2018
ANNUAL
REPORT
Group Performance Highlights
Business Strategy
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
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nib holdings limited
ABN 51 125 633 856
NOTICE OF ANNUAL GENERAL MEETING
The Annual General Meeting of nib holdings limited will
be held on Wednesday, 31 October 2018 at 11am (AEDT)
at The Westin, 1 Martin Place, Sydney NSW 2000.
CONTENTSnib holdings limited TOTAL UNDERLYING REVENUE
$m
UNDERLYING OPERATING PROFIT
$m
FY18
FY17
FY16
FY15
FY14
DIVIDENDS
CPS
FY18
FY17
FY16
FY15
FY14
184.8
20.2%
153.7
132.0
88.0
77.3
20.0
19.0
5.3%
14.75
11.5
11.0
9.0
Ordinary
Special
NET PROFIT AFTER TAX
$m
FY18
FY17
FY16
FY15
FY14
2,235.1
11.5%
2,004.5
1,873.1
1,639.3
1,497.3
EARNINGS PER SHARE (STATUTORY)
CPS
29.4
8.0%
27.2
21.2
FY18
FY17
FY16
FY15
FY14
NET INVESTMENT INCOME
$m
FY18
FY17
FY16
FY15
FY14
17.3
15.9
16.9
3.5%
29.6
28.6
31.41
29.7
FY18
FY17
FY16
FY15
FY14
133.5
11.1%
120.2
91.8
75.3
69.8
1. Includes profit on sale of PSG shares of $5.4m in FY15
RETURN ON INVESTED CAPITAL2
%
NET PROMOTER SCORE (arhi3)
%
FY18
FY17
FY16
FY15
FY14
19.5
(320)bps
22.7
19.0
20.1
17.9
FY18
FY17
FY16
FY15
FY14
28.7
550bps
23.2
17.7
20.7
18.7
2. ROIC calculated using average shareholders’ equity including non-controlling
interests and average interest-bearing debt over a rolling 12 month period.
3. Australian Residents Health Insurance only (excludes GU Health)
All figures quoted are in Australian dollars unless otherwise stated.
1
GROUP PERFORMANCE HIGHLIGHTS2018 ANNUAL REPORT
BUSINESS STRATEGY
OUR PURPOSE
YOUR BETTER HEALTH
BUSINESS STRATEGY
Personalised healthcare
Better “personalise” our relationship with members and customers and the products
and services we connect them with through technology and data science. As such,
become a trusted “health partner” as a means of enhancing the value proposition,
differentiating nib in the market, improving individual and population health as well
as better influencing costs and affordability.
Grow the core (arhi)
Strive for above “system” organic arhi growth with measured brand and
acquisition investment, risk selection, product choice, channel diversification
and “personalising” the value proposition. Consider and pursue M&A as
opportunities present.
Economies of scope
Leverage existing Group assets and capabilities to pursue adjacent business
opportunities for the purposes of both growing enterprise value and diversifying
risk. Amplify investment in growing international workers and students, New
Zealand and travel insurance businesses and deliver identified new prospects.
Racing the Red Queen
Create competitive advantage across the Group through constant innovation,
our RRQ principles of “natural selection”, having world class talent and prudent
risk management.
Affordability and sustainability
Improve the affordability of financial protection through improved operating
efficiency, disciplined benefits management and helping members and customers
better manage their health and healthcare decisions. Ensure governance and
operations across the Group we are sensitive and responsive to our broader social,
economic and the environmental responsibilities.
2
nib holdings limited CHAIRMAN’S REPORT
I don’t recall a time in my corporate life when the demands for accountability have been so loud. And I don’t just mean the
demands of shareholders and regulators. Companies, their Boards and management are being increasingly challenged to
meet both their commercial objectives and the various social and environmental responsibilities which come with being a
good corporate citizen.
We’ve always maintained that strong commercial results will
follow being good at what you’re meant to be doing; in our case
protecting our members and customers against the financial risk
of disease and injury and allowing them to quickly access world
class healthcare.
Of course that’s a vitally important social responsibility in its own
right. Yet in the pursuit of this mission, it’s just as important we
ensure our business operations are sensitive to the impact we
have upon the communities we serve and with that, our own
long term sustainability.
We’ve had another busy year with significant progress on
numerous fronts. Mark outlines commercial and strategic
highlights in more detail in his report. Sufficient for me to
observe here, that despite many market, political and regulatory
challenges we once again managed to grow our domestic and
international footprint and our enterprise value. In the past
10 years our Group revenue has increased 185.2% and our net
profit after tax by 321.0% to $133.5 million in FY18. Significantly,
about 30% of our underlying operating profits today are derived
from businesses that didn’t exist a decade ago.
While still relatively modest, an increasing feature of the nib
Group is our growing presence in markets beyond Australia
and New Zealand. Sales in our international workers, students,
and travel insurance businesses are both escalating supported
by “in country” nib resources. During the year we formally
established our new business in China with our partners Tasly.
Subject to regulatory approvals, we expect to sell our first health
insurance product in the second half of FY19.
Unfortunately, there is considerable nervousness across the
Australian private healthcare sector and among members,
shareholders and stakeholders about policies proposed
by the Federal Opposition. Our view remains that health
insurance prices and the consumer interest are best served by
competition not more Government regulation. Instead we urge
the Government of the day to work with private health insurers,
private hospitals and doctors to improve competition and
efficiency and relieve pressure on costs and premiums.
Health reform and Government policy cannot just be about
health insurance premiums as the prices our members pay for
health insurance are basically a function of the costs associated
with treatment in hospitals and other clinical settings. We think
a more sensible approach is a Productivity Commission
investigation first to understand and address the underlying
affordability and cost inflation challenges.
We are committed to passing on any additional benefits from
such a review via lower premiums.
While premium affordability is a key factor when consumers are
considering health insurance, so is the assurance of financial
protection and value. During the year, approximately 77,000
of our arhi policyholders claimed more in healthcare costs and
treatment than what they paid in premiums. In fact our highest
single claim for a member was almost $300,000.
I can assure members, shareholders and stakeholders that
we will continue to engage with policy makers and seek more
substantial and meaningful policy reform. And most importantly,
that we will adapt to whatever circumstances arrive.
More than ever communities across Australia and New Zealand
need private health insurance in order to cope with burgeoning
healthcare spending and already stressed public systems.
There are challenges ahead for us but the social and business
fundamentals behind private health insurance remain compelling.
I would like to conclude by thanking my fellow Directors, our
Executive leaders and everyone at nib for another tremendous
year. I’d like to especially thank and pay tribute to Non-Executive
Director, Philip Gardner who announced his retirement from the
nib Board this year after more than 11 years of service. Phil has
been an exceptional Director providing relevant and current
strategic insight. We also welcome Jacqueline Chow to the
Board. Jacqueline has more than 20 years’ experience working
globally particularly with consumer brands and is already making
a valuable contribution to our Board.
Steve Crane
Chairman
3
OPERATING AND FINANCIAL REVIEWfor the year ended 30 June 20182018 ANNUAL REPORT MANAGING DIRECTOR’S REPORT
As Steve has mentioned we had another very positive year built on the back of good strategic execution and meeting member
and customer expectations. Total Group revenue grew by 11.5% to $2.2 billion, underlying earnings by 20.2% to $184.8 million
and net profit after tax 11.1% to $133.5 million. And apart from the $1.7 billion1 in benefits we paid to members and customers
we also paid $138.5 million in taxes (income and other taxes).
It’s hopefully very clear from this annual report that our arhi
business remains very much our core business and economic
engine. Where many see threats such as a proposal by the
Federal Opposition to cap premiums at 2% for 2 years if elected,
we mainly see opportunity. While not dismissing the deleterious
short-term impact such a policy would have, I’m very confident
we’d adapt to whatever conditions arrive and I’m excited about
the many medium to longer term prospects for arhi.
Across our insured population I especially see enormous
potential for us to improve our value proposition as well as actual
health outcomes for people through sophisticated data science
and “personalisation”. Through data science and knowing much
more about a person’s individual health profile and risks there’s
a future much closer than most imagine in which prevention
becomes as much a priority as cure. We need to be at the
vanguard of this transformation.
All members and stakeholders stand to benefit from industry
consolidation and even globalisation I think is inevitable.
Like every part of the financial services sector, health insurers
require scale to better innovate, lower operating costs and
make the investment in new technologies necessary to
remain relevant.
I also believe there’s an attractive future for health insurers to
eventually take on the actual delivery of government mandated
and funded healthcare programs.
nib’s FY18 results reflect a fundamental truth that people
across Australia and New Zealand need more rather than less
private health insurance. Challenges lie ahead for us to be sure.
However, with Australians now spending about $180 billion per
annum on their healthcare at a rate of growth between 5% to
6% and an increasing welfare dependency ratio, private health
insurers will be required to carry more of the load. It’s an almost
identical outlook for New Zealand.
Mark Fitzgibbon
Managing Director
Our flagship Australian Residents Health Insurance (arhi)
business paid $1.5 billion in claims and helped fund over
280,000 hospital admissions (over 50,000 in public hospitals)
and almost 1.1 million dental visits. In very tough and
competitive market conditions we grew our membership
base by 3.0%2 against an average industry growth rate below
1%3, improved our Net Promoter Score to 28.7% (compared
to 23.2% in FY17) and added a new business GU Health.
This growth helped fuel impressive underlying earnings
growth of 22.1% to $130.7 million.
Performance across other parts of the Group were
also impressive.
Our international workers and students business grew its top line
by 24.7% and underlying earnings by 16.5% to $29.6 million.
In addition to Australia, we now have people and operations
directly supporting this business in China with near term plans
for India, New Zealand and the USA. Today we cover over
160,000 workers and students residing in Australia and courtesy
of a new digital platform, aspire to become a global health
insurance business for workers and students whatever their
destination country.
Our New Zealand business also had a good year aided by
membership growth and stable margins. Our efforts to grow
the market is gaining traction through a direct-to-consumer and
whitelabel channels which accounted for almost half of all sales.
While our underlying operating profit in New Zealand was slightly
down to $23.4 million, the FY18 result was always going to be
impacted by the loss of a large corporate account in June last
year and a weaker kiwi dollar.
Significantly, in New Zealand we launched our first ever Maori
population health initiative with Ngāti Whātua Ōrākei. It’s a
noble pursuit and we’re hoping to demonstrate a business like
ours can help discrete populations better manage their health
and wellbeing.
Although not yet delivering the economic returns we’re very
confident it will, our still nascent travel insurance business had
another year of powerful growth. Sales of 689,529 we’re up
7.3% on the previous year with 46% made overseas. This is
another genuinely global business with people and operations
in the USA, Ireland, UK and Brazil. As a reminder, more than
60% of claims paid are for medically related incidents. For this
and other reasons, travel insurance is much closer to health
insurance than many imagine.
And as Steve has already mentioned we finalised our joint
venture in China. It’s an initiative which is going to take some
time to develop but the commercial possibilities in China
are inestimable.
1. Claims figure is for underwriting segments only
2. Excludes GU Health
3. Source: APRA
4
OPERATING AND FINANCIAL REVIEW continuedfor the year ended 30 June 2018nib holdings limited AUSTRALIAN RESIDENTS HEALTH INSURANCE
$1.9b
premium revenue
up 12.1%
28.7% net promoter score1
almost 10,000 participants in
health management programs
$298,742
highest cost claim
$130.7m
UOP up 22.1%
3.0% net policyholder growth1
As the health insurer of choice for more than one million
Australian residents, we play a critical role in helping people
access and afford healthcare as well as empowering them to
better manage their health and wellbeing.
We’ve made good progress during the year addressing concerns
about healthcare costs, in particular out-of-pocket expenses.
We will keep working to enhance private health insurance
affordability, value and transparency. Our energy remains
focused on putting members at the heart of everything we do.
In terms of financial performance, our Australian Residents
Health Insurance (arhi) business again delivered an
outstanding result with underlying operating profit up 22.1% to
$130.7 million.
Our track record of above industry membership growth is a
key driver of arhi’s earnings trajectory. We grew at six times
the industry rate and accounted for over 45% of total industry
growth for the year.2
Membership growth is a direct function of delivering value and
first class service to our members. That’s why we are focused
on more than just delivering financial protection. Our goal is to
be a healthcare partner, enhancing the value for our members by
helping them make better health and healthcare decisions.
A great example is our Going to Hospital tool. The tool which
launched earlier this year, helps members work out whether
they are covered for a specific hospital procedure, how much it
might cost and which specialist they should see. This capability
is available online at nib.com.au, with further enhancements
coming, including patient reported experience measures.
During the year we’ve supported our members by funding
over 280,000 hospital admissions and almost 3.7 million
ancillary and dental visits. We continue to look for and invest
in new health pathways, providing alternatives to surgical or
hospital treatment, particularly for our members with chronic
illnesses. For example, nib has a team of health professionals
who liaise with “at-risk” members to offer personalised health
management programs.
We know health insurance affordability is a major issue for
members. Holding down premium inflation remains a top
1. Excludes GU Health
2. Source: APRA
priority. Our 2018 premium increase of 3.93% was the lowest
in 15 years, and it’s the fourth year running we’ve delivered an
increase lower than the previous year.
We continue to take a leading role driving change, including
working with the Health Minister and the Department of Health
to deliver the PHI reforms announced in October last year.
First off was the significant reduction in the price insurers
pay for medical prosthetics, such as artificial hips and knees.
Those savings were passed on in full to members in the form of
lower-than-otherwise premiums.
Also proving popular is the introduction of the mental health
waiver, which allows members to access a one-off right to
upgrade cover, gaining immediate access to applicable in-
hospital services.
The second wave of reforms, expected from April 2019, include
the launch of premium discounts for customers under 30 and the
introduction of standard product classifications.
Operational efficiencies during the year have improved the speed
with which we process and pay claims, exceeding members’
expectations. In most cases, we finalise payment for an ancillary,
hospital or medical expense within 24 hours of receiving a
completed claim.
Our genuine focus on improving the member experience and
addressing frustration with growing out-of-pocket expenses has
driven the expansion of our First Choice Network. The network,
which features a growing community of trusted ancillary health
professionals, provides members with peace of mind, lower
costs and reduced out-of-pocket expenses.
Our acquisition of specialist corporate private health insurer,
GU Health, completed in October last year, also made a positive
contribution to arhi’s full year result. GU Health has developed
significant expertise in providing health insurance plans to
corporate groups. The business is performing well under nib
ownership. Full integration is on track.
We continue to place a strong emphasis on improving our
members’ experience. This is reflected in our Net Promoter
Score for the year of 28.7% up 550bps on the previous year.
5
2018 ANNUAL REPORT
nib NEW ZEALAND
$198.1m
premium revenue
down 0.6%
2.8% net policyholder growth
launch of NZ’s first Maori population
health insurance partnership
$217,011
highest cost claim1
$23.4m
UOP down 0.4%
over 90% of providers participating
in First Choice Network
We’ve also recently launched our successful Whitecoat online
platform locally. Another first for New Zealand, Whitecoat allows
consumers to search, rate, review and compare local healthcare
providers. Free and publically available, the site already features
almost 10,000 healthcare providers across a range of disciplines
including specialists, GPs, dentists and physiotherapists.
Improving population health and wellness as well as helping
members access affordable healthcare, saw us launch the first
ever Maori population health trial during the year in partnership
with Auckland iwi, Ngāti Whātua Ōrākei. The partnership
provides free universal private health insurance as well as
wellness programs for all their members to help improve their
health and wellbeing outcomes.
Personalising service and engagement saw us launch a
virtual consultant for health insurance to make it easier for our
members with service enquiries. Using artificial intelligence, our
virtual consultant ‘Frankie’ helps direct enquiries or providing
members with responses to everyday questions regarding their
health insurance cover.
Providing our members with first class service is a high
priority and we’ve continued to make good progress which is
demonstrated through our Net Promoter Score almost doubling
from 12.2% in FY17 to 21.1% in FY18.
Our commitment to diversity was also recognised during the
year with nib becoming one of the first corporate organisations
in New Zealand to be awarded the “CQ Tick” for cultural
intelligence and capability. The certification reflects our
commitment to exploring and responding to gender and cultural
diversity both within our own workplace and our member base.
Our New Zealand business continues to challenge the status
quo through innovation, enhanced member services and
value for money healthcare products.
By putting the member at the heart of everything we do, the
business delivered a solid result and stable earnings. For FY18,
premium revenue was $198.1 million down 0.6% and UOP down
0.4% to $23.4 million. The result was negatively impacted by
currency exchange rates and on a New Zealand dollar basis the
business grew premium revenue by 1.9% and UOP by 3.8%.
Our multi-channel distribution strategy made good progress
during the year with net policyholder growth of 2.8%. We
recently revamped our direct-to-consumer (DTC) line launching
a product range specifically tailored for millennials, new families
and migrant families, which also includes offering bilingual
services to members.
Our DTC and whitelabel portfolio, which includes leading Kiwi
brands such as Stuff and AA, now account for almost 20% of
all our inforce policies. When we acquired the business just over
five years ago, it was virtually zero.
We’ve also enhanced our product range for our financial advisor
channel, providing members with the ability to access New
Zealand’s first combined health and travel insurance cover.
Under our ‘Ultimate Health’ products members are covered for
sickness or accident whether at home or travelling overseas.
Like many other countries, we think there’s significant
opportunity to enhance consumer empowerment and
transparency in relation to medical cost variation as well as
improve health outcomes for our members.
During the year we launched our First Choice Network, one
of the country’s largest networks of medical professionals.
First Choice helps members connect with in-network medical
specialists to reduce out-of-pocket expenses for hospital
medical treatment. This gives members an enhanced claiming
experience and the ability for nib to better control claims and
premium inflation drivers.
1. Figure is in NZD
6
OPERATING AND FINANCIAL REVIEW continuedfor the year ended 30 June 2018nib holdings limited
INTERNATIONAL AND NEW BUSINESS
$29.6m
iihi UOP up 16.5%
$142.0m
$8.1m
WNG GWP up 7.7%
WNG UOP up 8.0%
18.8% iihi policyholder growth1
$593,595
largest travel
insurance claim paid
7.3% WNG policyholder sales growth
International inbound health insurance (iihi)
Australia’s popularity as a destination for international students
and workers continues to reap significant national economic
benefits. For students coming to Australia to study or workers
migrating for employment, nib is providing peace of mind and
financial protection to cover any unexpected health needs.
We’ve seen strong policyholder growth during the year and we
now provide health cover to more than 160,000 international
students and workers. Underlying operating profit rose 16.5% to
$29.6 million.
Because healthcare systems are different across the world,
a major focus has been helping our international members
navigate the Australian healthcare system, access treatment and
minimise their potential out-of-pocket expenses.
During the year we rolled out the nib app to our international
students and workers allowing them to submit claims
immediately following treatment, which helps payment to
be made as soon as possible. Members can also find an nib
registered provider, such as a GP or dentist, which in most cases
results in no out-of-pocket expenses.
The outlook for our iihi business remains positive and is
supported by strong growth prospects.
World Nomads Group (WNG)
Accessibility of travel and increased affordability are growing
macro global trends underpinning our travel insurance business,
World Nomads Group.
During the year we’ve provided financial protection to almost
700,000 customers worldwide, helping them plan and
experience their journey, as well as return home safely.
Tapping into nib Group operational efficiencies and synergies to
enhance the customer experience continues to deliver positive
outcomes. Our travel insurance customers now have access to
Group hospital networks both locally and abroad, ensuring they
receive the right treatment at the right time.
During the year we also launched New Zealand’s first health and
travel insurance combined product, meaning customers who
1. Excludes GU Health
purchase this cover have complete peace of mind that they are
covered whether at home or travelling overseas.
Our strong appetite to pursue and invest in growth is also
building momentum with our sales up more than 7% this
year. In particular our growing international footprint and
investment is delivering results with international sales lifting
16.5%. More than 46% of our sales come from international
markets; with the United States a standout and now our largest
international market.
FY18 UOP of $8.1 million is up 8.0% from $7.5 million in FY17
with investment to capture growth opportunities showing
progress. Our post-balance date acquisition of QBE Travel
(announced 3 August 2018) will consolidate our domestic
market position.
Adjacent insurance lines and new business
Exploring new business initiatives through experimentation and
capitalising on evolving market conditions in pursuit of growing
enterprise value is a key business philosophy.
During the year we announced a partnership with Tasly Holding
Group, a large Chinese pharmaceutical company, with plans
to sell a critical illness product in China. While nib will not carry
any underwriting risk, the joint venture will leverage our product
design, pricing and sales distribution expertise. We are on track
to be selling our first product to Chinese nationals in the second
half of FY19, subject to regulatory approval.
We’ve also partnered with TAL, a leading life insurance specialist,
to distribute whitelabelled health insurance to their customer
base. We expect to have our first TAL-branded health insurance
product in FY19.
Leveraging existing business assets and capabilities saw us
recently launch nib International Student Services (niss), a
start-up service provider for international students beyond
Australia. niss is a service to assist foreign students organise
their health cover in the country of destination before they
leave home. Currently, there are five million students across
the globe studying internationally and it’s growing, with this
first-mover opportunity representing significant market and
earnings potential.
7
2018 ANNUAL REPORT PROFITABILITY AND SHAREHOLDER RETURN
$2.2b
$184.8m
$29.6m
total Group revenue up 11.5%
Group UOP up 20.2%
net investment income
$133.5m
NPAT up 11.1%
29.4cps
statutory EPS up 8.0%
20.0cps
full year dividend
The strong performance of our core arhi (Australian
Residents Health Insurance) business combined with the
continued growth and expansion of our adjacent businesses,
delivered a solid fiscal performance for the nib Group.
with the SPP closing oversubscribed, raising approximately
$29.5 million. This strong support from shareholders resulted in
no scaling back of valid applications with shareholders receiving
their full requested entitlement.
Our investment portfolio generated strong returns with
investment income of $29.6 million. Net profit after tax (NPAT)
was $133.5 million, up 11.1% on the previous year’s result, while
statutory earnings per share rose 8.0% to 29.4 cents per share.
Based on our strong financial results, the Board declared
a full year dividend of 20.0 cents per share fully franked
(FY17: 19.0 cents per share). The full year dividend comprises
an interim of 9.0 cents per share (paid 3 April 2018) and a final
dividend of 11.0 cents per share, payable to shareholders on
5 October 2018.
On 20 August 2018, the Board announced the introduction of a
Dividend Reinvestment Plan (DRP) for eligible nib shareholders.
A DRP allows eligible shareholders to reinvest all or part of
their dividends in ordinary nib shares without paying brokerage
or other transaction costs. The option of offering a DRP is
by far one of the most frequently asked questions from our
shareholders, so it’s pleasing we can now offer this to our
shareholders.
The DRP will be available to shareholders for the FY18 final
dividend payable on 5 October 2018. Shareholders can
participate in the DRP by completing the application form which
will be sent to them in late August, or alternatively by visiting
nib.com.au/easyupdate.
Group revenue was $2.2 billion up 11.5% and UOP increased by
an impressive 20.2% to $184.8 million (statutory operating profit
up 12.2% to $169.0 million). The difference between our UOP
and statutory operating profit reflects one-off transactions and
non-cash items associated with business acquisitions.
Our arhi business, which accounted for approximately
70% of our Group UOP, improved earnings more than
22% to $130.7 million, while premium revenue rose 12.1%
to $1.9 billion. Despite weak market conditions, arhi still
managed to grow six times the industry rate. Aided by our
multi-channel growth strategy which includes our own direct-
to-consumer, plus our whitelabel partners Qantas and Suncorp,
we have again delivered annual policyholder growth above the
industry average.
Our adjacent businesses, which include travel insurance,
international workers and students health insurance and our
New Zealand operations, improved their Group earnings
contribution, with almost 30% of Group UOP coming from non-
arhi businesses. We are still of the view that these businesses
will account for as much as 50% of our earnings in the years
to come.
We continue to push hard as a business to grow and leverage
our capabilities across the Group through organic growth but
also acquisitions. Applying our strict return on investment
criteria, we acquired specialist corporate health private health
insurer, GU Health, for $155.7 million in October 2017. We also
announced post-balance date the acquisition of QBE’s Travel
Insurance business, QBE Travel, (announced 3 August 2018) for
up to $25 million1, which was funded through available existing
capital. Both acquisitions deliver on our strategic ambition and
growth aspirations.
