9

12.4

13.7

FY08 – FY10 LTIP
75% vested

5.2

4.7

FY09 – FY11 LTIP
100% vested

FY10 – FY12 LTIP
100% vested

2008*

2009

2010

2011

2012

2013

2014

2015

2016

2017

25% vesting range

75% – 100% vesting range on a pro-rata basis

50% – 75% vesting range on a pro-rata basis

EPS

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

29

2014 annual report 
 
HOW REWARD WAS LINKED TO PERFORMANCE THIS YEAR

The components of remuneration that are linked to performance are the STI and the LTI plan. 80% of the STI award is 
determined with reference to set performance indicators and for the CEO NZ, the CIO and the GMBPR these performance 
indicators included key milestones. 20% is referable to a leadership assessment for each Executive.

The following table shows key performance indicators for the Group over the last five years:

Financial results

Growth

arhi premium revenue

iwhi/ishi premium revenue

nib NZ premium revenue

Group premium revenue

Profitability

arhi underwriting profit

iwhi/ishi underwriting profit

nib NZ underwriting profit

nib options profit/(loss)

nib Group operating profit

EPS

Cost Control

nib Group management expense ratio 
excluding acquisition costs

nib Group gross underwriting margin

Customer satisfaction

NPS

Other

ROE

Share price at year end

Dividend per share – ordinary

Dividend per share – special

Dividend payout ratio – ordinary

Dividend payout ratio – combined 
ordinary and special

cps

%

%

%

$

cps

cps

%

%

2014
$m

2013
$m

2012
$m

1,187.2

1,095.6

32.0

71.1

28.2

 – 

2011
$m

991.3

16.5

 – 

2010
$m

901.4

 – 

 – 

1,290.4

1,123.8

1,007.8

901.4

59.0

8.3

6.4

0.0

69.3

15.3

64.6

6.1

 – 

 – 

70.0

14.8

59.8

1.7

 – 

 – 

59.8

13.7

47.1

 – 

 – 

 – 

42.5

12.4

1,314.5

38.0

139.2

1,491.6

55.8

11.0

7.4

(2.5)

72.3

15.9

6.3%

15.8%

5.8%

15.6%

6.0%

15.5%

6.0%

15.8%

6.0%

14.8%

19.2

 16.9 

 12.4 

Not Measured 

20.8%

3.26

11.00

9.00

69.2%

21.6%

2.13

10.00

0.00

65.0%

21.7%

16.5%

16.3%

1.50

9.25

0.00

1.45

8.00

5.00

1.25

7.00

0.00

60.0%

57.0%

56.4%

125.8%

65.0%

60.0%

92.7%

56.4%

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

KPI

Growth

Result

arhi premium revenue

arhi premium revenue up 10.7% to $1.3 billion with 72.9% of maximum STI awarded for this target.

iwhi/ishi premium revenue

iwhi/ishi combined premium revenue up 18.6% on the back of 110% growth in ishi premium revenue and 
4% growth in iwhi premium revenue. This KPI saw 70.7% of the maximum STI awarded for this target.

nib NZ premium revenue

nib NZ premium revenue benefited from direct to consumer sales, price increases and a strengthening 
NZ dollar. 92.2% of the maximum was awarded for this KPI.

Group premium revenue

Group premium revenue up 15.6% or 10.9% excluding nib NZ which was impacted by 12 months versus 
previous seven months result. 75.5% of this KPI was awarded.

30

nib holdings limitedRemuneration Report continuedFor the year ended 30 June 2014KPI

Result

Profitability

arhi underwriting profit

arhi net underwriting profit down 5.5% on FY13 on the back of high claims inflation with no award for 
this KPI.

iwhi/ishi underwriting 
profit

iwhi/ishi underwriting profit up 31.2% with ishi profitable for the first time and iwhi up 12.1%. 67.7% of this 
KPI was awarded.

nib NZ underwriting profit

nib NZ underwriting profit of $7.4 million even after investment in growth due to better than expected 
claims experience and strong NZ dollar. 100% of this KPI was awarded.

nib Options profit/(loss)

Investment in nib Options to build and launch the business was $0.5 million higher than originally 
estimated resulting in no award for this KPI.

nib Group operating profit

nib Group operating profit impacted by arhi underwriting result with 41.2% award for this KPI.

EPS

EPS benefited from 5.6% investment return during the period with 83.9% of this KPI awarded.

Cost control

nib Group management 
expense ratio excluding 
acquisition costs

nib Group gross 
underwriting margin

Customer satisfaction

arhi NPS

Tight cost control across the group saw this KPI being awarded at 100%.

arhi higher than expected claims resulted in this KPI being awarded at 49.8%.

2014 average premium revenue of 7.99% was highest in the industry and impacted NPS result with 
32.5% of this KPI awarded.

The graph below illustrates the relationship between percentage of maximum STI awarded and growth in the operating profit, 
and reflects lower STI awards as growth in the operating profit has slowed from FY12. Recognition of the effort required in 
establishing and integrating our new business segments has seen the STI percentage awarded improve in FY14 over FY13.

STI % awarded in 
respect of financial year

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

2008*

2009

2010

2011

2012

2013

2014

 * 2008 operating profit normalised for demutualisation and listing costs

STI

Operating Profit

Operating profit
($m)

80

70

60

50

40

30

20

10

0

31

2014 annual reportTERMS OF EXECUTIVE CONTRACTS

From 1 July 2014 all nib Executives are on 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

Term of agreement

Termination provision

Mark Fitzgibbon (MD/CEO)

Michelle McPherson (DCEO/CFO)

Rhod McKensey (GMARHI)

Rob Hennin (CEO NZ)

Brendan Mills (CIO)

1 July 2010

1 July 2010

1 July 2014

6 May 2013

 Open contract with notice period 

 Open contract with notice period 

 Open contract with notice period 

 Open contract with notice period 

1 June 2012

 Open contract with notice period 

Justin Vaughan (GMBPR)

1 August 2013

 Open contract with notice period 

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.

Termination payments

For those Australian 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. In the case of a New Zealand Executive, the Group 
may terminate the Executive’s contract with nine 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:

 ¾ 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.

 ¾ the Board has discretion to 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. In response to shareholder 
feedback, the Board has since determined that this approval will only be relied upon for people who were Executives at the date 
of approval. The only current Executives this approval would be applicable to are Mark Fitzgibbon, Michelle McPherson and 
Rhod McKensey.

32

nib holdings limitedRemuneration Report continuedFor the year ended 30 June 2014l $
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nib holdings limitedRemuneration Report continuedFor the year ended 30 June 2014 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NON-EXECUTIVE DIRECTOR REMUNERATION

Fees and payments to Non-Executive Directors reflect the board role, market fee levels, and the objective of the company to 
attract highly skilled and experienced Non-Executive Directors. All Non-Executive Directors are required to hold shares in the 
company to align with shareholders’ interests.

Non-Executive Director fees

Fees and payments to Non-Executive Directors reflect board roles and market fee levels. Some nib holdings Directors are also 
paid fees for sitting on the New Zealand subsidiary boards, which includes additional work unique to that regulatory environment 
and additional travel. Non-Executive Directors’ fees are reviewed annually by the Committee and approved by the Board. Every 
second year there is an external review, with the most recent review completed in May 2014.

The Board considered the external benchmarking results and with the exception of the fee for the Chairman of nib holdings 
limited Audit Committee, all other fees for Non-Executive Directors have been increased by the expected average for nib 
individual agreement employees of 3.75%, plus an additional 0.25% superannuation (SGC) contribution effective 1 July 2014. 
Based on the benchmarking data provided by Guerdon Associates, the fee for the Chairman of the nib holdings limited Audit 
Committee has been increased from $23,000 to $30,000 pa from 1 July 2014.

Non-Executive Directors’ fees are determined within the $1,500,000 aggregate Directors fee pool limit, which was approved by 
shareholders in October 2013. Directors’ fees and superannuation are paid out of this pool. Travel allowances, non-monetary 
benefits and retirement benefits are not included in this pool.

The following fees (inclusive of superannuation) for the Australian Boards and Committees have applied:

Base fees

Chairman

Other Non-Executive Directors

Additional fees*+

Audit Committee

Chairman

Member

Investment Committee

Chairman

Member

Risk and Reputation Committee

Chairman

Member

People and Remuneration Committee

Chairman

Member

2014
$

2013
$

 224,000 

 97,500 

 215,000 

 93,500 

 23,000 

 11,500 

 16,000 

 9,500 

 23,000 

 11,500 

 23,000 

 11,500 

 22,000 

 11,000 

 15,000 

 9,000 

 22,000 

 11,000 

 22,000 

 11,000 

*  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.

The following fees (inclusive of superannuation) for the New Zealand Boards and Committees have applied:

NZ Base fees

Chairman*

Member

NZ Board, Audit, Risk and Compliance Committee

Chairman

Member

*  The Chairman of the NZ Board is not a member of the nib holdings Board. 

2014
$

2013
$

 59,000 

 34,000 

 56,693 

 32,396 

 8,500 

 – 

 8,156 

–

37

2014 annual reportNON-EXECUTIVE DIRECTOR REMUNERATION continued

Non-Executive Director fees continued

From 1 July 2013, Directors’ fees were increased by an average of 3.92% plus an additional 0.25% superannuation (SGC) 
contribution.

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

Share ownership by Non-Executive Directors

Directors are 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. All current Non-Executive Directors comply with 
this requirement as at 30 June 2014.

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.

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

Annette Carruthers is entitled to a lump sum retirement payment. 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 A Carruthers is 0.71.

At 30 June 2014, the following retirement benefits are provided for:

Annette Carruthers 

$78,313

38

nib holdings limitedRemuneration Report continuedFor the year ended 30 June 2014l $
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39

2014 annual report 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EQUITY INSTRUMENTS HELD BY KEY MANAGEMENT PERSONNEL

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.

2014

Mark Fitzgibbon

Michelle McPherson

Rhod McKensey

Rob Hennin

Brendan Mills

Justin Vaughan

Total

2013

Mark Fitzgibbon

Michelle McPherson

Rhod McKensey

Rob Hennin

Brendan Mills

Balance 
at start of 
the year

Granted as 
compensation

Exercised1

Other 
forfeitures

Balance 
at the end of 
the year

Vested and 
exercisable

785,263 

336,690 

197,537 

–

38,587 

–

273,786 

89,060 

79,437 

57,316 

33,020 

26,438 

1,358,077 

559,057 

Balance 
at start of 
the year

Granted as 
compensation

723,778 

315,204 

182,375 

–

–

331,765 

107,871 

75,013 

–

38,587 

49,515 

–

–

–

–

–

–

–

Exercised 

(270,280)

(86,385)

(59,851)

–

–

–

–

–

–

–

–

–

–

1,059,049 

425,750 

276,974 

57,316 

71,607 

26,438 

1,917,134 

–

–

–

–

–

–

–

Unvested

1,059,049 

425,750 

276,974 

57,316 

71,607 

26,438 

1,917,134 

Other 
forfeitures

Balance 
at the end of 
the year

Vested and 
exercisable

Unvested

–

–

–

–

–

(155,885)

785,263 

336,690 

197,537 

–

38,587 

–

–

–

–

–

–

–

–

785,263 

336,690 

197,537 

–

38,587 

–

1,358,077 

Matthew Henderson

106,370 

Total

1,327,727 

602,751 

(416,516)

(155,885)

1,358,077 

1.  No LTI performance rights vested in FY14 due to the performance period for the rights granted in FY11 being extended to four years.

To date nib’s practice has been to source equity for remuneration awards from shares purchased on market. Accordingly there 
was no dilution from executive new issue equity awards in 2014.

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.

2014

Ordinary shares

Directors of nib Group

Steve Crane

Lee Ausburn

Harold Bentley 

Annette Carruthers

Philip Gardner

Christine McLoughlin

Other Key Management Personnel of the Group

Mark Fitzgibbon

Michelle McPherson

Rhod McKensey

Rob Hennin

Brendan Mills

Justin Vaughan

40

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

200,000 

–

100,000 

72,500 

108,000 

77,500 

1,462,551 

413,177 

188,471 

–

25,165 

–

–

–

–

–

–

–

23,494 

15,278 

15,474 

–

6,005 

–

–

20,000 

–

–

–

20,000 

200,000 

20,000 

100,000 

72,500 

108,000 

97,500 

(50,000)

1,436,045 

–

–

–

–

–

428,455 

203,945 

–

31,170 

–

nib holdings limitedRemuneration Report continuedFor the year ended 30 June 20142013

Ordinary shares

Directors of nib Group

Steve Crane

Harold Bentley 

Annette Carruthers

Philip Gardner

Christine McLoughlin

Other Key Management Personnel of the Group

Mark Fitzgibbon

Michelle McPherson

Rhod McKensey

Rob Hennin

Brendan Mills

Matthew Henderson1

1.  Other changes represent that at 30 June 2013 they are no longer a KMP.

Other transactions with key management personnel

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

115,175 

70,000 

72,500 

108,000 

57,500 

1,261,142 

334,717 

114,748 

–

24,852 

2,210 

–

–

–

–

–

331,409 

108,460 

73,723 

–

313 

4,500 

84,825 

30,000 

–

–

20,000 

(130,000)

(30,000)

–

–

–

(6,710)

200,000 

100,000 

72,500 

108,000 

77,500 

1,462,551 

413,177 

188,471 

–

25,165 

–

The wife of Philip Gardner, a Director, is a director and shareholder of XO Digital Pty Limited. RealSurgeons Pty Limited, 
a subsidiary of nib holdings limited, has entered into a contract with XO Digital Pty Limited during the year for software 
development and maintenance. The contract was based on normal commercial terms and conditions.

Aggregate amounts of each of the above types of other transactions with Key Management Personnel of nib holdings limited:

a.  Amounts recognised as expense

Software maintenance

b.  Amounts recognised as intangible assets

Software

2014
$’000

13 

13 

2014
$’000

107 

107 

c.  Amounts recognised as assets and liabilities

At the end of the reporting period the following aggregate amounts were recognised in relation to the above transactions:

Non–current assets

2014
$’000

107 

107 

2013
$’000

 –

 –

2013
$’000

 –

 –

2013
$’000

 –

 –

41

2014 annual report 
Corporate Governance Statement

For the year ended 30 June 2014

This Corporate Governance Statement for nib holdings limited 
(nib) sets out details of nib’s corporate governance practices 
for the year ended 30 June 2014 (FY14).

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. The Board is dedicated to, and 
responsible for, actively promoting ethical and responsible 
decision making and practices at nib to ensure that practices 
are in place necessary to maintain confidence in nib’s integrity. 

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:

 ¾ 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.

 ¾ Oversight of management – appointment and (if 
appropriate) removal of senior executives, including 
the Chief Executive Officer (CEO), the Chief Financial 
Officer and Company Secretary, approving senior 
executive remuneration policies and practices and 
monitoring performance.

 ¾ Shareholders – facilitating the effective exercise of 

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

 ¾ Other stakeholders – establishing and monitoring 

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

 ¾ 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.

42

 ¾ 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.

 ¾ 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.

nib New Zealand

nib offers health cover to residents in New Zealand through 
nib nz limited, a subsidiary of nib holdings limited. Two 
Directors of the nib Board sit on subsidiary boards and 
committees in New Zealand to oversee the management and 
governance of the health insurance business. Details of these 
subsidiary boards and committees are set out in Information 
on Directors in this report.

Delegation of Authority

The Chief Executive Officer/Managing Director of nib is 
responsible for the day-to-day management of the business 
and its operations, with the Board delegating authority to 
the Chief Executive Officer/Managing Director to perform 
this function. The Chief Executive Officer/Managing Director 
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 its 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 Chief Executive 
Officer/Managing Director is evaluated and assessed by the 
Board, assisted by the People and Remuneration Committee, 
each year. This process was followed in FY14.

 ¾ The Chief Executive Officer/Managing Director 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 FY14.

nib holdings limited1.3   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 documents are available on our website, 
nib.com.au:

 ¾ Board Charter.

 ¾ 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

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 Director and the Board 
should consider whether the Director:

 ¾ 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;

 ¾ is a substantial shareholder of nib or an officer of, 

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

 ¾ 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;

2.1   nib’s Board comprises a majority of 

 ¾ within the last three years, has been a principal of a 

independent Directors

There are currently seven Directors on nib’s Board; six 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 Steve Crane (Chairman; Non-Executive Director/
Independent)
Appointed: 28 September 2010 / Appointed as 
Chairman: 1 October 2011

Mr Mark Fitzgibbon (Chief Executive Officer/
Managing Director)
Appointed: 28 May 2007

Ms Lee Ausburn (Non-Executive Director/Independent)
Appointed: 13 November 2013

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 13 of this 
Annual Report.

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

 ¾ 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:

 ¾ from the perspective of a nib Director, the business 

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

 ¾ 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 to 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.

Directors’ Independence

Conflicts of interest

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.

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.

