NIB Holdings Limited
Annual Report 2022

Plain-text annual report

2022 Annual Report CELEBRATING 70 YEARS Table of Contents Our Purpose, Vision, Business Strategy Sustainability 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 nib holdings limited ABN 51 125 633 856 1 2 3 14 21 22 45 46 47 48 49 50 51 52 121 122 128 133 Group Performance Highlights Total underlying revenue $m 7.2% Underlying operating profit $m 14.8% Net investment income $m 157.9% Net profit after tax $m 16.6% 2,235.1 2,421.6 2,503.2 2,576.7 2,761.3 184.8 201.8 146.9 204.9 235.3 29.6 36.1 16.6 51.8 (30.0) 133.5 149.3 87.0 160.5 133.8 FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22 Statutory EPS cps Dividends cps 15.9% 8.3% 29.4 32.9 19.3 35.2 29.6 20.0 23.0 14.0 24.0 22.0 Return on invested capital1 % 19.5 19.1 19.1 11.2 440 bps Group NPS 4 14.7 29 32 35 27 31 FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22 1 ROIC calculated using average shareholders’ equity including non-controlling interests and average interest-bearing debt over a rolling 12 month period. Our Purpose Your better health and wellbeing • Deliver deep insight and guidance about how to best achieve personal health and wellbeing goals and manage risk. • Connect with a wide ecosystem of relevant health and wellbeing services, programs and providers. • Make it all accessible and affordable with insurance and other related financial protection and support. Vision nib is widely recognised and acknowledged as a company concerned with the health and wellbeing of its members and travellers. They choose nib because they believe we will help them maintain good health and stay well. And that nib provides them with relevant and effective insurance and financial support. Their confidence in nib draws upon our demonstrated capability in applying advanced data science and predictive analytics to better understand how individual health and wellbeing goals can be achieved. The idea of “personalising” health and wellbeing and preventing disease differentiates nib in the market as we eschew a “one size fits all” approach. We guide and connect members and travellers with a wide network of healthcare service, product and support providers concerned with both prevention and treatment. Connection may be physical, virtual or digital depending upon personal needs, preferences and circumstances. We assist “informed choice” of providers through performance data and transparency. Deep insight into disease risk and ready connectivity also supports healthcare providers in meeting the needs of their patients and clients. Our technology especially makes for a more comprehensive, integrated and continuous approach to management and care. It also allows providers to monitor, diagnose and treat patients within more clinically appropriate and efficient settings of care including patients’ homes. Managing health and wellbeing, as well as accessing providers, is made more possible and affordable by health and travel insurance as well as through other adjacent financial products. Members and travellers have options in how they contact and engage with nib. Service quality as it relates to timeliness, effectiveness, and satisfaction is high. Our commitment to health and wellbeing of entire communities, and success in delivering tangible improvements highlights our efforts in meeting our “social contract”. Business Strategy We apply data science and predictive analytics in developing deep insight into the health risk of individuals and how it may be best managed, as well as equip them with integrated digital tools for seamless engagement with us and the healthcare system (personalisation). This insight and engagement becomes our core capability and competitive advantage. Consistent with our purpose it helps our members and travellers achieve their health and wellbeing goals and improve outcomes: With that we are able to: PHI expansion Expand our value proposition and differentiate nib in existing private health insurance (PHI) markets by making membership as much about supporting good health as it is the treatment of sickness and injury. We grow the PHI market and our share. New markets Enter and grow new markets with a non-PHI membership as well as offering treatment packages and health programs specific to a wide range of conditions. We differentiate and grow our travel business and pursue NDIS opportunities. Cost containment and affordability Better contain healthcare treatment and claims cost inflation through more precise and effective disease prevention and management. Containment which is then passed through to members and travellers in the form of more competitive premiums and/or improved service and benefits. Revenue and value capture Capture revenue and economic value from existing healthcare providers through Honeysuckle Health and its wide range of health risk management products and services. Government and 3rd party programs Aspire to manage healthcare and improve outcomes within discrete populations on behalf of Government and other healthcare payers. In pursuit of these goals, we continue to develop organisational, talent and advanced technological capability across the Group (organisational capability). Annual Report 2022 1 Sustainability Our purpose is the “better health and wellbeing” of the people and communities we serve. In pursuit, we are investing in a more cost effective, sustainable and fairer healthcare system. We also recognise the influence of a wide range of social, economic and environmental factors and the role we can play, however modest, in aligning these with our purpose. They include a sense of acceptance and inclusion, meaningful employment and economic security as well as a clean and sustainable natural environment. Our vision is to have a meaningful role in improving healthcare outcomes for people and their communities, especially in reducing gaps in access to care and outcomes within disadvantaged communities. Our FY22 highlights include: Assisted ~10,000 members to stay healthy through our health management programs including almost 1,000 Māori rōpū (Māori group) members Launched a health check (health risk assessment) and associated good health plan to help improve health outcomes for members Delivered all outcomes of our Reflect Reconciliation Action Plan 50% of our brand partnership and community sponsorship portfolio advocated for equality and diversity Almost 500,000 people reached via nib foundation’s Prevention Partnerships with a focus on chronic disease risk reduction Attained Climate Active Carbon Neutral certification for the first time $2.3 million in community funding including 26 charities supported by nib foundation Developed science-based targets to achieve net carbon zero by 2040 Achieved 40/40/20 gender representation across our managers, team leaders, heads of business units, Attainment of ISO 27001 certification for cybersecurity processes Executive and Board 2 Annual Report 2022 Operating and Financial Review for the year ended 30 June 2022 Chairman’s Report This year marks nib’s 70th year of meeting the needs of our members for health insurance and access to healthcare services. Founded by a relatively small group of steel workers deep inside BHP in Newcastle, the company today covers more than 1.7 million1 people across Australia and New Zealand, and offers travel insurance worldwide. It’s a remarkable story of growth and success. In terms of performance, it’s almost impossible to discuss FY22 without further commentary on COVID-19 and its variants. Apart from the havoc it’s caused society and marketplaces in general, the pandemic has had very material consequences across the nib Group, which Mark will cover in his report. It has required a level of agility above any the company has encountered in its 70-year history. That we are emerging in such a strong position is an enormous credit to everyone at nib. Most importantly, FY22 was full of highlights in fulfilling our purpose of ‘your better health and wellbeing’. We added more than 20,000 members in our core Australian Residents Health Insurance business, at a growth rate of 3.2%, well ahead of the anticipated industry average. We provide access to the best possible care for our members, and in FY22 paid $1.8 billion in claims2, related to over 300,000 hospitalisations and more than 3.5 million allied treatments such as dental and optical. Importantly, we enrolled over 7,000 arhi members in health management programs relevant to their disease or medical condition with strong evidence of improved health outcomes. Our experience in New Zealand was similarly positive. We added over 6,000 members to our private health insurance book, at a growth rate of 5.6%, and incorporated life and living insurance within our product offerings through nib nz insurance limited (previously Kiwi Insurance Limited, acquired on 29 April 2022). Our life and living products include life, serious illness trauma and income protection insurance. Our international workers business also had a very positive year with an increase in seasonal workers arriving in Australia. COVID-19 and border closures seriously disrupted demand and activity in our student and travel businesses. Nevertheless, both are rapidly recovering as activity returns. Group operating revenue and profitability were particularly strong against that backdrop. Year on year, the strong performance overall delivered a 14.8% increase in our underlying operating profit to $235.3 million. Unfortunately, a good part of that uplift was offset by $30.0 million of reported losses on investment income, a negative swing factor of $81.8 million against an investment income gain of $51.8 million the previous year. It meant our earnings of 29.6 cents per share was below that of FY21. The Board has determined a final dividend of 11.0 cents per share, bringing the full year dividend to 22.0 cents per share fully franked. The full year dividend, representing an earnings payout ratio of 74.4%, is slightly higher than our target but reasonable under the circumstances. 1. Persons covered. Includes life and living. 2. arhi net claims incurred. Your Board of Directors and I are very excited about our ambitions for nib and its prospects. As Mark describes, we see a larger place for nib in the future of healthcare. nib will be as much about keeping our members and travellers disease and injury free as it has and will be about helping them through their sickness and injury. Much of this vision relies upon efforts and investments we’re making in data science and predictive analytics. There’s no better example than Honeysuckle Health, our joint venture with global health services company, Cigna Corporation. This same focus is at the heart of our approach to meeting our environmental, social and governance obligations. For example, we’re already carbon neutral with a commitment and roadmap to be net zero carbon by 2040. Our Ngāti Whātua Ōrākei partnership aims to improve the health and wellbeing outcomes for the Auckland hapū (Māori sub tribe). It continues to grow and now includes a screening service for heart disease, a program tailored to the needs of the hapū. And nib’s inaugural Reflect Reconciliation Action Plan, which included a commitment to building the cultural capability of our workforce, was completed. A key focus has been nib employees learning about the health disparities experienced by First Nations people. nib proudly celebrates its 70th year as we remain true to our purpose of improving access to healthcare and providing better health outcomes throughout the community at large, including all First Nations people in Australia and New Zealand. It is here that we see our greatest potential for meaningful impact. David Gordon Annual Report 2022 3 Another important development has been our shift to hybrid working. I believe we’ve experienced a page-turning moment in organisational theory, and today, piling our people into an office five days a week is no longer the norm. Rather – and subject to meeting technology and health and safety requirements – about 1,350 people work from wherever they choose – and for many that is from home. We acknowledge the importance of regular social contact, and we know that for some, home isn’t an option. Nevertheless, across a much-reduced office footprint, we’re only requiring people to come into their hub when warranted, including for training, coaching, business planning, brain storming, project coordination and celebration. I’m as excited as ever before about the future and the company’s prospects. As a society our spending upon healthcare continues to accelerate, limitations on government funding mean we need even more private sector involvement and there are so many opportunities beyond our traditional role as a health insurer. I easily imagine a near-term where our members, travellers, employees and all stakeholders, including shareholders, view us as preoccupied with improving people’s health and wellbeing. They see that being “purpose-led” aligns with powerful commercial performance. Mark Fitzgibbon Operating and Financial Review Managing Director’s Report As David has mentioned, it’s been another extraordinary year with the COVID-19 pandemic affecting every part of our business. Of greatest financial consequence has been the significant reduction in hospital and healthcare treatment and thus our claims experience, and that of the entire private health insurance industry. It’s resulted in short-term increases in operating profitability. Our reported underlying operating profit of $235.3 million was 14.8% ahead of FY21, with Group underlying revenue of $2.8 billion up 7.2%. Our higher level of profitability partially reflects deferred or foregone healthcare treatment. Members postponed or found it difficult to access hospital and other healthcare services through the COVID-19 pandemic. We have pre-emptively returned savings to members in a range of ways, and made provisions in our financial accounts for much of the deferred treatment, expecting catch-up at some future time. To date, we have provided premium deferrals, premium credits, expanded COVID-19 treatment cover, and additional benefits at no extra cost to members. We have valued our full pandemic support package at $100 million and we expect further measures once the position becomes clearer and the pandemic is behind us. Increased profitability has helped offset several negative impacts. Our previously profitable international students health insurance and travel insurance businesses both incurred material losses in FY22, compounding losses made in FY21. And although direct COVID-19 attribution is problematic, we booked a significant loss in our investment returns, which David has already highlighted. This is disappointing, yet we assume it will bounce back in the future, even if the near term macro-economic outlook seems a little uncertain. As David mentioned, we are fundamentally attempting to become as much a health management company as we are a health insurance company. Nobody celebrates the misery and disruption of COVID-19, but the pandemic has led to an increased awareness in the community of the risk of disease and the need for active health management. More people acknowledge the advantageous nature of healthcare technologies, which are more compelling than ever before. The pandemic has driven efficiency improvements, including the gravitation to home-based care. Virtual consultations and digital treatment are germane to the way we can deliver care. 4 Annual Report 2022 for the year ended 30 June 2022 nib Group $2.8b total Group revenue up 7.2% $133.8m NPAT $235.3m Group UOP down 16.6% up 14.8% 29.6cps statutory EPS down 15.9% $(30.0)m net investment income 22.0cps full year dividend down 157.9% down 8.3% nib this year reflects on its 70th-anniversary while acknowledging the challenges and hardships the COVID-19 pandemic has again imposed on members, travellers, employees, communities and businesses in Australia and overseas. nib Group reported an underlying operating profit (UOP) of $235.3 million compared with $204.9 million last year. Group revenue of $2.8 billion (up 7.2%) benefited from policyholder growth across the Australian residents, international workers and New Zealand businesses. Our Australian Residents Health Insurance (arhi) showed strong momentum in Q4. Policyholder numbers rose 3.2% and premium revenue also showed strong growth. Pleasingly, International Inbound Health Insurance (iihi) and nib Travel are showing signs of recovery after a period of significant disruption caused by the closure of international borders. Both businesses returned to profitability in the second half of the year. FY22 premium revenue in nib’s iihi business was at its highest level ever, with the mix of policyholders – shifting more towards workers than students – contributing to a strong rebound in performance in 2H22. There was a strong recovery in sales volumes in Q4 for nib travel leading to a return to profitability for 2H22 and a reduction in the full year loss to $7.4 million. Pleasingly, in Q4 gross written premium reached 103% of pre-COVID volume. Group claims expense remained subdued given the ongoing impacts of the pandemic with new COVID-19 variants Delta and Omicron and supply chain limitations. The Group deferred claims liability (DCL) provision was increased to $110.2 million (FY21 $34.0 million), as members continued to delay treatment as a result of the pandemic. The DCL is now recognised in the arhi business only. As the pandemic has continued to evolve, so has the support nib is providing to members, travellers and the community. nib is proactively returning savings and increasing benefits to members in a variety of ways, including deferrals in premium increases, premium credits, expanded cover for COVID-19 related treatment and additional benefits at no extra cost. nib announced a further $55 million in FY22, bringing the total package to $100 million. Many of nib’s employees worldwide continue to work from home. nib’s shift to hybrid working means about 1,350 people can decide when to come into their hub, or work from elsewhere. In a further acknowledgement that nib encourages and supports diversity in its workplace, the nib Group introduced a wide range of benefits for employees including better parental and more flexible cultural leave options. nib has also continued to invest in our key Payer to Partner (P2P) strategy and technology platforms to underpin innovation across all of our businesses. Underlying underwriting expenses increased 14.9% due to investment in P2P as well as marketing, increased commission costs and increases in IT expenditure, partly reflecting growth in policyholder numbers. Net profit after tax (NPAT) was $133.8 million (FY21 $160.5 million). Net investment income resulted in a loss of $30.0 million (FY21 gain of $51.8 million). The loss reflected volatile market conditions around the globe. Inflationary pressures, rising interest rates here and abroad, and economic uncertainty in the world’s largest economies resulted in market losses and lower returns on Australian Government bonds, global shares, Australian shares and global listed property funds. Statutory earnings per share was down 15.9% to 29.6 cents per share due to the $81.8 million negative turnaround in investment income and was only partially offset by higher Group UOP. The Board declared a final dividend of 11.0 cents per share fully franked, resulting in a full year dividend of 22.0 cents per share (FY21 24.0 cps). The full year dividend represents a payout ratio of 74.4% of FY22 NPAT. The final dividend has a record date of 6 September and will be paid to shareholders on 4 October 2022. The Dividend Reinvestment Plan is available to eligible shareholders. Overall, the Group remains in a strong capital position with $82.4 million in available capital above internal targets after allowing for payment of the final dividend. APRA released draft capital standards in December 2021. It is anticipated these standards will be finalised during the second half of calendar year 2022 for implementation by 1 July 2023. nib is well progressed for this implementation and will be revising internal benchmarks and reporting when final standards are released. nib anticipates fulfilling its purpose of ‘your better health and wellbeing’. To that end, it welcomed news that Honeysuckle Health passed the final hurdle to become Australia’s only ACCC- authorised buying group for healthcare payers. In July 2022, nib completed a funding round with Midnight Health, and is now the majority shareholder with equity of 63.14%. nib continues to explore its ambition to enter the NDIS plan management sector. We believe we can leverage our 70-year heritage and strong track record to connect buyers and sellers of healthcare services. Our vision is for best of breed core technology, and the delivery on our purpose of your better health and wellbeing. Annual Report 2022 5 Operating and Financial Review Australian residents health insurance (arhi) $2.3b premium revenue up 5.2% $240.5m UOP up 12.3% 3.2% net policyholder growth 30 net promoter score up 5 nib’s arhi business reported an underlying operating profit of $240.5 million, up 12.3% as a result of strong top line growth and lower claims experience. Premium revenue was up 5.2% to $2,286.2 million driven by net policyholder growth of 3.2%, prior year pricing adjustments and lower downgrading. Our policyholder growth rate for FY22 is above the anticipated industry average and 4Q22 was nib’s best quarterly net growth in 7 years (adjusting for impact of COVID resumptions in prior periods). Improvements in lapse and strong sales performance in our GU Health and whitelabel brands offset lower performance in direct-to-consumer channel sales throughout the year. During the COVID-19 pandemic, many members found it difficult to access hospital services and other healthcare treatment. As part of nib’s COVID-19 member support package, our expected 1 April 2022 price increase was deferred for seven months. Other support provided during the year included expanded cover for COVID-19 related treatment and additional benefits (including psychology Extras benefits) at no extra cost to members. Estimating actual savings remains challenging with a need to understand how much treatment has been lost as opposed to deferred. We will continue to monitor the position and consider if further support is warranted. Claims experience has continued to be favourable due to the ongoing impacts of COVID-19. Hospital claims remained below expected levels, with healthcare services restricted and policyholders continuing a general reluctance to seek out healthcare. Reduced industry claiming also resulted in lower risk equalisation. The favourable claims experience was partially offset by claims inflation and an increase in the deferred claims liability to $110.2 million. The increase in management expenses was driven by investment in marketing and Payer to Partner strategic initiatives, as well as higher commissions from increased policy sales. This was partially offset by a reassessment of the methodology to allocate shared service costs. Net margin remains high due to strong growth and the favourable claims environment. However, this is expected to return to our target range of 6-7% over time. arhi’s net promoter score improved to 30 with the previous year impacted by multiple price increases in the period due to the deferral of the April 2020 price increase. nib’s strategic partnership with Honeysuckle Health saw the launch of the GapSure Anaesthetics Network, the launch of at home physical therapy services, and an online health risk assessment tool. nib and Honeysuckle Health believe the use of predictive analytics and data science will help deliver better health and wellbeing to members. 6 Annual Report 2022 for the year ended 30 June 2022International (inbound) health insurance (iihi) $123.7m premium revenue up 7.1% $(1.1)m UOP loss decreased 81.4% (4.8)% net policyholder growth 43 | 47 NPS iwhi | ishi up 7 | up 2 The performance of our iihi segment continues to reflect very different market conditions for the international workers and international students businesses. iihi premium revenue increased 7.1%, to a record high of $123.7 million, as a result of a strong performance in the international workers business. However, impacts of COVID-19 continued to be felt in the international student market. Policyholders were down 4.8% due to a decline in the students business. The international workers business benefited from high growth in seasonal workers arriving in Australia. A shift in mix towards the workers business increased average revenue per member. Student numbers were down despite the re-opening of international borders and easing of COVID lockdown restrictions in major cities. Many students chose to remain offshore when universities responded to the new COVID-19 variants Delta and Omicron by shutting many campus activities. However positive signs are emerging with a sharp increase in student visas lodged in 2H22 and the number of primary offshore visas lodged in June at record highs1. Large claims volatility impacted the international students business, however the underlying claims experience continues to show signs of easing as international travel returns to normal and students return home for treatment. A shift in mix towards the workers business increased average revenue per member and improved gross margins. Net promoter scores of 43 for international workers and 47 for international students has improved on FY21 (iwhi: 36, ishi: 45) driven by ongoing improvements in our digital service experience including digital chat and point of service claiming. We continued to provide support for our international members throughout the pandemic. In response to a rise in the number of students facing mental health issues during the COVID-19 pandemic, nib partnered with batyr to fund the batyr@uni program, which creates a link between students and mental health and wellbeing services. Through our nib foundation, we supported more than 2,200 students. 1. Source: https://data.gov.au/data/dataset/student-visas Data dating back to July 2005. Annual Report 2022 7 Operating and Financial Review New Zealand $291.8m premium revenue up 12.8% $22.7m UOP down 5.8% 5.6% net PHI policyholder growth 34 net promoter score nib New Zealand delivered another strong result reporting a UOP of $22.7 million, after a year of strong premium growth. Premium revenue was up 12.8% to $291.8 million, driven by net policyholder growth, premium adjustments and favourable foreign exchange impacts. Private health insurance policyholders grew 5.6% (net), with strong performance across the corporate group, advisor and whitelabel channels. Travel restrictions imposed as a result of COVID-19 resulted in a sharp reduction in international students, with policyholder numbers down 43.9%. The acquisition of the life and living insurance business added over 30,000 policyholders. Claims increased 8.7% as a result of policyholder growth and claims inflation. Utilisation was up 5.2%. The business experienced lower claiming rates due to the pandemic and some claims catch up is expected in FY23. A deferred claims liability (DCL) has not been utilised in NZ (given differing circumstances to Australia), and a temporary increase in the outstanding claims (OSC) risk margin ($4.9 million) is warranted to allow for the greater uncertainty around COVID-19 claims which had previously been addressed through the DCL. Specifically, the company has less risk appetite for the OSC to be understated given these pandemic risks. This also impacted the Liability Adequacy Test requiring a partial write-off of deferred acquisition costs of $4.7 million. The increase in management expenses reflects higher commission costs as a result of higher sales, investment in process re-engineering and technology platforms to support future growth and operational efficiencies as well as increased support for members, population health and partnerships. Management expenses also includes the partial write-off of deferred acquisition costs as noted previously. New Zealand has continued its population health partnership with Auckland hapū (Māori sub tribe), Ngāti Whātua Ōrākei. This initiative has been expanded to include another iwi (Māori tribe), Ngati Porou, starting with their employees. These partnerships aim to break barriers that the Māori population face in the public healthcare system such as cost, choice, waiting times and accessibility. nib’s community health partnerships are focused on programs tailored to help members reduce the risk of disease, and proactively manage their health and wellness. During the period, a new Wellington hub was opened for nib nz insurance limited1. Sales of life and living products began in May, generating $0.1 million in UOP. Our net promoter score remained strong at 34 reflecting continuing improvements in the way we help our members. 1. nib nz insurance limited (previously Kiwi Insurance Limited, acquired on 29 April 2022). Our life and living products include life, serious illness trauma and income protection illness insurance. 8 Annual Report 2022 for the year ended 30 June 2022nib Travel $98.8m GWP up 481.2% $(7.4)m UOP loss decreased 45.6% 155.3% policy sales growth 52 net promoter score down 6 The easing of global COVID-19 travel restrictions resulted in a return to profitability for nib Travel in 2H22, following losses in 1H22. While the business made an overall underlying operating loss of $7.4 million for FY22, gross written premium (GWP) grew by 481.2% to $98.8 million and operating income increased by 232.9% to $46.6 million, over the same period last year. FY22 was also a year that nib Travel continued its focus on costs, with operating expenses (excluding commissions and marketing) rising 16.5% to $26.9 million. Costs remained well under pre-pandemic levels, and low relative to growth in revenue. Acquisition costs increased due to the rise in sales reflected in increased marketing and commissions. The numbers reflect the special circumstances that arose during the COVID-19 lockdowns, with the business facing major disruption when borders closed. There has been a strong recovery in Q4, with GWP at 103% of pre-pandemic volumes: domestic and international segment GWP recovered to 132% and 65% of pre-pandemic volumes respectively. These increases encompassed direct and partnership channels. Demand was driven by product positioning, with nib Travel including some cover for COVID-19 in policies, and a pick up in customer interest in travel insurance. A net promoter score of 52 was maintained despite significant business impacts from the pandemic, showing high levels of customer satisfaction. Annual Report 2022 9 Operating and Financial Review Principal Risks and Uncertainties nib has established policies and systems for the oversight and management of material business risks. Further information regarding how nib recognises and manages risk is detailed in our Corporate Governance Statement, which is available on our website at nib.com.au. nib continues to closely monitor the uncertainty and impacts of COVID-19 on its risk profile. As this uncertainty continues into FY23, nib will carry on making enhancements to its control systems in order to optimise outcomes related to both financial and non-financial risks. The principal risks and uncertainties that could affect nib’s operations, strategies and overall performance are listed in the table below. Risk description Insurance risks Claims inflation and affordability The risk of rapidly inflated claims costs derived from health service providers (including hospitals, ancillary providers and medical specialists). Impacts could include lower affordability of health insurance products, weaker financial margins and profitability. Government policies and regulations Risks relating to potentially significant and/or unexpected changes to the regulatory policy settings and incentives for private health insurance, e.g. risk equalisation arrangements supporting the community rating principle, PHI Rebates and Life Time Health Cover Loading. Financial impacts resulting from this risk could be either positive or negative. Risk management strategies nib has structured management systems for monitoring claims behaviours and experience, including processes to validate timely and accurate payment of claims in accordance with policy conditions. A high priority is placed upon the negotiation, establishment and renewal of key provider contracts, to ensure acceptable terms, service utilisation rates and claiming processes are in place. nib recognises the importance of improving product value and affordability for Members, resulting in ongoing strategic investments in initiatives including: development of provider networks to improve price certainty and value, tools to assist members in making informed financial decisions and a Payer to Partner (P2P) strategy to target chronic conditions through Health Management Programs. A strong focus also exists on premium affordability through the annual pricing submission process. Further details on claims inflation risk are included in Notes to the Consolidated Financial Statement 3 a). nib actively monitors early developments in PHI policy via industry, media and government circulars, channels and forums. nib is an active contributor to PHI reforms consultation processes conducted by regulators including Australian Prudential Regulation Authority (APRA) and the Department of Health, in order to help shape improved outcomes for nib members. nib’s risk analysis processes include impact assessment of potential changes arising from government policy and resulting changes to products e.g. sustainable premium pricing. nib is represented within industry forums including Private Healthcare Australia (PHA) and seeks to work collaboratively with other industry stakeholders to present practical solutions. As reforms go-live, nib maintains appropriate resources for external communications (members, strategic partners, media, investor relations) to ensure effective communication and understanding of changes to targeted audiences. nib invests in rapid implementation of initiatives to improve customer value and lower costs e.g. early adoption of age-based discounts. Further details on risk equalisation are included in Notes to the Consolidated Financial Statement 3 a). Pricing risk A risk of forecasting errors may lead to pricing errors, caused by key control failures. This may result in a range of negative outcomes including: impacts on achievement of nib’s strategic goals, material financial impact, regulatory issues and/or impacts on annual pricing approvals. There are operational controls in place to mitigate risks associated with pricing and forecasting involving process, people and systems. In particular, actuarial models are utilised that are based on historical claims cost and forecasting of claims inflation. Review of pricing recommendations is undertaken by nib’s Appointed Actuary. COVID-19 has created additional challenges for our pricing processes in Australia and New Zealand. Further details on pricing risk are included in Notes to the Consolidated Financial Statement 3 a). 