A NN UA L R EP OR T 2 016
CONTENTS
Group Performance Highlights
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
2
14
21
22
43
44
45
46
47
48
49
50
112
113
115
117
2016 ANNUAL GENERAL MEETING
The Annual General Meeting of nib holdings limited will be
held at The Westin, 1 Martin Place, Sydney at 11.00am (AEDT)
on Wednesday, 2 November 2016.
nib holdings limited
ABN 51 125 633 856
GROUP PERFORMANCE HIGHLIGHTS
For the year ended 30 June 2016
TOTAL GROUP REVENUE $m
~ 14.3%
1,873.1*
UNDERLYING OPERATING PROFIT $m
~ 49.9%
132.0
1,639.3
1,497.3
1,293.5
1,127.4
71.0
75.5
77.3
88.0
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
* Excludes non-recurring profit from sale of Newcastle office building
NET INVESTMENT RETURN $m
~ 46.2%
NET PROFIT AFTER TAX $m
28.8
29.7
31.4*
25.6
67.6
67.2
69.8
75.3
16.9
~ 22.0%
91.8
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
* Includes profit on sale of PSG shares of $5.4m in FY15
DIVIDENDS cps
~ 28.3%
RETURN ON EQUITY %
~ 11.7%
25.8
16.07
9.25
9.0
11.0
10.0
14.75
11.5
21.7
21.6
20.8
23.1
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
Ordinary
Special Capital Return
EARNINGS PER SHARE (STATUTORY) cps
~ 22.5%
21.2
14.8
15.3
15.9
17.3
NET PROMOTER SCORE (ARHI*) %
20.7
18.7
16.9
12.4
~ 3.0%
17.7
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
All figures quoted are in Australian dollars unless otherwise stated.
* Australian Residents Health Insurance
1
annual report 2016
OPERATING AND FINANCIAL REVIEW
For the year ended 30 June 2016
CHAIRMAN’S REPORT
Strong customer, revenue and earnings growth in financial year 2016 reflected how well the nib Group is meeting
customer needs across the various markets in which we operate and with that, delivered solid returns for nib
shareholders. They are results consistent with the company’s performance since listing on the ASX in 2007.
I believe we have created a good balance between building upon nib’s traditional capabilities and strengths in
the private health insurance market and leveraging these to expand into new businesses and markets.
As will be observed from our operating and financial review, FY16 produced impressive revenue and earnings growth. Total Group
revenue was up 14.3% to $1.9 billion* and our underlying operating profit (UOP) up almost 50% to $132.0 million. Net Profit After
Tax (NPAT) improved by 22.0% to $91.8 million or 21.2 cents per share.
Our underlying financial performance for FY16 has allowed the Board to declare dividends totalling 14.75 cents per share
(fully franked). This represents a payout ratio of 70% of after tax earnings in keeping with our stated policy range of 60% to 70%.
An evolving Group
nib’s mainstay Australian Residents Health Insurance (arhi) business produced a pleasing result in terms of both top line and
earnings growth. arhi contributed $94.5 million or 72% to Group UOP in FY16. We’re really proud that we’ve been able to grow
this business well ahead of the market average for so long.
Importantly, our adjacent businesses are steadily increasing their earnings contribution with a combined UOP of $37.5 million
in the year under review. These businesses demonstrate a preparedness to deploy existing Group capabilities and assets
to explore new market opportunities. They also reflect a disciplined approach to investment. The acquisition during FY16 of
specialist travel insurance provider World Nomads Group (WNG) and the medical insurance book of New Zealand insurer,
OnePath Life (NZ) Limited (OnePath NZ), were both aligned with our Group strategy and investment framework. Both acquisitions
have settled well under nib ownership and are performing in line with expectations.
Shareholders can expect continued and measured amplification of investment in arhi and adjacent businesses as
circumstances, our company strategy and our internal ‘hurdle’ rates of return dictate.
An evolving market
It will be evident from media coverage during the year that many consumers are aggrieved with private health insurance and
especially premium increases, out of pocket expenses and limited treatment coverage.
Some of the critique has justification and we recognise there must be ongoing improvement in the industry in meeting customer
needs, affordability and cost effectiveness. It’s the same recognition that explains the level of innovation for which nib has
become well known, our devotion to the principles of Net Promotor Score (a widely used customer satisfaction index) and a
general thrust towards reducing claims outlays without compromising customer outcomes. We also welcome many of the
reforms being mooted by Government.
There is an urgent need for industry regulatory reform and Mark’s report raises some real possibilities. I would however caution
Government on a couple of matters which have been subject to recent attention.
First has been the discussion around so called ‘junk policies’.
I’ve no doubt there is a need to better inform consumers about the level of coverage they purchase and nib supports proposed
initiatives in this direction. We do however, need to keep in mind the important role that product diversification and choice
have played in improving consumer sovereignty and, especially, attracting younger policyholders. More than anything else, it is
participation by younger people that makes premiums for everyone more affordable.
Second has been the discussion about premium increases and possibly regulating premium pricing based upon a maximum
return on invested capital.
In an efficient market, companies are rewarded for good performance with higher returns on invested capital. I don’t believe
we should ever upset this dynamic and it’s competition that should dictate market prices. With 34 players and the principle of
‘portability’ (which means a consumer can transfer insurer without any disadvantage) competition is hardly lacking in Australia.
Premiums are growing circa 5% to 6% per annum because that’s how much more we are spending on our healthcare per capita.
About half has been actual cost inflation (the correct comparison with CPI) and half utilisation growth (i.e. people using healthcare
services more often). The real underlying problem is we’re spending more than we should be (over servicing, avoidable hospital
admissions etc.) and that’s what the industry must tackle.
* Excludes non-recurring profit from sale of Newcastle office building.
2
nib holdings limited An evolving leadership team
Succession planning for both Executives and Non-Executive Directors (NED) is a priority for the Board. While we have great
confidence in the calibre of our current leadership, naturally we must prepare for a range of future circumstances and market
conditions.
We continue to be mindful of ensuring we meet our own tests for NEDs independence and maintaining an appropriate skills
mix. During the year we appointed Mr Donal O’Dwyer as a NED after conducting an extensive search through an independent
recruitment firm. Donal is a highly-experienced company director with extensive executive-level experience in the global sales
and marketing of healthcare products and services. The appointment of Donal follows the announcement in November last year
by Dr Annette Carruthers that she would not seek re-election as a NED.
I would like to take this opportunity to again sincerely thank and pay tribute to Annette for her 12 year contribution to the
company and shareholders. During her time she has overseen the transition of the business from a mutual to an ASX-listed
entity, the significant growth across Australia and expansion into new markets both domestic and international. I’m certain she
has much yet to contribute to the Australian corporate world.
I would like to thank everyone at nib for their efforts this year, including my fellow Directors and the Executive team. The success
of our business is reflected in the dedication, professionalism and quality of our people and their commitment to delivering
service excellence.
Steve Crane
Chairman
3
annual report 2016 MANAGING DIRECTOR’S REPORT
Another pleasing result in FY16 reflecting the strong execution of our business strategy across the Group. In just
about every part of the business we grew our customer base, market share and profitability. Group underlying
operating earnings increased an impressive 49.9% to $132.0 million and NPAT 22.0% to $91.8 million.
Our core arhi segment was once again a ‘star’ performer. Although the policyholder growth rate of 3.8% was slightly below our
sustainable growth rate target of 4% to 5%, we grew almost three times the industry average (1.3%). arhi also produced a very
solid UOP up 31.4% on FY15. The ‘above system’ organic growth and improved profitability is familiar but only ever achieved with
constant creativity, effort and investment. Deeply ingrained in our corporate culture is the belief that ongoing experimentation and
measured risk taking is crucial to improvement and keeping ahead of competitors.
Importantly, arhi achieved this growth in very ‘soft’ market conditions not made any easier by all the ‘trash talking’ in the media
about private health insurance (PHI). The diatribe is doing the Australian healthcare system a real disservice given we need the
private sector to play an even greater role in meeting our future healthcare needs. Every year we’re spending about 6% more
per capita on healthcare and our primary reliance on taxes to fund this spending is simply unsustainable given an ever increasing
dependency ratio of retirees to taxpayers.
That’s not to suggest there aren’t real opportunities to improve our PHI system and nobody is thinking and working harder
than nib on a better ‘deal’ for consumers and market efficiency. We’re especially excited about the possibilities in regulatory
reform. We do appreciate just how supportive current Commonwealth policy settings are for PHI and we certainly don’t look to
government to guarantee our future. But there are still obstacles to improved market efficiency such as the perverse system of
risk equalisation and the outrageous regulated over-pricing of prosthetic devices.
For several years, we’ve been very deliberately diversifying the business with a view to exploiting ‘economies of scope’ across
the Group and in order to mitigate earnings concentration risk in arhi. And our efforts haven’t been without considerable
progress. In FY16, ‘non-arhi’ earnings accounted for 28% of our Group UOP, compared to just over 18% in FY15 and a negligible
contribution just five years ago. These are the earnings derived from our international workers and students businesses, nib
New Zealand, our travel insurance business WNG and a collection of other smaller product lines such as life insurance. It’s a
strategy which is clearly working for us and we have an appetite for more within the disciplined investment framework we apply.
Perhaps our most exciting initiative in FY16 was to take our digital healthcare platform Whitecoat to another level. Sometimes
referred to as the ‘TripAdvisor’ for healthcare, Whitecoat is designed to help people make better choices about their behaviour,
treatment options and choice of doctor with the added convenience of search, booking and payments engines. As other digital
platforms are doing in other markets, Whitecoat is all about producing information in order to ‘level the playing field’ between the
sellers and consumers of healthcare.
With the technology in place, more than 40,000 registered clinical providers and 250,000 patient reviews Whitecoat is already
well-established. However, our recent announcement to form a joint venture with fellow health insurers Bupa and HBF will
significantly escalate participation and the ‘network effect’. Under the collaboration Whitecoat will have direct engagement with
around six million Australians.
I’d like to thank my Executive team, Board of Directors and everyone in the business for their efforts and contribution throughout
FY16. We remain very ambitious for the nib Group.
Mark Fitzgibbon
Managing Director
4
nib holdings limitedOPERATING AND FINANCIAL REVIEWCONTINUEDFor the year ended 30 June 2016 AUSTRALIAN RESIDENTS HEALTH INSURANCE
P R E M I U M R E V E N U E U P 9.7 %
U O P U P 31. 4%
$1.6b
($m)
Policyholder growth
Net premium revenue
Net claims incurred (excluding claims handling expenses)
Gross margin
Management expenses
Underwriting result
Other income
Underlying operating profit
$94.5m
2016
3.8%
1,568.4
(1,334.1)
234.2
14.9%
(140.1)
8.9%
94.1
6.0%
0.4
0.0%
94.5
6.0%
2015
4.7%
1,429.5
(1,238.9)
190.6
13.3%
(118.9)
8.3%
71.7
5.0%
0.2
0.0%
71.9
5.0%
Change
$m
138.9
95.2
43.6
21.2
22.4
0.2
22.6
%
9.7
7.7
22.9
17.8
31.3
76.7
31.4
nib continues to perform strongly against the backdrop of weak industry growth and retail conditions. During the
year, we added more than 19,500 policyholders at a growth rate of almost three times the industry average.
Our sustained ‘above system’ growth has been achieved through ongoing innovation in our distribution model, informed by deep
market insight. We continue to grow the ‘nib’ brand through investment in our own organic channels supplemented by judicious
use of retail brokers.
As nib’s brand positioning reflects, we intend on remaining a major force within the under 40s market segment. In recent
years we have also become more focused on the over 55s age group due to the significant ongoing growth in this segment.
Distribution partnerships, particularly our relationship with Apia, have been an important part of this strategic shift.
In reaction to the trend of major brands looking for ways to add more value to their existing customer relationships, we have very
deliberately developed a ‘whitelabelling’ capability. This investment led to the launch of the Qantas Assure partnership that we
announced in November 2015.
Across the business there are several initiatives underway designed to increase the value proposition and make for a better
customer experience. For example, we launched the nib Rewards program during the year and we continue to invest heavily in
online engagement. There’s no better example than how we are looking to better engage with our customers than Whitecoat.
This success doesn’t mean we don’t face a number of business challenges. Customer lapse in particular continues to increase
both as a result of customers switching funds or giving up health insurance. We are especially focused on two remedies.
First, improving the customer experience when going to hospital through providing them with convenient and relevant
information. Second, giving customers a reason to stay with nib beyond the benefits of our core product offering.
As can be observed from the financials, the strong operating performance of arhi translated into a very solid underwriting result.
Assisted by claims inflation which was low relative to previous years, our gross underwriting margin improved from 13.3% in FY15
to 14.9%. After operating expenses, we delivered an UOP of $94.5 million (net margin 6.0%) an increase of 31.4%.
Slowing claims inflation benefits policyholders by relieving pressure on future health insurance premiums. While it remains to be
seen if claims inflation will continue this lower trajectory, we are doing our best to keep it as low as possible.
At a broader industry level, health insurance affordability and transparency have been major issues with a number of initiatives
being pursued by the Government and the PHI industry. We are, and will continue to be, an active participant in these efforts.
5
annual report 2016 nib NEW ZEALAND
P R E M I U M R E V E N U E U P 15 . 4%
$173.6m
($m)
Policyholder growth1
Net premium revenue
Net claims incurred (excluding claims handling expenses
and movement in PPB liability)
Decrease/(increase) in premium payback liability
Gross margin
Management expenses
Underlying operating profit
U O P U P 9 9. 9 %
$17.3m
2016
25.8%
173.6
(121.0)
15.8
68.3
39.4%
(51.0)
29.4%
17.3
10.0%
2015
5.9%
150.4
(96.8)
(1.9)
51.7
34.4%
(43.1)
28.6%
8.7
5.8%
Change
$m
23.2
24.2
17.7
16.6
7.9
8.6
%
15.4
25.1
929.5
32.0
18.4
99.9
November 2016 marks four years since we acquired our New Zealand operations*. Since then the business has
been dramatically transformed to align with our ambitions in the country.
Probably the most significant evidence of progress has been customer growth. Prior to our purchase of the business the
portfolio had declined for nearly a decade. Our rebranding and the launch of New Zealand’s first direct-to-consumer health
insurance range in 2013 was the catalyst for change. We are now growing the health insurance market and our overall share
has increased to over 15%. We have made a considerable investment in the brand and the growth of our direct-to-consumer
customer base, with approximately 45% of all our sales for FY16 made through this channel.
Good progress was made during the year to strengthen our multi-channel distribution strategy, which included:
• Maintaining our ‘best in class’ advisor product range, as well as continuing to build strong key advisor relationships.
• Developing the group and employer channel by launching new products and a unique health and wellness package
(healthHQ) designed to help us win new business.
• Establishing a new ‘whitelabelling’ distribution capability and with that, a relationship with leading New Zealand brand,
The Warehouse Group, who sell their own branded nib health and travel insurance policies. We expect to expand this
‘whitelabel’ channel during FY17 with other well-known New Zealand brands.
In October we announced the acquisition of the medical insurance book of OnePath NZ for approximately AU$22.5 million.
OnePath NZ was a subsidiary of ANZ Bank New Zealand Limited (ANZ) and New Zealand’s fifth largest health insurer. As a
result, nib New Zealand now provides health insurance to more than 200,000 Kiwis covering more than 15% of the insured
population. A key part of the transaction is the distribution agreement between nib and ANZ, where nib will distribute its health
insurance products through ANZ’s network of wealth specialists. This further strengthens our position as New Zealand’s second
largest health insurer.
Investing in digital and automation initiatives continues to be in focus given we inherited a business that was largely paper-based
and manual. Our digital initiatives are proving popular with our customers. For example:
• 30% of claims are now online
• More than 50% of direct-to-consumer sales are online
• 90% of customer payments are electronic
By focusing on a digital-first approach we are improving customer engagement and satisfaction, as well as generating
operational efficiencies.
Overall, New Zealand continues to deliver on the targets set when we acquired the business. For FY17 and beyond we expect
profitability to further improve through organic growth and increased scale.
1. Includes policyholders from acquisition of OnePath Life NZ medical insurance business completed 1 December 2015. Excluding OnePath Life NZ, net policyholder
growth for FY16 was 4.1%.
* nib acquired TOWER Medical Insurance Limited, New Zealand’s second largest health insurer, in November 2012.
6
nib holdings limitedOPERATING AND FINANCIAL REVIEWCONTINUEDFor the year ended 30 June 2016 INTERNATIONAL AND NEW BUSINESS
I N T E R N AT I O N A L ( I N B O U N D)
H E A LT H I N S U R A N C E U O P U P 41. 2 %
$17.2m
International (Inbound) Health Insurance
($m)
Policyholder growth
Net premium revenue
Net claims incurred (excluding claims handling expenses)
Gross margin
Management expenses
Underwriting result
Other income
Underlying operating profit
W N G I N A U G U R A L U O P
C O N T R I B U T I O N
$9.7m
2016
2015
Change
$m
28.0%
76.8
(41.7)
35.1
45.7%
(18.1)
23.5%
17.0
22.2%
0.2
0.3%
17.2
22.5%
58.5%
54.9
(29.4)
25.5
46.4%
(13.7)
24.9%
11.8
21.5%
0.4
0.7%
12.2
22.2%
21.9
12.3
9.6
4.4
5.2
(0.2)
5.0
%
39.7
41.6
37.5
32.2
43.7
(37.7)
41.2
Our International (Inbound) Health Insurance business continued to grow powerfully. Net policyholder growth for the year was
28% with UOP up 41.2% to $17.2 million. The result would have been better if not for higher than expected claims associated
with a single business group. The relationship with this group was discontinued from March 2016.
Overall, we expect that earnings will continue to grow aided by a strong pipeline of international student sales and further growth
in international visitor visa classes.
World Nomads Group
nib’s $95 million (enterprise value basis) acquisition of WNG, was completed on 31 July 2015. WNG is Australia’s third largest
travel insurer. Since then our short-term priorities have centred upon business transition, having the right people lead the
business, exploring nib Group synergies and considering future investment opportunities. We have ambitions for WNG and
see international markets as rich in opportunity. Investment in these opportunities may impact short term profitability but naturally
will reflect a disciplined assessment about creating enterprise value.
WNG is a managing general agent which performs all the functions of an insurer other than carrying the underwriting risk.
This includes product design, pricing, marketing, sales, paying claims and emergency assistance. WNG is a leading Australian
travel insurance company in a number of international markets including North and South America, Asia and Europe.
WNG had an UOP of $9.7 million, which was in line with our expectations.
Adjacent insurance lines and new business
We continue to see an increase in the number of our customers looking to purchase complementary products from nib. In FY16,
commissions from our adjacent insurance lines, including life and income insurance, totalled $2.3 million. Over the next 12 months
we expect to launch a number of new product lines and further leverage the expertise and reach of our distribution partners,
which we expect will be popular with our customers.
Launched in early 2014, nib Options aims to facilitate customers receiving cosmetic and major dental treatment domestically
and overseas. While the business made a loss of $2.5 million in FY16, our investment thesis is that people will increasingly travel
internationally to seek treatment and that nib has capabilities that lend ourselves to competing in the market for clients.
7
annual report 2016 PROFITABILITY AND SHAREHOLDER RETURN
N PAT U P 2 2 .0 %
$91.8m
($m)
Net premium revenue
Net claims incurred (excluding claims handling expenses)
Gross margin
Management expenses
Underwriting result
Other income
Other expenses
Underlying operating profit
Amortisation of acquired intangibles
One-off transactions and M&A costs
Statutory operating profit
Finance costs
Net investment income
Profit before tax
Tax
NPAT
Statutory EPS (cps)
Underlying EPS (cps)
ROE (%)
Operating cash flow
F U L L Y E A R D I V I D E N D ( F U L LY F R A N K E D)
14.75cps
2016
1,818.7
(1,481.1)
337.6
18.6%
(209.2)
11.5%
128.4
7.1%
54.4
(50.8)
132.0
7.3%
(7.8)
(3.4)
120.8
6.6%
(5.2)
16.9
2.7%
132.4
(40.6)
91.8
21.2
22.9
25.8%
148.4
2015
1,634.9
(1,367.1)
267.8
16.4%
(175.6)
10.7%
92.2
5.6%
4.4
(8.5)
88.0
5.4%
(3.5)
(2.8)
81.7
5.0%
(3.4)
31.4
5.8%
109.6
(34.3)
75.3
17.3
18.3
23.1%
114.2
Change
$m
183.8
114.0
69.8
33.6
36.2
50.0
42.3
44.0
4.3
0.6
39.1
(1.8)
(14.5)
22.8
6.3
16.6
3.9
4.6
34.2
%
11.2
8.3
26.1
19.1
39.3
1,141.1
496.2
49.9
121.6
19.0
47.9
(53.1)
(46.2)
20.8
18.4
22.0
22.5
25.1
29.9
The strong performance of our core arhi business, as well the continued growth and expansion of our adjacent
businesses this financial year, has yielded another material improvement in performance for the nib Group.
Total Group revenue1 rose by an impressive 14.3% to $1.9 billion, which included the first time contribution of WNG (11-month
result) and OnePath NZ (seven-month result). Our Group UOP of $132.0 million was up 49.9% (statutory operating profit up
47.9% to $120.8 million). The difference between our UOP and statutory operating profit reflects one-off transactions and
non-cash items associated with business acquisitions.
Our investment portfolio delivered returns that were broadly in line with our internal benchmarks for the year, with a net
investment return of $16.9 million.
As a share of our overall Group after tax earnings, investment returns have continued to reduce over the past few years.
This is due to a lower capital base following a range of capital management initiatives undertaken since listing on the ASX
in 2007. Over the course of that period, we have returned more than $160 million to shareholders through a combination of
special dividends and a Capital Return. Capital above our internal prudential requirements has also been used to partially
fund a number of acquisitions, including IMAN in FY10, TOWER Medical Insurance Limited in FY13 as well as our WNG and
OnePath NZ transactions this financial year.
As at 30 June 2016, our total investment assets were $640.8 million.