The GU Health acquisition was successfully funded through
the combination of a $60 million institutional equity placement
and a $15 million Share Purchase Plan (SPP). Both the equity
placement and SPP received strong demand from shareholders,
1. Final total consideration is dependent on the level of business generated
8
OPERATING AND FINANCIAL REVIEW continuedfor the year ended 30 June 2018nib holdings limited SUSTAINABILITY
$17.3m
nib foundation
funding to
123 charities
since 2008
$4.0m
WNG Footprint
Network funding to
29 charities
since 2006
$78k
nib make a difference
(MAD) committee
donations to
45 charities since 2008
$136k
in Small Steps
donations to
3 charities
since 2015
Our commitment to fostering healthy futures for our
members, employees and shareholders drives nib’s
approach to sustainability.
Our vision is to create better healthcare for the communities
we serve. We understand that the sustainability of our
business relies upon having sustainable communities.
Making healthcare more accessible, affordable and
cost effective
We recognise our members have different needs for financial
protection and access to healthcare information, products,
services and facilities. During the year, we’ve made significant
progress helping our members make better decisions to
improve their health outcomes. We’ve also addressed concerns
about affordability.
Following comprehensive consultation across the industry, the
Australian Government announced private health insurance
reforms designed to improve affordability, value and make health
insurance easier to understand. We’ve been working with the
Government for a number of years to make sure we’ve had a
voice in any reform, and we welcome changes that improve
value and affordability for members.
We know that out-of-pocket expenses, bill shock and medical
cost variation are member pain points. As can be read in this
year’s report, our First Choice Provider Networks in Australia
and New Zealand are growing rapidly, delivering real savings
for members.
Empowering our members
We strive to be a trusted partner, helping members engage with
healthcare systems and live healthier lives. Health insurance,
while vitally important, is just one component in our value
proposition that includes empowerment, financial protection
and connectivity.
A great example of how nib is improving consumer
empowerment, transparency and decision making is our
Going to Hospital tool. Launched in February in Australia,
the tool helps answer important questions before a hospital
admission, such as: am I covered, who can I see and how much
will my admission cost? We have big plans for the tool over the
coming 12 months to further improve transparency and increase
the amount of information we can provide our members.
Health provider website, Whitecoat1 also continues to deliver
information to our members to help them make better decisions
about their healthcare. Whitecoat allows customers to search
and find a healthcare provider, as well as share their healthcare
experiences and outcomes.
nib’s preventative health programs allow members to better
manage their health. The purpose of our programs is to provide
tailored health management programs to help our members
access high quality health care and lead healthier lives.
A productive, diverse and safe workplace
Our rapid growth over recent years has resulted in a much
larger and more geographically diverse nib. To best handle this
expansion, we kicked off a Group workplace accommodation
strategy earlier this year, aimed at driving a different and more
open work environment. The first phase will be the move to
an agile workplace for our Sydney and Melbourne-based
employees in early FY19.
In FY18, we were pleased to see a rise in the number of women
in senior leadership roles. Female representation in manager
and team leader roles exceeded our own ambitious targets.
This financial year, nib became one of just 14 organisations
added to the Australian Institute of Company Directors’ list
of firms where at least 30 per cent of directors are women.
In addition to this, during the year our New Zealand business
became one of the first companies to be awarded the Cultural
Quotient (CQ) Tick, reflecting our commitment to gender and
cultural diversity at work and in our member base.
Our ongoing stance against discrimination of any kind
is unwavering. At nib, we have no room for arrogance,
intemperance or bullying within our business or supply chain.
nib’s approach to health, safety and wellbeing includes tailored
wellbeing programs and initiatives for our employees across
the nib Group, ranging from free fruit baskets each week to
our nibWell program which provides employees access to
preventative health services and programs.
1. nib is a part owner of Whitecoat through a joint venture arrangement
9
2018 ANNUAL REPORT SUSTAINABILITY continued
Protecting the natural environments in which we
or our supply chain partners operate
nib cares for the environment and is committed to lightening
the impact of our operations. As a good corporate citizen, we
are mindful of future generations, especially the potential health
impacts of climate change on individuals and communities.
We recognise we have a role to play in supporting carbon
reducing initiatives.
In FY18, nib began working toward more comprehensive
tracking and reporting of our environmental performance.
We are also investigating nib’s climate change stewardship,
with the assistance of the Carbon Disclosure Project’s
reporting framework. We will submit to the Project for the first
time in 2018.
We continue to provide opportunities for our employees to
participate in sustainable practices, including reducing paper
and waste, responsible recycling and transport programs such
as carpooling.
Connecting with and supporting others
in our communities
Through the nib foundation, which was established following
nib’s demutualisation and ASX-Listing we continue to harness
the power of our people, brands and resources to support
healthy communities and fantastic causes. In FY18, the
foundation aligned its focus to preventative health programs.
Almost half of all Australians live with a chronic health condition.
Nearly a third of this burden of disease is linked to preventable
risk factors, but only 1.5% of our national health spending is
allocated to prevention.
This year, the foundation’s Community Grants program funded
11 programs and its Multi-Year Partnerships continued to
tackle the health and wellbeing challenges facing Australians.
Since the foundation was established in 2008, it has donated
over $17 million to worthy organisations devoted to improving
the health of Australians.
Our World Nomads Group in association with the Footprints
Network continues to make a tangible difference to the lives of
people living in impoverished communities. More than 1.5 million
customers, making online micro donations, have raised almost
$4 million for 29 projects around the world since 2006, via the
Footprints Network.
This year also saw the exciting introduction of a corporate
volunteering program for nib employees, called nibGIVE.
The program, supported by the nib foundation, offers more
ways for our people to contribute to the community. In the first
six months, over 100 employees volunteered over 550 hours to
charities, worth around $20,000 of in-kind value.
Further nib sustainability information and downloads are
available at nib.com.au/shareholders.
1,323
employees across
8 countries
38
33%
years average
age of employees
female representation
executives
1.5m
members covered
$1.7b
paid in claims
28.7%
arhi NPS
Underwriting segments only.
Net claims incurred (excluding claims
handling), underwriting segments only.
Excludes GU Health.
EMPLOYEES
CUSTOMERS
10
OPERATING AND FINANCIAL REVIEW continuedfor the year ended 30 June 2018nib holdings limited 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
is available on our website at nib.com.au
Further to the Sustainability risks and approaches detailed in on page 9, principal risks and uncertainties for nib include:
Insurance risks
Claims inflation and affordability
Pricing risk
Government policies
and regulations
Financial risks
Investment and
capital management
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 members with high cost needs (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.
Additionally, members are increasingly facing household affordability pressures. If growth of
premiums over time were to be uncontrolled, it could result in a reduced value proposition
leading to significant numbers of policy holders reducing their cover.
Australian health insurance premium increases for existing products are 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. Furthermore, there are operational risks associated with pricing
and forecasting involving process, people and system. Control failures could negatively
impact pricing decisions, financial performance and regulations such ASX Continuous
Disclosure obligations.
A number of regulatory policy settings and incentives notably impact the Australian private
health insurance market. Examples include Federal or State Governments taxes and duties,
risk equalisation arrangements supporting the community rating principle, PHI Rebates and
Life Time Health Cover Loading. Unanticipated modifications to regulations in the future
may result in an adverse financial impact on nib and the structure of the wider private health
insurance industry.
A substantial proportion of nib’s profits are generated from its investment portfolio.
Consequently, investment performance significantly affects nib’s profits and financial
position. Effective management of investments and capital is required in order to meet
Return On Investment (ROI) objectives, nib’s prudential requirements and in order to satisfy
stakeholder expectations.
General economic conditions
nib’s performance is impacted by the broader Australian economic conditions such as
inflation, interest rates, exchange rates, credit markets, 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.
11
2018 ANNUAL REPORT PRINCIPAL RISKS AND UNCERTAINTIES continued
Strategic risks
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, World Nomads Group and Grand
United Corporate Health. 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.
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.
There is uncertainty surrounding events that have the potential to prevent nib from continuing
to operate its businesses and in the effectiveness of the processes nib has established
to manage those events. Impacts of events such as natural disasters or a major failure or
inadequacy in information technology systems, may have an adverse effect on nib’s earnings,
assets and reputation.
The health insurance industry relies increasingly on technology to conduct an efficient and
cost effective business. nib’s approach is also increasingly reliant on the personalisation of
our relationship with members using digital and data strategies. nib faces the risk, in common
with other participants, that a cyber-attack or major security incident could result in adverse
impacts to members, disruption to nib’s business continuity, non-compliance with regulations
and data standards and negative reputational effects.
nib is subject to a high degree of regulation concerning how private health insurers conduct
their health insurance business. If nib does not comply with its regulatory requirements, it may
suffer results including financial penalties, cancellation of authorisations and / or negative
reputational impacts. In terms of legal risk, 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 could have a material
adverse impact on nib’s financial position, earnings and share price.
nib is responsible for managing the physical and mental health and safety of employees and
the broader range of individuals that visit our premises or undertake work on our behalf.
Given the nature of our business and our physical work environment, the likelihood of death
or serious injury is rare. However if realised, a threat to the physical and mental/psychological
health and safety of employees could have a significant impact in terms of reputation,
employee morale, financial cost to the company and legal consequences.
Operational risks
Business continuity
Cyber Security
Regulatory compliance and
legal risks
Worker Health & Safety
12
OPERATING AND FINANCIAL REVIEW continuedfor the year ended 30 June 2018nib holdings limited FIVE YEAR SUMMARY
Consolidated Income Statement
Net premium revenue
Net claims incurred
Gross margin
Other underwriting revenue
Management expenses
Underwriting result
Other income
Other expenses
Share of net profit / (loss) of associates and joint
ventures
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
Weighted average number of shares – diluted
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
ROIC
Group underlying operating revenue
Operating cash flow
m
m
m
cps
cps
cps
$
cps
cps
%
%
%
$m
$m
2018
$m
2017
$m
2016
$m
2015
$m
2014
$m
2,162.6
(1,694.3)
1,943.1
(1,545.8)
1,818.7
(1,481.0)
468.3
3.0
(287.1)
184.2
69.5
(68.4)
(0.5)
184.8
(8.4)
(7.4)
169.0
(6.3)
29.6
192.3
(58.8)
133.5
397.3
1.0
(242.1)
156.2
60.4
(62.6)
(0.3)
153.7
(7.6)
4.5
150.6
(4.8)
28.6
174.4
(54.2)
120.2
337.7
–
(209.3)
128.4
54.4
(50.8)
–
132.0
(7.8)
(3.4)
120.8
(5.3)
16.9
132.4
(40.6)
91.8
1,447.5
557.8
230.6
1,136.1
427.6
153.2
1,045.6
386.1
151.9
454.8
450.6
450.6
29.4
29.4
31.9
5.73
20.00
0.00
68.5
68.5
439.0
439.0
439.0
27.2
27.2
27.7
5.75
19.00
0.00
70.0
70.0
439.0
439.0
439.0
21.2
21.2
22.9
4.22
14.75
0.00
70.0
70.0
1,634.9
(1,367.1)
267.8
–
(175.6)
1,491.6
(1,255.4)
236.2
–
(157.9)
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
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
19.5
2,235.1
179.9
22.7
2,004.5
171.7
19.0
1,873.1
148.4
20.1
1,639.3
114.2
17.9
1,497.3
93.7
13
2018 ANNUAL REPORT 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 2018.
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:
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 $50.0 million (11.0 cents per fully paid ordinary
share) to be paid on 5 October 2018 out of retained profits at
30 June 2018.
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
On 3 August 2018, nib announced that its subsidiary, World
Nomads Group, would acquire QBE’s travel insurance business
(QBE Travel), for a total consideration of up to $25.0 million.
QBE Travel is Australia’s fourth largest travel insurer and has an
extensive distribution network including partnerships with well-
known Australian brands, as well as a national network of more
than 2,000 travel insurance agents.
No other matter or circumstance has arisen since 30 June 2018
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.
Steve Crane
Lee Ausburn
Philip Gardner
Donal O’Dwyer
Mark Fitzgibbon
Anne Loveridge
Christine McLoughlin
Harold Bentley retired as a Director on 30 September 2017.
Jacqueline Chow was appointed as a Director on 5 April 2018.
PRINCIPAL ACTIVITIES
The principal activities of the nib Group during the financial year
were as a private health insurer in Australia and New Zealand,
whereby it underwrites and distributes private health insurance
to Australian and New Zealand residents as well as international
students and visitors to Australia. Through its World Nomads
Group business, it also specialises in the sale and distribution of
travel insurance policies globally.
During the year, the Group acquired specialist corporate private
health insurer GU Health.
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 3 to 13 of this
Annual Report.
SIGNIFICANT CHANGES IN THE STATE OF
AFFAIRS
There were no other significant changes in the state of affairs of
the Group during the financial year.
DIVIDENDS
Dividends paid to shareholders during the financial year were
as follows:
Final dividend for the year ended
30 June 2017 of 10.5 cents
(2016 – 9.0 cents) per fully paid
share paid on 6 October 2017
Interim dividend for the year
ended 30 June 2018 of 8.5 cents
(2017 – 8.5 cents) per fully paid
share paid on 3 April 2018
2018
$m
2017
$m
46.1
39.5
40.9
87.0
37.3
76.8
14
DIRECTORS’ REPORTfor the year ended 30 June 2018nib 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
BCom, FAICD, SF Fin
Chairman, Independent Non‑Executive Director
Experience and expertise
Mr Crane has been a Director of the Group since September 2010 and was appointed Chairman in
October 2011. He has approximately 40 years of financial market experience, as well as an extensive
background in publicly-listed companies. Mr Crane has expertise in developing and leading international
businesses, reviewing, scrutinising and implementing corporate strategy, people leadership, and
government interactions at senior levels. He was previously the Chief Executive of BZW Australia and
ABN AMRO.
Directorships of listed entities
Director of APA Group (since January 2011).
Other current directorships
Mr Crane’s other Directorships include Chairman of the Taronga Conservation Society Australia,
Chairman of Global Valve Technology Limited. He is also a consultant member of the Advisory Board
with Morgans Financial Ltd.
Former directorships of listed entities in the last 3 years
Director of Transfield Services Limited (Tenure: 7 years) and Bank of Queensland Limited
(Tenure: 7 years and 1 month).
Subsidiary boards and special responsibilities
Chairman of nib holdings limited, nib health funds limited and Grand United Corporate Health 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.
Directorships of listed entities
None.
Other current directorships
None.
Former directorships of listed entities in the last 3 years
None.
Subsidiary boards and special responsibilities
Managing Director of nib holdings limited. Director of nib health funds limited, Grand United 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, nib Asia Pty Ltd and World Nomads Group Pty Ltd. Mark is also a
member of the Nomination Committee.
Interests in shares and performance rights
Direct: 1,453,348 ordinary shares in nib holdings limited.
Indirect: 660,621 ordinary shares in nib holdings limited held by Fitzy (NSW) Pty Ltd.
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.
225,978 performance rights under FY17-FY20 Long Term Incentive Plan which may vest from
1 September 2020.
222,298 performance rights under FY18-FY21 Long Term Incentive Plan which may vest from
1 September 2021.
15
2018 ANNUAL REPORT INFORMATION ON DIRECTORS continued
Lee Ausburn
MPharm, BPharm,
Dip Hosp Pharm, FAICD
Independent Non‑Executive Director
Ms Ausburn has been a Director of the Group since November 2013. With more than 30 years in
leadership roles in the global pharmaceuticals industry, she is an experienced Non-Executive Director with
a wealth of knowledge of the international healthcare industry and has expertise in corporate strategy,
marketing and people and culture.
Directorships of listed entities
A Director of Australian Pharmaceutical Industries Ltd (since October 2008, also Chair of the Nomination
Committee and member of Audit and Risk Committee) and SomnoMed Ltd (since September 2011).
Other current directorships
None.
Former directorships of listed entities in the last 3 years
None.
Subsidiary boards and special responsibilities
A Director of nib health funds limited and Grand United Corporate Health 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 30,885 ordinary shares
in nib holdings limited held by MIML Pension Consolidator (Lee Ausburn).
Jacqueline Chow
BSc (Hons), MBA,
GAICD
Independent Non‑Executive Director
Experience and expertise
Jacqueline was appointed as an additional Director of the Group in April 2018 and will stand for election
at the 2018 Annual General Meeting. Jacqueline has more than 20 years’ experience working with global
blue-chip consumer product multinationals in a range of executive and non-executive positions in general
management, strategy, marketing as well as technology and innovation.
Directorships of listed entities
None.
Other current directorships
Ms Chow’s other directorships include Fisher & Paykel Appliances Ltd in New Zealand. She is also a
Senior Advisor at McKinsey & Company RTS.
Former directorships of listed entities in the last 3 years
None.
Subsidiary boards and special responsibilities
A Director of nib health funds limited and Grand United Corporate Health Limited. A member of
Nomination Committee, Audit Committee and People and Remuneration Committee.
Interests in shares and performance rights
Direct: 4,000 shares in nib holdings limited.
16
DIRECTORS’ REPORT continuedfor the year ended 30 June 2018nib holdings limited Philip Gardner
BCom, CPA, CCM,
FAICD, JP
Independent Non‑Executive Director
Experience and expertise
Mr Gardner has been a Director of the Group since 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 led
the Group’s significant growth and expansion. Mr Gardner has also developed extensive experience in
developing and implementing corporate strategy, interacting with government and influencing public policy
and marketing, branding and customer management strategies.
Anne Loveridge
BA (Hons), FCA, GAICD
Directorships of listed entities
None.
Other current directorships
None.
Former directorships of listed entities in the last 3 years
None.
Subsidiary boards and special responsibilities
A Director of nib health funds limited and Grand United Corporate Health Limited.
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
Ms Loveridge has been a Director of the Group since February 2017. Over 30 years’ experience in financial
services, risk management, regulatory reporting, and people leadership including senior positions at
PricewaterhouseCoopers (Australia).
Directorships of listed entities
Non-Executive Director of Platinum Asset Management Limited (since September 2016, also Chairman of
Audit, Risk & Compliance Committee), Non-Executive Director of National Australia Bank Limited (since
December 2015, also Chairman – Remuneration Committee).
Other current directorships
Ms Loveridge’s other directorships include Chairman of Bell Shakespeare Limited.
Former directorships of listed entities in the last 3 years
None.
Subsidiary boards and special responsibilities
A Director of nib health funds limited and Grand United Corporate Health Limited. Chairman of the Audit
Committee and member of the Risk and Reputation Committee, Nomination Committee and Investment
Committee. She is also Chairman of nib nz holdings limited’s Audit Committee and nib nz limited’s Board,
Audit, Risk and Compliance Committee (BARCC).
Interests in shares and performance rights
Direct: 23,885 ordinary shares in nib holdings limited.
17
2018 ANNUAL REPORT INFORMATION ON DIRECTORS continued
Christine McLoughlin
BA, LLB (Hons), FAICD
Donal O’Dwyer
MBA, BE
Independent Non‑Executive Director
Experience and expertise
Ms McLoughlin has been a Director of the Group since 20 March 2011. Prior to becoming a professional
director, Ms McLoughlin had a range of executive roles in the financial services, telecommunications and
professional services sectors. Her work in leading companies with iconic brands included leadership roles
spanning Australia, UK and South East Asia.
Directorships of listed entities
Non-Executive Director of Suncorp Group Limited (since February 2015, also Chairman of the
Remuneration Committee and member of the Risk Committee).
Other current directorships
Ms McLoughlin’s other directorships include Chairman of Venues NSW. She is also a member of ASIC’s
Director Advisory Panel.
Former directorships of listed entities in the last 3 years
Director of Spark Infrastructure Group (October 2014 to October 2017) and Whitehaven Coal Limited (May
2012 to February 2018). Chairman of Australian Payments Council.
Subsidiary boards and special responsibilities
A Director of nib health funds limited and Grand United Corporate Health Limited.
Chairman of Risk and Reputation Committee and a member of the Audit and Nomination Committees.
Interests in shares and performance rights
Indirect: 110,885 shares in nib holdings limited held by Dundas Street Investments Pty Ltd.
Independent Non‑Executive Director
Experience and expertise
Mr O’Dwyer has been a Director of the Group since March 2016. He is a highly experienced Non-
Executive Director and former executive as the worldwide President at Cordis Cardiology (a Johnson
& Johnson company) and President of the Cardiovascular Group, Europe with Baxter Healthcare (now
Edwards Lifesciences). Mr O’Dwyer has broad international business experience in the healthcare
technology sector and particular expertise in driving innovation and business growth through existing and
emerging technology.
Directorships of listed entities
Chairman of AtCor Medical Holdings Limited (Director since September 2004, Chairman since
November 2004. Member of the Audit & Risk and Remuneration & Nomination Committees). A Director
of Cochlear Ltd (since August 2005, member of the Audit, Medical Science, Nomination and Technology
and Innovation Committees), Mesoblast Ltd (since September 2004) and Fisher & Paykel Healthcare
Corporation Ltd (since December 2012) (listed on NZ Stock Exchange).
Other current directorships
Mr O’Dwyer’s other directorships include Endoluminal Sciences Pty Limited
Former directorships of listed entities in the last 3 years
None.
Subsidiary boards and special responsibilities
A Director of nib health funds limited and Grand United Corporate Health Limited. A member of the
Risk and Reputation Committee, Investment Committee, People and Remuneration Committee and
Nomination Committee.
Interests in shares and performance rights
Indirect: 41,485 shares in nib holdings limited held by Dundrum Investments Pty Ltd.
18
DIRECTORS’ REPORT continuedfor the year ended 30 June 2018nib holdings limited Harold Bentley
MA Hons, FCA, FCSA,
FGIA
Independent Non‑Executive Director until 30 September 2017
Experience and expertise
Mr Bentley was a Director of the Group from November 2007 to September 2017. 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.
Directorships of other listed entities
None.
Other current directorships
None.
Former directorships of listed entities in the last 3 years
None.
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: 50,000 ordinary shares in nib holdings limited held by Sushi Sake Pty Ltd as at the date of
Mr Bentley’s retirement on 30 September 2017.
COMPANY SECRETARIES
Ms Roslyn Toms (LLB (UNSW), BA Comms (Hons) (UCAN/UTS)) was appointed Company Secretary on 29 April 2013. Ms Toms is also
Group Executive – Legal and Chief Risk Officer and is responsible for managing legal, risk, compliance and governance across the
nib group businesses in Australia and its global operations. Ms Toms has over 15 years’ experience in-house and in private practice
and is a member of the Law Society of NSW and the Governance Institute.
Mr Jordan French (BSc (Hons) LLB (Macquarie)) was appointed Company Secretary on 15 August 2017. Mr French also acts in the
role of Senior Corporate Counsel for the nib Group, as well as the Company Secretary for nib foundation Ltd.
Mrs McPherson resigned from her position as Company Secretary effective 15 August 2017.
19
2018 ANNUAL REPORT 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 2018, and the numbers of meetings attended by each Director are noted below:
Name
S Crane
M Fitzgibbon
L Ausburn
H Bentley1
J Chow2
P Gardner
A Loveridge3
C McLoughlin
D O’Dwyer4
Board
Audit
Committee
Risk and Reputation
Committee
People and
Remuneration
Committee
Investment
Committee
Nomination
Committee
Held5
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
17
17
17
6
5
17
17
17
17
17
17
17
6
5
17
15
16
17
8
8
8
3
–
8
8
8
8
8*
8*
8*
3
–
8
8
8
8*
5
5
5
2
–
5
5
5
5
4*
5*
5
2
–
4*
5
5
5
6
6
6
3
1
6
6
6
6
5*
6*
6
1*
1
6
5*
4*
6*
5
5
5
2
–
5
5
5
1
–
4*
1*
2
–
5
4
–
1
2
2
2
1
1
2
2
2
2
2
2
2
1
–
2
2
2
2
* Director not a member of the stated Committee as at the date of the relevant meeting(s). Attendance by non-members is optional, and any attendance is in an ex-officio capacity.
1. H Bentley retired as a Director on 30 September 2017. The stated number of meetings held for Mr Bentley are those that were convened during the term of his appointment.
2. J Chow commenced as a director on 5 April 2018, and was appointed a member of the People and Remuneration Committee. On 25 May 2018, Ms Chow was appointed as a
member of the Audit Committee. The stated number of meetings held for Ms Chow are those that were convened during the term of her appointment.
3. A Loveridge was appointed as Chairman of the Audit Committee and a member of the Investment Committee from 1 October 2017.
4. D O’Dwyer was appointed a member of the Investment Committee on 26 April 2018. The stated number of meetings held for the Investment Committee for Mr O’Dwyer are those
that were convened during the term of his appointment to that Committee.
