Full Year 2026 NIB Holdings Ltd Earnings Call

August 23, 2026

Speaker #1: To acknowledge the orbical people, the traditional custodians of the land we are joining you from today, I pay my respects to Elders past and present.

Speaker #1: We are pleased to report a solid FY26 group result, with pleasing strategic progress, positive customer outcomes, a strong capital position, and a more balanced contribution across our businesses.

Speaker #1: Our purpose, of your better health and well-being, continues to shape our strategy and guide our people to deliver sustainable value for our customers, shareholders, and the communities we operate within.

Speaker #1: NIB is now a simpler, more focused, and more efficient business. With a clear emphasis on private health insurance and related services, supported by leading digital and AI capability, strong customer advocacy, our high-performing people, and a disciplined approach to risk and capital management.

Speaker #1: This morning, I'll cover the highlights, segment performance, and strategic progress. Nick will then take you through the financial results in more detail, before I return to discuss strategy and outlook.

Speaker #1: So I'll be head across to slide 6, our FY26 highlights. It was a year of disciplined execution and meaningful strategic progress across the group.

Speaker #1: Group underlying operating profit increased 9.1% to 260.9 million dollars, supported by strong revenue growth and improved operating efficiency. Net profit after tax was 186.9 million, ahead of expectations.

Speaker #1: Our balance sheet and cash generation strengthened, and this supported the board's decision to increase the targeted dividend payout ratio to 65 to 75 percent, and declare a final dividend of 21 cents per share, including a 5 cents special dividend.

Speaker #1: A major feature of the year was the conclusion of the strategic review of NIB Travel. Both sales transactions are expected to complete in the first half of FY27, simplifying the portfolio, sharpening our focus, and providing further capital management flexibility as sales proceeds are received.

Speaker #1: Million supported by strong revenue growth and improved operating efficiency. Net profit after tax was $186.9 million, ahead of expectations. Our balance sheet and cash generation strengthened, and this supported the Board’s decision to increase the targeted dividend payout ratio to 65–75% and declare a final dividend of 21 cents per share, including a 5 cent special dividend.

Speaker #1: Productivity was another key highlight. Our digital and AI program continues to scale, delivering 61 million dollars of value. In Australian residents, we delivered record sales, strong customer advocacy, and the net margin was managed in the 6 to 7 percent target range, while absorbing elevated risk equalization volatility and higher acquisition offer costs.

Speaker #1: We are also repositioning policyholder growth towards higher value, more sustainable segments. Our related businesses delivered a substantial improvement in strategically important adjacent markets. Underlying operating profit increased by 41.9 million, to 86.1 million, in these important segments, lifting their contribution from around one-fifth to around one-third of total group earnings.

Speaker #1: Productivity was another key highlight. Our digital and AI program continues to scale, delivering $61 million of value. In Australian Residents, we delivered record sales, strong customer advocacy, and the net margin was managed in the 6–7% target range, while absorbing elevated risk equalization volatility and higher acquisition and offer costs.

Speaker #1: Top line revenue growth was strong, increasing 6.2 percent to 3.8 billion, and as the fourth largest health insurer in Australia, and the second largest in New Zealand, we now cover more than 1.95 million health insurance lives across our core PHI segments.

Speaker #1: We are also repositioning policyholder growth toward higher-value, more sustainable segments. Our related businesses delivered a substantial improvement in strategically important adjacent markets. Underlying operating profit increased by $41.9 million to $86.1 million in these important segments, lifting their contribution from around one-fifth to around one-third of total group earnings.

Speaker #1: Pleasingly, the operating expense ratio reduced 16.6 percent, down 110 basis points on FY25, and this is particularly important within the result, it shows the productivity is now structurally embedded and flowing through to the P&L.

Speaker #1: The results reflect another strong international performance, a rapid recovery in New Zealand, and health services reaching profitability for the full year. If we turn to slide 7 in the Group performance metrics: top-line revenue growth was strong, increasing 6.2% to $3.8 billion. As the fourth-largest health insurer in Australia, and the second-largest in New Zealand, we now cover more than 1.95 million health insurance lives across our core PHI segments.

Speaker #1: Across to slide 8. To our Australian residents' portfolio, the industry remains attractive and continues to grow. Industry hospital coverage increased by around 308,000 lives in the 12 months to March 26, reaching a record 12.8 million Australians.

Speaker #1: And with more than 15 million Australians holding an extras policy, this demonstrates the strong appeal of maintaining private health cover our value proposition continues to attract customers.

Speaker #1: Pleasingly, the operating expense ratio reduced 16.6%, down 110 basis points on FY25, and this is particularly important within the result. It shows that productivity is now structurally embedded and flowing through to the P&L.

Speaker #1: We achieved more than 147,000 sales, up 4.3 percent, and net switching remained beneficial to NIB. Our policyholder growth was 1.9 percent and is expected to be broadly in line with industry.

Speaker #1: We are now deliberately shifting growth towards higher value and more sustainable segments, 85 percent of net growth came through our target silver category, compared with 46 percent last year.

Speaker #1: Across to slide 8: To our Australian residents' portfolio, the industry remains attractive and continues to grow. Industry hospital coverage increased by around 308,000 lives in the 12 months to March 2026, reaching a record 12.8 million Australians.

Speaker #1: Our FY26 policyholder growth outcomes reflect deliberate choices on pricing, product design, and portfolio quality, including exiting uneconomic corporate groups and shifting away from lower-value cohorts, these actions have some impact on short-term lapse and churn, impacting net growth by approximately 60 basis points.

Speaker #1: And with more than 15 million Australians holding an extras policy, this demonstrates the strong appeal of maintaining private health cover. Customers—we achieved more than 147,000 sales, up 4.3%, and net switching remained beneficial to NIB.

Speaker #1: But they're the right decisions to support sustainable growth, long-term affordability, and margin quality. We also see increased customer churn through broker channels. Elevated by higher promotional activity from competitors.

Speaker #1: Our policyholder growth was 1.9% and is expected to be broadly in line with the industry. We are now deliberately shifting growth toward higher value and more sustainable segments. Eighty-five percent of net growth came through our target Silver category, compared with 46% last year.

Speaker #1: Retention and lifetime value in our high-value segments are clear priorities for NIB in FY27. We continue to refine our channel mix, targeting acquisition investment more deliberately and reviewing partner economics alongside investment in the NIB brand and direct capability.