1. Excludes non-recurring profit from sale of Newcastle office building.
8
nib holdings limitedOPERATING AND FINANCIAL REVIEWCONTINUEDFor the year ended 30 June 2016 ($m)
Assets
Cash and cash equivalents
Receivables
Financial assets at fair value through profit or loss
Deferred acquisition costs
Assets classified as held for sale
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
2016
2015
Change
$m
89.4
51.9
580.7
83.2
–
15.5
217.4
0.9
123.7
45.1
457.2
64.1
38.7
14.5
90.2
3.7
1,039.0
837.1
141.3
151.9
112.2
176.3
27.4
43.9
652.9
124.9
63.9
97.1
143.2
40.9
22.8
492.8
386.1
344.3
386.1
344.3
(34.2)
6.7
123.6
19.1
(38.7)
1.0
127.2
(2.8)
201.9
16.4
88.0
15.0
33.0
(13.5)
21.1
160.0
41.8
41.8
%
(27.7)
14.9
27.0
29.7
NA
7.1
141.1
(75.8)
24.1
13.1
137.7
15.5
23.1
(33.1)
92.6
32.5
12.1
12.1
In addition to using our capital to fund acquisitions, we have also accessed debt as a funding source. As at 30 June 2016, our
gearing ratio was 28.1% (debt-to-debt plus equity). This is consistent with our long-term gearing ratio of 30%, noting that the
target gearing policy allows for gearing to go above 30% for a short time, if necessary, as part of funding a significant investment.
The Board will continue to assess our debt and gearing levels and targets with the view to optimise our capital structure.
Our strong financial performance for FY16 has allowed the Board to declare a full year dividend of 14.75 cents per share fully
franked (FY15: 11.5 cents per share), totalling $64.8 million. The full year dividend comprises an interim dividend of 5.75 cents
per share fully franked (paid 1 April 2016) and a final dividend of 9.0 cents per share fully franked. The final dividend will be paid
to shareholders on 7 October 2016. The full year dividend of 14.75 cents per share represents a payout ratio of 70% of full year
NPAT and is consistent with our policy to pay ordinary fully franked dividends between 60% to 70% of full year NPAT.
Since listing on the ASX in 2007 our financial performance has been strong and on a Total Shareholder Return (TSR) basis
we have consistently outperformed the S&P/ASX200. For FY16, our TSR was 30.0% compared to negative 0.5% for the S&P/
ASX200. Our business strategy will continue to focus on delivering outstanding service to our customers, improving our operating
efficiencies and growing the business to provide the foundation for ongoing earnings growth and value for shareholders.
9
annual report 2016 OUR COMMUNITY
nib f o u n d a t i o n F U N D I N G S I N C E 2 0 0 8
nib f o u n d a t i o n PA R T N E R S H I P S W I T H
$15m
95 charities
nib foundation was established in 2008 with a clear vision to improve the health and wellbeing of individuals and
communities across Australia.
Over the past seven years, the foundation has remained dedicated to this vision through a commitment of $15 million to
95 charity partners in support of programs that raise awareness, build resilience, increase access to information and foster
social connections.
In 2015, four new Multi-Year Partnerships were established that work to address significant health needs affecting the
foundation’s two focal groups, young people and carers:
• Australian Drug Foundation’s Good Sports Junior program will encourage sporting clubs to foster a positive and healthy
environment for their young members
• Hello Sunday Morning will develop technology designed to empower Australians to improve their relationship with alcohol
• National Stroke Foundation will enhance and expand the My Stroke Journey program, which supports stroke survivors and
their families
• Disability Sport and Recreation’s Score! is Australia’s first online platform that will connect young Victorians with a disability
with inclusive sporting opportunities
The foundation’s ongoing commitment to the Hunter was clearly demonstrated through the support of the Upper Hunter
township of Dungog. April 2016 marked the one-year anniversary of the devastating floods that tore through the region.
Through the nib foundation funded, Project Bounce Forward, The Dungog Shire Community Centre has worked tirelessly
since the disaster to help rebuild the town and provide services to support the wellbeing of residents.
With initial funding due to end in March 2016 and much work still to be done, a renewed funding injection of $50,000 was
provided to ensure the project successfully reaches all those in need of support.
While the foundation continues to support many new and local causes, it has also helped existing partners to build their
capacity and expand service offerings. This has been the case with long-standing partner, OzHarvest. This financial year the
foundation’s ongoing support of the food rescue program enabled the service to be expanded into the Port Stephens area.
Furthermore, an additional three years of funding was announced to help establish and grow OzHarvest Western Australia.
Together with the foundation, we will continue to play an important role in helping meet the health and wellbeing needs of
communities across Australia by funding charities that work to address significant health concerns.
In addition to the work of nib foundation, we are focused on giving back to the community through a combination of fundraising
initiatives, in-kind support and employee volunteering efforts.
Our dedicated workplace fundraising program, has raised more than $61,000 and provided overwhelming in-kind support for
40 local and national charities since 2008.
It is through the dedication of our employees and the donation of their time and skills that we are able to deliver considerable
value to nib foundation partners and other community groups above and beyond agreed funding commitments.
10
nib holdings limitedOPERATING AND FINANCIAL REVIEWCONTINUEDFor the year ended 30 June 2016 BUSINESS STRATEGIES AND PROSPECTS
nib’s Business Strategy sets out 10 key levers which we believe will increase earnings and grow enterprise value.
1. Pursue above ‘system’ 4% to 5% net policyholder growth in the Australian Resident Health Insurance market.
2. Grow our international workers and international students market share.
3. Position and build our business in New Zealand as a ‘challenger’ and grow the market and our share.
4. Complete integration and pursue growth of World Nomads Group travel insurance business.
5. Escalate focus upon knowledge as a source of customer value, empowerment and competitive advantage.
6. Leverage core business capability to pursue adjacent business opportunities.
7. Design and manage product benefits and claims in accordance with our strategic and commercial objectives.
8.
Increase customer satisfaction, productivity and efficiency.
9. Have the ‘right people on the bus’, develop a high performance organisational culture and engage our people.
10. Continue to build and develop overall key organisational capabilities and assets.
We measure our success by Group revenue and earnings growth, customer satisfaction and total shareholder returns.
Principal 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. The Corporate Governance
Statement and nib’s Risk Policy are available on our website at nib.com.au
Principal risks and uncertainties include:
General economic
conditions
Claims inflation
and fraud
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.
Performance of
adjacent (non-Australian
Residents Health
Insurance) businesses
In recent years, in addition to focusing on its Australian regulated health insurance business,
nib has diversified its business and identified adjacent earnings opportunities, such as
International (Inbound) Health Insurance, New Zealand, nib Options and World Nomads Group.
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.
Investment market
performance
A substantial proportion of nib’s profits are generated from its investment portfolio.
Consequently, investment performance significantly affects nib’s profits and financial position.
Competition in the
health insurance
industry
Pricing risk
Risk equalisation special
account arrangements
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.
11
annual report 2016 BUSINESS STRATEGIES AND PROSPECTS continued
Principal risks and uncertainties continued
Changes in government
policy or legislation
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:
a. Australian 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.
Merger or acquisition
opportunities
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.
Compliance with
regulation
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.
Operational risk
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.
Loss of key personnel
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.
Tax treatment
Technology
Litigation and legal
action
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.
Future events
It is not possible to predict or identify all future events which may impact adversely on nib’s
profitability or financial position.
12
nib holdings limitedOPERATING AND FINANCIAL REVIEWCONTINUEDFor the year ended 30 June 2016 2016
$m
2015
$m
2014
$m
2013
$m
2012
$m
1,634.9
(1,367.1)
267.8
(175.6)
1,491.6
(1,255.4)
236.2
(157.9)
1,290.4
(1,089.6)
200.8
(124.4)
1,123.8
(949.2)
174.6
(102.9)
FIVE YEAR SUMMARY
Consolidated Income Statement
Net premium revenue
Net claims incurred
Gross margin
Management expenses
Underwriting result
Other income1
Other expenses1
Underlying operating profit
Amortisation of acquired intangibles
One-off transactions and M&A costs
Statutory operating profit
Finance costs
Net investment income
Profit before tax
Tax
NPAT
Consolidated Balance Sheet
Total assets
Equity
Debt
Share Performance
Number of shares
Weighted average number of shares – basic
m
m
Weighted average number of shares – diluted m
Basic earnings per share
Diluted earnings per share
Underlying 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
cps
cps
cps
$
cps
cps
%
%
%
1,818.7
(1,481.1)
337.6
(209.2)
128.4
54.4
(50.8)
132.0
(7.8)
(3.4)
120.8
(5.2)
16.9
132.4
(40.6)
91.8
1,039.0
386.1
151.9
439.0
439.0
439.0
21.2
21.2
22.9
4.22
14.75
0.00
70.0
70.0
25.8
148.4
92.2
4.4
(8.5)
88.0
(3.5)
(2.8)
81.7
(3.4)
31.4
109.6
(34.3)
75.3
837.1
344.3
63.9
439.0
439.0
439.0
17.3
17.3
18.3
3.36
11.50
0.00
66.6
66.6
23.1
114.2
78.4
5.7
(6.8)
77.3
(4.2)
(0.8)
72.3
(2.7)
29.7
99.2
(29.4)
69.8
798.1
356.4
66.8
439.0
439.0
439.0
15.9
15.9
16.8
3.26
11.00
9.00
69.2
125.8
20.8
93.7
76.4
3.1
(4.0)
75.5
(2.6)
(3.6)
69.3
(1.4)
28.8
96.7
(29.5)
67.2
712.3
326.2
62.4
439.0
439.0
439.0
15.3
15.3
16.3
2.13
10.00
0.00
65.0
65.0
21.6
20.0
1. Increase in Other income and Other expenses in FY16 due to the inclusion of World Nomads Group 11 month result.
71.6
3.6
(4.3)
71.0
(1.0)
(0.0)
70.0
0.0
25.6
95.7
(28.0)
67.6
617.8
301.6
0.0
439.0
458.3
458.3
14.8
14.8
15.0
1.50
9.25
0.00
60.0
60.0
21.7
134.6
13
annual report 2016 DIRECTORS’ REPORT
For the year ended 30 June 2016
The Directors of nib holdings limited (Company) present their
report on the consolidated entity (Group) consisting of nib
holdings limited and the entities it controlled at the end of
or during the year ended 30 June 2016.
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
Lee Ausburn
Annette Carruthers
Christine McLoughlin
Mark Fitzgibbon
Harold Bentley
Philip Gardner
Donal O’Dwyer was appointed as a Non-Executive Director
on 22 March 2016.
Final dividend for the year ended
30 June 2015 of 6.0 cents per fully
paid ordinary share, made up of 6.0
cps ordinary dividend (2014 – 14.75
cents per fully paid ordinary share,
made up of 5.75 cps ordinary dividend
and 9.0 cps special dividend) paid on
9 October 2015
Interim dividend for the year ended
30 June 2016 of 5.75 cents
(2015 – 5.5 cents) per fully paid share
paid on 1 April 2016
2016
$000
2015
$000
26,339
64,748
25,242
51,581
24,144
88,892
PRINCIPAL ACTIVITIES
The principal continuing activities of the Group consisted of
operating as a private health insurer for Australian residents,
New Zealand residents and international visitors and students
to Australia. Overall the Group insures over 1.3 million lives.
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 $39.5 million (9.0 cents per fully paid
ordinary share) to be paid on 7 October 2016 out of retained
profits at 30 June 2016.
Our vision is to be a leading financier and facilitator of
healthcare consumption with a reputation for innovative
products, value for money, outstanding customer service,
being a good corporate citizen and strong shareholder returns.
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 2016
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.
During the year the Group acquired World Nomads Group
(WNG), the third-largest distributor of travel insurance in
Australia. WNG specialises in the marketing, sale and
distribution of travel insurance policies globally.
Additionally, nib nz limited (a 100% owned subsidiary)
acquired the medical insurance business OnePath Life (NZ)
Limited (OnePath). OnePath was New Zealand’s fifth-largest
health insurer with approximately 19,000 policies covering
43,000 insured persons.
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 2 to 13 of this
Annual Report.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
On 31st July 2015 nib acquired 100% of World Nomads
Group Pty Limited and its controlled entities for $95 million
on an enterprise value basis.
There were no other significant changes in the state of affairs
of the Group during the financial year.
14
nib holdings limited INFORMATION ON DIRECTORS
Details of the qualifications, experience, special responsibilities and interests in shares and performance rights of the Directors
are as follows:
Steve Crane
BCommerce, FAICD,
SF Fin
Chairman Independent Non-Executive Director
Experience and expertise
A Director since 28 September 2010, appointed Chairman on 1 October 2011. Approximately
40 years of financial market experience, as well as an extensive background in publicly-listed
companies. Previously the Chief Executive of BZW Australia and ABN AMRO.
Other current directorships
Director of APA Group, including APT Pipelines Limited and Chairman of the Taronga Conservation
Society Australia. He is also Chairman of Global Valve Technology Limited and a consultant member
of the Advisory Board with Morgans Financial Ltd.
Former directorships in the last three years
Chairman of IMAN Australian Health Plans Pty Limited. Director of Transfield Services Limited,
Bank of Queensland Limited and formerly a member if the CIMB (Australia) Advisory Council.
Subsidiary boards and special responsibilities
Chairman of nib holdings limited and nib health funds limited. Steve is also Chairman of the
Nomination Committee.
Interests in shares and performance rights
Indirect: 250,000 ordinary shares in nib holdings limited held by Depeto Pty Ltd.
Mark Fitzgibbon
MBA, MA, ALCA, FAICD
Managing Director/Chief Executive Officer
Experience and expertise
Mark joined nib health funds limited in October 2002 as Chief Executive Officer (CEO) and led nib
through its demutualisation and listing on the ASX in May 2007 when he was appointed Managing
Director of nib holdings limited. Previously CEO of both the national and NSW peak industry bodies
for licensed clubs and has held several CEO positions in local government.
Other current directorships
Director of Knights Rugby League Pty Limited.
Former directorships in the last three years
None.
Subsidiary boards and special responsibilities
Managing Director of nib holdings limited. Director of nib health funds limited, nib health care
services pty limited, nib servicing facilities pty limited, nib Global Pty Limited, IMAN Australian
Health Plans Pty Limited, nib nz holdings limited, nib nz limited, nib Options Pty Limited,
RealSurgeons Pty Ltd, RealSelf Pty Ltd and World Nomads Group Pty Ltd. Mark is also a member
of the Nomination Committee.
Interests in shares and performance rights
Direct: 1,122,656 ordinary shares in nib holdings limited.
Indirect: 660,621 ordinary shares in nib holdings limited held by Fitz (NSW) Pty Ltd.
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.
234,714 performance rights under FY15-FY18 Long Term Incentive Plan which may vest
from 1 September 2018.
284,320 performance rights under FY16-FY19 Long Term Incentive Plan which may vest
from 1 September 2019.
15
annual report 2016
INFORMATION ON DIRECTORS continued
Philip Gardner
B.Comm, CPA, CCM,
FAICD, JP
Independent Non-Executive Director
Experience and expertise
A Director since 28 May 2007. Current Chief Executive Officer of The Wests Group Australia, a
position he has held for more than a decade in which time he has overseen the Group’s significant
growth and expansion.
Lee Ausburn
MPharm, BPharm, Dip
Hosp Pharm, GAICD
Other current directorships
Knights Rugby League Pty Limited.
Former directorships in the last three years
A Director of IMAN Australian Health Plans Pty Limited, Newcastle Airport Limited and Hunter Funds
Management Pty Ltd.
Subsidiary boards and special responsibilities
A Director of nib health funds limited (since 2005).
Chairman of the Investment Committee and a member of the Audit Committee, People and
Remuneration Committee and Nomination Committee.
Interests in shares and performance rights
Indirect: 150,000 ordinary shares in nib holdings limited held by Sutton Gardner Pty Ltd.
Independent Non-Executive Director
Experience and expertise
A Director of nib holdings limited since November 2013. With more than 30 years experience in
pharmaceuticals, Lee is an experienced Non-Executive Director with a wealth of knowledge in the
global health industry.
Other current directorships
A Director of Australian Pharmaceutical Industries Ltd and SomnoMed Ltd. President of the
Pharmacy Foundation at the University of Sydney.
Former directorships in the last three years
Director of IMAN Australian Health Plans Pty Limited.
Subsidiary boards and special responsibilities
A Director of nib health funds limited.
Chairman of the People and Remuneration Committee and a member of the Risk and Reputation
Committee and Nomination Committee.
Interests in shares and performance rights
Indirect: 20,000 ordinary shares in nib holdings limited held by Leedoc Pty Ltd and 30,000 ordinary
shares in nib holdings limited held by MIML Pension Consolidator (Lee Ausburn).
16
nib holdings limitedDIRECTORS’ REPORT CONTINUEDFor the year ended 30 June 2016 Harold Bentley
MA Hons, FCA,
FCSA, FGIA
Independent Non-Executive Director
Experience and expertise
A Director since 7 November 2007. Has over 20 years experience in the insurance sector.
Formerly the Chief Financial Officer of Promina Group Ltd and an Audit Manager with
PricewaterhouseCoopers specialising in finance and insurance companies.
Dr Annette Carruthers
MBBS (Hons), FRACGP,
FAICD, GradDipAppFin
TAASFA
Other current directorships
None.
Former directorships in the last three years
Director of IMAN Australian Health Plans Pty Limited.
Subsidiary boards and special responsibilities
Director of nib health funds limited, nib nz holdings limited and nib nz limited.
Chairman of the Audit Committee and a member of the Investment Committee, Risk and Reputation
Committee and Nomination 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 Ltd.
Independent Non-Executive Director
Experience and expertise
A Director since 20 September 2007. A general medical practitioner with financial qualifications
and comprehensive experience in patient care and clinical risk management. Directorships and
representative positions in a range of national, state and regional health care organisations.
Other current directorships
Director of Cater Care Holdings Pty Ltd, Multiple Sclerosis Research Australia and Vice President
of MS Australia.
Former directorships in the last three years
Director of IMAN Australian Health Plans Pty Limited, Aged Care Investment Services (the Trustee
for the AMP Managed Aged Care Investment Trusts), the NSW Board of the Medical Board of
Australia, Hunter Primary Care Ltd, and Hunter Infrastructure and Investment Advisory Board.
Subsidiary boards and special responsibilities
Director of nib health funds limited (since 2003), nib health care services pty limited, nib nz holdings
limited and nib nz limited.
Chairman of the Risk and Reputation Committee and a member of the Audit Committee and
Nomination Committee. A member of nib nz limited’s Board, Audit, Risk and Compliance
Committee (BARCC) and a member of nib nz holdings limited’s Audit Committee.
Interests in shares and performance rights
Direct: 1,000 ordinary shares in nib holdings limited.
Indirect: 71,500 ordinary shares in nib holdings limited held by Carruthers Future Fund Pty Ltd.
17
annual report 2016 INFORMATION ON DIRECTORS continued
Christine McLoughlin
BA/LLB (Hons), FAICD
Donal O’Dwyer
MBA, BE
Independent Non-Executive Director
Experience and expertise
A Director since 20 March 2011. Over 25 years experience as a financial services and legal executive
with iconic brands in financial services (AMP and IAG), telecommunications (Optus) and professional
services industries in Australia, the UK and Asia.
Other current directorships
Chairman of Stadium Australia Group, a Non-Executive Director of Suncorp Group Limited,
Spark Infrastructure Group and Whitehaven Coal Limited and a member of ASIC’s Director
Advisory Panel and the Minter Ellison Advisory Board.
Former directorships in the last three years
Director of IMAN Australian Health Plans Pty Limited, Westpac’s Insurance Businesses. Chairman
of Australian Payments Council and Deputy Chairman of The Smith Family.
Subsidiary boards and special responsibilities
A Director of nib health funds limited.
A member of the People and Remuneration Committee, Risk and Reputation Committee and
Nomination Committee.
Interests in shares and performance rights
Indirect: 110,000 shares in nib holdings limited held by Dundas Street Investments Pty Ltd.
Independent Non-Executive Director
Experience and expertise
Appointed as an additional Director on 22 March 2016 and will stand for election at the 2016 Annual
General Meeting. Highly experienced Non-Executive Director and former executive as the former
worldwide President at Cordis Cardiology and President of the Cardiovascular Group, Europe with
Baxter Healthcare (now Edwards Lifesciences).
Other current directorships
Chairman of AtCor Medical Ltd. A Director of Cochlear Ltd, Mesoblast Ltd and Fisher & Paykel
Healthcare Corporation Ltd.
Former directorships in the last three years
None.
Subsidiary boards and special responsibilities
A Director of nib health funds limited. A member of the People and Remuneration Committee,
Risk and Reputation Committee and Nomination Committee.
Interests in shares and performance rights
Indirect: 25,600 shares in nib holdings limited held by Dundrum Investments Pty Ltd.
COMPANY SECRETARIES
Mrs Michelle McPherson (BBUS (Accounting) (UTS), CA) 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. Mrs McPherson
is a Director of the Hunter Valley Research Foundation and Hunter Valley Grammar School, Chairman 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 and the Council of the University of Newcastle. Mrs McPherson also serves as a Director of a number of nib
Group companies.
Ms Roslyn Toms (BA (Hons) (UCAN,UTS) /LLB (UNSW)) was appointed Company Secretary on 29 April 2013 and serves as
joint Company Secretary. She is also General Counsel of the nib Group and Company Secretary of other nib Group companies.
Ms Toms has over thirteen years’ experience as a lawyer in business, government and private practice.