5. Includes six unscheduled board meetings called at short notice.
nib’s Non-Executive Directors participated in a number of site visits, work related functions and staff events during the course of the
year including Newcastle, Sydney, Auckland, Manila, San Francisco, Cork and China.
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 3 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 24 to 43 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.
20
DIRECTORS’ REPORT continuedfor the year ended 30 June 2018nib holdings limited 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
22 December 2014
13 May 2015
18 January 2016
23 September 2016
5 December 2016
24 October 2017
15 December 2017
1 September 2018
1 September 2018
1 September 2019
1 September 2019
1 September 2020
1 September 2020
1 September 2021
nil
nil
nil
nil
nil
nil
nil
473,927
22,956
628,895
14,099
591,224
6,530
644,023
Shares may be issued or acquired on-market at the election of the Company. It is anticipated that 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.
NON-AUDIT SERVICES
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise
and experience with the Group are important.
Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services during the year are
disclosed in Note 31 – Remuneration of Auditors.
The Board of Directors has considered the position and, in accordance with advice received from the Audit Committee, is satisfied
that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out 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.
21
2018 ANNUAL REPORT AUDITOR’S INDEPENDENCE DECLARATION
A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 23.
CHIEF EXECUTIVE OFFICER/CHIEF FINANCIAL OFFICER DECLARATION
The Chief Executive Officer and the Chief Financial Officer have given the declarations to the Board concerning the Group’s financial
statements required under section 295A(2) of the Corporations Act 2001 and Recommendation 7.3 of the ASX Corporate Governance
Council’s Corporate Governance Principles and Recommendations.
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 hundred 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
17 August 2018
Anne Loveridge
Director
22
DIRECTORS’ REPORT continuedfor the year ended 30 June 2018nib holdings limited
Auditor’s Independence Declaration
As lead auditor for the audit of nib holdings limited for the year ended 30 June 2018, 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
17 August 2018
PricewaterhouseCoopers, ABN 52 780 433 757
Level 3, 45 Watt Street, PO Box 798, NEWCASTLE NSW 2300
T: +61 2 4925 1100, F: +61 2 4925 1199, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
22
23
AUDITOR’S INDEPENDENCE DECLARATIONfor the year ended 30 June 20182018 ANNUAL REPORT
MESSAGE FROM THE BOARD
Dear Shareholder
We are pleased to present our Remuneration Report for the financial year to 30 June 2018 (FY18).
As many of you know, last November we celebrated nib’s 10-year ASX-listing anniversary; a significant milestone for a company that
began operations more than 65-years ago as a small, sick and accident hospital fund for workers at Newcastle’s BHP steelworks.
It has been a big decade since we transformed into a listed entity. During this time, our well-defined business strategy, coupled with
a focus on delivering great value products and world-class service to our members, has delivered outstanding results and created
significant value for our almost 145,000 shareholders. Since listing, our Total Shareholder Return has been 1,200%1 compared to
50% for the ASX 200, while our market capitalisation has grown from $440 million to $2.6 billion today.
To mark this major milestone, and recognise the significant contribution of our people to our success, every eligible nib employee
across the Group was given $1,000 worth of nib shares during the year.
The growth and diversification of nib during this time has also driven a lot of change, particularly for our people. We’ve expanded
beyond our Hunter roots to have over 1,300 employees operating in eight countries around the world. During the year, our Directors
spent considerable time getting around the business to see our operations and meet our people, as well as engaging with them in a
range of activities such as diversity events and nib awards functions. We feel this is a great way for Directors to get a feel for the pulse
of the organisation.
As a Board we’re proud of the growth and progress of our company. It is a credit to nib’s senior management team that we have
created a culture which:
• admires and supports intellectual rigour;
• places a high value on educational and professional development;
• welcomes diversity of thought;
• embraces innovation;
• understands that being an employer of choice reflects the benefits, engagement and recognition we offer our employees;
•
is aligned to our organisational values;
• and puts the member at the heart of everything we do.
As Chair of our People and Remuneration Committee, I’m also mindful of how our remuneration and executive reward strategy keeps
pace with our overall business strategy and growth aspirations, and that we continue to attract, motivate and retain the right people to
lead the nib Group into the future.
Our approach to remuneration is simple and remains unchanged:
1. our philosophy needs to be fit for purpose and aligned to our organisational strategy;
2. our shareholders need to understand what we pay our people and they need to know how performance is measured and rewarded
– transparency is key; and
3. remuneration must be linked to short and long-term shareholder value creation, the two are inextricably linked.
Consistent with our approach in previous years, we remain actively engaged and regularly consult with a range of key interest groups
including shareholders, proxy advisors and other representative groups such as the Australian Shareholders’ Association.
At last year’s Annual General Meeting, our shareholders again voted overwhelmingly in favour of our Remuneration Report. We take
from this that our shareholders think that our remuneration and executive reward strategy is aligned to their own interests.
Our remuneration framework, which remains unchanged, is reflected in the Remuneration Report for FY18. Further information
regarding our Executive remuneration, as well as the total remuneration mix and performance against both short and long-term
incentive hurdles for FY18, can be found on pages 32 to 34 of the Annual Report.
1. Source: Bloomberg as at 30 June 2018. nib’s total shareholder return represents the simple return over the holding period due to the change in the share price plus dividends
re-invested on the ex-dividend date
24
REMUNERATION REPORTfor the year ended 30 June 2018nib holdings limited As we have stated previously, both in consultations with key stakeholders and in past Remuneration Reports, the Board’s aim has
been to position the fixed remuneration of our Executive team between the 50th and 75th percentile of benchmarked companies.
We recently engaged specialist firm, EY, to undertake a remuneration benchmarking analysis. Given the significant growth of nib since
the previous analysis in 2016, the Committee also looked to redefine our peer group of companies (refer to page 28 for further details).
The People and Remuneration Committee used the benchmarking analysis together with a range of other factors and supplementary
data, to inform our FY19 remuneration review. As a result of this process, the Managing Director/Chief Executive Officer’s FY19
Total Fixed Remuneration will increase by 7%, which is consistent with the Board’s aim to target the 50th and 75th percentile of
benchmarked companies.
As part of our annual remuneration review, we have also made changes to improve and strengthen the process of granting the variable
remuneration component for each of our Executives, such as STI and LTI Awards. These changes, which are effective for Awards
relating to the FY18 performance period, require the Board to ensure any governance, adverse risk taking, or audit issues are factored
into the quantum of any payment to each Executive.
Succession planning and ensuring we have the right skills mix, diversity and experience both at a Board and senior management level
remain a priority for the business. As the Chairman has previously touched on in his year in review, Non-Executive Director, Philip
Gardner announced his retirement from the nib Board during the year. Philip has been a trusted and invaluable member of our People
and Remuneration Committee for more than 4 years and has played a pivotal and guiding role in helping shape our organisation’s
approach to people and remuneration. We’re fortunate that Jacqueline Chow who was recently appointment as a Non-Executive
Director and is a very experienced and professional Director, has joined the People and Remuneration Committee following Philip’s
retirement announced this year.
To position nib for ongoing growth and success in the years ahead, we’ll continue to focus on ensuring we have an appropriate
remuneration framework and executive reward strategy that is aligned to the nib Group strategy. We must have the right skills mix,
experience, diversity and capacity to position nib for future growth and success.
As always, we welcome your feedback on our 2018 Remuneration Report.
Yours sincerely
Lee Ausburn
Chairman
People and Remuneration Committee
25
2018 ANNUAL REPORT CONTENTS
Key terms used in this Report
Who this Report covers
Our remuneration governance
Executive remuneration structure
Executive remuneration mix
Executive remuneration mix – fixed remuneration
Executive remuneration mix – variable remuneration
Executive remuneration for the Financial Year ended 30 June 2018
Linking Remuneration with Performance
Executive Employment Conditions
Non-Executive Director remuneration
Detailed disclosure of Executive remuneration
Detailed disclosure of Non-Executive remuneration
Equity instruments held by key management personnel
26
27
28
29
29
30
30
32
35
36
37
39
40
41
KEY TERMS USED IN THIS REPORT
FY17
FY18
FY19
AGM
Financial year ended 30 June 2017
Financial year ended 30 June 2018
Financial year ended 30 June 2019
Annual General Meeting
Group
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
KMP
KPI
LTI
LTIP
NPAT
STI
TFR
TSR
26
REMUNERATION REPORT continuedfor the year ended 30 June 2018nib holdings limited 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
Rob Hennin
David Kan
Chief Executive Officer – New Zealand (CEO NZ)
Group Executive International and New Business (GEINB)
Wendy Lenton
Group Executive People and Culture (GEPC) (appointed 28 August 2017)
Rhod McKensey
Group Executive Australian Residents Health Insurance (GEARHI)
Michelle McPherson
Deputy Chief Executive Officer/Chief Financial Officer (DCEO/CFO)
Brendan Mills
Chief Information Officer (CIO)
Roslyn Toms
Group Executive Legal and Chief Risk Officer (GELCRO)
Justin Vaughan
Group Executive Benefits and Provider Relations (GEBPR)
Independent Non-Executive Directors
Steve Crane
Lee Ausburn
Harold Bentley
Jacqueline Chow
Philip Gardner
Anne Loveridge
Chairman
Chairman People and Remuneration Committee
Member Risk and Reputation Committee
Chairman Audit Committee (until 30 September 2017)
Chairman Board, Audit, Risk and Compliance Committee New Zealand (until 30 September 2017)
Director New Zealand subsidiaries (until 30 September 2017)
Member Investment Committee (until 30 September 2017)
Member Risk and Reputation Committee (until 30 September 2017)
Member People and Remuneration Committee (appointed 5 April 2018)
Member Audit Committee (appointed 25 May 2018)
Chairman Investment Committee
Member Audit Committee
Member People and Remuneration Committee
Chair of Audit Committee (appointed 1 October 2017) and member of Audit Committee
(until 30 September 2017)
Chairman Board, Audit, Risk and Compliance Committee New Zealand (appointed 1 October 2017)
Director New Zealand subsidiaries (appointed 1 October 2017)
Member Risk and Reputation Committee
Member Investment Committee (appointed 1 October 2017)
Christine McLoughlin
Chair of Risk and Reputation Committee
Member Audit Committee
Donal O’Dwyer
Member People and Remuneration Committee
Member Risk and Reputation Committee
Member Investment Committee (appointed 26 April 2018)
27
2018 ANNUAL REPORT OUR REMUNERATION GOVERNANCE
The role of our People and Remuneration Committee (Committee) is to ensure alignment of nib’s remuneration framework and
executive reward strategy to the short-term and long-term performance of the nib Group. As part of this process the Committee
seeks advice and feedback from a range of external remuneration consultants, specialists, major shareholders and shareholder
advisory groups.
When assessing our remuneration framework the Committee ensures there is a clear link to nib’s culture, values and business strategy,
diversity, people and development strategy, succession planning and employee development and engagement. The Committee
includes the following independent Non-Executive Directors:
Lee Ausburn (Chairman)
Jacqueline Chow
Philip Gardner
Donal O’Dywer
Shareholders can view the Committee Charter on the nib website (nib.com.au/shareholders).
Our Executive remuneration arrangements are set against a comparator group of listed organisations or peers, which nib determines in
consultation with external remuneration advisors. The Board’s aim is to position the fixed remuneration of our Executive team between
the 50th and 75th percentile of benchmarked companies. In February 2018, EY provided remuneration data, which the Committee
used together with a range of other factors and supplementary data, such as the ongoing growth of the company and external
competitive landscape, to inform our FY19 and FY20 analysis.
As part of the benchmarking analysis the Committee also looked to redefine our peer companies, given the significant growth of nib
since the previous analysis in 2016. The companies which make up our peer group include the following sectors and industries:
• Australian market capitalisation comparator group (all roles except nib New Zealand Chief Executive Officer): this includes ASX200
companies within 50%-200% of nib’s market capitalisation (using one-month average market capitalisation to 30 November 2017).
• Australian industry-based comparator group (All roles): This includes selected ASX200 financial services and health care companies
as well as relevant unlisted health care companies (where data is available).
• New Zealand industry-based comparator group (nib New Zealand Chief Executive Officer only): both listed and unlisted financial
services companies in New Zealand.
At the forefront of the Committee’s approach to setting our remuneration framework and Executive reward strategy, is to ensure
alignment with shareholder interests. As our shareholders have seen, the remuneration paid to our Executives has increased
over time; pleasingly however, this has been in parallel with the significant creation of shareholder value. This is shown in our
Managing Director/CEO’s Total Fixed Remuneration (TFR), which has increased 55% over the past five years. Over the same five-year
period our revenue has grown 73%, underlying operating profit has risen 145%, total shareholder return1 has been 234% compared to
64% for S&P/ASX 200 companies, market capitalisation has increased from approximately $944 million to more than $2.6 billion and
our arhi net promoter score has risen from 16.9% to 28.7%.2
1. Source: Bloomberg. Total shareholder return represents the simple return over the holding period due to the change in the share price plus dividends re-invested on the
ex-dividend date.
2. Excludes GU Health
28
REMUNERATION REPORT continuedfor the year ended 30 June 2018nib holdings limited EXECUTIVE REMUNERATION STRUCTURE
nib’s remuneration framework and executive reward strategy provides a mix of fixed and variable remuneration with a blend of short
and long-term incentives. There are three components to total remuneration:
• fixed remuneration, comprising base remuneration package, superannuation and insurance cover;
• short-term incentives based on pre-determined Key Performance Indicator (KPI) targets established by the Board as well as
individual and leadership assessment; and
•
longer-term incentives based on pre-determined Total Shareholder Return (TSR) and Earnings Per Share (EPS) performance
established by the Board.
A significant portion of remuneration for our Executives is performance-based through Short Term Incentives (STI) and Long Term
Incentives (LTI) arrangements. In the case of our Managing Director/CEO 72% of his FY18 Remuneration mix was performance based.
From FY18, all Executives’ performance-based incentives have claw-back arrangements and a malus condition included by way of
amendment to the STI and LTI Plan Rules.
If the Board becomes aware of a material misstatement of our financial accounts or statements, and nib has awarded an Executive an
incentive payment or award, short or long-term, having regard to misstatement, the Board may (in its absolute discretion), require the
Executive to:
• repay the Company, short or long term incentive received by the Managing Director/CEO and Chief Financial Officer/Deputy Chief
Executive Officer; or
• forfeit or cancel any, short or long-term award (vested or unvested).
During the year the Board put in place changes to improve and strengthen the process when granting variable remuneration
component for Executives, such as STI and LTI Awards. These changes, which are effective for Awards relating to the FY18
performance period, require the Board to ensure any governance, adverse risk taking, or audit issues are factored into the quantum of
any payments to each Executive.
EXECUTIVE REMUNERATION MIX
The remuneration structure for each executive is made up of the following components:
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 graph below illustrates the FY18 remuneration mix for our Executives. Any variations in target remuneration mix between
executive roles reflect position responsibilities. As can be seen from the graph a large portion of Executive remuneration is “at risk”
and subject to meeting performance hurdles as set out through the STI and LTI for each Executive.
=
Deferred into shares (50%)
1 year deferral (50%)
Total potential STI
Cash (50%)
36%
25%
25%
25%
2 year deferral (50%)
24%
24%
Variable (Determined by a mixture of financial, non-financial and individual performance outcomes)
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
%
18%
17%
17%
17%
17%
17%
17%
LTI issue of Rights
18%
4 year performance period
28%
41%
41%
41%
14%
14%
14%
14%
Tranche 1 (50%): TSR
Tranche 2 (50%): EPS
48%
48%
24%
14%
14%
=
48%
24%
14%
14%
24%
14%
14%
LTI awarded
With 50% of total award
having 2 years escrow period
48%
48%
MD/CEO
DCEO/CFO
GEARHI
CEO NZ
CIO
GEBPR
GELCRO
GEPC
GEINB
Longer-term performance incentives opportunity
Short-term performance incentives – deferred into shares
Short-term performance incentives opportunity – cash
Base remuneration package and benefits
29
2018 ANNUAL REPORT
EXECUTIVE REMUNERATION MIX – 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.
Total fixed remuneration
(cash salary, superannuation,
plus insurance cover)
+
Short-term incentive (STI)
being cash and
deferral into shares
EXECUTIVE REMUNERATION MIX – VARIABLE REMUNERATION
Long-term incentive (LTI)
being
performance rights
+
Short-term incentives (STI)
Fixed
Variable
nib’s short-term incentive (STI) plan for each Executive is structured as follows.
Cash (50%)
Deferred into shares (50%)
1 year deferral (50%)
2 year deferral (50%)
Variable (Determined by a mixture of financial, non-financial and individual performance outcomes)
Performance criteria for STI is based on two components:
=
=
Total potential reward
Total potential STI
1. Individual and leadership assessment, which makes up 20% of the total STI. The individual and leadership component ensures we
continue to focus and recognise the contribution of our Executives in developing a high performance organisational culture and
seek a balance between the financial and non-financial performance of our business. The leadership component for the MD/CEO
With 50% of total award
having 2 years escrow period
is assessed as part of an annual performance review by the Board, factors which are considered include:
4 year performance period
Tranche 1 (50%): TSR
Tranche 2 (50%): EPS
LTI issue of Rights
LTI awarded
=
• Leadership
• Strategic planning
• Shareholder return
• Member/Customer satisfaction
• Operations and people
• Financial management
• Board relations
• Public image and professional development
The Board also takes into account the MD/CEO’s progress in achieving the various goals set out in nib’s strategic plan.
In determining the leadership component for other members of the Executive team, the MD/CEO provides a detailed assessment
of each Executive’s progress and achievements in relation to their individual performance plans for the year. The individual’s
performance plans are based upon nib’s strategic plan and reflect their primary accountability. The Board considers and determines
the leadership component for each Executive based upon the MD/CEO’s recommendations.
2. Performance assessment that makes up 80% of the total STI. The performance component is assessed against predetermined
financial and non-financial performance milestones for each Executive and is weighted accordingly (for FY18 this is set out on Page
32). In some instances an Executive’s STI assessment may also include strategic milestones.
The Board is responsible for assessing the performance of the MD/CEO and the MD/CEO is responsible for assessing the
performance of the other Executives (with approval of the resulting STI awards by the Board following a recommendation from
the Committee).
The actual level of STI paid to each Executive is determined at the end of the financial year based on the Executive’s achievement of
pre-determined performance milestones and an annual performance review.
30
REMUNERATION REPORT continuedfor the year ended 30 June 2018nib holdings limited 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
Fixed
Variable
Cash (50%)
Deferred into shares (50%)
1 year deferral (50%)
2 year deferral (50%)
Long-term incentives (LTI)
Variable (Determined by a mixture of financial, non-financial and individual performance outcomes)
nib’s long-term incentive (LTI) plan for each executive is structured as follows.
LTI issue of Rights
4 year performance period
Tranche 1 (50%): TSR
Tranche 2 (50%): EPS
=
=
=
Total potential reward
Total potential STI
LTI awarded
With 50% of total award
having 2 years 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.
LTI participants are granted performance rights that enable the Executive to acquire shares in nib for nil consideration if performance
conditions are met and the Executive is 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;
• on cessation of employment for other reasons (including total and permanent disablement, redundancy and retirement); or
• 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 are 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. The Board’s view is
that our current LTI performance hurdles being EPS and 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 shareholders’ interests.
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.
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.
31
2018 ANNUAL REPORT EXECUTIVE REMUNERATION FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018
Actual remuneration for each Executive in FY18 included a fixed component, as well as a variable or at risk component, made up of an
STI payment and LTI award.
A full breakdown of executive remuneration details has been prepared in accordance with statutory requirements and accounting
standards. This detailed disclosure (statutory tables) is located on page 39 of this Report.
The table below shows the key elements of total reward for each Executive for FY18. This includes the STI cash component paid to
each Executive in 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 FY18 and which was originally reported under accounting standards in the year they were granted.
Mark Fitzgibbon
Rob Hennin
David Kan
Wendy Lenton
Rhod McKensey
Michelle McPherson
Brendan Mills
Roslyn Toms
Justin Vaughan
STI applicable to the FY17 year paid in
Sept 2017 (FY18)2
Total fixed
remuneration1
$
1,042,400
423,221
515,000
336,193
597,400
612,800
367,701
351,748
360,500
Cash
$
493,350
109,319
135,000
–
160,950
161,245
96,390
52,966
102,375
Shares held
in escrow
$
LTI vested
in FY183
$
Total reward
(received or
available)
$
493,350
107,730
135,000
–
160,950
161,245
96,390
16,203
102,375
1,601,429
3,630,529
335,253
–
–
464,643
520,930
193,141
–
154,641
975,523
785,000
336,193
1,383,943
1,456,220
753,622
420,917
719,891
4,606,963
1,311,595
1,273,243
3,270,037
10,461,838
1. Total fixed remuneration comprises Cash salaries and fees and superannuation.
2. FY17 STI paid in the FY18 year.
3. Value of shares issued during the year on exercise of performance rights.
Short-term incentives for the financial year ended 30 June 2018
The specific KPIs and weighting for FY18 for our Managing Director and CFO which constitutes 80% of their total STI are:
KPI Weighting
Growth
Group underlying operating revenue
Profitability
Group underlying operating profit
Underlying EPS
Cost control
Mark Fitzgibbon
(MD/CEO)
Michelle
McPherson
(CFO/DCEO)
20%
40%
20%
–
40%
20%
Group underlying 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. Due to the commercial and strategic nature of the STI targets for our other Executives, nib does
not disclose the specific KPIs for these key management personal.
Each Executive has a target STI opportunity. For FY18, 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 risk of forfeiture during the deferral period
under bad leaver and clawback conditions.
32
REMUNERATION REPORT continuedfor the year ended 30 June 2018nib holdings limited Actual FY18 STIs awarded and forfeited (as a percentage of total STI) for each Executive are set out below. A more detailed
description of performance against STI performance hurdles is shown on page 35.
Mark Fitzgibbon1
Rob Hennin1
David Kan1
Wendy Lenton
Rhod McKensey1
Michelle McPherson1
Brendan Mills1
Roslyn Toms1
Justin Vaughan
Group average
FY18 STI Bonus
FY17 STI Bonus
Awarded
Forfeited
Awarded
Forfeited
%
%
%
%
91.5%
90.2%
80.3%
84.0%
90.6%
83.5%
81.7%
81.2%
90.8%
86.0%
8.5%
9.8%
19.7%
16.0%
9.4%
16.5%
18.3%
18.8%
9.2%
14.0%
97.5%
89.8%
90.0%
na
92.5%
90.3%
90.0%
92.3%
97.5%
92.5%
2.5%
10.2%
10.0%
na
7.5%
9.7%
10.0%
7.7%
2.5%
7.5%
1. The above FY18 STI awarded percentages do not reflect the impact miscalculation made in the 2016 and 2017 STI allocations (refer to page 39 ).
Long-term incentives for the financial year ended 30 June 2018
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) – 100% vesting
For the four year performance period ended 30 June 2018, nib’s TSR was ranked at the 80th percentile to our peer group (S&P/ASX 200).
As per the TSR vesting conditions for the FY15-FY18 LTI (as set out below) this translates to a 100% vesting of the performance rights for
tranche 1.
nib’s TSR performance compared to the relevant peer group
Performance of Tranche 1 performance rights vesting
>= 75th percentile
100%
>= 50th percentile to 74th percentile
Pro-rata straight line vesting between 50% and 100%
< 50th percentile
0%
33
2018 ANNUAL REPORT EXECUTIVE REMUNERATION FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 continued
Long-term incentives for the financial year ended 30 June 2018 continued
%
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
600
500
400
300
200
100
0
NIB 94.19%
80th Percentile
10987654321
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
Company Number
Source: IRESS (as at 30 June 2018)
EPS Hurdle (Tranche 2) – 100% vesting
For the 12 months to 30 June 2018 nib’s EPS was 29.4cps. As per the EPS vesting conditions for the FY15-FY18 LTI (as set out
below) this translates to EPS CAGR of 26.1% from the base EPS of 15.9cps and 100% vesting of the performance rights for
tranche 2.
Percentage of performance rights vesting
100%
75%
50%
25%
0%
FY15-FY18 LTIP
15.9 cps
22.4 cps
20.8 cps
19.7 cps
18.6 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%
34
REMUNERATION REPORT continuedfor the year ended 30 June 2018nib holdings limited
LINKING REMUNERATION WITH PERFORMANCE
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 which are dependent and assessed on
their segment and area of responsibility.
