NIB increases guidance

Fewer claims have led to an increase in earnings guidance from this private health insurer.

Shares in private health insurer NIB Holdings jumped 11% yesterday after the company provided surprisingly optimistic guidance for its 2016 financial result. 

The insurer said it expects underlying operating profit for the year to be between $125m and $135m, up from the previous guidance range of $102m to $114m.

Management said the result reflected better than expected claims expenses and a lower contribution to the risk equalisation fund (a system of cross subsidies which removes the advantage an insurer would gain by turning the elderly away). Management also said that if the slow claims growth was maintained it would flow through to policyholders as reduced premium increases.

We're increasing our recommended Sell price on account of the improving outlook and we’ll review the company, and Buy price, in detail following the release of the full-year result in August. The stock has risen 18% since NIB: Interim result 2016 from 22 Feb 16 (Hold – $3.53) and we continue to recommend you HOLD.