43

2014 annual report2.2   nib’s Chairman is an independent Director

The nib Board Charter requires the Chairman to be an 
independent Non-Executive Director. Mr Steve 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 Board Charter):

 ¾ leading the Board in reviewing and discussing 

Board matters;

 ¾ chairing Board meetings and other shareholder meetings;

 ¾ ensuring the efficient organisation and conduct of the 

Board’s function;

 ¾ briefing all Directors in relation to issues arising at 

Board meetings;

recruitment agency to identify non-executive directors who 
can bring appropriate skills, experience and expertise and 
an independent judgment on the strategy and performance 
of the company. The Nomination Committee makes 
recommendations to the Board and, when the Board 
considers that a suitable 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.

 ¾ facilitating effective contribution by all Directors and 

Appointment and re-election of Directors

monitoring Board performance;

 ¾ overseeing that membership of the Board is skilled and 

appropriate for nib’s needs;

 ¾ promoting constructive relations between Board members 

and between the Board and management;

 ¾ ensuring that independent Directors meet separately 
at least annually to consider, among other things, 
management’s performance; and

 ¾ 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

Mr Steve Crane is the Chairman and Mr Mark Fitzgibbon 
is the Chief Executive Officer/Managing Director of nib.

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 of the Board. 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 undertakes a process using an external 

44

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 FY14 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 review their performance 
annually or whenever there are major changes to the 
committee structure of nib. All Committees undertook an 
annual self-assessment in 2014.

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 
levant 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.

nib holdings limitedCorporate Governance Statement continuedFor the year ended 30 June 20142.6   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 documents are available on our website, 
nib.com.au:

 ¾ Board Charter.

 ¾ 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.com.au

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 last amended on 1 July 2014. 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:

 ¾ broadens the pool for recruitment of high quality directors 

and employees;

 ¾ is likely to support employee retention;

 ¾ 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;

 ¾ enhances customer service and market reputation through 
a workforce that respects and reflect the diversity of our 
customers; and

 ¾ 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 over are the measureable 
objectives set by the Board for achieving gender diversity.

Objective

Details

Timeframe

Results as at 30 June 2014

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.

Our recruitment team are focused on providing 
guidance to hiring managers throughout the process to 
ensure diversity is considered with particular focus on 
Management level positions.

Upon review of the recruitment statistics for FY14, 
it shows that we have had higher levels of female 
applicants, females interviewed and females successful 
in manager and team leader positions.

The candidates were interviewed by a diverse group 
of people throughout the process and successful 
applicants were offered the roles based on merit.

45

2014 annual report3.3   The nib Board has set measureable objectives for achieving gender diversity in accordance with its 

Diversity Policy and discloses progress towards achieving them continued

Objective

Details

Timeframe

Results as at 30 June 2014

Flexible work 
practices

Develop a flexible work practices policy 
and engender a culture of support for 
flexible work practices where possible 
and required. 

Ongoing

Educate managers on strategies for 
supporting and managing flexible work 
arrangements successfully.

June 2014 

The Flexible Work Practices policy was revised and 
implemented in April 2013, providing employees with the 
option of mutually beneficial flexible work arrangements. 
Managers continue to implement various flexible work 
arrangements with their teams, both formally and 
informally to support this objective.

We continue to see an increase in formalised Individual 
Flexible Arrangements (IFAs) and as at 30 June 2014 
have 32 IFAs in place across the business.

Further to the formal IFAs in place with employees, 
a number of strategies are in place to support flexible 
working arrnagements for employees including working 
from home, flexible working hours, tertiary study and 
exam leave, sift and rostering preferences and gradual 
return from parental leave.

There is ongoing education for Managers on how to 
implement flexible work practices. This is provided on a 
one-on-one basis through coaching by the People and 
Development business unit. A formal training program 
for Managers and Team Leaders is currently being 
developed that will address this topic and is scheduled 
to be delivered in FY15.

June 2014

 ¾ 69% of managers and team leaders are women;
 ¾ 39% of business unit managers are women;
 ¾ Three female Non-Executive directors are on 

Representation Set goals, timeframes and succession 
plans to improve the number of women 
in management roles in the business. 
At a minimum:

 ¾ 40% of manager and team leaders;
 ¾ 30% of business unit managers;
 ¾ Two Non-Executive Directors; and
 ¾ One member of the People & 
Remuneration Committee.

Development 
and Succession

Ongoing

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 or executive roles. 

46

the Board;

 ¾ Two female Non-Executive Directors are on the 

People & Remuneration Committee

FY14 has seen an increase in the number of women 
in Manager and Team Leader, Business Unit Manager 
and Non-Executive Director level positions resulting in 
achieving the specific targets set for these positions by 
June 2014.

Formal succession planning has identified a number of 
females as potential successors for key management 
positions. Individual performance plans include 
mentoring as a development tool. We are looking at how 
we can continue to support mentoring with a review and 
implementation of a formal mentoring program.

Employee professional career development is discussed 
and documented within individual performance planning 
and we continue to deliver a number of targeted 
programs on 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 academic knowledge 
or obtain professional certification.

nib holdings limitedCorporate Governance Statement continuedFor the year ended 30 June 20143.4   nib has in this statement, set out the proportion 

 ¾ the adequacy of nib’s corporate reporting processes and 

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 2014, 73.2% of nib’s total workforce was female.

the integrity of nib’s financial statements and other material 
regulatory documents;

 ¾ compliance with relevant financial reporting standards and 
ASX listing obligations and accounting policies adopted 
by nib;

 ¾ the propriety of related party transactions (if any); and

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

 ¾ Code of Conduct.

 ¾ Diversity Policy.

PRINCIPLE 4 – SAFEGUARD INTEGRITY IN 
FINANCIAL REPORTING

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:

 ¾ consists only of Non-Executive Directors

 ¾ consists only of independent Directors

 ¾ 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. 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 page 13 of this Report.

The Audit Committee held ten meetings in FY14.

4.3   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:

 ¾ the appointment, remuneration, independence, 
competence and performance of nib’s external 
audit function;

 ¾ the competency, fees, independence and quality of 

services of nib’s Appointed Actuary;

 ¾ monitoring compliance with nib’s capital 

management plan.

In fulfilling its role, the Audit Committee:

 ¾ receives regular reports from management, the external 
auditors, the Appointed Actuary and, if required, the 
internal auditors;

 ¾ 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;

 ¾ reviews the processes that the Chief Executive Officer/
Managing Director and the Chief Financial Officer have 
in place to support their certifications to the Board;
 ¾ reviews any significant disagreements between the 

auditors and management, irrespective of whether they 
have been resolved;

 ¾ meets separately with the external auditors and the 
Appointed Actuary at least twice a year without the 
presence of management; and

 ¾ 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 of 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 Chief Executive Officer/
Managing Director, Chief Financial Officer, General Counsel 
& Company Secretary and the Corporate Affairs & Investor 
Relations Manager.

47

2014 annual reportnib 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 Secretaries have been nominated as the 
persons 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 documents are available on our website, 
nib.com.au: 

 ¾ Disclosure and Communication Policy. 

 ¾ Disclosure and Materiality Guidelines.

PRINCIPLE 6 – RESPECT THE RIGHTS 
OF SHAREHOLDERS

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’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.

Shareholder participation

The Board 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 use any other 
means as included in the notice of meeting. Questions can 
be lodged prior to the AGM by completing the relevant form 

48

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 2013, 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 2014 
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

PRINCIPLE 7 – RECOGNISE AND  
MANAGE RISK 

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 and the Committee’s role includes 
reviewing and making recommendations to the Board in 
respect of nib’s system of risk management.

There are four members of the Risk and Reputation 
Committee: Dr Annette Carruthers (Committee Chairman), 
Ms Lee Ausburn (with effect from 13 November 2013), 
Mr Harold Bentley and Ms Christine McLoughlin. Details 
of the skills, experience and expertise of the Risk and 
Reputation Committee members is set out on page 13 
of this Annual Report.

The Risk and Reputation Committee held four meetings 
in FY14.

The key risks as identified and managed by nib are detailed 
at pages 9 to 10 of the Operating and Financial Review.

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

 ¾ established corporate and business strategies and 

objectives are achieved;

 ¾ risk exposures are identified and adequately monitored 

and managed;

 ¾ significant financial managerial and operating information 

is accurate, relevant, timely and reliable; and

 ¾ there is an adequate level of compliance with policies, 

standards, procedures and applicable laws, regulations 
and licences.

nib holdings limitedCorporate Governance Statement continuedFor the year ended 30 June 2014nib’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.

The 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:

 ¾ 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.

 ¾ Operational Risk – the risk that arises from normal 

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

 ¾ 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.

 ¾ 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 FY14, 
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 Chief Financial 
Officer). 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 Chief Executive Officer/Managing Director and the Chief 
Financial Officer provide annual formal statements to the 
Board to the effect that:

 ¾ 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

 ¾ 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 FY14 was performed by PKF Lawler 
Partners. 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.

49

2014 annual report8.3   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 Chief 
Executive Officer/Managing Director, have the following 
remuneration components:

 ¾ base salary;

 ¾ statutory entitlements (including superannuation and long 

service leave, as applicable);

 ¾ a short-term incentive (subject to performance thresholds); 

and

 ¾ a long-term incentive (subject to performance thresholds).

Further information in relation to nib’s remuneration practices 
for Executives is provided as part of the Remuneration Report 
(page 25 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 $1.5 million per annum by shareholders in October 2013 
(effective from 1 January 2014). Further information in relation 
to nib’s remuneration practices for Non-Executive Directors is 
provided as part of the Remuneration Report (page 37 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:

 ¾ People and Remuneration Committee Charter.

 ¾ nib Trading Policy.

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 2014, the Board received a statement in 
relation to FY14 full year report and results from the 
Chief Executive Officer/Managing Director and the 
Chief Financial Officer 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.

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 of only of 
independent Non-Executive 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), 
Ms Lee Ausburn (with effect from 13 November 2013) and 
Mr Philip Gardner, with Dr Annette Carruthers retiring from the 
Committee with effect from 1 January 2014.

Details of the skills, experience and expertise of the People 
and Remuneration Committee members is set out on page 13 
of this Annual Report.

The People and Remuneration Committee held five meetings 
in FY14.

50

nib holdings limitedCorporate Governance Statement continuedFor the year ended 30 June 2014Financial Report

For the year ended 30 June 2014

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.  Risk Management 

4.  Fair Value Measurement 

5.  Segment Reporting 

6.  Revenue and Other Income 

7.  Expenses 

8. 

Income Tax 

9.  Cash and Cash Equivalents 

10. Receivables 

52

53

54

55

56

57

67

68

74

76

80

80

81

82

82

11.  Financial Assets at Fair Value through Profit or Loss  83

12.  Reinsurance and Other Recoveries Receivable 

13. Deferred Acquisition Costs 

14.  Available-for-Sale Financial Assets 

15. Deferred Tax Assets 

16. Property, Plant & Equipment 

17.  Intangible Assets 

18. Payables 

83

84

84

85

86

87

89

19.  Borrowings 

20. Outstanding Claims Liability 

21.   Unearned Premium Liability and Unexpired 

Risk Liability 

22. Premium Payback Liability 

23. Provision for Employee Entitlements 

24. Deferred Tax Liabilities 

25. Contributed Equity 

26. Retained Profits 

27.  Reserves 

28. Dividends 

29. Earnings per Share 

30. Capital Management 

31.  Commitments for Expenditure 

32. Contingent Liabilities 

33. Events Occurring after the Balance Sheet Date 

34. Remuneration of Auditors 

35. Notes to the Statement of Cash Flows 

36. Business Combination 

37.  Controlled Entities 

38. Related Party Transactions 

39. Share-Based Payments 

40. Parent Entity Financial Information 

41.  Company Details 

90

91

94

95

97

97

98

99

100

101

102

103

105

105

105

106

107

108

109

111

111

114

114

51

2014 annual reportConsolidated Income Statement

For the year ended 30 June 2014

Premium revenue

Outwards reinsurance premium expense

Net premium revenue

Claims expense

Reinsurance and other recoveries revenue

RETF levy

State levies

Decrease in premium payback liability

Claims handling expenses

Net claims incurred

Acquisition costs

Other underwriting expenses

Underwriting expenses

Underwriting result

Other income

Other expenses 

Operating profit

Finance costs

Investment income

Investment expenses

Profit before income tax

Income tax expense

Profit for the year

Profit is attributable to:

Owners of nib holdings limited

Non-controlling interests

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

2014
$000

2013
$000

6

6

7

7

7

6

7

7

6

7

8

37(b)

29

29

29

29

1,492,933 

1,291,111 

(1,285)

(708)

1,491,648 

1,290,403 

(1,040,540)

(896,985)

571 

333 

(190,604)

(167,430)

(28,161)

3,291 

(17,802)

(28,811)

3,266 

(16,497)

(1,273,245)

(1,106,124)

(67,878)

(76,404)

(52,237)

(58,267)

(144,282)

(110,504)

74,121 

73,775 

5,664 

(7,523)

72,262 

(2,744)

31,235 

(1,584)

99,169 

(29,393)

69,776 

69,911 

(135)

69,776 

3,098 

(7,615)

69,258 

(1,382)

29,983 

(1,199)

96,660 

(29,503)

67,157 

67,157 

–

67,157 

Cents

Cents

15.9

15.9

15.9

15.9

15.3

15.3

15.3

15.3

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

52

nib holdings limited 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statement
of Comprehensive Income

For the year ended 30 June 2014

Profit for the year

69,776 

67,157 

Notes

2014
$000

2013
$000

Other comprehensive income

Items that may be reclassified to profit or loss

Exchange differences on translation of foreign operations

Change in fair value of available for sale financial assets

Income tax related to these items

Items that will not be reclassified to profit or loss

Revaluation of land and buildings

Income tax related to these items

Other comprehensive income for the year, net of tax

Total comprehensive income for the year

Total comprehensive income for the year is attributable to:

Owners of nib holdings limited

Non-controlling interests

27(b)

27(b)

8(c)

27(b)

8(c)

37(b)

2,337 

776 

(530)

4,518 

(1,355)

5,746 

1,347 

530 

(271)

153 

(46)

1,713 

75,522 

68,870 

75,657 

(135)

75,522 

68,870 

–

68,870 

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

53

2014 annual report 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheet

As at 30 June 2014

ASSETS

Current assets

Cash and cash equivalents

Receivables

Financial assets at fair value through profit or loss

Reinsurance and other recoveries receivable

Deferred acquisition costs

Current tax assets

Total current assets

Non-current assets

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

Premium payback liability

Provision for employee entitlements

Current tax liabilities

Total current liabilities

Non-current liabilities

Payables

Borrowings

Unearned premium liability

Premium payback liability

Provision for employee entitlements

Deferred tax liabilities

Total non-current liabilities

Total liabilities

Net assets

EQUITY

Contributed equity

Retained profits

Reserves

Capital and reserves attributable to owners of nib holdings limited

Non-controlling interests

Total equity

54

Notes

2014
$000

2013
$000

9

10

11

12

13

13

14

15

16

17

18

19

20

21

22

23

18

19

21

22

23

24

148,722 

44,903 

410,779 

108 

15,778 

2,876 

143,056 

51,912 

351,786 

81 

11,778 

–

623,166 

558,613 

24,250 

3,512 

4,031 

47,967 

95,178 

15,448 

2,735 

2,529 

41,722 

91,270 

174,938 

153,704 

798,104 

712,317 

110,720 

1,768 

93,652 

104,278 

7,496 

2,370 

1,264 

99,193 

3,300 

81,406 

90,092 

8,287 

2,090 

3,669 

321,548 

288,037 

672 

65,081 

9,924 

33,254 

1,268 

9,989 

120,188 

–

59,149 

3,333 

31,927 

1,217 

2,501 

98,127 

441,736 

386,164 

356,368 

326,153 

25

26

27

37(b)

27,189 

320,132 

9,101 

356,422 

(54)

27,906 

295,212 

3,035 

326,153 

–

356,368 

326,153 

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

nib holdings limited 
 
 
 
 
 
 
 
Consolidated Statement of Changes in Equity

For the year ended 30 June 2014

Total 
Equity
$000

301,598 

67,157 

107 

371 

1,235 

68,870 

(628)

76 

136 

(43,899)

(44,315)

326,153 

326,153 

69,776 

3,163 

543 

2,040 

Attributable to owners of nib holdings limited

Contributed 
Equity
$000

Retained 
Profits
$000

Notes

Reserves
$000

Total
$000

Non-
controlling 
interests
$000

Balance at 1 July 2012

27,581 

271,954 

2,063 

301,598 

Profit for the year

Gain on revaluation of land and buildings

Revaluation of available for sale financial assets, 
net of tax

Movement in foreign currency translation, net of tax

Total comprehensive income for the year

Transactions with owners in their capacity 
as owners:

Shares acquired by the nib Holdings Ltd Share 
Ownership Plan Trust

Issue of shares held by nib Holdings Ltd Share 
Ownership Plan Trust to employees

Employee performance rights – value of employee 
services

Dividends paid

 –

 –

 –

 –

 –

67,157 

 –

 –

 –

67,157 

 –

107 

67,157 

107 

371 

1,235 

1,713 

371 

1,235 

68,870 

25(d)