18
nib holdings limitedDIRECTORS’ REPORT CONTINUEDFor the year ended 30 June 2016 MEETINGS 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 2016, and the numbers of meetings attended by each Director were:
Board2
Audit
Committee
Risk and Reputation
Committee
People and
Remuneration
Committee3
Investment
Committee
Nomination
Committee
Name
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
S Crane
M Fitzgibbon
L Ausburn
H Bentley
A Carruthers
P Gardner
C McLoughlin
D O’Dwyer1
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
2
9
9
9
9
9
9
9
9
9*
9*
9*
9
9
9
6*
–
4
4
4
4
4
4
4
4
4*
4*
4
4
4
4*
4
1
7
7
7
7
7
7
7
7
7*
6*
7
4*
3*
6
7
2
6
6
6
6
6
6
6
6
1*
6*
–
6
–
6
–
–
2
2
2
2
2
2
2
2
2
2*
2
2
2
2
2
1
* Attendance at Committee meetings in an ex-officio capacity
1. D O’Dwyer commenced on 22 March 2016
2. Unscheduled Board meeting on 24 June 2016
3. Unscheduled PARCO meeting on 7 June 2016
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.
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 2 to 13.
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.
REMUNERATION REPORT
The Remuneration Report is set out on pages 22 to 42 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
Issue price of shares
Number under performance right
19 November 2012
29 November 2013
22 December 2014
13 May 2015
18 January 2016
1 September 2016
1 September 2017
1 September 2018
1 September 2018
1 September 2019
nil
nil
nil
nil
nil
553,236
559,057
473,927
22,956
628,895
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.
19
annual report 2016 NON-AUDIT SERVICES
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s
expertise and experience with the Group are important.
Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services during the year
are disclosed in Note 33 – 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 1, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following
reasons:
• all non-audit services have been reviewed by the Audit Committee to ensure that they did not impact the impartiality and
objectivity of the auditor.
• none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants.
INSURANCE OF OFFICERS
During the financial year, the Group paid a premium in respect of a contract insuring the Directors and Officers of the Group
against liability incurred as such a Director or Officer, other than conduct involving wilful breach of duty in relation to the Group, to
the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and
the amount of the premium.
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on
page 21.
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 Instrument 2016/191, 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 Instrument.
This report is made in accordance with a resolution of the Directors.
On behalf of the Board
Steve Crane
Director
Newcastle, NSW
19 August 2016
20
Harold Bentley
Director
nib holdings limitedDIRECTORS’ REPORT CONTINUEDFor the year ended 30 June 2016
AUDITOR’S INDEPENDENCE
DECLARATION
For the year ended 30 June 2016
Auditor’s Independence Declaration
As lead auditor for the audit of nib holdings limited for the year ended 30 June 2016, 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.
Caroline Mara
Partner
PricewaterhouseCoopers
Newcastle
19 August 2016
PricewaterhouseCoopers, ABN 52 780 433 757
Level 3, 45 Watt Strteet, 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.
21
annual report 2016
REMUNERATION REPORT
For the year ended 30 June 2016
MESSAGE FROM THE BOARD
Dear Shareholder,
We are pleased to present our Remuneration Report for the financial year to 30 June 2016.
Our aim with remuneration is to retain, reward and incentivise our Executives to deliver short-and-long-term value creation that is
aligned to our organisational culture, overall business strategy as well as shareholder interests.
The Board has spent considerable time bedding down a remuneration philosophy and framework that is fair to our people and is
reasonable in the eyes of our shareholders. It’s therefore encouraging that our remuneration approach has been readily accepted
by our shareholders, proxy advisors and other shareholder representative groups. At the 2015 Annual General Meeting, our
shareholders voted more than 98% in favour of our Remuneration Report. We feel feedback is important and as in previous
years, nib will seek to engage with our key stakeholders prior to this year’s AGM.
Like many companies we continue to face intense competition to attract and also retain Executive talent. Our remuneration
structure sets a clear and meaningful link between performance and reward to ensure we continue to attract and retain the
right people. We have previously explained to our shareholders that the Board’s Executive remuneration goal is to position
our Executive team between the 50th and 75th percentile of benchmarked companies in terms of fixed remuneration. On a
regular basis we engage an independent advisor to assist in benchmarking remuneration against a defined nib peer group
which contains similar businesses of comparable size. This was done in May 2014 and again in May this year (for financial year
2017). As our shareholders have seen, the size, scope and complexity of nib has increased significantly in the last few years
with the acquisition of nib New Zealand, World Nomads Group and the expansion of our international business operations.
Our benchmarking in 2016 has shown that the Managing Director was below market and so TFR will be increased by 15%
in 2017 to align with our targets and to remain competitive. Further information regarding Executive Remuneration, as well
as total remuneration mix and performance against STI and LTI hurdles for FY16, can be found on pages 27 to 31 of the
Annual Report.
Due to ongoing growth and diversification of the Group, Board succession planning and renewal remains a key focus for the
nib Board. Ensuring we have the right skills mix, experience, diversity, independence and capacity is integral to nib’s ongoing
success. With this central to our thinking, during the year nib appointed Mr Donal O’Dwyer as an Independent Non-Executive
Director of the Board of nib. The appointment of Donal follows the announcement in November last year by Dr Annette
Carruthers that she would not be seeking re-election as a Non-Executive Director of nib. We will not be seeking shareholder
approval to Increase nib’s Non-Executive Director fee pool with 2017 Directors fees captured under our current fee pool.
Since listing on ASX in 2007, nib has continued to perform well against our stated business strategy. With that we have delivered
strong returns for our shareholders, while being served by a very capable and experienced Executive team. We thank our
Executives and their teams for their commitment to nib.
I would like acknowledge the contribution of my fellow nib Director, Christine McLoughlin who during the year moved from
Chairman of our People and Remuneration Committee and will take up the role as Chairman of Risk and Reputation Committee.
Christine’s, leadership has helped embed the effective remuneration philosophy we have at nib. As Chairman of our People and
Remuneration Committee I look forward to building on the strong foundations we have in place.
As always, we welcome your feedback.
Yours sincerely
Lee Ausburn
Chairman
People and Remuneration Committee
22
nib holdings limited CONTENTS
KEY TERMS USED IN THIS REPORT
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 2016
Executive reward at nib
How reward was linked to performance this year
Terms of Executive contracts
Non-Executive Director remuneration
Detailed disclosure of Executive remuneration
Detailed disclosure of Non-Executive remuneration
Equity instruments held by key management personnel
23
23
24
25
26
27
32
34
35
36
40
41
FY15
FY16
FY17
AGM
Group
KMP
KPI
LTI
LTIP
NPAT
STI
TFR
TSR
Financial year ended 30 June 2015
Financial year ended 30 June 2016
Financial year ended 30 June 2017
Annual General Meeting
nib holdings limited consolidated entity
Key Management Personnel (those Directors and
Executives who have responsibility for planning,
directing and controlling the activities of nib, either
directly or indirectly)
Key Performance Indicator
Long-Term Incentive
Long-Term Incentive Plan
Net Profit After Tax
Short-Term Incentive
Total Fixed Remuneration
Total Shareholder Return
WHO THIS REPORT COVERS
This Report presents the remuneration arrangements for nib’s key management personnel.
Executive Director
Mark Fitzgibbon
Managing Director/Chief Executive Officer (MD/CEO)
Other Executives
Michelle McPherson
Deputy Chief Executive Officer/Chief Financial Officer (CFO/DCEO)
Rhod McKensey
Group Executive Australian Residents Health Insurance (GEARHI)
Rob Hennin
Chief Executive Officer – New Zealand (CEO NZ)
Brendan Mills
Chief Information Officer (CIO)
Justin Vaughan
Group Executive Benefits and Provider Relations (GEBPR)
David Kan
Group Executive International and New Business (GEINB)
Independent Non-Executive Directors
Steve Crane
Lee Ausburn
Harold Bentley
Chairman
Member Risk and Reputation Committee , Member People and Remuneration Committee (until
29 February 2016), Chairman People and Remuneration Committee (1 March 2016 – 30 June 2016)
Chairman Audit Committee, Chairman Board Audit Risk and Compliance Committee New Zealand,
Director New Zealand subsidiaries, Member Investment Committee, and Risk and Reputation
Committee
Annette Carruthers
Chairman Risk and Reputation Committee, Director New Zealand subsidiaries and Member
Audit Committee and Board Audit Risk and Compliance Committee New Zealand
Philip Gardner
Chairman Investment Committee, Member Audit Committee and People and Remuneration
Committee
Christine McLoughlin
Chairman People and Remuneration Committee (until 29 February 2016), Member People and
Remuneration (1 March 2016 – 30 June 2016), Member Risk and Reputation Committee
Donal O’Dwyer
(commenced 22/3/2016)
Member People and Remuneration Committee, and Risk and Reputation Committee
23
annual report 2016 PERFORMANCE DRIVES REMUNERATION AT nib
Over the past five years nib has continued to perform strongly against the following key performance criteria.
Sustained growth in consolidated operating profit combined with effective capital management has seen strong performance in
the key metrics of EPS and TSR.
Earnings Per Share
)
s
p
c
(
e
r
a
h
s
r
e
p
s
t
n
e
c
22.5
21.5
20.5
19.5
18.5
17.5
16.5
15.5
14.5
13.5
12.5
21.2
14.8
15.3
17.3
15.9
FY12
FY13
FY14
FY15
FY16
Total Shareholder Return
Since 1 July 2011 nib has consistently performed above the S&P ASX200. The graph below shows the value of $100 invested over
the five-year period to the end to 30 June 2016 (with dividends reinvested) compared to the performance of the S&P/ASX200.
600
500
400
300
200
100
0
NHF:
436.4
ASX200:
142.9
Jun 11
Dec 11
Jun 12
Dec 12
Jun 13
Dec 13
Jun 14
Dec 14
Jun 15
Dec 15
Jun 16
Rebased to 100. Source: Bloomberg, assumes capital returns and dividends reinvested at the payout date.
24
nib holdings limitedREMUNERATION REPORTCONTINUEDFor the year ended 30 June 2016
OUR REMUNERATION GOVERNANCE
The role of nib’s People and Remuneration Committee (Committee) is to make recommendations to the Board on the
remuneration framework, ensuring our remuneration strategy is aligned and reflects the performance of the nib Group. As part
of this process the Committee seeks advice and consults with a range of external remuneration consultants, specialists, major
shareholders and shareholder advisory groups.
The Committee has responsibilities in the areas of remuneration and its link to nib’s culture and business strategy, diversity, human
resources strategy, succession planning and employee development and engagement. The Committee Charter is available on the
nib website (nib.com.au/shareholders). The Committee includes the following independent, Non-Executive Directors:
Lee Ausburn
Christine McLoughlin
Donal O’Dywer
Philip Gardner
Executive remuneration arrangements are set against a comparator group of organisations or peers, which nib determines
in consultation with external remuneration advisors. In May 2014 (and again in May this year for financial year 2017) Guerdon
Associates completed the benchmarking analyses. The scope of this work included reviewing and benchmarking remuneration
arrangements against a relevant peer group of companies and working with the Committee to ensure any proposed changes
are aligned to our remuneration philosophy. The May 2014 benchmarking analysis and supplementary data was utilised for the
financial year 2016 reviews.
In determining nib’s peer group, companies from the following sectors and industries were considered:
• Health insurance companies;
• Other insurance companies;
• Other finance sector companies;
• Consumer discretionary; and
• Healthcare companies.
We have found it challenging to define a peer group in the Australian market of a similar size to nib. As a result comparator
companies were chosen based on size and broad operational parameters. We also consider current market expectations within
our sector in forming a view of benchmarking Executive remuneration.
The primary peer group contained 20 companies, and a further 25 companies were represented in the supplementary
comparator group. 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.
nib’s long-term goal is to set TFR for our Managing Director/ Chief Executive Officer and Executives competitively between the
50th and 75th percentiles of our benchmarked peer group. In FY16, adjustments were made to achieve this goal. Our increasing
market capitalisation (which has increased approximately 230% over the five year period from 30 June 2011) together with the
expanding scope and complexity of our business, has required us to review and change our peer group of 20 companies for FY17.
This has resulted in further Executive remuneration adjustments for FY17. Our benchmarking in 2016 has shown that the Managing
Director was below market and so TFR will be increased by 15% in 2017 to align with our targets and to remain competitive.
The Board’s view is that our current LTI performance hurdles being Earnings Per Share (EPS) and Total Shareholder Return (TSR)
relative to S&P/ASX200 group of companies remain appropriate and aligned to our remuneration philosophy. We will continue to
assess the appropriateness of these performance hurdles each year and consult with shareholders, proxy advisors and other
shareholder representative groups regarding any future amendments to ensure they are aligned to shareholder interests.
25
annual report 2016
ACTUAL REMUNERATION RECEIVED FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
Actual remuneration for each Executive in FY16 included a fixed component, as well as a variable component made up of an
STI payment and LTI award. The STI paid is determined by the performance of each Executive against set performance targets
that include financial and non-financial metrics, and in some instances, strategic milestones. FY16 included the vesting of the
FY12-FY15 LTI Plan for eligible participants, based on hurdles set (Earnings Per Share and Total Shareholder Return) with 50%
of the FY12-FY15 LTI Plan vesting for participants.
A full breakdown of Executive remuneration details has been prepared in accordance with statutory requirements and
accounting standards. This detailed disclosure is located on page 36 of this Report.
The remuneration structure for each Executive for FY16 is made up of the following components.
TOTAL POTENTIAL REWARD
Total fixed remuneration
(cash salary, superannuation,
plus insurance cover)
Short-term incentive (STI),
being cash and
deferral into shares
Long-term incentive (LTI),
being
performance rights
Total potential reward
Fixed
Variable
The table below shows the key elements of total reward for each Executive for FY16. This includes the cash component
elements paid to each Executive for the year as well as the value of equity held in escrow (not subject to forfeiture conditions),
and equity from previous years that vested in FY16 and which was originally reported under accounting standards in the year
they were granted.
Mark Fitzgibbon
Rob Hennin
David Kan
Rhod McKensey
Michelle McPherson
Brendan Mills
Justin Vaughan
STI applicable to the FY15 year
paid in Sept 2015 (FY16)2
Cash
$
266,400
75,182
36,581
128,488
124,735
61,138
55,720
Shares held
in escrow
$
266,400
82,005
36,581
128,488
124,735
61,138
55,720
Total fixed
remuneration1
$
880,000
393,592
444,919
540,001
556,001
320,301
291,201
LTI vested
in FY163
$
Total reward
(received or
available)
$
333,629
1,746,429
–
–
99,678
168,337
–
–
550,780
518,080
896,655
973,808
442,577
402,641
3,426,015
748,243
755,066
601,644
5,530,967
1. Total fixed remuneration comprises Cash salaries and fees and superannuation.
2. FY15 STI paid in the FY16 year.
3. Value of shares issued during the year on exercise of performance rights.
26
nib holdings limitedREMUNERATION REPORTCONTINUEDFor the year ended 30 June 2016 EXECUTIVE REWARD AT nib
The objective of Executive remuneration arrangements is to ensure that nib’s remuneration practices are clearly understood and
appropriately aligned with shareholder value creation over the short and long term, and that these practices work to appropriately
motivate, reward and retain Executives.
The remuneration framework provides a mix of fixed and variable remuneration with a blend of short-term and long-term
incentives. There are three components of total remuneration:
• fixed remuneration, comprising base remuneration package, superannuation and insurance cover;
• short-term incentives based on predetermined Key Performance Indicator (KPI) targets established by the Board and an
assessment of leadership; and
•
longer-term incentives based on predetermined TSR and EPS performance established by the Board.
Executives only receive dividends on the deferred STI and LTI (including those subject to escrow) after they have been awarded
or vested. Executives are not entitled to dividends on securities or performance rights which have not vested.
A significant portion of the Managing Director/Chief Executive Officer’s and Executives’ remuneration is performance based
through STI and LTI arrangements. Claw-back arrangements are in place for the portion of STI deferred and LTI.
If the Board becomes aware of a material misstatement of our financial accounts or statements, and nib has awarded the
Executive a remuneration increase, incentive payment or award (STI and LTI) having regard to misstatement, the Board may,
(in its absolute discretion) require the Executive to:
• repay the Company any amount of remuneration, STI or LTI received by the Executive; or
•
forfeit or cancel any remuneration increase, STI or LTI award (whether vested or unvested).
Our remuneration mix
The graph below illustrates the FY16 remuneration mix for our Executives. Any variations in target remuneration mix between
Executive roles reflect position responsibilities.
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%
17%
17%
33%
24%
14%
14%
20%
15%
15%
20%
15%
15%
21%
13%
13%
21%
13%
13%
21%
13%
13%
48%
50%
50%
53%
53%
53%
MD/CEO
DCEO/CFO
GEARHI
CEO NZ
CIO
GEBPR
GEINB
Longer-term performance incentives opportunity
Short-term performance incentives opportunity – deferred into shares
Short-term performance incentives opportunity – cash
Base remuneration package and benefits
27
annual report 2016
EXECUTIVE REWARD AT nib continued
Fixed remuneration
Fixed remuneration for Executives is determined with reference to a benchmarking process, external market factors, competition
to attract and retain talent, as well as 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 Group.
Short-term incentives for the financial year ended 30 June 2016
nib’s short-term incentive (STI) plan for each Executive is structured as follows.
TOTAL POTENTIAL STI
Cash (50%)
Deferred into shares (50%)
1 year (50%) / 2 years (50%)
Total potential reward
Variable (Determined by a mixture of financial, non-financial and individual performance outcomes)
Performance criteria for STI is based on two components:
1. Performance assessment which makes up 80% of the total STI. The performance component is assessed against
predetermined performance milestones for each Executive. In some instances an Executive’s STI assessment may include
strategic milestones.
2. Leadership assessment which makes up 20% of the total STI. The leadership component ensures we continue to focus
and recognise the contribution of our Executives in developing a high performance organisational culture and is assessed
as part of annual performance reviews.
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 Executive’s achievement
of predetermined performance milestones and an annual performance review. The cash component of the bonuses is payable
on or before 15 September each year in respect of the prior financial year.
Each Executive has a target STI opportunity. For FY16, 50% of the awarded STI must be deferred into shares, with half the
shares vesting after one year and the second half after two years. These shares are subject to a real risk of forfeiture during the
deferral period being a service condition. While nib does not set minimum shareholding requirements on our Executives, the
Board’s view is that the deferral arrangements under the STI means all Executives have an appropriate minimum equity holding.
FY16 Maximum
potential STI
as a % of TFR
Proportion of
actual FY16 STI
to be deferred
into shares
100%
60%
60%
60%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
Mark Fitzgibbon
Michelle McPherson
Rhod McKensey
Rob Hennin
Brendan Mills
Justin Vaughan
David Kan
28
nib holdings limitedREMUNERATION REPORTCONTINUEDFor the year ended 30 June 2016 The specific KPIs and weighting for FY16 for the Managing Director/CEO and Chief Financial Officer/Deputy CEO which
constitutes 80% of their total STI are below (other executives have KPIs which are relevant to their roles).
KPI Weighting
Growth
Group premium revenue
Profitability
Group underlying profit
WNG underlying operating profit
Underlying EPS
Cost control
Mark Fitzgibbon
(MD/CEO)
Michelle
McPherson
(CFO/DCEO)
10%
40%
10%
20%
–
40%
–
20%
Group management expense ratio (excluding acquisition costs)
–
30%
Customer satisfaction
arhi customer satisfaction
20%
10%
Short-term performance targets are set for achieving specific financial business and individual performance outcomes and
awards are made relative to stretch performance.
Actual STIs awarded and forfeited (as a percentage of total STI) are set out below. A more detailed description of performance
against STI performance hurdles for the CEO and CFO/DCEO is shown on page 32.
Mark Fitzgibbon
Michelle McPherson
Rhod McKensey
Rob Hennin
Brendan Mills
Justin Vaughan
David Kan
Group average
FY16 STI Bonus
FY15 STI Bonus
Awarded
Forfeited
Awarded
Forfeited
%
87%
86%
87%
92%
85%
96%
82%
88%
%
13%
14%
13%
8%
15%
4%
18%
12%
%
83%
82%
90%
85%
79%
80%
75%
70%
%
17%
18%
10%
15%
21%
20%
25%
30%
29
annual report 2016 EXECUTIVE REWARD AT nib continued
Long-term incentives for the financial year ended 30 June 2016
nib’s long-term incentive (LTI) plan for each Executive is structured as follows.
TOTAL POTENTIAL LTI
LTI Issue of Rights
4 year
performance period
Tranche 1 (50%):
TSR
Tranche 2 (50%):
EPS
LTI awarded
With 50% of total award
having 2 year escrow period
The purpose of the LTI is to balance short-term performance objectives with the creation of long-term shareholder value by
focusing overall Group performance over a multi-year period.
The nib LTI is an incentive provided to eligible Executives if specific measures are met over a four-year period. LTI targets are set
in the interests of creating long term shareholder value 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.
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.
The performance hurdles for the nib LTI is Total Shareholder Return (TSR) relative to the S&P/ASX200 over four years and EPS
growth over the performance period. The LTI is allocated in two equal tranches; 50% for TSR and 50% for EPS.
A condition of acceptance for each Executive in the LTI Plan is the requirement for 50% of the LTI to have a two-year escrow
period. This escrow period extends beyond employment at nib ceasing, including termination.
nib LTI performance rights vest in accordance with the achievement of the following vesting conditions:
Vesting Condition 1
Vesting Condition 2
50% of the performance rights (Tranche 1)
50% of the performance rights (Tranche 2)
Total shareholder return targets (TSR Hurdle) for the relevant
performance period are met
Earnings per share growth targets (EPS Hurdle) for the relevant
performance period are met
TSR Hurdle (Tranche 1)
The TSR Hurdle applies to half of the LTI allocation. The TSR Hurdle measures the groth in the price of nib securities plus nib
cash distributions and compares this to the shareholder returns from the peer group of companies. In order for the Tranche 1
performance rights to vest, the TSR of nib will be compared to companies in the S$P/ASX 200 (the peer group) over the
performance period.