10 Annual Report 2022 for the year ended 30 June 2022Risk description Financial risks Risk management strategies Investment and capital management Risks related to the performance of nib’s investment portfolio, impacting profitability, financial position and ensuring stakeholder expectations are fulfilled. nib’s Investment Committee provides oversight of this risk. The Committee considers the investment strategy and investment risk management practices, investment performance in order to meet Return on Investment (ROI) objectives and outlook, and compliance with the investment component of nib’s Capital Management Plan. General economic conditions The environment in which nib operates may experience challenging conditions as a result of general uncertainty about future Australian and international economic conditions. nib recognises that its 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. nib monitors economic conditions and completes regular stress testing of key variables to validate capital management planning processes. Strategic risks Performance of adjacent (non-Australian Residents Health Insurance) businesses nib has diversified its business outside the core arhi business including International (Inbound) Health Insurance (iihi), an insurance business in New Zealand (nib NZ) and nib Travel insurance. The performance of these adjacent businesses impacts on nib’s overall operating result and profits. Operational risks Business continuity Risks of events such as natural disasters or a major failure or inadequacy in information technology systems may have an adverse impact on nib’s earnings, assets and reputation. Cyber security This risk involves a failure to mitigate/manage a cyber attack or major security incident. Such an issue could result in adverse impacts to nib’s members, disruption to business continuity, non-compliance with regulations and data standards and negative reputational effects. The industry-specific impacts of COVID-19 on nib’s travel and inbound international health insurance are an example of this risk in practice. The key risk mitigation strategies for this diversification strategy involve detailed financial analysis, monitoring and leveraging from establishing capital management capabilities. Furthermore, compliance with Board and regulatory capital management requirements within individual businesses provides mitigation against contagion risks i.e. in the event of prolonged periods of financial stress impacting the adjacent businesses. In terms of the latest strategic initiatives, nib is pursuing aligned transformation opportunities including P2P, digitisation, and enhanced organisation capability. These risks are controlled by strategic planning and prioritisation processes that are overseen and approved by the Board. Adjacent business opportunities involve detailed analysis on risk opportunities – considering potential upside and downside. nib invests in highly resilient practices, systems, providers and people. A business continuity management framework is in place and overseen by Senior Management and the Board Risk and Reputation Committee. The COVID-19 pandemic is an example of a significant business continuity event that has required nib to activate its mitigation strategies to ensure effective continuity of service. Similarly, for other notable types of operational risks such as data management, outsourcing, fraud, people, and health and safety risks, nib oversees these risks via management, divisional risk committees, the Management Risk Committee and the Board Risk and Reputation Committee. As part of nib’s increased investment and reliance on technology to conduct an efficient and cost effective business, nib has similarly invested in a proportionate cyber security controls systems and framework. nib’s approaches and governance practices for cyber security risks have been developed in accordance with relevant international technology standards, taking consideration of applicable industry and regulatory standards. Oversight is provided by the Management Risk Committee and the Board Risk and Reputation Committee. Annual Report 2022 11 Operating and Financial Review Principal Risks and Uncertainties (continued) Risk description Operational risks Regulatory compliance and legal risks Risks relating to failure to comply with specific regulations as part of conducting insurance businesses and meeting listing requirements of the ASX. Non-compliance with regulatory requirements can lead to a range of impacts including financial penalties, cancellation of authorisations and/or negative reputational impacts. Legal risk could involve civil proceedings in courts of various jurisdictions. nib may also be exposed to litigation in the future over claims. Risk management strategies nib has a structured approach to risk management which includes a compliance management framework incorporating: compliance strategies and culture and governance practices. nib’s framework includes systems and processes for identifying compliance obligations as well as monitoring and measuring compliance performance. Oversight is provided by the Management Risk Committee and the Board Risk and Reputation Committee. Climate change risk Each year, environmental, social and governance risks, including climate change, have been considered as part of nib’s Annual Key Enterprise Risk (KER) review. Due to materiality and time horizon (versus the strategic plan), climate change risk was not determined to be a KER for our business this year. nib is publishing its inaugural Task Force on Climate-related Financial Disclosures (TCFD) report in September 2022 in order to clearly outline our climate risk strategy and to improve disclosure of the financial impacts of climate change on the business. nib’s TCFD report covers all entities in the Group and will be an annual disclosure. At nib, climate change risks are managed in accordance with the nib Group risk management framework (RMF) in order to ensure appropriate ongoing oversight and management. To better comprehend nib’s risk profile and potential opportunities that climate change presents, nib conducted a climate change scenario analysis in FY19 in accordance with the TCFD framework. The analysis identified a number of transition and physical risks for nib Group, as noted in nib’s TCFD report. The scenario analysis will be refreshed during FY23. 12 Annual Report 2022 for the year ended 30 June 2022Five year summary Consolidated Income Statement Net premium revenue Net claims incurred1 Gross margin Movement in policy liabilities 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 Impairment of intangibles One-off transactions, merger, acquisition and new business implementation costs Statutory operating profit Finance income and 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 Share price at year end Dividend per share – ordinary Dividend payout ratio – ordinary Other financial data ROIC2 Group underlying operating revenue Operating cash flow 2022 $m 2021 $m 2020 $m 2019 $m 2018 $m 2,703.4 2,548.8 2,439.6 2,340.8 2,162.6 (2,066.3) (1,985.5) (1,933.4) (1,811.4) (1,694.3) 637.1 563.3 506.2 529.4 468.3 (0.3) 6.4 (383.9) 259.3 51.5 (68.2) (7.3) 235.3 (7.7) – (0.1) 227.5 (6.7) (30.0) 190.8 (57.0) 133.8 – 3.8 (337.4) 229.7 24.1 (44.1) (4.8) 204.9 (8.0) (8.8) (2.1) 186.0 (6.8) 51.8 231.0 (70.5) 160.5 – 3.5 (332.2) 177.5 60.1 (86.7) (4.0) 146.9 (10.4) (8.0) (13.6) 114.9 (9.7) 16.6 121.8 (34.8) 87.0 – 3.6 (329.1) 203.9 77.2 (78.3) (1.0) 201.8 (9.2) (1.0) (7.0) 184.6 (7.7) 36.1 213.0 (63.7) 149.3 – 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 1,880.4 1,702.8 1,677.8 1,554.1 1,447.5 734.3 260.9 459.1 458.4 458.4 29.6 29.6 7.38 22.00 74.4 706.2 232.3 457.7 457.2 457.2 35.2 35.2 6.51 24.00 68.2 603.1 232.9 456.8 456.1 456.1 19.3 19.3 4.62 14.00 71.0 632.2 233.9 455.6 455.4 455.4 32.9 32.9 7.68 23.00 70.0 557.8 230.6 454.8 450.6 450.6 29.4 29.4 5.72 20.00 68.5 14.7 2,761.3 337.6 19.1 2,576.7 108.7 11.2 2,503.2 207.6 19.1 2,421.6 184.5 19.5 2,235.1 179.9 m m m cps cps $ cps % % $m $m 1. Net incurred claims differs to the face of the Consolidated Income Statement and Segment Reporting as this table includes claims handling expenses in management expenses. 2. ROIC calculated using average shareholders’ equity including non-controlling interests and average interest-bearing debt over a rolling 12 month period. Annual Report 2022 13 Directors’ Report for the year ended 30 June 2022 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 2022. Dividends Dividends paid to shareholders during the financial year were as follows: Final dividend for the year ended 30 June 2021 of 14.0 cents (2020 – 4.0 cents) per fully paid share paid on 5 October 2021 Interim dividend for the year ended 30 June 2022 of 11.0 cents (2021 – 10.0 cents) per fully paid share paid on 4 April 2022 2022 $m 2021 $m 64.0 18.3 50.3 114.3 45.6 63.9 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 $50.5 million (11.0 cents per fully paid ordinary share) to be paid on 4 October 2022 out of retained profits at 30 June 2022. Matters subsequent to the end of the financial year On 8 July 2022, nib holdings limited acquired an additional equity holding in Midnight Health Pty Limited for $12.0 million, resulting in an increased ownership percentage to 63.14%. From that date, the Group gained control of Midnight Health Pty Limited and will consolidate the financial statements and recognise a non-controlling interest. No other matter or circumstance has arisen since 30 June 2022 that has significantly affected, or may significantly affect: the Group’s operations in future financial years; or a) b) the results of those operations in future financial years; or c) the Group’s state of affairs in future financial years. Environmental regulation The Group is not subject to any specific environmental regulation and has not breached any legislation regarding environmental matters. 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 unless otherwise indicated: David Gordon Lee Ausburn Anne Loveridge Mark Fitzgibbon Jacqueline Chow Donal O’Dwyer Steve Crane (retired as Chair and Director on 29 July 2021) Peter Harmer (appointed Director on 20 July 2021) 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 nib Travel business, it also specialises in the sale and distribution of travel insurance policies globally. The Group also undertakes specialist health care data science services through its joint venture with Cigna, Honeysuckle Health. During the year, nib acquired Kiwi Insurance Limited (a wholly owned subsidiary of Kiwi Group Holdings Limited, now renamed nib nz insurance limited) for a final purchase price of $41.9 million, and commenced underwriting and distributing life and living insurance in New Zealand. 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. 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. 14 Annual Report 2022 Information on Directors Details of the qualifications, experience, special responsibilities and interests in shares and performance rights of the Directors are as follows: David Gordon – Chair LLB (University of NSW), BCom (University of NSW), MAICD Mark Fitzgibbon – Chief Executive Officer and Managing Director MBA (University of Technology Sydney), MA (Macquarie University), ALCA (Charles Sturt University), FAICD Age: 61 Independent Non-Executive Director Age: 62 Executive Director David was appointed to the Board of nib holdings limited in May 2020 and Chair since 29 July 2021. He is also the Chair of the Nomination Committee. He is also a Director of nib health funds limited. Industry experience David has over 20 years’ experience as a director of both public and private companies and has spent more than 30 years working in corporate advisory roles to Australian and international organisations. He brings extensive knowledge of mergers and acquisitions, as well as capital raisings, IPOs and joint ventures. Mark joined nib in October 2002 as Chief Executive Officer. In 2007 as Managing Director, he led nib through its demutualisation and listing on the Australian Securities Exchange (ASX) being admitted to the S&P/ASX100 in 2019. Mark is a Director of nib health funds limited, as well as many other nib holdings limited’s subsidiaries. He is also a member of nib holding’s Nomination Committee. Industry experience Mark has held executive positions at a number of large Australian organisations, including local government councils and peak bodies. David also has a proven track record in guiding businesses to grow and harness their digital capability to successfully explore and develop new products and markets. Leading nib for the past 20 years, Mark has transformed the business from a regionally based (Newcastle, NSW) private health insurer into one of Australia’s fastest growing and innovative health funds. Other business and market experience David has held a number of senior roles with Freehills (Partner) and boutique investment bank Wentworth Associates (acquired by Investec in 2001). In addition, he founded independent corporate advisory and investment firm, Lexicon Partners in 2001. Directorships of listed entities David is currently Chair of Accent Group Limited. Former directorships of listed entities in the past three years None. Other commitments David is Chair of General Homecare Holdings Pty Ltd, Shippit Pty Ltd and Genesis Capital Manager 1 Pty Ltd. He is also a Non-Executive Director of international not-for-profit organisation, High Resolves Pty Ltd. Interests in shares and performance rights Direct: 30,000 shares in nib holdings limited. As Managing Director, Mark’s strategic focus has been to grow and diversify nib’s business and with that earnings by leveraging nib’s capability, systems and people. This has seen nib grow significantly in recent years organically and inorganically, both in existing and new markets. Other business and market experience Mark has previously served as CEO of both the national and NSW peak industry bodies for licensed clubs, as well as holding several General Manager positions in local government. Directorships of listed entities None. Former directorships of listed entities in the past three years None. Other commitments Mark is currently a Director of Private Healthcare Australia. Interests in shares and performance rights Direct: 1,718,055 ordinary shares in nib holdings limited. Indirect: 824,621 ordinary shares in nib holdings limited held by Fitzy (NSW) Pty Ltd. 215,962 performance rights under FY19-FY22 Long Term Incentive Plan which may vest from 1 September 2022. 200,632 performance rights under FY20-FY23 Long Term Incentive Plan which may vest from 1 September 2023. 314,792 performance rights under FY21-FY24 Long Term Incentive Plan which may vest from 1 September 2024. 220,251 performance rights under FY22-FY25 Long Term Incentive Plan which may vest from 1 September 2025. Annual Report 2022 15 Directors’ Report Information on Directors continued Lee Ausburn MPharm (University of Sydney), BPharm (University of Sydney), Dip Hosp Pharm (University of Sydney), FAICD Age: 68 Jacqueline Chow BSc (Hons) (University of NSW), MBA (Northwestern University, Chicago), GAICD Age: 50 Independent Non-Executive Director Independent Non-Executive Director Lee was appointed to the Board of nib holdings limited in November 2013. She is Chair of the People and Remuneration Committee and a member of the Risk and Reputation Committee and Nomination Committee. Jacqueline was appointed to the Board of nib holdings limited in April 2018. She is Chair of the Risk and Reputation Committee and a member of the Nomination Committee, Audit Committee and People and Remuneration Committee. She is also a Director of nib health funds limited. Industry experience With more than 30 years’ experience in the pharmaceuticals industry, Lee has a wealth of knowledge in the global health industry. Lee is a pharmacist with experience in retail and hospital pharmacy, as well as in academia. She had a long career in the pharmaceutical industry with Merck Sharp and Dohme (Australia) Pty Ltd and was previously Vice President – Asia for Merck and Co Inc with responsibility for the company’s operations across nine countries. Lee built high performing organisations with enhanced ethical and compliance frameworks, across the Asia Pacific region. She also has extensive marketing experience with customer centric approaches that had proven results with the region growing strongly under her leadership. Operating in a highly regulated industry, Lee also developed strong regulatory and government relations skills. Other business and market experience Lee was previously a member and President (2015-2017) of the Pharmacy Foundation at the University of Sydney. Lee has also been an industry representative on various government regulatory bodies. Lee is currently a mentor for Women on Boards. Former directorships of listed entities in the past three years Non-Executive Director of Australian Pharmaceutical Industries Ltd and SomnoMed Ltd. 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). She is also a Director of nib health funds limited, nib nz limited and nib nz holdings limited. Industry experience 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. Her early career concentrated on business analytics, brand equity and marketing. With a reputation for driving growth and performance in global businesses, she is passionate about unlocking value through the entire value chain by growing consumer demand through disruptive technologies, innovation and digital platforms. She has also led company-wide business transformation by driving productivity and efficiencies at every level, as well as embedding leadership behaviours and change. Jacqueline actively contributes toward ensuring the long term sustainability of the organisations she serves in the areas of climate scenario impacts, human rights and supply chain resilience. Other business and market experience Jacqueline has significant global experience driving strategic growth and innovation across customer and consumer brands for the likes of Fonterra, Campbell Arnott’s and the Kellogg Company. She was previously Deputy Chair of Global Dairy Platform and a Director of Fisher & Paykel Appliances in New Zealand, Dairy Partners Americas, the Riddet Institute (Massey University NZ) and The Arnott’s Foundation. In her former role with McKinsey & Company RTS, she advised clients across resources, retail, financial services, telecommunications and consumer sectors on organisational change and high performance culture. Directorships of listed entities Jacqueline is currently a Non-Executive Director of Coles Group Limited, Boral Limited and Charter Hall Group. Former directorships of listed entities in the past three years None. Other commitments Jacqueline is a Non-Executive Director of the Australia-Israel Chamber of Commerce and a member of Chief Executive Women. Interests in shares and performance rights Direct: 50,000 shares in nib holdings limited. 16 Annual Report 2022 for the year ended 30 June 2022Peter Harmer Harvard Advanced Management Program Anne Loveridge BA (Hons) (University of Reading), FCA, GAICD Age: 61 Age: 60 Independent Non-Executive Director Independent Non-Executive Director Peter was appointed to the Board of nib holdings limited in July 2021. He is a member of Risk and Reputation Committee, People and Remuneration Committee, Investment Committee and Nomination Committee. Anne was appointed to the Board of nib holdings limited in February 2017. She is the Chair of the Audit Committee and a member of the Investment Committee, Risk and Reputation Committee and Nomination Committee. He is also a Director of nib health funds limited. Industry experience Peter has over 40 years’ experience in the Australian and international insurance and financial sectors, including over 30 years in a senior executive capacity. He has a deep understanding of the global insurance and reinsurance markets and has driven the improvement of business and customer experiences through digital innovation. During his career, Peter accelerated digital engagement through re-examining customer journeys to understand pain points and introduced the right tools and technology to help improve the overall customer experience. In addition, he has been focused on the development and design of agile working methodologies combined with Human Centred Design thinking to ensure best practice in employee productivity, performance, health and wellbeing. Other business and market experience Peter was formerly Chief Executive Officer of Insurance Australia Group (IAG), CGU Insurance, Aon Limited UK, Aon Risk Services Australia Pacific and Aon Re Australia and has successfully led business’ growth agendas, major acquisitions, and industry roll-ups. Prior to his role as Chief Executive Officer at IAG, he took up a secondment role as Chief Digital Officer to help drive IAG’s digital strategy. This included building a centralised capability to improve the customer experience through the utilisation of new technology and data insights. Directorships of listed entities Peter is currently a Non-Executive Director of Commonwealth Bank of Australia and AUB Group Limited. Former directorships of listed entities in the past three years Executive Director of Insurance Australia Group (IAG). Other commitments Peter is Non-Executive Director of Lawcover Pty Ltd. He is also a member of the Advisory Council for Bain & Company, and an Executive Mentor with Merrick & Co ANZ. Interests in shares and performance rights Direct: 11,078 shares in nib holdings limited. In addition, Anne is a Director of nib health funds limited, nib nz limited and nib nz holdings limited. She is also Chair of the Audit, Risk and Compliance Committee of nib nz holdings limited. Industry experience Anne has over 35 years of experience in the highly regulated financial services sector, including health insurance. She has extensive knowledge of financial and regulatory reporting, risk management and compliance frameworks. She also has over five years’ experience as a Non-Executive Director for ASX-listed entities in the financial services sector. Through senior leadership roles, Anne also has championed the role of leadership, performance and culture in successfully driving change. Formally trained as a Chartered Accountant, Anne has a breadth of experience in financial reporting, auditing, risk, ethics and regulatory affairs following her 31 years with PwC in the UK and Australia, where she was a Senior Partner and Deputy Chair of the Australian Firm. Anne is entitled to receive a retirement benefit from PwC as part of her retirement plan. The amount of the payment was determined at the time of retirement, in 2015, based on role and tenure with the firm. The benefit is not impacted by the revenue, profits or earnings of PwC. Anne has declared her previous relationship with PwC to the nib Board and the Board is satisfied that it does not affect her independence as Non-Executive Director and does not constitute a conflict of interest. The nib Board has in place mechanisms to manage conflicts of interest where they arise. Directorships of listed entities Anne is a Non-Executive Director of Platinum Asset Management and National Australia Bank Limited. Former directorships of listed entities in the past three years None. Other commitments Anne is a Non-Executive Director of Destination NSW. She is also a member of Chief Executive Women. Interests in shares and performance rights Direct: 35,000 shares in nib holdings limited. Annual Report 2022 17 Directors’ Report Information on Directors continued Donal O’Dwyer MBA (Manchester Business School), BE (University College, Dublin) Former Directors Steve Crane retired from the Board on 29 July 2021. Steve had been Chair and a Non-Executive Director since September 2010. Age: 69 Independent Non-Executive Director Donal was appointed to the Board of nib holdings limited in March 2016. He is Chair of the Investment Committee, and a member of the Audit Committee, People and Remuneration Committee and Nomination Committee. He is also a Director of nib health funds limited. Industry experience Donal has a deep knowledge of the health industry globally, after more than 35 years in senior executive and Non-Executive Director roles within the healthcare products and medical device sectors. Starting his career as a qualified civil engineer, he went on to gain experience in business, science, engineering, manufacturing and management. During his tenure with Baxter Healthcare, he rose through the ranks from plant manager to President of the Cardiovascular Group Europe, gaining a sound understanding of the inner workings of business strategy and fiscal management, from the floor of the factory through to the boardroom. He then worked for Cordis (the cardiovascular device franchise of Johnson & Johnson) – initially as European President and later, when he located to the US, he served as Worldwide President. Donal has a strong interest in environmental, social and governance factors and how these performance indicators can help promote long term financial success. Directorships of listed entities Donal is a Non-Executive Director of Fisher & Paykel Healthcare Corporation Ltd. Former directorships of listed entities in the past three years Non-Executive Director of Mesoblast Ltd and Cochlear Limited. Interests in shares and performance rights Indirect: 41,485 ordinary shares in nib holdings limited held by Dundrum Investments Pty Ltd. 18 Annual Report 2022 for the year ended 30 June 2022Company Secretaries Ms Roslyn Toms LLB (UNSW), BA Comms (Hons) (UCAN/UTS), GAICD 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, governance, clinical, community & sustainability across the nib group businesses in Australia and its global operations. Ms Toms is a member of the Law Society of NSW and the Governance Institute. She is also director of the nib foundation and is a graduate of the Australian Institute of Company Directors (AICD). 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 and Head of Sustainability (acting) for the nib Group, as well as the Company Secretary for nib foundation Ltd. 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 2022, and the numbers of meetings attended by each Director are noted below. All directors may attend Committee meetings even if they are not a member of a Committee. The table below excludes the attendance of Directors at Committee meetings where they were not a Committee member. Board Audit Committee Risk and Reputation Committee People and Remuneration Committee Investment Committee Nomination Committee Name S Crane2 D Gordon3 M Fitzgibbon L Ausburn J Chow4 P Harmer5 A Loveridge D O’Dwyer6 Held1 Attended Held Attended Held Attended Held Attended Held Attended Held Attended 2 15 15 15 15 15 15 15 2 15 15 15 15 15 15 14 – – – – 7 – 7 7 – – – – 7 – 7 6 – – – 6 6 6 6 1 – – – 6 6 6 6 1 – 1 6 6 4 – 6 – 1 – 6 6 4 – 6 – – – – 2 3 3 3 – – – – 2 3 3 3 – 3 3 3 3 3 3 3 – 3 3 3 3 3 3 3 1. Includes four unscheduled board meetings called at short notice. 2. S Crane retired as a Director on 29 July 2021. The stated number of meetings held for Mr. Crane are those that were convened during the financial year prior to his retirement. 3. D Gordon ceased to be a member of the Audit Committee and the People and Remuneration Committee effective 29 July 2021. The stated number of meetings of the People and Remuneration Committee held for Mr Gordon are those that were convened during the period he was a member of that committee. 4. J Chow ceased to be a member of the Investment Committee effective 26 November 2021. The stated number of meetings of the Investment Committee held for Ms Chow are those that were convened during the period she was a member of that committee. 5. P Harmer was appointed as a Director on 20 July 2021 and appointed as a member of the Risk and Reputation Committee and the Investment Committee on 29 July 2021, and the People and Remuneration Committee on 11 August 2021. The stated number of meetings of the People and Remuneration Committee held for Mr Harmer are those that were convened during the period he was a member of that committee. 6. D O’Dwyer ceased to be a member of the Risk and Reputation Committee effective 29 July 2021. The stated number of meetings of the Risk and Reputation Committee held for Mr O’Dwyer are those that were convened during the period he was a member of that committee. Remuneration report The Remuneration Report is set out on pages 22 to 44 of the Annual Report and forms part of this Report. 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 23 November 2018 11 December 2019 28 February 2020 27 November 2020 8 April 2021 26 November 2021 1 September 2022 1 September 2023 1 September 2023 1 September 2024 1 September 2024 1 September 2025 Issue price of shares Number under performance right nil nil nil nil nil nil 422,078 380,171 32,836 714,784 2,134 556,176 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. Annual Report 2022 19 Directors’ Report 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 32 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 32, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit Committee to ensure that they did not impact the impartiality and objectivity of the auditor; • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. Insurance of officers During the financial year, the Group paid a premium in respect of a contract insuring the Directors and Officers of the Group against liability incurred as such a Director or Officer, other than conduct involving wilful breach of duty in relation to the Group, to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Auditor’s independence declaration A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 21. 