(628)

25(d)

953 

27(b)

28

 –

 –

 –

 –

 –

(43,899)

 –

(628)

(877)

76 

136 

 –

136 

(43,899)

325 

(43,899)

(741)

(44,315)

Balance at 30 June 2013

27,906 

295,212 

3,035 

326,153 

Balance at 1 July 2013

27,906 

295,212 

3,035 

326,153 

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

Profit for the year

Gain on revaluation of land and buildings, net of tax

Revaluation of available for sale financial assets, 
net of tax

Movement in foreign currency translation, net of tax

Total comprehensive income for the year

Transactions with owners in their capacity 
as owners:

Transactions with non-controlling interests

37(c)

 –

 –

 –

 –

 –

 –

Shares acquired by the nib Holdings Ltd Share 
Ownership Plan Trust

Issue of shares held by nib Holdings Ltd Share 
Ownership Plan Trust to employees

Employee performance rights – value of employee 
services

Dividends paid

25(d)

(837)

25(d)

120 

27(b)

28

 –

 –

69,911 

 –

 –

 –

69,911 

 –

3,163 

543 

2,040 

5,746 

69,911 

3,163 

543 

2,040 

(135)

 –

 –

 –

75,657 

(135)

75,522 

 –

81 

81 

 –

 –

 –

 –

(44,991)

 –

 –

 –

(837)

120 

320 

 –

320 

(44,991)

 –

 –

 –

 –

(837)

120 

320 

(44,991)

Balance at 30 June 2014

27,189 

320,132 

9,101 

356,422 

(54)

356,368 

(717)

(44,991)

320 

(45,388)

81 

(45,307)

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

55

2014 annual reportConsolidated Statement of Changes in EquityFor the year ended 30 June 2014 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statement of Cash Flows

For the year ended 30 June 2014

Cash flows from operating activities

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

Payments to policyholders and customers

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

Dividends received

Interest received

Distributions received

Transaction costs relating to acquisition of subsidiary

Interest paid

Income taxes paid

Net cash inflow from operating activities

Cash flows from investing activities

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

Payments for other financial assets at fair value through 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

Payment for acquisition of subsidiary, net of cash acquired

Net cash inflow (outflow) from investing activities

Cash flows from financing activities

Proceeds from borrowings

Repayment of borrowings

Shares acquired by the nib Holdings Ltd Share Ownership Plan Trust

Transactions with non-controlling interests

Dividends paid to the company's shareholders

Net cash inflow (outflow) from financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Effects of exchange rate changes on cash and cash equivalents

Cash and cash equivalents at the end of the year

Reconciliation to Consolidated Balance Sheet

Cash and cash equivalents

Borrowings – overdraft

Notes

2014
$000

2014
$000

1,541,868 

1,271,741 

(1,242,468)

(1,040,724)

36(a)(ii)

35(b)

16,17

36(b)

25(d)

37(c)

28(a)

(191,807)

107,593 

556 

9,366 

9,314 

(104)

(2,688)

(30,341)

93,696 

180,500 

(221,180)

10,000 

5 

(11,241)

(84)

(42,000)

 –

(550)

(837)

81 

(44,991)

(46,297)

5,399 

139,756 

1,799 

(199,110)

31,907 

79 

11,597 

9,789 

(3,422)

(1,481)

(28,433)

20,036 

229,963 

(171,741)

10,000 

 –

(8,946)

(35,293)

23,983 

55,013 

 –

(628)

 –

(43,899)

10,486 

54,505 

84,079 

1,172 

146,954 

139,756 

35(a)

35(a)

148,722 

(1,768)

146,954 

143,056 

(3,300)

139,756 

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

56

nib holdings limited 
 
 
 
Notes to the Consolidated 
Financial Statements

For the year ended 30 June 2014

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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(o)).

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.  Changes in ownership interests

The Group treats transactions with non-controlling interests 
that do not result in a loss of control as transactions with 
equity owners of the Group. A change in ownership interest 
results in an adjustment between the carrying amounts of 
the controlling and non-controlling interests to reflect their 
relative interests in the subsidiary. Any difference between 
the amount of the adjustment to non-controlling interests 
and any consideration paid or received is recognised in 
a separate reserve within equity attributable to owners of 
nib holdings limited.

When the Group ceases to have control, joint control or 
significant influence, any retained interest in the entity is 
remeasured to its fair value with the change in carrying 
amount recognised in profit or loss. This fair value becomes 
the initial carrying amount for the purposes of subsequently 
accounting for the retained interest as an associate, jointly 
controlled entity or financial asset.

iv.  Comparative information

iii.  Employee Share Trust

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 2014 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.

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 

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 Chief 
Executive Officer/Managing Director.

57

2014 annual report1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

d.  Foreign currency translation

 ¾ all resulting exchange differences are recognised in other 

i.  Functional and presentation currency

Items included in the financial statements of each of the 
Group’s entities are measured using the currency of the 
primary economic environment in which the entity operates 
(‘the functional currency’). The consolidated financial 
statements are presented in Australian dollars, which is nib 
holdings limited’s functional and presentation currency.

ii.  Transactions and balances

Foreign currency transactions are translated into the 
functional currency using the exchange rates prevailing at the 
dates of the transactions. Foreign exchange gains and losses 
resulting from the settlement of such transactions and from 
the translation at period end exchange rates of monetary 
assets and liabilities denominated in foreign currencies are 
recognised in profit or loss, except when they are deferred 
in equity as qualifying cash flow hedges and qualifying net 
investment hedges or are attributable to part of the net 
investment in a foreign operation. 

Foreign exchange gains and losses that relate to borrowings 
are presented in the income statement, within finance costs. 
All other foreign exchange gains and losses are presented in 
the income statement on a net basis within other income or 
other expenses.

Non-monetary items that are measured at fair value in a 
foreign currency are translated using the exchange rates at 
the date when the fair value was determined. Translation 
differences on assets and liabilities carried at fair value are 
reported as part of the fair value gain or loss. For example, 
translation differences on non-monetary assets and liabilities 
such as equities held at fair value through profit or loss are 
recognised in profit or loss as part of the fair value gain or loss 
and translation differences on non-monetary assets such as 
equities classified as available-for-sale financial assets are 
recognised in other comprehensive income.

iii.  Group companies

The results and financial position of foreign operations (none 
of which has the currency of a hyperinflationary economy) 
that have a functional currency different from the presentation 
currency are translated into the presentation currency 
as follows:

 ¾ assets and liabilities for each balance sheet presented 
are translated at the closing rate at the date of that 
balance sheet;

 ¾ income and expenses for each income statement and 
statement of comprehensive income are translated at 
average exchange rates (unless this is not a reasonable 
approximation of the cumulative effect of the rates 
prevailing on the transaction dates, in which case 
income and expenses are translated at the dates of the 
transactions); and

58

comprehensive income.

On consolidation, exchange differences arising from the 
translation of any net investment in foreign entities, and 
of borrowings and other financial instruments designated 
as hedges of such investments, are recognised in other 
comprehensive income. When a foreign operation is sold or 
any borrowings forming part of the net investment are repaid, 
the associated exchange differences are reclassified to profit 
or loss, as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition 
of a foreign operation are treated as assets and liabilities of 
the foreign operation and translated at the closing rate.

e.  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.

Revenue 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. Any non-current portion is discounted based on 
expected settlement dates.

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 

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014represents 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.

f.  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 Group 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(h).

g.  Outwards reinsurance

Premiums ceded to reinsurers under insurance contracts held 
by the Group are recognised as an outwards reinsurance 
expense and are recognised in the income statement from 
the attachment date over the period of indemnity of the 
reinsurance contract in accordance with the expected pattern 
of the incidence of risk ceded.

h.  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. 

i.  Premium payback liability 

An additional unearned premium liability has been established 
representing the accrued amount of premium expected to be 
repaid to certain New Zealand health insurance policyholders. 
This liability is discounted at the risk-free rate and a liability 
adequacy test has been performed incorporating a risk 
margin on some components to cover uncertainty in the 
central estimate.

j.  Reinsurance and other recoveries receivable

Reinsurance and other recoveries receivable on paid claims, 
reported claims not yet paid, incurred but not reported (IBNR), 
and unexpired risk liabilities are recognised as revenue.

Recoveries receivable are assessed in a manner similar 
to the assessment of outstanding claims. Recoveries are 
measured as the present value of the expected future 
receipts, calculated on the same basis as the liability for 
outstanding claims.

k.  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.

l.  Risk equalisation trust fund levy

The Risk Equalisation Trust Fund Levy is accrued based on 
the industry survey of eligible paid claims to be submitted to 
PHIAC. If a Private Health insurer notifies PHIAC of a material 
variation in paid claims which can be quantified, the Group 
adjusts the risk equalisation expense.

m.  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.

Deferred tax liabilities and assets are not recognised for 
temporary differences between the carrying amount and 

59

2014 annual report1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

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.

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 are a tax consolidated group. Also, nib options pty 
limited and its wholly-owned Australian controlled entities 
are a tax consolidated group. As a consequence, the entities 
within each group 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.

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.

n.  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 are depreciated 
over the shorter of the asset’s useful life and the lease term.

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.

60

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.

o.  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.

p.  Impairment of assets

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. 

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014For 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.

q.   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 financial assets of nib health funds 
limited and nib nz limited are held to back private health 
insurance liabilities.

i.  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(v)).

a.  Financial assets and liabilities

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.

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.

3.  Derivatives are categorised as held for trading unless they 

are designated as hedges.

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 
Group 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.

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 the Group 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.

r.  Derivative financial instruments

Derivatives are initially recognised at fair value, being generally 
the transaction price on the date a derivative contract is 
entered into, and are subsequently remeasured to their fair 
value at the end of each reporting period. The method of 
recognising the resulting gain or loss depends on whether 
the derivative is designated as a hedging instrument and the 
nature of the item being hedged. Derivatives which are not 
part of a hedging relationship are valued at fair value through 
profit or loss, and are included in investment income.

61

2014 annual report1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

For derivatives traded in an active market, the fair value of 
derivatives presented as assets is determined by reference 
to published closing bid price quotations and the fair value of 
derivatives presented as liabilities is determined by reference 
to published closing ask price quotations. For derivatives 
that are not traded or which are traded in a market that is 
not sufficiently active, fair value is determined using generally 
accepted valuation techniques.

All derivatives entered into by the Group are classified as held 
for trading as the Group does not apply hedge accounting.

s.   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. 

t.   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.

u.   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 derecognition.

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.

v.  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 value 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.

62

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014The 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. 

w.  Property, plant and equipment

Land and buildings (except for investment properties – refer 
to Note 1(q)(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 

Plant and equipment 

Leasehold improvements 

25 to 40 years

3 to 20 years

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(p)).

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.

x.  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 acquired with IMAN Australian Health 
Plans Pty Ltd have an infinite useful life and are carried at cost 
less accumulated impairment losses.

Brands and trademarks acquired with nib nz limited (formerly 
TOWER Medical Insurance Limited) in November 2012 have 
a useful life of two years and are carried at their fair value at 
the date of acquisition less accumulated amortisation and 
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 for IMAN 
Australian Health Plans Pty Ltd and 10 years for nib nz limited.

y.  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.

63

2014 annual report1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

z.  Borrowings

iii.  Bonus plans

Borrowings are initially recognised at fair value, net of 
transaction costs incurred. Borrowings are subsequently 
measured at amortised cost. Any difference between the 
proceeds (net of transaction costs) and the redemption 
amount is recognised in profit or loss over the period of the 
borrowings using the effective interest method. Fees paid 
on the establishment of loan facilities are recognised as 
transaction costs of the loan to the extent that it is probable 
that some or all of the facility will be drawn down. In this 
case, the fee is deferred until the draw down occurs. To the 
extent there is no evidence that it is probable that some or 
all of the facility will be drawn down, the fee is capitalised as 
a prepayment for liquidity services and amortised over the 
period of the facility to which it relates.

Borrowings are removed from the balance sheet when the 
obligation specified in the contract is discharged, cancelled 
or expired. The difference between the carrying amount of 
a financial liability that has been extinguished or transferred 
to another party and the consideration paid, including 
any non-cash assets transferred or liabilities assumed, is 
recognised in profit or loss as other income or finance costs.

Borrowings are classified as non-current liabilities if the Group 
has an unconditional right to defer settlement of the liability for 
at least 12 months after the reporting period.

aa.  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. The portion not expected to be 
settled within 12 months is discounted based on expected 
settlement dates. 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 have the maturity dates 
approximating to the terms of nib’s obligations.

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:

 ¾ there are formal terms in the plan for determining the 

amount of the benefit, or

 ¾ the amounts to be paid are determined before the time of 

completion of the financial report, or

 ¾ 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. 

iv.  Retirement benefit obligations

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 
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 39.

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. 

64

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014At 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)(iii). 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. 

bb.  Contributed equity

ee.  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. 

Ordinary shares are classified as equity.

ff.  Reverse acquisition accounting policy

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.

cc.  Dividends

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).

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.

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.

dd.  Earnings per share

i.  Basic earnings per share

Basic earnings per share is calculated by dividing:

 ¾ the profit attributable to equity holders of the company, 

excluding any costs of servicing equity other than 
ordinary shares

 ¾ 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:

 ¾ the after income tax effect of interest and other financing 
costs associated with dilutive potential ordinary shares; 
and

 ¾ the weighted average number of additional ordinary 

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

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. 

gg.  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. 

i.   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.

65

2014 annual report1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

ii.  Tax consolidation legislation

ii.   New and amended standards adopted by the 

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.

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.

hh.  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.

Group

The Group has applied the following standards and 
amendments for the first time for their annual reporting period 
commencing 1 July 2013:

 ¾ AASB 10 Consolidated Financial Statements, AASB 11 
Joint Arrangements, AASB 12 Disclosure of Interests in 
Other Entities, AASB 128 Investments in Associates and 
Joint Ventures, AASB 127 Separate Financial Statements 
and AASB 2011-7 Amendments to Australian Accounting 
Standards arising from the Consolidation and Joint 
Arrangements Standards.

 ¾ AASB 13 Fair Value Measurement and AASB 2011-8 

Amendments to Australian Accounting Standards arising 
from AASB 13.

 ¾ AASB 119 Employee Benefits (September 2011) and AASB 
2011-10 Amendments to Australian Accounting Standards 
arising from AASB 119 (September 2011).

These standards only affected the disclosures in the notes to 
the financial statements.

The Group also elected to adopt the following standard early:

 ¾ AASB 2013-3 Amendments to AASB 136 – Recoverable 

Amount Disclosures for Non-Financial Assets, which had a 
small impact on the impairment disclosures.

jj.   New accounting standards and interpretations 

not yet adopted

Certain new accounting standards and interpretations have 
been published that are not mandatory for 30 June 2014 
reporting periods. The Group’s assessment of the impact of 
these new standards and interpretations is set out below.

i.   AASB-9 Financial Instruments (effective from 

1 January 2017) 

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 2017 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.

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.

66

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 20142.   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:

 ¾ Estimation of deferred acquisition costs – Note 13

 ¾ Estimation of goodwill and indefinite life intangibles impairment – Note 17

 ¾ Estimation of outstanding claims liability – Note 20

 ¾ Estimation of liability adequacy test – Note 21 and Note 22

 ¾ Estimation of premium payback liabilities – Note 22

67

2014 annual report3.  RISK MANAGEMENT

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:

 ¾ 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.

With effect from 1 July 2014, the Audit Committee’s Charter confirms its responsibilities also include:

 – reviewing the performance and independence of the Appointed Actuary;

 – reviewing the adequacy of nib’s corporate reporting processes and the integrity of nib’s financial statements and other 

material regulatory documents; and

 – 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.

 ¾ 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.

 – The maintenance of defined underwriting processes where applicable.

 ¾ 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.

 ¾ Regular risk and compliance reporting.

68

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014 ¾ nib health funds limited is subject to 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.

 ¾ The New Zealand business is subject to the application of solvency standards for non life business issued by the Reserve 
Bank of New Zealand which require a margin to be maintained over minimum solvency capital as a condition of nib nz 
limited’s insurance license.

b.  Insurance risk

In addition to the risk management policies and procedures adopted to manage insurance risk set out in Note 3(a) the provision 
of private health insurance in Australia is governed by the Act. Private health insurance business (arhi) is the primary focus of 
the Act which governs the provision of Complying Health Insurance Products (CHIPS). Under the Act, Registered Private Health 
Insurers may also provide health-related business as prescribed, and the Group provides International Students Cover (ishi) and 
International Workers Cover (iwhi) in this respect. The industry in Australia, is shaped by a number of regulatory factors:

 ¾ 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 (arhi) and ishi, 
but not to iwhi.

 ¾ 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 policyholders with lower average claims payments (such as nib) to those insurers with older and less healthy 
policyholders and which have higher average claims payments. The scheme applies to all health insurance business (CHIP) 
but does not apply to ishi or iwhi.