The percentage of Tranch 1 performance rights that vest is determined as follows:
nib’s TSR performance compared to the relevant peer group
Performance of Tranche 1 performance rights vesting
>= 75th percentile
100%
>= 50th percentile to 74th percentile
Pro-rata straight line vesting between 50% and 74%
< 50th percentile
0%
30
nib holdings limitedREMUNERATION REPORTCONTINUEDFor the year ended 30 June 2016 EPS Hurdle (Tranche 2)
The EPS Hurdle applies to 50% of the LTI allocation. Vesting of performance rights is subject to nib holdings limited EPS hurdle
as follows:
Percentage of
performance
rights vesting
EPS Hurdle:
CAGR from
base EPS
FY13-FY16 LTIP
EPS Hurdle:
CAGR from
base EPS
FY14-FY17 LTIP
EPS Hurdle:
CAGR from
base EPS
FY15-FY18 LTIP
EPS Hurdle:
CAGR from
base EPS
FY16-FY19 LTIP
Base EPS
14.8 cps
Base EPS
15.3 cps
Base EPS
15.9 cps
Base EPS
100%
75%
50%
25%
0%
15%
12.5%
10%
7.5%
<7.5%
25.8 cps
23.6 cps
21.6 cps
19.7 cps
nil
15%
10%
7%
3%
<3%
26.8 cps
22.4 cps
20.1 cps
17.2 cps
nil
9%
7%
5.5%
4%
<4%
22.4 cps
20.8 cps
19.7 cps
18.6 cps
9%
7%
5%
3%
nil
<3%
17.3 cps
24.4 cps
22.7 cps
21.0 cps
19.5 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 FY16-FY19 LTIP nib moved to set EPS hurdles and performance levels annually, instead for the four year period at
the beginning at the performance period. This allows the Board to take into account regulatory pricing re-sets and a focus on
performance sustainability over a long-term period. The main reason for this, and as can be seen from the graph (below), is that
for incentive schemes to be effective they need to strike the right balance of being aspirational but also achievable. As the graph
highlights, our previous approach to setting EPS targets for the four year period resulted in nil award of the EPS component for
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 also impacts EPS, with EPS targets being set based on an assumption that
on average over time investment returns will be in line with benchmark performance.
If vesting conditions are met, the performance rights will vest on 1 September following the end of the performance 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 for the past five years 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 performance.
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
)
s
p
c
(
S
P
E
25% EPS
CAGR
25% EPS
CAGR
13.7
14.8
15.3
15.9
FY11 – FY14 LTIP
niil EPS vested
17.3
FY12 – FY15 LTIP
nil EPS vested
FY09 – FY11 LTIP
100% vested
FY10 – FY12 LTIP
100% vested
15% EPS
CAGR
15% EPS
CAGR
9% EPS
CAGR
9% EPS
CAGR
21.2
FY13 – FY16
LTIP
FY14 – FY17
LTIP
FY15 – FY18
LTIP
FY16 – FY19
LTIP
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
25% vesting range
50% – 75% vesting range on a pro-rata basis
75% – 100% 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.
31
annual report 2016
HOW REWARD WAS LINKED TO PERFORMANCE THIS YEAR
The components of remuneration that are linked to performance are the STI and LTI plans. Set performance indicators determine
80% of the STI award, while 20% is assessed on the leadership of each Executive.
Commercially sensitive and strategic milestone targets were set for some of our Executives and these were dependent on the
segment of our business they have responsibility for.
The following table shows the specific key performance indicators for the Managing Director/CEO and Chief Financial Officer/
Deputy CEO over the last five years:
Financial results
Growth
Group premium revenue
Profitability
nib Group underlying operating profit
WNG underlying operating profit
Underlying EPS
Cost Control
Group underlying management expense
ratio excluding acquisition costs
2016
$m
2015
$m
2014
$m
2013
$m
2012
$m
1,818.7
1,634.9
1,491.6
1,290.4
1,123.8
132.0
9.7
22.9
85.2
–
18.3
77.3
–
16.8
75.5
–
16.3
70.0
–
15.0
cps
%
6.3
5.9
6.0
5.6
5.9
Results against KPIs (excluding leadership component) are detailed in the table below.
KPI
Growth
Group premium revenue
Profitability
nib Group underlying operating profit
WNG underlying operating profit
Underlying EPS
Cost control
nib Group underlying management
expense ratio excluding acquisition costs
Customer satisfaction
arhi customer satisfaction
Result
Group premium revenue up 11% to $1.8 billion, with 100% of maximum STI awarded for
this target.
Group underlying operating profit up 49.9% to $132.0 million, with 100% of maximum
STI awarded for this target.
WNG underlying operating profit was $9.7 million (11 month result), with approximately
70% of maximum STI awarded for this target.
Underlying EPS of 22.9cps up 25.1%, with 100% of maximum STI awarded for this
target.
Approximately 65% of maximum STI awarded for this target.
A range of metrics are used to measure customer satisfaction, including lapse and NPS
which resulted in approximately 50% of maximum STI awarded for this target.
The graph over illustrates the relationship between the amount (as a percentage) of total STI awarded and operating profit
result. Executives received a lower STI (as a percentage) as operating profit has slowed from FY12. In recognition of the role
and contribution of our Executives in establishing and integrating our new business segments (including nib New Zealand,
International (Inbound) Health Insurance and World Nomads Group) the STI percentage awarded has improved in recent years.
32
nib holdings limitedREMUNERATION REPORTCONTINUEDFor the year ended 30 June 2016 STI % awarded in
respect of financial year
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
Operating profit
($m)
140.0
120.0
100.0
80.0
60.0
40.0
20.0
FY11
FY12
FY13
FY14
FY15
FY16
STI % awarded
Operating Profit
TERMS OF EXECUTIVE CONTRACTS
Executive contracts summarise employment terms and conditions, including remuneration arrangements and compensation.
A significant portion of the Managing Director/Chief Executive Officer’s and Chief Financial Officer/Deputy Chief Executive
Officer’s remuneration is performance based through STI and LTI arrangements. Claw-back arrangements are in place for
the portion of STI deferred and LTI.
The table below provides a summary of the agreements.
Service agreement effective
Term of agreement
Termination provision
Mark Fitzgibbon (MD/CEO)
Michelle McPherson (CFO/DECO)
Rhod McKensey (GEARHI)
Rob Hennin (CEO NZ)
Brendan Mills (CIO)
1 July 2010
1 July 2010
1 July 2014
6 May 2013
1 June 2012
Open contract with notice period
Open contract with notice period
Open contract with notice period
Open contract with notice period
Open contract with notice period
Justin Vaughan (GEBPR)
1 August 2013
Open contract with notice period
David Kan (GEINB)
19 December 2014
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 our Australian Executives with open contracts effective pre August 2014, 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. For our Australian Executives with
open contracts effective post August 2014, the Group may terminate the Executive’s contract with six 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:
• a pro-rata STI payment based on the period of the financial year during which the Executive was employed and the Board’s
assessment of the Executive’s performance against the key performance indicators as at the date of termination; and/or
• 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.
At the 2011 Annual General Meeting nib received shareholder approval 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 undertaken for Executives who held this position at the date
of shareholder approval. The only current Executives this approval would be applicable to are Mark Fitzgibbon (MD/CEO),
Michelle McPherson (Deputy CEO/CFO) and Rhod McKensey (Group Executive Australian Residents Health Insurance).
33
annual report 2016 NON-EXECUTIVE DIRECTOR REMUNERATION
Fees and payments to Non-Executive Directors reflect the Board role, market fee levels, and the objective of the Group to attract
highly skilled and experienced Non-Executive Directors.
nib requires all Non-Executive Directors to hold a minimum of 50% of their first year’s total annual base Director’s fee in
shares, which is to be accumulated within three years of appointment (based on the share price at the date of joining the Board).
All current Non-Executive Directors comply with this requirement as at 30 June 2016.
Non-Executive Director fees
Our Non-Executive Directors (NEDs) are paid a base fee, plus they also receive an additional fee for being members of other
nib Board Committees. NED fees are reviewed annually by the Committee and approved by the Board. In 2014, nib engaged
the services of Guerdon Associates to conduct a benchmarking and market remuneration analysis, which together with
supplementary data was utilised this year.
NED fees are determined within the $1.5 million aggregate nib Directors fee pool limit, which was approved by shareholders at
the 2013 Annual General Meeting. 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 table shows the fees (inclusive of superannuation) for nib’s Australian boards and committees:
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
Nomination committee
Chairman
Member
2016
$
2015
$
242,000
105,000
234,400
102,000
31,000
12,500
17,000
10,000
25,000
12,500
25,000
12,500
–
–
30,000
12,000
16,700
9,900
24,100
12,000
24,100
12,000
–
–
* The Chairman of the Board does not receive additional fees for involvement in committees.
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.
34
2016
$
2015
$
72,000
37,000
69,836
35,600
9,000
–
8,900
–
nib holdings limitedREMUNERATION REPORTCONTINUEDFor the year ended 30 June 2016 Principle 2 of nib’s Corporate Governance Statement (which is available at www.nib.com.au/shareholders/company-profile/
corporate-governance) includes the committee membership of each of nib’s NEDs.
Share ownership by Non-Executive Directors
nib’s NEDs are required to hold a minimum of 50% of their first year’s total annual base Director’s fee in shares, which is to
be accumulated within three years of appointment (based on the share price at the date of joining the Board). All current
Non-Executive Directors comply with this requirement as at 30 June 2016.
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 Annette Carruthers is 0.71.
At 30 June 2016, the following retirement benefits are provided for:
Annette Carruthers
$90,958
35
annual report 2016 l $
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40
nib holdings limitedREMUNERATION REPORTCONTINUEDFor the year ended 30 June 2016
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.
2016
Balance at start
of the year
Granted as
compensation
Exercised
Other forfeitures
Balance at the
end of the year
Vested and
exercisable
Mark Fitzgibbon
1,057,811
284,320
(108,773)
(108,773)
1,124,585
Michelle McPherson
Rhod McKensey
Rob Hennin
Brendan Mills
Justin Vaughan
David Kan
Total
380,778
275,189
97,700
107,752
59,297
22,956
89,819
69,787
49,492
41,394
37,633
56,450
(54,883)
(32,498)
(54,883)
(32,497)
–
–
–
–
–
–
–
–
360,831
279,981
147,192
149,146
96,930
79,406
2,001,483
628,895
(196,154)
(196,153)
2,238,071
–
–
–
–
–
–
–
–
2015
Balance at start
of the year
Granted as
compensation
Exercised
Other forfeitures
Balance at the
end of the year
Vested and
exercisable
Mark Fitzgibbon
1,059,049
234,714
(117,976)
(117,976)
1,057,811
Michelle McPherson
Rhod McKensey
Rob Hennin
Brendan Mills
Justin Vaughan
David Kan
Total
425,750
276,974
57,316
71,607
26,438
–
74,081
55,744
40,384
36,145
32,859
22,956
(59,527)
(28,765)
(59,526)
(28,764)
–
–
–
–
–
–
–
–
380,778
275,189
97,700
107,752
59,297
22,956
1,917,134
496,883
(206,268)
(206,266)
2,001,483
–
–
–
–
–
–
–
–
Unvested
1,124,585
360,831
279,981
147,192
149,146
96,930
79,406
2,238,071
Unvested
1,057,811
380,778
275,189
97,700
107,752
59,297
22,956
2,001,483
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 2016.
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.
2016
Ordinary shares
Directors of nib group
Steve Crane
Lee Ausburn
Harold Bentley
Annette Carruthers
Philip Gardner
Christine McLoughlin
Donal O’Dwyer
Other key management personnel of the Group
Mark Fitzgibbon
Michelle McPherson
Rhod McKensey
Rob Hennin
Brendan Mills
Justin Vaughan
David Kan
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
20,000
100,000
72,500
125,000
97,500
–
–
–
–
–
–
–
–
50,000
30,000
–
–
25,000
12,500
25,600
250,000
50,000
100,000
72,500
150,000
110,000
25,600
1,594,650
195,627
(7,000)
1,783,277
512,498
245,820
11,653
38,894
5,890
–
95,550
74,389
26,736
19,933
18,166
11,926
–
–
274
–
–
–
608,048
320,209
38,663
58,827
24,056
11,926
41
annual report 2016 REMUNERATION REPORT
CONTINUED
For the year ended 30 June 2016
EQUITY INSTRUMENTS HELD BY KEY MANAGEMENT PERSONNEL continued
Share holdings continued
2015
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
David Kan
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
20,000
100,000
72,500
108,000
97,500
–
–
–
–
–
–
1,436,045
158,605
428,455
203,945
–
31,170
–
–
84,043
41,875
11,653
7,724
5,890
–
–
–
–
–
17,000
–
–
–
–
–
–
–
–
200,000
20,000
100,000
72,500
125,000
97,500
1,594,650
512,498
245,820
11,653
38,894
5,890
–
In addition to the above shareholding in nib holdings limited, David Kan during the year acquired one share in both nib Options
Holdings (Thailand) Co Ltd and nib Options (Thailand) Co Ltd.
Other transactions with key management personnel
The wife of Philip Gardner, a Director, is a director and shareholder of XO Digital Pty Limited and Enigma Communications Pty
Limited. The nib holdings limited Group has entered into contracts with XO Digital Pty Limited for software development and
maintenance, and Enigma Communications Pty Limited for graphic design and creative services. In line with nib’s Procurement
and Related Party Transactions Policies, these services were benchmarked against suppliers providing similar services and
found to be competitive. The contracts were based on normal commercial terms and conditions.
Aggregate amounts of each of the above types of other transactions with key management personnel of the Group:
a) Amounts recognised as expense
Software maintenance
Advertising and promotions
Printing and stationery
b) Amounts recognised as intangible assets
Software
2016
$000
–
222,701
97,382
320,083
2015
$000
54,874
115,689
–
170,563
–
–
128,223
128,223
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
42
–
–
234,943
234,943
nib holdings limited CORPORATE GOVERNMENT STATEMENT
For the year ended 30 June 2016
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.
The 2016 Corporate Governance Statement is dated as at 30 June 2016 and reflects the corporate governance practices in
place throughout the 2016 financial year. The Corporate Governance Statement was approved by the board on 19 August 2016.
A description of the Group’s current corporate governance practices is set out in the Group’s Corporate Governance Statement
which can be viewed at www.nib.com.au/shareholders/company-profile/corporate-governance
43
annual report 2016 FINANCIAL REPORT
For the year ended 30 June 2016
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. Taxation
9. Cash and Cash Equivalents
10. Receivables
11. Financial Assets at Fair Value through
Profit or Loss
12. Reinsurance and Other Recoveries
Receivable/(Payable)
13. Deferred Acquisition Costs
14. Assets Classified as Held for Sale
15. Property, Plant and Equipment
16. Intangible Assets
45
46
47
48
49
50
52
52
58
61
64
66
67
70
71
73
73
74
75
76
78
17. Payables
18. Borrowings
19. Outstanding Claims Liability
20. Unearned Premium Liability and
Unexpired Risk Liability
21. Premium Payback Liability
22. Provision for Employee Entitlements
23. Other Liabilities
24. Contributed Equity
25. Retained Profits
26. Reserves
27. Dividends
28. Earnings per Share
29. Capital Management
30. Commitments for Expenditure
31. Contingent Liabilities
32. Events Occurring after the Balance Sheet Date
33. Remuneration of Auditors
34. Business Combination
35. Controlled Entities
36. Related Party Transactions
37. Share-Based Payments
38. Parent Entity Financial Information
39. Company Details
81
81
83
86
87
90
91
91
92
93
94
95
96
98
99
99
100
101
104
106
107
110
111
44
nib holdings limited CONSOLIDATED INCOME STATEMENT
For the year ended 30 June 2016
Premium revenue
Outwards reinsurance premium expense
Net premium revenue
Claims expense
Reinsurance and other recoveries revenue
RESA levy1
State levies
Decrease / (increase) 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 for the year is attributable to:
Owners of nib holdings limited
Non-controlling interests
1. RESA (Risk Equalisation Special Account) levy, formerly RETF (Risk Equalisation Trust Fund) levy.
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
2016
$000
2015
$000
6
6
7
7
7
6
7
7
6
7
8(a)
28
28
28
28
1,820,053
1,636,323
(1,349)
(1,444)
1,818,704
1,634,879
(1,288,708)
(1,152,016)
660
587
(179,416)
(185,498)
(29,402)
15,778
(16,828)
(28,237)
(1,902)
(16,982)
(1,497,916)
(1,384,048)
(94,584)
(101,997)
(196,581)
(79,261)
(82,922)
(162,183)
124,207
88,648
55,800
(59,217)
120,790
(5,241)
18,477
(1,597)
132,429
(40,598)
91,831
5,054
(12,047)
81,655
(3,423)
32,975
(1,616)
109,591
(34,330)
75,261
92,850
(1,019)
91,831
75,798
(537)
75,261
cents
cents
21.2
21.2
21.2
21.2
17.3
17.3
17.3
17.3
The above Consolidated Income Statement should be read in conjunction with the accompanying notes.
45
annual report 2016 CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 30 June 2016
Profit for the year
91,831
75,261
Notes
2016
$000
2015
$000
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Reversal on disposal 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
26
8(a)(iii)
26
8(a)(iii)
3,299
–
(705)
117
(35)
2,676
(1,434)
(2,012)
660
5,539
(1,662)
1,091
Total comprehensive income for the year
94,507
76,352
Total comprehensive income for the year is attributable to:
Owners of nib holdings limited
Non-controlling interests
95,526
(1,019)
94,507
76,889
(537)
76,352
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
46
nib holdings limited CONSOLIDATED BALANCE SHEET
For the year ended 30 June 2016
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
Assets classified as held for sale
Total current assets
Non-current assets
Deferred acquisition costs
Deferred tax assets
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables
Reinsurance and other recoveries payable
Borrowings
Outstanding claims liability
Unearned premium liability
Premium payback liability
Provision for employee entitlements
Current tax liabilities
Other liabilities
Total current liabilities
Non-current liabilities
Borrowings
Unearned premium liability
Premium payback liability
Provision for employee entitlements
Deferred tax liabilities
Other 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
Notes
2016
$000
2015
$000
9
10
11
12
13
14
13
8(b)
15
16
17
12
18
19
20
21
22
23
18
20
21
22
8(c)
23
24
25
26
89,428
51,858
580,738
79
34,060
–
123,655
45,130
457,155
–
22,059
38,726
756,163
686,725
49,135
809
15,486
217,428
282,858
1,039,021
42,069
3,677
14,458
90,179
150,383
837,108
141,289
124,902
–
–
112,179
151,941
10,261
2,881
15,034
408
9
1,390
97,147
126,922
10,459
3,056
2,607
–
433,993
366,492
151,867
24,326
17,100
2,290
17,808
5,573
218,964
652,957
386,064
26,525
356,218
4,908
387,651
(1,587)
386,064
62,501
16,306
30,429
1,268
15,849
–
126,353
492,845
344,263
28,001
307,038
9,815
344,854
(591)
344,263
The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.
47
annual report 2016 CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
For the year ended 30 June 2016
Attributable to owners of nib holdings limited
Contributed
Equity
$000
Retained
Profits
$000
Notes
Reserves
$000
Total
$000
Non-
controlling
interests
$000
Total Equity
$000
Balance at 1 July 2014
27,189
320,132
9,101
356,422
(54)
356,368
Profit for the year
Revaluation of land and buildings, net of tax
26
Revaluation of available for sale financial
assets, net of tax
Movement in foreign currency translation,
net of tax
26
Total comprehensive income for the year
–
–
–
–
–
75,798
–
–
–
75,798
–
3,877
75,798
3,877
(1,408)
(1,408)
(1,378)
1,091
(1,378)
76,889
(537)
75,261
–
–
–
3,877
(1,408)
(1,378)
(537)
76,352
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
24(c)
24(c)
26
27
(137)
949
–
–
–
–
–
(88,892)
–
(137)
(745)
368
–
204
368
(88,892)
812
(88,892)
(377)
(88,457)
–
–
–
–
–
(137)
204
368
(88,892)
(88,457)
Balance at 30 June 2015
28,001
307,038
9,815
344,854
(591)
344,263
Balance at 1 July 2015
28,001
307,038
9,815
344,854
(591)
344,263
Profit for the year
Movement in foreign currency translation,
net of tax
Revaluation of land and buildings, net of tax
Transfer to retained profits on sale of land
and buildings, net of tax
Total comprehensive income for the year
26
26
26
Transactions with owners in their capacity
as owners:
Transactions with non-controlling interests
35(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
24(c)
(2,902)
24(c)
1,426
26
27
–
–
92,850
–
92,850
(1,019)
91,831
–
–
2,594
2,594
82
82
–
–
–
–
2,594
82
–
95,526
(1,019)
94,507
7,911
100,761
(7,911)
(5,235)
–
–
–
–
(51,581)
–
–
(631)
959
–
–
23
23
(2,902)
795
959
(51,581)
–
–
–
–
(2,902)
795
959
(51,581)
Balance at 30 June 2016
26,525
356,218
4,908
387,651
(1,587)
386,064
(1,476)
(51,581)
328
(52,729)
23
(52,706)
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
48
nib holdings limited
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2016
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 business combination
Interest paid
Income taxes paid
Notes
2016
$000
2015
$000
1,934,973
1,696,350
(1,503,099)
(1,351,374)
(273,792)
158,082
–
7,393
19,151
(2,763)
(4,817)
(28,643)
(224,172)
120,804
217
8,938
12,148
–
(3,227)
(24,671)
Net cash inflow from operating activities
9(c)
148,403
114,209
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 available-for-sale financial assets
Proceeds from sale of assets classified as held for sale
Proceeds from sale of property, plant and equipment and intangibles
Payments for property, plant and equipment and intangibles
Payment for acquisition of business combination, net of cash acquired
Net cash (outflow) inflow from investing activities
Cash flows from financing activities
Proceeds from 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 (decrease) 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
15,16
34
24(c)
35(c)
27
154,448
(281,829)
–
46,259
27
(16,173)
(114,506)
(211,774)
85,000
(2,902)
23
(51,581)
30,540
(32,831)
122,265
(6)
89,428
154,234
(199,028)
6,882
–
36
(10,982)
–
(48,858)
–
(137)
–
(88,892)
(89,029)
(23,678)
146,954
(1,011)
122,265
89,428
–
89,428
123,655
(1,390)
122,265
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
49
annual report 2016 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the year ended 30 June 2016
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.