The following table shows key performance indicators for the Group over the last five years:
Financial results
Growth
FY18
$m
FY17
$m
FY16
$m
FY15
$m
FY14
$m
Group underlying operating revenue
2,235.1
2,004.5
1,873.1
1,639.3
1,497.3
Profitability
nib Group underlying operating profit
Underlying EPS
Cost Control
Group underlying management expense ratio
excluding acquisition costs
cps
184.8
31.9
153.7
27.7
132.0
22.9
88.0
18.3
77.3
16.8
%
6.1
6.6
6.3
5.9
6.0
Results against KPIs (excluding leadership component) are detailed in the table below.
KPI
Growth
Result
Group underlying operating revenue
Group underlying operating revenue is up 11.5% to $2.2 billion, with approximately 47% of
maximum STI awarded for this target.
Profitability
nib Group underlying operating profit
Group underlying operating profit is up 20.2% to $184.8 million, with 100% of maximum STI
awarded for this target.
Underlying EPS
Underlying EPS of 31.9cps up 14.8%, with 100% of maximum STI awarded for this target.
Cost control
Group underlying management expense
ratio excluding acquisition costs
Approximately 30% of maximum STI awarded for this target.
Customer satisfaction
arhi customer satisfaction
A range metrics are used to measure customer satisfaction, including NPS which resulted in
100% of maximum STI awarded for this target.
35
2018 ANNUAL REPORT
EXECUTIVE EMPLOYMENT CONDITIONS
Executive contracts summarise employment terms and conditions, including remuneration arrangements and compensation.
A significant portion of remuneration for our Executives is performance based through STI and LTI arrangements. Executives have
claw-back arrangements and a malus condition in place for performance-based remuneration such as STI and LTI received.
The table below provides a summary of the agreements.
Service agreement effective
Term of agreement
Termination provision
Mark Fitzgibbon (MD/CEO)
1 July 2010
Open contract with notice period
Rob Hennin (CEO NZ)
6 May 2013
Open contract with notice period
David Kan (GEINB)
19 December 2014
Open contract with notice period
Wendy Lenton (GEPC)
28 August 2017
Open contract with notice period
Rhod McKensey (GEARHI)
1 July 2014
Open contract with notice period
Michelle McPherson (CFO/DCEO)
1 July 2010
Open contract with notice period
Brendan Mills (CIO)
1 June 2012
Open contract with notice period
The agreement may be
terminated early by nib giving
notice with immediate effect or
by the relevant Executive giving
three months notice.
Roslyn Toms (GELCRO)
1 May 2017
Open contract with notice period
Justin Vaughan (GEBPR)
1 August 2013
Open contract with notice period
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 that 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).
Minimum shareholding requirements
While nib does not set minimum shareholding requirements on our Executives, the Board’s view is that the deferral arrangements
under the STI and LTI means all Executives have an appropriate minimum equity holding.
36
REMUNERATION REPORT continuedfor the year ended 30 June 2018nib holdings limited 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.
Non-Executive Director fees
Our Non-Executive Directors are paid a base fee and an additional fee for being members of other nib Board Committees.
Non-Executive Director fees are reviewed annually by the Committee and approved by the Board.
In 2018, nib engaged the services of Ernst & Young (EY) to conduct a benchmarking and market remuneration analysis, which the
Committee used together with a range of other factors and supplementary data to inform our FY19 and FY20 analysis.
Non-Executive Director fees are determined within the $1.9 million aggregate nib Directors’ fee pool limit. This includes Non-Executive
Directors on the nib holdings limited Board, our nib New Zealand subsidiary, as well as our World Nomads Group business. 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 current aggregate fee pool was set at the AGM in November 2017.
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
* The Chairman of the Board does not receive additional fees for involvement in committees.
2018
$
2017
$
300,000
124,400
278,300
120,750
31,950
12,900
17,500
10,300
25,750
12,900
25,750
12,900
–
–
31,000
12,500
17,000
10,000
25,000
12,500
25,000
12,500
–
–
37
2018 ANNUAL REPORT NON-EXECUTIVE DIRECTOR REMUNERATION continued
Non-Executive Director fees continued
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
2018
$
2017
$
71,610
39,500
9,600
–
73,355
38,306
9,318
–
Principle 2 of nib’s Corporate Governance Statement (which is available at ww.nib.com.au/shareholders/company-profile/corporate-
governance) includes the committee membership of each of nib’s NEDs (Non-Executive Directors).
Minimum shareholding requirements
nib requires all Non-Executive Directors (nib holdings limited only) 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 (nib holdings limited) comply with this requirement as at 30 June 2018.
38
REMUNERATION REPORT continuedfor the year ended 30 June 2018nib holdings limited s
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D
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g
d
i
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v
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L
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n
n
A
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e
n
d
r
a
G
p
i
l
i
h
P
s
r
o
t
c
e
r
i
D
e
v
i
t
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e
x
E
-
n
o
N
e
n
a
r
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v
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t
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n
r
u
b
s
u
A
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e
L
8
1
0
2
)
6
1
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9
/
8
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l
i
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(
s
r
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h
t
u
r
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)
7
1
0
2
/
2
/
0
2
m
o
r
f
(
e
g
d
i
r
e
v
o
L
e
n
n
A
r
e
n
d
r
a
G
p
i
l
i
h
P
n
i
l
h
g
u
o
L
c
M
e
n
i
t
s
i
r
h
C
r
e
w
y
D
O
’
l
a
n
o
D
e
n
a
r
C
e
v
e
t
S
n
r
u
b
s
u
A
e
e
L
y
e
l
t
n
e
B
d
o
r
a
H
l
7
1
0
2
I
N
O
T
A
R
E
N
U
M
E
R
E
V
I
T
U
C
E
X
E
-
N
O
N
F
O
E
R
U
S
O
L
C
S
D
D
E
L
I
A
T
E
D
I
40
REMUNERATION REPORT continuedfor the year ended 30 June 2018nib holdings limited
EQUITY INSTRUMENTS HELD BY KEY MANAGEMENT PERSONNEL
Reconciliation of performance rights help by KMP
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.
Granted as
compensation
Vested and
exercised
Number
Forfeited
Number
%
–
–
–
–
222,298
273,786 100%
–
–
–
–
–
–
–
–
Name & Grant dates
Mark Fitzgibbon
29 Nov 2013 (FY14 – FY17 LTIP)
22 Dec 2014 (FY15 – FY18 LTIP)
22 Jan 2016 (FY16 – FY19 LTIP)
5 Dec 2016 (FY17 – FY20 LTIP)
15 Dec 2017 (FY18 – FY21 LTIP)
Rob Hennin
29 Nov 2013 (FY14 – FY17 LTIP)
22 Dec 2014 (FY15 – FY18 LTIP)
22 Jan 2016 (FY16 – FY19 LTIP)
5 Dec 2016 (FY17 – FY20 LTIP)
15 Dec 2017 (FY18 – FY21 LTIP)
David Kan
22 Dec 2014 (FY15 – FY18 LTIP)
22 Jan 2016 (FY16 – FY19 LTIP)
5 Dec 2016 (FY17 – FY20 LTIP)
15 Dec 2017 (FY18 – FY21 LTIP)
Wendy Lenton
Balance at
start of the
year
Unvested
273,786
234,714
284,320
225,978
–
57,316
40,384
49,492
56,624
–
22,956
56,450
55,824
–
–
–
–
–
42,252
–
–
–
43,930
15 Dec 2017 (FY18 – FY21 LTIP)
–
28,699
Brendan Mills
29 Nov 2013 (FY14 – FY17 LTIP)
22 Dec 2014 (FY15 – FY18 LTIP)
22 Jan 2016 (FY16 – FY19 LTIP)
5 Dec 2016 (FY17 – FY20 LTIP)
15 Dec 2017 (FY18 – FY21 LTIP)
Rhod McKensey
29 Nov 2013 (FY14 – FY17 LTIP)
22 Dec 2014 (FY15 – FY18 LTIP)
22 Jan 2016 (FY16 – FY19 LTIP)
5 Dec 2016 (FY17 – FY20 LTIP)
15 Dec 2017 (FY18 – FY21 LTIP)
Michelle McPherson
29 Nov 2013 (FY14 – FY17 LTIP)
22 Dec 2014 (FY15 – FY18 LTIP)
22 Jan 2016 (FY16 – FY19 LTIP)
5 Dec 2016 (FY17 – FY20 LTIP)
15 Dec 2017 (FY18 – FY21 LTIP)
Roslyn Toms
27 Oct 2017 (FY17 – FY20 LTIP)
15 Dec 2017 (FY18 – FY21 LTIP)
Justin Vaughan
29 Nov 2013 (FY14 – FY17 LTIP)
22 Dec 2014 (FY15 – FY18 LTIP)
22 Jan 2016 (FY16 – FY19 LTIP)
5 Dec 2016 (FY17 – FY20 LTIP)
15 Dec 2017 (FY18 – FY21 LTIP)
33,020
36,145
41,394
39,858
–
79,437
55,744
69,787
77,708
–
89,060
74,081
89,819
79,717
–
–
–
26,438
32,859
37,633
39,076
–
–
–
–
–
31,365
–
–
–
–
61,151
–
–
–
–
62,727
6,530
30,751
–
–
–
–
30,751
57,316 100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
33,020 100%
–
–
–
–
–
–
–
–
79,437 100%
–
–
–
–
–
–
–
–
89,060 100%
–
–
–
–
–
–
–
–
–
–
–
–
26,438 100%
–
–
–
–
–
–
–
–
Balance at the end of the year
Other
changes
Vested and
exercisable
Unvested
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
234,714
284,320
225,978
222,298
–
40,384
49,492
56,624
42,252
22,956
56,450
55,824
43,930
28,699
–
36,145
41,394
39,858
31,365
–
55,744
69,787
77,708
61,151
–
74,081
89,819
79,717
62,727
6,530
30,751
–
32,859
37,633
39,076
30,751
%
0%
–
–
–
–
0%
–
–
–
–
–
–
–
–
–
0%
–
–
–
–
0%
–
–
–
–
0%
–
–
–
–
–
–
0%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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 2018.
41
2018 ANNUAL REPORT EQUITY INSTRUMENTS HELD BY KEY MANAGEMENT PERSONNEL continued
The terms and conditions of each grant of options affecting remuneration in the current or a future reporting period are:
LTIP
FY14-FY17
FY15-FY18
FY15-FY18
FY16-FY19
FY17-FY20
FY17-FY20
Grant date
Date vested and
exercisable
29 Nov 2013
1 Sep 2017
22 Dec 2014
1 Sep 2018
13 May 2015
1 Sep 2018
22 Jan 2016
1 Sep 2018
5 Dec 2016
1 Sep 2019
27 Oct 2017
1 Sep 2020
FY18–FY21
15 Dec 2017
1 Sep 2021
Expiry date
Exercise price
1 Sep 2017
1 Sep 2018
1 Sep 2018
1 Sep 2019
1 Sep 2020
1 Sep 2020
1 Sep 2021
nil
nil
nil
nil
nil
nil
nil
Value per
performance
right at
grant date
$1.9830
$2.6689
$3.2289
$3.0246
$4.0096
$4.0096
$6.0813
Performance achieved
100.0%
to be determined
to be determined
to be determined
to be determined
to be determined
to be determined
% vested
100.0%
n/a
n/a
n/a
n/a
n/a
n/a
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.
2018
Ordinary shares
Directors of nib group
Steve Crane
Lee Ausburn
Harold Bentley1
Jacqueline Chow
Philip Gardner
Anne Loveridge
Christine McLoughlin
Donal O’Dwyer
Other key management personnel of the Group
Mark Fitzgibbon
Rob Hennin
David Kan
Wendy Lenton
Rhoderic McKensey
Michelle McPherson
Brendan Mills
Roslyn Toms
Justin Vaughan
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
250,000
50,000
50,000
–
150,000
12,500
110,000
40,600
–
–
–
–
–
–
–
–
–
885
(50,000)
4,000
–
11,385
885
885
250,000
50,885
–
4,000
150,000
23,885
110,885
41,485
2,025,838
358,131
(270,000)
2,113,969
63,579
31,766
–
398,739
707,190
97,776
11,155
29,219
75,734
23,080
–
106,954
116,627
49,499
2,770
43,940
–
–
–
–
(29,115)
(3,845)
(3,662)
–
139,313
54,846
–
505,693
794,702
143,430
10,263
73,159
1. Harold Bentley retired as a Director on 30 September 2017, with the change in shareholding reflecting Harold no longer being a Director.
42
REMUNERATION REPORT continuedfor the year ended 30 June 2018nib holdings limited 2017
Ordinary shares
Directors of nib group
Steve Crane
Lee Ausburn
Harold Bentley
Annette Carruthers1
Philip Gardner
Anne Loveridge
Christine McLoughlin
Donal O’Dwyer
Other key management personnel of the Group
Mark Fitzgibbon
Rob Hennin
David Kan
Rhoderic McKensey
Michelle McPherson
Brendan Mills
Roslyn Toms
Justin Vaughan
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
250,000
50,000
100,000
72,500
150,000
–
110,000
25,600
–
–
–
–
–
–
–
–
–
–
(50,000)
(72,500)
–
12,500
–
15,000
250,000
50,000
50,000
–
150,000
12,500
110,000
40,600
1,783,277
292,561
(50,000)
2,025,838
38,663
11,926
320,209
608,048
58,827
–
24,916
19,840
78,530
99,142
38,949
–
24,056
15,163
–
–
–
–
–
11,155
(10,000)
63,579
31,766
398,739
707,190
97,776
11,155
29,219
1. Annette Carruthers retired as a Director on 28 September 2016, with the change in shareholding reflecting Annette no longer being a Director.
In addition to the above shareholding in nib holdings limited, David Kan holds one share in both nib Options Holdings (Thailand)
Co Ltd and nib Options (Thailand) Co Ltd, and Michelle McPherson holds one share in nib Options Holdings (Thailand) Co Ltd, as this
is a requirement to operate this business in Thailand.
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. 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
2018
$
15,333
147,282
16,200
178,815
2017
$
11,656
170,239
82,947
264,842
43
2018 ANNUAL REPORT 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
(3rd edition).
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 to maintain confidence in nib’s integrity.
The 2018 Corporate Governance Statement is dated as at 30 June 2018 and reflects the corporate governance practices in
place throughout the 2018 financial year. The Corporate Governance Statement was approved by the Board on 17 August 2018.
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
44
CORPORATE GOVERNANCE STATEMENTfor the year ended 30 June 2018nib holdings limited 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. Deferred Acquisition Costs
13. Property, Plant & Equipment
14. Intangible Assets
15. Payables
16. Borrowings
17. Outstanding Claims Liability
18. Unearned Premium Liability and Unexpired Risk Liability
19. Premium Payback Liability
20. Provision for Employee Entitlements
21. Other Liabilities
22. Contributed Equity
23. Retained Profits
24. Reserves
25. Dividends
26. Earnings Per Share
27. Capital Management
28. Commitments for Expenditure
29. Contingent Liabilities
30. Events Occurring after the Balance Sheet Date
31. Remuneration of Auditors
32. Business Combination
33. Interest in Other Entities
34. Related Party Transactions
35. Share-Based Payments
36. Parent Entity Financial Information
37. Company Details
46
47
48
49
50
51
55
56
63
65
68
69
70
74
76
78
79
81
82
85
86
88
92
93
95
96
96
97
98
99
100
101
104
105
105
106
107
109
111
112
115
116
45
FINANCIAL REPORTfor the year ended 30 June 20182018 ANNUAL REPORT Premium revenue
Outwards reinsurance premium expense
Net premium revenue
Claims expense
Reinsurance and other recoveries revenue
RESA levy
State levies
Decrease / (increase) in premium payback liability
Claims handling expenses
Net claims incurred
Other underwriting revenue
Acquisition costs
Other underwriting expenses
Underwriting expenses
Underwriting result
Other income
Other expenses
Share of net profit / (loss) of associates and joint ventures accounted for using the equity method
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
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
2018
$m
2017
$m
6
6
7
6
7
7
6
7
33
7
6
7
8
26
26
26
26
2,186.9
(24.3)
2,162.6
1,944.4
(1.3)
1,943.1
(1,469.5)
(1,344.5)
9.9
(206.4)
(32.3)
4.0
(18.6)
0.7
(176.3)
(30.0)
4.3
(16.6)
(1,712.9)
(1,562.4)
3.0
0.9
(149.4)
(125.3)
(274.7)
(118.8)
(111.5)
(230.3)
178.0
151.3
70.5
(79.0)
(0.5)
169.0
(6.3)
31.6
(2.0)
192.3
(58.8)
133.5
132.4
1.1
133.5
66.1
(66.5)
(0.3)
150.6
(4.8)
30.5
(1.9)
174.4
(54.2)
120.2
119.6
0.6
120.2
Cents
Cents
29.4
29.4
29.4
29.4
27.2
27.2
27.2
27.2
The above Consolidated Income Statement should be read in conjunction with the accompanying notes
46
CONSOLIDATED INCOME STATEMENTFor the year ended 30 June 2018nib holdings limited CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2018
Profit for the year
133.5
120.2
Notes
2018
$m
2017
$m
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Income tax related to these items
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Owners of nib holdings limited
Non-controlling interests
24
8(a)(iii)
(2.6)
0.6
(2.0)
(0.3)
0.2
(0.1)
131.5
120.1
130.4
1.1
131.5
119.5
0.6
120.1
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes
47
2018 ANNUAL REPORT CONSOLIDATED BALANCE SHEET
As at 30 June 2018
ASSETS
Current assets
Cash and cash equivalents
Receivables
Financial assets at fair value through profit or loss
Deferred acquisition costs
Assets classified as held for sale
Total current assets
Non-current assets
Receivables
Financial assets at fair value through profit or loss
Investments accounted for using the equity method
Deferred acquisition costs
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables
Borrowings
Outstanding claims liability
Unearned premium liability
Premium payback liability
Provision for employee entitlements
Current tax liabilities
Other liabilities
Total current liabilities
Non-current liabilities
Payables
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
48
The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.
Notes
2018
$m
2017
$m
9
10
11
12
10
11
33
12
13
14
15
16
17
18
19
20
21
15
16
18
19
20
8
21
22
23
24
192.2
78.6
731.9
45.4
–
1,048.1
1.7
3.0
2.1
65.3
10.4
316.9
399.4
119.0
53.2
626.1
41.3
1.9
841.5
1.6
–
2.3
60.3
11.8
218.6
294.6
1,447.5
1,136.1
195.3
1.1
152.2
205.1
3.7
4.2
5.7
0.4
147.9
1.5
120.2
174.7
9.5
3.8
18.6
0.4
567.7
476.6
4.6
229.5
32.7
14.4
2.4
33.6
4.8
3.3
151.7
28.9
13.5
2.4
26.9
5.2
322.0
231.9
889.7
708.5
557.8
427.6
112.3
445.5
–
557.8
–
557.8
25.0
399.0
4.6
428.6
(1.0)
427.6
nib holdings limited CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2018
Attributable to owners of nib holdings limited
Contributed
equity
$m
Retained
profits
$m
Notes
Reserves
$m
Non-controlling
interests
$m
Total
$m
Total
equity
$m
Balance at 1 July 2016
26.5
356.2
5.0
387.7
(1.6)
386.1
Profit for the year
Movement in foreign currency translation,
net of tax
Total comprehensive income for the year
Transactions with owners in their capacity
as owners:
Shares acquired by the nib Holdings Ltd Share
Ownership Plan Trust
Issue of shares held by nib Holdings Ltd
Share Ownership Plan Trust to employees
Employee performance rights
– value of employee services
Dividends paid
22
22
24
25
–
–
–
(4.0)
2.5
–
–
(1.5)
119.6
–
119.6
–
–
–
(76.8)
(76.8)
Balance at 30 June 2017
25.0
399.0
Balance at 1 July 2017
25.0
399.0
–
119.6
(0.1)
(0.1)
(0.1)
119.5
(4.0)
1.0
1.2
(76.8)
(78.6)
–
(1.5)
1.2
–
(0.3)
4.6
4.6
0.6
–
0.6
–
–
–
–
–
120.2
(0.1)
120.1
(4.0)
1.0
1.2
(76.8)
(78.6)
428.6
(1.0)
427.6
428.6
(1.0)
427.6
Profit for the year
Movement in foreign currency translation,
net of tax
Transfer to retained profits on sale of land and
buildings, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity
as owners:
Contributions of equity net of transaction costs
and tax
Transactions with non-controlling interests
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
22
22
22
24
25
–
–
–
–
88.0
–
(5.0)
4.3
–
–
87.3
132.4
–
132.4
1.1
133.5
–
1.1
133.5
–
–
–
–
–
(87.0)
(87.0)
(2.0)
(1.1)
(3.1)
–
–
–
(3.0)
1.5
–
(1.5)
(2.0)
–
130.4
88.0
–
(5.0)
1.3
1.5
(87.0)
(1.2)
–
–
1.1
–
(0.1)
–
–
–
–
(0.1)
(2.0)
–
131.5
88.0
(0.1)
(5.0)
1.3
1.5
(87.0)
(1.3)
Balance at 30 June 2018
112.3
445.5
–
557.8
–
557.8
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
49
2018 ANNUAL REPORT
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2018
Cash flows from operating activities
Receipts from policyholders and customers (inclusive of goods and services tax)
Payments to policyholders and customers
Receipts from outwards reinsurance contracts
Payments for outwards reinsurance contracts
Payments to suppliers and employees (inclusive of goods and services tax)
Interest received
Distributions received
Transaction costs relating to acquisition of business combination
Interest paid
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds from disposal of other financial assets at fair value through profit or loss
Payments for other financial assets at fair value through profit or loss
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
Proceeds from sale of business
Payment for acquisition of business combination, net of cash acquired
Loans provided
Payments for investments in associates
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from borrowings
Repayment of borrowings
Shares acquired by the nib Holdings Ltd Share Ownership Plan Trust
Share issue transaction costs
Transactions with non-controlling interests
Dividends paid to the company's shareholders
Net cash inflow / (outflow) from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
Reconciliation to Consolidated Balance Sheet
Cash and cash equivalents
Borrowings – overdraft
Notes
2018
$m
2017
$m
2,316.4
(1,677.1)
2,063.1
(1,558.6)
8.3
(23.3)
(390.5)
233.8
7.5
15.7
(3.3)
(6.3)
(67.5)
179.9
268.9
(347.0)
1.9
0.1
(20.3)
–
(85.3)
–
(0.3)
0.6
(1.3)
(312.0)
191.8
7.1
24.7
(0.1)
(4.7)
(47.1)
171.7
270.1
(318.6)
–
0.1
(15.8)
4.7
–
(1.5)
–
(182.0)
(61.0)
89.5
80.5
–
(5.0)
(2.1)
(0.1)
(87.0)
75.8
73.7
117.5
(0.1)
191.1
192.2
(1.1)
191.1
–
35.0
(35.0)
(4.0)
–
–
(76.8)
(80.8)
29.9
89.4
(1.8)
117.5
119.0
(1.5)
117.5
9
13,14
32
22
16
16
22
22
33
25
9
16
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
50
nib holdings limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 June 2018
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.
iii) Comparatives
Where necessary, comparative information has been reclassified
to achieve consistency in disclosure with the current year.
b) Principles of consolidation
i) Subsidiaries
The consolidated financial statements incorporate the assets and
liabilities of all subsidiaries of nib holdings limited (“parent entity”)
as at 30 June 2018 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.
The acquisition method of accounting is used to account for the
acquisition of subsidiaries by the Group (refer to Note 32(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) Associates
Associates are all entities over which the group has significant
influence but not control or joint control. This is generally the
case where the group holds between 20% and 50% of the voting
rights. Investments in associates are accounted for using the
equity method of accounting (see (iii) below), after initially being
recognised at cost.
iii) Equity method
Under the equity method of accounting, the investments are
initially recognised at cost and adjusted thereafter to recognise
the Group’s share of the post-acquisition profits or losses of the
investee in profit or loss, and the Group’s share of movements
in other comprehensive income of the investee in other
comprehensive income. Dividends received or receivable from
associates and joint ventures are recognised as a reduction in
the carrying amount of the investment.
When the Group’s share of losses in an equity-accounted
investment equals or exceeds its interest in the entity, including
any other unsecured long-term receivables, the group does not
recognise further losses, unless it has incurred obligations or
made payments on behalf of the other entity.
Unrealised gains on transactions between the Group and its
associates and joint ventures are eliminated to the extent of
the Group’s interest in these entities. Unrealised losses are
also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Accounting policies of equity
accounted investees have been changed where necessary to
ensure consistency with the policies adopted by the Group.
iv) 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.