 ¾ Coverage Requirements: The Act limits the types of treatments that private health insurers can offer as part of their 

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

 ¾ Premium Approval: Under the Act, insurers can only increase CHIP premiums with the approval of the Minister. The Minister 
must approve the amounts unless the Minister is satisfied that the change would be contrary to the public interest. Insurers 
can ordinarily only seek one premium increase per annum. ishi 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. iwhi product premiums 
are not regulated by the Act or under any Deed with the Commonwealth.

In New Zealand, private health insurance is governed by the Insurance (Prudential Supervision) Act 2010 which requires an 
insurer to be licensed and requires a licensed insurer to:

 ¾ Maintain and disclose a financial strength rating;

 ¾ Maintain a fit and proper policy, which apply to Directors and other relevant officers;

 ¾ Maintain a risk management program;

 ¾ Have an appointed actuary and ensure the actuarial information contained in or used in the preparation of financial statements 

is reviewed by the appointed actuary; and

 ¾ Maintain a solvency margin over the minimum solvency capital required under the solvency standards for non life business 

issued by the Reserve Bank of New Zealand. 

69

2014 annual report3.  RISK MANAGEMENT continued

c.  Market risk

i.  Fair value interest rate risk

The Group’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to 
cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk if the borrowings are 
carried at fair value. The Group’s borrowings at variable rate were denominated in New Zealand Dollars.

The interest rate swaps have the effect of converting risk from the Premium Payback Liability. Under the interest rate swaps, the 
Group agrees with other parties to exchange, at specified intervals (mainly monthly), the difference between fixed contract rates 
and floating rate interest amounts calculated by reference to the agreed notional principal amounts.

As at the end of the reporting period, the Group had the following variable rate borrowings and interest rate swap 
contracts outstanding:

Bank loans

Interest rate swaps (notional principal amount)

Net exposure to cash flow interest rate risk

An analysis by maturities is provided at 3(e).

2014 

2013

Weighted 
average 
interest rate
%

4.2%

5.7%

Weighted 
average 
interest rate
%

4.1%

5.7%

Balance
$000

65,081 

1,396 

66,477 

Balance
$000

59,149 

(2,117)

57,032 

The Group’s other interest rate risks arise from receivables, financial assets at fair value through profit and loss and cash and 
cash equivalents. 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 consultants, JANA Implemented Consulting and Fisher Funds 
Management Limited. 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.

The table below summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk.

Interest Rate Risk

-100bps

+100bps

-100bps

+100bps

2014

2013

Carrying 
amount 
$000

Profit 
$000

Equity 
$000

Profit 
$000

Equity 
$000

Carrying 
amount 
$000

Profit 
$000

Equity 
$000

Profit 
$000

Equity 
$000

Financial assets

Cash and cash equivalents

148,722 

(1,041)

(1,041)

1,041 

1,041  143,056 

(1,001)

(1,001)

1,001 

1,001 

Other receivables

6,592 

(46)

(46)

46 

46 

15,391 

(108)

(108)

108 

108 

Financial assets at fair value through 
profit or loss

Unlisted equity securities

Financial liabilities

Bank loans

Premium payback liability

Total Increase / (decrease)

410,779 

3,112 

3,112 

(3,063)

(3,063) 351,786 

3,544 

3,544 

(3,492)

(3,492)

3,512 

 –

 –

 –

 –

2,735 

–

–

–

–

(65,081)

(40,750)

456 

(985)

456 

(985)

(456)

(456)

(59,149)

414 

414 

1,181 

1,181 

(40,214)

(1,140)

(1,140)

(414)

909 

(414)

909 

1,496 

1,496 

(1,251)

(1,251)

1,709 

1,709 

(1,888)

(1,888)

70

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014 
 
ii.  Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from foreign currency translation risk through 
its subsidiaries located in New Zealand. Foreign exchange gains or losses arising on translation of the Group’s foreign operations 
to the Group’s Australian dollar presentation currency are recognised directly in equity in accordance with the policy set out in 
Note 1(d). The Group does not hedge this risk.

The table below summarises the sensitivity of the Group’s equity to a 10% strengthening and weakening of the Australian dollar 
against the New Zealand dollar, with all other variables held constant.

Foreign Exchange Risk

Shareholders equity exposure

Loan from parent entity to nib nz holdings limited

Total Increase / (decrease)

iii.  Price risk

2014

2013

-10%

+10%

-10%

+10%

Exposure
$000

Equity

$000

$000

Exposure
$000

Equity

$000

$000

13,832 

19,258 

(1,383)

(1,926)

1,383 

1,926 

8,029 

17,518 

(803)

(1,752)

803 

1,752 

33,090 

(3,309)

3,309 

25,547 

(2,555)

2,555 

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. As the fair value of the available-for-sale financial assets would still be above cost, no impairment 
loss would be recognised in profit and loss as a result of the decrease in the unit price.

The table below summarises the sensitivity of the Group’s financial assets to price risk.

Other Price Risk

-10% unit price

+10% unit price

-10% unit price

+10% unit price

2014

2013

Carrying 
amount 
$000

Profit 
$000

Equity 
$000

Profit 
$000

Equity 
$000

Carrying 
amount 
$000

Profit 
$000

Equity 
$000

Profit 
$000

Equity 
$000

Financial assets

Financial assets at fair value through 
profit or loss

410,779 

(3,754)

(3,754)

3,754 

3,754  351,786 

(2,744)

(2,744)

2,744 

2,744 

Unlisted equity securities

3,512 

–

(246)

–

246 

2,735 

–

(191)

–

191 

Total Increase / (decrease)

(3,754)

(4,000)

3,754 

4,000 

(2,744)

(2,935)

2,744 

2,935 

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. 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 as their unit 
price changes.

71

2014 annual report 
 
 
 
 
 
 
 
 
3.  RISK MANAGEMENT continued 

d.  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, favourable derivative financial instruments, as well as credit exposures to policyholders 
and Medicare Australia (Health Insurance Contribution (HIC) rebate). nib only deals with major banks in Australia which are 
independently rated with a minimum rating of ‘A-1’ and in New Zealand with a minimum rating of ‘AA’. nib receives advice from 
its asset consultants, JANA Implemented Consulting, who provide a rating of investment managers to nib as part of their advice. 
Credit risk for premium receivables are minimal due to the diversification of policyholders. The HIC rebate receivable is due from 
a government organisation under legislation. 

A deferred settlement arrangement was in place for the sale of the Newcastle Private Hospital with the final $10 million instalment 
paid on 9 July 2013. The deferred settlement arrangement was covered by a mortgage over the property. 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.

2014
$000

2013
$000

1,902 

4,301 

389 

6,592 

211 

14,691 

275 

15,177 

121,866 

26,856 

148,722 

143,056 

19,921 

143,056 

50,138 

49,700 

2,075 

2,234 

121,090 

101,980 

47,867 

24,539 

5,186 

4,273 

115,197 

78,013 

46,955 

15,643 

4,139 

697 

357,148 

312,578 

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

AA

Financial assets at fair value through profit or loss

Short term deposits

A-1

Derivative financial instruments

AA

Interest-bearing securities

AAA

AA 

A 

BBB

Sub Investment Grade

Unclassified

72

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014 
 
e.  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.

The bank overdraft within borrowings 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 2014

Financial Liabilities

Trade creditors

Other payables

Borrowings

Group at 30 June 2013

Financial Liabilities

Trade creditors

Other payables

Borrowings

≤ 1 month
$000

1 – 3 months
$000

3 – 12 months
$000

1 – 5 years
$000

>5 years
$000

5,445 

51,176 

2,038 

58,659 

3,575 

48,747 

3,300 

55,622 

 –

4,163 

557 

4,720 

 –

3,258 

614 

3,872 

 –

367 

2,617 

2,984 

 –

 –

66,630 

66,630 

 –

77 

1,822 

1,899 

 –

 –

66,591 

66,591 

 –

 –

 –

 –

 –

 –

 –

 –

Total 
Contractual 
Cash flows
$000

Carrying 
amount 
$000

5,445 

55,706 

71,842 

5,445 

55,706 

66,849 

132,993 

128,000 

3,575 

52,082 

72,327 

3,575 

52,082 

62,449 

127,984 

118,106 

73

2014 annual report4.  FAIR VALUE MEASUREMENT

a.  Fair value hierarchy

AASB 13 Fair Value Measurement 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 2014 and 
30 June 2013.

Group at 30 June 2014

Assets 

Cash and cash equivalents and deposits at call

Financial assets at fair value through profit or loss

Short term deposits

Derivative financial instruments

Securities

Available-for-sale financial assets

Unlisted equity securities

Property, plant & equipment

Land & buildings

Total assets

Liabilities

Notes

Level 1
$000

Level 2
$000

Level 3
$000

Total
$000

148,722 

50,138 

 –

319,515 

 –

 –

 –

 –

2,075 

39,051 

3,512 

 –

518,375 

44,638 

 –

 –

 –

 –

 –

148,722 

50,138 

2,075 

358,566 

3,512 

40,587 

40,587 

40,587 

603,600 

Contingent consideration payable

36(a)(i)

Total liabilities

 –

 –

 –

 –

672 

672 

Group at 30 June 2013

Assets 

Cash and cash equivalents and deposits at call

Financial assets at fair value through profit or loss

Short term deposits

Derivative financial instruments

Securities

Available-for-sale financial assets

Unlisted equity securities

Total assets

Level 1
$000

Level 2
$000

Level 3
$000

143,056 

49,700 

 –

269,925 

 –

462,681 

 –

 –

2,234 

29,927 

2,735 

34,896 

 –

 –

 –

 –

 –

 –

672 

672 

Total
$000

143,056 

49,700 

2,234 

299,852 

2,735 

497,577 

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.

There were no transfers between level 1 and level 2 during the year ended 30 June 2014. However, there is a reclassification 
between the levels. The classification of some of the derivatives, bonds and securities which have historically been disclosed 
as ‘level 1’ have been revised to ‘level 2’ on the basis that, whilst there is a quoted price, the price of the security is based on 
valuation techniques using market observable inputs. The comparatives have been amended for consistency with current 
year presentation.

74

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014b.  Valuation techniques used to derive level 2 and level 3 fair values

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.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the 
case for the contingent consideration payable (Note 36(a)(i)).

Specific valuation techniques used to value financial instruments include:

 ¾ The use of quoted market prices or dealer quotes for similar instruments.

 ¾ Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining 

financial instruments.

All of the resulting fair value estimates for financial instruments are included in level 2 except for contingent consideration payable 
explained in c) below.

The Group obtains independent valuations for its freehold land and buildings at least every three years.

At the end of each reporting period, the Directors update their assessment of the fair value of each property, taking into 
account the most recent independent valuations. The best evidence of fair value is current prices in an active market for similar 
properties. Where such information is not available the Directors consider current prices in an active market for properties of a 
different nature or recent prices of similar properties in less active markets, adjusted to reflect those differences.

All resulting fair value estimates for properties are included at level 3.

c.  Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 instruments for the year ended 30 June 2014:

Opening balance 1 July 2013

Adoption of AASB13

Other increases

Acquisitions

Gains recognised in other comprehensive income

Depreciation

Closing balance 30 June 2014

i.  Transfers between levels 2 and 3

 –

37,201 

 –

49 

4,518 

(1,181)

40,587 

Land & 
Buildings
$000

Contingent 
consideration 
payable
$000

Total
$000

 –

37,201 

(672)

49 

4,518 

(1,181)

 –

 –

(672)

 –

 –

 –

(672)

39,915 

There were no transfers between the levels of the fair value hierarchy during the year. There were also no changes during the 
year to any of the valuation techniques applied as of 30 June 2013.

ii.  Valuation inputs and relationships to fair value

The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair 
value measurements:

Description

Fair value at  
30 June 2014  
$000

Land & buildings

40,587 

Contingent 
consideration 
payable

672 

Unobservable 
inputs*

Capitalisation 
rate

Risk adjusted 
discount rate

Anticipated 
payment date

Range of inputs 
(probability – 
weighted average)

7.5% – 9.5% 
(8.5%)

4.0% – 6.0% 
(5.0%)

Relationship of unobservable inputs to fair value

The higher the capitalisation rate, the lower the fair value.

A change in the discount rate by 100 basis points would 
increase/decrease the fair value by $14,000

30 September 
2016

A change in the anticipated payment date by one year 
would increase/decrease the fair value by $33,000

*  There were no significant inter-relationships between unobservable inputs that materially affect fair values.

75

2014 annual report4.  FAIR VALUE MEASUREMENT continued 

iii.  Valuation process

The Group engages external, independent and qualified valuers to determine the fair value of the Group’s land and buildings at 
least every three years. As at 30 June 2014, a Directors’ valuation has been performed for the land and buildings.

The finance department of the Group includes a team that performs the valuations of non-property assets required for financial 
reporting purposes, including Level 3 fair values. This team reports directly to the Chief Financial Officer (CFO) and the Audit 
Committee (AC).

Discussions of valuation processes and results are held between the CFO, AC and the valuation team at least once every six 
months, in line with the Group’s half-yearly reporting dates.

The main Level 3 inputs used by the Group in measuring the fair value of the contingent consideration payable are based on the 
terms of the share sale agreement, being an estimate of the timing of achieving a predetermined level of subscription income and 
a discount rate that is applicable to the anticipated payment date (Note 36(a)(i)).

Changes in Level 2 and 3 fair values are analysed at each reporting date during the half-yearly valuation discussion between 
the CFO, AC and the valuation team. As part of this discussion the team presents a report that explains the reason for the fair 
value movements.

d.  Fair values of other financial instruments

The Group also had another financial instrument which was not measured at fair value in the balance sheet. This had the 
following fair value as at 30 June 2014:

Non-current borrowings 

Bank loans

2014 

Carrying 
amount
$000

Fair value
$000

2013

Carrying 
amount
$000

Fair value
$000

65,081 

65,163 

59,149 

59,276 

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

5.  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 both a geographic and product perspective and has identified five reportable 
segments. Health Insurance consists of nib’s core product offering within the Australian private health insurance industry (arhi) 
and New Zealand Private Health Insurance (nib nz). Health Related consists of two separate segments – International Students 
Health Insurance (ishi) and International Workers Health Insurance (iwhi). On 1st July 2013, nib commenced nib Options which 
facilitates access to cosmetic treatment both overseas and here in Australia. The business was launched in March 2014.

Although the ishi segment and the nib Options segments do not meet the quantitative thresholds required by AASB 8, 
management has concluded that the segments should be reported, as they are closely monitored by the MD/CEO as potential 
growth segments and are expected to contribute to Group revenue in the future.

76

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014 
b.  Segment information provided to Executive management

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

2014

Australian 
Residents 
Health 
Insurance 
Australia
$000

International 
Students 
Health 
Insurance 
Australia
$000

International 
Workers 
Health 
Insurance 
Australia
$000

New Zealand 
Residents 
Health 
Insurance 
New Zealand
$000

nib 
Options 
Australia
$000

Unallocated 
to 
segments
$000

Premium revenue

1,314,472 

9,248 

Outwards reinsurance premium expense

 –

 –

30,022 

(1,285)

139,191 

 –

Net premium revenue

1,314,472 

9,248 

28,737 

139,191 

Claims expense

(933,522)

(5,052)

(12,457)

(89,509)

Reinsurance and other recoveries revenue

 –

RETF levy

State levies

Decrease in premium payback liability

(190,604)

(28,161)

 –

 –

 –

 –

 –

571 

 –

 –

 –

Claims handling expenses

Net claims incurred

Acquisition costs

Other underwriting expenses

Underwriting expenses

(16,029)

(128)

(543)

(1,168,316)

(5,180)

(12,429)

(87,320)

(38,962)

(51,409)

(90,371)

(892)

(1,667)

(2,559)

(2,614)

(4,253)

(6,867)

(25,410)

(19,075)

(44,485)

 –

 –

 –

3,291 

(1,102)

Underwriting result

55,785 

1,509 

9,441 

7,386 

Other income

Other expenses 

1,195 

 –

392 

 –

 –

 –

 –

 –

Operating profit / (loss) 

56,980 

1,901 

9,441 

7,386 

Inter-segment other income1

Depreciation and amortisation

903 

6,463 

 –

 –

 –

 –

745 

4,706 

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

371 

(2,906)

(2,535)

 –

28 

Investment income

Income tax expense

Total segment assets

Total segment liabilities

Insurance liabilities

Outstanding claims liability

Unearned premium liability

Premium payback liability

Total

26,843 

27,965 

522,899 

291,497 

82,860 

100,172 

 –

183,032 

3,529 

5 

3,880 

(819)

164,925 

2,212 

71,475 

1,354 

10,792 

14,030 

40,750 

65,572 

 –

 –

 –

 –

1.  Inter-segment other income is eliminated on consolidation and not included in operating profit for Australian Residents Health Insurance.