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. Amounts in the Directors’ 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 David Gordon Director Newcastle, NSW 19 August 2022 Anne Loveridge Director 20 Annual Report 2022 for the year ended 30 June 2022 Auditor’s Independence Declaration For the year ended 30 June 2022 Auditor’s Independence Declaration As lead auditor for the audit of nib holdings limited for the year ended 30 June 2022, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of nib holdings limited and the entities it controlled during the period. SK Fergusson Partner PricewaterhouseCoopers Newcastle 19 August 2022 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. Annual Report 2022 21 Remuneration Report for the year ended 30 June 2022 Message from the People and Remuneration Committee Chair Dear Shareholder On behalf of the Board, I am pleased to present nib Group’s FY22 Remuneration Report. As David and Mark highlight in their reports, the nib Group achieved strong financial results in FY22, despite the ongoing impacts of COVID-19 on every part of our business. Group underlying operating profit (UOP) grew 14.8% to $235.3 million, while statutory earnings per share fell 15.9% to 29.6 cents per share, driven by strong UOP, but offset by lower investment returns attributed to the highly volatile global market conditions. Total shareholder return1 (TSR) for the year was 18.9% which compares favourably to (5.9)% for the ASX200. Group performance against non-financial metrics was equally strong. We maintained or improved our net promoter score in 4 out of 5 segments, reduced member/traveller complaint volumes in all segments and exceeded target across all employee and safety measures. We also made excellent progress on our strategic plan, including delivery of several key Payer to Partner (P2P) milestones which are discussed further on page 34. Throughout the year we were pleased to welcome 411 new employees across the Group, including 20 employees who joined our nib New Zealand business as part of our acquisition of Kiwi Insurance Limited in April 2022. Despite the challenges of a tight labour market, voluntary attrition remained relatively stable in FY22 at 18.5% (up slightly from 17.9% in FY21). The Board recognises that in the current market, a competitive employee value proposition (EVP) is critical to ensure nib can continue to attract and retain talented employees to deliver on our Group strategy. This year we invested in several enhancements to our EVP, which included increasing the employee discount on private health insurance, launching a range of market-leading leave benefits and continuing to evolve our approach to hybrid work, giving employees greater choice – not only in where they work, but also when and how. Remuneration outcomes in FY22 As indicated in last year’s Remuneration Report, based on our external benchmarks, the MD/CEO’s fixed remuneration for FY22 increased by 2.5%, while Group Executives received increases between 2.5-8.6% to ensure that remuneration levels remain competitive and appropriately reflect the responsibilities of each Executive. Non-Executive Director fees also increased by 2.5%, with the exception of the NZ Chairman who received a 7% increase to reflect movement in the NZ market. These increases were broadly in line with the increases awarded to employees across the Group. The MD/CEO’s short-term incentive (STI) outcome for the 2022 financial year was 89.5% of maximum, reflecting the Group’s strong financial and non-financial performance. STI outcomes for Group Executives ranged between 67-96% of maximum, with an average of 88%. The 2019 LTI reached the end of its four-year performance period on 30 June 2022, resulting in a vesting outcome of 50%. This reflects full vesting against the relative TSR measure, with nib ranking at the 80th percentile against the comparator group, while the earnings per share (EPS) compound annual growth rate component did not vest due to performance being below threshold which was expected given the impacts of COVID-19 on EPS growth. Culture, diversity & inclusion Our people strategy in FY22 has focused on initiatives that foster safety, wellbeing, inclusion, diversity of thought and professional development for employees across the nib Group. Our most recent employee experience results showed strong growth in engagement over the past 12 months, achieving a 75% engagement score (6bps up from FY21), which compares favourably to global and Australian benchmarks (72% and 69% respectively). We also introduced new wellbeing and inclusion metrics this year, reaching a strong 74% wellbeing score and 80% employee inclusion score. We also made great progress on our Diversity, Equity and Inclusion (DE&I) Action Plan. Key achievements included the completion of our nib Reflect Reconciliation Action Plan, the expansion of our DE&I measurable objectives, external recognition through the Bloomberg Gender Equality Index and New Zealand Rainbow, Accessibility and CQ Ticks, plus introducing enhanced leave benefits to better support our parents and carers, as well as our culturally and gender diverse employees. Further information on these achievements can be found in nib’s 2022 Sustainability Report and in the 2022 Corporate Governance Statement. 1 Source: Bloomberg. 12-month TSR. 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. 22 Annual Report 2022 Looking ahead Over the past 12 months, the Board has spent considerable time evaluating nib’s executive remuneration framework to ensure it remains fit for purpose, aligns to our Group strategy and appropriately rewards nib’s Executives for delivering sustainable performance and shareholder value. In doing so, the Board considered feedback from a range of stakeholders including shareholders, proxy advisers and regulators, while also considering how nib’s remuneration practices compare to other organisations so we can continue to attract and retain high calibre talent in an increasingly competitive market. While the Board determined nib’s remuneration framework to be suitably robust and capable of driving strong outcomes for shareholders, some opportunities for improvement were identified which will be implemented in FY23, including: • • improving transparency in relation to disclosure of target performance and remuneration outcomes; implementing separate Group and individual scorecards to better balance executive accountability while continuing to incentivise performance at a Group level; • incorporating additional ESG metrics into the executive STI scorecards to support delivery of nib’s sustainability strategy; and • strengthening our evaluation of risk by introducing a Risk & Conduct Modifier and Consequence Management Framework as a mechanism to apply downward adjustments for adverse risk outcomes and to support compliance with the incoming CPS 511 remuneration standard. The Board is confident these changes will further strengthen nib’s remuneration framework and continue to drive strong and sustainable outcomes for our members, travellers and shareholders alike. As we reflect on nib’s 70th anniversary, I’d like to take this opportunity to thank our employees for their ongoing commitment to fulfilling nib’s purpose of ’your better health and wellbeing’. nib is truly a remarkable organisation, and its success can only be attributed to the hard work, creativity and dedication our employees demonstrate to our members, travellers and the organisation. Thank you for taking the time to read our FY22 Remuneration Report, which will be presented for adoption at nib’s Annual General Meeting in November. As always, we welcome your feedback. Lee Ausburn Chair People and Remuneration Committee Annual Report 2022 23 Remuneration Report Contents Key Terms Used in this Report Remuneration Overview Key Management Personnel Our Remuneration Governance Executive Remuneration Structure Executive Remuneration Mix Executive Remuneration for the Financial Year ended 30 June 2022 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 24 25 26 27 28 29 33 37 37 38 40 41 42 Key terms used in this report FY21 FY22 FY23 AGM Group KMP KPI LTI LTIP NPAT Financial year ended 30 June 2021 Financial year ended 30 June 2022 Financial year ended 30 June 2023 Annual General Meeting nib holdings limited consolidated entity Key Management Personnel (those Directors and Executives who have responsibility for planning, directing and controlling the activities of nib, either directly or indirectly) Key Performance Indicator Long-Term Incentive Long-Term Incentive Plan Net Profit After Tax PARCO People and Remuneration Committee STI TFR TSR Short-Term Incentive Total Fixed Remuneration Total Shareholder Return 24 Annual Report 2022 for the year ended 30 June 2022Remuneration overview Our Remuneration Principles Aligned to shareholder value creation Rewards sustainable performance Market competitive Simple and transparent Recognises the role of non-financial value drivers Supports prudent risk management and conduct Fixed Remuneration (FR) Short-Term Incentive (STI) Long-Term Incentive (LTI) l e Provides market competitive a n o i t a R remuneration to attract and retain high calibre talent. Reflects role size and accountability. e Base salary, superannuation r u and short- term benefits t c u (e.g. insurance cover) r t S h Reviewed annually against relevant c a o r p p A comparator group remuneration benchmarks. For Australia-based Executives the comparator groups are: Rewards Executives for achievement against predetermined financial and non-financial performance measures. Rewards Executives for creating sustainable, long-term shareholder value. 50% paid in cash 25% deferred into shares, restricted 1 year 25% deferred into shares, restricted 2 years Rights to shares with no dividend equivalent payments. Vesting is subject to performance over a four-year period, with 50% of the award held in escrow for a further 2 years. Quantum Quantum • Maximum opportunity of 125% of FR for the CEO (between 50% and 100% for other Executives) Performance Measures • Maximum face value allocation of 125% of FR for the CEO (between 30% and 60% for other Executives) • ASX listed companies with a • 50% financial measures, being market capitalisation 50-200% of nib • ASX listed companies within the financial services and healthcare sectors with a market capitalisation 33-300% of nib For the CEO nib NZ, the primary comparator group is a select group of listed and unlisted companies within the financial services sector in NZ. revenue growth, profitability and cost control (65% for CFO, 35% for GELCRO) • 50% non-financial measures, being member/traveler satisfaction, employee engagement, safety and other role-specific measures (35% for CFO, 65% for GELCRO) See page 31 for further information on the STI Plan. Performance Measures: • Relative TSR (50%) • Statutory EPS (50%) See page 32 for further information on the LTI Plan. Remuneration outcomes – FY22 snapshot Fixed Remuneration Increase 2.5% MD/CEO Other Executives 2.5 – 8.6% STI awarded 89.5% of maximum 67% to 96% of maximum LTI which reached the end of its performance period on 30 June 2022 50% of the award vested, being: • 100% vesting for the Relative TSR hurdle • Nil vesting for the Statutory EPS hurdle Annual Report 2022 25 Remuneration Report Key Management Personnel This Report presents the remuneration arrangements for nib’s key management personnel. Name Chairman David Gordon Position Chairman Chair, Nomination Committee Current Non-Executive Directors Lee Ausburn Jacqueline Chow Member, People and Remuneration Committee Member, Audit Committee Member, Nomination Committee Chair, People and Remuneration Committee Member, Risk and Reputation Committee Member, Nomination Committee Chair, Risk and Reputation Committee Director, New Zealand subsidiaries (from 24 November 2021) Member, People and Remuneration Committee Member, Audit Committee Member, Investment Committee (until 26 November 2021) Member, Nomination Committee Term as KMP From 29 July 2021 Until 29 July 2021 Full year Full year Peter Harmer Anne Loveridge Donal O’Dwyer Former Non-Executive Director Steve Crane Managing Director & CEO Member, Investment Committee (from 29 July 2021) Member, People and Remuneration Committee (from 11 August 2021) Member, Risk and Reputation Committee (from 29 July 2021) Member, Nomination Committee (from 20 July 2021) From 20 July 2021 Chair, Audit Committee Chair Board Audit, Risk and Compliance Committee New Zealand Director, New Zealand subsidiaries Member, Risk and Reputation Committee Member, Investment Committee Member, Nomination Committee Chair, Investment Committee Member, People and Remuneration Committee Member, Audit Committee (from 29 July 2021) Member, Risk and Reputation Committee (until 29 July 2021) Member, Nomination Committee Full year Full year Chairman Chair, Nomination Committee Until 29 July 2021 Mark Fitzgibbon Managing Director/Chief Executive Officer (MD/CEO) Group Chief People Officer (CPO) Chief Executive, International Visitors (CE IV) Chief Executive, Australian Residents Health Insurance (CE ARHI) Group Chief Financial Officer (CFO) Chief Executive, nib Travel (CE TRAVEL) Chief Executive Officer, nib New Zealand (CEO NZ) Group Chief Information Officer (CIO) Group Chief Operations Officer (COO) Group Executive, Legal and Chief Risk Officer (GELCRO) Current Executives Martin Adlington James Barr Edward Close Nick Freeman Anna Gladman Rob Hennin Brendan Mills Matt Paterson Roslyn Toms 26 Annual Report 2022 Full year Full year Full year Full year Full year Full year Full year Full year Full year Full year for the year ended 30 June 2022Our Remuneration Governance nib Board Responsible for the Governance of the company, including ensuring nib’s remuneration framework and executive reward outcomes are transparent and suitably robust, and aligned with the interests of our members, travellers, employees, shareholders, and the community’s expectations. Considers recommendations from PARCO regarding changes to nib Group’s Executive reward and recognition framework including long-term and short term incentive arrangements. The Board is responsible for assessing the performance of the MD/CEO. Parco The role of PARCO is to ensure nib’s remuneration framework supports nib’s business strategy assisting and advising the Board on: • remuneration strategy, policies and • reviewing the company values and practices; • setting measurable diversity and inclusion targets and reviewing the nib Diversity, Equity and Inclusion Policy; • reviewing the People and Culture strategy, succession planning processes; the inculcation of those values throughout the organisation; and • monitoring employee engagement and culture. Risk gateway assessment PARCO conducts a formal assessment of each Executive with input from nib’s Risk and Reputation Committee as well as nib’s Chief Risk Officer to confirm performance warrants award. Shareholders and other stakeholders External remuneration advisers Management nib Board and PARCO representatives seek feedback from industry stakeholders, including major shareholders and shareholder interest groups, to assist in remuneration decisions. PARCO regularly engages external remuneration advisors to assist in Executive salary benchmarking against a comparator group of companies. The MD/CEO is responsible for assessing the performance of other Executives which is subject to Board approval. The role of our People and Remuneration Committee (Committee) is to ensure alignment of nib’s remuneration framework and executive reward strategy against the short and long-term performance of the nib Group, assessed through a combination of financial and non-financial measures. The Committee also has an ongoing role to assess remuneration and performance to ensure it is consistent with shareholder and community expectations. As part of this process the Committee seeks advice and feedback from a range of external stakeholders from time-to-time, including remuneration consultants, specialists, major shareholders and shareholder advisory groups. When assessing our remuneration framework strategy, the Committee ensures there is a clear link to nib’s culture and values as well as risk management and business strategy. Guiding this process is an intent to create a workplace and environment that attracts, retains, develops and appropriately rewards our people. External factors such as the operating environment, governance and regulatory expectations also feed into this process. The Committee includes the following independent Non-Executive Directors: Lee Ausburn (Chair) Jacqueline Chow Peter Harmer Donal O’Dwyer Shareholders can view the Committee Charter on the nib website (nib.com.au/shareholders). Annual Report 2022 27 Remuneration Report Executive Remuneration Structure Executive remuneration is based on nib’s performance assessed using a combination of metrics and time frames, ensuring reward is linked to decision-making and performance, aligned to our values and culture, is sustainable, consistent with our long-term business strategy and shareholder value creation. The structure of 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 aim is to position the fixed remuneration of our Executive Management team between the 50th and 75th percentile of benchmarked companies. The Committee also considers shareholder views when setting the remuneration of our MD/CEO and Executive Management team, with feedback shared by the Committee. nib’s remuneration framework and executive reward strategy provides a mix of fixed and variable remuneration assessed against short and long-term performance. There are three components to total remuneration: • fixed remuneration, comprising a base remuneration package, superannuation and insurance cover; • short-term incentives based on pre-determined Key Performance Indicator (KPI) financial and non-financial 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 Statutory Earnings Per Share (EPS) performance hurdles, established by the Board. A significant portion of remuneration for our Executives is performance-based or “at risk” through Short-Term Incentives (STI) and Long-Term Incentives (LTI). All Executives’ performance-based incentives (STI and LTI) include claw-back arrangements and a malus condition. 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 (at its absolute discretion), require the Executive to: • • repay the Company any short or long-term incentive received; or forfeit or cancel any short or long-term award (vested or unvested). When granting a variable remuneration component for each Executive relating to the performance period, such as STI and LTI Awards, the Board also ensures any governance, adverse risk taking, or audit issues are factored into the quantum of payments to each Executive. To support this, a risk gate assessment is applied for our STI Plan where our People and Remuneration Committee and Chief Risk Officer evaluate the risk culture and risk management, with input from nib’s Risk and Reputation Committee, to confirm Executive performance warrants award. 28 Annual Report 2022 for the year ended 30 June 2022 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 FY22 remuneration mix for our Executives based on maximum total remuneration opportunity. Any variations in 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. 36% 18% 18% 28% y t i n u t r o p p o n o i t a r e n u m e r x a m % 24% 24% 19% 19% 19% 19% 38% 38% 17% 14% 14% 17% 14% 14% 55% 55% 24% 19% 19% 38% 22% 17% 17% 44% 17% 14% 14% 55% 22% 22% 17% 17% 17% 17% 44% 44% MD/CEO CE ARHI CEO NZ CE IV CE TRAVEL CFO CIO CPO COO GELCRO Fixed remuneration (base salary, superannuation + benefits) Maximum short-term incentive opportunity – cash Maximum short-term incentive opportunity – deferred into shares Long-term incentive grant The following diagram provides an illustrative indication of how FY22 financial year remuneration will be delivered to Executives: Fixed remuneration STI cash 50% STI deferred shares 25% for 1 year STI deferred shares 25% for 2 years LTI performance rights (FY22-25 grant) 50% unrestricted 50% subject to 2 year restriction FY22 FY23 FY24 FY25 FY26 FY27 Date granted Date paid Date eligible for vesting Annual Report 2022 29 Remuneration Report Executive Remuneration Mix – Fixed Remuneration Fixed remuneration for Executives reflects their core responsibilities and duties, which 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 Executive remuneration is set between the 50th and 75th percentile of benchmarked companies, with consideration to adjust based on the size and specialty of the role, as well as the skills and experience of the Executive. Fixed remuneration includes cash salary, superannuation and insurance cover. The fixed remuneration may be salary packaged at no additional cost to the Group. Adjustments to an Executive’s remuneration are generally only made where their remuneration is below benchmarked companies or there is a material change in the Executive’s responsibilities. nib typically seeks guidance from external remuneration consultants every two years. In May 2021, we engaged EY to provide remuneration benchmarking data which the Committee considered along with a range of other factors in determining the both the FY22 and FY23 remuneration reviews. The information provided by EY did not constitute a remuneration recommendation in relation to KMP as defined by Division 1 of part 1.2 of Chapter 1 of the Corporations Act 2001. The companies that make up our peer group for assessing benchmark remuneration data include the following sectors and industries: • Australian market capitalisation comparator group (all roles except the CEO NZ): this includes ASX200 companies within 50- 200% of nib’s market capitalisation; • Australian industry-based comparator group (all roles except the CEO NZ): this includes selected ASX200 financial services and healthcare companies within 33-300% of nib’s market capitalisation; • New Zealand industry-based comparator group (nib New Zealand Chief Executive Officer only): both listed and unlisted financial services companies in New Zealand. In setting executive reward for FY23, the Board considered the remuneration data along with a range of other factors, including the performance of the company, the external competitive market and shareholders’ views. Based on this review, the Board approved fixed remuneration increases ranging between 3.0% and 11.3% to ensure remuneration levels remain competitive and aligned to market rates. Details of FY22 and FY23 fixed remuneration levels for all Executives are provided below: Executives Mark Fitzgibbon Martin Adlington James Barr Edward Close Nick Freeman Anna Gladman Rob Hennin2 Brendan Mills Matt Paterson Roslyn Toms 1. Includes base salary and superannuation. 2. Includes base salary and employer contributions to KiwiSaver, reflected in New Zealand dollars. Total fixed remuneration1 $ FY23 FY22 1,207,500 1,172,000 422,000 422,000 576,000 708,000 422,000 390,500 390,500 517,500 687,000 390,500 NZD 590,000 NZD 572,500 475,500 475,500 475,500 461,500 461,500 461,500 30 Annual Report 2022 for the year ended 30 June 2022 Executive Remuneration Mix – Variable Remuneration Short-term incentives (STI) 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%) = Total potential STI Variable (Determined by a mixture of financial, non-financial and individual performance outcomes) The Board is responsible for assessing the performance of the MD/CEO and the MD/CEO is responsible for assessing the performance of other Executives (with approval of the resulting STI awards subject to a Committee risk gate assessment prior to Board approval). Due to the importance of risk management, compliance and behaviour, our People and Remuneration Committee conduct a formal assessment of each Executive prior to the award of the STI with input from nib’s Risk and Reputation Committee and nib’s Chief Risk Officer. The MD/CEO potential STI is 125% of TFR with other Executives in a range of 50%-100% of TFR. Actual outcomes are determined on performance criteria based on two components: 1. Individual and leadership assessment, which makes up 15% of the total STI. The individual and leadership component ensures we continue to recognise the contribution our Executives make 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 is assessed as part of an annual performance review by the Board, factors which are considered include: • Leadership • Strategic planning • Board/Joint Ventures • Financial management • Shareholder communication and return • Public image and professional development • Operations and Culture 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 on nib’s strategic plan and reflect the Executive’s primary accountability. The Board considers and determines the leadership component for each Executive based upon the MD/CEO’s recommendations. nib does not disclose individual performance hurdles and metrics of the STI for the MD/CEO if they are commercially or strategically sensitive. 2. Company performance assessment that makes up 85% 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 FY22 this is set out on page 34). In some instances, an Executive’s STI assessment may also include strategic milestones, which can be assessed over multi-year periods. The table on page 34 details the remuneration outcomes for the MD/CEO against performance criteria for the FY22 STI award. The table on page 35 shows the STI award for each Executive for FY22 and previous year relating to their performance against both components of the STI. A condition of acceptance for each Executive in the STI Plan is the requirement that 50% of the STI be deferred into shares, with 50% having a one-year deferral and the remaining 50% deferred for two years. These shares are subject to a risk of forfeiture during the deferral period under malus and clawback conditions. Annual Report 2022 31 Remuneration Report Executive Remuneration Mix – Variable Remuneration continued Long-term incentives (LTI) 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 = 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 Statutory EPS growth over the performance period. The LTI is allocated in two equal tranches; 50% for TSR and 50% for Statutory 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 and regulatory requirements. 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 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. 32 Annual Report 2022 for the year ended 30 June 2022 Executive Remuneration for the Financial Year ended 30 June 2022 Actual remuneration received Actual remuneration for each Executive in FY22 included a fixed component, as well as a variable or at-risk component, made up of an STI payment and LTI award. The table below details remuneration received by Executives during the financial year, including: • fixed pay and other benefits paid during the financial year; • • the value of STI awards (cash and shares held in escrow) received during the financial year; and the value of prior years’ deferred LTI awards that vested during the financial year. Statutory remuneration disclosures prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards differ to the numbers presented below, as they include expensing for equity grants that are yet to realise or may never be realised. Statutory remuneration table is presented on page 40. Actual Remuneration Received (non statutory) Mark Fitzgibbon Martin Adlington James Barr Edward Close Nick Freeman Anna Gladman Rob Hennin Brendan Mills Matt Paterson Roslyn Toms STI applicable to the FY21 year paid in Sept 2021 (FY22)2 Total fixed remuneration1 $ Shares held in escrow $ LTI vested in FY223 $ Cash $ Total reward (received or available) $ 1,172,000 546,335 546,335 946,372 3,211,042 390,500 390,500 517,500 687,000 390,500 550,049 461,500 461,500 461,500 40,898 38,341 186,052 251,107 38,066 185,100 132,399 123,223 121,498 40,897 38,340 186,051 251,107 38,065 189,343 132,398 123,223 121,498 – – – – – 472,295 467,181 889,603 1,189,214 466,631 179,875 1,104,367 133,527 – 130,910 859,824 707,946 835,406 5,482,549 1,663,019 1,667,257 1,390,684 10,203,509 1. Total fixed remuneration comprises cash salaries and fees, superannuation and leave entitlements paid on termination. 2. FY21 STI paid in the FY22 year. 3. Value of shares issued during the year on exercise of performance rights. Short-term incentives for the financial year ended 30 June 2022 For the FY22 STI, the Board considered a number of financial and non-financial performance measures to be appropriate metrics and hurdles. The performance outcomes against these measures are reflected in the MD/CEO’s FY22 remuneration outcomes. nib Executives were subject to similar performance assessments, reflecting their area of responsibility and function within the nib Group. Short-term performance targets are set for achieving specific financial and non-financial business and individual performance outcomes, with awards made relative to true outperformance. Due to the commercial and strategic nature of some STI targets for Executives, nib does not disclose some specific KPIs for key management personnel. Annual Report 2022 33 Remuneration Report Executive Remuneration for the Financial Year ended 30 June 2022 continued Short-term incentives for the financial year ended 30 June 2022 continued The table below summarises performance versus target against each FY22 STI component for the MD/CEO for both financial and non-financial measures based on 30 June 2022 actuals. Performance outcome (% of maximum) t e g r a t l o t d o h s e r h t e v o b A ) d r a w a % 5 7 - 5 2 ( ) d r a w a % 0 ( ) d r a w a % 0 0 1 - 5 7 ( t e g r a T e v o b A ) d r a w a % 0 0 1 ( h c t e r t S ) d r a w a % 5 7 ( t e g r a T t A l d o h s e r h t w o Category Measure Weight B l e arhi premium revenue 10% Growth Group underlying revenue1 Group underlying operating profit2 Group statutory earnings per share (EPS) 10% 20% 10% Profitability Customer Net promoter score (NPS) and complaint volume3 10% People & Safety Employee engagement 5% Lost time injury frequency rate (LTIFR) 5% Strategy Achievement of Payer to Partner (P2P) targets 15% Leadership Leadership 15% 100% STI Award 9% FY22 Achievement arhi underlying revenue was 1.5% above target at $2,286.2m (up 5.2%) driven by net policyholder growth of 3.2%, prior year pricing adjustments and lower downgrading. 10% Group underlying revenue was 3.2% above target at $2,761.5m (up 7.2%), resulting in the maximum STI award. The Group delivered a UOP result of $235.3m (up 14.8%), driven by strong revenue growth and favourable claims experience. The Group UOP result which was 30.8% above target, resulting in the maximum STI award. Statutory EPS was down 15.9% to 29.6cps due to the $81.8m turnaround in investment income and was only partially offset by higher Group UOP. Despite this, the result was 5.46% above the target of 28.1cps, resulting in the maximum STI award. All segments were at or above threshold, with arhi at target (30), ishi and iwhi above target (ishi 47, iwhi 43) and travel and NZ at threshold (52 and 34 respectively). Complaint volumes were at stretch, with member/traveller complaints reducing by at least 7.5% in all segments (measured as a % of total policyholders). The aggregate result was just below target. Employee engagement was at stretch, with a 75% engagement score (up 6bps). This compares favourably to global and Australian benchmarks (72% and 69% respectively). LTIFR measures the number of lost-time injuries relative to the total number of hours worked in that period and is a proxy measurement for safety performance. Group LTIFR was at stretch, achieving 0.76 against a target of 2. This represents a 43% reduction compared to FY21 and resulted in the maximum STI award. The Board set a range ambitious goals related to delivery of our P2P strategy. Of the 9 targets set, 7 were fully achieved and the remaining 2 were partially achieved. FY22 highlights included the launch of Good Health Plan and a risk profile, several non-PHI products including our non-PHI membership GreenPass, and the acquisition of Kiwi Insurance Limited in NZ. The Board evaluated the CEO’s leadership performance against the criteria outlined on page 31. The Board determined that the CEO’s leadership during FY22 was above target, awarding 80% of the maximum. 