51
2018 ANNUAL REPORT 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
c) 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.
d) 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.
The Group has determined that all financial assets of nib health
funds limited, nib nz limited and Grand United Corporate Health
Limited are held to back private health insurance liabilities.
e) 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 hundred
thousand dollars, or in certain cases, the nearest dollar.
f) 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 2017.
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited g) New accounting standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2018 reporting periods.
The Group’s assessment of the impact of these new standards and interpretations is set out below.
Title of standard
Nature of change and impact
Mandatory application date
Under AASB 17 Insurance
Contracts, the Group is
eligible to defer application of
AASB 9 until financial years
commencing on or after
1 January 2021. At this stage,
the Group does not intend to
adopt the standard before its
effective date.
AASB 9 Financial
Instruments
AASB 9 addresses the classification, measurement and derecognition
of financial assets and financial liabilities and introduces new rules for
hedge accounting.
The Group has reviewed its financial assets and liabilities and is
expecting the following impact from the adoption of the new standard
on 1 July 2018:
• The Group’s investments are currently measured at fair value
through profit or loss (FVPL) which will continue to be measured
on the same basis under AASB 9. Accordingly, the Group does
not expect the new guidance to affect the classification and
measurement of these financial assets.
• There will be no impact on the Group’s accounting for financial
liabilities, as the new requirements only affect the accounting for
financial liabilities that are designated at fair value through profit
or loss and the Group does not have any such liabilities.
• The derecognition rules have been transferred from AASB 139
Financial Instruments: Recognition and Measurement, and have
not been changed.
• The Group does not currently participate in any hedge
arrangements.
• The new impairment model requires the recognition of impairment
provisions based on expected credit losses (ECL) rather than only
incurred credit losses, as is the case under AASB 139. The Group
anticipates that it will use the simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. Based on the assessments
undertaken to date, the Group does not expect a material impact
of the new impairment model.
• The new standard also introduces expanded disclosure
requirements and changes in presentation. These are expected to
change the nature and extent of the Group’s disclosures about its
financial instruments particularly in the year of the adoption of the
new standard.
AASB 15 Revenue
from Contracts with
Customers
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.
Mandatory for financial years
commencing on or after
1 January 2018. The Group
will apply the new accounting
standard from 1 July 2018.
The majority of the Group’s revenue is recognised under AASB 1023
General Insurance Contracts which is not impacted by AASB 15.
There is no material impact of this standard on the Group’s
non-insurance revenue.
53
2018 ANNUAL REPORT 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
g) New accounting standards and interpretations not yet adopted continued
Title of standard
Nature of change and impact
Mandatory application date
AASB 16 Leases
AASB 16 will primarily affect the accounting of leases by lessees and
will result in the recognition of almost all 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.
Mandatory for financial years
commencing on or after
1 January 2019. At this stage,
the Group does not intend to
adopt the standard before its
effective date.
The income statement will also be affected because the total expense
is typically higher in the earlier years of a lease and lower in later years.
Additionally, operating lease expenses will be replaced with interest
and depreciation.
As at the reporting date, the Group has non-cancellable operating lease
commitments of $108.7 million (see Note 28). The Group is currently
undertaking a detailed assessment of the impact of this standard.
AASB 17 Insurance
Contracts
On 19 July 2017, Australian Accounting Standard Board issued
AASB 17 Insurance Contracts, incorporating the recently issued
IFRS 17 Insurance Contracts. This will replace AASB 4 Insurance
Contracts, AASB 1023 General Insurance Contracts and AASB 1038
Life Insurance Contracts. IFRS 17 will change the accounting for
insurance contracts by nib.
Mandatory for financial years
commencing on or after
1 January 2021. At this stage,
the Group does not intend to
adopt the standard before its
effective date.
The standard introduces three new measurement approaches for
accounting for insurance contracts. These include the Building Block
Approach for long term contracts, the Premium Allocation Approach
for short term contracts and a Variable Fee Approach for direct
participating products.
The Group, being the Ultimate Parent nib holdings limited and its
subsidiaries, has formed a project team to assess the impact of this
change on the operations and financial statements of the business.
This assessment has identified that a number of key requirements
of AASB 17 remain subject to interpretation. We note the ongoing
potential for changes in interpretation of the standard during 2018/2019
as the International Accounting Standards Board addresses challenges
identified in relation to the practical implementation of the standard.
Initial investigation into the application for the standard indicates it is
likely that the Simplified Premium Allocation Approach will apply to the
majority of the Group’s insurance contracts.
For insurance contracts less than 12 months acquisition costs can
be expensed. The Group considers it likely that acquisition costs will
be expensed. The Group will apply the transitional conditions of the
standard to the Deferred Acquisitions balance at the date it applies the
new standards.
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 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:
Note 12
Note 14
Deferred acquisition costs
Goodwill and indefinite life intangibles impairment and useful life of brand names and trademarks
Note 10 and 17
Outstanding claims liability
Notes 18 and 19
Liability adequacy test
Note 19
Note 29
Premium payback liabilities
Contingent liabilities – ACCC matter
55
2018 ANNUAL REPORT 3. RISK MANAGEMENT
The Board of nib is ultimately responsible for the Group’s risk management framework and oversees the Groups operations by
ensuring that management operates within the approved risk appetite statement. The Board approved the Group’s overall risk
management strategy, risk appetite and policies and practices to ensure that risks are identified and managed within the context
of this appetite.
The Board’s sub committees, including the Audit Committee and the Risk and Reputation Committee assist the Board in the execution
of its responsibilities. The responsibilities of these Committees are detailed in their respective Charters.
The Group’s risk management framework is based on a three lines of defence model and provides defined risk ownership
responsibilities with functionally independent oversight and assurance. The Group manages risks through:
• the governance structure established by the Board,
•
implementation of the risk management framework by management,
• oversight of the risk management framework by the Risk function,
• the Group’s internal policies and procedures designed to identify and mitigate risks,
•
internal audit which provides independent assurance to the Board regarding the appropriateness, effectiveness and adequacy
of controls over activities where risks are perceived to be high,
• regular risk and compliance reporting to the Board and relevant Board Committees,
• application of solvency and capital adequacy standards for nib health funds limited, Grand United Corporate Health Limited
(both regulated by APRA) and nib New Zealand (regulated RBNZ).
The Group’s objective is to manage the Group’s risks in line with the Board approved risk appetite statement. Various procedures are
in place to identify, mitigate and monitor the risks faced by the Group. Management are responsible for understanding and managing
risks, including financial and non-financial risks. The Group’s exposure to all high and critical risks, and other Key Enterprise Risks, is
reported quarterly to the Board via the Risk and Reputation Committee.
During the year we continued to strengthen our resourcing and capability to reflect our strong commitment to risk and compliance.
This has seen the establishment of a separate Group division with oversight and responsibility for risk and compliance as well as the
appointment of a Chief Risk Officer to the nib Group Executive team.
The financial condition and operations of the Group are affected by a number of Principle Risks and Uncertainties. High level
descriptions of these risks are included in the Operating and Financial Review (see pages 3 to 13), including Insurance Risks,
Financial Risks, Strategic Risks and Operational Risks as categorised in nib’s Risk Management Strategy. Realisation of these risks
can have both financial and / or non-financial impacts.
Further material is contained in the notes below on the exposures and mitigation of specific risks with discrete financial impacts.
Category
Risks
Insurance risk
Financial risks
Pricing risk
Claims inflation
Risk equalisation (Australia only)
Fair value interest rate risk
Foreign exchange risk
Price risk
Credit risk
Liquidity risk
Capital management (see Note 27)
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited a) Insurance risk
Insurance risk is the risk that inadequate or inappropriate underwriting, claims management, product design and pricing will expose
the Group to financial loss from claims expenditure exceeding the amount implicit in premium income.
Insurance risk is seen as a key risk to our PHI focused businesses. There are a number of sources of risk that as a collective require
nib to closely review and monitor our control strategies. These risks have Board oversight. These sources include:
Description
Exposure
Mitigation
Pricing risk
Claims inflation
Risk equalisation
special account
arrangements
Australian health insurance premium increases for existing
products are 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 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.
New Zealand policies do not require approval by the regulator
and can be changed at any time during the year.
International students health insurance products can raise
premiums in line with a Deed set out between the Insurer and
the Commonwealth; prices are ordinarily set annually and
require notification to the Department of Health.
International workers health insurance product premiums do
not require approval by a regulator.
nib is subject to significant claims inflation which may not
be adequately covered by premium price increases and/or
product design changes.
In Australia the principle of community rating prevents private
health insurers from improperly discriminating between people
who are or wish to be 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 only applies to Australian residents health
insurance and international student health insurance, but not
to international workers health Insurance or New Zealand
health insurance.
Risk equalisation arrangements apply to the registered health
insurance industry in Australia. Under these arrangements
all registered health insurers effectively provide reinsurance
support so that the industry as a whole shares the hospital cost
of high risk groups irrespective of whether those claims are
attributable to a policyholder of a particular fund.
Risk equalisation is only applicable to Australian residents
health insurance.
This risk is managed by establishing product
premiums through the use of actuarial models
based on historical claims costs and forecast claims
inflation.
Pricing recommendations are internally prepared
by an actuarial team and externally reviewed by the
Appointed Actuary.
The Group works collaboratively with Government,
regulators and other stakeholders to improve health
insurance premium affordability through industry
reforms and health policy setting.
Claims patterns are monitored and premiums
calculated accordingly.
A rigorous approach to product design mitigates the
risk of the group being exposed to adverse selection.
Maintenance of reserves in excess of minimum
solvency and capital requirements allows the Group
to withstand increased levels of claims inflation.
Robust claims handling processes and controls
which are well documented.
Defined underwriting processes in New Zealand.
Risk equalisation provides some protection to high
cost claims however exposes the Group to claims
from other health insurers. Actuarial models are used
to monitor past experience and predict future costs,
premiums are calculated accordingly.
57
2018 ANNUAL REPORT 3. RISK MANAGEMENT continued
b) Fair value interest rate risk
Description
Exposure
Mitigation
Risk of
fluctuations in
interest rates
impacting the
Group’s financial
performance or
the fair value
of its financial
instruments.
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.
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.
The Group mitigates interest rate risk on long term
borrowings by maintaining an appropriate gearing
ratio and monitoring and forecasting key indicators
such as interest expense coverage.
nib receives advice on its investments from its asset
consultants.
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
2018
2017
Weighted average
interest rate
%
3.1%
Weighted average
interest rate
%
3.1%
Balance
$m
229.5
229.5
Balance
$m
151.7
151.7
The bank overdraft comprised of the closing positive balance of the bank account, adjusted for unpresented cheques and outstanding
deposits is not included in bank loans.
An analysis by maturities is provided at 3(f).
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
2018
2017
Carrying
amount
$m
Profit
$m
Equity
$m
Profit
$m
Equity
$m
Carrying
amount
$m
Profit
$m
Equity
$m
Profit
$m
Equity
$m
Financial assets
Cash and cash equivalents
Other receivables
Financial assets at fair value
through profit or loss
Financial liabilities
Bank loans
Premium payback liability
Total increase / (decrease)
192.2
17.9
(1.3)
(0.1)
(1.3)
(0.1)
1.3
0.1
1.3
0.1
119.0
10.8
(0.8)
(0.1)
(0.8)
(0.1)
0.8
0.1
0.8
0.1
734.9
6.6
6.6
(6.6)
(6.6)
626.1
6.0
6.0
(6.0)
(6.0)
(229.5)
(18.1)
697.4
1.6
(0.6)
6.2
1.6
(0.6)
6.2
(1.6)
0.7
(6.1)
(1.6)
0.7
(6.1)
(151.7)
(23.0)
581.2
1.1
(0.7)
5.5
1.1
(0.7)
5.5
(1.1)
0.8
(5.4)
(1.1)
0.8
(5.4)
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited
c) Foreign exchange risk
Description
Exposure
Mitigation
Risk of fluctuations
in foreign exchange
rates impacting the
Group’s financial
performance.
The Group operates internationally and is exposed to
foreign exchange risk arising from foreign currency
translation risk through its subsidiaries located in
overseas jurisdictions.
In accordance with the policy set out in Note 1(c), 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.
2018
2017
Foreign exchange risk
–10%
+10%
–10%
+10%
Brazilian real
Canadian dollar
European euro
Great Britain pound
New Zealand dollar
United States dollar
Thai baht
Total increase / (decrease)
Exposure
$m
0.1
0.1
3.1
0.3
62.8
1.0
0.3
67.7
Profit
$m
–
–
(0.1)
–
–
(0.1)
–
(0.2)
Equity
$m
Profit
$m
Equity
$m
Exposure
$m
Profit
$m
Equity
$m
Profit
$m
Equity
$m
–
–
(0.1)
–
(6.3)
0.1
–
(6.3)
–
–
0.1
–
–
0.1
–
0.2
–
–
0.1
–
6.3
(0.1)
–
6.3
(0.4)
(0.1)
(0.1)
0.2
63.6
(0.8)
0.5
62.9
–
–
–
–
–
–
–
–
–
–
–
–
(6.3)
–
–
(6.3)
–
–
–
–
–
–
–
–
–
–
–
–
6.3
–
–
6.3
59
2018 ANNUAL REPORT 3. RISK MANAGEMENT continued
d) Price risk
Description
Exposure
Mitigation
Risk of fluctuations
in price of equity
securities impacting
the Group’s fair
value of its financial
instruments.
The Group is exposed to equity securities price risk.
This arises from investments held by the Group and
classified on the balance sheet as 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.
Profit after tax 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.
Other price risk
–10% unit price
+10% unit price
–10% unit price
+10% unit price
2018
2017
Carrying
amount
$m
Profit
$m
Equity
$m
Profit
$m
Equity
$m
Carrying
amount
$m
Profit
$m
Equity
$m
Profit
$m
Equity
$m
Financial assets
Financial assets at fair value
through profit or loss
Total increase / (decrease)
734.9
734.9
(9.9)
(9.9)
(9.9)
(9.9)
9.9
9.9
9.9
9.9
626.1
626.1
(6.5)
(6.5)
(6.5)
(6.5)
6.5
6.5
6.5
6.5
Methods and assumptions used in preparing sensitivity analysis
The after 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.
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited e) Credit risk
Description
Exposure
Mitigation
Risk that a
counterparty will
default on its
contractual obligations,
or from the decline in
the credit quality of a
financial instrument,
resulting in financial
loss to the Group.
Credit risk arises from:
• cash and cash equivalents;
• financial assets and deposits with banks and
financial institutions;
• favourable derivative financial instruments; and
• credit exposures to policyholders and the
Department of Human Services (Private Health
Insurance Premiums Reduction Scheme).
Term deposits are held with institutions that
have at least an A-2 credit rating.
nib receives advice from its asset consultants.
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. Apart from the Department of Human Services
the Group does not have any material credit risk to any
other 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
Group 1 – new debtors (relationship less than 6 months)
Group 2 – existing debtors with no defaults in the past
Group 3 – existing debtors with some defaults in the past. All defaults were fully recovered
Total other receivables
Cash at bank and Short term bank deposits1
A-1
A-2
BBB
Sub investment grade
Total cash at bank and Short term bank deposits
Financial assets at fair value through profit or loss
Short term deposits
A-1
Interest-bearing securities2
AAA
AA
A
BBB
Sub investment grade
Unclassified
Total financial assets at fair value through profit or loss
2018
$m
–
17.7
0.2
17.9
161.9
26.6
–
3.7
192.2
2017
$m
1.7
8.8
0.3
10.8
118.4
0.3
0.3
–
119.0
95.1
55.1
121.9
212.6
103.4
59.2
5.0
(3.2)
594.0
131.1
161.6
101.5
58.0
5.5
2.8
515.6
1. Balances rated below A-2 are not term deposits in accordance with the Group’s credit risk policy above.
2. 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.
61
2018 ANNUAL REPORT 3. RISK MANAGEMENT continued
f) Liquidity risk
Description
Exposure
Mitigation
Risk that the Group won’t
be able to meet its financial
obligations as they fall due,
because of lack of liquid
assets or access to funding on
acceptable terms.
Liquidity risk arises from:
•
trade creditors;
• other payables; and
• borrowings.
The Group manages liquidity risk by continuously
monitoring forecast and actual cash flows
and holding 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 table below analyses 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 are the contractual undiscounted cash flows.
Group at 30 June 2018
Financial Liabilities
Trade creditors
Other payables
Borrowings
Group at 30 June 2017
Financial Liabilities
Trade creditors
Other payables
Borrowings
≤ 1 month
$m
1-3 months
$m
3-12 months
$m
1-5 years
$m
> 5 years
$m
Total contractual
cash flows
$m
Carrying amount
$m
17.4
84.7
0.2
102.3
0.5
9.8
1.7
12.0
0.3
1.8
5.7
7.8
–
4.9
241.2
246.1
–
0.8
–
0.8
18.2
102.0
248.8
369.0
18.2
102.0
230.6
350.8
≤ 1 month
$m
1-3 months
$m
3-12 months
$m
1-5 years
$m
> 5 years
$m
Total contractual
cash flows
$m
Carrying amount
$m
14.5
72.5
0.2
87.2
0.4
6.4
1.0
7.8
0.3
1.6
3.7
5.6
–
3.7
158.8
162.5
–
0.6
–
0.6
15.2
84.8
163.7
263.7
15.2
84.8
153.2
253.2
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 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 below the table.
The following tables present the Group’s assets and liabilities measured and recognised at fair value at 30 June 2018 and 30 June 2017:
Group at 30 June 2018
Assets
Cash and cash equivalents and deposits at call
Receivables
Financial assets at fair value through profit or loss
Equity securities
Interest-bearing securities
Mortgage trusts
Property trusts
Short term deposits
Total assets
Group at 30 June 2017
Assets
Cash and cash equivalents and deposits at call
Receivables
Financial assets at fair value through profit or loss
Equity securities
Interest-bearing securities
Short term deposits
Total assets
Level 1
$m
192.2
–
121.6
469.7
–
2.0
95.1
880.6
Level 1
$m
119.0
–
110.5
444.2
55.1
728.8
Level 2
$m
Level 3
$m
–
1.7
3.1
29.2
0.5
0.6
–
35.1
Level 2
$m
–
1.6
–
16.3
–
17.9
–
–
–
–
–
13.1
–
13.1
Level 3
$m
–
–
–
–
–
–
Total
$m
192.2
1.7
124.7
498.9
0.5
15.7
95.1
928.8
Total
$m
119.0
1.6
110.5
460.5
55.1
746.7
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
Level 2
The fair value of financial instruments traded in active markets (such as financial assets at fair value through profit
and loss) is based on quoted market prices at the reporting date. The quoted market price used for financial assets
held by the Group is the current bid price. These instruments are included in level 1.
The fair value of financial instruments that are not traded in active markets (for example interest bearing securities)
is determined using valuation techniques. The Group uses 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.
63
2018 ANNUAL REPORT 4. FAIR VALUE MEASUREMENT continued
b) Valuation techniques used to 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.
In the circumstances where a valuation technique for financial instruments is based on significant unobservable inputs, those
instruments are included in level 3. For the Group this includes the valuation of certain property trusts.
c) Fair value measurements using significant unobservable inputs (level 3)
The Group’s level 3 investments comprise units in property trusts which hold illiquid investments in unlisted property.
The following table presents the changes in level 3 instruments for the year ended 30 June 2018:
Fair value measurement as at 1 July
Acquisition of business
Purchased
Sales
Change in fair value
Fair value measurement as at 30 June
Note
32
2018
$m
–
4.9
9.5
(1.2)
(0.1)
13.1
2017
$m
–
–
–
–
–
–
The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy level as at the end of the reporting period.
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 2017.
ii) Valuation process
The finance department of the Group includes a team that performs the valuations of non-property assets
required for financial reporting purposes, including level 3 fair values. This team reports directly to the Chief
Financial Officer (CFO) and the Audit Committee (AC). Discussions of valuation processes and results are
held between the CFO, AC and the valuation team at least once every six months, in line with the Group’s
half-yearly reporting dates.
The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value
measurements:
Description
At 30 June 2018
Unlisted property trusts
At 30 June 2017
Unlisted property trusts
Fair value at
30 June
Unobservable inputs
Relationship of unobservable inputs to fair value
13,133
Redemption price
Higher/(lower) redemption price (+/- 10%)
would increase/(decrease) fair value by $1.3m
–
Redemption price
N/A
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 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 2018:
Non-current borrowings
Bank loans
2018
2017
Carrying amount
$m
Fair value
$m
Carrying amount
$m
229.5
229.5
151.7
Fair value
$m
151.7
The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values due to
their Short term nature.
5. SEGMENT REPORTING
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 Managing Director/Chief Executive Officer (MD/CEO).
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 gain on sale of controlling interest of Whitecoat business and
profit on sale of the head office building, and non-recurring expenditure such as integration costs, merger and acquisition costs,
new business implementation costs and amortisation of acquired intangibles.
No information regarding assets, liabilities and income tax is provided for individual Australian Residents 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.
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 four reportable
segments:
Australian Residents
Health Insurance
New Zealand Residents
Health Insurance
International (Inbound)
Health Insurance
nib’s core product offering within the Australian private health insurance industry
nib’s core product offering within the New Zealand private health insurance industry
nib’s offering of health insurance products for international students and workers
World Nomads Group
nib’s distribution of travel insurance products
On 31 October 2017, nib holdings limited acquired Grand United Corporate Health Limited (Grand United), refer to Note 32 Business
Combination. The Grand United business offers both Australian Residents Health Insurance and International Workers Health
Insurance products and accordingly included across both the Australian Residents Health Insurance and International (Inbound)
Health Insurance segments. Underlying operating profit for Grand United for year ending 30 June 2018 was $10.9 million.
In May 2017, the Group commenced winding down the operations of nib Options with business termination costs provided for
at 30 June 2017. The results of nib Options are immaterial and now reported in the unallocated to segments column. Underlying
operating loss for the year ending 30 June 2018 was $0.1 million (June 2017: $3.3 million loss).