Total
$000

1,492,933 

(1,285)

1,491,648 

(1,040,540)

571 

(190,604)

(28,161)

3,291 

(17,802)

 –

 –

 –

 –

 –

 –

 –

 –

 –

 – (1,273,245)

 –

 –

 –

 –

3,706 

(4,617)

(67,878)

(76,404)

(144,282)

74,121 

5,664 

(7,523)

(911)

72,262 

903 

11,942 

30,377 

31,026 

690,036 

364,326 

93,652 

114,202 

40,750 

248,604 

77

2014 annual report5.  SEGMENT REPORTING continued

b.  Segment information provided to Executive management continued

2013

Australian 
Residents 
Health 
Insurance 
Australia
$000

International 
Students 
Health 
Insurance 
Australia
$000

International 
Workers 
Health 
Insurance 
Australia
$000

New Zealand 
Residents 
Health 
Insurance 
New Zealand
7 months
$000

nib 
Options 
Australia
$000

Unallocated 
to 
segments
$000

Total
$000

Premium revenue

1,187,237 

4,387 

28,348 

71,139 

Outwards reinsurance premium expense

 –

 –

(708)

 –

Net premium revenue

1,187,237 

4,387 

27,640 

71,139 

Claims expense

(833,754)

(3,393)

(12,119)

(47,719)

Reinsurance and other recoveries revenue

 –

RETF levy

State levies

Decrease in premium payback liability

(167,430)

(28,811)

 –

 –

 –

 –

 –

333 

 –

 –

 –

Claims handling expenses

Net claims incurred

Acquisition costs

Other underwriting expenses

Underwriting expenses

(14,682)

(38)

(1,118)

(1,044,677)

(3,431)

(12,904)

(45,112)

(37,466)

(46,054)

(807)

(228)

(83,520)

(1,035)

(2,760)

(3,551)

(6,311)

(11,204)

(8,434)

(19,638)

 –

 –

 –

3,266 

(659)

Underwriting result

59,040 

(79)

8,425 

6,389 

Other income

Other expenses 

 –

 –

 –

 –

 –

 –

 –

 –

Operating profit / (loss) 

59,040 

(79)

8,425 

6,389 

Inter-segment other income1

Depreciation and amortisation

907 

5,820 

 –

 –

 –

 –

1,048 

2,183 

Investment income

Income tax expense

Total segment assets

Total segment liabilities

Insurance liabilities

Outstanding claims liability

Unearned premium liability

Premium payback liability

Total

28,285 

28,295 

518,513 

253,409 

71,160 

80,591 

 –

151,751 

647 

2,380 

144,895 

66,811 

10,246 

12,834 

40,214 

63,294 

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

1,291,111 

(708)

 – 1,290,403 

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

 –

3,098 

(7,615)

(896,985)

333 

(167,430)

(28,811)

3,266 

(16,497)

(1,106,124)

(52,237)

(58,267)

(110,504)

73,775 

3,098 

(7,615)

(4,517)

69,258 

907

9,051 

28,932 

30,675 

663,408 

320,220 

81,406 

93,425 

40,214 

215,045 

1.  Inter-segment other income is eliminated on consolidation and not included in operating profit for Australian Residents Health Insurance.

78

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014c.  Other segment information

The MD/CEO assesses the performance of the operating segments based on operating profit. This measurement basis excludes 
the effects of non-recurring expenditure from the operating segments such as integration costs. 

No information regarding assets, liabilities and income tax is provided for individual Australian Health Insurance and Health 
Related segments to the MD/CEO. Furthermore, investment income and expenditure for Australia is not allocated to individual 
Australian segments as this type of activity is driven by the central treasury function, which manages the cash position of the 
Australian companies.

i.  Segment underwriting result

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

Segment operating profit

Other income – unallocated to segments

Other expenses – unallocated to segments

Finance costs

Investment income 

Investment expenses

Profit before income tax from continuing operations

ii.  Segment assets

2014
$000

73,173 

3,706 

(4,617)

(2,744)

31,235 

(1,584)

99,169 

2013
$000

73,775 

3,098 

(7,615)

(1,382)

29,983 

(1,199)

96,660 

Assets backing insurance liabilities have been included in segment assets reported. Assets held in nib holdings limited and nib nz 
holdings limited are not allocated to segments. Reportable segments’ assets are reconciled to total assets as follows:

Segment assets

Unallocated assets:

Cash and cash equivalents

Receivables

Available for sale financial assets

Deferred tax assets

Current tax assets

Plant, property and equipment

Total assets as per the balance sheet

iii.  Segment liabilities

2014
$000

2013
$000

690,036 

663,408 

97,465 

128 

3,512 

4,031 

2,876 

56 

43,511 

66 

2,735 

2,529 

–

68 

798,104 

712,317 

The Group’s borrowings are not considered to be segment liabilities but rather managed by the treasury function. Reportable 
segments’ liabilities are reconciled to total liabilities as follows: 

Segment liabilities

Unallocated liabilities:

Payables

Bank loans

Current tax liabilities

Deferred tax liabilities

Total liabilities as per the balance sheet

2014
$000

2013
$000

364,326 

320,220 

1,076 

65,081 

1,264 

9,989 

625 

59,149 

3,669 

2,501 

441,736 

386,164 

79

2014 annual report6.  REVENUE AND OTHER INCOME

Premium revenue
Outwards reinsurance premiums
Net premium revenue

Other Income
Agency fee
Life and funeral insurance commission
Travel insurance and other commission
Rental income
Subscription income
Sundry income

Investment income
Interest
Net realised gain on financial assets at fair value through profit or loss
Net unrealised gain on financial assets at fair value through profit or loss
Dividends 

7.  EXPENSES

Expenses by function
Claims handling expenses
Acquisition costs
Other underwriting expenses
Other expenses
Finance costs
Investment expenses
Total expenses (excluding direct claims expenses)

Expenses by nature
Employee costs
Depreciation and amortisation
Finance costs
Net loss on disposal of property, plant and equipment 
Operating lease rental expenses
Marketing expenses
Marketing expenses – commissions
Merger and acquisition costs
Electronic claims processing fees
Bank charges
Consultancy fees
Legal expenses
Postages
Share registry expenses
Software maintenance
Investment expenses
Other
Total expenses (excluding direct claims expenses)

80

2014
$000

2013
$000

1,492,933 
(1,285)
1,491,648 

1,291,111 
(708)
1,290,403 

232 
1,759 
387 
868 
347 
2,071 
5,664 

8,748 
20,197 
1,734 
556 
31,235 

143 
1,504 
376 
791 
–
284 
3,098 

9,811 
15,365 
4,728 
79 
29,983 

2014
$000

2013
$000

17,802 
67,878 
76,404 
7,523 
2,744 
1,584 
173,935 

69,742 
11,963 
2,744 
116 
3,246 
28,009 
25,270 
794 
3,953 
1,908 
2,541 
1,007 
1,859 
1,213 
5,585 
1,584 
12,401 
173,935 

16,497 
52,237 
58,267 
7,615 
1,382 
1,199 
137,197 

56,366 
9,072 
1,382 
3 
2,938 
22,456 
13,855 
3,566 
3,607 
2,063 
2,703 
403 
1,511 
1,684 
4,626 
1,199 
9,763 
137,197 

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

Notes

2014
$000

2013
$000

25,228 

4,211 

(46)

29,393 

25,136 

4,348 

19 

29,503 

29,393 

29,393 

29,503 

29,503 

Deferred income tax expense included in income tax expense comprises:

Decrease in deferred tax assets

Increase in deferred tax liabilities

15

24

1,101 

3,110 

4,211 

301 

4,047 

4,348 

b.   Numerical reconciliation of income tax expense to prima facie tax payable 

Profit from continuing operations before income tax expense

99,169 

96,660 

Tax at the Australian tax rate of 30% (2013: 30%)

29,751 

28,998 

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

Differences in foreign tax rates

Net assessable trust distributions

Other deductible expenses

Non-deductible merger and acquisition costs

Non-deductible entertainment expenses 

Other non-deductible expenses 

Adjustments for current tax of prior periods

Imputation credits and foreign tax credits

(103)

130 

(34)

68 

122 

104 

(46)

(599)

(104)

149 

(263)

1,070 

101 

46 

19 

(513)

Income tax expense

29,393 

29,503 

c.  Tax expense relating to items of other comprehensive income
Foreign currency translations

Gain on revaluation of land and buildings

Change in value of available for sale financial assets

27(b)

27(b)

27(b)

297 

1,355 

233 

1,885 

112 

46 

159 

317 

81

2014 annual report 
 
 
 
 
 
 
 
 
 
 
 
9.  CASH AND CASH EQUIVALENTS

Cash at bank and cash on hand

Short term deposits and deposits at call

a.  Risk exposure

2014
$000

123,732 

24,990 

148,722 

2013
$000

57,408 

85,648 

143,056 

The Group’s exposure to interest rate risk is discussed in Note 3(c)(i). 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

2014
$000

2013
$000

5,872 

30,899 

6,592 

(1,242)

2,782 

44,903 

5,940 

29,292 

15,391 

(938)

2,227 

51,912 

A deferred settlement arrangement was in place for the sale of the Newcastle Private Hospital with the final $10 million instalment 
paid on 9 July 2013. This amount was included in Other receivables in 2013.

a.  Impaired receivables

As at 30 June 2014 current receivables of the Group with a nominal value of $1.242 million (2013: $0.938 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 2013

Provision for impairment acquired with subsidiary

Provision for impairment recognised during the year

Unused amount reversed

2014
$000

468 

399 

375 

1,242 

2014
$000

938 

–

1,242 

(938)

1,242 

2013
$000

451 

127 

360 

938 

2013
$000

366 

173 

765 

(366)

938 

b.  Past due but not impaired

As of 30 June 2014 and 2013 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 3.

82

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014 
 
 
 
 
 
 
 
 
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 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. Refer to Note 3 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

Equity securities

Interest-bearing securities

Short term deposits

Derivative financial instruments – interest rate swap contracts

2014
$000

53,631 

304,935 

50,138 

2,075 

2013
$000

39,207 

260,645 

49,700 

2,234 

410,779 

351,786 

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 3.

12.  REINSURANCE AND OTHER RECOVERIES RECEIVABLE

Expected future reinsurance recoveries undiscounted

on claims paid

on outstanding claims

Reinsurance and other recoveries receivable on incurred claims

2014
$000

141 

(33)

108 

2013
$000

102 

(21)

81 

83

2014 annual report 
 
 
13.  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

Deferred acquisition costs acquired with subsidiary

Acquisition costs deferred during the year

Amortisation expense

Exchange differences

2014
$000

2013
$000

15,778 

15,778 

11,778 

11,778 

24,250 

24,250 

15,448 

15,448 

2014
$000

27,226 

–

27,072 

(15,075)

805 

40,028 

2013
$000

8,851 

7,628 

18,080 

(7,894)

561 

27,226 

Critical accounting judgements and estimates 

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.

The Group 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.

For the arhi and ishi businesses 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.

14.  AVAILABLE-FOR-SALE FINANCIAL ASSETS

Unlisted equity securities

a.  Unlisted securities

2014
$000

2013
$000

3,512 

2,735 

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 2014.

b.  Impairment and risk exposure

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 3.

84

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014 
 
 
 
 
 
 
 
 
 
15.  DEFERRED TAX ASSETS

The balance comprises temporary differences attributable to:

Depreciation

Employee benefits

Outstanding claims

Premium payback liabilities

Other

Doubtful debts

Asset revaluation

Provisions

Merger and acquisition costs

Tax losses

Sub-total other

Total deferred tax assets

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

Net deferred tax assets

Recovery of Total deferred tax assets:

Deferred tax assets to be recovered within 12 months

Deferred tax assets to be recovered after more than 12 months

Notes

2014
$000

2013
$000

–

2,377 

64 

10,995 

13,436 

318 

–

741 

325 

796 

2,180 

143 

2,006 

337 

10,882 

13,368 

163 

35 

1,808 

175 

–

2,181 

15,616 

15,549 

24

(11,585)

4,031 

(13,020)

2,529 

5,261 

10,355 

15,616 

5,444 

10,105 

15,549 

Depreciation
$000

Employee 
benefits
$000

Outstanding 
claims
$000

Unrealised 
losses on 
investments
$000

Premium 
payback 
liabilities
$000

Movements 

At 1 July 2012

(Charged)/credited to the income statement

(Charged)/credited directly to other 
comprehensive income

Acquisition of subsidiary

At 30 June 2013

At 1 July 2013

(Charged)/credited to the income statement

(Charged)/credited directly to other 
comprehensive income

Acquisition of subsidiary

At 30 June 2014

289 

(146)

1,684 

230 

 –

 –

8 

84 

418 

(81)

 –

 –

143 

2,006 

337 

143 

(140)

(3)

 –

 –

2,006 

353 

18 

 –

2,377 

337 

(273)

 –

 –

64 

277 

(277)

 –

(909)

Other
$000

1,452 

882 

Total
$000

4,120 

(301)

 –

 –

 –

 –

 –

 –

 –

 –

789 

11,002 

10,882 

(201)

48 

596 

11,134 

2,181 

15,549 

10,882 

(921)

2,181 

(120)

15,549 

(1,101)

1,034 

 –

9 

110 

1,058 

110 

10,995 

2,180 

15,616 

85

2014 annual report 
 
 
 
 
 
 
 
16.  PROPERTY, PLANT & EQUIPMENT

Land & 
Buildings
$000

Plant & 
Equipment
$000

Leasehold 
Improvements
$000

Notes

Fair value/Cost
Balance at 1 July 2012
Additions
Acquisition of subsidiary
Disposals
Revaluations
Exchange differences
Balance at 30 June 2013

Balance at 1 July 2013
Additions
Acquisition of subsidiary
Disposals
Revaluations
Exchange differences
Balance at 30 June 2014

Depreciation and impairment losses
Balance at 1 July 2012
Depreciation charge for the year
Disposals
Revaluations
Exchange differences
Balance at 30 June 2013

Balance at 1 July 2013
Depreciation charge for the year
Disposals
Revaluations
Exchange differences
Balance at 30 June 2014

Carrying amounts
At 30 June 2013
At 30 June 2014

a.  Valuations of land and buildings

36(a)

38,206 
53 
 –
 –
99 
 –
38,358 

38,358 
49 
 –
 –
2,773 
 –
41,180 

(32)
(1,179)
 –
54 
 –
(1,157)

(1,157)
(1,181)
 –
1,745 
 –
(593)

37,201 
40,587 

9,624 
2,012 
206 
(106)
 –
19 
11,755 

11,755 
3,730 
38 
(3,715)
 –
136 
11,944 

(6,458)
(1,488)
103 
 –
(1)
(7,844)

(7,844)
(1,862)
3,594 
 –
(14)
(6,126)

3,911 
5,818 

Total
$000

50,491 
2,244 
206 
(294)
99 
19 
52,765 

52,765 
5,119 
38 
(3,715)
2,773 
136 
57,116 

(8,387)
(3,000)
291 
54 
(1)
(11,043)

(11,043)
(3,431)
3,594 
1,745 
(14)
(9,149)

2,661 
179 
 –
(188)
 –
 –
2,652 

2,652 
1,340 
 –
 –
 –
 –
3,992 

(1,897)
(333)
188 
 –
 –
(2,042)

(2,042)
(388)
 –
 –
 –
(2,430)

610 
1,562 

41,722 
47,967 

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 9 December 2013. Other freehold land and buildings were independently valued by a member of the Australian 
Property Institute as at 30 June 2013. It is the opinion of the Directors that these valuations represent the fair value of the 
properties at 30 June 2014 allowing for additions and depreciation subsequent to the independent valuation. 

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

86

2014
$000

41,580 

(9,347)

32,233 

2013
$000

41,529 

(7,742)

33,787 

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014 
17.  INTANGIBLE ASSETS

Fair value/Cost
Balance at 1 July 2012
Additions
Acquisition of subsidiary
Exchange differences
Balance at 30 June 2013

Balance at 1 July 2013
Additions
Acquisition of subsidiary
Disposals

Exchange differences
Balance at 30 June 2014

Amortisation and impairment losses
Balance at 1 July 2012
Amortisation charge for the year
Exchange differences
Balance at 30 June 2013

Balance at 1 July 2013
Amortisation charge for the year
Disposals
Exchange differences
Balance at 30 June 2014

Carrying amounts
At 30 June 2013
At 30 June 2014

Notes

Goodwill
$000

Software
$000

Brands and 
Trademarks
$000

Customer 
Contracts
$000

36(a)

25,447 
 –
25,189 
1,879 
52,515 

52,515 
 –
1,423 
 –

2,688 
56,626 

 –
 –
 –
 –

 –
 –
 –
 –
 –

28,460 
6,707 
2,341 
188 
37,696 

37,696 
6,122 
 –
(821)

341 
43,338 

(20,013)
(3,729)
(3)
(23,745)

(23,745)
(4,839)
821 
(47)
(27,810)

4,044 
 –
2,360 
176 
6,580 

6,580 
 –
 –
 –

252 
6,832 

 –
(732)
(8)
(740)

(740)
(1,355)
 –
(113)
(2,208)

3,093 
 –
18,262 
1,363 
22,718 

22,718 
 –
 –
 –

1,949 
24,667 

(2,126)
(1,615)
(13)
(3,754)

(3,754)
(2,338)
 –
(175)
(6,267)

Total
$000

61,044 
6,707 
48,152 
3,606 
119,509 

119,509 
6,122 
1,423 
(821)

5,230 
131,463 

(22,139)
(6,076)
(24)
(28,239)

(28,239)
(8,532)
821 
(335)
(36,285)

52,515 
56,626 

13,951 
15,528 

5,840 
4,624 

18,964 
18,400 

91,270 
95,178 

a.  Impairment tests for goodwill and indefinite life intangibles

Goodwill and indefinite life intangibles are allocated to the Group’s cash-generating units (CGUs) identified according to 
operating segments.