20% 10% 7.25% 5% 5% 11.25% 12% 89.5% 1 Premium revenue, other underwriting revenue and other income from non-underwriting businesses, excluding one-off transactions. 2 Underwriting result, other income and expenses including non-underwriting businesses. It excludes amortisation of acquired intangibles, one-off transactions (integration of acquired business, establishment of business costs as well as extraordinary legal fees), merger and acquisition costs, finance costs, net investment income and income tax. 3 arhi, iihi, nz, nib travel. 34 Annual Report 2022 for the year ended 30 June 2022 Actual FY22 STIs awarded and forfeited (as a percentage of total STI) for each Executive are set out below: Mark Fitzgibbon Martin Adlington James Barr Edward Close Nick Freeman Anna Gladman Rob Hennin Brendan Mills Matt Paterson Roslyn Toms Group average FY22 STI Bonus FY21 STI Bonus Total Awarded % Forfeited % Total Awarded % Forfeited % 89.5% 91.7% 96.0% 89.4% 93.5% 67.0% 87.0% 89.8% 88.4% 86.1% 87.8% 10.5% 8.3% 4.0% 10.6% 6.5% 33.0% 13.0% 10.2% 11.6% 13.9% 12.2% 76.5% 73.6% 69.0% 77.7% 75.0% 68.5% 74.5% 73.6% 68.5% 72.6% 72.9% 23.5% 26.4% 31.0% 22.3% 25.0% 31.5% 25.5% 26.4% 31.5% 27.4% 27.1% Annual Report 2022 35 Remuneration Report Executive Remuneration for the Financial Year ended 30 June 2022 continued Long-term incentives for the financial year ended 30 June 2022 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 perfor- mance period are met TSR Hurdle (Tranche 1) For the four-year performance period ended 30 June 2022, nib’s TSR was ranked at the 80th percentile to our peer group (S&P/ASX 200). As per the TSR vesting SR vesting conditions for the FY19-FY22 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 74% < 50th percentile 0% % n r u t e R r e d l o h e r a h S l a t o T 700 600 500 400 300 200 100 0 -100 Four year Relative TSR nib (52.80%) nib 52.80% 80th Percentile 1 4 7 0 1 3 1 6 1 9 1 2 2 5 2 8 2 1 3 4 3 7 3 0 4 3 4 6 4 9 4 2 5 5 5 8 5 1 6 4 6 7 6 0 7 3 7 6 7 9 7 2 8 5 8 8 8 1 9 4 9 7 9 0 0 1 3 0 1 6 0 1 9 0 1 2 1 1 5 1 1 8 1 1 1 2 1 4 2 1 7 2 1 0 3 1 3 3 1 6 3 1 9 3 1 2 4 1 5 4 1 8 4 1 1 5 1 4 5 1 7 5 1 0 6 1 3 6 1 6 6 1 9 6 1 2 7 1 5 7 1 Company Number Source: Orient Capital (as at 30 June 2022). In accordance with the terms of the LTI Grant, ranking excludes companies that were delisted from the ASX during the performance period. Statutory EPS Hurdle (Tranche 2) For the 12 months to 30 June 2022 nib’s Statutory EPS was 29.6 cps. As per the Statutory EPS vesting conditions for the FY19-FY22 LTI (as set out below) this translates to Statutory EPS CAGR of 0.17% from the base Statutory EPS of 29.4 cps and nil vesting of the performance rights for Tranche 2. Percentage of performance rights vesting 100% 75% 50% 25% 0% FY19-FY22 LTIP 41.5 cps 38.5 cps 35.7 cps 33.1 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%. 36 Annual Report 2022 for the year ended 30 June 2022 Linking Remuneration with Performance The components of remuneration that are linked to performance are the STI and LTI plans. Set performance indicators determine 85% of the STI award, while 15% is assessed on the leadership of each Executive. Refer table on page 34 for summary of performance versus target against each FY22 STI component for the MD/CEO. The Five Year Summary on page 13 details the Group’s financial performance and KPI results for the last five years. Commercial and strategic milestone targets were set for some of our Executives, including the MD/CEO, which are dependent and assessed on their segment and area of responsibility. These metrics are not disclosed due to their commercially sensitive nature. 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 Mark Fitzgibbon (MD/CEO) Martin Adlington (CPO) James Barr (CE IV) Edward Close (CE ARHI) Nick Freeman (CFO) Anna Gladman (CE TRAVEL) Rob Hennin (CEO NZ) Brendan Mills (CIO) Matt Paterson (COO) Roslyn Toms (GELCRO) Permanent Permanent Permanent Permanent Permanent Permanent Permanent Permanent Permanent Permanent Notice by nib 12 months 3 months1 3 months 6 months 6 months 3 months 9 months 12 months 6 months 6 months Termination provisions Notice by employee 3 months 3 months1 3 months 6 months 6 months 3 months 3 months 3 months 6 months 3 months 1 Mr Adlington had a notice period of 3 months in FY22. Effective 1 August 2022, the notice period was varied to 6 months. Termination payments Where notice is given by nib, the Group 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 Executive this approval would be applicable to is Mark Fitzgibbon (MD/CEO). 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. Annual Report 2022 37 Remuneration Report Non-executive Director Remuneration Fees and payments to Non-Executive Directors (NED) 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. nib typically seeks guidance from external remuneration consultants every two years. In May 2021, we engaged 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 FY22 and FY23 analysis. For FY23 the Board approved a 3% increase to NED fees. 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 nib Travel 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: 2022 $ 2021 $ 326,800 135,500 318,800 132,200 33,600 14,100 32,800 13,800 19,000 11,100 18,500 10,800 33,600 14,100 32,800 13,800 33,600 14,100 32,800 13,800 – – – – 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. 38 Annual Report 2022 for the year ended 30 June 2022 The following fees (inclusive of superannuation) for the New Zealand boards and committees have applied: NZ Base fees1 Chairman2 Member (AU domiciled)3 Member (NZ domiciled) NZ Board, Audit, Risk and Compliance committee1 Chairman (AU domiciled)3 Member 2022 $ 84,419 43,000 42,866 2021 $ 78,290 42,000 41,519 10,600 – 10,300 – 1 All amounts are converted to AUD. 2 The Chairman and NZ domiciled Directors of the NZ Board are not members of the nib holdings limited Board. 3 The AU domiciled Director, Anne Loveridge, is also member of the nib holdings limited board. nib’s Corporate Governance Statement (which is available at www.nib.com.au/shareholders/company-profile/corporate-governance) includes the committee membership of each of nib’s NEDs (Non-Executive Directors). Minimum shareholding requirements (MSR) All Non-Executive Directors (nib holdings limited only) are required to hold a minimum of 100% of the annual base director’s fee in shares, which is to be accumulated within four years of appointment. The Board reviewed the minimum shareholding requirements for Non-Executive Directors during FY22 which resulted in a change to the methodology by which the MSR is tested. From FY23, compliance with the MSR will be tested annually using the relevant base fee (Chairman or Director fee) and the higher of: a) the market value at 30 June each year, calculated using the volume-weighted average price for the 30 days up to and including 30 June; or b) the market value on the date the shares were acquired. All current Non-Executive Directors (nib holdings limited) comply with this requirement as at 30 June 2022, or are within the four-year accumulation period. Annual Report 2022 39 Remuneration Report Detailed Disclosure of Executive Remuneration The following table shows details of the remuneration expense recognised for the Group’s Key Management Personnel (KMP). The remuneration is measured in accordance with the requirements of the accounting standards with additional information provided for performance rights vested during the year. Short-term employee benefits Post-employment benefits Long-term benefits Termination benefits Share-based payments Cash salary and fees1 $ Cash bonus $ Non- monetary benefits2 $ Superannuation $ Long service leave $ Termination benefits $ Bonus3 $ Performance rights expense $ Performance rights additional value at vesting4 $ Total $ Executives 2022 Mark Fitzgibbon 1,121,672 655,588 46,904 28,037 19,587 Martin Adlington 385,037 89,522 James Barr 367,014 93,720 Edward Close 488,070 231,323 7,423 4,426 2,200 Nick Freeman 682,073 321,173 15,542 Anna Gladman 376,026 65,409 6,907 Rob Hennin 535,993 234,992 24,338 Brendan Mills 452,229 165,771 Matt Paterson 457,554 163,186 Roslyn Toms 438,029 158,941 3,106 5,358 7,658 23,568 23,568 23,568 23,568 23,568 42,824 23,568 23,568 23,568 6,523 6,526 – – – – 7,713 – 7,707 – – – – – – – – – – 655,588 733,102 131,603 3,392,081 89,522 93,720 30,400 30,400 231,323 109,825 321,173 138,492 65,409 40,950 – – – – – 631,995 619,374 1,086,309 1,502,021 578,269 239,235 151,671 25,012 1,254,065 165,771 119,615 18,568 956,341 163,186 93,201 – 906,053 158,941 116,139 18,202 929,185 5,303,697 2,179,625 123,862 259,405 48,056 – 2,183,868 1,563,795 193,385 11,855,693 2021 Mark Fitzgibbon 1,107,870 546,335 25,462 26,569 19,041 Martin Adlington 339,967 63,146 James Barr 329,299 59,198 Edward Close 483,976 185,810 5,986 3,702 1,927 Nick Freeman 685,512 251,107 12,674 Anna Gladman 388,984 62,225 6,139 Rob Hennin 466,858 180,994 18,080 Brendan Mills 431,724 132,399 2,708 Mellissa Naidoo (until 30/4/21) 315,771 – Matt Paterson 447,288 123,223 Roslyn Toms 391,897 121,498 4,389 4,562 6,977 21,694 21,694 21,694 21,694 22,589 38,210 21,694 21,694 21,694 21,694 5,982 (212) – – – – 7,491 – – 7,078 – – – – – – – – 546,335 805,810 40,227 3,117,649 40,898 38,341 186,052 251,107 38,066 7,715 7,715 52,520 67,302 17,701 – – – – – 485,388 459,737 931,979 1,289,396 535,704 178,250 152,369 10,080 1,044,841 132,399 115,344 7,097 850,856 235,676 – – 123,223 40,040 – – 577,530 760,030 121,498 116,059 (1,654) 785,047 – – 5,389,146 1,725,935 92,606 260,920 39,380 235,676 1,656,169 1,382,575 55,750 10,838,157 1 Includes cash salary and fees and short-term compensated absences, such as annual leave entitlements accrued during the year. 2 Non-monetary benefits includes insurance cover and cost of benefits and associated Fringe Benefits Tax. 3 Includes bonus share rights. Refer to Share-based payments. 4 The Performance rights additional value at vesting represents the difference between fair value at grant date and the value at vesting date which is not included in statutory remuneration. 40 Annual Report 2022 for the year ended 30 June 2022 Detailed Disclosure of Non-Executive Remuneration Details of the remuneration of the Directors of the nib holdings group are set out in the following tables. Non-Executive Directors 2022 David Gordon Steve Crane (until 29 July 2021) Lee Ausburn Jacqueline Chow Peter Harmer (from 20 July 2021) Anne Loveridge Donal O’Dywer 2021 Steve Crane Lee Ausburn Jacqueline Chow David Gordon Anne Loveridge Christine McLoughlin (until 30/9/2020) Donal O’Dywer 1 Non-monetary benefits includes a retirement gift and associated fringe benefits tax. Short-term employee benefits Post-employment benefits Cash salary and fees $ Non-monetary benefits1 $ Super -annuation $ 307,827 23,632 166,545 227,576 149,700 236,632 166,091 – 3,626 – – – – – 1,278,003 3,626 297,106 163,288 201,729 156,334 236,653 31,818 162,831 1,249,759 – – – – – 4,830 – 4,830 5,892 2,363 16,655 – 14,970 11,268 16,609 67,757 21,694 15,512 – 4,676 5,247 3,023 15,469 65,621 Total $ 313,719 29,621 183,200 227,576 164,670 247,900 182,700 1,349,386 318,800 178,800 201,729 161,010 241,900 39,671 178,300 1,320,210 Annual Report 2022 41 Remuneration Report Equity Instruments Held by Key Management Personnel Reconciliation of performance rights held 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. Balance at the start of the year Unvested Granted as compensation Vested and exercised Lapsed Balance as at the end of the year Number % Number % Other Changes Vested and exercisable Unvested Name & Grant dates Mark Fitzgibbon 15 Dec 2017 (FY18 - FY21 LTIP) 23 Nov 2018 (FY19 - FY22 LTIP) 11 Dec 2019 (FY20 - FY23 LTIP) 27 Nov 2020 (FY21 - FY24 LTIP) 222,298 215,962 200,632 314,792 – – – – 26 Nov 2021 (FY22 - FY25 LTIP) – 220,251 Martin Adlington 27 Nov 2020 (FY21 - FY24 LTIP) 12,247 – 26 Nov 2021 (FY22 - FY25 LTIP) – 17,612 James Barr 27 Nov 2020 (FY21 - FY24 LTIP) 12,247 – 26 Nov 2021 (FY22 - FY25 LTIP) – 17,612 Edward Close 28 Feb 2020 (FY20 - FY23 LTIP) 27 Nov 2020 (FY21 - FY24 LTIP) 20,063 63,305 – – 26 Nov 2021 (FY22 - FY25 LTIP) – 46,681 Nick Freeman 27 Nov 2020 (FY21 - FY24 LTIP) 88,548 – 26 Nov 2021 (FY22 - FY25 LTIP) – 61,970 Anna Gladman 21 Dec 2019 (FY20 - FY23 LTIP) 27 Nov 2020 (FY21 - FY24 LTIP) 10,416 16,374 – – 26 Nov 2021 (FY22 - FY25 LTIP) – 17,612 Rob Hennin 15 Dec 2017 (FY18 - FY21 LTIP) 23 Nov 2018 (FY19 - FY22 LTIP) 11 Dec 2019 (FY20 - FY23 LTIP) 27 Nov 2020 (FY21 - FY24 LTIP) 42,252 40,324 38,648 64,197 – – – – 26 Nov 2021 (FY22 - FY25 LTIP) – 49,551 142,870 64.3% 79,428 35.7% – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 27,155 64.3% 15,097 35.7% – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 215,962 200,632 314,792 220,251 12,247 17,612 12,247 17,612 20,063 63,305 46,681 88,548 61,970 10,416 16,374 17,612 – 40,324 38,648 64,197 49,551 42 Annual Report 2022 for the year ended 30 June 2022Balance at the start of the year Unvested Granted as compensation Vested and exercised Lapsed Balance as at the end of the year Number % Number % Other Changes Vested and exercisable Unvested Name & Grant dates Brendan Mills 15 Dec 2017 (FY18 - FY21 LTIP) 23 Nov 2018 (FY19 - FY22 LTIP) 11 Dec 2019 (FY20 - FY23 LTIP) 27 Nov 2020 (FY21 - FY24 LTIP) 31,365 30,747 28,562 49,560 – – – – 26 Nov 2021 (FY22 - FY25 LTIP) – 41,629 Matt Paterson 28 Feb 2020 (FY20 - FY23 LTIP) 27 Nov 2020 (FY21 - FY24 LTIP) 12,773 49,560 – – 26 Nov 2021 (FY22 - FY25 LTIP) – 41,629 Roslyn Toms 15 Dec 2017 (FY18 - FY21 LTIP) 23 Nov 2018 (FY19 - FY22 LTIP) 11 Dec 2019 (FY20 - FY23 LTIP) 27 Nov 2020 (FY21 - FY24 LTIP) 8 Apr 2021 (FY21 - FY24 LTIP) 30,751 29,508 28,014 43,954 2,134 – – – – – 26 Nov 2021 (FY22 - FY25 LTIP) – 41,629 20,158 64.3% 11,207 35.7% – – – – – – – – – – – – – – – – – – – – – – – – – – – – 19,763 64.3% 10,988 35.7% – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 30,747 28,562 49,560 41,629 12,773 49,560 41,629 – 29,508 28,014 43,954 2,134 41,629 Annual Report 2022 43 Remuneration Report Equity Instruments Held by Key Management Personnel continued Reconciliation of performance rights held by KMP continued 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 FY22. The terms and conditions of each grant of options affecting remuneration in the current or a future reporting period are: LTIP Grant date Date vested and exercisable Expiry date Exercise price FY18-FY21 15 December 2017 1 September 2021 1 September 2021 FY19-FY22 23 November 2018 1 September 2022 1 September 2022 FY20-FY23 11 December 2019 1 September 2023 1 September 2023 FY20-FY23 28 February 2020 1 September 2023 1 September 2023 FY21-FY24 27 November 2020 1 September 2024 1 September 2024 FY21-FY24 8 April 2021 1 September 2024 1 September 2024 FY22-FY25 26 November 2021 1 September 2025 1 September 2025 nil nil nil nil nil nil nil Value per performance right at grant date $6.0813 Performance achieved 64.3% % Vested 64.3% $4.4229 to be determined $6.0675 to be determined $4.0758 to be determined $4.4760 to be determined $4.4760 to be determined $5.9205 to be determined 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. 2022 Ordinary shares Directors of nib group Steve Crane Lee Ausburn Jacqueline Chow David Gordon Peter Harmer Anne Loveridge Donal O’Dwyer Other key management personnel of the Group Mark Fitzgibbon Martin Adlington James Barr Edward Close Nick Freeman Anna Gladman Rob Hennin Brendan Mills Matt Paterson Roslyn Toms Balance at the start of the year Granted during the year as compensation Shares purchased Shares sold Other changes during the year Balance at the end of the year 100,000 50,885 50,000 30,000 – 23,885 41,485 – – – – – – – 2,564,329 225,347 19,151 23,898 10,827 466 – 274,523 110,069 8,223 45,047 6,174 5,788 28,087 37,908 5,746 55,739 40,145 18,602 38,105 – – – – 11,078 11,115 – – – – – – – 137 – – – – – – – – – – (247,000) – (19,537) – – – – – – (10,000) (100,000) – – – – – – – – – – – – – – – – – 50,885 50,000 30,000 11,078 35,000 41,485 2,542,676 25,325 10,149 38,914 38,374 5,746 330,399 150,214 26,825 73,152 Other transactions with key management personnel There were no transactions with other related parties during the year. 44 Annual Report 2022 for the year ended 30 June 2022 Corporate Governance Statement 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 (4th 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 2022 Corporate Governance Statement is dated as at 30 June 2022 and reflects the corporate governance practices in place throughout the 2022 financial year. The Corporate Governance Statement was approved by the Board on 28 July 2022. 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. Annual Report 2022 45 Financial Report for the year ended 30 June 2022 Table of 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 12. Deferred Acquisition Costs 13. Property, Plant & Equipment 14. Intangible Assets 15. Lease Assets and Liabilities 16. Payables 17. Borrowings 18. Claims Liabilities 19. Unearned Premium Liability and Unexpired Risk Liability 20. Premium Payback Liability 21. Policy Liabilities – Life Insurance 22. Provisions and Employee Entitlements 23. Contributed Equity 24. Retained Profits 25. Reserves 26. Dividends 27. Earnings Per Share 28. Capital Management 29. Commitments for Expenditure 30. Contingent Liabilities 31. Events Occurring after the Balance Sheet Date 32. Remuneration of Auditors 33. Business Combination 34. Interest in Other Entities 35. Related Party Transactions 36. Share-Based Payments 37. Parent Entity Financial Information 46 Annual Report 2022 47 48 49 50 51 52 52 55 56 62 64 67 69 70 74 76 78 80 81 82 86 88 89 90 94 95 97 101 102 103 104 105 106 107 109 110 110 110 111 113 116 117 120 Consolidated Income Statement for the year ended 30 June 2022 Premium revenue Outwards reinsurance premium expense Net premium revenue Claims expense Reinsurance and other recoveries revenue RESA levy State levies (Increase)/decrease in premium payback liability Claims handling expenses Net claims incurred Other underwriting revenue Movement in policy liabilities 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 income Finance costs Investment income Investment expenses Profit before income tax Income tax expense Profit for the year Profit/(loss) for the year is attributable to: Owners of nib holdings limited Charitable foundation 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 6 6 7 6 21 7 7 6 7 34 6 7 6 7 8 34 27 27 27 27 The above Consolidated Income Statement should be read in conjunction with the accompanying notes. 2022 $m 2021 $m 2,725.4 2,580.8 (22.0) (32.0) 2,703.4 2,548.8 (1,817.1) (1,753.9) 11.5 (228.7) (39.1) 7.1 (18.7) 15.9 (213.8) (36.0) 2.3 (19.4) (2,085.0) (2,004.9) 6.4 (0.3) (183.1) (188.2) (371.6) 253.2 54.2 (72.6) (7.3) 227.5 0.3 (7.0) (27.3) (2.7) 190.8 (57.0) 133.8 135.7 (1.9) 133.8 3.8 – (160.4) (163.7) (324.1) 223.6 33.8 (66.6) (4.8) 186.0 0.2 (7.0) 54.1 (2.3) 231.0 (70.5) 160.5 161.1 (0.6) 160.5 Cents Cents 29.6 29.6 29.6 29.6 35.2 35.2 35.2 35.2 Annual Report 2022 47 Consolidated Statement of Comprehensive Income for the year ended 30 June 2022 Profit for the year 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/(loss) for the year is attributable to: Owners of nib holdings limited Charitable foundation Notes 2022 $m 2021 $m 133.8 160.5 (3.0) 0.5 (2.5) (0.2) – (0.2) 131.3 160.3 133.2 (1.9) 131.3 160.9 (0.6) 160.3 25 8 34 The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 48 Annual Report 2022 Consolidated Balance Sheet as at 30 June 2022 Notes 2022 $m 2021 $m ASSETS Current assets Cash and cash equivalents Receivables Financial assets at amortised cost Financial assets at fair value through profit or loss Deferred acquisition costs Current tax assets Finance lease receivable Total current assets Non-current assets Investments accounted for using the equity method Deferred acquisition costs Deferred tax assets Property, plant and equipment Intangible assets Right-of-use assets Finance lease receivable Total non-current assets Total assets LIABILITIES Current liabilities Payables Borrowings Claims liabilities Unearned premium liability Premium payback liability Lease liabilities Provisions and employee entitlements Current tax liabilities Total current liabilities Non-current liabilities Payables Borrowings Unearned premium liability Premium payback liability Policy liabilities – life insurance Lease liabilities Provisions and employee entitlements Deferred tax liabilities Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Retained profits Reserves Capital and reserves attributable to owners of nib holdings limited Charitable foundation Total equity 9 10 11 11 12 15 34 12 8 13 14 15 15 16 17 18 19 20 15 22 16 17 19 20 21 15 22 8 23 24 25 34 The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes. 206.9 101.5 8.2 1,010.1 47.9 – 2.6 1,377.2 19.2 75.7 27.8 6.9 340.3 23.1 10.2 503.2 213.9 93.9 7.7 870.1 55.0 1.4 1.7 1,243.7 17.8 71.3 – 7.9 325.0 26.5 10.6 459.1 1,880.4 1,702.8 215.7 2.1 300.4 246.8 3.2 7.0 6.7 33.1 815.0 1.2 258.8 24.2 7.2 (7.3) 43.8 3.2 – 331.1 184.3 1.6 217.1 218.1 8.2 6.9 7.6 2.6 646.4 4.3 230.7 31.3 9.5 – 50.7 3.2 20.5 350.2 1,146.1 996.6 734.3 706.2 138.2 589.1 (7.2) 720.1 14.2 734.3 127.2 567.7 (4.8) 690.1 16.1 706.2 Annual Report 2022 49 Consolidated Statement of Changes in Equity for the year ended 30 June 2022 Attributable to owners of nib holdings limited Contributed equity $m Retained profits $m Notes Reserves $m Total $m Charitable foundation $m Total equity $m Balance at 1 July 2020 121.4 470.5 Profit/(loss) for the year Movement in foreign currency translation, net of tax 25 Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners: Ordinary shares issued 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 23 23 23 26 – – – 4.7 (1.1) 2.2 – – 5.8 161.1 – 161.1 – – – – (63.9) (63.9) (5.5) – (0.2) (0.2) – – (1.0) 1.9 – 0.9 586.4 16.7 603.1 161.1 (0.2) 160.9 4.7 (1.1) 1.2 1.9 (63.9) (57.2) (0.6) – (0.6) – – – – – – 160.5 (0.2) 160.3 4.7 (1.1) 1.2 1.9 (63.9) (57.2) Balance at 30 June 2021 127.2 567.7 (4.8) 690.1 16.1 706.2 Balance at 1 July 2021 127.2 567.7 (4.8) 690.1 16.1 706.2 Profit/(loss) for the year Movement in foreign currency translation, net of tax 25 Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners: Ordinary shares issued 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 23 23 23 26 – – – 9.0 (0.9) 2.9 – – 11.0 135.7 – 135.7 – – – – (114.3) (114.3) – (2.5) (2.5) – – (1.5) 1.6 – 0.1 135.7 (2.5) 133.2 9.0 (0.9) 1.4 1.6 (114.3) (103.2) (1.9) – (1.9) – – – – – – 133.8 (2.5) 131.3 9.0 (0.9) 1.4 1.6 (114.3) (103.2) Balance at 30 June 2022 138.2 589.1 (7.2) 720.1 14.2 734.3 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 50 Annual Report 2022 Consolidated Statement of Cash Flows for the year ended 30 June 2022 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) Dividends received Interest received Distributions received Transaction costs relating to acquisition of business Interest paid Income taxes paid Net cash inflow/(outflow) from operating activities Cash flows from investing activities Proceeds from disposal of financial assets at fair value through profit or loss Payments for financial assets at fair value through profit or loss Proceeds from sale of available-for-sale financial assets Proceeds from sale of property, plant and equipment and intangibles Payments for property, plant and equipment and intangibles Payment for acquisition of business combination, net of cash acquired Payments for investments in associates and joint ventures Net cash inflow/(outflow) from investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Principal elements of lease payments Shares acquired by the nib Holdings Ltd Share Ownership Plan Trust Dividends paid to the company’s shareholders Net cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year 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 2022 $m 2021 $m 2,875.3 2,654.6 (2,016.5) (2,062.2) 13.6 (21.2) (459.0) 392.2 0.3 2.6 25.1 (3.3) (4.4) (74.9) 337.6 195.8 (380.4) – 0.1 (26.6) (39.4) (8.8) (259.3) 9.0 30.0 (8.2) (0.9) (114.3) (84.4) (6.1) 212.3 (1.4) 204.8 206.9 (2.1) 204.8 18.8 (39.8) (414.7) 156.7 0.2 2.8 15.8 – (3.2) (63.6) 108.7 365.8 (373.0) 12.9 0.1 (23.6) – (5.7) (23.5) 4.7 – (9.0) (1.1) (63.9) (69.3) 15.9 196.0 0.4 212.3 213.9 (1.6) 212.3 33 9 13,14 33 34 9 17 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. Annual Report 2022 51 Notes to the Consolidated Financial Statements for the year ended 30 June 2022 1. Summary of Significant Accounting Policies The financial statements are for the consolidated entity consisting of nib holdings limited and its subsidiaries. nib holdings limited is a company limited by shares, incorporated and domiciled in Australia. The Financial Report was authorised for issue by the Directors on 19 August 2022. The company has the power to amend and reissue the Financial Report. 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. 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 claims liabilities and financial assets and liabilities at fair value through profit or loss. 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 2022 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. 52 Annual Report 2022 The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. 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. d) Assets backing 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 and life insurance liabilities. The Group has determined that all financial assets of nib health funds limited, nib nz limited are held to back private health liabilities, and financial assets of nib nz insurance limited are held to back the life insurance liabilities. Financial assets that are not held to back private health insurance and life insurance liabilities are designated as financial assets at amortised cost. 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 and interpretations adopted by the Group The Group has not applied any new standards or amendments during the annual reporting period commencing 1 July 2021. 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. Annual Report 2022 53 Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies continued 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 2022 reporting periods. The Group does not intend to adopt these standards before its effective date. The Group’s assessment of the impact of these new standards and interpretations is noted below. AASB 17 Insurance Contracts On 19 July 2017, Australian Accounting Standard Board (AASB) issued accounting standard AASB 17 Insurance Contracts (AASB 17). As a result of amendments made in July 2020, AASB 17 was deferred the effective date to 1 January 2023. The key considerations of the standard as applicable to nib are summarised below. Measurement of insurance contracts Measurement models The standard AASB 17 introduces a General Measurement Model (GMM) for the recognition and measurement of insurance contracts. The GMM involves estimating future cash flows and risks from existing policies and taking profit to account over the policy period, adjusting the profit over the life of the contract when actual experience varies from expected. AASB 17 permits the use of the simplified Premium Allocation Approach (PAA) where either: • • the contract boundary of each contract within the portfolio is one year or less; or the measurement of the liability for remaining coverage at inception of a contract is not materially different than if applying GMM. The PAA operates in a manner similar to the way private health insurance contracts are accounted for under AASB 1023 General Insurance Contracts (AASB 1023). nib assessed the eligibility of contracts within the portfolio with one year or less to apply the simplified approach. Work is ongoing however it is anticipated that nib’s contracts will be eligible for the PAA. For the life insurance contracts, the measurement model is under assessment. For the contracts that apply the simplified approach, the Group has the option to expense acquisition costs as incurred, as opposed to deferring and amortising acquisition costs over the coverage period of the insurance. Whilst a final decision has not yet been made, the Group is considering adopting the expense as incurred approach which would result in the write-off of any deferred acquisition costs and associated tax liabilities to retained profits on implementation. Onerous contracts AASB 17 requires the identification of ’groups’ of onerous contracts which are expected to be determined at a more granular level of aggregation than the level at which the liability adequacy test is performed under AASB 1023. Contracts that are measured using the simplified approach are assumed not to be onerous unless facts and circumstances indicate otherwise. nib’s preliminary assessment has not identified any material onerous contracts. Presentation and disclosure The standard introduces substantial changes to the presentation and disclosure of insurance line items in the financial statements, introducing new line items on the balance sheet and statement of comprehensive income and increased disclosure requirements compared with existing reporting requirements. Existing insurance and reinsurance contract line items on the balance sheet (including premium receivable, unearned premium liability, deferred acquisition costs, gross outstanding claims and reinsurance and other recoveries on outstanding claims) will be replaced with insurance contract assets and liabilities, and reinsurance contract assets and liabilities. 54 Annual Report 2022 for the year ended 30 June 2022Transition Financial impact Implementation progress AASB 17 will be applied retrospectively to all of nib’s insurance contracts on transition except to the extent that it is impracticable to do so, in which case either a modified retrospective or fair value approach may be applied. nib is currently performing an assessment to conclude on the expected transition approach to be applied for the business. Market developments continue to be monitored in order to assess the impact of evolving interpretations and other changes. An example of such evolving interpretations is the ongoing applicability of the Provision for deferred and suspended claims on transition to AASB 17. The financial impact of adopting AASB 17 cannot be reasonably estimated at the date of this report. The Group intends to disclose the potential financial impact of adopting AASB 17 once it is practical to provide a reliable estimate. 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. The Group is also a member of the PHI industry and AASB 17 Insurance Contracts Transition Resource Group (TRG). Initial investigation into the application for the standard indicates it is likely that the Premium Allocation Approach will apply to the Group’s insurance contracts. This will simplify the implementation of the standard as minimal modifications to IT systems will be required. 