Speaker #1: Our FY26 policyholder growth outcomes reflect deliberate choices on pricing, product design, and portfolio quality, including exiting uneconomic corporate groups and shifting away from lower-value cohorts. These actions have some impact on short-term lapse and churn, impacting net growth by approximately 60 basis points.

Speaker #1: Our customer proposition remains strong: net promoter score was plus 32, and more than 70 percent of members are now digitally connected. Our first-choice network to help customers save 57 million dollars in out-of-pocket costs, our hospital power ratio was almost 89 percent, well above pre-COVID levels, and reflects the support that we continue to provide to members and the private hospital sector.

Speaker #1: But they're the right decisions to support sustainable growth, long-term affordability, and margin quality. We also see increased customer churn through broker channels, elevated by higher promotional activity from competitors.

Speaker #1: Disciplined pricing and productivity absorbed claims inflation and mix. Our gross margin is now at a sustainable level, and net margins were well managed in the target 6 to 7 percent range.

Speaker #1: I do want to spend a moment on two items that impacted the Australian residents' margin. Higher acquisition offer costs and claims inflation impacts as a result of elevated risk equalization volatility.

Speaker #1: Our customer proposition remains strong: net promoter score was plus 32, and more than 70% of members are now digitally connected. Our first-choice network helped customers save $57 million in out-of-pocket costs. Our hospital power ratio was almost 89%, well above pre-COVID levels, and reflects the support that we continue to provide to members and the private hospital sector.

Speaker #1: Firstly on risk equalization. NIB's own claims inflation continued to improve in FY26, moderating the 4.1 percent excluding the New South Wales bed rate changes.

Speaker #1: Over the long term, our risk equalization outlook remains supported by the same structural drivers that we've spoken about previously, that is a younger membership base at NIB progressively aging, and deliberate growth in older and higher-value segments.

Speaker #1: Disciplined pricing and productivity absorbed claims inflation and mix. Our gross margin is now at a sustainable level, and net margins were well managed in the target 6–7% range.

Speaker #1: These factors have historically improved NIB's relative position in the risk equalization pool, and we see no reason to believe that these long-term trends have changed.

Speaker #1: I do want to spend a moment on two items that impacted the Australian residents' margin: higher acquisition offer costs, and claims inflation impacts as a result of elevated risk equalization volatility.

Speaker #1: However, risk equalization volatility in FY26 was largely driven by industry claims inflation, appearing to have accelerated, potentially reflecting a combination of catch-up activity, hospital contracting cycles, and faster claims processing across the sector.

Speaker #1: Firstly, on risk equalization: NIB's own claims inflation continued to improve in FY26, moderating to 4.1%, excluding the New South Wales bed rate changes. Over the long term, our risk equalization outlook remains supported by the same structural drivers that we've spoken about previously—that is, a younger membership base at NIB progressively aging and deliberate growth in older and higher-value segments.

Speaker #1: And this narrowed NIB's historical gap to industry, and increased our risk equalization costs by about 10 percent. And was about 10 million dollars above expectations.

Speaker #1: While we remain cautious on new-term volatility and a factor this uncertainty in FY27 planning, the longer-term outlook remains constructive. If higher industry costs persist, then this can of course be considered in future pricing submissions while a higher industry cost environment should enhance NIB's overall competitiveness.

Speaker #1: These factors have historically improved NIB's relative position in the risk equalization pool, and we see no reason to believe that these long-term trends have changed.

Speaker #1: However, risk equalization volatility in FY26 was largely driven by industry claims inflation, which appeared to have accelerated—potentially reflecting a combination of catch-up activity, hospital contracting cycles, and faster claims processing across the sector.

Speaker #1: On higher offer costs, a material contributor to the increase was the industry clarification on the Australian government rebate treatment, which mean offers can no longer attract the rebate.

Speaker #1: The other contributors reflected the genuine step-up in promotional intensity across the industry, which saw elevated offer use along with NIB's shift to higher premium silver products, particularly late in the year.

Speaker #1: And this narrowed NIB's historical gap to industry and increased our risk equalization costs by about 10%, and was about $10 million above expectations.

Speaker #1: Given the environment, we intend to be far more selective in the use of acquisition offers moving forward, taking a more targeted approach, aligning channel investment with retention and lifetime value, and building more sustainable partner arrangements.

Speaker #1: While we remain cautious on near-term volatility and factor this uncertainty into FY27 planning, the longer-term outlook remains constructive. If higher industry costs persist, then this can, of course, be considered in future pricing submissions, while a higher industry cost environment should enhance NIB's overall competitiveness.

Speaker #1: The use of industry offers are driving very high levels of unsustainable churn, with often little benefit to consumers. From a distribution perspective, intermediaries and comparison services provide valuable choice, transparency, and advice for consumers.

Speaker #1: On higher offer costs, a material contributor to the increase was the industry clarification on the Australian government rebate treatment, which means offers can no longer attract the rebate.

Speaker #1: Sustainable offers also play a role in this sector. However, we see opportunity for greater transparency and more sustainable settings across offers, discounts, and broker commissions, so that the market better balances new customer acquisition with consumer affordability and value towards existing loyal customers.

Speaker #1: The other contributors reflected the genuine step-up in promotional intensity across the industry, which saw elevated offer use, along with NIB's shift to higher-premium silver products, particularly late in the year.

Speaker #1: Nick will step you through the margin drivers in a bit more detail shortly, and will provide some further perspectives on reform opportunities in the strategy and outlook sections.

Speaker #1: The use of industry offers is driving very high levels of unsustainable churn, with often little benefit to consumers. From a distribution perspective, intermediaries and comparison services provide valuable choice, transparency, and advice for consumers.

Speaker #1: So if we head to slide nine, our related adjacent businesses. It was a strong year for the broader portfolio. Underlying operating profit increased to 86.1 million, up 41.9 million, and now represents around one-third of group earnings.

Speaker #1: This gives NIB greater earnings depth, diversification, and strategic flexibility. International health insurance delivered another strong result, with underlying operating profit up 15.1 percent to 35.1 million, and policyholder growth of 4.4 percent.