Goodwill

At 30 June 2014

At 30 June 2013

Brands and Trademarks

At 30 June 2014

At 30 June 2013

Australian 
Residents 
Health 
Insurance
Australia
$000

International 
Students 
Health 
Insurance
Australia
$000

International 
Workers 
Health 
Insurance
Australia
$000

New Zealand 
Residents 
Health 
Insurance
New Zealand
$000

7,067 

7,067 

 –

 –

 –

 –

 –

 –

18,380 

18,380 

29,756 

27,068 

4,044 

4,044 

 –

 –

nib Options
Australia
$000

1,423 

 –

 –

 –

Total
$000

56,626 

52,515 

4,044 

4,044 

The recoverable amount of a CGU is determined based on a value-in-use calculation. 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. The recoverable amount exceeds the carrying value of the goodwill or indefinite life intangibles.

87

2014 annual report 
 
 
 
 
17.  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 policyholder growth, claims ratio and the discount factor.

Policyholder 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 in to perpetuity assuming a growth factor of 3%. The Group has 
applied a post-tax discount rate to discount the forecast future attributable post tax cash flows. For Australian CGUs, the 
discount rate applied of 10.7% represents the risk free rate of 5.0% plus a risk adjustment of 5.7%. This equates to a pre-tax 
discount rate of 14.53%. For the New Zealand CGU, the discount rate applied of 11.4% represents the risk free rate of 5.3% plus 
a risk adjustment of 6.1%. This equates to a pre-tax discount rate of 14.32%.

The following table sets out the key assumptions for those CGUs that have significant goodwill allocated to them:

Goodwill

Australian Residents Health Insurance (arhi)

International Workers Health Insurance (iwhi)

New Zealand Residents Health Insurance

Budget/forecast period1

Beyond budget/
forecast period

Discount rate

Policyholder 
growth

Claims ratio

Growth rate

2014
%

4.2

19.6

9.8

2013
%

3.9

17.9

11.6

2014
%

86.2

31.6

66.3

2013
%

86.9

39.0

64.8

2014
%

2013
%

3.0

3.0

3.0

0.0

0.0

0.0

2014
%

10.7

10.7

11.4

2013
%

9.0

9.0

11.1

1.  The Budget/forecast period for 2014 refers to FY15 to FY17, and for 2013 FY14 to FY16.

The following table sets out the key assumptions for those CGUs that have significant indefinite life intangibles allocated to them:

Budget/forecast period1

Beyond budget/
forecast period

Discount rate

Brands and trademarks

International Workers Health Insurance (iwhi)

2014
%

19.6

Policyholder 
growth

2013
%

Royalty Rate
2013
%

2014
%

Growth rate

2014
%

2013
%

2014
%

2013
%

17.9

1.125

1.125

3.0

0.0

10.7

9.0

1.  The Budget/forecast period for 2014 refers to FY15 to FY17, and for 2013 FY14 to FY16.

These assumptions have been used for analysis of each CGU within an operating segment. Management determined 
policyholder growth and claims ratios based on past performance and its expectations for the future.

c.  Significant estimate: Impact of possible changes in key assumptions

In both 2014 and 2013 there were no reasonably possible changes in any of the key assumptions that would have resulted in an 
impairment write-down of goodwill in any CGU.

The impact of key assumptions used in the value-in-use calculation for brands and trademarks for the International Workers 
Insurance segment are detailed below:

 ¾ If the budgeted short term policyholder growth rate used was 10% (compared to assumption used of 19.6%), the Group 

would have to recognise an impairment against intangible assets of $856,000.

 ¾ If the long term growth rate used was 0% (compared to assumption used of 3.0%), the Group would have to recognise an 

impairment against intangible assets of $1,009,000.

 ¾ If the discount rate was 1.0% higher (being 11.7%), the Group would have to recognise an impairment against intangible 

assets of $479,000.

88

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 201418.  PAYABLES

Current

Outwards reinsurance expense liability – premiums payable to reinsurers

Trade creditors

Other payables

RETF payable*

Annual leave payable

Non-Current

Deferred settlement

2014
$000

2013
$000

306 

5,445 

55,706 

45,294 

3,969 

110,720 

230 

3,575 

50,322 

41,215 

3,851 

99,193 

672 

672 

–

–

*  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.

2014
$000

2013
$000

Annual leave obligation expected to be settled after 12 months

463 

506 

89

2014 annual report19.  BORROWINGS

Current

Bank overdraft

Non-current

Bank loans (secured)

2014
$000

1,768 

1,768 

2013
$000

3,300 

3,300 

65,081 

65,081 

59,149 

59,149 

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 2014 are included in Current Liabilities – Payables under Trade Creditors.

Movements in the bank loans (secured) are as follows:

Balance at beginning of period

Proceeds from borrowings

Borrowing expenses

Amortisation of borrowing expenses

Exchange differences

Balance at end of period

a.  Secured liabilities

2014
$000

59,149 

 –

 –

56 

5,876 

65,081 

2013
$000

 –

55,160 

(147)

29 

4,107 

59,149 

nib nz holdings limited, a wholly owned subsidiary of nib holdings limited, has a NZ$70 million variable rate term loan facility in 
relation to the acquisition of nib nz limited with maturity and repayment at the end of three years being 30 November 2015.

The bank loan is secured by the shares in nib nz holdings limited and a negative pledge that imposes the following covenants on 
the Group. The negative pledge states that the Group will ensure that the following financial ratios are met:

i.  The Group Gearing Ratio will not be more than 35%.

ii.  The Group Net Tangible Assets will not be less than $180,000,000.

As at 30 June 2014 the Group Gearing Ratio was 15.8% and the Group Net Tangible Assets were $261.2 million.

nib holdings limited has provided a guarantee and indemnity to the ANZ Bank New Zealand on behalf of nib nz holdings limited in 
respect of the NZD$70 million term loan facility.

nib holdings limited has subordinated any amounts owing to it from nib nz holdings limited and nib nz limited in favour of all other 
creditors of these companies.

b.  Risk exposure

Information on the sensitivity of the Group’s profit and equity to interest rate risk on borrowings is provided in Note 3.

90

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 201420.  OUTSTANDING CLAIMS LIABILITY

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

Risk Margin

Administration component

Gross outstanding claims liability

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

Risk Margin

Net outstanding claims liability

2014
$000

74,536 

3,408 

1,375 

79,319 

13,742 

591 

93,652 

2013
$000

63,048 

3,771 

1,220 

68,039 

12,731 

636 

81,406 

*  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

Movements in the gross outstanding claims are 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

Outstanding claims acquired with subisidiary

Effect of changes in foreign exchange rates

Central estimate at end of period

Administration component

Risk margin

Gross outstanding claims at end of period

a.  Actuarial methods

2014
$000

68,039 

(1,220)

(3,771)

63,048 

(3,247)

(60,121)

1,034,646 

(960,695)

–

905 

74,536 

1,375 

3,408 

79,319 

2013
$000

60,041 

(1,320)

(2,941)

55,780 

(2,056)

(62,869)

893,219 

(831,088)

9,400 

662 

63,048 

1,220 

3,771 

68,039 

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.

91

2014 annual report20.  OUTSTANDING CLAIMS LIABILITY continued

The outstanding claims estimate for Australian segments is derived based on three valuation classes, namely hospital and 
prostheses services combined, medical services, and general treatment. For the New Zealand segment the outstanding claims 
estimate is derived based on two valuation classes, surgical and medical. This analysis is supplemented by more granular 
analysis within classes as appropriate.

In calculating the estimated cost of unpaid claims for arhi and nib nz, two methods are used. For service months April 2014 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 2014 and June 2014 the Bornhuetter-Ferguson method is used, which progressively blends payment experience 
and prior forecasts of incurred costs.

For iwhi and ishi a chain ladder method is used for all service months for the 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.

b.  Actuarial assumptions

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

Australian Residents Health Insurance

Assumed proportion paid to date

Expense rate

Discount rate

Risk margin

Risk equalisation rate

Risk margin for risk equalisation

International Students Health Insurance

Assumed proportion paid to date

Expense rate

Discount rate

Risk margin

International Workers Health Insurance

Assumed proportion paid to date

Expense rate

Discount rate

Risk margin

NZ Health Insurance

Assumed proportion paid to date

Expense rate

Discount rate

Risk margin

Hospital
%

2014

Medical
%

Ancillary
%

Hospital
%

2013

Medical
%

Ancillary
%

92.1%

1.7%

0.0%

3.3%

26.9%

4.3%

74.8%

1.70%

0.0%

19.6%

85.5%

8.0%

0.0%

23.2%

89.7%

96.5%

93.3%

88.4%

96.1%

1.7%

0.0%

3.3%

26.9%

4.3%

82.1%

1.70%

0.0%

19.6%

82.5%

8.0%

0.0%

23.2%

1.7%

0.0%

3.3%

0.0%

0.0%

98.6%

1.70%

0.0%

19.6%

87.0%

8.0%

0.0%

23.2%

1.8%

0.0%

5.0%

30.8%

5.0%

1.8%

0.0%

5.0%

30.8%

5.0%

1.8%

0.0%

5.0%

0.0%

5.0%

76.5%

84.2%

98.7%

1.8%

0.0%

5.0%

89.3%

8.0%

0.0%

10.0%

1.8%

0.0%

5.0%

86.9%

8.0%

0.0%

10.0%

1.8%

0.0%

5.0%

87.0%

8.0%

0.0%

10.0%

2014

2013

Surgical
%

Medical
%

Surgical
%

Medical
%

88.9%

78.5%

1.6%

0.0%

8.5%

1.6%

0.0%

8.5%

89.1%

1.7%

0.0%

11.5%

77.8%

1.7%

0.0%

11.5%

The risk margin of 3.3% for arhi (2013: 5.0%), ishi 19.6% (2013: 5.0%), 23.2% for iwhi (2013: 10%) and nib nz 8.5% (2013: 11.5%) 
of the underlying liability has been estimated to equate to a probability of adequacy of 95% for the Group. The 2013 assumptions 
were estimated to equate a probability of adequacy of 95% for each of health funds limited and nib nz limited and a probability 
adequacy for the Group greater than 95%. The risk margin within each territory allows for diversification across the entity. There 
is now also an additional benefit of diversification between the Australian and New Zealand segments, and is allocated to the arhi 
segment risk margin.

92

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014c.  Process used to determine assumptions

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 policyholders 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% at a consolidated level (June 2013: greater than 95%).

d.  Sensitivity analysis

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

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.

Bornhuetter-Ferguson 
Unpaid Factors

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.

Expense rate

Risk equalisation

Risk margin

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.

93

2014 annual report20.  OUTSTANDING CLAIMS LIABILITY continued

d.  Sensitivity analysis continued

ii.  Impact of key variables

Recognised amounts in the financial statements

Profit 
2014
$000

69,911 

Variable

Movement in 
variable

Adjustments

Adjusted 
amounts

Adjustments

Equity 
2014
$000

356,422 

Adjusted 
amounts

Chain Ladder Development Factors

Bornhuetter-Ferguson Unpaid Factors

Expense rate

Risk equalisation allowance

Risk margin

+0.5%

-0.5%

+2.0%

-2.0%

+1.0%

-1.0%

+2.5%

-2.5%

+1.0%

-1.0%

$000

$000

$000

$000

(4,405)

4,405 

(3,090)

3,090 

(755)

755 

(1,329)

1,329 

(829)

832 

65,506 

74,316 

66,821 

73,001 

69,156 

70,666 

68,582 

71,240 

69,082 

70,743 

(4,405)

4,405 

(3,090)

3,090 

(755)

755 

(1,329)

1,329 

(829)

832 

352,017 

360,827 

353,332 

359,512 

355,667 

357,177 

355,093 

357,751 

355,593 

357,254 

21.  UNEARNED PREMIUM LIABILITY AND UNEXPIRED RISK LIABILITY

a.  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

Unearned premium liability acquired with subsidiary

Deferral of premiums on contracts written in the period

Earning of premiums written in previous periods

Unearned premium liability as at 30 June 

b.  Unexpired risk liability

2014
$000

2013
$000

104,278 

104,278 

90,092 

90,092 

9,924 

9,924 

3,333 

3,333 

2014
$000

93,425 

–

110,869 

(90,092)

114,202 

2013
$000

141,666 

12,566 

75,060 

(135,867)

93,425 

No deficiency was identified as at 30 June 2014 and 2013 that resulted in an unexpired risk liability needing to be recognised.

Critical accounting judgements and estimates

The adequacy of the unearned premium liability was assessed by considering current estimates of all expected future cash flows 
relating to future claims against current private health insurance contracts.

A risk margin is applied to achieve the same probability of sufficiency for future claims as is achieved by the estimate of 
outstanding claims liability, refer Note 20(b).

94

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 201422.  PREMIUM PAYBACK LIABILITY

Current

Premium payback liability

Non current

Premium payback liability

Movements in the premium payback liability are as follows:

Gross premium payback liability at beginning of period

To ensure reserve exceeds current payout on early lapse

Value of payments currently being processed

Risk margin

Central estimate at beginning of period

Gross outstanding claims acquired with subsidiary

To Ensure Reserve Exceeds current payout on early lapse acquired with subsidiary

Value of payments currently being processed acquired with subsidiary

Risk margin acquired with subsidiary

Central estimate acquired with subsidiary

Funding/new accrued

Unwind discount rate

Interest rate movement impact

Premium payback payments

Others

Effect of changes in foreign exchange rates

Central estimate at end of year/period

To ensure reserve exceeds current payout on early lapse

Value of payments currently being processed

Risk margin

Gross outstanding claims at end of period

a.  Risk exposure

2014
$000

7,496 

7,496 

2013
$000

8,287 

8,287 

33,254 

33,254 

31,927 

31,927 

2014
$000

40,214 

(1,167)

(1,191)

(1,954)

35,902 

 –

 –

 –

 –

 –

5,878 

1,757 

(1,195)

(9,765)

759 

3,492 

2013
$000

 –

 –

 –

 –

 –

40,545 

(751)

(1,114)

(2,114)

36,566 

3,512 

709 

(1,054)

(6,564)

145 

2,588 

36,828 

35,902 

1,733 

1,033 

1,156 

1,167 

1,191 

1,954 

40,750 

40,214 

Information about the Group’s exposure to interest rate risk in relation to premium payback liability is provided in Note 3(c)(i).

b.  Actuarial methods

A number of nib nz limited’s health insurance policies have a benefit whereby policyholders receive a proportion of premiums 
paid less claims received over the life of their policy, “premium payback”, if certain conditions are met. This liability represents a 
long term health insurance contract liability. The liability was determined based on the discounted value of accumulated excess 
of premiums over claims at an individual policy level, adjusted for GST recoveries and expected future lapses.

A risk margin at 95% probability of sufficiency was estimated by assuming there are no future lapses. Most of the premium 
payback reserve is held in respect of a group of customers where the historical lapse rate is already very low. 

95

2014 annual report22.  PREMIUM PAYBACK LIABILITY continued

The following assumptions have been made in determining the premium payback liability:

Lapse rate until three years from premium payback date

Lapse rate within three years of premium payback date

Expense rate

Discount rate for succeeding and following year

Risk margin

The risk margin has been estimated to equate to a 95% probability of adequacy (2013: 95%).

c.  Sensitivity analysis

i.  Summary

Variable

Impact of movement in variable

2014

2013

2.0% – 13.0% 2.0% – 10.0%

0.0% – 1.0% 0.0% – 1.0%

0.0%

0.0%

3.8% – 4.2% 3.0% – 3.5%

2.6%

4.8%

Lapse rate

Discount rate

Rate used in calculating the discounted provision to allow for expected lapses, based 
on historical experience. An increase or decrease in the lapse assumption would have a 
corresponding impact on the premium payback liability.

Rate used in calculating the discounted provision to allow for expected investment income, 
based on the current yields on New Zealand Government debt (risk free rates). An increase or 
decrease in the discount rate assumption would have a corresponding impact on the premium 
payback liability.

Risk margin

An estimate of the amount of uncertainty in the determination of the central estimate. An increase 
or decrease in the risk margin would have an inverse impact on the premium payback liability.

ii.  Impact of key variables

Recognised amounts in the financial statements

Variable

Lapse Rate

Discount Rate

Risk margin

Profit 
2014
$000

69,911 

Adjusted 
amounts

$000

70,629 

69,144 

70,907 

68,715 

69,884 

69,948 

Adjustments

$000

718 

(767)

996 

(1,196)

(27)

37 

Equity 
2014
$000

356,422 

Adjusted 
amounts

$000

357,140 

355,655 

357,418 

355,226 

356,395 

356,459 

Movement in 
variable

Adjustments

+1.0%

-1.0%

+1.0%

-1.0%

+1.0%

-1.0%

$000

718 

(767)

996 

(1,196)

(27)

37 

d.  Unexpired risk liability

A liability adequacy test was performed allowing for the expected cash flows of each policy over the entire product life.