Significant and other accounting policies that summarise
the measurement basis used and are relevant to the
understanding of financial statements are provided throughout
the notes to the financial statements.
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.
b) New and amended standards adopted by the Group
The Group has not applied any new standards or amendments
during the annual reporting period commencing 1 July 2015.
c) New accounting standards and interpretations not
yet adopted
Certain new accounting standards and interpretations have
been published that are not mandatory for 30 June 2016
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 2018)
AASB 9 Financial Instruments addresses the classification,
measurement and derecognition of financial assets and
financial liabilities and introduces new rules for hedge
accounting. While the Group is yet to undertake a detailed
assessment it doesn’t expect any significant impact from this
standard.
ii) AASB 15 Revenue from contracts with customers (effective
from 1 January 2018)
The AASB has issued a new standard for the recognition of
revenue. This will replace AASB 118 which covers contracts for
goods and services and AASB 111 which covers construction
contracts. The new standard is based on the principle that
revenue is recognised when control of a good or service
transfers to a customer – so the notion of control replaces the
existing notion of risks and rewards.
The majority of the Group’s revenue is recognised under
AASB 1023 General Insurance Contracts which is not
impacted by AASB 15. While the Group is yet to undertake a
detailed assessment it doesn’t expect any significant impact
from this standard.
iii) AASB 16 Leases (effective from 1 January 2019)
AASB 16 will primarily affect the accounting by lessees and will
result in the recognition of almost all the leases on the balance
sheet. The standard removes the current distinctions between
operating and financing leases and requires recognition of an
asset (the right to use the leased item) and a financial liability to
pay rentals for almost all the lease contracts. The Group is yet
to undertake a detailed assessment of this standard.
The Group is currently assessing whether it should adopt
these standards before their mandatory date.
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.
d) 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 2016 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 (including structured entities) over
which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has ability to
affect those returns through its power to direct the activities
of the entity. Subsidiaries are fully consolidated from the
date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.
50
nib holdings limited The acquisition method of accounting is used to account for
the acquisition of subsidiaries by the Group (refer to Note 34(c).
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.
e) Foreign currency translation
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:
• assets and liabilities for each balance sheet presented
are translated at the closing rate at the date of that
balance sheet;
•
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
• all resulting exchange differences are recognised in other
comprehensive income.
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.
f) 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.
g) Rounding of amounts
The company is of a kind referred to in Instrument 2016/191,
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 Instrument to the nearest
thousand dollars, or in certain cases, the nearest dollar.
51
annual report 2016 2. CRITICAL ACCOUNTING JUDGEMENTS AND 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 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:
• Estimation of deferred acquisition costs – Note 13
• Estimation of goodwill impairment and useful life of brand names and trademarks – Note 16
• Estimation of outstanding claims liability – Note 19
• Estimation for liability adequacy test – Note 20 and Note 21
• Estimation of premium payback liabilities – Note 21
3. RISK MANAGEMENT
The financial condition and operations 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 a three lines of defence model. The three lines of defence
model provides defined risk ownership responsibilities with functionally independent oversight and assurance. nib’s Group risk
management framework manages risks through:
• The Board of nib is ultimately responsible for the risk management framework and oversees its operation by management to
operate within the approved risk appetite statement.
• 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;
– 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.
– 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.
52
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 • 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.
•
Internal audit which provides independent assurance to senior management and Directors regarding the adequacy of controls
over activities where the risks are perceived to be high.
• Regular risk and compliance reporting.
• nib health funds limited is subject to the application of standards for solvency and capital adequacy. From 1 July 2015,
section 92 of the Private Health Insurance (Prudential Supervision) Act 2015 (Cth) provides the Australian Prudential
Regulation Authority (APRA) with the power to issue prudential standards. The relevant standards determined by APRA
are the Health Insurance (Prudential Standard) Determination No. 2 of 2015 – HPS 100 Solvency Standard and the Health
Insurance (Prudential Standard) Determination No 3 of 2015 – HPS 110 Capital Adequacy.
– The Solvency and Capital Adequacy Standards 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.
• 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 (Australian Residents Health
Insurance) 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 Health Insurance and International Workers Health Insurance in this respect. The industry in
Australia is shaped by a number of regulatory factors:
• Community Rating: The principle of community rating prevents private health insurers from improperly discriminating
between people who are or who wish to become insured, on the basis of their health status, age, race, gender, religious
beliefs, sexuality, frequency of need of health care, lifestyle or claims history. Community rating applies to CHIP (Australian
Residents Health Insurance) and International Students Health Insurance, but not to International Workers Health Insurance.
• 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 International Students Health Insurance or International Workers Health Insurance. As of 1 July 2015, the
Commonwealth Health Minister retains overall policy responsibility for the risk equalisation scheme, with APRA having a similar
role administering the risk equalisation scheme as PHIAC had administrating the risk equalisation scheme prior to 1 July 2015.
53
annual report 2016 3. RISK MANAGEMENT continued
b) Insurance risk continued
• Coverage Requirements: The Act limits the types of treatments that private health insurers can offer as part of their health
insurance business (CHIP). International Students Health Insurance products coverage requirements are set out in a Deed
between the insurer and the Commonwealth, while the health services offered under International Workers Health Insurance
cover are largely at the discretion of the insurer.
• Premium Approval: Under the Act, insurers can only increase CHIP premiums with the approval of the Minister. The Minister
must approve the amounts unless the Minister is satisfied that the change would be contrary to the public interest. Insurers
can ordinarily only seek one premium increase per annum. International Students Health Insurance 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. International Workers Health Insurance 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:
• Maintain and disclose a financial strength rating;
• Maintain a fit and proper policy, which apply to Directors and other relevant officers;
• Maintain a risk management program;
• 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
• 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.
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 Australian and New Zealand Dollars.
As at the end of the reporting period, the Group had the following variable rate borrowings outstanding:
Bank loans
Net exposure to cash flow interest rate risk
3.6%
151,867
151,867
4.9%
2016
2015
Weighted average
interest rate
%
Balance
$000
Weighted average
interest rate
%
Balance
$000
62,501
62,501
An analysis by maturities is provided at 3(e).
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 Nikko Asset
Management New Zealand 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.
54
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 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
2016
2015
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
Other receivables
Financial assets at fair value
through profit or loss
Financial liabilities
Bank loans
89,428
7,974
(625)
(56)
(625)
(56)
625
56
625 123,655
(866)
(866)
56
2,771
(19)
(19)
866
19
866
19
580,738
6,149
6,149
(6,103)
(6,103) 457,155 4,184
4,184
(4,151)
(4,151)
(151,867)
1,076
1,076
(1,076)
(1,076)
(62,501)
450
450
(450)
(450)
Premium payback liability
(27,361)
(1,044)
(1,044)
919
919
(40,888)
(1,414)
(1,414)
1,192
1,192
Total increase / (decrease)
5,500
5,500
(5,579)
(5,579)
2,335
2,335
(2,524)
(2,524)
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 Brazil, Canada, New Zealand, Thailand, United Kingdom and United States. In accordance with the
policy set out in Note 1(e), 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. Foreign exchange gains or losses arising on assets and
liabilities denominated in foreign currencies are recognised directly in profit and loss. 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 foreign currency, with all other variables held constant.
2016
-10%
+10%
-10%
+10%
2015
Exposure
$000
Profit
$000
Equity
$000
Profit
$000
Equity
$000
Exposure
$000
Profit
$000
Equity
$000
Profit
$000
Equity
$000
Foreign exchange risk
Brazilian real
Canadian dollar
European euro
Great Britain pound
New Zealand dollar
United States dollar
Thai baht
155
36
(168)
7
55,090
618
123
–
(2)
12
(11)
12
(55)
–
(15)
(1)
–
15
(5,526)
17
(12)
Total increase / (decrease)
55,861
(44)
(5,522)
–
2
(12)
11
(12)
55
–
44
15
1
–
(15)
–
–
–
5,526 35,606
(17)
12
–
–
5,522 35,606
–
–
–
–
–
–
–
–
–
–
–
–
(3,561)
–
–
(3,561)
–
–
–
–
–
–
–
–
–
–
–
–
3,561
–
–
3,561
55
annual report 2016 3. RISK MANAGEMENT continued
c) Market risk continued
iii) Price risk
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. The table below summarises the sensitivity of the Group’s financial assets to price risk.
Interest Rate Risk
-10% unit price
+10% unit price
-10% unit price
+10% unit price
2016
2015
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
580,738
(6,848)
(6,848)
Total increase / (decrease)
(6,848)
(6,848)
6,848
6,848
6,848
457,155
(4,279)
(4,279)
4,279
4,279
6,848
(4,279)
(4,279) 4,279
4,279
Methods and assumptions used in preparing sensitivity analysis
The post-tax effect on profit and equity of movements in foreign exchange, interest rate and price have been calculated using
‘reasonably possible’ changes in the risk variables, based on recent interest rate and market movements.
An interest rate change of 100 basis points will directly affect interest received on cash and cash equivalents and other
receivables. An interest rate change of 100 basis points will inversely affect the unit price of fixed interest investments; this
change has been calculated by multiplying the average duration of underlying investments in each portfolio by the interest rate
change. All other investments are not directly affected by interest rate changes but would be revalued through profit or loss as
their unit price changes.
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 the Department of Human Services (Private Health Insurance Premiums Reduction Scheme). 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 Private Health Insurance
Premiums Reduction Scheme receivable is due from a government organisation under legislation.
The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date is the carrying
amount, net of any provisions for impairment loss, as disclosed in the balance sheet and notes to the financial statements.
The Group does not have any material credit risk to any single debtor or group of debtors under financial instruments entered into.
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit
ratings (if available) or to historical information about counterparty default rates.
Other receivables
Counterparties with external credit rating
Counterparties without external credit rating
Group 1 – new debtors (less than 6 months)
Group 2 – existing debtors (more than 6 months) with no defaults in the past
Group 3 – existing debtors (more than 6 months) with some defaults in the past.
All defaults were fully recovered.
Total Other Receivables
2016
$000
169
434
7,277
94
7,974
2015
$000
–
71
2,515
185
2,771
56
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 Cash at Bank and short-term bank deposits
A-1
A-2
Financial assets at fair value through profit or loss
Short term deposits
A-1
Interest-bearing securities1
AAA
AA
A
BBB
Sub Investment Grade
Unclassified
2016
$000
2015
$000
89,363
123,655
65
–
89,428
123,655
60,188
35,188
156,611
126,171
97,080
39,422
3,410
26
152,664
110,825
63,373
28,130
6,747
(903)
482,908
396,024
1. The financial assets at fair value through profit and loss with credit risk are held in unit trusts, the above table summarises the underlying investments of the unit trusts.
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 2016
Financial Liabilities
Trade creditors
Other payables
Borrowings
Group at 30 June 2015
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
Total Contractual
Cash flows
$000
Carrying amount
$000
11,981
68,730
713
81,424
266
7,141
1,078
8,485
242
1,171
3,820
5,233
30
412
156,347
156,789
–
381
–
381
12,519
77,835
12,519
77,835
161,958
151,867
252,312
242,221
≤ 1 month
$000
1-3 months
$000
3-12 months
$000
1-5 years
$000
> 5 years
$000
Total Contractual
Cash flows
$000
Carrying amount
$000
6,145
61,416
1,653
69,214
214
4,126
504
4,844
30
69
2,206
2,305
–
452
66,694
67,146
–
–
–
–
6,389
66,063
71,057
6,389
66,063
63,891
143,509
136,343
57
annual report 2016 4. FAIR VALUE MEASUREMENT
a) Fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are
recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs
used in determining fair value, the Group classifies its financial instruments into the three levels prescribed under the accounting
standards. An explanation of each level follows underneath the table.
The following tables present the Group’s assets and liabilities measured and recognised at fair value at 30 June 2016 and
30 June 2015.
Level 1
$000
Level 2
$000
Level 3
$000
Total
$000
Group at 30 June 2016
Assets
Cash and cash equivalents and deposits at call
Financial assets at fair value through profit or loss
Equity securities
Interest -bearing securities
Short term deposits
Property, plant and equipment
Land and buildings
Total assets
Group at 30 June 2015
Assets
89,428
97,830
410,734
60,188
–
–
–
11,986
–
–
658,180
11,986
Level 1
$000
Level 2
$000
–
–
–
–
1,908
1,908
Level 3
$000
–
–
–
–
89,428
97,830
422,720
60,188
1,908
672,074
Total
$000
123,655
61,131
360,836
35,188
1,815
1,815
1,815
582,625
Cash and cash equivalents and deposits at call
123,655
–
Financial assets at fair value through profit or loss
Equity securities
Interest-bearing securities
Short term deposits
Property, plant and equipment
Land and buildings
Total assets
60,600
310,948
35,188
–
531
49,888
–
–
530,391
50,419
There were no transfers between level 1 and level 2 during the year.
The Group’s policy is to recognise transfers into and transfers out of the fair value hierarchy levels as at the end of the
reporting period.
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.
Level 1: 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.
Level 2: 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.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
58
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 b) Valuation techniques used determine fair values
Specific valuation techniques used to value financial instruments include:
• The use of quoted market prices or dealer quotes for similar instruments.
• 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. Freehold land and buildings were independently valued by a member of the Australian
Property Institute as at 30 June 2016.
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 2016:
Opening balance 1 July 2014
Assets included in a disposal group classified as held for sale and other disposals
Gains recognised in other comprehensive income
Depreciation
Transfers to leasehold improvements
Closing balance 30 June 2015
Gains recognised in other comprehensive income
Depreciation
Closing balance 30 June 2016
Land and
Buildings
$000
40,587
(38,726)
5,539
(1,081)
(4,504)
1,815
117
(24)
1,908
Total
$000
40,587
(38,726)
5,539
(1,081)
(4,504)
1,815
117
(24)
1,908
i) Transfers between levels 2 and 3
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 2015.
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 2016
$000
Land and buildings
1,908
Unobservable inputs*
Capitalisation rate
Range of inputs (probability-
weighted average)
Relationship of unobservable inputs to fair value
6.75% – 8.75%
(7.75%)
The higher the capitalisation rate,
the lower the fair value.
Market rent per
square metre
$512 – $626
($569)
If market rent per square metre was
10% higher or lower, the fair value would
increase/decrease by $200,000.
* There were no significant inter-relationships between unobservable inputs that materially affect fair values.
59
annual report 2016 4. FAIR VALUE MEASUREMENT continued
c) Fair value measurements using significant observable inputs (level 3) 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 2016, freehold land and buildings were independently valued by a member of the
Australian Property Institute.
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.
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 2016:
Non-current borrowings
Bank loans
2016
2015
Carrying amount
$000
Fair value
$000
Carrying amount
$000
151,867
151,878
62,501
Fair value
$000
62,524
The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified
as level 3 fair values in the fair value hierarchy (see Note 4(a)) due to the use of unobservable inputs, including own credit risk.
The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values due
to their short-term nature.
60
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 5. SEGMENT REPORTING
a) Description of segments
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.
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:
• Australian Residents Health Insurance – nib’s core product offering within the Australian private health insurance industry
• New Zealand Residents Health Insurance – nib’s core product offering within the New Zealand private health
insurance Industry
•
International (Inbound) Health Insurance – nib’s offering of health insurance products for international students and workers
• World Nomads Group – nib’s distribution of travel insurance products
• nib Options – nib’s facilitation of access to cosmetic and dental treatment both overseas and here in Australia
Although the nib Options segment does not meet the quantitative thresholds required by AASB 8, management has concluded
that the segment should be reported, as it is closely monitored by the MD/CEO as a potential growth segment and is expected
to contribute to Group revenue in the future.
b) Other segment information
The MD/CEO assesses the performance of the operating segments based on underlying operating profit. This measurement
basis excludes from the operating segments the effects of non-recurring profit on sale of the head office building, and non-
recurring expenditure such as integration costs, merger and acquisition costs, and amortisation of acquired intangibles.
No information regarding assets, liabilities and income tax is provided for individual Australian Health Insurance and International
(Inbound) Health Insurance 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.
61
annual report 2016 5. SEGMENT REPORTING continued
c) Segment information provided to Executive management
The segment information provided to the MD/CEO for the reportable segments is as follows:
For the year ending 30 June 2016
Australian
Residents
Health
Insurance
$000
International
(Inbound)
Health
Insurance
$000
New Zealand
Residents
Health
Insurance
$000
World
Nomads
Group
$000
nib Options
$000
Unallocated to
segments
$000
Total
$000
Premium revenue
1,568,369
78,103
173,581
Outwards reinsurance premium expense
–
(1,344)
(5)
Net premium revenue
1,568,369
76,759
173,576
Claims expense
(1,125,309)
(42,352)
(121,047)
Reinsurance and other recoveries revenue
–
660
RESA1
State levies
(Increase) / Decrease in premium
payback liability
Claims handling expenses
Net claims incurred
(179,416)
(29,402)
–
–
–
–
(14,460)
(897)
–
–
–
15,778
(1,471)
(1,348,587)
(42,589)
(106,740)
Acquisition costs
Other underwriting expenses
Underwriting expenses
(60,892)
(64,779)
(6,878)
(10,286)
(26,814)
(22,694)
(125,671)
(17,164)
(49,508)
Underwriting result
94,111
17,006
17,328
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,820,053
(1,349)
1,818,704
– (1,288,708)
–
–
–
–
–
660
(179,416)
(29,402)
15,778
(16,828)
– (1,497,916)
–
–
–
–
(94,584)
(97,759)
(192,343)
128,445
Other income
Other expenses
380
–
233
–
–
–
Underlying operating profit / (loss)
94,491
17,239
17,328
49,973
(40,283)
9,690
26
(2,566)
(2,540)
3,772
(7,976)
54,384
(50,825)
(4,204)
132,004
Items not included in
underlying operating profit
Amortisation of acquired intangibles
One-off transactions and M&A costs
Finance costs
Investment income
Investment expenses
Profit before income tax from
continuing operations
–
–
(869)
(3,369)
–
–
(3,587)
(1,919)
–
–
–
(1,470)
(7,825)
(3,389)
(5,241)
18,477
(1,597)
132,429
Inter-segment other income2
Depreciation and amortisation
1,799
6,055
–
70
–
2,004
5,594
4,349
Total assets
Total liabilities
710,297
389,225
194,159
110,604
66,752
10,900
Insurance liabilities
Outstanding claims liability
Unearned premium liability
Premium payback liability
Total
96,593
159,030
–
255,623
15,586
17,237
27,361
60,184
1. RESA (Risk Equalisation Special Account) levy, formerly RETF (Risk Equalisation Trust Fund) levy.
2. Inter-segment other income is eliminated on consolidation and not included in operating profit.
62
–
191
648
460
–
1,869
236
18,429
23,313 1,039,021
185,620
652,957
112,179
176,267
27,361
315,807
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 For the year ending 30 June 2015
Australian
Residents
Health
Insurance
$000
International
(Inbound)
Health
Insurance
$000
New Zealand
Residents
Health
Insurance
$000
World
Nomads
Group
$000
nib Options
$000
Unallocated to
segments
$000
Total
$000
Premium revenue
1,429,516
56,376
150,431
Outwards reinsurance premium expense
–
(1,443)
(1)
Net premium revenue
1,429,516
54,933
150,430
Claims expense
(1,025,195)
(30,025)
(96,796)
Reinsurance and other recoveries revenue
–
587
RESA1
State levies
(185,498)
(28,237)
(Increase) / Decrease in premium payback
liability
–
–
–
–
Claims handling expenses
Net claims incurred
(15,185)
(639)
(1,254,115)
(30,077)
(99,856)
–
–
–
(1,902)
(1,158)
Acquisition costs
Other underwriting expenses
(49,537)
(54,188)
(5,061)
(7,958)
(24,663)
(17,245)
Underwriting expenses
(103,725)
(13,019)
(41,908)
Underwriting result
71,676
11,837
8,666
Other income
Other expenses
215
–
374
–
–
–
Underlying operating profit / (loss)
71,891
12,211
8,666
Items not included in underlying
operating profit
Amortisation of acquired intangibles
One-off transactions and M&A costs
Finance costs
Investment income
Investment expenses
Profit before income tax from
continuing operations
–
–
(256)
(3,275)
–
–
Inter-segment other income2
Depreciation and amortisation
2,261
6,296
5
41
1,225
4,829
Total assets
Total liabilities
Insurance liabilities
Outstanding claims liability
Unearned premium liability
Premium payback liability
Total
611,303
339,447
166,703
71,087
86,537
129,397
–
215,934
10,610
13,831
40,888
65,329
1. RESA (Risk Equalisation Special Account) levy, formerly RETF (Risk Equalisation Trust Fund) levy.
2. Inter-segment other income is eliminated on consolidation and not included in operating profit.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(57)
(2,970)
(3,027)
3,850
(5,555)
(1,705)
–
–
(751)
(2,098)
–
–
–
1,636,323
(1,444)
1,634,879
– (1,152,016)
–
–
–
–
–
587
(185,498)
(28,237)
(1,902)
(16,982)
– (1,384,048)
–
–
–
–
(79,261)
(79,391)
(158,652)
92,179
4,382
(8,525)
88,036
(3,531)
(2,849)
(3,423)
32,975
(1,616)
109,592
–
168
473
143
–
55
2,307
12,573
58,629
837,108
82,168
492,845
97,147
143,228
40,888
281,263
63
annual report 2016 6. REVENUE AND OTHER INCOME
Premium revenue
Outwards reinsurance premiums
Net premium revenue
Other income
Travel insurance commission
Life and funeral insurance commission and other commissions
Agency fee
Profit on sale of head office building
Deferred profit on sale and leaseback of head office building
Rental income
Fair value adjustment to contingent consideration
Subscription income / (refund)
Sundry income
Investment income
Interest
Net gain on sale of available for sale financial assets1
Net realised gain on financial assets at fair value through profit or loss
Net unrealised gain/(loss) on financial assets at fair value through profit or loss
Dividends
1. On 21 November 2014 nib sold the 5,294,118 shares held in Pacific Smiles Group (PSG) as part of PSG’s IPO process.
2016
$000
2015
$000
1,820,053
1,636,323
(1,349)
(1,444)
1,818,704
1,634,879
49,994
2,271
311
1,416
136
746
–
–
926
55,800
7,361
–
18,547
(7,431)
–
18,477
413
2,014
310
–
–
950
672
(105)
800
5,054
9,164
5,382
16,622
1,590
217
32,975
64
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016
a) Recognition and measurement
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 represents the
pattern of service rendered through the provision of the properties.