65
2018 ANNUAL REPORT 5. SEGMENT REPORTING continued
For the year ending 30 June 2018
Australian
Residents Health
Insurance
$m
International
(Inbound) Health
Insurance
$m
New Zealand
Health Insurance
$m
World Nomads
Group
$m
Unallocated to
segments
$m
Premium revenue
Outwards reinsurance premium expense
Net premium revenue
1,879.9
(8.7)
1,871.2
108.9
(15.6)
93.3
198.1
–
198.1
Claims expense
(1,309.8)
(42.5)
(117.2)
Reinsurance and other recoveries
revenue
RESA
State levies
Decrease in premium payback liability
Claims handling expenses
Net claims incurred
4.0
(206.4)
(32.3)
–
(15.2)
(1,559.7)
5.9
–
–
–
(1.5)
(38.1)
–
–
–
4.0
(1.9)
(115.1)
Other underwriting revenue
1.6
1.4
–
Acquisition costs
Other underwriting expenses
Underwriting expenses
(104.6)
(77.3)
(181.9)
(9.9)
(17.1)
(27.0)
(34.9)
(24.7)
(59.6)
Underwriting result
131.2
29.6
23.4
Other income
Other expenses
Share of net profit / (loss) of associates
and joint ventures accounted for using
the equity method
Underlying operating profit / (loss)
Items not included in underlying
operating profit
Amortisation of acquired intangibles
One-off transactions, merger, acquisition
and new business implementation costs
–
–
(0.5)
130.7
(1.2)
–
–
–
–
–
–
–
29.6
23.4
(1.4)
–
(3.6)
–
Finance costs
Investment income
Investment expenses
Profit before income tax
from continuing operations
Inter-segment other income1
Depreciation and amortisation
Total assets
Total liabilities
Insurance liabilities
Outstanding claims liability
Unearned premium liability
Premium payback liability
Total
9.5
9.7
–
3.3
1,072.9
546.9
138.0
220.2
–
358.2
0.4
6.8
193.8
57.8
14.2
17.6
18.1
49.9
1. Inter-segment other income is eliminated on consolidation and not included in operating profit.
66
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
66.1
(58.0)
–
8.1
(2.2)
–
0.1
4.3
119.8
13.2
–
–
–
–
Total
$m
2,186.9
(24.3)
2,162.6
(1,469.5)
9.9
(206.4)
(32.3)
4.0
(18.6)
(1,712.9)
3.0
(149.4)
(119.1)
(268.5)
184.2
69.5
(68.4)
(0.5)
184.8
(8.4)
(7.4)
(6.3)
31.6
(2.0)
192.3
10.0
24.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.4
(10.4)
–
(7.0)
–
(7.4)
(6.3)
31.6
(2.0)
–
0.3
61.0
271.8
1,447.5
889.7
–
–
–
–
152.2
237.8
18.1
408.1
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited For the year ending 30 June 2017
Australian
Residents Health
Insurance
$m
International
(Inbound) Health
Insurance
$m
New Zealand
Health Insurance
$m
World Nomads
Group
$m
Unallocated to
segments
$m
Premium revenue
Outwards reinsurance premium expense
Net premium revenue
1,669.0
–
1,669.0
76.1
(1.3)
74.8
199.3
–
199.3
Claims expense
(1,194.9)
(28.7)
(120.9)
Reinsurance and other recoveries
revenue
RESA
State levies
Decrease in premium payback liability
Claims handling expenses
Net claims incurred
–
(176.3)
(30.0)
–
(13.6)
(1,414.8)
0.7
–
–
–
(1.0)
(29.0)
–
–
–
4.3
(2.0)
(118.6)
Other underwriting revenue
0.6
0.4
–
Acquisition costs
Other underwriting expenses
Underwriting expenses
(73.5)
(74.0)
(147.5)
(9.6)
(11.2)
(20.8)
(35.7)
(21.5)
(57.2)
Underwriting result
107.3
25.4
23.5
Other income
Other expenses
Share of net profit / (loss) of associates
and joint ventures accounted for using
the equity method
Underlying operating profit / (loss)
Items not included in underlying
operating profit
Amortisation of acquired intangibles
One-off transactions, merger, acquisition
and new business implementation costs
Finance costs
Investment income
Investment expenses
Profit before income tax from
continuing operations
–
–
(0.3)
107.0
–
–
–
–
–
–
–
–
25.4
23.5
(0.8)
–
(4.0)
–
Inter-segment other income1
Depreciation and amortisation
4.9
8.1
–
2.2
Total assets
Total liabilities
Insurance liabilities
Outstanding claims liability
Unearned premium liability
Premium payback liability
Total
777.6
435.0
106.2
185.7
–
291.9
1. Inter-segment other income is eliminated on consolidation and not included in operating profit.
0.3
6.9
200.3
63.0
14.0
17.9
23.0
54.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57.6
(50.1)
–
7.5
(2.8)
(0.2)
0.2
4.0
117.4
11.8
–
–
–
–
Total
$m
1,944.4
(1.3)
1,943.1
(1,344.5)
0.7
(176.3)
(30.0)
4.3
(16.6)
(1,562.4)
1.0
(118.8)
(106.7)
(225.5)
156.2
60.4
(62.6)
(0.3)
153.7
(7.6)
4.5
(4.8)
30.5
(1.9)
174.4
5.4
21.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.8
(12.5)
–
(9.7)
–
4.7
(4.8)
30.5
(1.9)
–
0.5
40.8
198.7
1,136.1
708.5
–
–
–
–
120.2
203.6
23.0
346.8
67
2018 ANNUAL REPORT 6. REVENUE AND OTHER INCOME
Premium revenue
Outwards reinsurance premiums
Net premium revenue
Agency fee
Sundry income
Other underwriting revenue
Other income
Travel insurance commission
Life and funeral insurance commission and other commissions
Deferred profit on sale and leaseback of head office building
Gain on sale of controlling interest of Whitecoat business
Insurance recoveries
Sundry income
Investment income
Interest
Net realised gain on financial assets at fair value through profit or loss
Net unrealised gain on financial assets at fair value through profit or loss
2018
$m
2017
$m
2,186.9
(24.3)
2,162.6
0.3
2.7
3.0
1,944.4
(1.3)
1,943.1
0.4
0.5
0.9
66.1
57.6
2.6
0.4
–
1.0
0.4
2.5
0.4
5.6
–
–
70.5
66.1
7.7
17.2
6.7
31.6
7.0
31.5
(8.0)
30.5
a) Accounting policy
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.
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 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.
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.
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.
iv) Revenue from
travel insurance
commission
7. EXPENSES
Expenses by function
Claims handling expenses
Acquisition costs
Other underwriting expenses
Other expenses
Finance costs
Investment expenses
Total expenses (excluding direct claims expenses)
Expenses by nature
Amortisation of acquired intangibles
Bank charges
Communications, postage and telephone expenses
Depreciation and amortisation
Employee costs
Finance costs
Information technology expenses
Investment expenses
Marketing expenses – excluding commissions
Marketing expenses – commissions
Merger, acquisition and new business implementation costs
Operating lease rental expenses
Professional fees
Other expenses
2018
$m
2017
$m
18.6
149.4
125.3
79.0
6.3
2.0
380.6
8.4
4.6
5.5
16.0
135.8
6.3
12.5
2.0
49.0
90.0
6.5
9.5
17.0
17.5
16.6
118.8
111.5
66.5
4.8
1.9
320.1
7.6
4.4
5.2
14.1
114.8
4.8
8.4
1.9
47.0
74.7
0.7
8.3
13.2
15.0
Total expenses (excluding direct claims expenses)
380.6
320.1
69
2018 ANNUAL REPORT 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
2018
$m
2017
$m
54.1
4.4
0.1
0.2
58.8
58.8
58.8
3.7
0.7
4.4
50.7
3.5
0.2
(0.2)
54.2
54.2
54.2
(0.6)
4.1
3.5
Deferred income tax expense included in income tax expense comprises:
Increase in deferred tax assets
Increase in deferred tax liabilities
8(b)
8(c)
ii) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
192.3
174.4
Tax at the Australian tax rate of 30% (2017: 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Sundry items
Net assessable trust distributions
Imputation credits and foreign tax credits
Adjustment for current tax of prior periods
Current year – research and development tax credit
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
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:
Share issue costs
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 at 30%
57.7
1.0
0.2
(0.8)
0.1
–
0.2
0.2
0.2
58.8
(0.6)
(0.6)
0.6
0.1
0.7
–
–
52.3
1.9
0.2
(0.6)
0.2
(0.3)
(0.2)
0.8
(0.1)
54.2
(0.2)
(0.2)
–
–
–
11.6
3.5
24
22
24
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 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
Share issue costs
Tax losses
Notes
2018
$m
1.5
4.9
4.7
0.4
11.5
0.5
0.1
1.6
5.7
0.5
0.2
8.6
2017
$m
1.7
4.1
6.0
2.8
14.6
0.5
0.2
0.2
3.4
–
–
4.3
Total deferred tax assets
20.1
18.9
Set-off of deferred tax liabilities pursuant to set-off provisions
8(c)
Net deferred tax assets
Recovery of total deferred tax assets:
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after more than 12 months
Movements
Notes
At 1 July 2016
(Charged)/credited to the income
statement
At 30 June 2017
At 1 July 2017
(Charged)/credited to the income
statement
(Charged)/credited directly to other
comprehensive income
(Charged)/credited directly to equity
Acquisition of business
At 30 June 2018
32
Deferred profit
on sale and
leaseback of head
office building
$m
Employee
benefits
$m
Premium
payback
liabilities
$m
Unrealised
losses on
investments
$m
1.8
(0.1)
1.7
1.7
(0.2)
–
–
–
1.5
4.2
(0.1)
4.1
4.1
0.5
–
–
0.3
4.9
7.2
(1.2)
6.0
6.0
(1.1)
(0.2)
–
–
4.7
0.6
2.2
2.8
2.8
(1.9)
–
–
(0.5)
0.4
(20.1)
–
11.2
8.9
20.1
Other
$m
4.5
(0.2)
4.3
4.3
(1.0)
–
0.6
4.7
8.6
(18.9)
–
6.9
12.0
18.9
Total
$m
18.3
0.6
18.9
18.9
(3.7)
(0.2)
0.6
4.5
20.1
71
2018 ANNUAL REPORT 8. TAXATION continued
c) Deferred tax liabilities
The balance comprises temporary differences attributable to:
Brands and trademarks and customer contracts and relationships
Deferred acquisition costs
Depreciation and amortisation
Unrealised foreign exchange gains
Other
Asset revaluation
Investment in associates and joint ventures
Unearned premium liability
Notes
2018
$m
21.3
31.3
0.1
0.6
53.3
–
0.1
0.3
0.4
2017
$m
15.4
28.4
0.4
0.9
45.1
0.1
0.3
0.3
0.7
Total deferred tax liabilities
53.7
45.8
Set-off of deferred tax liabilities pursuant to set-off provisions
8(b)
Net deferred tax liabilities
Recovery of total deferred tax liabilities:
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities to be settled after more than 12 months
Brands and
trademarks
and customer
contracts and
relationships
$m
Notes
Deferred
acquisition costs
$m
Depreciation and
amortisation
$m
Unrealised foreign
exchange losses
$m
15.9
(0.3)
(0.2)
15.4
15.4
(1.9)
(0.3)
–
8.1
21.3
23.7
4.7
–
28.4
28.4
3.1
(0.2)
–
–
31.3
0.9
(0.5)
–
0.4
0.4
(0.4)
–
–
0.1
0.1
1.1
(0.2)
–
0.9
0.9
0.1
(0.4)
–
–
0.6
Movements
At 1 July 2016
(Charged)/credited to the income
statement
(Charged)/credited directly to
other comprehensive income
At 30 June 2017
At 1 July 2017
(Charged)/credited to the income
statement
(Charged)/credited directly to
other comprehensive income
(Charged)/credited directly to
equity
Acquisition of business
32
At 30 June 2018
72
(20.1)
33.6
13.6
40.1
53.7
Other
$m
0.3
0.4
–
0.7
0.7
(0.2)
–
(0.1)
–
0.4
(18.9)
26.9
12.6
33.2
45.8
Total
$m
41.9
4.1
(0.2)
45.8
45.8
0.7
(0.9)
(0.1)
8.2
53.7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited d) Accounting policy
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. nib options pty limited and
its wholly-owned Australian controlled entities were a separate tax consolidated group prior to joining the nib holdings limited tax
consolidated group on 4 January 2018. 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.
73
2018 ANNUAL REPORT 9. CASH AND CASH EQUIVALENTS
Cash at bank and cash on hand
Short term deposits and deposits at call
a) Accounting policy
2018
$m
88.7
103.5
192.2
2017
$m
55.4
63.6
119.0
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(b). The maximum exposure to credit risk at the reporting date is the
carrying amount of each class of cash and cash equivalents mentioned above.
c) Reconciliation of profit after income tax to net cash inflow from operating activities
Profit for the year
Net (gain) / loss on disposal of property, plant and equipment
Deferred profit on sale and leaseback of head office building
Fair value (gain) / loss on other financial assets through profit or loss
Share of net (profit) / loss of associates and joint ventures
Non-cash employee benefits expense – share-based payments
Depreciation and amortisation
Gain on sale of controlling interest of Whitecoat business
Net exchange differences
Change in operating assets and liabilities, net of effect from purchase of controlled entity
Decrease (increase) in receivables
Decrease (increase) in deferred acquisition costs
Decrease (increase) in deferred tax assets
Increase (decrease) in trade payables
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
2018
$m
133.5
0.1
(0.4)
(6.2)
0.5
1.5
24.4
–
2.0
5.3
(9.0)
4.9
11.2
13.4
(4.9)
(13.2)
(0.8)
17.6
2017
$m
120.2
0.1
(0.4)
3.1
0.3
1.2
21.7
(5.6)
0.2
0.9
(18.4)
0.8
8.6
27.4
(4.4)
3.6
2.6
9.8
179.9
171.7
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited d) Net debt
This section sets out an analysis and movements in net debt:
Cash and cash equivalents
Liquid investments
Borrowings – repayable within one year
Borrowings – repayable after one year
Net debt
Cash and liquid investments
Gross debt – fixed interest rates
Gross debt – variable interest rates
Net debt as at 1 July 2017
Cashflows
Acquisition of business
Foreign exchange adjustments
Other non-cash movements
Net debt as at 30 June 2018
2018
$m
192.2
731.9
(1.1)
(229.5)
693.5
924.1
–
(230.6)
693.5
Total
$m
591.9
(19.2)
98.3
(0.6)
23.1
693.5
Cash /
Bank overdraft
$m
Liquid
investments
$m
Borrowings
due within 1 year
$m
Borrowings due
after 1 year
$m
119.0
2.8
70.4
–
–
626.1
58.1
27.9
(3.3)
23.1
(1.5)
0.4
–
–
–
(151.7)
(80.5)
–
2.7
–
192.2
731.9
(1.1)
(229.5)
Liquid investments comprise current investments that are traded in an active market, being the Group’s financial assets held at fair
value through profit and loss.
e) Off-balance sheet arrangements
World Nomads Group Pty Limited (WNG), a wholly owned 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 2018 this
amounted to $14,032,703 (2017: $15,839,278).
75
2018 ANNUAL REPORT 10. RECEIVABLES
Current
Premium receivable
Private Health Insurance Premiums Reduction Scheme receivable
Other receivables
Provision for impairment loss
Prepayments
Expected future reinsurance recoveries undiscounted
on claims paid
on outstanding claims
Non-current
Other receivables
2018
$m
11.7
39.2
16.2
(1.7)
7.0
4.2
2.0
78.6
1.7
1.7
As at 30 June 2018, current receivables of the Group with a nominal value of $1.716 million (2017: $1.858 million) were impaired.
The individually impaired receivables relate to premium receivables.
The ageing of these receivables is as follows:
1 to 3 months
3 to 6 months
Over 6 months
Movements in the provision for impairment of receivables are as follows:
At 1 July
Acquisition of business
Provision for impairment recognised during the year
Receivables written off during the year as uncollectible
Unused amount reversed
As of 30 June 2018 and 2017 no receivables were past due but not impaired.
2018
$m
1.0
0.6
0.1
1.7
2018
$m
1.9
0.2
0.9
(0.1)
(1.2)
1.7
Note
32
2017
$m
5.7
36.7
9.2
(1.9)
3.3
0.1
0.1
53.2
1.6
1.6
2017
$m
1.1
0.8
–
1.9
2017
$m
1.1
–
1.5
–
(0.7)
1.9
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited a) Accounting policy
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. 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.
ii) Interest rate risk
Information about the Group’s exposure to interest rate risk in relation to other receivables is provided in
Note 3.
iii) 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.
iv) 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.
v) Reinsurance and other
recoveries receivable
Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid, incurred but
not reported (IBNR), and unexpired risk liabilities are recognised as revenue. Recoveries receivable are
assessed in a manner similar to the assessment of outstanding claims.
Recoveries are measured as the present value of the expected future receipts, calculated on the same
basis as the liability for outstanding claims (see Note 17).
77
2018 ANNUAL REPORT 11. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Current
Equity securities
Interest-bearing securities
Mortgage trusts
Property trusts
Short term deposits
Non-current
Mortgage trusts
Property trusts
2018
$m
2017
$m
124.7
498.9
0.2
13.0
95.1
731.9
0.3
2.7
3.0
110.5
460.5
–
–
55.1
626.1
–
–
–
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.
The redemption terms for investments in certain managed trusts can be varied by their responsible entities in response to market
conditions. For those investments which cannot be redeemed entirely within one year from reporting date, the amounts have been
allocated between current and non-current in accordance with the maximum percentage redeemable within one year as per the most
recent advice from the manager at the end of the reporting period.
a) Accounting policy
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.
iii) Risk exposure
Information about the Group’s exposure to price risk and interest rate risk is provided in Note 3.
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 12. DEFERRED ACQUISITION COSTS
Current
Non-current
Movements in the deferred acquisition costs are as follows:
Balance at beginning of year
Acquisition costs deferred during the year
Amortisation expense
Exchange differences
Deferred acquisition costs by segment are as follows:
Australian Residents Health Insurance
New Zealand Residents Health Insurance
International (Inbound) Health Insurance
a) Accounting policy
2018
$m
45.4
65.3
2018
$m
101.6
57.1
(47.1)
(0.9)
110.7
2018
$m
83.7
23.1
3.9
110.7
2017
$m
41.3
60.3
2017
$m
83.2
60.1
(41.7)
–
101.6
2017
$m
77.3
21.2
3.1
101.6
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 reflects 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 (2017: 5 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 $11.0 million for
30 June 2018.
The recoverability of the related deferred acquisition costs is also considered as part of the liability adequacy test performed.
As described in Note 18, the Group has no deficiency in the unearned premium liability at 30 June 2018.
79
2018 ANNUAL REPORT 12. DEFERRED ACQUISITION COSTS continued
b) Critical accounting judgements and estimates continued
Alternative view
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 current adopted treatment
is more appropriate.
ii) nib New Zealand
The Group incurs upfront commission costs that will give rise to future premium revenue and are able to be directly associated
with a particular insurance contract. These costs are deferred and amortised over the life of the insurance contract. 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.
There are two key assumptions required to recognise the acquisition costs over the life of the insurance contract:
• the period of the insurance contract is assumed to be the average length of insurance for nib nz limited policyholders who are
the subject of an upfront commission; and
• the average length of insurance for nib nz limited policyholders who are the subject of an upfront commission is calculated by
extrapolating historical lapse rates for that group of policyholders.
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 13. PROPERTY, PLANT & EQUIPMENT
Note
Land & Buildings
$m
Plant & Equipment
$m
Leasehold
Improvements
$m
At 1 July 2016
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 2017
Opening net book amount
Additions
Assets included in a disposal group classified as held for sale and
other disposals1
Depreciation charge for the year
Exchange differences
Closing net book amount
At 30 June 2017
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 2018
Opening net book amount
Additions
Acquisition of subsidiary
Disposals
Depreciation charge for the year
Exchange differences
Closing net book amount
At 30 June 2018
Cost
Accumulated amortisation and impairment
Net book amount
1. Land and buildings were transferred to assets classified as held for sale in FY17.
a) Accounting policy
32
1.9
–
1.9
1.9
–
(1.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17.4
(11.8)
5.6
5.6
1.9
–
(2.7)
–
4.8
18.9
(14.1)
4.8
4.8
1.6
0.1
–
(2.4)
–
4.1
18.7
(14.6)
4.1
12.3
(4.3)
8.0
8.0
0.3
–
(1.3)
–
7.0
12.5
(5.5)
7.0
7.0
1.2
–
(0.1)
(1.8)
–
6.3
13.5
(7.2)
6.3
Total
$m
31.6
(16.1)
15.5
15.5
2.2
(1.9)
(4.0)
–
11.8
31.4
(19.6)
11.8
11.8
2.8
0.1
(0.1)
(4.2)
–
10.4
32.2
(21.8)
10.4
All 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.
Depreciation 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:
• Plant and equipment 3 to 10 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 14(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.
81
2018 ANNUAL REPORT 14. INTANGIBLE ASSETS
At 1 July 2016
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 June 2017
Opening net book amount
Additions
Disposals
Amortisation charge for the year
Exchange differences
Closing net book amount
At 30 June 2017
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 June 2018
Opening net book amount
Additions
Acquisition of business
Disposals
Amortisation charge for the year
Exchange differences
Closing net book amount
At 30 June 2018
Cost
Accumulated amortisation and impairment
Net book amount
Note
Goodwill
$m
Software
$m
Brands and
Trademarks
$m
Customer
Contracts and
Relationships
$m
135.2
–
135.2
135.2
–
–
–
(0.2)
135.0
135.0
–
135.0
135.0
–
75.8
–
–
(1.7)
209.1
209.1
–
209.1
69.0
(38.7)
30.3
30.3
13.6
(0.9)
(12.5)
(0.1)
30.4
77.5
(47.1)
30.4
30.4
17.5
1.1
(0.1)
(13.8)
(0.3)
34.8
91.7
(56.9)
34.8
28.9
(4.0)
24.9
24.9
–
–
(0.8)
–
24.1
28.9
(4.8)
24.1
24.1
–
4.8
–
(1.2)
–
27.7
33.6
(5.9)
27.7
47.2
(13.6)
33.6
33.6
–
–
(4.4)
(0.1)
29.1
47.1
(18.0)
29.1
29.1
–
22.5
–
(5.2)
(1.1)
45.3
68.0
(22.7)
45.3
32
Total
$m
280.3
(56.3)
224.0
224.0
13.6
(0.9)
(17.7)
(0.4)
218.6
288.5
(69.9)
218.6
218.6
17.5
104.2
(0.1)
(20.2)
(3.1)
316.9
402.4
(85.5)
316.9
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.
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.
a) Accounting policy
i) Goodwill
ii) Software
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited iii) Brands and
trademarks
Brands and trademarks acquired as part of a business combination are carried at fair value at the date
of acquisition less accumulated amortisation. Amortisation is calculated on the asset’s estimated useful
life which is five years for IMAN Australian Health Plans Pty Ltd and 10 years for Grand United Corporate
Health Limited.
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
and relationships
Customer contracts and relationships 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 both nib nz limited and Grand United Corporate
Health 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
Goodwill and 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.
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.
Goodwill
At 30 June 2018
At 30 June 2017
Brands and trademarks
At 30 June 2018
At 30 June 2017
Australian
Residents Health
Insurance
Australia
$m
International
Workers Health
Insurance
Australia
$m
New Zealand
Residents Health
Insurance
New Zealand
$m
World Nomads
Group Australia
$m
Grand United
Corporate Health
Insurance
Australia
$m
7.1
7.1
18.4
18.4
40.1
41.8
WorldNomads.com
$m
12.7
12.7
67.7
67.7
Travel
Insurance
Direct
$m
6.2
6.2
75.8
–
Suresave
$m
2.9
2.9
Total
$m
209.1
135.0
Total
$m
21.8
21.8
83
2018 ANNUAL REPORT 14. 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 into 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.
These assumptions have been used for analysis of each CGU. 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 2018 and 2017 there were no reasonably possible changes in any of the key assumptions that would have resulted in an
impairment write-down of goodwill in any CGU.
The following table sets out the key assumptions for those CGUs that have significant goodwill allocated to them.
Goodwill
Australian Residents Health Insurance1
International Workers Health Insurance1
New Zealand Residents Health Insurance
Grand United Corporate Health Insurance
1. Excluding Grand United Corporate Health Insurance.
World Nomads Group
Policyholder growth
Claims ratio
Long term growth rate
Pre-tax discount rate
2018
%
3.8
10.9
6.7
1.4
2017
%
4.8
10.7
9.2
N/A
2018
%
83.6
33.8
58.9
81.1
2017
%
84.3
29.4
60.8
N/A
2018
%
3.0
3.0
3.0
3.0
2017
%
3.0
3.0
3.0
N/A
2018
%
10.1
10.1
10.5
10.1
2017
%
10.0
10.0
11.0
N/A
Gross written premium
growth rate
Long term growth rate
Pre-tax discount rate
2018
%
18.1
2017
%
24.7
2018
%
3.0
2017
%
3.0
2018
%
10.1
2017
%
10.0
The following table sets out the key assumptions for those CGUs that have significant indefinite life intangibles allocated to them.
Brand names and trademarks
WorldNomads.com
Travel Insurance Direct
Suresave
Gross written premium
growth rate
2018
%
21.7
13.7
6.1
2017
%
26.6
11.4
8.3
Royalty rate
Long term growth rate
Pre-tax discount rate
2018
%
2.5
2.0
1.5
2017
%
2.5
2.0
1.5
2018
%
3.0
3.0
3.0
2017
%
3.0
3.0
3.0
2018
%
10.1
10.1
10.1
2017
%
10.0
10.0
10.0
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 15. PAYABLES
Current
Outwards reinsurance expense liability – premiums payable to reinsurers
Trade creditors
Other payables
RESA payable1
Annual leave payable
Non-current
Other payables
2018
$m
2017
$m
8.0
18.2
102.0
59.8
7.3
195.3
4.6
4.6
0.3
15.2
84.8
41.8
5.8
147.9
3.3
3.3
1. Risk Equalisation Special Account (RESA) levy, represents expenses incurred under Risk Equalisation Trust Fund 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
2018
$m
0.5
2017
$m
0.5
a) Accounting policy
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. 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.
85
2018 ANNUAL REPORT 16. BORROWINGS
Current
Bank overdraft
Non-current
Bank loans (secured)
2018
$m
1.1
1.1
2017
$m
1.5
1.5
229.5
229.5
151.7
151.7
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 $4.3 million. Outstanding
amounts as at 30 June 2018 are included in Current Liabilities – Payables under Trade Creditors.
Movements in the bank loans (secured) are as follows:
Balance at beginning of period
Proceeds from borrowings
Repayment of borrowings
Exchange differences
Balance at end of period
a) Accounting policy
2018
$m
151.7
80.5
–
(2.7)
229.5
2017
$m
151.9
35.0
(35.0)
(0.2)
151.7
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 that 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.