The future cash flows include:

 ¾ Reserves held at 30 June 2014 including the risk margin; 

 ¾ Expected future payments for claims, policy paybacks and management expenses; and 

 ¾ Expected future revenue from premiums and investment income.

No deficiency was identified at 30 June 2014 (2013: nil) that resulted in an unexpired risk liability needing to be recognised.

96

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 201423.  PROVISION FOR EMPLOYEE ENTITLEMENTS

Current

Long service leave

Termination benefits

Retirement benefits

Non-Current

Long service leave

2014
$000

2013
$000

2,097 

195 

78 

2,370 

1,268 

1,268 

1,878 

143 

69 

2,090 

1,217 

1,217 

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

24.  DEFERRED TAX LIABILITIES

The balance comprises temporary differences attributable to:
Depreciation
Deferred acquisition costs
Customer contracts
Unrealised gains on investments

Other
Prepayments
Income receivables
Unrealised foreign exchange gains
Borrowing costs
Asset revaluation
Sub-total other

Total deferred tax liabilities

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

Recovery of Total deferred tax liabilities:
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities to be settled after more than 12 months

2014
$000

1,882 

78 

1,960 

2013
$000

1,686 

69 

1,755 

Notes

2014
$000

2013
$000

137 
11,382 
5,848 
1,828 
19,195 

6 
4 
793 
23 
1,553 
2,379 

 –
7,528 
6,444 
1,139 
15,111 

7 
96 
271 
36 
 –
410 

21,574 

15,521 

15

(11,585)
9,989 

(13,020)
2,501 

5,427 
16,147 
21,574 

3,572 
11,949 
15,521 

97

2014 annual report 
 
 
 
 
 
 
 
24.  DEFERRED TAX LIABILITIES continued

Movements

At 1 July 2012

(Charged)/credited to the income statement

(Charged)/credited directly to other 
comprehensive income

Acquisition of subsidiary

At 30 June 2013

At 1 July 2013

(Charged)/credited to the income statement

(Charged)/credited directly to other 
comprehensive income

At 30 June 2014

25.  CONTRIBUTED EQUITY

a.  Share capital

Ordinary shares

Fully paid

Other equity securities

Treasury shares

Total contributed equity

b.  Movements in share capital

Date

Details

1 July 2013

Opening balance

30 June 2014

Balance

Reverse acquisition accounting policy

Depreciation
$000

Deferred 
acquisition 
costs
$000

Customer 
contracts
$000

Unrealised 
gains on 
investments
$000

 –

 –

 –

 –

 –

 –

137 

 –

137 

1,435 

3,805 

152 

2,136 

7,528 

7,528 

3,616 

238 

11,382 

290 

(748)

473 

6,429 

6,444 

6,444 

(1,189)

593 

5,848 

 –

1,139 

 –

 –

1,139 

1,139 

689 

 –

1,828 

Other
$000

271 

(149)

288 

 –

410 

410 

(143)

2,112 

2,379 

Total
$000

1,996 

4,047 

913 

8,565 

15,521 

15,521 

3,110 

2,943 

21,574 

2014
$000

2013
$000

28,106 

28,106 

(917)

(200)

27,189 

27,906 

No of shares

Price $

$000

 439,004,182 

 439,004,182 

28,106 

28,106 

Post demutualisation of nib health funds limited in 2007, 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.

98

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014 
 
 
 
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 Short-Term Incentive and Long-Term Incentive share plans. 
See Note 39 for more information.

Date

Details

1 July 2012

Opening balance

Jul 2012

Aug 2012

Sep 2012

Sep 2012

Feb 2013

Mar 2013

Apr 2013

May 2013

Jun 2013

Acquisition of shares by the Trust

Acquisition of shares by the Trust

Employee share issue – LTIP

Employee share issue – STI

Acquisition of shares by the Trust

Acquisition of shares by the Trust

Acquisition of shares by the Trust

Acquisition of shares by the Trust

Acquisition of shares by the Trust

30 June 2013

Balance

1 July 2013

Opening balance

Jul 2013

Sep 2013

Jun 2014

30 June 2014

Acquisition of shares by the Trust

Employee share issue – STI

Acquisition of shares by the Trust

26.  RETAINED PROFITS

Balance at the beginning of the year

Net profit

Dividends

Balance at the end of the financial year

No. of shares

 338,000 

 169,000 

 125,000 

(561,070)

(49,492)

 14,744 

 14,744 

 14,744 

 14,744 

 14,744 

 95,158 

 95,158 

 16,280 

(60,251)

250,000

 301,187 

2014
$000

295,212 

69,911 

(44,991)

320,132 

$000

525 

254 

208 

(877)

(76)

33 

33 

33 

36 

31 

200 

200 

35 

(120)

802 

917 

2013
$000

271,954 

67,157 

(43,899)

295,212 

99

2014 annual report27.  RESERVES

a.  Reserve comprises

Revaluation surplus – property, plant and equipment

Available-for-sale financial assets

Share-based payments

Share-based payments exercised

Foreign currency translation

b.  Movements in reserves

Revaluation surplus – property, plant and equipment

Balance at the beginning of the year

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

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

Issue of shares held by nib Holdings Ltd Share Ownership Plan Trust to employees

Balance at the end of the financial year

Foreign currency translation

Balance at the beginning of the year

Currency translation differences arising during the year – gross

Deferred tax

Balance at the end of the financial year

c.  Nature and purpose of reserves

Revaluation surplus – property, plant and equipment

2014
$000

5,033 

1,408 

524 

(1,139)

3,275 

9,101 

2014
$000

1,870 

4,518 

(1,355)

5,033 

865 

776 

(233)

1,408 

204 

320 

 –

524 

(1,139)

 –

 –

2013
$000

1,870 

865 

204 

(1,139)

1,235 

3,035 

2013
$000

1,763 

153 

(46)

1,870 

494 

530 

(159)

865 

625 

136 

(557)

204 

(819)

557 

(877)

(1,139)

(1,139)

1,235 

2,337 

(297)

3,275 

 –

1,347 

(112)

1,235 

Notes

15

15

15

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(w).

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(v). Amounts are recognised in profit and loss when the associated 
assets are sold or impaired.

100

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014Share-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.

Foreign currency translation

Exchange rate differences arising on translation of foreign controlled entities are recognised in other comprehensive income as 
described in Note 1(d) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss 
when the net investment is disposed of.

28.  DIVIDENDS

a.  Ordinary shares

Final dividend for the year ended 30 June 2013 of 5.0 cents per fully paid ordinary share, made up 
of 5.0 cps ordinary dividend (2012: 5.0 cents per fully paid ordinary share, made up of 5.0 cps ordinary 
dividend) paid on 4 October 2013

Fully franked based on tax paid @ 30%

21,946 

21,949 

Interim dividend for the year ended 30 June 2014 of 5.25 cents per fully paid ordinary share, made 
up of 5.25 cps ordinary dividend (2013: 5.0 cents per fully paid ordinary share, made up of 5.0 cps 
ordinary dividend) paid on 4 April 2014

2014
$000

2013
$000

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 the end of the year the Directors have recommended the 
payment of a final dividend of 14.75 cents per fully paid ordinary share, made up of 5.75 cps ordinary 
dividend and 9.0 cps special dividend (2013: 5.0 cents per fully paid ordinary share, made up of 5.0 cps 
ordinary dividend), fully franked based on tax paid at 30%. The aggregate amount of the proposed 
dividend expected to be paid on 3 October 2014 out of retained profits at 30 June 2014, but not 
recognised as a liability at the end of the year, is

23,045 

44,991 

21,950 

43,899 

2014
$000

2013
$000

64,753 

21,950 

c.  Franked dividends 

The franked portion of the final dividends recommended after 30 June 2014 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 2015.

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

2014
$000

2013
$000

26,316 

22,157 

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.

101

2014 annual report29.  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

Weighted average number of ordinary shares used as the denominator in calculating 
basic earnings per share

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

e.  Information concerning the classification of shares

i.  Performance rights

2014
Cents

15.9

–

15.9

2014
Cents

15.9

–

15.9

2013
Cents

15.3

–

15.3

2013
Cents

15.3

–

15.3

2014
$000

2013
$000

69,911 

67,157 

69,911 

67,157 

69,911 

67,157 

69,911 

67,157 

2014
Number

2013
Number

439,004,182

439,004,182

–

–

439,004,182

439,004,182

Performance rights granted to employees under the nib holdings Long-Term Incentive Plan are considered to be potential 
ordinary shares and are only 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 Remuneration Report on page 40.

The total 1,917,134 performance rights granted (2013 – 1,358,077) 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 2014. These performance 
rights could potentially dilute basic earnings per share in the future.

102

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 201430.  CAPITAL 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 has a number of levers, including adjusting the amount of dividends 
paid to shareholders, returning capital to shareholders, issuing new shares, selling assets, raising or reducing debt or buying 
back shares.

Available capital increased during the year as a result of the new PHIAC capital standards for Australian health insurers. After 
reviewing the Group’s available capital position a fully franked special dividend of 9.0 cents per share ($39.5 million) has been 
declared and will be paid on 3 October 2014.

nib holdings limited

The Group through earnings and capital management have achieved a return on equity of 20% or greater for the last three 
years and continues to target return on equity in the order of 20%. The return on equity as at 30 June 2014 is 20.8%. (2013: 
21.6%). While improvement to return on equity 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.

At 30 June 2014 the Group had available capital of $18.7 million above our internal benchmark (after allowing for the payment 
of a fully franked final dividend of 14.75 cents per share, made up of 5.75 cps ordinary dividend and 9.0 cps special dividend, 
totalling $64.8 million, in October 2014).

Below is a reconciliation of net assets to available capital as at 30 June 2014 (after allowing for payment of a final dividend):

Net assets

Less:  nib health fund capital required

nib nz capital required

nib nz intangibles 

International Workers intangibles

nib Options intangibles

Borrowings

Other assets and liabilities

Additional capital required to comply with debt covenant

Final dividend

Special dividend

Available capital (after allowing for payment of a final dividend)

nib health funds limited

2014
$m

356.4 

(200.8)

(48.4)

(42.6)

(23.9)

(1.4)

65.1 

3.7 

(24.7)

(25.2)

(39.5)

18.7 

PHIAC introduced new capital standards during FY14. The Capital Adequacy Standard was effective from 31 March 2014 and 
the Solvency Standard from 1 July 2014.

nib health funds limited, a controlled entity, 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 new Solvency Standard (which commenced on 1 July 2014), nib health funds limited:

i.  must ensure that, at all times, the value of cash must be equal to or greater than a specified cash management amount, plus 

any solvency supervisory adjustment (section 4.2 of the Solvency Standard) 

ii.  must have, and comply with, a board endorsed, liquidity management plan designed to ensure compliance with the solvency 
requirements described above, and set minimum liquidity requirements and management action triggers (section 4.3 of the 
Solvency Standard)

To comply with the new Capital Adequacy Standard (which commenced on 31 March 2014), nib health funds limited:

i.  must ensure that at all times the value of its assets is not less than the amounts calculated under section 4.2 (a) and (b) of the 

Capital Adequacy Standard (Capital Adequacy Requirement)

ii.  must have, and comply with, a written, board endorsed capital management policy

103

2014 annual report30.  CAPITAL MANAGEMENT continued

nib health funds limited continued

nib health funds limited has a capital management plan which establishes a target 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 internal capital 
target ensures nib has a minimum level of capital given certain stressed capital scenarios. This currently approximates to 13.5% 
of total projected premiums for the next 12 months.

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 $9,400,000 in March 2014 and $90,000,000 June 2014 to 
nib holdings limited.

The surplus assets over benchmark at 30 June 2014 and 30 June 2013 were as follows:

New capital standards

Total Assets nib health funds limited (excluding unclosed business contributions – unearned)

Capital Adequacy Requirement

Surplus Assets for Capital Adequacy

Net Assets nib health funds limited

Internal capital target

Surplus assets over internal capital target

Prior capital standards

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

nib nz limited

2014
$000

2013
$000

506,722 

326,268 

180,454 

205,933 

200,797 

5,136 

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

497,127 

375,880 

121,247 

1.32 

1.30 

488,644 

8,483 

nib nz limited, a controlled entity, is required to comply with the Solvency Standards for non life insurance business published 
by the Reserve Bank of New Zealand (RBNZ). The Solvency Standards were introduced in New Zealand under the Insurance 
(Prudential Supervision) Act 2010 (IPSA) and became effective from 31 December 2012. The Solvency Standards determine 
the Minimum Solvency Capital required. A requirement of nib nz limited’s insurance license is that it maintains capital above the 
Minimum Solvency Capital.

The overriding objective underpinning nib nz limited’s capital management approach is to operate with a level of capital judged to 
be commercially prudent and within the bounds of the Board’s risk appetite which achieves a balance between:

 ¾ maintaining a buffer above the RBNZ Minimum Solvency Requirement (MSR) for nib nz limited (as defined by the IPSA 

Solvency Standard for Non-life Insurance Business);

 ¾ maintaining a level of capital that ensures an appropriate financial strength rating; and

 ¾ avoiding holding an excessive level of capital, which would otherwise act to reduce returns on capital for the Group. 

The benchmark capital adequacy coverage ratio is 1.75x plus $NZ10 million.

104

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014The surplus assets over benchmark at 30 June 2014 and 2013 are as follows:

Actual Solvency Capital

Minimum Solvency Capital

Solvency Capital

Capital Adequacy Coverage Ratio

Internal benchmark

Internal benchmark requirement

Surplus assets over internal benchmark

31.  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

32.  CONTINGENT LIABILITIES

2014
$000

29,615 

7,823 

21,792 

3.79 

1.75+$NZ10m

23,000 

6,615 

2013
$000

18,879 

8,526 

10,353 

2.21 

1.75 

14,921 

3,958 

2014
$000

2013
$000

3,406

10,140

1,733

15,279

2014
$000

477 

477 

2,242

3,277

1,004

6,523

2013
$000

421 

421 

nib holdings limited has provided a guarantee and indemnity to the ANZ Bank New Zealand on behalf of nib nz holdings limited in 
respect of the NZD$70 million term loan facility.

nib holdings limited has given an undertaking to extend financial support to nib Options pty limited, Realself pty limited and 
Realsurgeons pty limited by subordinating repayment of debts owed by the entities to nib holdings 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 22 August 2014, or if earlier, to the date of sale of the 
entities should this occur.

nib health funds limited has given an undertaking to extend financial support to nib servicing facilities pty limited by subordinating 
repayment of debts owed by the entity to nib health funds limited, in favour of all other creditors. This undertaking has been 
provided as a result of the subsidiary experiencing deficiencies of capital and reserves, and is intended to enable the entity to 
continue its operations and fulfil all financial obligations now and in the future. The undertaking is provided for a minimum period 
of 12 months from 22 August 2014, or if earlier, to the date of sale of the entity should this occur.

33.  EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

There have not been any other 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.

105

2014 annual report34.  REMUNERATION OF AUDITORS

a. PricewaterhouseCoopers Australia

1. Audit services

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

Total remuneration for audit services

2. Non-audit services

Audit-related services

Audit of regulatory returns

Total remuneration for audit-related services

Taxation services

Tax compliance services

International tax consulting and tax advice on mergers and acquisitions

Total remuneration for taxation services

Other services

Accounting advice and support

Review of regulatory returns

Total remuneration for other services

Total remuneration for non-audit services

Total remuneration of PricewaterhouseCoopers Australia

b. Network firms of PricewaterhouseCoopers Australia

1. Audit services

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

Total remuneration for audit services

2. Non-audit services

Audit-related services

Audit of regulatory returns

Total remuneration for audit-related services

Taxation services

Tax compliance services

International tax consulting and tax advice on mergers and acquisitions

Total remuneration for taxation services

Other services

Review of regulatory returns

Total remuneration for other services

Total remuneration for non-audit services

2014
$

2013
$

406,398

406,398

435,450

435,450

43,100

43,100

39,527

39,527

106,195

45,329

151,524

27,103

11,094

38,197

95,684

21,524

117,208

13,000

13,862

26,862

232,821

183,597

639,219

619,047

141,611

141,611

166,622

166,622

10,359

10,359

61,519

 –

61,519

 –

 –

36,978

168,291

205,269

 –

 –

9,424

9,424

71,878

214,693

Total remuneration of network firms of PricewaterhouseCoopers

213,489

381,315

Total auditors’ remuneration

852,708

1,000,362

106

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 201435.  NOTES TO THE STATEMENT OF CASH FLOWS

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

Notes

9

19

2014
$000

148,722 

(1,768)

146,954 

2013
$000

143,056 

(3,300)

139,756 

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

Amortisation of borrowing costs

Net exchange differences

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

Decrease (increase) in current tax assets

Decrease (increase) in receivables

Decrease (increase) in reinsurance receivables

Decrease (increase) in deferred acquisition costs

Decrease (increase) in deferred tax assets

Increase (decrease) in trade payables

Increase (decrease) in unearned premium liability

Increase (decrease) in premium payback liability

Increase (decrease) in current tax liabilities

Increase (decrease) in deferred tax liabilities

Increase (decrease) in provisions

Net cash flow from operating activities

2014
$000

69,776 

116 

(11,379)

 –

320 

11,963 

56 

(5,314)

(2,876)

(3,221)

(27)

(12,802)

(2,062)

11,410 

20,777 

536 

(2,405)

6,133 

12,695 

93,696 

2013
$000

67,157 

3 

(8,840)

 –

136 

9,072 

29 

43 

 –

22,278 

(81)

(10,178)

11,067 

8,994 

(61,744)

(3,356)

(3,224)

(6,703)

(4,617)

20,036 

107

2014 annual report36.  BUSINESS COMBINATION

a.  Summary of acquisition

On 13 September 2013, nib Options pty limited (a 92.5% owned subsidiary incorporated on 31 July 2013) acquired 100% of the 
issued capital of RealSelf pty limited effective 1 July 2013.