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.
iii) 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.
iv) Revenue from travel insurance commission
Revenue in the form of commissions is recognised when the sale of an insurance policy to a customer occurs. Revenue is also
generated on travel services activities and recognised as the service is performed.
65
annual report 2016 7. EXPENSES
Expenses by function
Claims handling expenses
Acquisition costs
Other underwriting expenses
Other expenses
Finance costs
Investment expenses
2016
$000
2015
$000
16,828
94,584
101,997
59,217
5,241
1,597
16,982
79,261
82,922
12,047
3,423
1,616
Total expenses (excluding direct claims expenses)
279,464
196,251
Expenses by nature
Amortisation of acquired intangibles
Bank charges
Consultancy fees
Depreciation and amortisation
Electronic claims precessing fees
Employee costs
Finance costs
Impairment of goodwill
Insurance
Investment expenses
Legal expenses
Marketing expenses – commissions
Marketing expenses – excluding commissions
Merger and acquisition costs
Net loss on disposal of property, plant and equipment
Operating lease rental expenses
Postages
Share registry expenses
Software maintenance
Telephones
Other
Total expenses (excluding direct claims expenses)
7,825
3,964
8,975
10,604
3,473
104,163
5,241
–
1,673
1,597
1,201
54,894
42,501
2,886
19
5,962
2,049
1,131
6,175
1,538
13,593
279,464
3,531
2,037
3,634
9,042
3,845
77,687
3,422
1,423
1,160
1,616
1,160
661
30,195
32,726
84
3,785
1,838
1,376
5,614
1,257
9,220
196,251
66
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 8. TAXATION
a) Income tax
i) Income tax expense
Recognised in the income statement
Current tax expense
Deferred tax expense
Under (over) provided in prior years
Under (over) provided in prior years – research and development tax credit
Income tax expense is attributable to:
Profit from continuing operations
Aggregate income tax expense
Notes
2016
$000
2015
$000
37,798
3,025
305
(530)
29,447
5,212
(3)
(326)
40,598
34,330
40,598
40,598
34,330
34,330
Deferred income tax expense included in income tax expense comprises:
Increase in deferred tax assets
Increase in deferred tax liabilities
8(b)
8(c)
(470)
3,495
3,025
(572)
5,784
5,212
ii) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
132,429
109,591
Tax at the Australian tax rate of 30% (2015: 30%)
39,729
32,877
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Goodwill impairment
Fair value adjustment to contingent consideration
Share-based payments
Entertainment
Merger and acquisition costs
Sundry items
Net assessable trust distributions
Imputation credits and foreign tax credits
Adjustment for current tax of prior periods
Adjustment for current tax of prior periods – research and development tax credit
Unrecognised tax losses and deferred tax assets
Differences in foreign tax rates
Income tax expense
iii) Tax expense relating to items of other comprehensive income
Foreign currency translations
Revaluation of land and buildings
Change in value of available for sale financial assets
iv) Amounts recognised directly to equity
Aggregate current and deferred tax arising in the reporting period and not recognised in net
profit or loss or other comprehensive income but directly debited or credited to equity:
Transfer from revaluation reserve on sale of land and buildings
v) Tax losses
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit @ 30%
–
–
79
86
940
(229)
194
(648)
305
(530)
930
(258)
427
(202)
(124)
92
151
11
142
(539)
(3)
(326)
1,941
(117)
40,598
34,330
26
26
26
26
705
35
–
740
(3,390)
(3,390)
9,364
2,809
(56)
1,662
(604)
1,002
–
–
6,180
1,854
67
annual report 2016 8. TAXATION continued
b) Deferred tax assets
The balance comprises temporary differences attributable to:
Deferred profit on sale and leaseback of head office building
Employee benefits
Premium payback liabilities
Unrealised losses on investments
Other
Doubtful debts
Merger and acquisition costs
Outstanding claims
Provisions
Tax losses
Sub-total other
Total deferred tax assets
2016
$000
2015
$000
1,794
4,187
7,235
592
–
2,568
11,051
–
13,808
13,619
323
175
124
2,478
1,435
4,535
247
438
–
1,186
194
2,065
18,343
15,684
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax assets
8(c)
(17,534)
809
(12,007)
3,677
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
Movements
Note
Deferred profit
on sale and
leaseback of head
office building
$000
Employee
benefits
$000
Premium
payback
liabilities
$000
Unrealised
losses on
investments
$000
At 1 July 2014
(Charged)/credited to the
income statement
(Charged)/credited
directly to other
comprehensive income
At 30 June 2015
At 1 July 2015
(Charged)/credited to the
income statement
(Charged)/credited
directly to other
comprehensive income
(Charged)/credited
directly to equity
Acquisition of businesses
34
At 30 June 2016
1,794
68
–
–
–
–
–
2,377
10,995
212
533
(21)
2,568
(477)
11,051
2,568
11,051
–
–
–
–
–
1,794
235
(4,418)
592
2,267
470
–
–
–
28
–
1,356
4,187
602
–
–
–
–
–
7,235
592
12
–
191
4,535
642
–
1,547
18,343
8,995
9,348
18,343
7,075
8,609
15,684
Other
$000
Total
$000
2,244
15,616
(173)
572
(6)
2,065
(504)
15,684
2,065
15,684
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 c) Deferred tax liabilities
The balance comprises temporary differences attributable to:
Brands and trademarks and customer contracts
Deferred acquisition costs
Depreciation and amortisation
Unrealised foreign exchange gains
Unrealised gains on investments
Other
Asset revaluation
Borrowing costs
Income receivables
Outstanding claims
Prepayments
Unearned premium liability
Sub-total other
Total deferred tax liabilities
2016
$000
2015
$000
9,391
23,678
885
1,092
–
35,046
81
3
4
–
3
205
296
4,653
17,866
413
559
1,474
24,965
2,611
6
4
61
27
182
2,891
35,342
27,856
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax liabilities
8(b)
(17,534)
17,808
(12,007)
15,849
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
10,604
24,738
35,342
8,155
19,701
27,856
Movements
Note
Brands and
trademarks
and customer
contracts
$000
Deferred
acquisition
costs
$000
Depreciation
and
amortisation
$000
Unrealised
foreign
exchange
losses
$000
Unrealised
gains on
investments
$000
Other
$000
Total
$000
At 1 July 2014
(Charged)/credited to
the income statement
(Charged)/credited directly to
other comprehensive income
At 30 June 2015
At 1 July 2015
(Charged)/credited
to the income statement
(Charged)/credited directly to
other comprehensive income
(Charged)/credited
directly to equity
Acquisition of businesses
34
At 30 June 2016
5,848
11,382
(994)
6,596
(201)
4,653
(112)
17,866
137
288
(12)
413
793
1,828
1,586
21,574
–
(354)
248
5,784
(234)
559
–
1,474
1,057
2,891
498
27,856
4,653
17,866
413
559
1,474
2,893
27,858
(1,774)
5,550
1,268
10
(1,474)
(85)
3,495
521
262
30
533
–
5,991
9,391
–
–
23,678
(825)
(1)
885
–
(10)
1,092
–
–
–
–
35
1,381
(2,565)
18
296
(3,390)
5,998
35,342
69
annual report 2016 8. TAXATION continued
d) Recognition and measurement
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 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. The World Nomads
Group Australian entities joined this tax consolidation group during the year. 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.
9. CASH AND CASH EQUIVALENTS
Cash at bank and cash on hand
Short term deposits and deposits at call
2016
$000
2015
$000
70,045
19,383
89,428
73,516
50,139
123,655
a) Recognition and measurement
Cash and cash equivalents, and bank overdrafts are carried at face value of the amounts deposited or drawn. 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.
b) Risk exposure
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.
70
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 c) Reconciliation of profit after income tax to net cash inflow from operating activities
Profit for the year
Net gain on sale of available for sale financial assets
Profit on sale of head office building
Deferred profit on sale and leaseback of head office building
Net (gain)/loss on disposal of property, plant and equipment
Fair value (gain)/loss on other financial assets through profit or loss
Non-cash employee benefits expense – share-based payments
Depreciation and amortisation
Impairment of goodwill
Amortisation of borrowing costs
Gain on fair value adjustment to contingent consideration
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
2016
$000
91,831
–
(1,416)
(136)
19
9,501
959
18,429
–
30
–
(3,573)
–
1,168
(88)
(19,067)
(1,327)
7,572
30,795
(13,527)
12,162
1,112
13,959
2015
$000
75,261
(5,382)
–
–
84
(5,071)
369
12,573
1,423
59
(672)
2,434
2,876
(344)
117
(24,100)
(353)
14,174
29,026
138
1,343
5,860
4,394
148,403
114,209
d) Off balance sheet arrangements
World Nomads Group Pty Ltd (WNG), a wholly subsidiary of nib holdings limited, operates bank accounts held in their name
on behalf of their underwriters in accordance with contractual terms governing the arrangements. These accounts are not
considered part of the cash and cash equivalents of WNG as they do not have the control over the cash. At 30 June 2016 this
amounted to $17,054,596.
10. RECEIVABLES
Current
Premium receivable
Private Health Insurance Premiums Reduction Scheme receivable
Other receivables
Provision for impairment loss
Prepayments
2016
$000
2015
$000
6,244
35,030
7,974
(1,092)
3,702
51,858
7,888
32,662
2,771
(850)
2,659
45,130
As at 30 June 2016 current receivables of the Group with a nominal value of $1.092 million (2015: $0.850 million) were impaired.
The individually impaired receivables relate to premium receivables.
71
annual report 2016 10. RECEIVABLES continued
The ageing of these impaired 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
Provision for impairment recognised during the year
Receivables written off during the year as uncollectible
Unused amount reversed
2016
$000
626
247
219
1,092
2016
$000
850
743
(27)
(474)
1,092
2015
$000
518
193
139
850
2015
$000
1,242
506
(160)
(738)
850
As of 30 June 2016 and 2015 no receivables were past due but not impaired.
a) Recognition and measurement
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. A 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 provision
for impairment account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit
or loss.
i) 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.
b) Interest rate risk
Information about the Group’s exposure to interest rate risk in relation to other receivables is provided in Note 3.
c) 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.
d) 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.
72
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 11. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Equity securities
Interest-bearing securities
Short term deposits
2016
$000
2015
$000
97,830
422,720
60,188
580,738
61,131
360,836
35,188
457,155
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) Recognition and measurement
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.
ii) 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.
Shares, fixed interest securities, options and units in trusts listed on stock exchanges are initially recognised at cost and the
subsequent fair value adjustment is taken as the quoted bid price of the instrument at the balance sheet date.
All purchases and sales of financial assets that require delivery of the asset within the timeframe established by regulation or
market convention (“regular way” transactions) are recognised at trade date, being the date on which the 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.
b) 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/(PAYABLE)
Expected future reinsurance recoveries undiscounted
on claims paid
on outstanding claims
Reinsurance and other recoveries receivable on incurred claims
2016
$000
104
(25)
79
2015
$000
108
(117)
(9)
a) Recognition and measurement
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.
73
annual report 2016 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
Acquisition costs deferred during the year
Amortisation expense
Exchange differences
2016
$000
2015
$000
34,060
34,060
22,059
22,059
49,135
49,135
42,069
42,069
2016
$000
2015
$000
64,128
47,447
(29,298)
918
83,195
40,028
44,078
(19,528)
(450)
64,128
a) Recognition and measurement
Direct acquisition costs incurred in obtaining health insurance contracts, including broker commissions, 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. This pattern of amortisation
corresponds to the earning pattern of the corresponding premium revenue.
b) Critical accounting judgements and estimates
i) Australian Residents Health Insurance
Deferred acquisition costs are amortised on a straight line basis over a period of 5 years (2015: 6 years), in accordance with
the expected pattern of the incidence of risk under the open ended insurance contracts to which they relate, which includes
expectations of customers remaining insured.
The Group pays an upfront commission to retail brokers on signing up new members to the business. These upfront
commissions will give rise to future premium revenue beyond the current period and are able to be measured and directly
associated with a particular insurance contract. The Group does not capitalise the indirect administration costs associated with
acquiring new members due to the difficulty in measurement. The Group considers the duration of a health insurance contract
to be an open ended agreement as the Group stands ready to continue to insure its customers under continuing policies.
The Group uses average retention rates to determine the appropriate customer contract life and related amortisation period
for customers who purchase insurance through these broker channels. The analysis included extrapolating historical lapse
rates for broker acquired customers but truncating the data at 10 years in order to allow for the inherent distortion created by
extrapolating historical data. The analysis identified the amortisation period to be 5 years. The Group re-performs this analysis at
least every six months for reassessment. A decrease in the expected contract periods of one year would increase amortisation
expense by $3.0m for 30 June 2016.
The recoverability of the related deferred acquisition costs is also considered as part of the liability adequacy test performed. As
described in Note 20, the Group has no deficiency in the unearned premium liability at 30 June 2016.
74
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 Change in critical accounting judgements and estimates
On 1 April 2016, the amortisation period was revised to five years. The net effect of the changes in the current financial year was
an increase in amortisation expense of $1.8 million.
Assuming the deferred acquisition costs are held and amortised at a rate of five years, the amortisation in future years in relation
to these deferred acquisition costs will increase by the following amounts:
Year ending 30 June
2016
2017
2018
2019
2020
2021
2022
Alternative view
$000
1,778
4,585
1,816
(259)
(1,381)
(5,146)
(1,393)
General insurers amortise deferred acquisition costs usually over one year, as their policies generally have a defined term of one
year. With health insurance, if the contract term is considered to be only the term to which the customer has agreed to, or paid
to, the deferred acquisition cost would be amortised over a period of between one and two months, which is the period paid
in advance by the customer. However, the Group believes that does not reflect the open ended nature of a health insurance
contract, the contract periods to which future premium revenue will arise, nor the expected pattern of the incidence of risk under
the insurance contracts to which the costs relate. For these reasons the Group believes the currently adopted treatment is
more appropriate.
ii) nib New Zealand
The Group pays commissions to retail brokers on signing up new members to the business. The majority of these commissions
are trailing commissions paid to retail brokers over the contract period of one year. These are written off over the life of the
contract, being one year. Consistent with the Australian Residents Health Insurance business, the Group does not capitalise the
indirect administration costs associated with acquiring new members due to the difficulty in identifying and associating those
indirect costs with acquiring particular insurance contracts.
In addition to the above, a small remaining balance of upfront commissions are written off over the expected life of
the policyholder.
14. ASSETS CLASSIFIED AS HELD FOR SALE
Non-current assets held for sale
Land and buildings
2016
$000
2015
$000
–
–
38,726
38,726
In May 2015, the Directors of the Group decided to sell and leaseback the freehold land and buildings at 22 Honeysuckle
Drive, Newcastle. The sale was completed in February 2016 and the portion of the resulting profit in relation to the leaseback is
deferred and recognised over the term being 15 years.
75
annual report 2016 15. PROPERTY, PLANT AND EQUIPMENT
At 1 July 2014
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 2015
Opening net book amount
Additions
Revaluations
Assets included in a disposal group classified as held for
sale and other disposals
Transfers
Depreciation charge for the year
Exchange differences
Closing net book amount
At 30 June 2015
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 2016
Opening net book amount
Additions
Acquisition of subsidiary
Revaluations
Assets included in a disposal group classified as held for
sale and other disposals
Depreciation charge for the year
Exchange differences
Closing net book amount
At 30 June 2016
Cost
Accumulated amortisation and impairment
Net book amount
Land and
Buildings
$000
Plant and
Equipment
$000
Leasehold
Improvements
$000
Note
Total
$000
41,180
(593)
40,587
40,587
–
5,539
(38,726)
(4,504)
(1,081)
–
1,815
1,863
(48)
1,815
1,815
–
–
117
–
(24)
–
1,908
1,910
(2)
1,908
11,944
(6,126)
5,818
5,818
2,171
–
(120)
–
(2,174)
(86)
5,609
3,992
(2,430)
1,562
1,562
1,636
–
–
4,504
(659)
(9)
7,034
13,672
(8,063)
5,609
10,971
(3,937)
7,034
5,609
2,136
316
–
(29)
(2,613)
146
5,565
7,034
1,417
685
–
(15)
(1,179)
71
8,013
57,116
(9,149)
47,967
47,967
3,807
5,539
(38,846)
–
(3,914)
(95)
14,458
26,506
(12,048)
14,458
14,458
3,553
1,001
117
(44)
(3,816)
217
15,486
17,409
(11,844)
5,565
12,346
(4,333)
8,013
31,665
(16,179)
15,486
34
76
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 a) Valuations of land and buildings
The valuation basis of land and buildings is fair value being the amounts for which the properties could be exchanged between
willing parties in an arm’s length transaction, based on current prices in an active market for similar properties in the same
location and condition. Freehold land and buildings were independently valued by a member of the Australian Property Institute
as at 30 June 2016. It is the opinion of the Directors that this valuation represents the fair value of the property at 30 June 2016.
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
2016
$000
1,624
(611)
1,013
2015
$000
1,354
(579)
775
b) Recognition and measurement
Land and buildings (except for investment properties) are shown at fair value, based on periodic, but at least triennial, valuations
by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of
revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount
of the asset. All other property, plant and equipment are stated at historical cost less depreciation. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of a replaced part is derecognised. All other repairs and maintenance are charged to profit or loss
during the reporting period in which they are incurred.
Increases in the carrying amounts arising on the revaluation of land and buildings are credited, net of tax, to other reserves in
the shareholders’ equity. To the extent that the increase reverses a decrease previously recognised in profit or loss, the increase
is first recognised in profit or loss. Decreases that reverse previous increases of the same asset are first charged against the
revaluation reserves directly in equity to the extent of the remaining reserve attributable to the asset; all other decreases are
charged to profit or loss.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or
revalued amounts, net of their residual values, over their estimated useful lives, as follows:
– Buildings
25 to 40 years
– Plant and equipment
3 to 20 years
– Leasehold improvements
3 to 10 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 16(a)(v)).
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.
77
annual report 2016
16. INTANGIBLE ASSETS
Note
Goodwill
$000
Software
$000
Brands and
Trademarks
$000
Customer
Contracts
$000
Total
$000
At 1 July 2014
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 June 2015
Opening net book amount
Additions
Amortisation charge for the year
Impairment charge
Exchange differences
Closing net book amount
At 30 June 2015
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 June 2016
Opening net book amount
Additions
Acquisition of business
34
Amortisation charge for the year
Exchange differences
Closing net book amount
At 30 June 2016
Cost
Accumulated amortisation and impairment
Net book amount
a) Recognition and measurement
56,626
–
56,626
56,626
–
–
(1,423)
(1,206)
53,997
55,420
(1,423)
53,997
53,997
–
72,123
–
2,503
128,623
128,623
–
128,623
6,832
(2,208)
4,624
24,667
(6,267)
18,400
131,463
(36,285)
95,178
43,338
(27,810)
15,528
15,528
7,175
(5,680)
–
(224)
4,624
18,400
–
(701)
–
(14)
–
(2,278)
–
(648)
16,799
3,909
15,474
23,793
(8,319)
15,474
15,474
–
21,153
(4,785)
1,791
33,633
50,201
(33,402)
16,799
16,799
12,595
9,488
(8,989)
376
30,269
68,953
(38,684)
30,269
6,720
(2,811)
3,909
3,909
25
21,808
(839)
–
24,903
28,897
(3,994)
24,903
47,221
(13,588)
33,633
273,694
(56,266)
217,428
95,178
7,175
(8,659)
(1,423)
(2,092)
90,179
136,134
(45,955)
90,179
90,179
12,620
124,572
(14,613)
4,670
217,428
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.
78
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 iii) Brands and trademarks
Brands and trademarks acquired with IMAN Australian Health Plans Pty Ltd have a definite useful life of five years and are carried
at cost less accumulated amortisation.
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.
Brands and trademarks acquired with World Nomads Group in July 2015 have an indefinite useful life and are carried at fair value
at the date of acquisition.
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, 10 years for nib nz limited and approximately 2.5 years for
World Nomads Group.
v) Impairment
Goodwill and intangible assets that have an indefinite useful life and are not subject to amortisation are tested annually for
impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are
tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units).
Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each
reporting date.
b) Impairment tests for goodwill and indefinite life intangibles
Indefinite life intangibles such as brands and trademarks are allocated to a cash generating unit (CGU) which may be at a level
lower than operating segments. Goodwill is allocated at an operating segment level to a CGU or group of CGUs.
Goodwill
At 30 June 2016
At 30 June 2015
Brands and trademarks
At 30 June 2016
At 30 June 2015
Australian
Residents Health
Insurance
Australia
$000
International
Workers Health
Insurance
Australia
$000
New Zealand
Residents Health
Insurance
New Zealand
$000
World Nomads
Group
Australia
$000
Total
$000
7,067
7,067
18,380
18,380
World Nomads
$000
12,715
–
41,964
28,550
Travel
Insurance
Direct
$000
6,193
–
61,212
–
128,623
53,997
Suresave
$000
Total
$000
2,888
21,796
–
–
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.
79
annual report 2016
16. INTANGIBLE ASSETS continued
c) 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 3.0%. The Group has
applied a post-tax discount rate to discount the forecast future attributable post tax cash flows.