Speaker #1: New Zealand delivered a decisive turnaround, returning to profitability with underlying operating profit of 27.5 million. Pricing and claims actions restored the business to a sustainable position, and the focus is now on maintaining that momentum and rebuilding growth.

Speaker #1: Nick will step you through the margin drivers in a bit more detail shortly, and will provide some further perspectives on reform opportunities in the strategy and outlook sections.

Speaker #1: So, if we head to slide 9, our related adjacent businesses. It was a strong year for the broader portfolio. Underlying operating profit increased to $86.1 million, up $41.9 million, and now represents around one-third of group earnings.

Speaker #1: Pleasingly, health services achieved full-year profitability. This is an important milestone. It shows the business is moving beyond investment phase, and beginning to contribute meaningfully commercially.

Speaker #1: This gives NIB greater earnings depth, diversification, and strategic flexibility. International health insurance delivered another strong result, with underlying operating profit up 15.1% to $35.1 million, and policyholder growth at 4.4%.

Speaker #1: It also strengthens the broader PHI propositions through health management, care navigation, and PHI services. NIB thrived, delivered a positive UOP contribution, and this was a solid result in a period of significant sector reform.

Speaker #1: New Zealand delivered a decisive turnaround, returning to profitability with an underlying operating profit of $27.5 million. Pricing and claims actions restored the business to a sustainable position, and the focus is now on maintaining that momentum and rebuilding growth.

Speaker #1: The business is investing in service capability, operational excellence, and remains well positioned for future plan management reforms that favor scaled, compliant, and high-quality providers.

Speaker #1: And on travel, as mentioned earlier, the strategic review is now concluded, this sharpens our focus, and retains the opportunity to support a capital light partner-led NIB-branded distribution model across Australia and New Zealand.

Speaker #1: Pleasingly, Health Services achieved full-year profitability. This is an important milestone. It shows the business is moving beyond the investment phase and beginning to contribute meaningfully, commercially.

Speaker #1: So if we head to slide ten, productivity is now embedded in how we operate and a material driver of group performance. Our digital AI and productivity agenda delivered 61 million dollars of value in FY26, taking cumulative savings since FY24 to 79 million.

Speaker #1: More than 86 percent of Australian residents' claims are processed through automation, and our service contact center interactions reduced by 6.7 percent. More than 700 employees are now using NIB GBT, our AI frontline tool, which supports around 340,000 queries and our AI-enabled tools save more than 26,000 hours of manual effort in the Australian contact center last year.

Speaker #1: The business is investing in service capability and operational excellence, and remains well positioned for future plan management reforms that favor scaled, compliant, and high-quality providers. And on travel, as mentioned earlier, the strategic review is now concluded.

Speaker #1: This sharpens our focus, and retains the opportunity to support a capital-light, partner-led, NIB-branded distribution model across Australia and New Zealand. So if we head to slide 10, productivity is now embedded in how we operate and is a material driver of group performance.

Speaker #1: Our digital and AI agenda is now scaling quickly, delivering better service, faster decisions, and a lower cost to serve. Our Australian residents' non-marketing expense ratio is now among the lowest in industry, with further opportunity ahead.

Speaker #1: Our digital AI and productivity agenda delivered $61 million of value in FY26, taking cumulative savings since FY24 to $79 million. More than 86% of Australian residents' claims are processed through automation, and our service contact center interactions reduced by 6.7%.

Speaker #1: Lower cost to serve, gives us more flexibility to invest in customer value, improve price competitiveness, support service quality, and maintain sustainable margins within our target range.

Speaker #1: So with that, I'll now hand over to Nick, who'll take you through the financial results in more detail.

Speaker #1: More than 700 employees are now using NIB GBT, our AI frontline tool, which supported around 340,000 queries. Our AI-enabled tools saved more than 26,000 hours of manual effort in the Australian contact center last year.

Speaker #2: Thanks, Ed, and good morning to everyone. I'll now take you through the financial results in some more detail before I'll hand back to Ed for the outlook.

Speaker #2: If we go to slide 12, thank you. FY25 was a strong year financially, with the group underlying operating profit increasing 9.1 percent to 260.9 million dollars, which was within our guidance range.

Speaker #2: The result was supported by continued revenue growth, margins in the target range in our high business, strong contributions from our adjacent businesses, and ongoing productivity across the group.

Speaker #1: Lower cost to serve gives us more flexibility to invest in customer value, improve price competitiveness, support service quality, and maintain sustainable margins within our target range.

Speaker #2: Importantly, as Ed's just said, the productivity program is continuing to translate into financial outcomes, with group operating expenses reducing by 0.7 percent despite inflationary pressures and the operating expense ratio improving by a further 110 basis points to 16.6 percent.

Speaker #1: So with that, I'll now hand over to Nick. He'll take you through the financial results in more detail.

Speaker #2: Thanks, Ed, and good morning to everyone. I’ll take you through the financial results in some more detail before I hand back to Ed for the outlook.

Speaker #2: If we go to slide 12—thank you. FY25 was a strong year financially, with the Group underlying operating profit increasing 9.1% to $260.9 million, which was within our guidance range.

Speaker #2: Net profit after tax was 186.9 million dollars, which was a 5.9 percent decline on last year, and while lower than the prior year, this largely reflects positive impacts in the FY25 year normalizing.

Speaker #2: The result was supported by continued revenue growth, margins in the target range in our health business, strong contributions from our adjacent businesses, and ongoing productivity across the group.

Speaker #2: FY25 was a relatively high investment return year, and additionally we had a lower effective tax rate due to the recognition of midnight health tax losses upon gaining a consolidating interest in the company.

Speaker #2: Importantly, as Ed's just said, the productivity program is continuing to translate into financial outcomes, with group operating expenses reducing by 0.7% despite inflationary pressures, and the operating expense ratio improving by a further 110 basis points to 16.6%.

Speaker #2: Our balance sheet remains very strong, with gearing reducing to 15 percent and EBITDA leverage a very low 0.6 times. That strength, combined with the expected proceeds from the sale of the travel business, has enabled the company to declare a share, which includes a 5 cent special dividend.

Speaker #2: Net profit after tax was $186.9 million, which was a 5.9% decline on last year. While lower than the prior year, this largely reflects positive impacts expected to normalize in the FY25 year.

Speaker #2: Go to the next slide, please. The NIB group balance sheet did strengthen materially through FY26. Net tangible assets increased almost 15 percent to 341 million, while EBITDA leverage reduced to 0.6 and gearing improved by nearly 500 basis points.