Details of the purchase consideration are as follows:

Purchase consideration

Cash

Contingent consideration

Total purchase consideration

The fair values of the assets and liabilities recognised as a result of the acquisition are as follows:

Cash and cash equivalents

Receivables

Deferred tax assets

Property, plant and equipment

Payables

Borrowings

Prepaid subscriptions

Provision for employee entitlements

Net identifiable assets acquired

Add: Goodwill

Net assets acquired

$000

331 

672 

1,003 

Fair value 
$000

247 

91 

110 

38 

(110)

(550)

(236)

(10)

(420)

1,423 

1,003 

The goodwill is attributable to the future profitability of the acquired business. None of the goodwill is expected to be deductible 
for tax purposes.

i.  Contingent consideration

When a predetermined level of subscription income is achieved by the subsidiary, consideration of $750,000 will be payable in 
cash. It is anticipated that the required subscription income will be achieved in September 2016, therefore the consideration has 
been discounted to $672,025 using the risk free rate of 5.0%.

ii.  Acquisition related costs

Total acquisition related costs are $247,975, of which $103,621 has been incurred in the current period and are included in other 
expenses in profit or loss and in operating cash flows in the statement of cash flows.

iii.  Revenue and profit contribution

The acquired business contributed to the Group other income of $311,900 and net loss of $40,235 for the period from 
1 July 2013 to 30 June 2014.

iv.  Acquired receivables

The fair value of acquired receivables is $91,164. The gross contractual amount for trade receivables due is $126,864, of which 
$35,700 is expected to be uncollectible and has been fully provided for at acquisition.

108

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014b.  Purchase consideration – cash outflow

Outflow of cash to acquire subsidiary, net of cash acquired

Cash consideration

Less: Cash balances acquired

Outflow of cash – investing activities

c.  Prior period

$000

331 

(247)

84 

On 30 November 2012, nib nz holdings limited (a wholly owned subsidiary of nib holdings limited, incorporated on 31 October 
2012) acquired 100% of the issued share capital of nib nz limited (formerly Tower Medical Insurance Limited), New Zealand’s 
second largest private health insurer. Details of this business combination were disclosed in Note 38 of the Group’s Annual 
Financial Statements for the year ended 30 June 2013.

37.  CONTROLLED ENTITIES

a.  Subsidiaries and trusts

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):

Beneficial ownership by 
Consolidated entity

Place of 
Incorporation

2014 
%

2013 
%

Australia

Australia

Australia

Australia

Australia

Australia

New Zealand

New Zealand

Australia

Australia

Australia

100

100

100

100

100

100

100

92.5

92.5

92.5

100

100

100

100

100

100

100

N/A

N/A

N/A

nib holdings limited

  nib health funds limited

  nib servicing facilities pty limited

  nib health care services pty limited

  The Heights Private Hospital pty limited

IMAN Australian Health Plans Pty Limited

  nib nz holdings limited (previously nib nzed limited)

  nib nz limited (previously Tower Medical Insurance Limited)

  nib Options pty limited

  RealSurgeons pty limited

  RealSelf pty limited

nib holdings limited also controls the following trusts: 

 ¾ nib Holdings Ltd Share Ownership Plan Trust

 ¾ nib salary sacrifice plan and matching plan trust

 ¾ nib Salary Sacrifice (NZ) and Matching Plan (NZ) Trust

 ¾ nib holdings – nib nz Employee Share Purchase Scheme Trust

109

2014 annual report 
 
 
 
 
 
 
 
37.  CONTROLLED ENTITIES continued

b.  Non-controlling interests (NCI)

Set out below is summarised financial information for each subsidiary that has non-controlling interests that are material to the 
Group. The amounts disclosed for each subsidiary are before inter-company eliminations.

Summarised balance sheet

Current assets

Current liabilities

Current net assets

Non-current assets

Non-current liabilities

Non-current net assets

Net assets / liabilities

Accumulated NCI

Summarised statement of comprehensive income

Profit/(loss) for the year

Other comprehensive income

Total comprehensive income

Profit/(loss) allocated to NCI

Dividends paid to NCI

Summarised cash flows

Cashflows from operating activities

Cashflows from investing activities

Cash flows from financing activities

Net increase / (decrease) in cash and cash equivalents

c.  Transactions with non-controlling interests

nib Options pty limited 
consolidated group

2014
$000

494 

3,186 

(2,692)

2,647 

672 

1,975 

(717)

(54)

2013
$000

 –

 –

 –

 –

 –

 –

 –

 –

nib Options pty limited 
consolidated group

2014
$000

(1,798)

 –

(1,798)

(135)

 –

2014
$000

(2,412)

(273)

3,034 

349 

2013
$000

 –

 –

 –

 –

 –

2013
$000

 –

 –

 –

 –

On 13 September 2013, the Group acquired 92.5% of the issued capital of nib Options pty limited (incorporated on 31 July 2013). 

The effect on equity attributable to owners of nib holdings limited during the year is summarised as follows: 

2014
$000

81 

2013
$000

–

Consideration paid by non-controlling interests

There were no non-controlling interests in 2013.

110

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 201438.  RELATED PARTY TRANSACTIONS

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 other entity.

b.  Key management personnel compensation

Short-term employee benefits

Post-employment benefits

Other long-term benefits

Termination benefits

Share-based payments

2014
$

2013
$

 3,907,341 

 3,073,817 

 234,169 

 31,569 

 – 

 574,720 

 188,077 

 29,729 

 323,551 

 560,924 

 4,747,799 

 4,176,098 

Detailed remuneration disclosures are provided in the Remuneration Report on pages 19 to 41.

c.  Transactions with other related parties

i.  Purchases from entities controlled by key management personnel

The Group acquired the following goods and services from entities that are controlled by a close family member of one of the 
Group’s Key Management Personnel:

 ¾ software development and maintenance

d.  Outstanding balances arising from sales/purchases of goods and services

There are no outstanding balances at the end of the reporting period in relation to transactions with related parties.

39.  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 19 to 41.

The nib Holdings Ltd Share Ownership Plan Trust administers 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)(iii).

Set out below is a summary of performance rights granted under the plan:

Exercise 
price

Balance at 
start of the 
year
Number

Granted 
during the 
year
Number

Exercised 
during the 
year
Number

Forfeited 
during the 
year
Number

Balance at 
the end of 
the year
Number

2014

Grant date

Expiry date

27/05/2011

21/12/2011

19/11/2012

29/11/2013

1/09/2014

1/09/2015

1/09/2016

1/09/2017

2013

Grant date

Expiry date

28/01/2010

31/12/2014

27/05/2011

21/12/2011

19/11/2012

1/09/2014

1/09/2015

1/09/2016

–

–

–

–

–

412,534 

392,307 

553,236 

–

1,358,077 

–

–

–

559,057 

559,057 

Exercise 
price

Balance at 
start of the 
year
Number

Granted 
during the 
year
Number

–

–

–

–

416,516 

467,878 

443,333 

–

–

–

–

602,751 

–

–

–

–

–

Exercised 
during the 
year
Number

(416,516)

–

–

–

Vested and 
exercisable 
at end of 
the year
Number

–

–

–

–

–

–

–

–

–

–

412,534 

392,307 

553,236 

559,057 

1,917,134 

Forfeited 
during the 
year
Number

Balance at 
the end of 
the year
Number

Vested and 
exercisable 
at end of 
the year
Number

–

(55,344)

(51,026)

(49,515)

–

412,534 

392,307 

553,236 

–

–

–

–

–

111

1,327,727 

602,751 

(416,516)

(155,885)

1,358,077 

2014 annual report39.  SHARE-BASED PAYMENTS continued

b.  Employee Share Acquisition (tax exempt) Plan (ESAP)

Eligible Australian employees were offered the opportunity to receive part of their salary in the form of shares. All permanent 
employees who were an employee at the date the offer was made 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.

2014

2013

Number of shares purchased on market under the plan to participating employees

157,158 

288,712 

The shares were allocated in two tranches. The first tranche of shares were allocated on 27 August 2013 following nib’s FY13 
full year results presentation at a volume weighted average price of $2.14. The remaining tranche of shares were allocated on 
25 February 2014 following nib’s FY14 half year results presentation at a volume weighted average price of $2.59.

c.  nib NZ Employee Share Purchase Scheme (ESPS)

The scheme rules were adopted on 7 November 2013. On 9 December 2013 eligible employees were offered the opportunity to 
receive part of their salary in the form of shares. All full-time and permanent part-time employees who were an employee as at 
9 December 2013 and the date shares were allocated to employees were eligible to participate in the scheme. Employees may 
elect not to participate in the scheme.

ESPS 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 scheme, participating employees were allocated an aggregate market value up to NZ$1,000 worth of fully paid 
ordinary shares in nib holdings limited. Subsequent offers under ESPS 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 scheme to participating employees

2014

42,126 

2013

–

The shares were allocated on 26 February 2014 following nib’s FY14 half year results presentation at a volume weighted average 
price of $2.58.

d.  nib Salary Sacrifice Plan and Matching Plan

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 plan.

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 plan 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.

2014

2013

Number of shares purchased on market under the plan to participating employees

69,710 

64,210 

112

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014e.  Salary Sacrifice Plan (NZ) and Matching Plan (NZ)

The plan rules were adopted on 28 October 2013. On 9 December 2013 New Zealand 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 NZ$10,000 worth of fully paid ordinary 
shares in nib holdings limited, made up of NZ$5,000 salary sacrifice and NZ$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

f.  Short-Term Performance Incentive (STI)

2014

2,938 

2013

–

All eligible employees have a STI opportunity. For the MD/CEO and CFO the maximum target bonus opportunity is 60% of the 
base remuneration package with 30% of the calculated entitlement to be deferred into shares for one year. For the GMARHI the 
maximum target bonus opportunity is 50% of the base remuneration package with 30% of the calculated entitlement deferred 
into shares for one year. For other Executives the maximum entitlement is 40% of the remuneration package with 30% of the 
calculated entitlement deferred into shares for one year.

The nib Holdings Ltd Share Ownership Plan Trust administers 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)(iii).

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 health funds limited.

g.  Expenses arising from share-based payments transactions

Shares purchased on market under ESAP and ESPS

Shares purchased on market under nib Salary Sacrifice Plan and Matching Plan and Salary Sacrifice 
(NZ) and Matching Plan (NZ)

Performance rights granted under LTIP

Shares purchased on market under STI

2014
$000

481 

184 

320 

129 

1,114 

2013
$000

493 

126 

136 

79 

834 

113

2014 annual report40.  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

Non-current assets

Total assets

LIABILITIES

Current liabilities

Non-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 for the year

b.  Contingent liabilities of the parent entity

Refer to Note 32.

41.  COMPANY DETAILS

2014
$000

2013
$000

97,867 

435,833 

533,700 

41,197 

435,544 

476,741 

4,540 

584 

5,124 

3,443 

–

3,443 

528,576 

473,298 

297,178 

(615)

232,013 

528,576 

2014
$000

297,178 

(935)

177,055 

473,298 

2013
$000

99,956 

66,131 

99,956 

66,131 

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 Financial Report was authorised for issue by the Directors on 22 August 2014. The company has the power to amend and 
reissue the Financial Report.

114

nib holdings limitedNotes to the Consolidated Financial Statements continuedFor the year ended 30 June 2014Directors’ Declaration

For the year ended 30 June 2014

In the Director’s opinion:

a.  the financial statements and notes set out on pages 51 to 114 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 2014 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 the 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  
22 August 2014

Harold Bentley 
Director

115

2014 annual report 
Independent 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 2014, the income statement, 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
nib holdings limited (the consolidated entity). The consolidated entity comprises the company and the
entities it controlled at 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. Those 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 consolidated
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.

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

Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.

PricewaterhouseCoopers, ABN 52 780 433 757
Level 3 45 Watt Street, 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.

116

nib holdings limitedAuditor’s opinion
In our opinion:

(a)

the financial report of nib holdings limited is in accordance with the Corporations Act 2001,
including:

(i)

(ii)

giving a true and fair view of the consolidated entity's financial position as at 30 June
2014 and of its performance for the year ended on that date; and

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

(b)

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

Report on the Remuneration Report
We have audited the remuneration report included in pages 19 to 41 of the directors’ report for the year
ended 30 June 2014. The directors of the company are responsible for the preparation and
presentation of the remuneration report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the remuneration report, based on our audit
conducted in accordance with Australian Auditing Standards.

Auditor’s opinion
In our opinion, the remuneration report of nib holdings limited for the year ended 30 June 2014
complies with section 300A of the Corporations Act 2001.

PricewaterhouseCoopers

John Campion
Partner

Newcastle
22 August 2014

117

2014 annual reportShareholder Information

The shareholder information set out below was applicable as at 31 August 2014.

A.  DISTRIBUTION OF EQUITY SECURITIES

Analysis of numbers of equity security holders by size of holding:

Range

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

100,001 and over

Total

There were 3,526 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

HSBC Custody Nominees (Australia) Limited

RBC Investor Services Australia Nominees Pty Limited

BNP Paribas Noms Pty Ltd

Citicorp Nominees Pty Limited

National Nominees Limited

RBC Investor Services Australia Nominees Pty Limited

Citicorp Nominees Pty Limited

UBS Wealth Management Australia Nominees Pty Ltd

Questor Financial Services Limited

Fitzy (NSW) Pty Ltd

Warbont Nominees Pty Ltd

Mr Mark Anthony Fitzgibbon

Jemon Pty Ltd

Computershare Plan Co Pty Ltd

Mr Jinyue Zhang + Mrs Ting Wu

Mrs Michelle McPherson

Mr John Arthur Foyle Turner

Concord Pacific Investment Pty Ltd

CPU Share Plans Pty Ltd 

Unquoted equity securities

Class of 
equity security

66,734

83,828

11,824

1,170

55

163,611

Ordinary Shares

Number held

30,993,473

17,643,279

17,464,447

10,376,497

9,033,538

5,784,798

1,799,777

1,756,573

871,674

637,564

595,621

584,511

512,649

500,000

468,913

372,000

315,925

260,000

250,000

250,000

Percentage of 
issued shares
%

7.06

4.02

3.98

2.36

2.06

1.32

0.41

0.40

0.20

0.15

0.14

0.13

0.12

0.11

0.11

0.08

0.07

0.06

0.06

0.06

100,471,239

22.89

Number 
on issue

Number 
of holders

Performance rights issued under the nib holdings Long-term Incentive Plan

 1,917,134 

 6 

118

nib holdings limitedC.  SUBSTANTIAL HOLDERS

Substantial holders in the Company are set out below:

Perpetual Limited

D.  VOTING RIGHTS

Number held

Percentage of 
issued shares 
%

 41,727,027 

9.50

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.

119

2014 annual reportCorporate Directory

DIRECTORS

Chairman 
Steve Crane

Managing Director/Chief Executive Officer 
Mark Fitzgibbon

Lee Ausburn 
Harold Bentley 
Annette Carruthers 
Philip Gardner 
Christine McLoughlin 

COMPANY SECRETARIES

Michelle McPherson 
Roslyn Toms

EXECUTIVE MANAGEMENT

Managing Director/Chief Executive Officer  
Mark Fitzgibbon

Deputy Chief Executive Officer 
and Chief Financial Officer 
Michelle McPherson

Group Manager Australian Residents Health Insurance 
Rhod McKensey

Chief Information Officer 
Brendan Mills

Chief Executive Officer – nib New Zealand 
Rob Hennin

Group Manager Benefits and Provider Relations 
Justin Vaughan

NOTICE OF ANNUAL GENERAL MEETING

The Annual General Meeting of nib holdings limited will 
be held at The Heritage Ballroom, The Westin, 1 Martin 
Place, Sydney at 11am on Wednesday, 29 October 2014.

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 
Level 3, 45 Watt Street 
Newcastle NSW 2300

LEGAL ADVISERS

King & Wood Mallesons 
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

120

nib holdings limitednib.com.au