The following table sets out the key assumptions for those CGUs that have significant goodwill allocated to them:
Goodwill
Australian Residents
Health Insurance
International Workers
Health Insurance
New Zealand Residents
Health Insurance
Policyholder growth
Claims ratio
Long term growth rate
Pre-tax discount rate
2016
%
6.2
12.9
10.9
2015
%
5.2
11.7
5.9
2016
%
85.0
32.2
63.9
2015
%
86.2
34.6
63.9
2016
%
3.0
3.0
3.0
2015
%
3.0
3.0
3.0
2016
%
11.0
11.0
15.0
2015
%
14.0
14.0
13.9
World Nomads Group
Gross written
premium growth rate
2016
%
11.0
2015
%
N/A
Long term growth rate
Pre-tax discount rate
2016
%
3.0
2015
%
N/A
2016
%
11.0
2015
%
N/A
The following table sets out the key assumptions for those CGUs that have significant indefinite life intangibles allocated to them:
Brandnames and trademarks
WorldNomads.com
Travel Insurance Direct
Suresave
Gross written
premium growth rate
Royalty Rate
Long term growth rate
Pre-tax discount rate
2016
%
16.5
6.4
5.1
2015
%
N/A
N/A
N/A
2016
%
2.5
2.0
1.5
2015
%
N/A
N/A
N/A
2016
%
3.0
3.0
3.0
2015
%
N/A
N/A
N/A
2016
%
11.0
11.0
11.0
2015
%
N/A
N/A
N/A
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.
d) Significant estimate: Impact of possible changes in key assumptions
In both 2016 and 2015 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.
nib Options goodwill of $1.423 million was fully written down in FY15 due to a change in the business model.
80
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 17. PAYABLES
Current
Outwards reinsurance expense liability – premiums payable to reinsurers
Trade creditors
Other payables
RESA payable1
Annual leave payable
2016
$000
2015
$000
332
12,519
77,835
45,378
5,225
348
6,389
66,063
47,920
4,182
141,289
124,902
1. Risk Equalisation Special Account (RESA) levy, formerly RETF (Risk Equalisation Trust Fund) levy represents expenses incurred under RESA arrangements which are
provided for within the legislation to support the principle of community rating.
Annual leave payable is accrued annual leave. The entire amount is presented as current, since the Group does not have an
unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the
full amount of accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not to be
expected to be taken within the next 12 months.
Annual leave obligation expected to be settled after 12 months
2016
$000
412
2015
$000
434
a) Recognition and measurement
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.
i) Risk equalisation special account levy
The Risk Equalisation Special Account Levy is accrued based on the industry survey of eligible paid claims to be submitted to
APRA (previously PHIAC). If a Private Health insurer notifies APRA of a material variation in paid claims which can be quantified,
the Group adjusts the risk equalisation expense.
18. BORROWINGS
Current
Bank overdraft
Non-current
Bank loans (secured)
2016
$000
–
–
2015
$000
1,390
1,390
151,867
151,867
62,501
62,501
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 $2.9 million. Outstanding
amounts as at 30 June 2016 are included in Current Liabilities – Payables under Trade Creditors.
81
annual report 2016 18. BORROWINGS continued
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
2016
$000
2015
$000
62,501
85,000
(18)
30
4,354
151,867
65,081
–
–
59
(2,639)
62,501
a) Recognition and measurement
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.
b) Secured liabilities
During the year, nib holdings limited established a $50 million variable rate loan facility with NAB and drew down $35 million
of the existing $50 million loan facility with ANZ. Both loans relate to the acquisition of World Nomads Group with maturity and
repayment being 18 December 2017. The covenants on these loan facilities are the same as the existing covenants on the
NZD$70 million loan detailed below.
Both facilities are variable rate Australian denominated loans which are carried at amortised cost.
nib nz holdings limited, a wholly owned subsidiary of nib holdings limited, has an existing 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 18
December 2017.
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 Interest Cover Ratio will not be less than 5:1.
As at 30 June 2016 the Group Gearing Ratio was 28.1% and the Group Interest Ratio Cover Ratio was 27:1.
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.
c) Available debt facility
nib holdings limited has a AUD$50 million variable rate loan facility with ANZ of which AUD$35 million was drawn down on
17 August 2015 with $15 million remaining in the facility as at 30 June 2016.
d) Risk exposure
Information on the sensitivity of the Group’s profit and equity to interest rate risk on borrowings is provided in Note 3.
82
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 19. 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 RESA1 in relation to the central estimate
Risk margin
Net outstanding claims liability
2016
$000
2015
$000
90,526
4,766
1,440
96,732
14,802
645
112,179
78,565
3,872
1,214
83,651
12,940
556
97,147
1. Risk Equalisation Special Account (RESA) Levy formerly REFT (Risk Equalisation Trust Fund) levy represents expenses incurred under RESA 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
Risk margin
Administration component
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 period (expected)
Claims paid during the period
Acquisition of business
Effect of changes in foreign exchange rates
Central estimate at end of period
Risk margin
Administration component
Gross outstanding claims at end of period
Note
2016
$000
2015
$000
83,651
(3,872)
(1,214)
78,565
388
(77,854)
79,319
(3,408)
(1,375)
74,536
(5,559)
(68,496)
1,265,429
1,146,524
(1,177,994)
(1,068,031)
1,147
845
90,526
4,766
1,440
96,732
–
(409)
78,565
3,872
1,214
83,651
34
a) Actuarial methods and critical accounting judgements and estimates
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 Special Account (RESA) 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 and risk margin is made of the amounts that will be recoverable from or payable to the RESA based upon the
gross provision.
83
annual report 2016 19. OUTSTANDING CLAIMS LIABILITY continued
a) Actuarial methods and critical accounting judgements and estimates 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 Australian Residents Health Insurance and New Zealand Health Insurance,
two methods are used. For service months April 2016 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 2016 and June 2016 the Bornhuetter-Ferguson
method is given some weight, which progressively blends payment experience and prior forecasts of incurred costs.
For International Workers Health Insurance and International Students Health Insurance 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:
2016
2015
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
%
92.2%
1.40%
0.0%
3.9%
23.5%
4.4%
86.4%
2.0%
0.0%
24.8%
79.1%
5.0%
0.0%
18.5%
Surgical
%
87.5%
2.0%
0.0%
5.8%
Medical
%
90.8%
1.40%
0.0%
3.9%
23.5%
4.4%
92.1%
2.0%
0.0%
24.8%
83.2%
5.0%
0.0%
18.5%
Medical
%
79.9%
2.0%
0.0%
5.8%
General
%
97.7%
1.40%
0.0%
3.9%
0.0%
0.0%
99.8%
2.0%
0.0%
24.8%
91.7%
5.0%
0.0%
18.5%
Hospital
%
92.6%
1.4%
0.0%
2.9%
24.1%
4.3%
69.1%
2.0%
0.0%
19.7%
80.2%
4.0%
0.0%
23.4%
Surgical
%
89.3%
1.8%
0.0%
8.4%
Medical
%
90.8%
1.4%
0.0%
2.9%
24.1%
4.3%
75.8%
2.0%
0.0%
19.7%
80.8%
4.0%
0.0%
23.4%
Medical
%
79.7%
1.8%
0.0%
8.4%
General
%
97.2%
1.4%
0.0%
2.9%
0.0%
0.0%
96.0%
2.0%
0.0%
19.7%
89.0%
4.0%
0.0%
23.4%
The risk margin of 3.9% for Australian Residents Health Insurance (June 2015: 2.9%), International Students Health Insurance
24.8% (June 2015: 19.7%), 18.5% for International Workers Health Insurance (June 2015: 23.4%) and New Zealand Health
Insurance 5.8% (June 2015: 8.4%) of the underlying liability has been estimated to equate to a probability of adequacy of 95% for
the Group. The risk margin within each territory allows for diversification across the entity. The benefit of diversification across the
Group is again allocated to the Australian Residents Health Insurance segment.
84
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 c) 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 2015: 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 RESA 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.
85
annual report 2016 19. OUTSTANDING CLAIMS LIABILITY continued
d) Sensitivity analysis continued
ii) Impact of key variables
Recognised amounts in the financial statements
attributable to owners of nib holdings limited
Variable
Movement in
variable
Adjustments
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
(8,502)
8,547
(1,488)
1,533
(672)
672
(1,151)
1,151
(750)
750
20. UNEARNED PREMIUM LIABILITY AND UNEXPIRED RISK LIABILITY
a) Unearned premium liability
Current
Unearned premium liability
Non-current
Unearned premium liability
Profit after tax
2016
$000
92,850
Adjusted
amounts
$000
84,348
101,397
91,362
94,383
92,178
93,522
91,699
94,001
92,100
93,600
Adjustments
$000
(8,502)
8,547
(1,488)
1,533
(672)
672
(1,151)
1,151
(750)
750
Equity
2016
$000
387,651
Adjusted
amounts
$000
379,149
396,198
386,163
389,184
386,979
388,323
386,500
388,802
386,901
388,401
2016
$000
2015
$000
151,941
151,941
126,922
126,922
24,326
24,326
16,306
16,306
The unearned premium liability reflects premiums paid in advance by customers, which averages between one and two months
of prepayments.
Movements in the unearned premium liability are as follows:
Unearned premium liability as at 1 July
Acquisition of business
Deferral of premiums on contracts written in the period
Earning of premiums written in previous periods
Unearned premium liability as at 30 June
86
Note
34
2016
$000
2015
$000
143,228
114,202
2,182
157,779
(126,922)
176,267
–
133,304
(104,278)
143,228
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 b) Unexpired risk liability
No deficiency was identified as at 30 June 2016 and 2015 that resulted in an unexpired risk liability needing to be recognised.
c) Critical accounting judgements and estimates
A liability adequacy test is required to be performed for the period over which the insurer is “on risk” in respects of premiums paid
in advance. 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 arising from the rights and obligations created. 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 and an
unexpired risk liability created. 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 19(b). No deficiency was identified as at 30 June 2016
and 2015 that resulted in an unexpired risk liability needing to be recognised.
This test is also extended beyond recognised unearned premium liability to include premiums renewable until the next repricing
review, usually 1 April each year.
21. PREMIUM PAYBACK LIABILITY
Current
Premium payback liability
Non-current
Premium payback liability
2016
$000
2015
$000
10,261
10,261
10,459
10,459
17,100
17,100
30,429
30,429
Premium payback early settlement offer
At their policy renewal, eligible premium payback customers have been offered a graduated early settlement based on the date
they would become eligible for the full premium payback benefit, contingent on their claims history.
Customers received the settlement offer around two months before their policy renewal. The first settlement offers were made in
mid-June 2015 for August 2015 policy renewals. The last settlement offers were made in May 2016 for July 2016 policy renewals,
the offer expires on 31 August 2016. 100% of the available offers have been included in the current portion of the premium
payback liability on the balance sheet. As customers may or may not accept the available premium payback settlement offer and
recognising that 100% acceptance is unlikely, it’s estimated for policyholders that accept the offer, $1.8 million of total premium
payback liability could be settled within the next 2 months. This is in addition to $0.6 million of the premium payback liability that
is expected to be settled within the next 2 months in the normal course of business.
87
annual report 2016 21. PREMIUM PAYBACK LIABILITY continued
Movements in the premium payback liability are as follows:
Gross premium payback liability at beginning of period
Adjustment to ensure reserve exceeds current payout on early lapse
Value of payments currently being processed
Risk margin
Central estimate at beginning of period
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
Adjustment to ensure reserve exceeds current payout on early lapse
Value of payments currently being processed
Risk margin
Total premium payback liability as at 30 June
2016
$000
2015
$000
40,888
(565)
(1,000)
(1,351)
37,972
2,722
1,044
1,984
(20,799)
624
2,036
25,583
34
1,025
719
40,750
(1,733)
(1,033)
(1,156)
36,828
6,581
1,624
1,953
(8,222)
811
(1,603)
37,972
565
1,000
1,351
27,361
40,888
a) Risk exposure
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 and critical accounting judgements and estimates
The premium payback liability represents the accrued amount of premium expected to be repaid to certain New Zealand health
insurance policyholders. 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.
The following assumptions have been made in determining the premium payback liability:
Lapse rate until 3 years from premium payback date
Lapse rate within 3 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 (2015: 95%).
2016
2015
2.0% – 10.0% 2.0% – 10.0%
0.0% – 1.0% 0.0% – 1.0%
0.0%
0.0%
2.0% 2.8% – 3.1%
2.7%
3.1%
88
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 c) Sensitivity analysis
i) Summary
Variable
Lapse rate
Discount rate
Risk margin
ii) Impact of key variables
Impact of movement in variable
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 an inverse impact on the
premium payback liability and risk margin.
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 an inverse impact on the premium payback liability.
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 the premium payback liability.
Recognised amounts in the financial statements
attributable to owners of nib holdings limited
Variable
Lapse rate
Discount rate
Risk margin
Profit after tax
2016
$000
92,850
Adjusted
amounts
$000
93,435
92,219
93,769
91,805
92,661
93,039
Adjustments
$000
585
(631)
919
(1,045)
(189)
189
Equity
2016
$000
387,651
Adjusted
amounts
$000
388,236
387,020
388,570
386,606
387,462
387,840
Movement
in variable
Adjustments
+1.0%
-1.0%
+1.0%
-1.0%
+1.0%
-1.0%
$000
585
(631)
919
(1,045)
(189)
189
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:
• Reserves held at 30 June 2016 including the risk margin;
• Expected future payments for claims, policy paybacks and management expenses; and
• Expected future revenue from premiums and investment income.
No deficiency was identified at 30 June 2016 (2015: nil) that resulted in an unexpired risk liability needing to be recognised.
89
annual report 2016 22. PROVISION FOR EMPLOYEE ENTITLEMENTS
Current
Long service leave
Termination benefits
Retirement benefits
Non-Current
Long service leave
2016
$000
2015
$000
2,544
246
91
2,881
2,290
2,290
2,557
413
86
3,056
1,268
1,268
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
a) Recognition and measurement
2016
$000
2,063
–
2,063
2015
$000
2,297
86
2,383
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 G100 treasury discount rates at the balance sheet date which have the maturity dates
approximating to the terms of nib’s obligations.
iii) Bonus plans
A liability for employee benefits in the form of bonus plans is recognised in other creditors when at least one of the following
conditions is met:
• there are formal terms in the plan for determining the amount of the benefit, or
• the amounts to be paid are determined before the time of completion of the financial report, or
• past practice gives clear evidence of the amount of the obligation.
Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid
when they are settled.
90
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 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.
23. OTHER LIABILITIES
Current
Deferred profit on sale and leaseback of head office building
Non-Current
Deferred profit on sale and leaseback of head office building
2016
$000
408
408
5,573
5,573
2015
$000
–
–
–
–
a) Recognition and measurement
The deferred profit relates to the sale and leaseback of the head office building at 22 Honeysuckle Drive, Newcastle in February
2016. The excess of the proceeds received over fair value relating to the leaseback portion of the building was deferred and
is being amortised over the lease term of 15 years. In FY16, profit on sale of head office building of $1,416,224 and deferred
profit on sale and leaseback of head office building of $135,931 was recognised in profit or loss relating to this transaction. The
subsequent leasing agreement is treated as an operating lease. The non-current part of the deferred profit will be amortised
between 2016 and the end of the lease term.
24. 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 2014 Opening balance
30 June 2015
Balance
1 July 2015 Opening balance
30 June 2016
Balance
2016
$000
2015
$000
28,106
28,106
(1,581)
(105)
26,525
28,001
No. of shares
Price $
439,004,182
439,004,182
439,004,182
439,004,182
$000
28,106
28,106
28,106
28,106
91
annual report 2016 24. CONTRIBUTED EQUITY continued
c) 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 37 for more information.
Date
Details
1 July 2014 Opening balance
Sep 2014
Employee share issue – LTIP
Sep 2014
Employee share issue – STI
Sep 2014
Acquisition of shares by the Trust
30 June 2015
Balance
1 July 2015 Opening balance
Aug 2015
Acquisition of shares by the Trust
Sep 2015
Employee share issue – LTIP
Sep 2015
Employee share issue – STI
Apr 2016
Acquisition of shares by the Trust
May 2016
Acquisition of shares by the Trust
Jun 2016
Acquisition of shares by the Trust
30 June 2016
Balance
d) Recognition and measurement
i) Ordinary shares
Ordinary shares are classified as equity.
No. of shares
301,187
(232,215)
(77,576)
40,000
31,396
31,396
430,000
(196,154)
(246,173)
118,482
116,123
116,722
370,396
$000
917
(745)
(204)
137
105
105
1,382
(631)
(795)
499
513
508
1,581
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.
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.
ii) Employee Share Trust
The Group has formed a trust to administer the Group’s executive management Short-Term Incentive and Long Term-Incentive
share plans. This trust is consolidated, as the substance of the relationship is that the trust is controlled by the Group.
Shares held by the nib Holdings Ltd Share Ownership Plan Trust are disclosed as treasury shares and deducted from
contributed equity.
25. RETAINED PROFITS
Balance at the beginning of the year
Net profit
Transfer from revaluation reserve on sale of land and buildings, net of tax
Dividends
Balance at the end of the financial year
2016
$000
2015
$000
307,038
92,850
7,911
(51,581)
356,218
320,132
75,798
–
(88,892)
307,038
92
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 26. RESERVES
Revaluation surplus – property, plant and equipment
Share-based payments
Share-based payments exercised
Foreign currency translation
Movements in reserves
Revaluation surplus – property, plant and equipment
Balance at the beginning of the year
Property revaluation – gross
Transfer to retained profits on sale of land and buildings – 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
a) Nature and purpose of reserves
2016
$000
1,081
1,683
(2,347)
4,491
4,908
2015
$000
8,910
811
(1,803)
1,897
9,815
Notes
2016
$000
2015
$000
8,910
117
(11,301)
3,355
1,081
811
959
(87)
1,683
(1,803)
87
(631)
(2,347)
1,897
3,299
(705)
4,491
5,033
5,539
–
(1,662)
8,910
524
368
(81)
811
(1,139)
81
(745)
(1,803)
3,275
(1,434)
56
1,897
8(a)(iii)
8(a)(iii)
Revaluation surplus – property, plant and equipment
The property, plant and equipment revaluation surplus is used to record increments and decrements on the revaluation of non-
current assets as described in Note 15(b).
Share-based payments
The share-based payments reserve is used to recognise the fair value of performance rights and bonus share rights issued to
employees but not exercised.
Share-based payments exercised
The share-based payments exercised reserve is used to recognise the difference between fair value of performance rights and
bonus share rights accumulated in the share based payments reserve and cost of exercising the rights.
93
annual report 2016 26. RESERVES continued
Foreign currency translation
Exchange rate differences arising on translation of foreign controlled entities are recognised in other comprehensive income as
described in Note 1(e) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss
when the net investment is disposed of.
27. DIVIDENDS
a) Ordinary shares
Final dividend for the year ended 30 June 2015 of 6.0 cents per fully paid ordinary share, made up
of 6.0 cps ordinary dividend (2014 – 14.75 cents per fully paid ordinary share, made up of 5.75 cps
ordinary dividend and 9.0 cps special dividend) paid on 9 October 2015
Fully franked based on tax paid @ 30%
26,339
64,748
Interim dividend for the year ended 30 June 2016 of 5.75 cents per fully paid ordinary share, made
up of 5.75 cps ordinary dividend (2015 – 5.5 cents per fully paid ordinary share, made up of 5.5 cps
ordinary dividend) paid on 1 April 2016
2016
$000
2015
$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 9.0 cents per fully paid ordinary share (2015–6.0 cents per fully paid
ordinary share, made up of 6.0 cps ordinary dividend), fully franked based on tax paid at 30%. The
aggregate amount of the proposed dividend expected to be paid on 7 October 2016 out of retained
profits at 30 June 2016, but not recognised as a liability at the end of the year, is
25,242
51,581
24,144
88,892
2016
$000
2015
$000
39,510
26,340
c) Franked dividends
The franked portion of the final dividends recommended after 30 June 2016 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 2016.
Franking credits available for subsequent financial years to equity holders of parent entity
based on a tax rate of 30%
2016
$000
2015
$000
36,793
15,711
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.
d) Recognition and measurement
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.
94
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 28. 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
2016
Cents
21.2
–
21.2
2016
Cents
21.2
–
21.2
2015
Cents
17.3
–
17.3
2015
Cents
17.3
–
17.3
2016
$000
2015
$000
92,850
75,798
92,850
75,798
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
92,850
75,798
92,850
75,798
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
439,004,182
439,004,182
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
439,004,182
439,004,182
2016
Number
2015
Number
e) Recognition and measurement
i) Basic earnings per share
Basic earnings per share is calculated by dividing:
• the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares
• by the weighted average number of ordinary shares outstanding during the financial year.
ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:
• the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares; and
• the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all
dilutive potential ordinary shares.
95
annual report 2016 28. EARNINGS PER SHARE continued
f) Information concerning the classification of shares
i) Performance rights
Performance rights granted to employees under the nib holdings Long-Term Incentive Plan are considered to be potential
ordinary shares and 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 the Remuneration Report on page 41.
The total 2,238,071 performance rights granted (2015 – 2,001,483) 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 2016. These
performance rights could potentially dilute basic earnings per share in the future.
29. 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.
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 2016 is 25.8%
(2015: 23.1%). 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 2016 the Group had available capital of $6.8 million above our internal benchmark (after allowing for the payment of a
fully franked final ordinary dividend of 9.0 cents per share, totalling $39.5 million, in October 2016).
Below is a reconciliation of net assets to available capital as at 30 June 2016 (after allowing for payment of a final dividend):
Net assets
Less:
nib health fund capital required
nib nz capital required
Capital required looking forward 12 months
nib nz intangibles
iihi intangibles
nib Options intangibles
Digital Health Ventures intangibles
World Nomads Group intangibles
Borrowings
Other assets and liabilities
Final dividend
Available capital (after allowing for payment of final dividend)
96
2016
$m
386.1
(245.7)
(89.3)
(0.1)
(39.5)
(22.1)
(0.2)
(0.7)
(94.8)
151.9
0.7
(39.5)
6.8
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 nib health funds limited
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 Solvency Standard, 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 Capital Adequacy Standard, 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.
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 14.0%
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 $12.2 million in September 2015, $18.0 million in December 2015
and $13.4 million in March 2016 to nib holdings limited.