Speaker #2: FY25 was a relatively high investment return year, and additionally, we had a lower effective tax rate due to the recognition of Midnight Health tax losses upon gaining a consolidating interest in the company.

Speaker #2: The improvement was driven by stronger operating cash generation, lower capital expenditure, as well as reduced acquisition activity and capital optimization within the health funds.

Speaker #2: Our balance sheet remains very strong, with gearing reducing to 15% and EBITDA leverage at a very low 0.6 times. That strength, combined with the expected proceeds from the sale of the travel business, has enabled the company to declare a final year dividend of 21 cents per share, which includes a 5 cent special dividend.

Speaker #2: The health funds PCA ratio finished at 1.65 times, above our target range of 1.5 to 1.6 times. Given the strength of the capital position and cash generation, the board has increased the target ordinary dividend payout ratio to 65 to 75 percent and a 16.5 cent ordinary dividend has been declared.

Speaker #2: Go to the next slide, please. The NIB Group balance sheet did strengthen materially through FY26. Net tangible assets increased almost 15% to $341 million, while EBITDA leverage reduced to 0.6 and gearing improved by nearly 500 basis points.

Speaker #2: Additionally, we expect to receive around 97 million dollars in net cash after the sale of the travel business. While these proceeds are yet to be received, all CPs have been fulfilled, and we expect completion in the first half of '27.

Speaker #2: The improvement was driven by stronger operating cash generation, lower capital expenditure, as well as reduced acquisition activity and capital optimization within the health funds.

Speaker #2: As such, the board considered it appropriate to provide a 5 cent special dividend as a result, taking the total final dividend to 21 cents per share, with future capital management optionality available.

Speaker #2: The health funds' PCA ratio finished at 1.65 times, above our target range of 1.5 to 1.6 times. Given the strength of the capital position and cash generation, the board has increased the target ordinary dividend payout ratio to 65% to 75%, and a 16.5 cent ordinary dividend has been declared.

Speaker #2: We've outlined an indicative framework for the expected net proceeds from the travel transaction at the table on the bottom left. Turning to the Australian residents' health insurance business, revenue increased 6.4 percent to just over 3 billion, reflecting premium increases aligned to claims inflation and policyholder growth of 1.9 percent.

Speaker #2: Additionally, we expect to receive around $97 million in net cash after the sale of the travel business. While these proceeds are yet to be received, all CPs have been fulfilled, and we expect completion in the first half of '27.

Speaker #2: Underlying operating profit was 187.9 million, and net margin was 6.2 percent within the target 6 to 7 percent range. While policyholder growth moderated from FY25, it remains within our estimate of system growth.

Speaker #2: As such, the board considered it appropriate to provide a 5-cent special dividend as a result, taking the total final dividend to 21 cents per share, with future capital management optionality available.

Speaker #2: And reflects portfolio repositioning towards higher value segments as well as heightened competition on aggregator activity. Claims inflation moderated further to 4.1 percent or 4.5 percent, including the New South Wales bid rate changes.

Speaker #2: We've outlined an indicative framework for the expected net proceeds from the travel transaction in the table on the bottom left. Turning to the Australian residents' health insurance business, revenue increased 6.4% to just over $3 billion, reflecting premium increases aligned to claims inflation and policyholder growth of 1.9%.

Speaker #2: A key highlight was productivity, with the non-marketing expense ratio reducing to 5.3 percent, its lowest level since 2007, and that helped offset elevated risk equalization volatility and higher offer costs.

Speaker #2: Underlying operating profit was $187.9 million, and net margin was 6.2%, within the target 6 to 7% range. While policyholder growth moderated from FY25, it remains within our estimate of system growth.

Speaker #2: Customer advocacy also remained strong, with NPS holding at plus 32. There's a bit going on in the net margins, so I've got a couple of ways of looking at this.

Speaker #2: If we have a look at this slide, I'll just provide a bit of context around the margin performance. So I'll walk you through it.

Speaker #2: And reflects portfolio repositioning towards higher-value segments, as well as heightened competition on aggregator activity. Claims inflation moderated further to 4.1%, or 4.5% including the New South Wales bid rate changes.

Speaker #2: The key message is that our underlying margins have been stable at 6.3 percent across FY25 and FY26. Beginning from the left-hand side, the reported net margin at 7.3 percent needs to be reduced by 1 percent for LIC claims development, and this was highlighted in the FY25 results presentation.

Speaker #2: A key highlight was productivity, with the non-marketing expense ratio reducing to 5.3%, its lowest level since 2007, and that helped offset elevated risk equalization volatility and higher offer costs.

Speaker #2: This is mainly due to the LIC at the end of FY24 being overstated with the benefit of hindsight. The reduction in the FY24 LIC occurred in the first half of FY25, elevating reporting margins.

Speaker #2: Customer advocacy also remained strong, with NPS holding at plus 32. There's a bit going on in the net margins, so I've got a couple of ways of looking at this.

Speaker #2: Due to that provision release. So then starting at the 6.3 percent underlying margin FY25, we can see that pricing largely offset the impact of mix and claims inflation, netting out to a small impact of 10 basis points.

Speaker #2: If we have a look at this slide, I'll just provide a bit of context around the margin performance, so I'll walk you through it.

Speaker #2: The key message is that our underlying margins have been stable at 6.3% across FY25 and FY26. Beginning from the left-hand side, the reported net margin at 7.3% needs to be reduced by 1% for LIC claims development, and this was highlighted in the FY25 results presentation.

Speaker #2: The two major impacts to margin were firstly risk equalization, and we'll have more on that in the next slide. And secondly, increased offer costs as a result of clarifying the removal of the government rebate on offers and also a general increase in offer intensity during the year.

Speaker #2: Our productivity then managed to offset these impacts to allow the underlying net margin to be stable, at 6.3 percent in FY26. We've also highlighted the first half, second half margin profile in the table at the bottom left.

Speaker #2: Due to that provision release. So, starting at the 6.3% underlying margin for FY25, we can see that pricing largely offset the impact of mix and claims inflation, netting out to a small impact of 10 basis points.