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited b) Secured liabilities
During the year, nib holdings limited established an AUD $80.5 million variable rate loan with NAB. The loan relates to the acquisition
of Grand United Corporate Health Limited and has a maturity date of 31 October 2020. This is in addition to the existing $85.0 million
variable rate loan with NAB that has a maturity date of 16 December 2019. Both loans are carried at amortised cost.
nib nz holdings limited, a wholly owned subsidiary of nib holdings limited, has a NZD $70.0 million variable rate term loan facility with
a maturity date of 18 December 2019. The bank loan is secured by the shares in nib nz holdings limited and a negative pledge that
imposes covenants on the Group.
The above loans have the following covenants that must be met by the Group:
Financial Covenant
Ratio as at 30 June 2018
Group Gearing Ratio will not be more than 45%
Group Interest Cover Ratio will not be less than 3:1.
29.2%
31:1
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 $70.0 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) Risk exposure
Information on the sensitivity of the Group’s profit and equity to interest rate risk on borrowings is provided in Note 3.
87
2018 ANNUAL REPORT 17. 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
2018
$m
120.3
9.4
1.9
131.6
19.1
1.5
152.2
2017
$m
96.7
6.6
1.6
104.9
14.3
1.0
120.2
1. Risk Equalisation Special Account (RESA) Levy represents expenses incurred under Risk Equalisation Trust Fund arrangements which are provided for within the legislation to
support the principle of community rating.
Movements in the gross outstanding claims are as follows:
Gross outstanding claims at beginning of period
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
32
2018
$m
104.9
(6.6)
(1.6)
96.7
(10.2)
(93.6)
2017
$m
96.7
(4.8)
(1.4)
90.5
(1.7)
(86.6)
1,465.9
(1,347.9)
1,335.1
(1,240.6)
10.0
(0.6)
120.3
9.4
1.9
131.6
–
–
96.7
6.6
1.6
104.9
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.
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 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 two methods are used. For recent service months 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 recent service months the Bornhuetter-Ferguson
method is given some weight, which progressively blends payment experience and prior forecasts of incurred costs.
As most claims for health funds are generally settled within one year, no discounting of claims is usually applied as the difference
between the undiscounted value of claims payments and the present value of claims payments is not likely to be material.
Accordingly, reasonable changes in assumptions would not have a material impact on the outstanding claims balance.
b) Actuarial assumptions
The following assumptions have been made in determining the outstanding claims liability for claims incurred 12 months to the
following financial years:
Australian Residents Health Insurance
Assumed proportion paid to date
Expense rate
Discount rate
Risk margin
Risk equalisation rate
Risk margin for risk equalisation
International Students Health Insurance
Assumed proportion paid to date
Expense rate
Discount rate
Risk margin
International Workers Health Insurance
Assumed proportion paid to date
Expense rate
Discount rate
Risk margin
NZ Health Insurance
Assumed proportion paid to date
Expense rate
Discount rate
Risk margin
General
%
98.1%
1.3%
0.0%
6.4%
0.0%
0.0%
100.0%
3.5%
0.0%
24.9%
94.1%
4.6%
0.0%
16.3%
Hospital
%
90.6%
1.3%
0.0%
6.4%
21.5%
7.9%
67.3%
3.5%
0.0%
24.9%
75.6%
4.6%
0.0%
16.3%
Surgical
%
89.0%
2.1%
0.0%
6.9%
2018
Medical
%
90.9%
1.3%
0.0%
6.4%
21.5%
7.9%
85.6%
3.5%
0.0%
24.9%
86.7%
4.6%
0.0%
16.3%
Medical
%
85.1%
2.1%
0.0%
6.9%
Hospital
%
91.9%
1.4%
0.0%
5.6%
20.5%
6.6%
74.0%
2.0%
0.0%
24.8%
72.3%
6.0%
0.0%
18.5%
Surgical
%
88.8%
2.2%
0.0%
5.8%
2017
Medical
%
91.5%
1.4%
0.0%
5.6%
20.5%
6.6%
87.8%
2.0%
0.0%
24.8%
79.8%
6.0%
0.0%
18.5%
Medical
%
84.2%
2.2%
0.0%
5.8%
General
%
98.0%
1.4%
0.0%
5.6%
0.0%
0.0%
100.0%
2.0%
0.0%
24.8%
94.4%
6.0%
0.0%
18.5%
The risk margin of the underlying liability has been estimated to equate to a probability of adequacy of 95% (June 2017: 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. Although the variability assumptions used
in determining the risk margins are unchanged from the prior year for each Australian segment, differences appear due to the
incorporation of Grand United Corporate Health Limited into 2018 numbers.
89
2018 ANNUAL REPORT 17. OUTSTANDING CLAIMS LIABILITY continued
c) Process used to determine assumptions
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 table below describes how a change in each assumption
will affect the insurance liabilities.
Key variable
Description
Impact of movement in variable
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.
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.
Expense rate
Claims handling expenses were calculated by reference to past
experience of total claims handling costs as a percentage of total
past payments.
An increase or decrease in the chain
ladder factors would lead to a higher or
lower projection of the ultimate liability
and a corresponding increase or decrease
in claims expense respectively.
An increase or decrease in the level of
unpaid factors would lead to a higher or
lower projection of the ultimate liability
and a corresponding increase or decrease
on claims expense respectively.
An estimate for the internal costs of
handling claims is included in the
outstanding claims liability. An increase or
decrease in the expense rate assumption
would have a corresponding impact on
claims expense.
Discount rate
As most 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.
N/A
Risk
equalisation
allowance
Risk margin
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.
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.
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 2017: 95%).
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.
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited d) Sensitivity analysis – impact of key variables
Recognised amounts in the financial statements attributable to owners of nib holdings limited
132.4
Profit after tax
2018
$m
Equity
2018
$m
557.8
Variable
Movement in
variable
Adjustments Adjusted amounts
Adjustments Adjusted amounts
Chain ladder development factors
Bornhuetter-Ferguson unpaid factors
Expense rate
Risk equalisation allowance
Risk margin
+0.5%
-0.5%
+2.0%
-2.0%
+1.0%
-1.0%
+2.5%
-2.5%
+1.0%
-1.0%
$m
(10.6)
10.6
(3.6)
3.6
(0.9)
0.9
(1.7)
1.7
(1.0)
1.0
$m
121.8
143.0
128.8
136.0
131.5
133.3
130.7
134.1
131.4
133.4
$m
(10.6)
10.6
(3.6)
3.6
(0.9)
0.9
(1.7)
1.7
(1.0)
1.0
$m
547.2
568.4
554.2
561.4
556.9
558.7
556.1
559.5
556.8
558.8
91
2018 ANNUAL REPORT 18. UNEARNED PREMIUM LIABILITY AND UNEXPIRED RISK LIABILITY
a) Unearned premium liability
Current
Non-current
The unearned premium liability reflects premiums paid in advance by customers.
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
b) Unexpired risk liability
2018
$m
2017
$m
205.1
174.7
32.7
28.9
Notes
32
2018
$m
203.6
20.9
188.0
(174.7)
237.8
2017
$m
176.2
–
179.3
(151.9)
203.6
No deficiency was identified as at 30 June 2018 and 2017 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 respect 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 a 75% (June 2017: 95%) probability of adequacy
for future claims which is lower than the 95% achieved in the estimate of the outstanding claims liability, refer to Note 17(b) as
the former is in effect an impairment test used to test the sufficiency of the unearned premium liability whereas the latter is a
measurement accounting policy used in determining the carrying value of the outstanding claims liability. No deficiency was
identified as at 30 June 2018 and 2017 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.
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 19. PREMIUM PAYBACK LIABILITY
Current
Non-current
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 the year
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
2018
$m
3.7
2017
$m
9.5
14.4
13.5
2018
$m
23.0
(0.1)
(0.9)
(0.6)
21.4
2.7
0.5
0.4
(7.1)
(0.1)
(0.8)
17.0
–
0.6
0.5
18.1
2017
$m
27.4
–
(1.1)
(0.7)
25.6
3.0
0.7
(0.7)
(6.9)
(0.1)
(0.2)
21.4
0.1
0.9
0.6
23.0
Risk exposure
Information about the Group’s exposure to interest rate risk in relation to premium payback liability is provided in Note 3(b).
a) 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 (2017: 95%).
2018
2017
2.0% – 10.0% 2.0% – 10.0%
0.0% – 1.0% 0.0% – 1.0%
0.0%
0.0%
1.8% – 2.2% 2.0% – 2.7%
2.6%
2.6%
93
2018 ANNUAL REPORT 19. PREMIUM PAYBACK LIABILITY continued
b) Sensitivity analysis
i) Summary
The Group conducts sensitivity analysis to quantify the exposure to risk of changes in the key underlying actuarial assumptions.
The movement in any key variable will impact the performance and equity of the Group. The table below provides a description of
the processes used to determine these assumptions, as well as how a change in each assumption will affect the insurance liabilities.
Key variable
Description
Impact of movement in variable
Lapse rate
Rate used in calculating the discounted provision to allowed
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.
Discount rate
Rate used in calculating the discounted provision to allow
for expected investment income, based on 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.
Risk margin
An estimate of the amount of uncertainty in the
determination of the central estimate.
An increase or decrease in the risk margin
would have a corresponding impact on the
premium payback liability.
ii) Impact of key variables
Recognised amounts in the financial statements attributable to owners of nib holdings limited
132.4
Profit after tax
2018
$m
Variable
Lapse rate
Discount rate
Risk margin
Movement in
variable
Adjustments
Adjusted
amounts
Adjustments
+1.0%
–1.0%
+1.0%
–1.0%
+1.0%
–1.0%
$m
0.4
(0.4)
0.6
(0.7)
(0.1)
0.1
$m
132.8
132.0
133.0
131.7
132.3
132.5
$m
0.4
(0.4)
0.6
(0.7)
(0.1)
0.1
c) 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 2018 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 2018 (2017: nil) that resulted in an unexpired risk liability needing to be recognised.
Equity
2018
$m
557.8
Adjusted
amounts
$m
558.2
557.4
558.4
557.1
557.7
557.9
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 20. PROVISION FOR EMPLOYEE ENTITLEMENTS
Current
Long service leave
Termination benefits
Non-current
Long service leave
2018
$m
4.0
0.2
4.2
2.4
2.4
2017
$m
3.1
0.7
3.8
2.4
2.4
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
2018
$m
3.3
2017
$m
2.8
a) Accounting policy
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.
iv) 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.
95
2018 ANNUAL REPORT 21. 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
2018
$m
0.4
0.4
4.8
4.8
2017
$m
0.4
0.4
5.2
5.2
a) Accounting policy
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 amortised
over the lease term of 15 years. The subsequent leasing agreement is treated as an operating lease. The non-current portion of the
deferred profit will be amortised between 2016 and the end of the lease term.
22. 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 2016 Opening balance
30 June 2017 Balance
1 July 2017 Opening balance
26 Sep 2017 Shares issued – Institutional placement1
27 Oct 2017 Shares issued – Share purchase plan1
Share issue transaction costs
Deferred tax component
30 June 2018 Balance
2018
$m
2017
$m
116.1
28.1
(3.8)
112.3
No. of shares
Price $
439,004,182
439,004,182
439,004,182
10,619,470
5,225,217
–
–
454,848,869
–
5.65
5.65
–
–
(3.1)
25.0
$m
28.1
28.1
28.1
60.0
29.5
(2.1)
0.6
116.1
1. The majority of the shares issued during the year were used to fund the acquisition of Grand United Corporate Health Limited. See Note 32 Business Combination.
96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 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 35 for more information.
Date
Details
1 July 2016 Balance
Acquisition of shares by the Trust
Employee share issue – LTIP
Employee share issue – STI
1 July 2017 Balance
Acquisition of shares by the Trust
Employee share issue – LTIP
Employee share issue – STI
30 June 2018 Balance
No. of shares
370,396
787,278
(345,771)
(223,330)
588,573
802,394
(559,057)
(217,678)
614,232
$m
1.6
4.0
(1.5)
(1.0)
3.1
5.0
(3.0)
(1.3)
3.8
d) Accounting policy
i) Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction, net of tax, from the proceeds. If the entity reacquires its own equity
instruments, for example as the result of a share buy-back, those instruments are deducted from equity
and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the
consideration paid including any directly attributable incremental cost (net of income taxes) is recognised
directly in equity.
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.
23. 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
2018
$m
399.0
132.4
1.1
(87.0)
445.5
2017
$m
356.2
119.6
–
(76.8)
399.0
97
2018 ANNUAL REPORT 24. 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
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
2018
$m
–
3.2
(5.6)
2.4
–
2018
$m
1.1
(1.2)
0.1
–
2.5
1.5
(0.8)
3.2
(3.4)
0.8
(3.0)
(5.6)
4.4
(2.6)
0.6
2.4
2017
$m
1.1
2.5
(3.4)
4.4
4.6
2017
$m
1.1
–
–
1.1
1.7
1.2
(0.4)
2.5
(2.3)
0.4
(1.5)
(3.4)
4.5
(0.3)
0.2
4.4
Note
8(a)(iv)
8(a)(iii)
i) 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.
ii) 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.
iii) 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.
iv) Foreign currency
translation
Exchange rate differences arising on translation of foreign controlled entities are recognised in other
comprehensive income as described in Note 1(c) and accumulated in a separate reserve within equity.
The cumulative amount is reclassified to profit or loss when the net investment is disposed of.
98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 25. DIVIDENDS
a) Ordinary shares
Final dividend for the year ended 30 June 2017 of 10.5 cents (2016 – 9.0 cents) per fully paid share
paid on 6 October 2017
Fully franked based on tax paid at 30%
46.1
39.5
2018
$m
2017
$m
Interim dividend for the year ended 30 June 2018 of 9.0 cents (2017 – 8.5 cents) per fully paid share
paid on 3 April 2018
Fully franked based on tax paid at 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 11.0 cents (2017 – 10.5 cents) per fully paid ordinary share, fully franked based on tax
paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 5 October 2018 out
of retained profits at 30 June 2018, but not recognised as a liability at the end of the year, is:
40.9
87.0
37.3
76.8
2018
$m
2017
$m
50.0
46.1
c) Franked dividends
The franked portion of the final dividends recommended after 30 June 2018 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 2018.
Franking credits available for subsequent financial years to equity holders of parent entity
based on a tax rate of 30%
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
• Franking credits that will arise from the payment of the amount of the provision for income tax;
• Franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
• Franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
2018
$m
2017
$m
63.8
51.7
d) Accounting policy
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.
99
2018 ANNUAL REPORT 26. EARNINGS PER SHARE
Profit from continuing operations attributable to the ordinary equity holders of the company
used in calculating basic/diluted EPS
Weighted average number of ordinary shares
Basic / Diluted EPS
a) Accounting policy
2018
2017
$m
#m
cents
132.4
450.6
29.4
119.6
439.0
27.2
i) Basic earnings
Basic earnings per share is calculated by dividing:
per share
• the profit attributable to equity holders of the company, excluding any costs of servicing equity other
than ordinary shares; and
• 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.
b) 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 2,381,654 performance rights granted (2017 - 2,290,162) 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 2018. These performance rights could potentially dilute basic earnings per share
in the future.
100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 27. 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, has achieved a return on equity of 20% or greater for the last five years
and continues to target return on equity in the order of 20%. The return on equity as at 30 June 2018 is 26.2% (2017: 29.5%).
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 2018 the Group had available capital of $25.5 million above our internal benchmark (after allowing for the payment
of a fully franked final ordinary dividend of 11.0 cents per share, totalling $50.0 million, in October 2018).
Below is a reconciliation of net assets to available capital as at 30 June 2018 (after allowing for payment of a final dividend):
Net assets
Less: nib health fund capital required
nib nz capital required
Grand United capital required
Joint venture in China capital required
Acquisition of QBE Travel capital required
Capital required looking forward 12 months
nib nz intangibles
Grand United intangibles
iihi intangibles
World Nomads Group intangibles
Borrowings
Other assets and liabilities
Final dividend
Available capital (after allowing for payment of final dividend)
2018
$m
557.8
(282.8)
(85.0)
(49.2)
(11.2)
(36.0)
(3.7)
(34.6)
(101.3)
(19.9)
(98.5)
229.5
10.4
(50.0)
25.5
101
2018 ANNUAL REPORT 27. CAPITAL MANAGEMENT continued
nib health funds limited and Grand United Corporate Health Limited
nib health funds limited and Grand United Corporate Health Limited, controlled entities, are 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 and
Grand United Corporate
Health Limited:
To comply with the
Capital Adequacy
Standard, nib health
funds limited and
Grand United Corporate
Health 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).
(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 14.4% 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 $41.7 million in September 2017 and $47.8 million in February 2018
to nib holdings limited.
The surplus assets over benchmark at 30 June 2018 and 30 June 2017 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
2018
$m
818.2
530.4
287.8
322.2
282.8
39.4
2017
$m
756.3
499.1
257.2
294.7
270.4
24.3
102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited Grand United Corporate Health Limited has a capital management plan which establishes a target for capital held in excess of the
regulatory requirement; the aim is to maintain a sufficient buffer in line with the Board’s risk appetite and risk tolerances. The internal
capital target ensures Grand United maintain the preferred range of capital adequacy ratio (CAR) given certain stressed capital
scenarios. Grand United targets the lower end of this CAR range currently approximating to 1.35x the Capital Adequacy Requirement.
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. No dividends were paid from Grand United Corporate Health to nib holdings limited for the year.
The surplus assets over benchmark at 30 June 2018 are as follows:
Total assets Grand United Corporate Health Limited (per Capital Adequacy Standard)
Capital adequacy requirement
Surplus assets for Capital Adequacy
Net assets Grand United Corporate Health Limited
Internal capital target
Surplus assets over internal capital target
nib nz limited
2018
$m
130.4
77.9
52.5
70.3
45.0
25.3
2017
$m
N/A
N/A
N/A
N/A
N/A
N/A
nib nz limited, a controlled entity, is required to comply with the Solvency Standard for Non-Life Insurance Business (2014) published
by the Reserve Bank of New Zealand (RBNZ). The Solvency Standards determine the Minimum Solvency Capital (MSC) required.
A requirement of nib nz limited’s insurance licence is that it maintains capital above the MSC.
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 MSC for nib nz limited;
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.
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 NZD $13.2 million in
February 2018 to nib nz holdings limited.
The surplus assets over benchmark at 30 June 2018 and 30 June 2017 are as follows:
Actual Solvency Capital
Minimum Solvency Capital
Solvency Margin
Net assets nib nz limited
Capital Adequacy Coverage Ratio
Internal benchmark
Internal benchmark requirement
Surplus/(deficit) assets over internal benchmark
2018
$m
28.2
10.4
17.8
91.8
2.71
2017
$m
24.4
10.2
14.2
90.1
2.40
2.00xMSC
2.00xMSC
20.8
7.4
20.3
4.1
103
2018 ANNUAL REPORT 28. COMMITMENTS FOR EXPENDITURE
a) Operating lease commitments
2018
$m
2017
$m
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
12.5
41.7
54.5
108.7
The Group entered into an agreement to lease Auckland premises for a lease term of 6 years commencing 1st November 2014.
As part of the lease a $0.9 million bank guarantee was required.
b) Capital expenditure commitments
Payable:
– not longer than one year
c) Related parties commitments
Refer to Note 33(c)(ii) for commitments to related parties.
2018
$m
3.5
3.5
8.2
22.5
35.9
66.6
2017
$m
0.3
0.3
104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 29. CONTINGENT LIABILITIES
On 30 May 2017, the Australian Competition and Consumer Commission (ACCC) instituted proceedings in the Federal Court against
nib health funds limited (nib). The ACCC alleges that nib engaged in misleading and deceptive conduct, unconscionable conduct
and made false or misleading representations by failing to notify customers in relation to changes made to its Medigap Scheme.
nib denies the ACCC’s allegations and intends to defend the claims. In the event that the Court finds in favour of the ACCC, nib may
have potential liabilities, including pecuniary penalties. The matter was unsuccessfully mediated in October 2017 and was set down
for hearing in June 2018. The hearing date was vacated in June 2018. The matter has yet been set down for a new hearing date.
Due to the nature of the matter, the outcome is uncertain. Costs incurred to date should be partially recoverable under nib’s corporate
insurance program.
nib operates in an industry where an increasing number of Australians are facing affordability challenges and are more regularly
reviewing their health insurance cover to maximise value from their policy. nib regularly engages with customers and other industry
stakeholders to understand potential areas of concern and to implement improvements that enhance the customer experience and
improve transparency. Taking into consideration feedback from a range of industry stakeholders, nib has undertaken a comprehensive
end-to-end review of our customer communications and the way we advise customers of changes to their nib health cover products.
This review has resulted in improvements to nib’s practices.
On an ongoing basis there is the possibility that nib may receive complaints related to past practices which could give rise to nib
incurring costs. The Directors are not currently aware of any complaints that could give rise to costs that will materially impact nib’s
financial position.
Members of the Group have 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 the Group believes the responsibility for
stamp duty lies with their underwriting partners, the Group have no further exposure to the States and Territories with respect to this
miscalculation as they have settled the voluntary disclosures. The Group’s Professional Indemnity insurer has been notified, granted
indemnity and has exercised its right of subrogation.
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 nib Global Pty Limited by subordinating repayment of debts owed by the entities to nib holdings limited, in favour of
all other creditors. This undertaking has been provided as a result of each of these subsidiaries experiencing deficiencies of capital
and reserves, and is intended to enable the entities to continue their operations and fulfil all financial obligations now and in the future.
The undertaking is provided for a minimum period of twelve months from 18 August 2018, or if earlier, to the date of sale of the entities
should this occur.
30. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
On 3 August 2018, nib announced that its subsidiary, World Nomads Group, would acquire QBE’s travel insurance business
(QBE Travel), for a total consideration of up to $25.0 million.
QBE Travel is Australia’s fourth largest travel insurer and has an extensive distribution network including partnerships with well-known
Australian brands, as well as a national network of more than 2,000 travel insurance agents.
The transaction will be funded through existing available capital.
There have not been any other matters or circumstances that have arisen since the end of the financial year that has significantly
affected, or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in
future financial years.
105
2018 ANNUAL REPORT 31. REMUNERATION OF AUDITORS
a) PricewaterhouseCoopers Australia
1. Audit services
Audit and review of financial report and other audit work under the Corporations Act 2001
Total remuneration for audit services
2. Non-audit services
Audit-related services
Audit of regulatory returns
Total remuneration for audit-related services
Taxation services
Tax compliance services
International tax consulting and tax advice on mergers and acquisitions
Total remuneration for taxation services
Other services
Accounting advice and support including one off transactions
Review of regulatory returns
Cyber security consulting services
Total remuneration for other services
2018
$
2017
$
701,953
701,953
450,244
450,244
101,966
101,966
55,284
55,284
80,562
82,465
163,027
266,872
11,628
9,000
287,500
257,448
84,662
342,110
13,464
11,628
15,500
40,592
Total remuneration for non-audit services
552,493
437,986
Total remuneration of PricewaterhouseCoopers Australia
1,254,446
888,230
b) Network firms of PricewaterhouseCoopers Australia
1. Audit services
Audit and review of financial report and other audit work under the Corporations Act 2001
Total remuneration for audit services
2. Non-audit services
Audit-related services
Audit of regulatory returns
Total remuneration for audit-related services
Taxation services
Tax compliance services
Tax consulting services
International tax consulting and tax advice on mergers and acquisitions
Total remuneration for taxation services
Other services
Accounting advice and support
Cyber security consulting services
Total remuneration for other services
203,356
203,356
172,483
172,483
11,800
11,800
26,238
11,507
–
37,745
–
–
–
11,716
11,716
34,736
37,549
–
72,285
4,724
26,071
30,795
Total remuneration for non-audit services
49,545
114,796
Total remuneration of network firms of PricewaterhouseCoopers
252,901
287,279
Total auditors’ remuneration
1,507,347
1,175,509
106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 32. BUSINESS COMBINATION
a) Summary of acquisition
On 31 October 2017 nib holdings limited acquired 100% of the issued capital of Grand United Corporate Health Limited (GU Health)
Australia’s only established specialised corporate group private health insurer for a consideration of $155.7 million. The transaction
was funded by a fully underwritten institutional equity placement of $60.0 million, a non-underwritten Share Purchase Plan of
$15.0 million and a new debt facility of $80.5 million.
