NIB hitting new highs as investors swirl

Speculation of a special dividend along with takeover prospects has pushed the share price of the only listed health insurer, NIB Holdings, to new highs in recent trading, as the federal government moves to privatise Medibank Private.

Health insurers have lodged price rise applications planned for next year. There is general optimism that the change of government federally will be good news for health funds, as funding constraints continue in the public health system.

Setting the scene for the share price rally was a recent move by the industry regulator, the Private Health Insurance Administrative Council, to relax capital standards within the sector. It has given the health insurers more control in deciding the amount of capital needed to make sure they can meet their obligations.

According to an estimate by Goldman Sachs, NIB has capital of $237 million, which is equal to two times its regulatory requirement.

Even though NIB's regulatory capital needs are expected to decline thanks to the rule change, it is far from clear whether the company will actually opt to hold less capital. NIB's capital buffer is already less than the industry average of three times.

Additionally, the insurer "could choose to retain excess capital to fund future growth initiatives, or as a bulwark against any adverse shifts in operating dynamics such as higher customer acquisition costs and/or increasing claims," Goldman Sachs noted. But at the same time, the move could open the door to a further capital return to shareholders, it noted.

The speculation on this front has come as broker Bell Potter raised the issue of takeover prospects for the health insurer, arguing that any of the industry leaders - bar perhaps Britain's BUPA - could acquire NIB without running into competition concerns.

Equally, the range of prospective bidders is not limited to competitors.