Speaker #2: Again, the LIC development is an important factor. While reported margins were 6.8 percent in first half '26 and 5.5 percent in second half '26, when we adjust for the LIC development impact, and also seasonality, underlying margins remain stable in that 6.3 percent range.

Speaker #2: The two major impacts to margin were, firstly, risk equalization—and we'll have more on that in the next slide—and secondly, increased offer costs as a result of clarifying the removal of the government rebate on offers and also a general increase in offer intensity during the year.

Speaker #2: In this case, with the benefit of hindsight, hindsight claims development, the LIC balance was understated at the end of the first half of '26, as a result we had to reaccrue in the second half of '26, impacting margins, with the effect being magnified because the impact is only across half the full year.

Speaker #2: Our productivity then managed to offset these impacts to allow the underlying net margin to be stable at 6.3% in FY26. We've also highlighted the first half, second half margin profile in the table at the bottom left.

Speaker #2: Looking at the gross margin walk, this is effectively the same margin walk, but just said on just looking at the gross margins. Again, we have reported gross margin in FY25 at 18 percent, which then needs to be reduced to an underlying margin of 17 percent after the FY24 claims development that impacted FY25.

Speaker #2: Again, the LIC development is an important factor. While reported margins were 6.8% in the first half of '26 and 5.5% in the second half of '26, when we adjust for the LIC development impact and also seasonality, underlying margins remain stable in that 6.3% range.

Speaker #2: In this case, with the benefit of hindsight—hindsight in claims development—the LIC balance was understated at the end of the first half of '26. As a result, we had to reaccrue in the second half of '26, impacting margins, with the effect being magnified because the impact is only across half the full year.

Speaker #2: With an underlying gross margin of 17 percent, we have the same price mix inflation impact and also the impacts from risk equalization and offer costs.

Speaker #2: However, there's no offset via the productivity, and hence gross margin underlying declined to 16.2 percent. We continue to see opportunities through claims management, portfolio mix optimization, and pricing discipline, as we manage margins into FY27.

Speaker #2: Looking at the gross margin walk, this is effectively the same margin walk, but just focused on the gross margins. Again, we have reported gross margin in FY25 at 18%, which then needs to be reduced to an underlying margin of 17% after the FY24 claims development that impacted FY25.

Speaker #2: Importantly, across the last two slides, our pricing actions accommodated mix and inflationary pressures, increased hospital benefits, while productivity improvements supported net margin resilience. Looking to the next slide.

Speaker #2: Claims inflation continued to improve during FY26. Underlying claims inflation moderated to 4.1 percent despite risk equalization contributing about 40 basis points of inflation, which was about 30 basis points in margin.

Speaker #2: With an underlying gross margin of 17%, we have the same price/mix inflation impact, and also the impacts from risk equalization and offer costs.

Speaker #2: However, there's no offset via the productivity, and hence gross margin underlying declined to 16.2%. We continue to see opportunities through claims management, portfolio mix optimization, and pricing discipline as we manage margins into FY27.

Speaker #2: A significant issue this year has been the industry-wide risk equalization volatility. You can see in the bottom two graphs on the in the two bottom graphs that risk equalization has been the highest relative contributor to NIB's inflation in FY26, with risk equalization growing at 7.1 percent on our annual risk equalization payment, growing at 10 percent versus a long-term average of closer to 4 percent.

Speaker #2: The table in the top middle part, which is entitled Risk Equalization Impacted by Gross Deficit Inflation, explains why. The gross deficit is the amount of claims each submit, each sorry, the gross deficit is the amount of claims each insurer submits into the risk equalization pool.

Speaker #2: Claims inflation continued to improve during FY26. Underlying claims inflation moderated to 4.1%, despite risk equalization contributing about 40 basis points of inflation, which was about 30 basis points in margin.

Speaker #2: A significant issue this year has been the industry, wide risk equalization volatility. You can see in the bottom two graphs on the in the two bottom graphs that risk equalization has been the highest relative contributor to NIB's inflation in FY26, with risk equalization growing at 7.1% on our annual risk equalization payment, growing at 10% versus a long-term average of closer to 4%.

Speaker #2: That is then risk equalized by other insurers. The more you submit, the more you tend to get back. As you know, NIB is by far the single largest contributor at 280 million.

Speaker #2: To put this in context, the next largest contributor is around 40 to 60 million. The reason is largely due to NIB's younger age profile.

Speaker #2: However, this has meant that NIB's gross deficit inflation is generally higher than industry. You can see that in the table, our gross deficit inflation has remained largely stable at 6.5 to 7 percent.

Speaker #2: The table in the top middle part, which is entitled 'Risk Equalization Impacted by Gross Deficit Inflation,' explains why. The gross deficit is the amount of claims each—sorry, the gross deficit is the amount of claims each insurer submits into the risk equalization pool.

Speaker #2: However, the industry inflation has shifted from around 5 percent up to 7.5 percent. The normal gap to industry that we would see, which is about that 1.5 percent, has not been present in FY26, and that's increased our risk equalization payment above trend.

Speaker #2: That is then risk-equalized by other insurers. The more you submit, the more you tend to get back. As you know, NIB has by far the single largest contributor at $280 million.

Speaker #2: We do not have line of sight as to why the industry gross deficit grew so strongly this year. Reasons could include claims inflation or payments speeds that have accelerated faster in the industry versus NIB, or the timing of hospital contracting.

Speaker #2: To put this in context, the next largest contributor is around $40 million to $60 million. The reason is largely due to NIB's younger age profile; however, this has meant that NIB's gross deficit inflation is generally higher than the industry.

Speaker #2: While this created a near-turn earnings headwind, a sustained increase in claiming by the industry relative to NIB, should that continue, will be reflected in relative lower levels of total inflation, and we believe could improve our relative competitiveness over time.

Speaker #2: You can see that in the table, our gross deficit inflation has remained largely stable at 6.5% to 7%. However, the industry inflation has shifted from around 5% up to 7.5%.

Speaker #2: The normal gap to industry that we would see, which is about 1.5%, has not been present in FY26, and that's increased our risk equalization payment above trend.

Speaker #2: But there have definitely been some unusual and volatile results in how some in how some health funds have contributed or received this year, and we continue to support reform of the risk equalization system towards a more prospective framework, the better rewards prevention, claims management, and participation by younger members.