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 COVID-19 pandemic has impacted the Group’s assessment of these assumptions and forward looking estimates, and management have accordingly adjusted them to reflect the change in risk. Specifics of the impact on estimates are detailed in each note. The key areas in which critical estimates are applied are: Note 12 Deferred acquisition costs Note 14 Goodwill and indefinite life intangibles impairment and useful life of brand names and trademarks Note 18 Claims liabilities – Outstanding claims liability and Provision for deferred and suspended claims Note 19 Liability adequacy test Note 20 Premium payback liabilities Note 21 Policy liabilities – life insurance Annual Report 2022 55 Notes to the Consolidated Financial Statements 3. Risk Management The Board of nib is ultimately responsible for the Group’s risk management framework and oversees the Group’s 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, Investment 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 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 and the Management Risk Committee, • • 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 (regulated by APRA) and nib New Zealand (regulated by 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 the Group continued to invest in and strengthen our risk management systems and practices to reflect our strong commitment to risk and compliance in alignment with APRA Prudential Standard CPS 220 – Risk Management. The financial condition and operations of the Group are affected by a number of Principal 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. Similarly to the last 2 years, the impact of the COVID-19 pandemic on the global economy has continued to result in ongoing insurance and financial risk exposure for the Group. This heightened level of uncertainty and risk is managed as part of the Group’s Risk Management Framework. Further material is contained in the notes below on the exposures and mitigation of specific risks with discrete financial impacts. Category Risks Insurance risks Pricing Claims inflation Risk equalisation (Australia only) Financial risks Fair value interest rate risk Foreign exchange risk Price risk Credit risk Liquidity risk Capital management (see Note 28) 56 Annual Report 2022 for the year ended 30 June 2022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. There are a number of sources of risk that 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 Forecasting and pricing is a core capability within the Group. Without effective controls there is potential for poor quality forecasting. This could result in a range of negative outcomes, including: pricing decisions that do not align with nib strategic goals, material impact to nib financial performance, and failure to comply with ASX Listing Rule Continuous Disclosure obligations. Control failures could also impact annual pricing approval decisions by the Minister for Health. Amendments or rejections of price applications could have a negative impact on nib’s operating and financial performance. The Group is subject to the risk of 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. 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 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. Governance, contractual and control procedures are in place for key benefits & provider relationships. Maintenance of reserves in excess of minimum solvency and capital requirements allows the Group to withstand increased levels of claims inflation. Risk equalisation special account arrangements 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 the policyholder or private health fund related to the claim. 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. 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 has interest rate risk arising 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 amortised cost; • financial assets at fair value through profit or 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 or 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 has a defined investment strategy and risk/ return objectives, that is aligned to the strategic plan and capital management plans, overseen by the Investment Committee and assisted by asset management consultants. Annual Report 2022 57 Notes to the Consolidated Financial Statements 3. Risk Management continued b) Fair value interest rate risk continued 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 2022 2021 Weighted average interest rate % 1.6% Weighted average interest rate % 1.5% Balance $m 258.8 258.8 Balance $m 230.7 230.7 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. The Group’s sensitivity to interest rate risk has increased with the COVID-19 associated economic impact. The Group has shown the impact of a change in interest rates of 100 bps to reflect this increased risk. 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 2022 2021 Financial assets Cash and cash equivalents Other receivables Financial assets at amortised cost Financial assets at fair value through profit or loss Financial liabilities Bank loans Premium payback liability c) Foreign exchange risk Description Exposure Carrying amount $m Profit after tax/ equity $m Profit after tax/ equity $m Carrying amount $m Profit after tax/ equity $m Profit after tax/ equity $m 206.9 30.8 8.2 1,010.1 (258.8) (10.4) (1.5) (0.2) 0.1 9.3 1.9 (0.2) 1.5 0.2 (0.1) (9.2) (1.9) 0.2 213.9 27.4 7.7 870.1 (230.7) (17.7) (1.5) (0.2) 0.1 8.1 1.7 (0.5) 1.5 0.2 (0.1) (8.1) (1.7) 0.6 Mitigation The Group does not hedge this risk. 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 in equity through other comprehensive income. Foreign exchange gains or losses arising on assets and liabilities denominated in foreign currencies are recognised directly in profit and loss. 58 Annual Report 2022 for the year ended 30 June 2022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. -10% Profit after tax $m – (0.7) (0.7) Exposure $m 123.6 10.6 2.3 2022 Equity $m (12.3) – 0.7 +10% Profit after tax $m – 0.7 0.7 Equity $m 12.3 – (0.7) Exposure $m 75.4 12.3 4.1 -10% Profit after tax $m – (0.9) (0.8) 2021 Equity $m (7.5) – 0.8 +10% Profit after tax $m – 0.9 0.8 Equity $m 7.5 – (0.8) Foreign exchange risk New Zealand dollar Chinese Yuan Other d) Price risk Description Exposure Mitigation 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. Risk of fluctuations in price of equity securities impacting the Group’s fair value of its financial instruments. 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. nib has a defined investment strategy and risk/ return objectives, that is aligned to the strategic plan and capital management plans, overseen by the Investment Committee and assisted by asset management consultants. The Group’s increased risk relating to the price of equity securities in volatile markets as a result of COVID-19 is mitigated by the heavier weighting of the Group’s investments 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. All the equity securities are held in unit trusts. 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 2022 2021 Financial assets Financial assets at fair value through profit or loss 1,010.1 (15.2) 15.2 870.1 (15.8) 15.8 Carrying amount $m Profit after tax/ equity $m Profit after tax/ equity $m Carrying amount $m Profit after tax/ equity $m Profit after tax/ equity $m 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. Annual Report 2022 59 Notes to the Consolidated Financial Statements 3. Risk Management continued e) Credit risk Description Exposure Mitigation Risk that a counterparty will default on its contractual obligations, or 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; and • credit exposures to policyholders and the Department of Human Services (Private Health Insurance Premiums Reduction Scheme). 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 Services Australia the Group does not have any material credit risk to any other single debtor or group of debtors under financial instruments entered into. Directly managed term deposits are held with institutions that have at least an A-2 credit rating. Term deposits held within portfolios managed by investment asset consultants are in accordance with the relevant investment policy statement. nib has a defined investment strategy and risk/ return objectives, that is aligned to the strategic plan and capital management plans, overseen by the Investment Committee and assisted by asset management 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 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. The Group’s credit risk assessments and loss allowances have been updated for the increased risk of default as a result of the COVID-19 pandemic. Other receivables Counterparties with external credit rating 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. Cash at bank and short-term bank deposits A-1+ A-1 A-2 B* * Transactional bank account. Financial assets at amortised cost Short term deposits A-1+ 60 Annual Report 2022 2022 $m 2.9 0.5 27.3 0.1 30.8 2022 $m 187.3 17.1 0.9 1.6 2021 $m 5.0 0.2 21.8 0.4 27.4 2021 $m 197.8 13.5 1.0 1.6 206.9 213.9 2022 $m 8.2 8.2 2021 $m 7.7 7.7 for the year ended 30 June 2022 Financial assets at fair value through profit or loss Interest-bearing securities1 AAA AA A BBB 2022 $m 307.4 466.4 9.3 9.2 792.3 2021 $m 215.5 364.3 52.7 13.2 645.7 1. The financial assets at fair value through profit or loss with credit risk are held in unit trusts. The above table summarises the underlying investments of the unit trusts. f) Liquidity risk Description Exposure Mitigation Risk that the Group will not 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; • claims payable; • other payables; • lease liabilities; 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 2022 Financial Liabilities Trade creditors Claims payable Other payables Lease liabilities Borrowings Group at 30 June 2021 Financial Liabilities Trade creditors Claims payable Other payables Lease liabilities Borrowings < 1 month $m 1-3 months $m 3-12 months $m 1-5 years $m > 5 years $m 28.7 62.1 33.3 0.8 0.3 125.2 0.5 – 19.6 1.6 1.8 23.5 – – 6.0 7.0 6.3 19.3 – – 2.1 35.9 267.3 305.3 – – – 14.6 – 14.6 < 1 month $m 1-3 months $m 3-12 months $m 1-5 years $m > 5 years $m 15.0 55.4 28.5 0.8 0.1 99.8 5.2 – 12.9 1.6 0.7 20.4 0.6 – 6.9 7.2 2.5 17.2 – – 5.1 36.5 234.5 276.1 – – – 23.3 – 23.3 Total contractual cash flows $m 29.2 62.1 61.0 59.9 275.7 487.9 Total contractual cash flows $m 20.8 55.4 53.4 69.4 237.8 436.8 Carrying amount $m 29.2 62.1 61.0 50.8 260.9 464.0 Carrying amount $m 20.8 55.4 53.4 57.6 232.3 419.5 Annual Report 2022 61 Notes to the Consolidated Financial Statements 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 2022 and 30 June 2021: Group at 30 June 2022 Assets Receivables Financial assets at fair value through profit or loss Equity securities Interest-bearing securities Property trusts1 Finance lease receivable Total assets of which: Investments relating to life insurance business – Interest-bearing securities Level 1 $m Level 2 $m Level 3 $m – 1.0 206.3 738.8 – – 945.1 – – 50.4 11.5 12.8 75.7 16.2 – – 3.1 – – 3.1 – 1. Level 3 investment in Unlisted property trusts were redeemed during the period and invested in Level 2 Unlisted property trusts. Group at 30 June 2021 Assets Receivables Financial assets at fair value through profit or loss Equity securities Interest-bearing securities Property trusts Finance lease receivable Total assets Level 1 $m Level 2 $m Level 3 $m – 1.0 213.2 605.2 – – 818.4 – 39.2 – 12.3 52.5 – – 1.3 11.2 – 12.5 Total $m 1.0 206.3 792.3 11.5 12.8 1,023.9 16.2 Total $m 1.0 213.2 645.7 11.2 12.3 883.4 The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values due to their short-term nature. There were no transfers between level 1, 2 and 3 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. Level 1 Level 2 The fair value of financial instruments traded in active markets (such as financial assets at fair value through profit or loss) is based on quoted market prices at the reporting date. The fair value of financial instruments that are not traded in active markets (for example some 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. Level 3 One or more of the significant inputs is not based on observable market data. 62 Annual Report 2022 for the year ended 30 June 2022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 interest bearing securities. c) Fair value measurements using significant unobservable inputs (level 3) The Group’s level 3 investments comprise units in interest bearing securities which are infrequently traded. The following table presents the changes in level 3 instruments for the year ended 30 June 2022 and 30 June 2021: Fair value measurement as at 1 July Purchased Sales Change in fair value Exchange differences Fair value measurement at end of period 2022 $m 12.5 3.8 (13.3) 0.4 (0.3) 3.1 2021 $m 10.5 1.8 (0.6) 0.7 0.1 12.5 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 2021. ii) Valuation process The valuation of interest bearing securities is based on unit prices provided by investment managers. The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurements: Description At 30 June 2022 Fair value $m Unobservable inputs Relationship of unobservable inputs to fair value Interest-bearing securities 3.1 Redemption price Higher/(lower) redemption price (+/- 10%) would increase/(decrease) fair value by $0.3m At 30 June 2021 Interest-bearing securities and Unlisted property trusts 12.5 Redemption price Higher/(lower) redemption price (+/- 10%) would increase/(decrease) fair value by $1.3m Annual Report 2022 63 Notes to the Consolidated Financial Statements 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 income and expenditure such as integration costs, merger and acquisition costs, new business implementation costs, amortisation of acquired intangibles and impairment of 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 Insurance International (Inbound) Health Insurance nib’s core product offering within the Australian private health insurance industry, including Australian Payer to Partner (P2P) product offering and commission from other insurance products nib’s product offerings within the New Zealand private health and life insurance industry nib’s offering of health insurance products for international students and workers nib Travel nib’s distribution of travel insurance products “Unallocated to segments” includes corporate expenses, share of profit/(loss) from joint ventures, and the charitable foundation as they do not meet the quantitative requirements for reportable segments. Commission of other insurance products was allocated to the Australian Residents Health Insurance segment in this financial year. 64 Annual Report 2022 for the year ended 30 June 2022For the year ending 30 June 2022 International (Inbound) Health Insurance $m New Zealand Insurance $m nib Travel $m Unallocated to segments $m 3.6 (1.9) 1.7 (0.9) 0.9 – – – (0.2) (0.2) – – (1.6) (0.2) (1.8) (0.3) 46.6 (53.7) – (7.4) Premium revenue Outwards reinsurance premium expense Net premium revenue Claims expense Reinsurance and other recoveries revenue RESA State levies (Increase)/decrease in premium payback liability Claims handling expenses Net claims incurred Other underwriting revenue Movement in policy liabilities Acquisition costs Other underwriting expenses Australian Residents Health Insurance $m 2,295.5 (9.3) 2,286.2 (1,544.4) 4.4 (228.7) (39.1) – (12.5) (1,820.3) 3.9 – (117.3) (114.5) 133.3 (9.6) 123.7 (91.1) 5.3 – – – (3.4) (89.2) 2.6 – (11.7) (26.5) 293.0 (1.2) 291.8 (180.7) 0.9 – – 7.1 (2.6) (175.3) (0.1) (0.3) (52.5) (40.9) Underlying underwriting expenses (231.8) (38.2) (93.7) Underlying underwriting result 238.0 (1.1) 22.7 Other income Other expenses Share of net profit/(loss) of associates and joint ventures accounted for using the equity method 2.8 (0.3) – – – – – – – Underlying operating profit/(loss) 240.5 (1.1) 22.7 Items not included in underlying operating profit Amortisation of acquired intangibles (1.9) (0.8) (3.4) (1.6) Impairment of intangibles One-off transactions, merger, acquisition and new business implementation costs – – – – – – – – Finance income Finance costs Investment income Investment expenses Profit before income tax from continuing operations Inter-segment other income1 Depreciation and amortisation 0.1 2.6 – 1.4 Total assets Total liabilities Insurance liabilities Claims liabilities Unearned premium liability Premium payback liability Policy liabilities – life insurance Total insurance liabilities 1,367.4 761.9 278.0 247.9 – – 525.9 1. Inter-segment other income is eliminated on consolidation and not included in operating profit. 0.1 3.4 267.3 69.2 22.0 22.3 10.4 (7.3) 47.4 – 1.6 141.5 21.8 0.4 0.8 – – 1.2 Total $m 2,725.4 (22.0) 2,703.4 (1,817.1) 11.5 (228.7) (39.1) 7.1 (18.7) (2,085.0) 6.4 (0.3) (183.1) (182.1) (365.5) 259.3 51.5 (68.2) (7.3) 235.3 (7.7) – (0.1) 0.3 (7.0) (27.3) (2.7) 190.8 0.2 28.3 – – – – – – – – – – – – – – – – 2.1 (14.2) (7.3) (19.4) – – (0.1) 0.3 (7.0) (27.3) (2.7) – 19.3 104.2 293.2 1,880.4 1,146.1 – – – – – 300.4 271.0 10.4 (7.3) 574.5 Annual Report 2022 65 For the year ending 30 June 2021 International (Inbound) Health Insurance $m New Zealand Insurance $m nib Travel $m Unallocated to segments $m Notes to the Consolidated Financial Statements 5. Segment Reporting continued Premium revenue Outwards reinsurance premium expense Net premium revenue Claims expense Reinsurance and other recoveries revenue RESA State levies (Increase)/decrease in premium payback liability Claims handling expenses Net claims incurred Other underwriting revenue Acquisition costs Other underwriting expenses Underlying underwriting expenses Australian Residents Health Insurance $m 2,185.0 (10.9) 2,174.1 (1,496.1) 4.9 (213.8) (36.0) – (12.6) (1,753.6) 1.8 (106.0) (104.5) (210.5) 135.6 (20.1) 115.5 (96.2) 10.4 – – – (4.1) (89.9) 2.0 (12.3) (21.2) (33.5) 258.9 (0.3) 258.6 (161.0) – – – 2.3 (2.5) (161.2) – (41.6) (31.7) (73.3) Underlying underwriting result 211.8 (5.9) 24.1 Other income Other expenses Share of net profit/(loss) of associates and joint ventures accounted for using the equity method Underlying operating profit/(loss) Amortisation of acquired intangibles Impairment of acquired intangibles One-off transactions, merger, acquisition and new business implementation costs Gain on sale of investment in joint venture Finance income Finance costs Investment income Investment expenses Profit before income tax from continuing operations 2.8 (0.4) – 214.2 (1.9) – – – – – – – (5.9) (0.8) – – – – Inter-segment other income1 Depreciation and amortisation 0.1 2.6 – 1.7 Total assets Total liabilities Insurance liabilities Claims liabilities Unearned premium liability Premium payback liability Total insurance liabilities 1,196.3 628.9 201.6 227.7 – 429.3 1. Inter-segment other income is eliminated on consolidation and not included in operating profit. 66 Annual Report 2022 – – – 24.1 (3.4) – – – – 0.1 3.4 223.3 76.4 15.4 21.4 17.7 54.5 Total $m 2,580.8 (32.0) 2,548.8 (1,753.9) 15.9 (213.8) (36.0) 2.3 (19.4) (2,004.9) 3.8 (160.4) (157.6) (318.0) 229.7 24.1 (44.1) (4.8) 204.9 (8.0) (8.8) (11.8) 9.7 0.2 (7.0) 54.1 (2.3) 231.0 0.2 26.7 – – – – – – – – – – – – – – – 7.3 (16.4) (4.8) (13.9) – – (11.8) 9.7 0.2 (7.0) 54.1 (2.3) – 17.1 137.1 258.4 1,702.8 996.6 – – – – 217.1 249.4 17.7 484.2 1.3 (0.7) 0.6 (0.6) 0.6 – – – (0.2) (0.2) – (0.5) (0.2) (0.7) (0.3) 14.0 (27.3) – (13.6) (1.9) (8.8) – – – – 1.9 146.1 32.9 0.1 0.3 – 0.4 for the year ended 30 June 20226. Revenue and Other Income Premium revenue Health insurance business Travel insurance business Life insurance business Outwards reinsurance premiums Health insurance business Travel insurance business Life insurance business Net premium revenue Agency fee Sundry income Other underwriting revenue Travel insurance commission Commission on other insurance products Gain on sale of investment in joint venture Wages subsidies Insurance recoveries Sundry income Other income Finance income Interest Net realised gain (loss) on financial assets at fair value through profit or loss Net unrealised gain (loss) on financial assets at fair value through profit or loss Dividends Investment income Notes 2022 $m 2021 $m 21 21 2,725.4 2,718.2 2,580.8 2,579.5 3.6 3.6 (22.0) (19.1) (1.9) (1.0) 1.3 – (32.0) (31.3) (0.7) – 2,703.4 2,548.8 0.4 6.0 6.4 0.3 3.5 3.8 46.2 12.5 2.8 2.0 0.2 0.1 2.9 2.8 9.7 4.2 0.1 4.5 54.2 33.8 0.3 0.2 2.6 31.6 (61.8) 0.3 (27.3) 2.8 20.3 30.8 0.2 54.1 Annual Report 2022 67 Notes to the Consolidated Financial Statements 6. Revenue and Other Income continued 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 and life insurance contracts held by policyholders. Private health insurance contracts 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. Life insurance contracts Premium revenue is earned on life insurance contracts. Premiums with a regular due date are recognised as revenue when they fall due. The premium amounts received are recognised as an increase in policy liabilities. Premiums due after but received before the end of the financial year are shown as unearned premium liabilities in the Consolidated Balance Sheet. 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. Refer to Note 10(a)(iii) for impairment of financial assets. iii) Outwards reinsurance Premiums ceded to reinsurers under insurance contracts held by the Group are recognised as an outwards reinsurance expense and are recognised in the income statement from the attachment date over the period of indemnity of the reinsurance contract in accordance with the expected pattern of the incidence of risk ceded. iv) Income from travel insurance commission Income in the form of commissions is recognised when the sale of an insurance policy to a customer occurs. Income is also generated on travel services activities and recognised as the service is performed. v) Finance income Finance income on sublease is allocated to accounting periods so as to reflect a constant period rate of return on the Group’s finance lease. Refer to Note 15 for finance lease receivables. 68 Annual Report 2022 for the year ended 30 June 20227. Expenses Expenses by function Claims handling expenses Acquisition costs Other underwriting expenses Other expenses Finance costs Investment expenses Notes 2022 $m 2021 $m 18.7 183.1 188.2 72.6 7.0 2.7 19.4 160.4 163.7 66.6 7.0 2.3 Total expenses (excluding direct claims expenses) 472.3 419.4 Expenses by nature Amortisation of acquired intangibles Bank charges Communications, postage and telephone expenses Depreciation and amortisation Depreciation of right-of-use assets Impairment of right-of-use-assets Employee costs Finance costs Finance costs – interest on lease liabilities Impairment of acquired intangibles Information technology expenses Investment expenses Marketing expenses – excluding commissions Marketing expenses – commissions Merger, acquisition and new business implementation costs Professional fees Other expenses Total expenses (excluding direct claims expenses) 15 15 15 7.7 4.9 4.1 20.6 3.4 – 8.0 3.0 4.8 18.7 5.3 1.1 160.1 150.9 4.4 2.6 – 28.5 2.7 45.8 3.4 3.6 8.8 27.7 2.3 35.7 137.0 104.4 2.9 32.7 14.9 0.3 27.4 14.0 472.3 419.4 Annual Report 2022 69 Notes to the Consolidated Financial Statements 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 Income tax expense is attributable to: Profit from continuing operations Aggregate income tax expense Deferred income tax expense included in income tax expense comprises: (Increase)/decrease in deferred tax assets Increase/(decrease) 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 Tax at the Australian tax rate of 30% (2021: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Goodwill impairment Sundry items Net assessable trust distributions Imputation credits and foreign tax credits Adjustment for current tax of prior periods Differences in foreign tax rates Income tax expense iii) Tax expense relating to items of other comprehensive income Foreign currency translations 70 Annual Report 2022 Notes 2022 $m 2021 $m 107.7 (50.0) (0.7) 57.0 57.0 57.0 (40.8) (9.2) (50.0) 42.8 28.2 (0.5) 70.5 70.5 70.5 29.2 (1.0) 28.2 190.8 231.0 57.2 69.3 – 1.5 0.7 (2.2) (0.7) 0.5 57.0 (0.5) (0.5) 2.3 (0.4) 0.2 (0.7) (0.5) 0.3 70.5 – – for the year ended 30 June 2022 b) Deferred tax assets The balance comprises temporary differences attributable to: Notes Claims liabilities Employee benefits Lease liabilities Unearned premium liability Premium payback liabilities Provisions Unrealised losses on investments Other Depreciation and amortisation Loss allowance Income receivables Investment in associates and joint ventures Share issue costs Tax losses Total deferred tax assets 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 Claims liabilities $m Employee benefits $m Lease liabilities $m Unearned premium liability $m Premium payback liability $m Unrealised losses on investments $m Provisions $m Movements At 1 July 2020 (Charged)/credited to the income statement (Charged)/credited directly to other comprehensive income At 30 June 2021 At 1 July 2021 (Charged)/credited to the income statement (Charged)/credited directly to other comprehensive income At 30 June 2022 30.7 (19.0) – 11.7 11.7 22.5 (0.1) 34.1 6.1 (0.1) – 6.0 6.0 0.8 – 6.8 23.8 (6.6) – 17.2 17.2 (1.7) – 15.5 – – – – – 6.5 – 6.5 5.2 (0.7) – 4.5 4.5 5.7 0.2 – 5.9 5.9 4.0 (4.0) – – – (2.0) (1.0) 11.9 – 2.5 – 4.9 – 11.9 (0.1) 8.1 2022 $m 34.1 6.8 15.5 6.5 2.5 4.9 11.9 82.2 1.5 0.5 0.8 4.8 – 0.5 8.1 90.3 (62.5) 27.8 48.6 41.7 90.3 Other $m 3.4 1.0 – 4.4 4.4 3.8 2021 $m 11.7 6.0 17.2 – 4.5 5.9 – 45.3 0.1 0.6 0.4 2.6 0.1 0.6 4.4 49.7 (49.7) – 23.4 26.3 49.7 Total $m 78.9 (29.2) – 49.7 49.7 40.8 (0.2) 90.3 Annual Report 2022 71 Notes to the Consolidated Financial Statements 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 Policy liabilities Right-of-use assets Unrealised foreign exchange gains Unrealised gains on investments Other Unearned premium liability Notes 2022 $m 12.8 36.4 2.3 10.6 0.4 – 62.5 – – 2021 $m 15.2 37.2 – 11.5 0.6 5.6 70.1 0.1 0.1 Total deferred tax liabilities 62.5 70.2 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 Deferred acquisition costs $m Policy liabilities $m Right-of-use assets $m Unrealised foreign exchange losses $m Unrealised gains on investments $m (62.5) – 13.8 48.7 62.5 Other $m 0.1 – – 0.1 0.1 (49.7) 20.5 14.7 55.5 70.2 Total $m 71.2 (1.0) – 70.2 70.2 – 5.6 – 5.6 5.6 – – – – – – 0.1 2.2 2.3 17.9 (6.4) – 11.5 11.5 (0.9) – – 10.6 0.8 (0.2) – 0.6 0.6 0.2 (0.4) – 0.4 (5.6) (0.1) (9.2) – – – – – – (0.7) 2.2 62.5 Movements At 1 July 2020 (Charged)/credited to the income statement (Charged)/credited directly to other comprehensive income At 30 June 2021 17.7 (2.5) – 15.2 34.7 2.5 – 37.2 At 1 July 2021 15.2 37.2 (Charged)/credited to the income statement (Charged)/credited directly to other comprehensive income Acquisition of business At 30 June 2022 (2.3) (0.5) (0.1) – 12.8 (0.3) – 36.4 72 Annual Report 2022 for the year ended 30 June 2022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. 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. Details of tax consolidated group are detailed in Note 37 a) ii). 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. Annual Report 2022 73 Notes to the Consolidated Financial Statements 9. Cash and Cash Equivalents Cash at bank and cash on hand Short term deposits and deposits at call 2022 $m 183.6 23.3 206.9 2021 $m 148.3 65.6 213.9 a) Accounting policy 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 Profit on sale of joint venture investment 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 Depreciation of right-of-use assets and interest on leases Impairment of right-of-use assets Impairment of intangibles 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 policy liabilities Increase (decrease) in current tax liabilities Increase (decrease) in deferred tax liabilities Increase (decrease) in provisions Net cash flow from operating activities 74 Annual Report 2022 2022 $m 2021 $m 133.8 160.5 1.4 (2.0) 57.7 7.3 1.6 28.3 6.0 – – 1.4 (5.6) 2.7 (27.8) 27.7 21.7 (7.3) 0.3 31.7 (22.2) 80.9 337.6 0.9 (9.7) (33.3) 4.8 1.7 26.7 8.9 1.1 8.8 0.1 (11.3) (8.9) – (9.0) (8.8) (2.3) – (21.2) 28.1 (28.4) 108.7 for the year ended 30 June 2022 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 Lease liabilities Net debt Cash and liquid investments Gross debt – variable interest rates Lease liabilities Net debt As at 1 July 2020 Cash flows Acquisition – leases Foreign exchange adjustments Other non-cash movements As at 30 June 2021 Cash flows Acquisition of business Acquisition – leases Foreign exchange adjustments Other non-cash movements As at 30 June 2022 2022 $m 206.9 1,010.1 (2.1) (258.8) (50.8) 905.3 2021 $m 213.9 858.9 (1.6) (230.7) (57.6) 782.9 1,217.0 1,072.8 (260.9) (50.8) 905.3 (232.3) (57.6) 782.9 Liabilities from financing activities Borrowings $m Lease liabilities $m Net Debt Total $m (232.9) 0.4 – 0.2 – (232.3) (30.5) – – 1.9 – (82.6) 10.4 (1.0) 0.2 15.4 (57.6) 9.5 – (0.4) 0.1 (2.4) 700.6 12.8 (1.0) 0.5 70.0 782.9 167.2 18.2 (0.4) (2.1) (60.5) 905.3 Cash and cash equivalents $m Assets Liquid- investments $m 198.0 15.4 – 0.5 – 213.9 (7.5) 1.8 – (1.3) – 818.1 (13.4) – (0.4) 54.6 858.9 195.7 16.4 – (2.8) (58.1) Sub-total $m 1,016.1 2.0 – 0.1 54.6 1,072.8 188.2 18.2 – (4.1) (58.1) 206.9 1,010.1 1,217.0 (260.9) (50.8) Liquid investments comprise current investments that are traded in an active market, being the Group’s financial assets at fair value through profit or loss. e) Off-balance sheet arrangements nib Travel Pty Limited (nib Travel), a wholly-owned subsidiary of nib holdings limited, operates bank accounts held in its name on behalf of its underwriters in accordance with contractual terms governing the arrangements. These accounts are not considered part of the cash and cash equivalents of nib Travel. At 30 June 2022 this amounted to $23,217,547 (2021: $30,360,856). Annual Report 2022 75 Notes to the Consolidated Financial Statements 10. Receivables Current Premium receivable Private Health Insurance Premiums Reduction Scheme receivable Other receivables Provision for loss allowance Prepayments Expected future reinsurance recoveries undiscounted on claims paid on outstanding claims 2022 $m 12.1 46.8 30.8 (2.0) 12.5 0.1 1.2 101.5 As at 30 June 2022, current receivables of the Group with a nominal value of $2.031 million (2021: $2.532 million) were impaired. The loss allowance as at 30 June 2022 and 2021 was determined as follows for both premium receivables and other receivables: Group at 30 June 2022 Expected loss rate Gross carrying amount – premium receivables Gross carrying amount – other receivables Loss allowance Group at 30 June 2021 Expected loss rate Gross carrying amount – premium receivables Gross carrying amount – other receivables Loss allowance Current More than 30 days past due More than 60 days past due More than 120 days past due 3% 11.4 23.8 1.1 14% 14% 11% 0.5 0.2 0.1 0.2 0.5 0.1 – 6.3 0.7 Current More than 30 days past due More than 60 days past due More than 120 days past due 5% 13.7 16.6 1.4 17% 0.4 0.2 0.1 8% 0.2 1.1 0.1 9% – 9.5 0.9 % $m $m $m % $m $m $m 2021 $m 14.3 41.7 27.4 (2.5) 9.7 1.1 2.2 93.9 Total 12.1 30.8 2.0 Total 14.3 27.4 2.5 The closing loss allowances for premium receivables and other receivables as at 30 June 2022 and 2021 reconcile to the opening loss allowances as follows: 1 July 2020 Increase/(decrease) in loss allowance recognised in profit or loss during the year Receivables written off during the year as uncollectible At 30 June 2021 Increase/(decrease) in loss allowance recognised in profit or loss during the year Receivables written off during the year as uncollectible At 30 June 2022 As of 30 June 2022 and 30 June 2021 no receivables were past due but not impaired. Premium receivables $m Other receivables $m 1.5 (0.2) – 1.3 – – 1.3 0.4 0.9 (0.1) 1.2 0.1 (0.6) 0.7 Total $m 1.9 0.7 (0.1) 2.5 0.1 (0.6) 2.0 76 Annual Report 2022 for the year ended 30 June 2022a) Accounting policy i) Premium receivables Amounts due from policyholders are initially recognised at fair value, being the amounts due. They are subsequently measured at amortised cost less allowance for expected credit losses. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, premium receivables have been grouped based on shared risk characteristics. The amount of expected credit losses is recognised in Premium revenue on the Consolidated Income Statement. ii) Other receivables Other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Other receivables are generally due for settlement within 30 days. iii) Impairment of financial assets The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, other receivables have been grouped based on shared risk characteristics. The amount of expected credit losses is recognised in the Consolidated Income Statement. When a receivable becomes uncollectible it is written off against the expected credit loss account. Subsequent recoveries of amounts previously written off are credited against other expenses in the Consolidated Income Statement. The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Group’s assessment at the end of each reporting period as to whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset’s lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in the Consolidated Income Statement. iv) Interest rate risk Information about the Group’s exposure to interest rate risk in relation to other receivables is provided in Note 3. v) 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. vi) 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. vii) 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 18). Annual Report 2022 77 Notes to the Consolidated Financial Statements 11. Financial Assets a) Financial assets at amortised cost Short term deposits 2022 $m 8.2 8.2 2021 $m 7.7 7.7 Interest income on financial assets at amortised cost are recorded in investment income in profit or loss in Note 6. b) Financial assets at fair value through profit or loss Current Equity securities Interest-bearing securities Property trusts 2022 $m 2021 $m 206.3 792.3 11.5 1,010.1 213.2 645.7 11.2 870.1 The financial assets at fair value through profit or loss are held in unit trusts. 