The surplus assets over benchmark at 30 June 2016 and 30 June 2015 were as follows:
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
2016
$000
2015
$000
687,529
456,574
230,955
273,600
245,736
27,864
586,971
389,187
197,784
231,162
226,105
5,057
nib nz limited
nib nz limited, a controlled entity, is required to comply with the Solvency Standard for non life insurance business published
by the Reserve Bank of New Zealand (RBNZ). 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:
• 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);
• maintaining a level of capital that ensures an appropriate financial strength rating; and
• 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.
Any capital in excess of the benchmark, taking a 12-month forward looking view, will be reduced by way of dividend to
nib nz holdings limited, unless management decide to retain funds for strategic purposes. nib nz limited paid dividends of
$NZ12.0 million in June 2016 to nib nz holdings limited.
97
annual report 2016 29. CAPITAL MANAGEMENT continued
The surplus assets over benchmark at 30 June 2016 and 2015 are as follows:
Actual Solvency Capital
Minimum Solvency Capital
Solvency Capital
Net assets nib nz limited
Capital Adequacy Coverage Ratio
Internal benchmark
Internal benchmark requirement
Surplus/(deficit) assets over internal benchmark
2016
$000
19,539
9,673
9,866
82,354
2.02
2015
$000
28,469
8,284
20,185
59,116
3.44
1.75 + $NZ10m
1.75 + $NZ10m
26,482
(6,943)
23,429
5,040
As part of its role as regulator of New Zealand insurance companies, the Reserve Bank of New Zealand (RBNZ) reviews solvency
returns. The RBNZ has recently queried the manner in which certain matters have been dealt with in nib nz limited’s FY15
solvency calculation. At the time of signing the Annual Report, nib nz limited is working with the RBNZ to resolve these queries.
While the discussions are not yet completed, nib nz limited has made a change to its solvency calculations regarding the
treatment of deferred tax. This change has been reflected in the current and prior year numbers disclosed above.
While there is a possibility of further changes following the resolution of the remaining queries, the table above reflects our best
estimate at the time of signing the Annual Report. Further changes (if any) are not expected to cause nib nz limited to fall below
the RBNZ’s minimum solvency requirements.
The change to the treatment of deferred tax has resulted in a drop below nib nz limited’s internal capital target. The internal target
will be reviewed following completion of discussions with the RBNZ.
30. 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
2016
$000
2015
$000
7,586
23,891
41,972
73,449
3,435
8,498
1,125
13,058
In February 2016, the Group entered into a sale and leaseback agreement for the head office building at 22 Honeysuckle Drive,
Newcastle. The term of the lease is 15 years commencing 1 March 2016.
b) Capital expenditure commitments
Payable:
– not longer than one year
98
2016
$000
432
432
2015
$000
481
481
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 31. CONTINGENT LIABILITIES
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, Realsurgeons pty limited,
Realself pty limited and Digital Health Ventures Pty Limited and 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 twelve months from 19 August
2016, or if earlier, to the date of sale of the entities should this occur.
32. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
Digital Health Ventures
On 29 July 2016, nib announced that Bupa and HBF signed a heads of agreement to join nib as investors and participants in
expanding the Whitecoat healthcare provider platform.
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.
99
annual report 2016 33. REMUNERATION OF AUDITORS
a) PricewaterhouseCoopers Australia
1. Audit services
2016
$
2015
$
Audit and review of financial report and other audit work under the Corporations Act 2001
Total remuneration for audit services
465,660
465,660
450,089
450,089
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 including one off transactions
Review of regulatory returns
Total remuneration for other services
56,515
56,515
48,400
48,400
205,574
47,700
253,274
76,220
11,577
87,797
149,966
23,332
173,298
164,545
11,554
176,099
Total remuneration for non-audit services
397,586
397,797
Total remuneration of PricewaterhouseCoopers Australia
863,246
847,886
b) Network firms of PricewaterhouseCoopers Australia
1. Audit services
Audit and review of financial report
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
Tax consulting services
International tax consulting and tax advice on mergers and acquisitions
Total remuneration for taxation services
Other services
Accounting advice and support
Total remuneration for other services
146,799
146,799
150,089
150,089
11,193
11,193
10,975
10,975
34,068
4,604
18,415
57,087
27,525
27,525
31,732
15,291
25,127
72,150
–
–
Total remuneration for non-audit services
95,805
83,125
Total remuneration of network firms of PricewaterhouseCoopers
242,604
233,214
Total auditors’ remuneration
1,105,850
1,081,100
100
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 34. BUSINESS COMBINATION
a) Acquisition of World Nomads Group
i) Summary of acquisition
On 31 July 2015, nib holdings limited acquired 100% of the issued capital of World Nomads Group Pty Limited and its
subsidiaries (WNG). WNG is the third-largest distributor of travel insurance in Australia, and specialises in the marketing, sale and
distribution of travel insurance policies globally.
Details of the purchase consideration are as follows:
Purchase consideration
Cash
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
Prepayments
Property, plant and equipment
Software
Brand names
Customer contracts
Deferred tax assets
Payables
Current tax liabilities
Deferred tax liabilities
Provision for employee entitlements
Net identifiable assets acquired
Add: Goodwill
Net assets acquired
$000
106,923
106,923
Fair value
$000
14,926
4,378
344
1,001
9,488
21,808
3,452
1,547
(8,140)
(265)
(1,042)
(1,786)
45,711
61,212
106,923
The goodwill is attributable to the future profitability of the acquired business. None of the goodwill is deductible for tax purposes.
a) Acquisition related costs
Total acquisition related costs are $3.2 million, of which $2.6 million 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.
b) Revenue and profit contribution
The acquired business contributed $49.9 million to Group income and $7.6 million to net profit before tax for the period 1 August
2015 to 30 June 2016.
If the acquisition had occurred on 1 July 2015, consolidated operating revenue and net profit before tax for the year
ended 30 June 2016 are estimated to have been $1,879.5 million and $131.9 million respectively, based on historical WNG
management accounts.
c) Acquired receivables
The fair value of acquired receivables is $4.4 million and is expected to be fully collectable.
d) Contingent assets and liabilities
Prior to acquisition, WNG had identified a potential miscalculation of stamp duty that may have resulted in an underpayment
of the duty they remitted to the relevant State Revenues on behalf of their underwriting partners. Although WNG believe
responsibility for stamp duty lies with their underwriting partners, WNG may have an exposure for the potential miscalculation of
stamp duty. The extent of this exposure, if any is unknown. WNG has notified its Professional Indemnity insurer.
A condition as part of the acquisition is that $3 million is held in escrow to cover the nib holdings group from any potential loss.
101
annual report 2016 34. BUSINESS COMBINATION continued
a) Acquisition of World Nomads Group continued
ii) 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
$000
106,923
(14,926)
91,997
b) Acquisition of medical insurance book of OnePath Life (NZ) Limited
i) Summary of acquisition
On 1 December 2015, nib nz limited (a 100% owned subsidiary) acquired the medical insurance book of OnePath Life (NZ)
Limited (OnePath), for $22.5 million. The acquisition will provide the Group with a solid platform for growing the New Zealand
private health insurance market and its overall market share. Approximately 19,000 policies covering 43,000 insured persons
were acquired.
Details of the provisional purchase consideration are as follows:
Provisional purchase consideration
Cash
Total provisional purchase consideration
The provisional fair values of the assets and liabilities recognised as a result of the acquisition are as follows:
Receivable from OnePath Life (NZ) Limited
Customer contracts
Deferred tax liabilities
Outstanding claims liability
Unearned premium liability
Net identifiable assets acquired
Add: Goodwill
Net assets acquired
$000
22,509
22,509
Fair value
$000
2,182
17,701
(4,956)
(1,147)
(2,182)
11,598
10,911
22,509
The fair values assigned are currently provisionally determined. The fair value of assets and liabilities acquired may change upon
finalisation of the purchase price allocation and alignment with Group accounting policies.
The goodwill is attributable to the future profitability of the acquired business. None of the goodwill is deductible for tax purposes.
a) Acquisition related costs
Total acquisition related costs are $1.0 million of which $0.2 million 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.
b) Revenue and profit contribution
The acquired business contributed $16.1 million to Group revenues and $1.9 million to net profit before tax for the period
1 December 2015 to 30 June 2016.
If the acquisition had occurred on 1 July 2015, consolidated operating revenue and net profit before tax for the year ended
30 June 2016 are estimated to have been $1,887.0 million and $133.8 million respectively.
102
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 ii) Provisional purchase consideration – cash outflow
Outflow of cash to acquire business, net of cash acquired
Cash consideration
Less: Cash balances acquired
Outflow of cash – investing activities
There were no business acquisitions in the year ending 30 June 2015.
$000
22,509
–
22,509
c) Recognition and measurement
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.
103
annual report 2016 35. 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
nib holdings limited
nib health funds limited
nib servicing facilities pty limited
nib health care services pty limited
nib Global pty limited
IMAN Australian Health Plans Pty Limited
nib nz holdings limited
nib nz limited
nib Options pty limited
RealSurgeons pty limited
RealSelf pty limited
nib Options Holdings (Thailand) Co Ltd
nib Options (Thailand) Co Ltd
Digital Health Ventures Pty Ltd
nib Phillipines pty limited
World Nomads Group Pty Limited
WNG Services Pty Limited
World Experiences Assist Pty Limited
Suresave Pty Limited
Sure-Save.net Pty Ltd
SureSave Net Limited
Travel Insurance Direct Holdings Pty Limited
Travel Insurance Direct Pty Limited
Travel Insurance Direct (New Zealand) Limited
Cheap Travel Insurance Pty Limited
Holiday Travel Insurance Pty Limited
SureCan Technology Pty Ltd
The World Nomads Group Holdings Pty Ltd
World Nomads Pty Ltd
World Nomads Inc
World Nomads Limited
World Nomads (Canada) Ltd
WorldNomads.com Pty Ltd
Cerberus Special Risks Pty Limited
Get Insurance Group Pty Limited
World Experiences International Holdings Pty Ltd
World Experiences Seguros De Viagem Brasil LTDA
Travellr Pty Limited
Travel Insurance Compared Pty Limited
TravelClear Pty Limited
Travellers Assistance Group Pty Limited
Hello Travel Insurance Pty Limited
World Experiences Pty Limited
World Experiences Group Pty Limited
World Experiences Travel Pty Limited
104
Place of Incorporation
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
Australia
Australia
Australia
Thailand
Thailand
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
Australia
United States of America
United Kingdom
Canada
Australia
Australia
Australia
Australia
Brazil
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
2016
%
100
100
100
100
100
100
100
92.5
92.5
92.5
46.2
69.4
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2015
%
100
100
100
100
100
100
100
92.5
92.5
92.5
N/A
N/A
50
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 nib holdings limited also controls the following trusts:
• nib Holdings Ltd Share Ownership Plan Trust
• nib salary sacrifice plan and matching plan trust
• nib Salary Sacrifice (NZ) and Matching Plan (NZ) Trust
• nib holdings – nib nz Employee Share Purchase Scheme Trust
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 / (liabilities)
Non-current assets
Non-current liabilities
Non-current net assets / (liabilities)
Digital Health Ventures Pty Ltd
nib Options pty limited
consolidated group
2016
$000
167
235
(68)
1,630
3,450
(1,820)
2015
$000
369
515
(146)
892
1,061
(169)
2016
$000
406
9,491
(9,085)
234
–
234
2015
$000
165
6,246
(6,081)
309
–
309
Net assets / liabilities
(1,888)
(315)
(8,851)
(5,772)
Accumulated NCI
(944)
(158)
(643)
(433)
Summarised statement of comprehensive income
Profit/(loss) for the year
Other comprehensive income
Total comprehensive income / (loss)
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
(1,573)
–
(1,573)
(786)
–
(1,845)
(1,160)
3,135
130
(315)
–
(315)
(158)
–
(243)
(831)
1,371
297
(3,100)
(5,055)
–
–
(3,100)
(5,055)
(233)
(379)
–
–
(2,718)
(115)
2,960
127
(3,638)
(188)
3,597
(229)
105
annual report 2016 35. CONTROLLED ENTITIES continued
c) Transactions with non-controlling interests
The Group acquired:
• on 11 February 2016, 49.98% of the issued capital of nib Options Holdings (Thailand) Co Ltd (incorporated 10 February 2016)
• on 12 February 2016, 49.99% of the issued capital of nib Options (Thailand) Co Ltd (incorporated on 11 February 2016)
The effect on equity attributable to owners of nib holdings limited during the year from all non-controlling interests is summarised
as follows:
Consideration paid by non-controlling interests
2016
$000
23
23
2015
$000
–
–
On 8 August 2014, the Group acquired 50% of the issued capital of Digital Health Ventures Pty Ltd (incorporated on
8 August 2014).
36. RELATED PARTY TRANSACTIONS
a) Related party transactions with key management personnel
Key management personnel are entitled to insurance policies provided at a discount dependant on length of service. These are
provided under normal terms and conditions.
There were no other 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
2016
$
2015
$
5,273,536
4,484,043
285,583
38,351
–
274,609
34,781
–
2,321,301
1,998,651
7,918,771
6,792,084
Detailed remuneration disclosures are provided in the Remuneration Report on pages 22 to 42.
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:
• advertising and promotions
• printing and stationery
• software development and maintenance
Further details of the above transactions with key management personnel are disclosed in the Remuneration Report on page 42.
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.
106
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 37. 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 22 to 42. 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(d).
Set out below is a summary of performance rights granted under the plan:
2016
Grant date
21/12/2011
19/11/2012
29/11/2013
22/12/2014
13/05/2015
22/01/2016
2015
Grant date
27/05/2011
21/12/2011
19/11/2012
29/11/2013
22/12/2014
13/05/2015
Expiry date
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
Vested and
exercisable at
end of the year
Number
1/09/2015
1/09/2016
1/09/2017
1/09/2018
1/09/2018
1/09/2019
–
–
–
–
–
–
392,307
553,236
559,057
473,927
22,956
–
2,001,483
–
–
–
–
–
628,895
628,895
(196,154)
(196,153)
–
–
–
–
–
–
–
–
–
–
–
553,236
559,057
473,927
22,956
628,895
(196,154)
(196,153)
2,238,071
–
–
–
–
–
–
–
Expiry date
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
Vested and
exercisable at
end of the year
Number
1/09/2014
1/09/2015
1/09/2016
1/09/2017
1/09/2018
1/09/2018
–
–
–
–
–
–
412,534
392,307
553,236
559,057
–
–
–
–
–
–
473,927
22,956
(206,267)
(206,267)
–
–
–
–
–
–
–
–
–
–
–
392,307
553,236
559,057
473,927
22,956
1,917,134
496,883
(206,267)
(206,267)
2,001,483
–
–
–
–
–
–
–
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.
Number of shares purchased on market under the plan to participating employees
85,806
78,766
The shares were allocated in two tranches. The first tranche of shares were for allocated on 27 August 2015 following nib’s FY15
full year results presentation at a volume weighted average price of $3.12. The remaining tranche of shares were allocated on
24 February 2016 following nib’s FY16 half year results presentation at a volume weighted average price of $3.51.
2016
2015
107
annual report 2016 37. SHARE-BASED PAYMENTS continued
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 plan to participating employees
2016
7,672
2015
4,837
The shares were allocated in two tranches. The first tranche of shares were for allocated on 27 August 2015 following nib’s FY15
full year results presentation at a volume weighted average price of $3.36. The remaining tranche of shares were allocated on
24 February 2016 following nib’s FY16 half year results presentation at a volume weighted average price of $3.51.
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.
Number of shares purchased on market under the plan to participating employees
38,952
54,080
2016
2015
e) 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 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 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
2016
2,132
2015
2,751
108
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 f) Short-Term Performance Incentive (STI)
All eligible employees have a STI opportunity. For the MD/CEO the maximum target bonus opportunity is 100% of the base
remuneration package with 50% of the calculated entitlement to be deferred into shares. For the CFO/DCEO and GEARHI
the maximum target bonus opportunity is 60% of the base remuneration package with 50% of the calculated entitlement to
be deferred into shares. For other executives the maximum entitlement is 50% of the remuneration package with 50% of the
calculated entitlement deferred into shares.
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(d).
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 24(c).
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) rules and matching plan (NZ)
Performance rights granted under LTIP
Shares purchased on market under STI
2016
$000
309
149
959
755
2015
$000
291
189
368
263
2,172
1,111
h) Recognition and measurement
The fair value of performance rights granted under the nib holdings Long-Term Incentive Plan is recognised as an employee
benefit expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the
fair value of the performance rights granted, which includes any market performance conditions but excludes the impact of any
service and non-market performance vesting conditions and the impact of any non-vesting conditions. Non-market vesting
conditions are included in assumptions about the number of performance rights that are expected to vest. The total expense is
recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At
the end of each period, the Group revises its estimate of the number of performance rights that are expected to vest based on
the non-marketing vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a
corresponding adjustment to equity.
The nib holdings Long-Term Incentive Plan is administered by the nib Holdings Ltd Share Ownership Plan Trust; see Note 24(d)(i).
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.
109
annual report 2016 38. PARENT ENTITY 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
Refer to Note 31 for contingent liabilities of parent entity.
2016
$000
2015
$000
34,869
551,613
586,482
53,947
434,958
488,905
13,999
84,989
98,988
2,459
–
2,459
487,494
486,446
297,178
297,178
(665)
190,981
487,494
(991)
190,259
486,446
52,305
47,145
52,305
47,145
110
nib holdings limitedNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2016 a) Recognition and measurement
The financial information for the parent entity, nib holdings limited, 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.
ii) Tax consolidation legislation
nib holdings limited and its wholly-owned Australian controlled entities have implemented the tax consolidated legislation.
The head entity, nib holdings limited, and the controlled entities in the tax consolidated group account for their own current
and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a
standalone taxpayer in its own right.
In addition to its own current and deferred tax amounts, nib holdings limited also recognises the current tax liabilities (or assets)
and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax
consolidated group.
The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate nib holdings
limited for any current tax payable assumed and are compensated by nib holdings limited for any current tax receivable and
deferred tax assets relating to unused tax losses or unused tax credits that are transferred to nib holdings limited under the tax
consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned
entities’ financial statements.
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.
39. COMPANY DETAILS
nib holdings limited is a company limited by shares, incorporated and domiciled in Australia. The registered office of the
company is:
22 Honeysuckle Drive
NEWCASTLE NSW 2300
The Financial Report was authorised for issue by the Directors on 19 August 2016. The company has the power to amend and
reissue the Financial Report.
111
annual report 2016 DIRECTORS’ DECLARATION
For the year ended 30 June 2016
In the Directors’ opinion:
a. the financial statements and notes set out on pages 44 to 111 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 2016 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
19 August 2016
Harold Bentley
Director
112
nib holdings limited INDEPENDENT AUDITOR’S REPORT
To the members of nib holdings limited
For the year ended 30 June 2016
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 consolidated balance sheet as at 30 June 2016, the consolidated income statement and
consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated 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 Strteet, 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.
113
annual report 2016 Auditor’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
2016 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards 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 22 to 42 of the directors’ report for the
year ended 30 June 2016. 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 2016
complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Caroline Mara
Partner
Newcastle
19 August 2016
114
nib holdings limitedINDEPENDENT AUDITOR’S REPORTCONTINUEDTo the members of nib holdings limitedFor the year ended 30 June 2016 SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 31 August 2016.
A. DISTRIBUTION OF EQUITY SECURITIES
Analysis of numbers of equity security holders by size of holding:
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
There were 3,631 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:
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
BNP Paribas Noms Pty Ltd
National Nominees Limited
RBC Investor Services Australia Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
UBS Nominees Pty Ltd
Computershare Plan Co Pty Ltd
IOOF Investment Management Limited
Woodross Nominees Pty Ltd
Brispot Nominees Pty Ltd
Fitzy (NSW) Pty Ltd
Jemon Pty Ltd
HSCB Custody Nominees (Australia) Limited – A/C 2
Mr Jinyue Zhang + Mrs Ting Wu
Mr Mark Anthony Fitzgibbon
Warbont Nominees Pty Ltd
Mr John Arthur Foyle Turner
CPU Share Plans Pty Ltd
Unquoted equity securities
Performance rights issued under the nib holdings Long-term Incentive Plan
Class of equity
security
63,828
76,810
10,542
932
52
152,164
Ordinary Shares
Number held
44,587,633
31,347,196
19,727,883
14,960,754
6,777,163
5,775,627
2,110,894
836,717
832,401
709,566
691,664
672,430
660,621
600,000
537,989
450,000
440,649
388,573
369,619
369,070
Percentage of
issued shares %
10.16
7.14
4.49
3.41
1.54
1.32
0.48
0.19
0.19
0.16
0.16
0.15
0.15
0.14
0.12
0.10
0.10
0.09
0.08
0.08
132,846,449
30.26
Number
on issue
2,238,071
Number
of holders
7
115
annual report 2016
C. SUBSTANTIAL HOLDERS
There are no substantial holders in the Company.
D. VOTING RIGHTS
The voting rights attaching to each class of equity securities are set out below:
Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share
shall have one vote.
Performance rights
No voting rights.
116
nib holdings limitedSHAREHOLDER INFORMATIONCONTINUED CORPORATE DIRECTORY
DIRECTORS
Chairman
Steve Crane
Managing Director/Chief Executive Officer
Mark Fitzgibbon
Lee Ausburn
Harold Bentley
Annette Carruthers
Philip Gardner
Christine McLoughlin
Donal O’Dwyer
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 Executive Australian Residents Health Insurance
Rhod McKensey
Chief Information Officer
Brendan Mills
Chief Executive Officer – nib New Zealand
Rob Hennin
Group Executive Benefits and Provider Relations
Justin Vaughan
Group Executive International and New Business
David Kan
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 (Australian Eastern
Daylight Time) on Wednesday, 2 November 2016.
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
National Australia Bank Limited
1 Old Castle Hill Road
Castle Hill NSW 2154
WEBSITE ADDRESS
nib.com.au
117
annual report 2016 nib.com.au