Speaker #2: We do not have line of sight as to why the industry gross deficit grew so strongly this year. Reasons could include claims inflation or payment speeds that have accelerated faster in the industry versus NIB, or the timing of hospital contracting.

Speaker #2: Moving to international, please. International delivered a standout result. Revenue increased 7.4 percent and underlying operating profit grew 15 percent to 35.1 million. Policyholder growth accelerated to 4.4 percent, driven by strong growth across PARM, temporary graduate, and skilled worker segments.

Speaker #2: While this created a near-term earnings headwind, a sustained increase in claiming by the industry relative to NIB, should that continue, will be reflected in relatively lower levels of total inflation, and we believe could improve our relative competitiveness over time.

Speaker #2: Margins improved with gross margin up 160 basis points, and net margin increasing to 15 percent. Customer outcomes also remained exceptional, with MPS of plus 62 and approximately 90 percent of interactions occurring through digital channels.

Speaker #2: But there have definitely been some unusual and volatile results in how some health funds have contributed or received this year, and we continue to support reform of the risk equalization system towards a more prospective framework that better rewards prevention, claims management, and participation by younger members.

Speaker #2: Overall, this business continues to demonstrate the benefits of disciplined growth strategy, strong customer propositions, and operational efficiency. New Zealand. New Zealand delivered a very pleasing outcome for the group this year, with underlying operating profit improving from a loss of 2.9 million dollars in FY25 to a profit of 27.5 million dollars in FY26.

Speaker #2: Moving to International, please. International delivered a standout result. Revenue increased 7.4%, and underlying operating profit grew 15% to $35.1 million. Policyholder growth accelerated to 4.4%, driven by strong growth across the PARM, temporary graduate, and skilled worker segments.

Speaker #2: The turnaround reflects deliberate pricing actions, claims recovery initiatives, and disciplined expense management. Gross margin improved by more than 600 basis points, and net margin recovered to 6.5 percent.

Speaker #2: Margins improved, with gross margin up 160 basis points and net margin increasing to 15%. Customer outcomes also remained exceptional, with MPS of plus 62 and approximately 90% of interactions occurring through digital channels.

Speaker #2: Importantly, customer outcomes were also a focus with MPS recovering in the second half. We deliberately prioritized sustainable margin restoration over volume growth in FY26, and we now believe the business has returned to a stronger footing from which disciplined growth can resume.

Speaker #2: Overall, this business continues to demonstrate the benefits of disciplined growth strategy, strong customer propositions, and operational efficiency. New Zealand delivered a very pleasing outcome for the group this year, with underlying operating profit improving from a loss of $2.9 million in FY25 to a profit of $27.5 million in FY26.

Speaker #2: If we look at the the next slide illustrates the mechanics of the recovery in New Zealand. You can see that significant pricing actions restored portfolio economics and enabled revenue growth to outpace claims growth.

Speaker #2: At the same time, claims recovery initiatives reduced utilization trends and improved claims discipline. With claims inflation now moderating, pricing actions are beginning to normalize.

Speaker #2: Importantly, customer outcomes were also a focus, with MPS recovering in the second half. We deliberately prioritized sustainable margin restoration over volume growth in FY26, and we now believe the business has returned to a stronger footing from which disciplined growth can resume.

Speaker #2: The focus from here shifts from recovery to sustainable growth, while maintaining the stronger margin profile achieved over the last year. NIB Health Services achieved four-year profitability and continued to build momentum.

Speaker #2: Underlying operating profit improved from a loss of 5.9 million dollars to a profit of 2.4 million. This reflects growth in honeysuckle health, improved operating efficiency, and the benefits of four-year ownership.

Speaker #2: If we look at the next slide, it illustrates the mechanics of the recovery in New Zealand. You can see that significant pricing actions restored portfolio economics and enabled revenue growth to outpace claims growth.

Speaker #2: Honeysuckle health continues to demonstrate strong customer outcomes, while its my group has become an increasingly valuable strategic asset. Its my group now supports 18 health insurance brand powers 20 comparison platforms and facilitates more than 10 percent of industry sales.

Speaker #2: And together, these businesses strengthen our relationship across the health insurance ecosystem while creating attractive future growth opportunities. NIB Thrive Operating Profit was 16.3 million dollars, 600,000 lower than last year, and was impacted by the removal of setup fees and lower participant numbers.

Speaker #2: Underlying operating profit improved from a loss of $5.9 million to a profit of $2.4 million. This reflects growth in Honeysuckle Health, improved operating efficiency, and the benefits of four-year ownership.

Speaker #2: However, strong productivity outcomes largely offset these impacts. Importantly, we see emerging NDIF NDIS reform agenda as a net opportunity. The proposed reforms increase compliance, governance, and operational requirements for plan managers.

Speaker #2: Honeysuckle Health continues to demonstrate strong customer outcomes, while its my group has become an increasingly valuable strategic asset. Its my group now supports 18 health insurance brands, powers 20 comparison platforms, and facilitates more than 10% of industry sales.

Speaker #2: Additionally, there is recognition that plan management is an important part of the NDIS fabric, with a clear direction towards a small panel, of high-quality plan managers.

Speaker #2: And together, these businesses strengthen our relationship across the health insurance ecosystem while creating attractive future growth opportunities. NIB Thrive operating profit was $16.3 million, $600,000 lower than last year, and was impacted by the removal of setup fees and lower participant numbers; however, strong productivity outcomes largely offset these impacts.

Speaker #2: We believe these changes are likely to favor scaled, well-governed operators such as NIB Thrive. Accordingly, our focus remains on efficiency, payment integrity, customer experience, and leveraging broader group capability, and we are well positioned to meet the commissioning requirements of any future panels.

Speaker #2: In terms of travel, the strategic review of travel has delivered a successful outcome. Both transactions announced during FY26 are expected to complete in the first half of FY27.

Speaker #2: Importantly, we see the emerging NDIF/NDIS reform agenda as a net opportunity. The proposed reforms increase compliance, governance, and operational requirements for plan managers. Additionally, there is recognition that plan management is an important part of the NDIS fabric, with a clear direction towards a small panel of high-quality plan managers.

Speaker #2: Upon completion, we expect to receive approximately 97 million dollars of net cash profit proceeds, providing additional capital flexibility. Importantly, NIB will retain a long-term distribution partner with Allianz Partners, allowing us to continue offering travel insurance to customers through a capitalized model while generating future commission income.