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. c) Accounting policy i) Classification The Group classifies its financial assets into the following measurement categories: • those to be measured at fair value (either through other comprehensive income, or through profit or loss), and • those to be measured at amortised cost. The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the relevant cash flows. The Group has determined that financial assets held by entities in the Group that are health and life insurers are classified as fair value through profit or loss as they are held to back insurance liabilities. These assets are managed in accordance with agreed investment mandate agreements on a fair value basis and are reported to the Board on this basis. A financial asset is measured at amortised cost only if both of the following conditions are met: • • it is held within a business model which objective is to hold assets in order to collect contractual cash flows, and the contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest. ii) Recognition and derecognition Purchases and sales of financial assets are recognised on trade date, being the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. 78 Annual Report 2022 for the year ended 30 June 2022iii) Measurement Financial assets at fair value through profit or loss are recognised initially at fair value. All other financial assets are recognised initially at fair value plus directly attributable transaction costs. Subsequent to the initial recognition, for financial assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held as described below. Reclassification of debt investments is done when and only when its business model for managing those assets changes. For investments in equity instruments, the fair value will be recorded in profit or loss, unless the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. iv) Debt instruments Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the company classifies its debt instruments: Amortised cost Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. A gain or loss on a debt investment that is subsequently measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the asset is derecognised or impaired. Interest income from these financial assets is included in profit or loss using the effective interest rate method. Fair value through other comprehensive income (FVOCI) Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment losses or reversal of impairment losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss. Interest income from these financial assets is included in profit or loss using the effective interest rate method. Fair value through profit or loss (FVPL) Assets that do not meet the criteria for amortised cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at FVPL and is not part of a hedging relationship is recognised in profit or loss and presented net within investment gains/(losses) in the period in which it arises. Interest income from these financial assets is included in the profit or loss using the effective interest rate method. v) Equity instruments The Group subsequently measures all investments in equity instruments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss. Changes in the fair value of financial assets at fair value through profit or loss are recognised in investment gains/(losses) in the statement of profit or loss. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. vi) Impairment The Group assesses on a forward looking basis the expected credit losses (ECL) associated with its financial assets carried at amortised cost. The recognition of impairment depends on whether there has been a significant increase in credit risk. Debt investments at amortised cost are considered to be low credit risk, and thus the impairment provision is determined as 12 months ECL. vii) Risk Information about the Group’s exposure to price risk and interest rate risk is provided in Note 3. exposure Annual Report 2022 79 Notes to the Consolidated Financial Statements 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 period Amortisation expense Liability adequacy adjustment1 Exchange differences 1. Refer to Note 19 Unearned premium liability and unexpired risk liability Deferred acquisition costs by segment are as follows: Australian Residents Health Insurance New Zealand Residents Health Insurance International (Inbound) Health Insurance 2022 $m 47.9 2021 $m 55.0 75.7 71.3 2022 $m 126.3 63.8 (60.7) (4.7) (1.1) 2021 $m 117.4 67.9 (58.9) – (0.1) 123.6 126.3 2022 $m 89.4 31.5 2.7 2021 $m 89.0 33.5 3.8 123.6 126.3 a) Accounting policy 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 (2021: 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. This analysis and management’s expectations of future lapse supports the amortisation period of 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 $14.0 million for 30 June 2022. An increase in the expected contract periods of one year would decrease amortisation expense by $11.4 million for 30 June 2022. The recoverability of the related deferred acquisition costs is also considered as part of the liability adequacy test performed. As described in Note 19, the Group has no deficiency in the unearned premium liability at 30 June 2022. 80 Annual Report 2022 for the year ended 30 June 2022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. The recoverability of the related deferred acquisition costs is also considered through an assessment of the net present value of the future estimated cash flows for policies that are subject to commission, and as part of the liability adequacy test performed. The business experienced lower claiming rates due to the pandemic and some claims catch up is expected in FY23. A deferred claims liability (DCL) has not been utilised in NZ (given differing circumstances to Australia), and a temporary increase in the outstanding claims (OSC) risk margin ($4.9 million) is warranted to allow for the greater uncertainty around COVID-19 claims which had previously been addressed through the DCL. Specifically, the company has less risk appetite for the OSC to be understated given these pandemic risks. This also impacted the liability adequacy test requiring a partial write-off of deferred acquisition costs of $4.7 million. 13. Property, Plant & Equipment At 1 July 2020 Cost Accumulated depreciation and impairment Net book amount Year ended 30 June 2021 Opening net book amount Additions Disposals Depreciation charge for the year Closing net book amount At 30 June 2021 Cost Accumulated depreciation and impairment Net book amount Year ended 30 June 2022 Opening net book amount Additions Disposals Depreciation charge for the year Closing net book amount At 30 June 2022 Cost Accumulated amortisation and impairment Net book amount Plant & Equipment $m Leasehold Improvements $m 22.2 (17.6) 4.6 4.6 0.6 (0.2) (2.2) 2.8 19.9 (17.1) 2.8 2.8 1.7 – (1.7) 2.8 19.9 (17.1) 2.8 17.5 (10.7) 6.8 6.8 0.5 (0.7) (1.5) 5.1 13.2 (8.1) 5.1 5.1 0.1 – (1.1) 4.1 11.7 (7.6) 4.1 Total $m 39.7 (28.3) 11.4 11.4 1.1 (0.9) (3.7) 7.9 33.1 (25.2) 7.9 7.9 1.8 – (2.8) 6.9 31.6 (24.7) 6.9 Annual Report 2022 81 Notes to the Consolidated Financial Statements 13. Property, Plant & Equipment continued a) Accounting policy 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 • Leasehold improvements 3 to 10 years 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. 14. Intangible Assets At 1 July 2020 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2021 Opening net book amount Additions Disposals Amortisation charge for the year Impairment charge Exchange differences Closing net book amount At 30 June 2021 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2022 Opening net book amount Additions Acquisition of business Disposals Amortisation charge for the year Impairment charge Exchange differences Closing net book amount At 30 June 2022 Cost Accumulated amortisation and impairment Net book amount 82 Annual Report 2022 Goodwill $m Software $m Brands and Trademarks $m Customer Contracts and relationships $m 226.5 – 226.5 226.5 – – – (7.6) (0.2) 218.7 218.7 – 218.7 218.7 – 19.0 – – – (1.4) 236.3 236.3 – 236.3 129.3 (81.6) 47.7 47.7 22.5 (0.1) (15.3) – – 54.8 153.2 (98.4) 54.8 54.8 24.8 0.3 (1.4) (17.7) – (0.2) 60.6 178.0 (117.4) 60.6 32.6 (14.2) 18.4 18.4 – – (1.0) (1.2) – 16.2 32.6 (16.4) 16.2 80.7 (38.6) 42.1 42.1 – – (6.7) – (0.1) 35.3 80.6 (45.3) 35.3 16.2 35.3 – – – (1.0) – – 15.2 32.4 (17.2) 15.2 – – – (6.8) – (0.3) 28.2 79.4 (51.2) 28.2 Total $m 469.1 (134.4) 334.7 334.7 22.5 (0.1) (23.0) (8.8) (0.3) 325.0 485.1 (160.1) 325.0 325.0 24.8 19.3 (1.4) (25.5) – (1.9) 340.3 526.1 (185.8) 340.3 for the year ended 30 June 2022a) Accounting policy i) Goodwill ii) Software iii) Brands and trademarks 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 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. The Group had adopted the treatment set out in the IFRS Interpretations Committee agenda decision, to recognise the costs as intangible assets only if the implementation activities create an intangible asset that the entity controls and the intangible asset meets the recognition criteria. Costs that do not result in intangible assets are expensed as incurred, unless they are paid to the suppliers of the Software as a service (SaaS) arrangement to significantly customise the cloud- based software for the Group, in which case the costs are recorded as a prepayment for services and amortised over the expected renewable term of the arrangement. 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, less impairment losses. 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 • 10 years for both nib nz limited and Grand United Corporate Health Limited; v) Impairment • approximately 2.5 years for World Nomads Group; • 5 to 10 years for QBE Travel. 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. Annual Report 2022 83 Notes to the Consolidated Financial Statements 14. Intangible Assets continued b) Allocation of goodwill and intangible assets to CGUs Goodwill At 30 June 2022 At 30 June 2021 Brands and trademarks At 30 June 2022 At 30 June 2021 Customer Contracts and relationships At 30 June 2022 At 30 June 2021 Software1 At 30 June 2022 At 30 June 2021 Total At 30 June 2022 At 30 June 2021 Australian Residents Health Insurance Australia $m International Workers Health Insurance Australia $m New Zealand Insurance New Zealand $m nib travel Group Australia $m Unallocated to CGUs $m 80.2 80.2 $m 2.5 3.0 $m 12.0 14.2 $m – – $m 94.7 97.4 21.1 21.1 $m – – $m – – $m – – $m 21.1 21.1 58.5 40.9 $m – – $m 10.7 14.4 $m – – $m 69.2 55.3 76.5 76.5 $m 12.7 13.2 $m 5.5 6.7 $m – – $m 94.7 96.4 – – $m – – $m – – $m 60.6 54.8 $m 60.6 54.8 1. Software is shown as unallocated as it is predominantly a shared services function. c) Allocation of definite life and indefinite life assets to CGUs Australian Residents Health Insurance Australia $m International Workers Health Insurance Australia $m New Zealand Insurance New Zealand $m nib travel Group Australia $m Unallocated to CGUs $m 14.5 17.2 $m 80.2 80.2 $m 94.7 97.4 – – $m 21.1 21.1 $m 21.1 21.1 10.7 14.4 $m 58.5 40.9 $m 69.2 55.3 5.5 7.2 $m 89.2 89.2 $m 94.7 96.4 60.6 54.8 $m – – $m 60.6 54.8 Definite life At 30 June 2022 At 30 June 2021 Indefinite life At 30 June 2022 At 30 June 2021 Total At 30 June 2022 At 30 June 2021 84 Annual Report 2022 Total $m 236.3 218.7 $m 15.2 16.2 $m 28.2 35.3 $m 60.6 54.8 $m 340.3 325.0 Total $m 91.3 93.6 $m 249.0 231.4 $m 340.3 325.0 for the year ended 30 June 2022The definite and indefinite life brand names allocated to nib Travel Group CGU (included in Brands and Trademarks table on previous page) are as follows: Brands and trademarks At 30 June 2022 At 30 June 2021 WorldNomads.com $m Travel Insurance Direct $m 12.7 12.7 – 0.5 Total $m 12.7 13.2 d) Impairment tests for goodwill and intangibles Goodwill and intangibles are allocated to a cash-generating unit (CGU). An asset is considered impaired when its balance sheet carrying amount exceeds its estimated recoverable amount, which is defined as the higher of its fair value less cost of disposal and its value in use. 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 four-year period. The estimates used in calculating value-in-use are highly sensitive, and depend on assumptions specific to the nature of the Group’s activities. Actual cash flows and values could vary significantly from forecasted future cash flows and related values derived from discounting techniques. e) Key assumptions used for value-in-use calculations The assumptions used for the cash flow projections for the first four years are in line with the current 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 four-year period are extrapolated into perpetuity assuming a growth factor of 2.5%. 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. nib Travel Group The assumptions for nib Travel Group have been reviewed for the ongoing impact of COVID-19 on the travel industry, to which nib is exposed via the nib Travel Group CGU. FY23 to FY26 cashflows are based on nib internal budget assumptions and scenarios on the return to post-Covid ’normal’. These considered factors such as traveller numbers, insurance take-up and market share, as well as market pricing, and have been set with reference to current market trends as well as external industry forecasts. International tourism has continued to recover during first half 2022 (calendar period) across major regions. In Australia, nib Travel’s Gross Written Premium has recovered to beyond pre-Covid inflated levels, assisted by higher pricing for updated products which includes some Covid risk. It is assumed this recovery will continue across all markets and regions during 2022 and first half 2023 calendar periods, and considering the current economic and risk climate, prices are not likely to return to previous levels. However, recovery rates are likely to become more gradual, as tailwinds from pent up travel demand recede. Terminal growth rates of 2.5% compound annual growth rate have been applied for growth beyond FY26. f) Significant estimate: Impact of possible changes in key assumptions Based on the assumptions below, there were no reasonably possible changes in any of the key assumptions that would have resulted in an impairment write-down of intangibles in any CGU. For nib travel, a further deterioration in these assumptions may result in an impairment of goodwill. FY23 to FY26 cashflows would need to diminish by approximately 25% for an impairment to be present. The following table sets out the key assumptions for those CGUs that have significant goodwill allocated to them. Annual Report 2022 85 Notes to the Consolidated Financial Statements 14. Intangible Assets continued f) Significant estimate: Impact of possible changes in key assumptions continued Policyholder growth Claims ratio Long-term growth rate Pre-tax discount rate Goodwill Australian Residents Health Insurance International Workers Health Insurance New Zealand Residents Health Insurance New Zealand Life and Living Insurance 2022 % 3.0 4.8 7.9 6.6 2021 % 2.7 2.8 8.9 na 2022 % 82.1 49.3 65.3 37.6 2021 % 83.2 43.7 63.8 na 2022 % 2.5 2.5 2.5 2.5 2021 % 2.5 2.5 2.5 na 2022 % 11.5 11.5 11.3 11.3 nib travel Brandnames and trademarks WorldNomads.com Revenue growth rate (forecast years)1 Long-term growth rate Pre-tax discount rate 2022 % 37.8 2021 % 3.7 2022 % 2.5 2021 % 2.5 2022 % 16.8 Revenue growth rate (forecast years)1 Royalty rate Long-term growth rate Pre-tax discount rate 2022 % 37.8 2021 % 3.7 2022 % 2.5 2021 % 2.5 2022 % 2.5 2021 % 2.5 2022 % 16.8 2021 % 12.2 12.2 11.2 na 2021 % 14.8 2021 % 14.8 1. FY22 revenue growth is a 37.8% compound annual growth rate (CAGR) from a FY22 base. FY21 revenue growth has been assumed to represent pre-COVID levels of activity which has then been run rated. Expected FY25 revenue represents a 3.7% pa compound annual growth rate (CAGR) from 1H20. 15. Lease Assets and Liabilities a) Right-of-use assets Right-of-use assets – properties Additions to the right-of-use assets during the 2022 financial year was $0.4 million (2021: $1.0 million). b) Finance lease receivables Current Non-current Minimum undiscounted lease payments receivable on the sublease are as follows: Within 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Between 4 and 5 years Later than 5 years c) Lease liabilities Current Non-current 86 Annual Report 2022 2022 $m 23.1 23.1 2022 $m 2.6 10.2 12.8 2022 $m 2.9 2.6 2.7 2.8 2.5 0.2 2021 $m 26.5 26.5 2021 $m 1.7 10.6 12.3 2021 $m 1.9 2.0 2.1 2.2 2.3 2.6 13.7 13.1 2022 $m 7.0 43.8 50.8 2021 $m 6.9 50.7 57.6 for the year ended 30 June 2022d) Amounts recognised in the consolidated income statement The consolidated income statement shows the following amounts related to leases. Finance income Gain on recognition of finance sublease (included in other income) Depreciation charge of right-of-use assets – properties Impairment of right-of-use assets – properties Finance costs – interest on lease liabilities Expenses relating to short-term leases (included in other expenses) The total cash outflow for leases in 2022 was $8.2 million (2021: $9.0 million). e) Accounting policy Notes 6 6 7 7 7 7 2022 $m 0.3 0.1 3.4 – 2.6 0.1 2021 $m 0.2 2.5 5.3 1.1 3.6 0.1 As a lessee The Group leases various offices. Rental contracts are typically made for fixed periods of 3 to 15 years but may have extension options as described in (i) below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • fixed payments (including in-substance fixed payments), less any lease incentives receivable • variable lease payment that are based on an index or a rate • amounts expected to be payable by the lessee under residual value guarantees • the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and • payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. To determine the incremental borrowing rate, the Group: • where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received • uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent third party financing, and • makes adjustments specific to the lease, e.g. term, country, currency and security The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. Right-of-use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liability • any lease payments made at or before the commencement date less any lease incentives received • any initial direct costs, and • restoration costs Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Annual Report 2022 87 Notes to the Consolidated Financial Statements 15. Lease Assets and Liabilities continued e) Accounting policy continued As a lessor The Group is a sub-lessor (intermediate lessor) of the right-of-use assets. The Group classifies the sublease as a finance lease or an operating lease by assessing if the lease transfers substantially all the risks and rewards with reference to the right-of-use asset arising from the head lease, rather than by reference to the underlying asset. For subleases classified as a finance lease, the sub-lessor derecognises the right-of-use asset relating to the head lease that it transfers to the sublease and recognises the net investment in the sublease; any difference between the right-of-use assets and the net investment in the finance sublease is recognised in profit or loss. At the commencement date, net investment in the finance lease is measured at an amount equal to the present value of the lease payments for the underlying right-of-use assets during the lease term. The Group recognises finance income over the lease term, based on a pattern reflecting a constant period rate of return on the lessor’s net investment in the lease. i) Extension and termination options Extension and termination options are included in a number of leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. The minimum non-discounted cash flows associated with the extensions that have not been recognised is $21.6 million. 16. Payables Current Outwards reinsurance expense liability – premiums payable to reinsurers Trade creditors Claims payable Other payables RESA payable1 Annual leave payable Non-current Other payables 2022 $m 1.2 29.2 62.1 59.8 51.4 12.0 2021 $m 0.3 20.8 55.4 49.1 48.2 10.5 215.7 184.3 1.2 1.2 4.3 4.3 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 expected to be taken within the next 12 months. Annual leave obligation expected to be settled after 12 months 2022 $m 2.0 2021 $m 1.5 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 an 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. 88 Annual Report 2022 for the year ended 30 June 202217. Borrowings Current Bank overdraft Non-current Bank loans 2022 $m 2.1 2.1 258.8 258.8 2021 $m 1.6 1.6 230.7 230.7 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 $2.4 million. Outstanding amounts as at 30 June 2022 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 Exchange differences Balance at end of period 2022 $m 230.7 30.0 (1.9) 258.8 2021 $m 230.9 – (0.2) 230.7 a) Accounting policy 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. b) Bank loans During the year nib holdings limited refinanced its AUD $80.5 million variable rate loan with NAB to extend its maturity date to 9 December 2024 and put in place a new AUD $50.0 million revolving credit facility with a maturity date of 9 December 2024, of which AUD $30.0 million was drawn down during the year. It also has an AUD $85.0 million variable rate loan with NAB with a maturity date of 16 December 2023. All loans are carried at amortised cost. nib nz holdings limited, a wholly owned subsidiary of nib holdings limited, refinanced its NZD $70.0 million variable rate loan with NAB during the period to extend the maturity date to 9 December 2024. The above loans have the following financial covenants that must be met by the Group: Financial Covenant Ratio as at 30 June 2022 Group Gearing Ratio1 will not be more than 45% Group Interest Cover Ratio1 will not be less than 3:1. 26.6% 49:1 1. Excludes lease liabilities and associated interest. nib holdings limited has provided a guarantee and indemnity to NAB on behalf of nib nz holdings limited in respect of the NZD $70.0 million term loan facility. 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. Annual Report 2022 89 Notes to the Consolidated Financial Statements 18. Claims Liabilities Outstanding Claims Liability Outstanding claims – central estimate of the expected future payment for claims incurred1 Risk margin Claims handling costs Gross outstanding claims liability Outstanding claims – expected payment to the RESA2 in relation to the central estimate Risk margin Net outstanding claims liability Provision for deferred and suspended claims Provision for deferred and suspended claims Total claims liabilities 2022 $m 146.9 18.3 1.9 167.1 21.7 1.4 190.2 2021 $m 140.8 14.8 2.1 157.7 24.1 1.3 183.1 110.2 110.2 34.0 34.0 300.4 217.1 1. Includes $0.3 million of outstanding claims for nib Travel’s underwriting company Nomadic Insurance Benefits Limited which is 100% reinsured. 2. 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. a) Outstanding claims liability 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 Claims paid during the period Effect of changes in foreign exchange rates Central estimate at end of period Risk margin Administration component Gross outstanding claims at end of period 2022 $m 157.7 (14.8) (2.1) 140.8 (0.2) (138.5) 1,749.1 2021 $m 124.4 (9.8) (2.0) 112.6 (2.5) (107.8) 1,804.7 (1,603.8) (1,666.0) (0.5) 146.9 18.3 1.9 167.1 (0.2) 140.8 14.8 2.1 157.7 i) 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. To account for inherent uncertainty in the central estimate a risk margin is added. 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. The estimated cost of claims includes allowances for Risk Equalisation Special Account (RESA) consequences and claims handling expense. The central estimates are calculated gross of any recoveries. A separate estimate and risk margin is made of the amounts that will be recoverable based upon the gross provision. The Group takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. 90 Annual Report 2022 for the year ended 30 June 2022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 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. 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. Accordingly, reasonable changes in assumptions would not have a material impact on the outstanding claims balance. ii) 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 Risk margin 2022 2021 Hospital % 89.5% 0.75% 0.0% 6.6% 20.2% 6.6% 78.0% 4.0% 0.0% 28.0% 73.5% 3.0% 0.0% 28.5% Surgical % 90.2% 2.7% 38.1% Medical % 91.7% 0.75% 0.0% 6.6% 20.2% 6.6% 92.6% 4.0% 0.0% 28.0% 88.0% 3.0% 0.0% 28.5% Medical % 91.8% 2.7% 38.1% General % 98.6% 0.75% 0.0% 6.6% 0.0% 0.0% 97.5% 4.0% 0.0% 28.0% 93.8% 3.0% 0.0% 28.5% Hospital % 90.8% 0.80% 0.0% 6.5% 20.8% 6.5% 69.9% 4.0% 0.0% 29.3% 78.2% 3.5% 0.0% 29.3% Surgical % 91.8% 3.2% 5.1% Medical % 91.8% 0.80% 0.0% 6.5% 20.8% 6.5% 90.5% 4.0% 0.0% 29.3% 88.3% 3.5% 0.0% 29.3% Medical % 92.0% 3.2% 5.1% General % 98.5% 0.80% 0.0% 6.5% 0.0% 0.0% 98.1% 4.0% 0.0% 29.3% 93.2% 3.5% 0.0% 29.3% The risk margin of the underlying liability has been estimated to equate to a probability of adequacy of 95% for nib Health Funds and 99.5% for nib NZ (June 2021: 95% nib Health Funds, 95% nib NZ). The New Zealand business experienced lower claiming rates due to the pandemic and some claims catch up is expected in FY23. A deferred claims liability (DCL) has not been utilised in NZ (given differing circumstances to Australia), and a temporary increase in the outstanding claims (OSC) risk margin ($4.9 million) is warranted to allow for the greater uncertainty around COVID-19 claims which had previously been addressed through the DCL. Specifically, the company has less risk appetite for the OSC to be understated given these pandemic risks. This also impacted the Liability Adequacy Test requiring a partial write-off of deferred acquisition costs of $4.7 million. Annual Report 2022 91 Notes to the Consolidated Financial Statements 18. Claims Liabilities continued a) Outstanding claims liability continued iii) Impact of changes in key variables relating to insurance liability 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 Expense rate Discount rate Risk equalisation allowance Risk margin 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. 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. Claims handling expenses were calculated by reference to both historical and forecast total claims handling costs as a percentage of historical and forecast claims payments. 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. 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 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. The process of estimating insurance liabilities is uncertain by nature due to the difficulty of estimating outcomes of events that will occur in the future. A risk margin is estimated to increase reserves to a level that is expected to provide a 95% probability of sufficiency for the outstanding claims liability for nib Health Funds and 99.5% for nib NZ (June 2021: 95% nib Health Funds, 95% nib NZ), based on an analysis of past payment experience volatility. An estimate for the risk equalisation cost is included in the outstanding claims liability. An increase or decrease in the risk equalisation allowance would have a corresponding impact on RESA Levy. An estimate of the amount of uncertainty in the determination of the central estimate. An increase or decrease in the risk margin would have a corresponding impact on claims expense. The table below describes how a change in each assumption will affect the profit after tax. 2022 2021 Movement in variable Profit after tax $m Profit after tax $m +0.5% -0.5% +1.0% -1.0% +2.5% -2.5% +1.0% -1.0% (13.7) 13.7 (1.1) 1.1 (2.0) 2.0 (1.2) 1.2 (13.0) 13.0 (1.1) 1.1 (1.9) 1.9 (1.2) 1.2 Variable Chain ladder development factors Expense rate Risk equalisation allowance Risk margin 92 Annual Report 2022 for the year ended 30 June 2022b) Provision for deferred and suspended claims Critical accounting judgements and estimates Given the lower claims activity due to COVID-19 related lockdowns, restrictions on elective surgery and allied service providers, the Group believes it has an obligation to recognise as part of claims liabilities a provision for deferred claims based on a present constructive obligation resulting from a past event under relevant accounting standards. In nib’s case, the event (impacts of COVID-19 on the availability of and access to procedures since March 2020) has triggered the deferral of claims activity and benefits that would have otherwise been provided to members. If cover remains in place, a responsibility exists to provide for these claims that would have ordinarily been incurred under normal circumstances. nib members with continuing cover would have had an expectation to use and therefore claim on hospital, surgical and ancillary services had the pandemic not arisen, notwithstanding the backlog of activity. The provision is therefore management’s estimate of the cost of claims which might have occurred up until 30 June but did not as a result of ongoing impacts of the Delta and Omicron strains of COVID-19 impacts and are therefore deferred at that date. A deferred claims liability (DCL) has not been utilised in NZ (given differing circumstances to Australia), and the remaining commentary relates to nib Health Funds. In estimating the provision for nib Health Funds, three key steps were undertaken: 1. Estimating the reduction in claims and risk equalisation (net of any estimated claims catch-up to date) due to reduced access to services. Incurred claims estimates produced across the period from March 2020 to 30 June 2022 as part of the outstanding claims provisioning process were compared to a forecast produced using data prior to March 2020 which considers changing age, product mix and industry participation rates since this time. The difference between forecast and actual incurred was calculated by modality (claim type) to estimate the financial impact of COVID-19 across the March 2020 to June 2022 period. 