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
Financial assets at fair value through profit or loss
Property, plant and equipment
Software
Intangible assets: Brand
Intangible assets: Customer contracts
Intangible assets: Distribution relationships
Deferred tax assets
Payables
Outstanding claims liability
Unearned premium liability
Deferred tax liabilities
Provision for employee entitlements
Net identifiable assets acquired
Add: Goodwill
Net assets acquired
$m
155.7
155.7
Fair value
$m
70.4
13.6
0.7
27.9
0.1
1.1
4.8
10.1
12.4
4.5
(20.5)
(15.3)
(20.9)
(8.2)
(0.8)
79.9
75.8
155.7
The goodwill is attributable to the future profitability of the acquired business. None of the goodwill is deductible for tax purposes.
i) Acquisition related costs
Total acquisition related costs of $3.3 million that were not directly attributable to the issue of shares are included in other expenses in
profit or loss and in operating cash flows in the statement of cash flows.
ii) Revenue and profit contribution
The acquired business contributed $115.5 million to Group revenue and $9.5 million to net profit after tax for the period
31 October 2017 to 30 June 2018. If the acquisition had occurred on 1 July 2017, consolidated pro-forma revenue and profit for the
year ended 30 June 2018 would have been $2,292.2 million and $148.3 million respectively. These amounts have been calculated
using the subsidiary’s results.
iii) Acquired receivables
The fair value of acquired receivables is $13.6 million. The gross amount due is $13.8 million of which $0.2 million has been
provided for.
107
2018 ANNUAL REPORT 32. BUSINESS COMBINATION continued
b) Purchase consideration – cash outflow
Cash consideration
Less: Cash balances acquired
Outflow of cash – investing activities
c) Accounting policy
$m
155.7
(70.4)
85.3
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.
108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited
33. INTEREST IN OTHER 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 Limited
nib Options (Thailand) Co Limited
Digital Health Ventures Pty Limited
nib Philippines Pty Limited
nib Asia Pty Ltd
Nuo Ban Business Information Consulting (Shanghai) Co Ltd
nib International Student Services Pty Ltd
Grand United Corporate Health Limited
World Nomads Group Pty Limited
WNG Services Pty Limited
World Experiences Assist Pty Limited
Suresave Pty Limited
SureSave Net Limited
Sure-Save.net Pty Ltd
Travel Insurance Direct Holdings Pty Limited
Travel Insurance Direct Pty Ltd
Travel Insurance Direct (New Zealand) Ltd
Cheap Travel Insurance Pty Limited
nib Travel Insurance Distribution Pty Limited (formerly 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 Viagrem Brasil LTDA
Nomadic Insurance Benefits Holdings Limited
Nomadic Insurance Benefits Limited
World Nomads Travel Lifestyle (Europe) Ltd
NIB Travel Services Ireland Limited
Nomadic Insurance Limited (Cayman Co.)
Travellr Pty Limited
Place of Incorporation
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
Australia
Australia
Australia
Thailand
Thailand
Australia
Australia
Australia
China
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
Australia
United States of America
United Kingdom
Canada
Australia
Australia
Australia
Australia
Brazil
Ireland
Ireland
Ireland
Ireland
Cayman Islands
Australia
2018
%
100
100
100
100
100
100
100
100
100
100
100
100
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
100
100
2017
%
100
100
100
100
100
100
100
92.5
92.5
92.5
46.23
69.36
50
100
100
N/A
N/A
N/A
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
N/A
100
109
2018 ANNUAL REPORT 33. INTEREST IN OTHER ENTITIES continued
a) Subsidiaries and trusts continued
Travel Insurance Compared Pty Limited
TravelClear Pty Limited
Travellers Assistance Group Pty Limited (deregistered on 15 February 2018)
Hello Travel Insurance Pty Limited
World Experiences Pty Limited
World Experiences Group Pty Limited
World Experiences Travel Pty Limited
Place of Incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
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
Beneficial ownership by
Consolidated entity
2018
%
100
100
100
100
100
100
100
2017
%
100
100
100
100
100
100
100
b) Non-controlling interests (NCI)
During the year, the Group acquired the non-controlling interest held in nib Options group for $0.1 million.
There are no non-controlling interests at 30 June 2018.
c) Interest in associates and joint ventures
i) Whitecoat Holdings Pty Ltd
The Group holds a 35.3% (2017: 35.0%) ownership interest in Whitecoat Holdings Pty Ltd which is the parent company of Whitecoat
Operating Pty Ltd.
Aggregate carrying amount of individually immaterial associates and joint ventures
Aggregate amounts of the Group’s share of:
Profit/(loss) from continuing operations
Total comprehensive income
2018
$m
2.1
(0.5)
(0.5)
2017
$m
2.3
(0.3)
(0.3)
ii) Tasly Holding Group Co. Ltd.
On 27 June 2018 nib Asia Pty limited (a wholly owned subsidiary of nib holdings limited) executed joint venture contracts with
Tasly Holding Group Co. Ltd. One of the conditions of the contracts is that nib contributes of RMB50.0 million (AUD $11.2 million)
to the Chinese joint venture entities when they are incorporated. This is required to fund the set-up of a health insurance distribution
business in China.
110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 34. 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
2018
$
2017
$
7,319,125
6,373,468
326,913
52,659
–
336,587
42,371
–
3,047,497
2,638,349
10,746,192
9,390,775
Detailed remuneration disclosures are provided in the Remuneration Report on pages 24 to 43.
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 43.
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.
111
2018 ANNUAL REPORT 35. 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 page 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(b).
Set out below is a summary of performance rights granted under the plan:
2018
Balance at start
of the year
Granted as
compensation
Exercised
Other forfeitures
Balance at the
end of the year
Vested and
exercisable
Mark Fitzgibbon
1,018,800
222,298
(273,786)
332,676
282,676
203,816
150,419
136,006
–
–
135,230
2,259,623
62,727
61,151
42,252
31,365
30,751
28,699
37,281
43,930
(89,060)
(79,437)
(57,316)
(33,020)
(26,438)
–
–
–
560,454
(559,057)
–
–
–
–
–
–
–
–
–
–
967,312
306,343
264,390
188,752
148,764
140,319
28,699
37,281
179,160
2,261,020
–
–
–
–
–
–
–
–
–
–
Michelle McPherson
Rhod McKensey
Rob Hennin
Brendan Mills
Justin Vaughan
Wendy Lenton
Roslyn Toms
David Kan
Total
2017
Balance at start
of the year
Granted as
compensation
Exercised
Other forfeitures
Balance at the
end of the year
Vested and
exercisable
Mark Fitzgibbon
1,124,585
225,980
(207,353)
(124,412)
1,018,800
Michelle McPherson
Rhod McKensey
Rob Hennin
Brendan Mills
Justin Vaughan
David Kan
Total
360,831
279,981
147,192
149,146
96,930
79,406
79,716
77,708
56,624
39,860
39,076
55,824
(67,419)
(46,883)
–
(40,452)
(28,130)
–
(24,116)
(14,471)
–
–
–
–
332,676
282,676
203,816
150,419
136,006
135,230
2,238,071
574,788
(345,771)
(207,465)
2,259,623
–
–
–
–
–
–
–
–
Unvested
967,312
306,343
264,390
188,752
148,764
140,319
28,699
37,281
179,160
2,261,020
Unvested
1,018,800
332,676
282,676
203,816
150,419
136,006
135,230
2,259,623
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
2018
152,600
2017
67,343
The shares were allocated in two tranches. The first tranche of shares were for allocated on 23 August 2017 following nib’s FY17 full
year results presentation at a volume weighted average price of $5.80. The remaining tranche of shares were allocated on 21 February
2018 following nib’s FY18 half year results presentation at a volume weighted average price of $6.93.
112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 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 NZD $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
2018
19,840
2017
2,409
The shares were allocated on 23 August 2017 following nib’s FY17 full year results presentation at a volume weighted average price
of $5.80.
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
2018
49,216
2017
47,452
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 NZD $10,000 worth of fully paid ordinary
shares in nib holdings limited, made up of NZD $5,000 salary sacrifice and NZD $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
2018
4,725
2017
1,650
113
2018 ANNUAL REPORT 35. SHARE–BASED PAYMENTS continued
f) Short term Performance Incentive (STI)
All eligible employees have a STI opportunity. For the MD/CEO the maximum target bonus opportunity is 125% of the base
remuneration package with 50% of the calculated entitlement to be deferred into shares. For the CFO/DCEO, GEARHI and
CEO NZ the maximum target bonus opportunity is 80% of the remuneration package with 50% of the calculated entitlement
deferred into shares. For other executives the maximum entitlement is 60% 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 Note1(b).
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 22(b).
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
h) Accounting policy
2018
$m
1.0
0.3
1.5
1.3
4.1
2017
$m
0.3
0.3
1.2
1.0
2.8
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 22(d)(ii).
When the performance rights are exercised, the trust transfers the appropriate amount of shares to the employee.
Under the Employee Share Acquisition (tax exempt) Plan, the nib Salary Sacrifice Plan and Matching Plan and the Short term
Performance Incentive, shares are acquired on-market and expensed.
114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited 36. 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 for the year
Total comprehensive income for the year
Refer to Note 29 for contingent liabilities of parent entity.
2018
$m
2017
$m
56.8
698.7
755.5
3.9
165.5
169.4
50.2
548.4
598.6
17.1
85.9
103.0
586.1
495.6
385.2
(2.4)
203.3
586.1
2018
$m
91.0
91.0
297.2
(0.9)
199.3
495.6
2017
$m
85.2
85.2
115
2018 ANNUAL REPORT 36. PARENT ENTITY FINANCIAL INFORMATION continued
a) Accounting policy
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.
37. 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 17 August 2018. The company has the power to amend and reissue
the Financial Report.
116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2018nib holdings limited DIRECTORS’ DECLARATION
for the year ended 30 June 2018
In the Directors’ opinion:
a. the financial statements and notes set out on pages 45 to 116 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 2018 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
17 August 2018
Anne Loveridge
Director
117
2018 ANNUAL REPORT
INDEPENDENT AUDITOR’S REPORT
to the members of nib holdings limited
for the year ended 30 June 2018
Independent auditor’s report
To the members of nib holdings limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of nib holdings limited (the Company) and its controlled entities (together the
Group) is in accordance with the Corporations Act 2001, including:
giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial
a.
performance for the year then ended
b.
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
the consolidated balance sheet as at 30 June 2018
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the consolidated income statement for the year then ended
the notes to the consolidated financial statements, which include a summary of significant accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit of the financial report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of
Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We
have also fulfilled our other ethical responsibilities in accordance with the Code.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial report.
PricewaterhouseCoopers, ABN 52 780 433 757
Level 3, 45 Watt Street, PO Box 798, NEWCASTLE NSW 2300
T: +61 2 4925 1100, F: +61 2 4925 1199, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
118
nib holdings limited We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial report as a whole, taking into account the geographic and management structure of the Group, its accounting
processes and controls and the industry in which it operates.
Materiality
For the purpose of our audit we used overall Group materiality of $9.6 million, which represents
approximately 5% of the Group’s profit before tax.
We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial
report as a whole.
We chose Group profit before tax because, in our view, it is the benchmark against which the performance of
the Group is most commonly measured.
We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly
acceptable thresholds.
Audit Scope
The nib holdings limited group provides health and medical insurance to Australian and New Zealand
residents, medical insurance to international inbound workers and students, as well as distributing travel
insurance products both in Australia and internationally.
Our audit focused on where the consolidated entity made subjective judgements; for example, significant
accounting estimates involving assumptions and inherently uncertain future events.
We decided the nature, timing and extent of work that needed to be performed by us and component auditors
from other PwC network firms or other networks operating under our instruction. We then structured our
audit approach as follows:
o We audited the financial information of the nib holdings limited group and focussed on entities within the
group that have financial significance
o We performed specified risk focused audit procedures over revenue, debtors, intangible assets, tax and
business combination accounting, focussing on entities recently acquired by the group
o Work was performed by component auditors in New Zealand. For these procedures, we decided on the
level of involvement required from us to be able to conclude whether sufficient appropriate audit evidence
had been obtained. Our involvement included discussions and written instructions and reporting
throughout the year with the component auditors,
o We performed further audit procedures at a Group level, including over the consolidation of the Group’s
reporting units and the preparation of the financial report.
PwC specialists in taxation, information technology, actuarial and valuations assisted the audit.
Our audit also focused on where the directors made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
119
2018 ANNUAL REPORT Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial report for the current period. The key audit matters were addressed in the context of our audit of the
financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We
communicated the key audit matters to the Audit Committee.
Key audit matter
Amortisation and recoverability of Australian
residents health insurance (arhi) Deferred
Acquisition Costs (DAC) $83.7m (2017 $77.3m)
(Refer to note 12)
The Group recognises an asset (DAC) for the upfront
commission paid to retail brokers on signing new members.
The Group considers the duration of a health insurance
contract to be an open ended agreement as the Group
insure their customers under continuing policies. The DAC
is required to be amortised over the expected customer
contract life, which the Group, at 30 June 2018, measures
at 5 years, being the typical tenure period for an arhi
customer policy.
The Group also is required to assess whether the DAC is
recoverable. This is determined by assessing whether the
arhi unearned premiums, net of associated DAC, are
adequate to cover future claims on those related policies.
This is a key audit matter as
judgement is made over the expected customer
contract life of an arhi customer remaining with the
Group
there is judgement and estimation made in relation
to future claims costs which affect the required
calculation over recoverability of the DAC asset.
This calculation of the expected customer contract life is
inherently difficult to estimate as, although it is based on
the most up to date information of arhi customer lapse
experienced by the Group, it is susceptible to change as
more data becomes available.
How our audit addressed the key audit
matter
We tested the accuracy of acquisition costs
capitalised by vouching a sample of acquisition
costs to supporting documentation.
Our actuarial team re-performed the Group’s
calculation for the average expected arhi
policyholder contract life. This was based on
historical customer lapse periods.
We agreed that the policyholder contract life of 5
years was applied to the DAC in order to calculate
amortisation expense for the year. We performed
testing over the accuracy of the amortisation
calculations.
We also checked the accuracy and reasonableness
of the calculation for any potential loss making
contracts and note that there is no deficiency
recognised. By comparison to past claims
experience, we tested the assumptions and inputs
into the recoverability assessment including:
expected claims experience
risk margins
claims handling costs
policy administration expenses and
the period over which the test was
conducted.
120
INDEPENDENT AUDITOR’S REPORT continuedto the members of nib holdings limitedfor the year ended 30 June 2018nib holdings limited Key audit matter
Impairment testing of World Nomads Group
goodwill $67.7m (2017 $67.7m) and indefinite lived
intangibles $21.8m (2017 $21.8m)
(Refer to note 14)
nib holds within its intangibles balance, goodwill and brand
names in relation to its acquisitions, including the
acquisition of the World Nomads Group in July 2015.
We focused our work in particular on the World Nomads
Group goodwill and brand names, given they comprised 28%
(2017:41%) of the Group’s intangible assets.
In preparing the value in use model used to assess the value
of this intangible asset, the Group makes a number of key
assumptions that are judgemental.
These assumptions are discussed in detail in note 14 which
indicates that the value in use model remains sensitive to a
range of assumptions, in particular to the revenue growth
rates of the business.
How our audit addressed the key audit
matter
We performed the following procedures, amongst
others:
Assessed whether the division of the Group
into Cash Generating Units (CGUs), was
consistent with our knowledge of the Group’s
operations and internal Group reporting
Agreed that forecast cashflows used in the
impairment model were consistent with the
most up-to-date budgets and business plans
formally approved by the Board
Considered whether the cashflows for the
forecast period (three years and then
terminal) were reasonable and based on
supportable assumptions, by comparing them
to actual cashflows for previous years and
industry data and future developments
Performed sensitivity analysis on the
assumptions. We determined that the
calculations were more sensitive to
assumptions for gross written premium
growth and related costs, and focused our
testing on these assumptions.
Considered whether the discount rate
appropriately reflected the risks of the CGUs
by comparing the discount rate to external
market data. We also tested the sensitivity of
the impairment test by increasing the
discount rate.
121
2018 ANNUAL REPORT Key audit matter
Estimation of outstanding claims liability
$152.2m (2017 $120.2)
(Refer to note 17)
We focused on this balance because of the size of the
liability and the complexity and judgements involved in the
estimation process.
The liability is an estimate of expected payments to
customers for unsettled insurance claims. This includes an
estimate for known and reported claims as well as incurred
but not yet reported claims.
Determining a central estimate involves significant
judgement and is based on a number of factors including
historical claims rates, timeliness of reporting of claims and
evidence around any changes in the cost of claims. The
Group use July 2018 claims payment data to assist in
determining the liability at 30 June 2018.
The estimation of outstanding claims relied on the quality
of the underlying data. It involved complex and subjective
judgements about future events, both internal and external
to the business, for which small changes in assumptions
can result in material impacts to the estimate.
Litigation and regulatory action, including
related disclosures
(Refer to note 29)
We focused on this area because the Group operates in a
highly regulated industry and is therefore subject to legal,
regulatory and competition matters.
In assessing and measuring potential liabilities of the
Group, the Group are required to make judgements based
on available information of the probability and estimation
of potential financial outcomes, which may be dependent
on legal and regulatory processes. These judgements are
subject to inherent uncertainty.
In particular, the Group have had to consider the impact of
the Australian Competition and Consumer Commission
(ACCC) matter as disclosed in note 29 of the financial
statements.
How our audit addressed the key audit
matter
Our audit procedures included, amongst others,
evaluating the design effectiveness and
implementation of key controls over claims payments,
including key data reconciliations and the Group’s
review of the estimates.
We were assisted by our actuarial experts to
understand and evaluate the Group's actuarial
practices and the provisions established. Our audit
procedures included:
Evaluating whether the Group’s actuarial
methodologies were consistent with accepted
industry practice. We noted the actuarial
methods used to calculate the central estimate
were consistent with accepted industry practice
Assessing changes made this year in the selection
of the actuarial method
Assessed the appropriateness of key actuarial
assumptions. We challenged these assumptions
by comparing them with our expectations based
on the Group's historical experience, current
trends and our own industry knowledge
Assessing the Probability of Adequacy (PoA) of
the liability and the adopted risk margin. We
reconciled this data for accuracy and reviewed
the assumptions made for reasonableness.
Our procedures included, amongst others, confirming
our understanding of the Group’s processes for
identifying and assessing the impact of legal,
regulatory and competition matters.
We discussed legal and regulatory matters with Group
Executive Legal and Chief Risk Officer and external
legal counsel and sought and obtained access to
relevant documents in order to develop our
understanding of these matters.
For outstanding legal and regulatory matters, we
considered the Group's judgement as to whether there
is potential material financial exposure for the Group.
We assessed the adequacy of the related disclosures in
note 29 in light of the requirements of Australian
Accounting Standards.
122
INDEPENDENT AUDITOR’S REPORT continuedto the members of nib holdings limitedfor the year ended 30 June 2018nib holdings limited Key audit matter
Business combination
The Group acquired Grand United Corporate Health
Limited (Grand United) for total consideration of
$155.7m, as described in note 32 of the financial report.
The accounting for the acquisition was a key audit
matter because it was a significant transaction for the
year given the financial and operational impacts on the
Group.
In addition, the Group made complex judgements when
accounting for the acquisition, including identifying all
assets and liabilities of the newly acquired business and
estimating the fair value of each asset and liability for
initial recognition by the Group. This included the fair
value of intangible assets including customer contracts,
distribution relationships and brand. The Group was
assisted by an external valuation expert in this process.
The accounting for the acquisitions is final at the time
of authorisation of the financial report.
How our audit addressed the key audit matter
Assisted by PwC valuation experts in aspects of our
work, our procedures included the following, amongst
others:
evaluating the Group’s accounting against the
requirements of Australian Accounting Standards,
key transaction agreements and our understanding
of the business acquired and the Private Health
Insurance industry.
assessing the fair values of the acquired assets and
liabilities recognised, including
considering key assumptions used in the
models (the models) that estimated fair value
in light of historical performance and Private
Health Insurance industry trends and
forecasts
considering the discount rate assumptions
used in the models in light of other market
participants’ average cost of capital taking
into account a country risk premium
subjecting the key assumptions in the models
to sensitivity analysis
considering the valuation methodology in the
models in light of the requirements of
Australian Accounting Standards
assessing the competence and capability of
management’s expert
assessing if transaction costs were recognised as an
expense in the period they were incurred
considering the adequacy of the business
combination disclosures in light of the
requirements of Australian Accounting Standards
123
2018 ANNUAL REPORT Other information
The directors are responsible for the other information. The other information comprises the information
included in the Group’s annual report for the year ended 30 June 2018, including the Operating and
Financial Review, Directors' Report, Corporate Governance Statement, but does not include the financial
report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with
the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing
and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf.
This description forms part of our auditor's report.
124
INDEPENDENT AUDITOR’S REPORT continuedto the members of nib holdings limitedfor the year ended 30 June 2018nib holdings limited Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 24 to 43 of the directors’ report for the year
ended 30 June 2018.
In our opinion, the remuneration report of nib holdings limited for the year ended 30 June 2018 complies
with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the remuneration
report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing
Standards.
Matters relating to the electronic presentation of the audited financial
report
This auditor’s report relates to the financial report of nib holdings limited for the year ended 30 June 2018
included on nib holdings limited's web site. The directors of the Company are responsible for the integrity
of nib holdings limited's web site. We have not been engaged to report on the integrity of this web
site. The auditor’s report refers only to the financial report named above. It does not provide an opinion
on any other information which may have been hyperlinked to/from the financial report. If users of this
report are concerned with the inherent risks arising from electronic data communications they are advised
to refer to the hard copy of the audited financial report to confirm the information included in the audited
financial report presented on this web site.
PricewaterhouseCoopers
Caroline Mara
Partner
Newcastle
17 August 2018
125
2018 ANNUAL REPORT SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 31 August 2018.
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 272 holders of less than a marketable parcel of ordinary shares.
B. EQUITY SECURITY HOLDERS
The 20 largest quoted equity security holders
The names of the 20 largest holders of quoted equity securities are listed below
Name
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited-Gsco Eca
Citicorp Nominees Pty Limited
AMP Life Limited
Mr Mark Anthony Fitzgibbon
HSBC Custody Nominees (Australia) Limited
CPU Share Plans Pty Ltd
Mrs Michelle Mcpherson
Warbont Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Fitzy (NSW) Pty Ltd
IOOF Investment Management Limited
Jemon Pty Ltd
BNP Paribas Nominees Pty Ltd
Mr Jinyue Zhang + Mrs Ting Wu
Unquoted equity securities
Performance rights issued under the nib holdings Long-term Incentive Plan
126
Class of equity
security
60,473
72,059
9,848
845
61
143,286
Ordinary Shares
Number held
57,132,357
39,870,673
27,110,083
11,879,581
11,711,735
6,300,966
2,033,888
1,876,397
1,608,520
1,393,348
823,609
821,796
754,702
711,118
690,170
660,621
634,099
550,000
541,119
456,165
Percentage of
issued shares
%
12.56
8.77
5.96
2.61
2.57
1.39
0.45
0.41
0.35
0.31
0.18
0.18
0.17
0.16
0.15
0.15
0.14
0.12
0.12
0.10
167,560,947
36.85
Number on issue Number of holders
2,381,654
11
nib holdings limited C. SUBSTANTIAL HOLDERS
There were no substantial holders.
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.
127
2018 ANNUAL REPORT CORPORATE DIRECTORY
DIRECTORS
Chairman
Steve Crane
Managing Director/Chief Executive Officer
Mark Fitzgibbon
Lee Ausburn
Jacqueline Chow
Philip Gardner
Anne Loveridge
Christine McLoughlin
Donal O’Dwyer
COMPANY SECRETARIES
Roslyn Toms
Jordan French
NOTICE OF ANNUAL GENERAL MEETING
The Annual General Meeting of nib holdings limited will be
held on Wednesday, 31 October 2018 at 11am (AEDT) at
The Westin, 1 Martin Place Sydney NSW 2000.
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
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
Group Executive International and New Business
David Kan
Group Executive – nib New Zealand
Rob Hennin
Group Executive – Legal and Chief Risk Officer
Roslyn Toms
Chief Information Officer
Brendan Mills
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
Group Executive – Benefits and Provider Contracting
Justin Vaughan
WEBSITE
nib.com.au
Group Executive – People and Culture
Wendy Lenton
128
nib holdings limited nib.com.au