Speaker #2: We believe these changes are likely to favor well-scaled, well-governed operators such as NIB Thrive. Accordingly, our focus remains on efficiency, payment integrity, customer experience, and leveraging broader group capability, and we are well positioned to meet the commissioning requirements of any future panels.

Speaker #2: The transaction simplifies the group and further sharpens our focus on private health insurance and related services. And finally, turning to cash flow, operating cash flow was strong, increasing 20.2 percent to 199 million dollars.

Speaker #2: In terms of travel, the strategic review of travel has delivered a successful outcome. Both transactions announced during FY26 are expected to complete in the first half of FY27.

Speaker #2: The improvement reflects recovery in New Zealand, productivity gains across the group, and continued operating discipline. Capital expenditure reduced significantly, contributing to free cash flow, improving from an outflow of 21.7 million dollars to an inflow of 27 million dollars.

Speaker #2: Upon completion, we expect to receive approximately $97 million of net cash profit proceeds, providing additional capital flexibility. Importantly, NIB will retain a long-term distribution partner with Allianz Partners, allowing us to continue offering travel insurance to customers through a capital-light model, while generating future commission income.

Speaker #2: Strong cash generation also supported a reduction in borrowings, further strengthening the balance sheet. Overall, the combination of earnings growth, strong cash generation, and lower leverage positions the NIB's balance sheet well as we enter into FY27.

Speaker #2: I'll now hand back to Ed to discuss the outlook.

Speaker #1: Thanks, Nick. If we jump across to slide 26. So our strategy has two clear priorities. Firstly, growing and strengthening our core private health insurance businesses, and secondly, scaling in related health and insurance services.

Speaker #1: Across core PHI insurance, the focus is on leading customer and digital experiences, stronger loyalty, disciplined distribution, and sustainable growth in high-value segments. Our multi-brand, multi-channel model is a genuine advantage.

Speaker #1: Alongside the NIB brand, in direct and intermediate channels, as well as GU Health, our flagship corporate offering, we work with leading insurance, banking, and loyalty brands as a strategic health insurance partner.

Speaker #1: Extending our reach into trusted customer communities. This approach is differentiated and strategically valuable to target high-value segments. Claims excellence is equally important. Better provider contracting, benefits management, payment integrity, and care navigation support affordability, customer value, and better health outcomes.

Speaker #2: I'll now hand back to Ed to discuss the outlook.

Speaker #1: Thanks, Nick. If we jump across to slide 26—so our strategy has two clear priorities: firstly, growing and strengthening our core private health insurance businesses, and secondly, scaling in related health and insurance services.

Speaker #1: In health and insurance services, we have the opportunity to provide a second source of growth. Honeysuckle Health, its my group NIB Thrive and complementary insurance partnerships are capital light platforms that leverage capabilities close to our core.

Speaker #1: Alongside the NIB brand, in direct and intermediate channels, as well as GU Health—our flagship corporate offering—we work with leading insurance, banking, and loyalty brands as a strategic health insurance partner.

Speaker #1: They strengthen the private health insurance proposition and create further diversified earnings potential in strategically related markets. Our digital and AI advantage supports better experiences and productivity.

Speaker #1: Discipline capital and risk management provide flexibility and strengthen customer outcomes. And our purpose-led people bring this strategy to life every day. The FY26 result gives us confidence that this strategy is working.

Speaker #1: We've simplified the portfolio, strengthened the balance sheet, improved efficiency, and delivered growth in group UOP. As well as increasing the contribution from our related adjacent businesses.

Speaker #1: In health and insurance services, we have the opportunity to provide a second source of growth. Honeysuckle Health, its my group NIB Thrive, and complementary insurance partnerships are capital-light platforms that leverage capabilities close to our core.

Speaker #1: So if we head across to slide 27, on focus and outlook. We expect continued group underlying operating profit growth, with guidance of 265 million to 285 million, excluding NIB travel and subject to risk equalization outcomes.

Speaker #1: In Australian residents, we're targeting sustainable policyholder growth, a broadly stable gross margin subject to risk equalization, and an underlying net margin within our 6 to 7 percent target range.

Speaker #1: Disciplined capital and risk management provide flexibility and strengthen customer outcomes. And our purpose-led people bring this strategy to life every day. The FY26 result gives us confidence that this strategy is working.

Speaker #1: Improving retention in high-value segments is central to this plan. We're strengthening the NIB brand and direct channels, targeting acquisition investment more strategically, and establishing partner arrangements that place greater value on customer tenure and quality.

Speaker #1: We've simplified the portfolio, strengthened the balance sheet, improved efficiency, and delivered growth in group UOP, as well as increased the contribution from our related adjacent businesses.

Speaker #1: We also retain performance improvement levers through pricing and product design, claims management, provider partnerships, payment integrity, and productivity. International and New Zealand are expected to continue making strong contributions, and health and insurance services are targeting further positive underlying operating profit growth.

Speaker #1: So if we head across to slide 27, on focus and outlook, we expect continued group underlying operating profit growth, with guidance of $265 million to $285 million, excluding NIB Travel and subject to risk equalization outcomes.

Speaker #1: In Australian Residents, we’re targeting sustainable policyholder growth, a broadly stable gross margin—subject to risk equalization—and an underlying net margin within our 6% to 7% target range.

Speaker #1: At the group level, we expect further productivity gains, continued improvement in the operating expense ratio, and significantly lower one-off costs. The completion of the travel transactions and receipt of the sale proceeds are expected to provide further balance sheet flexibility and capital management options.

Speaker #1: As mentioned earlier, from both Nick and I, I did want to spend a moment on industry reform opportunities because affordability remains central to participation and the overall sustainability of private healthcare in Australia.

Speaker #1: We also retain performance improvement levers through pricing and product design, claims management, provider partnerships, payment integrity, and productivity. In New Zealand, we are expected to continue making strong contributions, and health and insurance services are targeting further positive underlying operating profit growth.

Speaker #1: Firstly, on acquisition offers and incentives. Offers can attract customers to private health insurance, but the current settings significantly favor switching over loyalty. New customers can receive an effective first-year discount of up to 24 percent, compared with 12 percent cap benefits for existing members.