2. Applying a deferral rate (percentage of the reduction in net claims to date due to COVID-19 that is expected to be caught up in later periods). Certain factors need to be considered when assessing that not all estimated savings translate to a claims payment backlog at balance date. For example: a. there has continued to be lapses of memberships in the normal course of business; b. some types of private health benefits are less likely to have been deferred; c. catch up of benefits between ancillary and hospital categories differs due to capacity in facilities, lead time to arrange procedures etc; d. prior experience in different states. nib’s deferral rates have been estimated as 33% (June 2021: 20%) of net Australian claims reduction to date. 3. An analytical review over time periods and a comparison of the calculated DCL to industry is conducted with further review of deferral rates to ensure the outcome appears reasonable. Risks and uncertainties have been taken into account in the measurement of the liability and are reflected in the key inputs and judgements. The key risks associated with estimating the components of the provision is the under/over estimation of the claims deferral rate and to a lesser extent, the under/over estimation of the claims savings (net of risk equalisation impact). Movements in the deferred and suspended claims are as follows: Net Deferred and Suspended Claims at beginning of period Claims handling costs Gross Deferred and Suspended Claims at beginning of period Change in deferred and suspended claims estimate for prior period Deferred and suspended claims provision made during the period Deferred and suspended claims paid during the period Gross Deferred and Suspended Claims at end of period Claims handling costs Net Deferred and Suspended Claims at end of period 2022 $m 34.0 (0.2) 33.8 (33.8) 129.5 (20.1) 109.4 0.8 110.2 2021 $m 98.8 (0.8) 98.0 (46.1) 24.6 (42.7) 33.8 0.2 34.0 Annual Report 2022 93 Notes to the Consolidated Financial Statements 18. Claims Liabilities continued b) Provision for deferred and suspended claims continued The table below describes how a change in the estimate relating to deferred and suspended claims provision disclosed above will affect the profit after tax. Variable Reduction in claims activity Claims deferral rate Catch up of claims to date 19. Unearned Premium Liability and Unexpired Risk Liability a) Unearned premium liability Current Non-current 2022 2021 Movement in variable Profit after tax $m Profit after tax $m +2.0% -2.0% +10.0% -10.0% +20.0% -20.0% (1.5) 1.5 (18.4) 18.4 1.4 (1.4) (0.5) 0.5 (7.0) 7.0 4.8 (4.8) 2022 $m 2021 $m 246.8 218.1 24.2 31.3 The unearned premium liability reflects premiums paid in advance by customers. $23.0 million has been recognised for the premium increase deferral within the unearned premium liability at 30 June 2022 (30 June 2021: nil). This amount relates to the ASX announcement made on 30 May 2022 to postpone the 2022 premium increase from 1 April 2022 to 1 November 2022. This provision has been recognised as a reduction to Health Insurance premium revenue in the consolidated statement of comprehensive income. Movements in the unearned premium liability are as follows: Unearned premium liability as at 1 July Deferral of premiums on contracts written in the period Earning of premiums written in previous periods Unearned premium liability as at 30 June 2022 $m 249.4 239.7 (218.1) 271.0 2021 $m 258.1 214.6 (223.3) 249.4 b) Unexpired risk liability The New Zealand business experienced lower claiming rates due to the pandemic and some claims catch up is expected in FY23. A deferred claims liability (DCL) has not been utilised in NZ (given differing circumstances to Australia), and a temporary increase in the outstanding claims (OSC) risk margin ($4.9 million) is warranted to allow for the greater uncertainty around COVID-19 claims which had previously been addressed through the DCL. Specifically, the company has less risk appetite for the OSC to be understated given these pandemic risks. This also impacted the liability adequacy test requiring a partial write-off of deferred acquisition costs of $4.7 million. No unexpired risk liability needed to be recognised. 94 Annual Report 2022 for the year ended 30 June 2022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 75% probability of adequacy for future claims for Australia (June 2021: 75%) and 97% for New Zealand (June 2021: 75%) which is lower than the 95% (Australia) and 99.5% (New Zealand) achieved in the estimate of the outstanding claims liability, refer to Note 18(a)(ii) 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 for the Australian Residents Health Insurance and International (Inbound) Health Insurance segments as at 30 June 2022 and 2021, however a deficiency of $4.7 million (2021: $nil) was identified for the New Zealand Insurance segment resulting in a write down of deferred acquisition costs of $4.7 million. No unexpired risk liability needed 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. 20. Premium Payback Liability Current Non-current Movements in the premium payback liability are as follows: Gross premium payback liability at beginning of period 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 period Adjustment to ensure reserve exceeds current payout on early lapse Value of payments currently being processed Risk margin Total premium payback liability as at end of period 2022 $m 3.2 7.2 2022 $m 17.7 (1.2) (0.5) 16.0 2.1 0.3 (1.3) (8.1) 0.4 (0.2) 9.2 0.1 0.7 0.4 10.4 2021 $m 8.2 9.5 2021 $m 20.1 (1.1) (0.6) 18.4 2.7 0.2 (0.5) (4.4) (0.3) (0.1) 16.0 – 1.2 0.5 17.7 Risk exposure Information about the Group’s exposure to interest rate risk in relation to premium payback liability is provided in Note 3(b). Annual Report 2022 95 Notes to the Consolidated Financial Statements 20. Premium Payback Liability continued 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 2022 2021 2.0% – 10.0% 2.0% – 10.0% 0.0% – 1.0% 0.0% – 1.0% 0.0% 0.0% 3.52% – 3.62% 0.57% – 1.00% 4.5% 2.7% The risk margin has been estimated to equate to a 95% probability of adequacy (2021: 95%). b) Sensitivity analysis 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 Discount rate Rate used in calculating the discounted provision to allow for expected lapses, based on historical experience. An increase or decrease in the lapse assumption would have an inverse impact on the premium payback liability and risk margin. Rate used in calculating the discounted provision to allow for expected investment income, based on 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. The table below describes how a change in each assumption will affect the profit after tax. Variable Lapse rate Discount rate Risk margin 2022 2021 Movement in variable Profit after tax $m Profit after tax $m +1.0% -1.0% +1.0% -1.0% +1.0% -1.0% 0.1 (0.1) 0.2 (0.2) (0.1) 0.1 0.3 (0.3) 0.6 (0.5) (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 • Expected future payments for claims including risk margin; • Expected future payments for policy paybacks and management expenses; and • Expected future revenue from premiums and investment income. No deficiency was identified at 30 June 2022 (2021: nil) that resulted in an unexpired risk liability needing to be recognised. 96 Annual Report 2022 for the year ended 30 June 202221. Policy Liabilities – Life Insurance As a result of nib’s acquisition of Kiwi Insurance Limited (a wholly owned subsidiary of Kiwi Group Holdings Limited, now renamed nib nz insurance limited) during the year, nib now has policy liabilities in FY22. They pertain to the portion of the life business in New Zealand. As nib nz insurance limited was acquired effective 29 April 2022 (refer to Note 33), there are no comparatives in the following tables. Policy liabilities contains the following components: Future policy benefits Balance of future expenses Future cost of reinsurance Planned margins of revenues over expenses Balance of future revenues Policy liability for unprojected products Net policy liabilities at the end of the period Deferred tax Gross policy liabilities (net of reinsurance) at end of period Movements in the policy liabilities Policy liabilities on acquisition of business Change in policy liabilities recognised during the period Exchange differences Gross policy liabilities (net of reinsurance) at end of period 2022 $m 66.0 53.0 3.0 11.4 (137.7) (0.7) (5.0) (2.3) (7.3) 2022 $m (7.7) 0.3 0.1 (7.3) 2021 $m – – – – – – – – – 2021 $m – – – – The balance of future expenses and the balance of future revenues within total policy liabilities specifically relating to the future cost of reinsurance are included in the below reconciliation. Balance on acquisition of business Increase/(decrease) in future cost of reinsurance recognised during the period Exchange differences Balance at end of period Profit after tax for nib New Zealand life insurance business is represented by the following: Planned margins of revenues over expenses Profit on unprojected products Change in economic assumptions Experience profit on projected business Investment earnings on assets in excess of policy liabilities Profit after tax 2022 $m 2.1 1.0 (0.1) 3.0 2022 $m 0.1 (0.2) 0.1 0.1 – 0.1 2021 $m – – – – 2021 $m – – – – – – Annual Report 2022 97 Notes to the Consolidated Financial Statements 21. Policy Liabilities – Life Insurance continued Profit after tax for nib New Zealand life insurance business is represented by the following: Premium revenue Outwards reinsurance premiums Net premium revenue Claims expense Reinsurance and other recoveries revenue Net claims expense Movement in policy liabilities Other expenses Profit before income tax Income tax expense Profit for the period 2022 $m 3.6 (1.0) 2.6 (1.5) 0.9 (0.6) (0.3) (1.6) 0.1 – 0.1 2021 $m – – – – – – – – – – – a) Critical accounting judgements and estimates Life insurance liabilities (policy liabilities) in the Consolidated Balance Sheet and the changes in policy liabilities in the Consolidated Income Statement have been calculated using the Margin on Services (“MoS”) methodology in accordance with New Zealand Society of Actuaries (“NZSA”) Professional Standard 20 Determination of Life Insurance Policy Liabilities and AASB 1038 Life Insurance Contracts. MoS is designed to recognise profits on life insurance policies as services are provided to policyholders and income is received. Profits are deferred and amortised over the life of the policy, whereas losses are recognised immediately. Policy services used to determine profit recognition include the cost of expected claims, maintaining policies, and investment management. The profit margin is determined using a profit carrier, a measurable indicator of either the expected cost of the service provided to the policyholder or the expected income relating to the service. Policy liabilities are generally determined as the present value of all future expected payments, expenses, taxes and profit margins reduced by the present value of all future expected premiums (projection method), except in the case of some investment business and group-rated risk business, where policy liabilities are determined as the accumulated benefits to policyholders less any deferred acquisition expense (unprojected products). Estimates and judgements 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 where critical accounting estimates and judgements are applied are noted below. i) MoS profit MoS profit comprised the following components: • Planned margins of revenues over expenses At the time of writing a policy and at each reporting date, best estimate assumptions are used to determine all expected future payments and premiums. Where actual experience replicates best estimate assumptions, the expected profit margin will be released to profit over the life of the policy. • The difference between actual and assumed experiences Experience profits/(losses) are realised where actual experience differs from best estimate assumptions. Instances giving rise to experience profits/(losses) include variations in claims, expenses, mortality, discontinuance, and investment returns. An experience profit will emerge when the expenses of maintaining all in-force business in a year are lower than the best estimate assumption in respect of those expenses. The credit card repayment insurance is valued using an accumulation technique. • Changes to underlying assumptions Assumptions used for measuring policy liabilities are reviewed each year. Where the review leads to a change in assumptions, the change is deemed to have occurred from the end of the year, except for changes in discount rates which are recognised in the year that the rates are changed. The financial effect of all other changes to the assumptions underlying the measurement of policy liabilities made during the reporting period is recognised in the income statement over the future reporting periods during which services are provided to policyholders. 98 Annual Report 2022 for the year ended 30 June 2022• Loss recognition on groups of related products If based on best estimate assumptions, written business for a group of related products is expected to be unprofitable, the total expected loss for that related product group is recognised in the income statement immediately. If loss making business becomes profitable previously recognised losses are reversed. • Investment earnings on assets in excess of policy liabilities Profits are generated from investment assets that are in excess of those required to meet policy liabilities. Investment earnings are directly influenced by market conditions and as such this component of MoS profit will vary from year to year. ii) Deferred acquisition costs Acquisition costs represent all costs incurred at the time of writing a life insurance policy. The most significant component of such costs is usually commissions. Under MoS methodology, where product profitability can support the recovery of acquisition costs, these costs are deferred and amortised effectively over the expected life of the policy. iii) Policy liabilities Policy liabilities for life insurance contracts are computed using statistical or mathematical methods, which are expected to give approximately the same results as if an individual liability was calculated for each contract. The computations are made by a suitably qualified actuary on the basis of recognised actuarial methods, with due regards to relevant actuarial principles. The methodology takes into account the risks and uncertainties of the particular classes of insurance business written. The key factors that affect the estimation of these liabilities and related assets are: • The cost of providing benefits and administering these insurance contracts; • Mortality and morbidity experience on life insurance products, including enhancements to policyholder benefits; and • Discontinuance experience, which affects the Group’s ability to recover the cost of acquiring new business over the lives of the contracts. In addition, factors such as regulation, competition, interest rates, taxes, securities market conditions and general economic conditions affect the level of these liabilities. iv) Assets arising from reinsurance contracts Assets arising from reinsurance contracts are also computed using the above methods. In addition, the recoverability of these assets is assessed on a periodic basis to ensure that the balance is reflective of the amounts that will ultimately be received, taking into consideration factors such as counterparty and credit risk. Impairment is recognised where there is objective evidence that the amounts due to it may not be received and these amounts can be reliably measured. b) Actuarial policies and methods The actuarial report on policy liabilities and solvency reserves for the current reporting period was prepared as at 30 June 2022. The policy liability calculations are performed by David Chamberlain. The value of policy liabilities has been determined in accordance with NZSA Standard 20. After making appropriate checks, the actuary was satisfied the data provided was satisfactory for the purposes of his valuation. There were no qualifications issued in the actuarial report. The key assumptions used in determining policy liabilities have been set after consideration of future expectations including the impact of COVID-19 and are as follows: i) Home loan insurance and Life and living insurance Discount rate (gross of tax) Discount rate (net of tax) Inflation on maintenance expenses Maintenance expenses (per policy) Maintenance expenses (% of premium) Discontinuance (rate % per annum)* * Additional discontinuances have been assumed after age 60. 2022 3.7% 2.6% 1.5% $217.6 15.0% 13.0% 2021 – – – – – – Annual Report 2022 99 Notes to the Consolidated Financial Statements 21. Policy Liabilities – Life Insurance continued b) Actuarial policies and methods continued i) Home loan insurance and Life and living insurance continued Discount rate The discount rate used is the 5-year New Zealand government bond rate. Profit carriers The profit carrier is gross premium income. Investment and maintenance expenses Investment expenses have been included in the policy maintenance expense. Taxation The New Zealand corporate income rate of taxation in effect at the date of the valuation, 28% is assumed. Mortality and morbidity – Home loan insurance For the year ended 30 June 2022 the mortality assumption is 83% of NZSA table NZ10 for males and females. An adjustment was made for smoking status. Selection, i.e. lower mortality in the period following underwriting, is allowed for in the first two years. The assumptions for permanent and temporary disablement were based on the reinsurance rates charged for these risks by its reinsurers. Mortality and morbidity – Life and living insurance For the year ended 30 June 2022 the mortality assumption is 94% of NZSA table NZ10 for males and females. An adjustment was made for smoking status. Selection, i.e. lower mortality in the period following underwriting, is allowed for in the first two years. The assumptions for permanent and temporary disablement were based on the reinsurance rates charged for these risks by its reinsurers. ii) Term life insurance, credit card and group life insurance Term life insurance, credit card and group life insurance are valued on an accumulation basis which takes the accumulation of past cash flows such as premiums received and benefits paid. iii) Effect of changes in actuarial assumptions The table below quantifies the changes in present value of future profit margins at 30 June 2022 due to the change in assumptions. The change in assumptions has no effect on policy liabilities except for the discount rate assumption change. Discount rate CPI change Modelling changes Premium rate changes Expenses Lapse rates 2022 2021 Change in future profit margins $m Change in current period policy liability $m Change in future profit margins $m Change in current period policy liability $m (1.0) 0.1 (0.5) – (3.8) 8.7 1.0 (0.2) – – – – – – – – – – – – – – – – iv) Sensitivity analysis nib nz insurance limited conducts sensitivity analysis to quantify the impacts of changes in the key variables driving profits. The valuation included in the reported results is nib nz insurance limited’s best estimates of these variables. The analysis below is performed to gauge the impact on both profit and equity of reasonable possible movements in these best estimate assumptions for those variables. Some of the assumptions are correlated but for this analysis the assumptions were assessed on an individual basis to demonstrate the sensitivity of each variable. Note the response to changes in assumptions is not linear. None of the nib nz insurance limited’s related product groups is in “loss recognition” or would move into “loss recognition” upon the changes set out in the table. Variable Discount rate Mortality Morbidity/trauma Lapses Maintenance expenses* 2022 Change in future profit margins 2021 Change in future profit margins Movement in variable +10 basis points +10% +10% +10% +10% $m (0.1) (1.8) (1.0) (2.0) (3.2) % (0.1%) (16.2%) (8.9%) (17.8%) (27.5%) $m – – – – – % – – – – – * Increasing the maintenance expenses by 10% would place the home loan insurance product into loss recognition, which would have an impact on policy liabilities of $0.2 million. 100 Annual Report 2022 for the year ended 30 June 202222. Provisions and Employee Entitlements Current Long service leave Termination benefits Provisions Non-current Long service leave 2022 $m 2021 $m 4.8 0.1 1.8 6.7 3.2 3.2 4.8 2.8 – 7.6 3.2 3.2 Amounts not expected to be settled within the next 12 months The current provision for long service leave 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 Movements in provisions Movements in each class of provision during the financial year are set out below: 2022 $m 4.5 4.5 Premium increase deferral $m Make good provision $m – 0.4 – – 0.4 – 1.4 – – 1.4 2021 $m 4.4 4.4 Total $m – 1.8 – – 1.8 As at 1 July 2021 Additional provision Amounts used during the year Reversal of unused provision As at 30 June 2022 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. Annual Report 2022 101 Notes to the Consolidated Financial Statements 22. Provisions and Employee Entitlements continued a) Accounting policy continued 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: iv) Termination benefits • • 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. 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 effected 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. v) Provisions A separate provision has been recognised in relation to premium give backs to the extent that eligible members leave post balance date and prior to receiving the full value of the give back through the premium price rise deferral. The Group is required to restore some leased premises to their original condition at the end of the respective lease terms. The make good provision has been recognised for the present value of the estimated cost required for restoration. These costs have been included in the Right of Use Asset. 23. Contributed Equity a) Share capital Ordinary shares Fully paid Other equity securities Treasury shares Total contributed equity b) Movements in share capital Date 1 Jul 2020 6 Oct 2020 6 Apr 2021 Details Opening balance Shares issued – Dividend reinvestment plan Shares issued – Dividend reinvestment plan 30 Jun 2021 Balance 1 Jul 2021 5 Oct 2021 4 Apr 2022 Opening balance Shares issued – Dividend reinvestment plan Shares issued – Dividend reinvestment plan 30 Jun 2022 Balance 102 Annual Report 2022 2022 $m 2021 $m 141.1 132.1 (2.9) (4.9) 138.2 127.2 No. of shares Price $ 456,819,526 346,540 576,137 457,742,203 457,742,203 715,992 646,574 459,104,769 4.22 5.52 6.69 6.51 $m 127.4 1.5 3.2 132.1 132.1 4.8 4.2 141.1 for the year ended 30 June 2022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 36 for more information. Date 30 Jun 2020 Details Balance Acquisition of shares by the Trust Employee share forfeiture Employee share issue – LTIP Employee share issue – STI 30 Jun 2021 Balance Acquisition of shares by the Trust Employee share issue – LTIP Employee share issue – STI 30 Jun 2022 Balance d) Accounting policy i) Ordinary shares No. of shares 1,071,443 223,679 52,071 (141,334) (192,022) 1,013,837 138,750 (295,090) (251,695) 605,802 $m 6.0 1.1 – (1.0) (1.2) 4.9 0.9 (1.5) (1.4) 2.9 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. 24. Retained Profits Balance at the beginning of the year Net profit attributable to owners of nib holdings limited Dividends Balance at the end of the year 2022 $m 567.7 135.7 (114.3) 589.1 2021 $m 470.5 161.1 (63.9) 567.7 Annual Report 2022 103 Notes to the Consolidated Financial Statements 25. Reserves Share-based payments Share-based payments exercised Foreign currency translation Movements in reserves 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 Nature and purpose of reserves 2022 $m 2.6 (10.3) 0.5 (7.2) 2021 $m 2.6 (10.4) 3.0 (4.8) Notes 2022 $m 2021 $m 2.6 1.6 (1.6) 2.6 (10.4) 1.6 (1.5) (10.3) 3.0 (3.0) 0.5 0.5 1.5 1.9 (0.8) 2.6 (10.2) 0.8 (1.0) (10.4) 3.2 (0.2) – 3.0 8(a)(iii) i) 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. ii) 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. iii) 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. 104 Annual Report 2022 for the year ended 30 June 202226. Dividends a) Ordinary shares Final dividend for the year ended 30 June 2021 of 14.0 cents (2020 – 4.0 cents) per fully paid share paid on 5 October 2021 Fully franked based on tax paid at 30% Interim dividend for the year ended 30 June 2022 of 11.0 cents (2021 – 10.0 cents) per fully paid share paid on 4 April 2022 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 (2021 – 14.0 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 4 October 2022 out of retained profits at 30 June 2022, but not recognised as a liability at the end of the year, is: 2022 $m 2021 $m 64.0 18.3 50.3 114.3 45.6 63.9 2022 $m 2021 $m 50.5 64.1 c) Franked dividends The franked portion of the final dividends recommended after 30 June 2022 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 2022. 2022 $m 2021 $m Franking credits available for subsequent financial years to equity holders of parent entity based on a tax rate of 30% 172.8 121.4 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. 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. Annual Report 2022 105 Notes to the Consolidated Financial Statements 27. 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 2022 2021 $m #m cents 135.7 458.4 29.6 161.1 457.2 35.2 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; • 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 36. The total 2,108,179 performance rights granted (2021 – 2,011,152) 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 2022. These performance rights could potentially dilute basic earnings per share in the future. 106 Annual Report 2022 for the year ended 30 June 202228. 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 At 30 June 2022 the Group had available capital of $82.4 million above our internal benchmark (after allowing for the payment of a fully franked final ordinary dividend of 11.0 cents per share, totalling $50.5 million, in October 2022). Below is a reconciliation of net assets to available capital as at the reporting end date (after allowing for payment of a final dividend): Net assets Less: nib health fund capital required nib nz capital required nib nz life insurance capital required Investment in associates Capital required looking forward 12 months nib nz intangibles iihi intangibles nib travel intangibles Charitable foundation Borrowings Other assets and liabilities Final dividend Available capital (after allowing for payment of final dividend) 2022 $m 734.3 (536.8) (102.3) (15.1) (19.2) (6.7) (48.2) (18.4) (101.8) (14.3) 258.8 2.6 (50.5) 82.4 2021 $m 706.2 (514.4) (100.0) – (17.8) (9.7) (31.5) (18.4) (102.7) (16.1) 230.7 3.5 (64.1) 65.7 nib health funds limited nib health funds 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: (i) must ensure that, at all times, the value of cash must be equal to or greater than a specified cash management amount, plus any solvency supervisory adjustment (Section 4.2 of the Solvency Standard); (ii) must have, and comply with, a board endorsed, liquidity management plan designed to ensure compliance with the solvency requirements described above, and set minimum liquidity requirements and management action triggers (Section 4.3 of the Solvency Standard). To comply with the Capital Adequacy Standard, nib health funds limited: (i) must ensure that at all times the value of its assets is not less than the amounts calculated under Section 4.2 (a) and (b) of the Capital Adequacy Standard (Capital Adequacy Requirement); (ii) must have, and comply with, a written, board endorsed capital management policy. Annual Report 2022 107 Notes to the Consolidated Financial Statements 28. Capital Management continued nib health funds limited continued nib health funds limited has a capital management plan which establishes a target for capital held in excess of the regulatory requirement; the aim is to keep a sufficient buffer in line with the Board’s attitude to and tolerance for risk. The internal capital target ensures nib has a minimum level of capital given certain stressed capital scenarios. This currently approximates to 20.7% of total projected premiums for the next 12 months. Any capital in excess of the internal capital target, taking a 12-month forward looking view, will be reduced by way of dividend to nib holdings limited. nib health funds limited paid a dividend of $25.8 million in August 2021 and $56.8 million in February 2022 to nib holdings limited. The surplus assets over benchmark at 30 June 2022 and 2021 were as follows: 2022 $m 2021 $m Total assets nib health funds limited (excluding unclosed business contributions – unearned) 1,379.4 1,216.5 Capital adequacy requirement Surplus assets for Capital Adequacy1 Net assets nib health funds limited Internal capital target Surplus assets over internal capital target 1. Surplus assets for Capital Adequacy based on most recent APRA return. 845.4 534.0 592.6 537.3 55.3 823.7 392.8 540.2 514.4 25.8 In December 2021, APRA released the detailed proposals in relation to its review of the private health insurance capital framework. The release includes the draft capital standards, draft reporting standards and Quantitative Impact Study (QIS). Following consultation, additional draft reporting standards impacted by AASB 17, Life and General Insurance Capital (LAGIC) updates and revisions to the capital framework for private health insurers was further released by APRA in April 2022. The final standards are anticipated to be released in September 2022 and will be effective from 1 July 2023. nib has planned for the release of the new capital standards and will update its capital management plan once the final standards are released in September 2022. nib nz limited 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 $6.3 million in August 2021 and NZD $2.2 million in February 2022 to nib nz holdings limited. 108 Annual Report 2022 for the year ended 30 June 2022The surplus assets over benchmark at 30 June 2022 and 2021 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 assets over internal benchmark 2022 $m 40.9 14.9 26.0 109.8 2.74 2021 $m 38.7 13.2 25.5 111.4 2.93 2.25xMSC 2.25xMSC 33.4 7.5 29.6 9.1 nib nz insurance limited nib nz insurance limited, a controlled entity, is required to comply with the Solvency Standard for Life Insurance Business issued by the Reserve Bank of New Zealand (RBNZ). Based on actuarial advice, the Directors have determined that $10.1 million is the Minimum Solvency Capital required. For the purposes of this calculation the Company is treated as having and being one statutory fund. The Actual Solvency Capital determined under that standard is $22.4 million. Therefore the Solvency Margin is $12.3 million. Solvency requirements at 30 June 2022 are as follows: Actual Solvency Capital Minimum Solvency Capital Solvency Margin Solvency Ratio 29. Commitments for Expenditure a) Capital expenditure commitments Payable: – not longer than one year b) Charitable foundation commitments Payable: – not longer than one year – longer than one year and not longer than five years 2022 $m 22.4 10.1 12.3 222% 2022 $m 3.0 3.0 2022 $m 0.7 0.2 0.9 2021 $m – – – – 2021 $m 1.9 1.9 2021 $m – – – Annual Report 2022 109 Notes to the Consolidated Financial Statements 30. Contingent Liabilities a) Guarantees and financial support nib holdings limited has provided a guarantee and indemnity to NAB on behalf of nib nz holdings limited in respect of the NZD $70.0 million term loan facility. nib holdings limited has in place a commitment to fund advances up to NZD $10.0 million to nib nz holdings limited upon written request. NZD $2.1 million has been drawn down as at 30 June 2022. Any advances would be on the same terms as contained in current intercompany loans between nib holdings limited and nib nz holdings limited. nib holdings limited has given an undertaking to extend financial support to a number of other subsidiaries within the Group, and Footprints Fundraising Inc. (Footprints) by subordinating repayment of debts owed by the entities to nib holdings limited, in favour of all other creditors. The amount owed from Footprints at balance date is $24,135. 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 for Footprints is valid until 31 December 2022. 31. Events Occurring after the Balance Sheet Date On 8 July 2022, nib holdings limited acquired an additional equity holding in Midnight Health Pty Limited for $12.0 million, resulting in an increased ownership percentage to 63.14%. From that date, the Group gained control of Midnight Health Pty Limited and will consolidate the financial statements and recognise a non-controlling interest. There have been no 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. 32. Remuneration of Auditors 2022 $ 2021 $ 864,759 154,289 993,865 153,988 37,560 6,000 25,296 – 12,563 – 24,786 21,420 1,087,904 1,206,622 513,561 28,431 2,181 336,534 13,258 – 544,173 349,792 1,632,077 1,556,414 a) PricewaterhouseCoopers Australia Audit and review of financial reports Other statutory assurance services Other services Tax compliance services International tax consulting and tax advice Regulatory returns advice and regulatory work review Regulatory returns agreed upon procedures Total remuneration of PricewaterhouseCoopers Australia b) Network firms of PricewaterhouseCoopers Audit and review of financial reports Other statutory assurance services Tax compliance services Total remuneration of network firms of PricewaterhouseCoopers Total auditors’ remuneration 110 Annual Report 2022 for the year ended 30 June 202233. Business Combination a) Summary of acquisition On 29 April 2022, nib nz holdings limited, acquired Kiwi Insurance Limited (a wholly owned subsidiary of Kiwi Group Holdings Limited, now renamed nib nz insurance limited) for a consideration of $41.9 million. Aligned with nib’s P2P strategy, the acquisition will allow nib to provide health insurance members and Kiwibank customers with a more comprehensive suite of products. Details of the provisional purchase consideration are as follows: Purchase consideration Cash Payables Total purchase consideration The provisional fair values of the assets and liabilities recognised as a result of the acquisition are as follows: Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Software Payables Policy liabilities Current tax payable Deferred tax liabilities Net identifiable assets acquired Add: Goodwill Net assets acquired $m 41.2 0.7 41.9 Fair value $m 1.8 2.5 16.4 0.3 (3.5) 7.7 (0.1) (2.2) 22.9 19.0 41.9 The goodwill is attributable to the future profitability of the acquired business. None of the goodwill is deductible for tax purposes. Identification and assessment of acquired intangible assets is in progress and adjustments are expected as part of the final purchase price allocation in the next financial period. i) Acquisition related costs Total acquisition related costs of $3.3 million 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 $2.6 million to Group revenue and $0.1 million to net profit after tax for the period 30 April 2022 to 30 June 2022. Annual Report 2022 111 Notes to the Consolidated Financial Statements 33. Business Combination continued b) Provisional purchase consideration – cash outflow Outflow of cash to acquire business, net of cash acquired Cash consideration Less: Cash balances acquired Outflow of cash – investing activities $m 41.2 (1.8) 39.4 c) Accounting policy 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 value 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. 112 Annual Report 2022 for the year ended 30 June 2022 34. 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): nib holdings limited nib health funds limited nib servicing facilities pty limited nib Life pty limited nib Global Pty Limited IMAN Australian Health Plans Pty Limited nib nz holdings limited nib nz limited nib nz insurance limited nib Options Pty Limited Realself Pty Limited Realsurgeons 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 Limited Nuo Ban Business Information Consulting (Shanghai) Co. Ltd Beijing Jitai Insurance Broker Co. Ltd nib International Student Services Pty Ltd nib Travel Pty Limited (formerly World Nomads Group Pty Limited) WNG Services Pty Limited nib International Assistance Pty Limited Suresave Pty Limited SureSave Net Limited (deregistered on 16 December 2021) 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 (deregistered on 2 September 2021) nib Travel Insurance Distribution 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 nib Travel Services (Australia) Pty Limited Get Insurance Group Pty Limited World Experiences International Holdings Pty Ltd World Experiences Seguros De Viagrem Brasil LTDA nib Travel Services Limited Nomadic Insurance Benefits Holdings Limited nib Travel Services Europe Limited nib Travel Services Europe World Nomads Travel Lifestyle (Europe) Ltd nib Travel Services Ireland Limited Travellr Pty Limited (deregistered on 2 September 2021) Travel Insurance Compared Pty Limited (deregistered on 2 September 2021) TravelClear Pty Limited (deregistered on 2 September 2021) Hello Travel Insurance Pty Limited (deregistered on 2 September 2021) World Experiences Pty Limited (deregistered on 2 September 2021) World Experiences Group Pty Limited (deregistered on 2 September 2021) World Experiences Travel Pty Limited (deregistered on 2 September 2021) Place of Incorporation Australia Australia Australia Australia Australia Australia New Zealand New Zealand New Zealand Australia Australia Australia Thailand Thailand Australia Australia Australia China China 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 Cayman Islands Ireland Ireland United Kingdom Ireland Ireland Australia Australia Australia Australia Australia Australia Australia Beneficial ownership by Consolidated entity 2022 % 2021 % 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 100 100 100 100 100 50 100 100 100 0 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 100 100 100 100 100 100 100 100 100 Annual Report 2022 113 Notes to the Consolidated Financial Statements 34. Interest in Other Entities continued a) Subsidiaries and trusts continued nib holdings limited also controls the following trusts: • nib Holdings Ltd Share Ownership Plan Trust • nib salary sacrifice plan and matching plan trust • nib Salary Sacrifice (NZ) and Matching Plan (NZ) Trust • nib holdings – nib nz Employee Share Purchase Scheme Trust b) Consolidation of nib foundation trust and nib foundation limited The constitution of nib foundation limited (as trustee for the nib foundation trust) is to enable receipt of unclaimed dividends of the parent entity (nib holdings limited) to fund charitable donations to the community. The parent is required to consolidate the nib foundation trust. The assets of the nib foundation trust are shown as restricted in use and the retained earnings are shown as a restricted reserve of the Group given they can only be distributed for charitable purposes under the constitution of nib foundation trust and are not available to owners of nib holdings limited. c) Interest in associates and joint ventures Set out below are the associates and joint ventures of the Group as at 30 June 2022. The entities listed below have share capital consisting solely of ordinary shares, which are held directly by the Group. The country of incorporation or registration is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. Name of entity Honeysuckle Health Pty Ltd Midnight Health Pty Ltd Aohua Insurance Consulting Co Ltd Kangaroo Technologies Ltd Total equity accounting investments Place of business/ country of incorporation Australia Australia China China % of ownership interest 2022 50.0% 50.0% 75.1% 24.9% 2021 Nature of relationship Measurement method 50.0% Joint venture 0.0% Joint venture 75.1% Joint venture 24.9% Joint venture Equity Equity Equity Equity Carrying amount $m 2022 2021 6.2 2.5 6.8 3.7 5.6 – 8.2 4.0 19.2 17.8 Honeysuckle Health Pty Ltd is a specialist healthcare data science and services company. It is a strategic investment complementing the Group’s health insurance business. Aohua Insurance Consulting Co Ltd and Kangaroo Technologies Ltd currently offers health checks and will offer lump-sum critical illness products across China. It is a strategic investment which utilises the Group’s knowledge and expertise in health insurance but will limit the Group’s exposure to underwriting risk through a reduced equity holding. During the year nib holdings limited entered into a Shareholders Deed to acquire 50% of share capital in Midnight Health Pty Ltd. The share capital was acquired for $4.0 million over 3 tranches. Midnight Health Pty Ltd is a digital health company that provides telehealth platforms for online consultations, e-prescriptions and delivery of treatments. 114 Annual Report 2022 for the year ended 30 June 2022i) Summarised financial information for associates and joint ventures The tables below provide summarised financial information for those joint ventures and associates that are material to the Group. The information disclosed reflects the amounts presented in the financial statements of the relevant associates and joint ventures and not the Group’s share of those amounts. They have been amended to reflect adjustments made by the entity when using the equity method, including fair value adjustments and modifications for differences in accounting policy. Summarised balance sheet Current assets Cash and cash equivalents Other current assets Total current assets Non-current assets Current liabilities Financial liabilities (excluding trade payables) Other current liabilities Total current liabilities Total non-current liabilities Net assets Reconciliation to carrying amounts: Opening net assets Investment Profit/(loss) for the period Other comprehensive income Dividends paid Closing net assets Group’s share in % Group’s share in $ Goodwill Carrying amount Summarised statement of comprehensive income Revenue Interest income Depreciation and amortisation Interest expense Income tax expense Profit/(loss) from continuing operations Profit/(loss) from discontinued operations Profit/(loss) for the period Other comprehensive income/(loss) Total comprehensive income/(loss) Dividends received from associates and joint venture entities Honeysuckle Health Pty Ltd 2022 $m 8.4 2.8 11.2 9.5 4.7 0.5 5.2 3.0 2021 $m 12.9 0.9 13.8 0.7 2.4 0.3 2.7 0.6 12.5 11.2 11.2 9.5 (8.2) – – 16.9 – (5.7) – – 12.5 11.2 50.0% 50.0% 6.2 – 6.2 10.1 – (0.4) – – (8.2) – (8.2) – (8.2) – 5.6 – 5.6 5.5 – (0.3) – – (5.7) – (5.7) – (5.7) – Annual Report 2022 115 Notes to the Consolidated Financial Statements 34. Interest in Other Entities continued c) Interest in associates and joint ventures continued ii) Individually immaterial associates In the opinion of the Directors, Aohua Insurance Consulting Co Ltd, Kangaroo Technologies Ltd, and Midnight Health Pty Ltd are immaterial associates and joint ventures to the Group as at 30 June 2022. 2022 $m 2021 $m Aggregate carrying amount of individually immaterial associates and joint ventures 12.9 12.2 Aggregate amounts of the Group’s share of: Profit/(loss) from continuing operations Post tax profit/(loss) from discontinued operations Total comprehensive income/(loss) 35. Related Party Transactions (1.5) (1.7) (3.2) (2.0) – (2.0) 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; in all other respects the policies are on normal terms and conditions. There were no other related party transactions with key management personnel 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 2022 $ 2021 $ 8,888,812 8,462,275 327,162 326,543 48,055 38,379 – 235,676 3,941,048 3,094,494 13,205,077 12,158,367 Detailed remuneration disclosures are provided in the Remuneration Report on pages 22 to 44. c) Transactions with other related parties During the financial year, nib was charged totalling $9.6 million (2021: $5.5 million) for the hospital contracting services Honeysuckle Health Pty Ltd provided, and nib recharged the staff labour cost of $115,291 (2021: $125,121) to Honeysuckle Health Pty Ltd. 116 Annual Report 2022 for the year ended 30 June 202236. 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 36. 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: Balance at the start of the year Granted as compensation Exercised Other forfeitures Balance at the end of the year Vested and exercisable at the end of the year 2022 Number of rights 2021 Number of rights 2,011,152 1,790,138 556,176 716,918 (295,090) (141,334) (164,059) (354,570) 2,108,179 2,011,152 – – The valuation methodology inputs for performance rights granted during the year ended 30 June 2022 included: a) Performance rights are granted for no consideration and vest subject to nib holdings limited EPS and TSR hurdles. b) Exercise price: $nil (2021: $nil) c) Grant date: 26 November 2021 (2021: 27 November 2020 and 8 April 2021) d) Expiry date: 1 September 2025 (2021: 1 September 2024) e) Share price at grant date: $5.9205 (2021: $4.4760) f) Expected dividend yield: Dividends are assumed based on the expected dividend payout ratio of 60% to 70% of normalised net profit after tax (with the potential for special dividends above this range) 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 2022 41,096 2021 64,894 The shares were allocated in two tranches. The first tranche of shares were allocated on 30 August 2021 following nib’s FY21 full year results presentation at a volume weighted average price of $6.71. The remaining tranche of shares were allocated on 23 February 2022 following nib’s FY22 half year results presentation at a volume weighted average price of $6.79. Annual Report 2022 117 Notes to the Consolidated Financial Statements 36. Share-Based Payments continued c) nib NZ Employee Share Purchase Scheme (ESPS) The scheme rules were adopted on 7 November 2013. On 9 December 2013 eligible employees were offered the opportunity to receive part of their salary in the form of shares. 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 2022 3,428 2021 1,685 The shares were allocated in two tranches. The first tranche of shares were allocated on 30 August 2021 following nib’s FY21 full year results presentation at a volume weighted average price of $6.71. The remaining tranche of shares were allocated on 23 February 2022 following nib’s FY22 half year results presentation at a volume weighted average price of $6.79. 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. Number of shares purchased on market under the plan to participating employees 2022 39,522 2021 52,814 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. 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 2022 3,467 2021 3,657 118 Annual Report 2022 for the year ended 30 June 2022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, CE ARHI and CEO NZ the maximum target bonus opportunity is 100% of the remuneration package with 50% of the calculated entitlement deferred into shares. For the CIO, COO and GELCRO 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 40% of the remuneration package with 50% of the calculated entitlement deferred into shares. The nib Holdings Ltd Share Ownership Plan Trust administers the Group’s Executive management Short-Term Incentive and Long- Term Incentive Share Plans. This Trust has been consolidated in accordance with Note 1(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 23(c). Shares were purchased on market and brokerage fees are borne by nib health funds limited. g) Expenses arising from share-based payments transactions Shares purchased on market under ESAP and ESPS Shares purchased on market under nib salary sacrifice plan and matching plan and salary sacrifice (NZ) rules and matching plan (NZ) Performance rights granted under LTIP Shares purchased on market under STI 2022 $m 0.3 0.3 1.7 0.9 3.2 2021 $m 0.3 0.3 1.7 0.9 3.2 h) Accounting policy 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-market 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 23(d)(i). When the performance rights are exercised, the trust transfers the appropriate amount of shares to the employee. Under the Employee Share Acquisition (tax exempt) Plan, the nib Salary Sacrifice Plan and Matching Plan and the Short-Term Performance Incentive, shares are acquired on-market and expensed. Annual Report 2022 119 Notes to the Consolidated Financial Statements 37. 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 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 30 for contingent liabilities of parent entity. 2022 $m 2021 $m 90.7 792.0 882.7 37.3 195.5 232.8 649.9 410.2 (7.7) 247.4 649.9 2022 $m 107.5 107.5 89.4 744.0 833.4 20.2 165.5 185.7 647.7 401.1 (7.9) 254.5 647.7 2021 $m 40.0 40.0 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 ii) Tax consolidation legislation Investments in subsidiaries, associates and joint venture entities are accounted for at cost less any provision for impairment 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. 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. 120 Annual Report 2022 for the year ended 30 June 2022Directors’ Declaration for the year ended 30 June 2022 In the Directors’ opinion: a) the financial statements and notes set out on pages 46 to 120 are in accordance with the Corporations Act 2001, including: i. ii. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the consolidated entity’s financial position as at 30 June 2022 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 David Gordon Director Newcastle, NSW 19 August 2022 Anne Loveridge Director Annual Report 2022 121 Independent Auditor’s Report to the Members of nib holdings limited for the year ended 30 June 2022 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: (a) giving a true and fair view of the Group's financial position as at 30 June 2022 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: • • • • • • • the Consolidated Balance Sheet as at 30 June 2022 the Consolidated Statement of Comprehensive Income for the year then ended the Consolidated Statement of Changes in Equity for the year then ended the Consolidated Statement of Cash Flows for the year then ended the Consolidated Income Statement for the year then ended the Notes to the Consolidated Financial Statements, which include significant accounting policies and other explanatory information the Directors’ Declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. 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 Liability limited by a scheme approved under Professional Standards Legislation. 122 Annual Report 2022  Annual Report 2022 123 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 Group provides health and medical insurance to Australian and New Zealand residents, medical insurance to international inbound workers and students, life insurance to New Zealand customers, health related services through its Payer 2 Partner program, as well as distributing travel insurance products both in Australia and internationally. • Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. • PwC specialists in information technology, along with PwC valuations and actuarial experts have assisted during the audit. • We decided the nature, timing and extent of work that needed to be performed by us as well as the component auditor operating under our instruction. For the procedures carried out by the component auditor, 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 issuing written instructions, holding discussions, review of key workpapers, and review of reporting to us by the component auditor. 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. Independent Auditor’s Report Key audit matter How our audit addressed the key audit matter Estimation of claims liabilities (Refer to Note 18) [$300.4 million] a) Outstanding claims liability [$190.2 million] We considered this a key audit matter 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 incurred but not settled insurance claims. This includes an estimate for known and reported claims as well as incurred but not yet reported claims. Determining a central estimate and related risk margin involves significant judgement and statistical analysis and is based on a number of factors including historical claims rates and evidence around any changes in the cost of claims. The estimation of outstanding claims 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. b) Provision for deferred and suspended claims [$110.2 million] We considered this a key audit matter because of the size of the balance, the continued unusual circumstances, as described below, that have given rise to this provision, and the complexity and judgements involved in the estimation process. As described in Note 18, this provision has been recognised to reflect the obligation that the Group has to pay claims after 30 June 2022 that would 124 Annual Report 2022 Our audit procedures over the estimation of the outstanding claims liability included, amongst others: ● Developing an understanding of how the Group identified the relevant methods, assumptions and sources of data, and the need for changes in them, that are appropriate for developing the estimate in the context of the Australian Accounting Standards. ● Developing an understanding of the relevant control activities associated with developing the estimate. ● Evaluating the design effectiveness and implementation of relevant controls over claims payments. ● Together with PwC actuarial experts, evaluating the Group’s actuarial valuation practices and the estimate established. These procedures included, amongst others: o Assessing the appropriateness of data used to develop the estimate, including testing a sample of claims data used in the outstanding claims liability valuation by agreeing to supporting documentation. o Assessing the appropriateness of the Group’s methods for developing the estimate by reference to the nature of the estimate and the business, industry and environment in which the Group operates and our own industry knowledge. o Evaluating the appropriateness of the significant assumptions used to develop the estimate. This included assessing the assumptions by comparing them to the Group’s historical experience, audit of subsequent payment patterns, and our own industry knowledge. o Testing the mathematical accuracy of the Group’s actuarial model. o Assessing the appropriateness of the actuarial methods applied in determining the risk margin against industry practice o Reconciling the results of the outstanding claims liability valuation to the consolidated financial statements and assessing the reasonableness of the disclosures made in the financial statements, including those related to estimation uncertainty, against the requirements of Australian Accounting Standards. Our audit procedures over the estimation of the provision for deferred and suspended claims included, amongst others: ● Developing an understanding of how the Group identified the relevant methods, assumptions and sources of data, and the need for changes in them, that are appropriate for developing the estimate in the context of the Australian Accounting Standards. for the year ended 30 June 2022 Key audit matter How our audit addressed the key audit matter ordinarily have been paid prior to 30 June 2022 if it were not for the temporary unavailability of elective surgery and reduced access to ancillary benefits as a result of the COVID-19 pandemic. The estimation of the provision required estimating the gross reduction in claims due to temporary unavailability of elective surgery and reduced access to ancillary benefits, netted by the impact on the risk equalisation adjustment, less amounts determined to have been caught up during the financial year ended 30 June 2022 and quantifying the percentage of these savings that will be caught up as claims after year end. ● Developing an understanding of the impacts of COVID-19 on claims payment patterns in the previous and current financial years. ● Evaluating the appropriateness of data used to develop the estimate, including testing a sample of relevant data inputs used in the model by agreeing to underlying documentation. ● Together with PwC actuarial experts, evaluating the estimation process and the estimate established. This included assessing and evaluating the appropriateness of the Group’s significant assumptions and methods used for determining the proportion of claims that have been deferred to future periods, including consideration of reasonable alternatives, by comparing them to the Group’s historical experience and our own industry knowledge. ● Reconciling the provision for deferred and suspended claims to the consolidated financial statements and assessing the reasonableness of the disclosures made in the financial statements, including those related to estimation uncertainty, against the requirements of Australian Accounting Standards. Impairment testing of goodwill and indefinite lived intangibles (Refer to Note 14) [$251.5 million] The Group’s goodwill relates to the Australian Residents Health Insurance, International Workers Health Insurance, nib New Zealand, New Zealand Living Benefits, and the nib Travel Cash Generating Units (CGUs) ($236.3m) and indefinite lived intangible assets relating to brands ($15.2m). Our audit procedures over the impairment testing of goodwill and indefinite lived intangibles included, among others: ● Assessing 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. ● Together with PwC valuation experts, evaluated the Impairment testing of goodwill and indefinite lived intangibles was a key audit matter because of the judgement involved in the determination and application of assumptions and cash flow forecasts within the ‘value in use’ modelling. The subjectivity of the assessment was greater than normal due to the ongoing effects of the COVID-19 pandemic increasing uncertainty in respect of estimating future cash flows, particularly in relation to the travel insurance business. The outcome of the nib travel Group CGU impairment assessment is particularly sensitive to the values attributed to a number of key assumptions. Note 14 details these key assumptions and the impact they have on this impairment assessment. appropriateness of the value in use calculation methodology. These procedures included, amongst others: o Considering whether the forecast cash flows, including probability weighted cash flows as applicable, were appropriate and based on supportable assumptions. O Assessing the appropriateness of key assumptions by comparing actual cash flows to previous forecasts and comparing assumptions underpinning the cash flows to corroborative evidence including industry data. o Assessing the appropriateness of the Group’s assessment of COVID-19 impacts on the nib Travel CGU cash flow forecasts by reference to publicly available information regarding possible ongoing implications of the pandemic on the travel industry. o Assessing whether the discount rates adopted by the Group, including components calculated using management’s expert, reflected the risks of the CGUs by comparing the discount rate to external market data. o Evaluating the appropriateness of the terminal growth rate assumptions by reference to external market data. o Assessing the appropriateness of the design and testing the mathematical accuracy of the value in use model. ● Assessing the appropriateness of the disclosures made in note 14, including those related to estimation uncertainty, against the requirements of Australian Accounting Standards. Annual Report 2022 125 Independent Auditor’s Report Key audit matter How our audit addressed the key audit matter Our audit procedures over the estimation of the revenue rebate included, amongst others: ● Evaluating the appropriateness of the Group’s accounting to recognise the premium revenue rebate as at 30 June 2022 in compliance with Australian Accounting Standards. ● Evaluating the adequacy of the process for determining the value of the rebate, including testing a sample of relevant data inputs into the model to supporting documentation and testing the mathematical accuracy of the calculation. ● Evaluating the appropriateness of the Group’s significant assumptions and methods used for determining the rebate by reference to the Group’s estimation of savings made during the financial year and its commitments made to eligible members. ● Reconciling the premium rebate to the financial statements and assessing the appropriateness of the disclosures made in the financial statements against the requirements of Australian Accounting Standards.. Premium revenue rebate through premium increase deferral (Refer to Note 19) [$23.0 million] We focused on this balance because of the unique circumstances that have given rise to this rebate and the mechanism by which the rebate is delivered. As described in Note 19, this rebate has been recognised to reflect the return of permanent net COVID-19 savings made during FY22. These savings have arisen from collecting premiums from members who have been unable to claim their expected benefits during the year due to service suspensions related to COVID-19. Nib has identified eligible members for which it has made a commitment to return savings either through a premium price rise deferral or, if an eligible member is unable to receive the value of the price rise deferral, via a cash entitlement. Eligible members are those who paid premiums during the year, identified as having been financial members at 31 March and 30 June 2022. The return of premiums to these eligible members expected to be made through the price rise deferral is recognised as an adjustment to the unearned premium liability at year end. A separate $0.4m has been recorded as a provision (Note 22) to reflect the estimated value of the cash payments required to those eligible members who leave prior to receiving the benefit in full through the price rise deferral. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2022, but does not include the financial report and our auditor’s report thereon. 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 and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 126 Annual Report 2022 for the year ended 30 June 2022 Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 22 to 44 of the directors’ report for the year ended 30 June 2022. In our opinion, the remuneration report of nib holdings limited for the year ended 30 June 2022 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers SK Fergusson Partner Newcastle 19 August 2022 Annual Report 2022 127 Shareholder Information as at 31 August 2022 The shareholder information set out below was applicable as at 31 August 2022. 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 Total There were 610 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 PTY LIMITED CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR MARK ANTHONY FITZGIBBON BNP PARIBAS NOMINEES PTY LTD FITZY (NSW) PTY LTD MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED POWERWRAP LIMITED CPU SHARE PLANS PTY LTD NETWEALTH INVESTMENTS LIMITED MRS MICHELLE MCPHERSON MODANE PTY LTD CPU SHARE PLANS PTY LTD MR JOHN ARTHUR FOYLE TURNER Unquoted equity securities Performance rights issued under the nib holdings Long-term Incentive Plan 128 Annual Report 2022 Number of holders 57,595 65,023 8,770 803 58 132,249 Ordinary Shares Percentage of issued shares % 16.68 8.64 7.95 3.28 3.26 0.49 0.39 0.36 0.33 0.24 0.21 0.19 0.18 0.16 0.12 0.11 0.10 0.10 0.10 0.09 Number held 76,586,168 39,689,066 36,500,150 15,080,080 14,976,468 2,264,164 1,789,169 1,657,704 1,536,118 1,095,501 981,705 874,621 810,559 714,819 569,345 489,174 467,911 459,744 444,147 430,000 197,416,613 43.00 Number on issue 2,108,179 Number of holders 14 c. Substantial Holders Vanguard Group ceased to be a substantial holder on 5 November 2021. There are no other 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. Annual Report 2022 129 Notes 130 Annual Report 2022  Annual Report 2022 131 Notes 132 Annual Report 2022 Corporate Directory DIRECTORS Chairman David Gordon Managing Director/Chief Executive Officer Mark Fitzgibbon Lee Ausburn Jacqueline Chow Peter Harmer Anne Loveridge Donal O’Dwyer COMPANY SECRETARIES Roslyn Toms Jordan French EXECUTIVE MANAGEMENT Managing Director/Chief Executive Officer Mark Fitzgibbon Group Chief People Officer Martin Adlington Chief Executive – International Visitors James Barr Chief Executive – Australian Residents Health Insurance Edward Close Group Chief Financial Officer Nick Freeman Chief Executive – nib Travel Anna Gladman Chief Executive Officer – nib New Zealand Rob Hennin Group Chief Information Officer Brendan Mills Group Chief Operations Officer Matt Paterson Group Executive – Legal and Chief Risk Officer Roslyn Toms NOTICE OF ANNUAL GENERAL MEETING The AGM of nib holdings limited will be held on 18 November 2022. The meeting will be held as a hybrid meeting where shareholders may attend in person or via an online platform. Further details will be provided in the Notice of Meeting. SHARE REGISTER Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 1300 664 316 STOCK EXCHANGE LISTING nib holdings limited shares (NHF) are listed on the Australian Securities Exchange. PRINCIPAL REGISTERED OFFICE IN AUSTRALIA 22 Honeysuckle Drive Newcastle NSW 2300 13 14 63 AUDITOR PricewaterhouseCoopers PricewaterhouseCoopers Centre Level 3, 45 Watt Street Newcastle NSW 2300 LEGAL ADVISERS Ashurst Level 11, 5 Martin Place Sydney NSW 2000 BANKERS National Australia Bank Limited 1 Old Castle Hill Road Castle Hill NSW 2154 WEBSITE nib.com.au Annual Report 2022 133 CELEBRATING 70 YEARS 

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