Speaker #1: Better alignment would create a fairer balance and reduce the costs ultimately shared across the broader membership base. The use of offers, gift cards, and other inducements create high levels of churn and impact premium affordability over time, as these costs get priced in.

Speaker #1: As mentioned earlier by both Nick and myself, I did want to spend a moment on industry reform opportunities, because affordability remains central to participation and the overall sustainability of private healthcare in Australia.

Speaker #1: Offers have also become prevalent across the broker channel, and this activity is driving unsustainable consumer and commercial outcomes. Secondly, on intermediary commissions. Brokers and comparison services provide valuable choice, information, and transparency for consumers, and they have an important role to play across the sector in helping consumers find better value and the most suitable cover for their needs.

Speaker #1: Compared with the 12% cap benefits for existing members, better alignment would create a fairer balance and reduce the costs ultimately shared across the broader membership base.

Speaker #1: However, clearer disclosure and sustainable commission guardrails would preserve those benefits, support competition, and ensure additional cost is not added to the system and borne by consumers through higher premiums.

Speaker #1: The use of offers, gift cards, and other inducements creates high levels of churn and impacts premium affordability over time, as these costs get priced in.

Speaker #1: Thirdly, on risk equalization. We strongly support community rating and the principle of risk equalization. But the opportunity is to modernize the current retrospective model through a carefully designed prospective approach that preserves fairness while creates stronger incentives for health funds and ultimately consumers to improve member health outcomes, invest in prevention, manage claims effectively, and attract younger, healthier lives into the sector.

Speaker #1: Offers have also become prevalent across the broker channel, and this activity is driving unsustainable consumer and commercial outcomes. Secondly, on intermediary commissions—brokers and comparison services provide valuable choice, information, and transparency for consumers, and they have an important role to play across the sector in helping consumers find better value and the most suitable cover for their needs.

Speaker #1: This would support affordability for all consumers, strengthen participation, and help ease the demand on the public health system. Finally, on contemporary models of care.

Speaker #1: Delivering the right care in the right setting at the right time can improve health outcomes, customer experiences, and overall system sustainability. And this includes care at home and in the community settings across areas such as mental health, maternity, and hospital substitution.

Speaker #1: Thirdly, on risk equalization. We strongly support community rating and the principle of risk equalization. But the opportunity is to modernize the current retrospective model through a carefully designed prospective approach that preserves fairness, while creating stronger incentives for health funds—and ultimately consumers—to improve member health outcomes, invest in prevention, manage claims effectively, and attract younger, healthier lives into the sector.

Speaker #1: The test should be clear: care must be safe, high quality, genuinely substitute, for hospital treatment and not cost additive. And then be appropriately priced, which is fair, transparent, and deliver measurable value for consumers.

Speaker #1: Taken together, these reforms can improve affordability, support participation, and strengthen the value and sustainability of private health cover. We continue to engage actively and constructively with government, regulators, and industry partners on these reform priorities.

Speaker #1: This would support affordability for all consumers, strengthen participation, and help ease the demand on the public health system. Finally, on contemporary models of care.

Speaker #1: Delivering the right care in the right setting at the right time can improve health outcomes, customer experiences, and overall system sustainability. This includes care at home and in community settings, across areas such as mental health, maternity, and hospital substitution.

Speaker #1: And more broadly, we enter FY27 with good momentum. Our core health insurance business is a performing well, our adjacent businesses are contributing more meaningfully, and productivity continues to improve.

Speaker #1: Supported by a strong balance sheet, a clear strategy, we are confident in the outlook and our ability to deliver sustainable long-term value for customers and shareholders.

Speaker #1: The test should be clear. Care must be safe, high quality, genuinely substitute for hospital treatment and not cost additive. And then be appropriately priced, which is fair, transparent, and delivers measurable value for consumers.

Speaker #1: So with that, we'll open up the call to questions. Thank you.

Speaker #2: Thank you. As a reminder, to ask a question, please press star one, one, on your telephone. And wait for your name to be announced.

Speaker #2: To withdraw your question, please press star one, one again. Please stand by as we compile the Q&A roster. First question comes from the lines of Julian Braganza from Goldman Sachs.

Speaker #1: And more broadly, we enter FY27 with good momentum. Our core health insurance businesses are performing well, our adjacent businesses are contributing more meaningfully, and productivity continues to improve.

Speaker #2: Please go ahead.

Speaker #1: Supported by a strong balance sheet and a clear strategy, we are confident in the outlook and our ability to deliver sustainable long-term value for customers and shareholders.

Speaker #3: Good morning, guys. Just on New Zealand, can you maybe just comment on why your policyholder growth was so weak? Sort of seeing down about 7 percent annualized over the second half.

Speaker #1: So with that, we'll open up the call to questions. Thank you.

Speaker #2: Thank you. As a reminder, to ask a question, please press star-one-one on your telephone and wait for your name to be announced.

Speaker #3: And can you just maybe comment on what's being done just to address that unit growth?

Speaker #1: Good morning, Julian. Yeah, thanks for the question. So as we've called out, some discipline choices have to be made in New Zealand across the portfolio around pricing, product design, and competitive positioning to ensure that we could really get back our on stable footing around the structural components of the portfolio.

Speaker #2: To withdraw your question, please press star, one, one again. Please stand by as we compile the Q&A roster. The first question comes from the line of Julian Braganza from Goldman Sachs.

Speaker #2: Please go ahead.

Speaker #1: And so the choices we've made, and we've been quite transparent around the pricing discipline that we've put through that market, alongside some of the additional product changes, that has come with some higher laps.

Speaker #3: Good morning, guys. Just on New Zealand, can you maybe just comment on why your policyholder growth was so weak—sort of being down about 7% annualized over the second half?

Speaker #1: And also, did impact in the short first half in particular, service levels around our ability to support some customers. And so that did come with a short-term impact, two laps, and you can see that reflected in the policyholder growth.

Speaker #3: And can you just maybe comment on what's being done to address that unit growth?

Speaker #1: Good morning, Julian. Yeah, thanks for the question. So, as we've called out, some disciplined choices have to be made in New Zealand across the portfolio around pricing, product design, and competitive positioning to ensure that we could really get back on stable footing around the structural components of the portfolio.

Speaker #1: We also saw a shift in downgrading as consumers started to look for higher excess tiers and lower levels of cover. One of the things, I guess, is unique about where we moved quite quickly and decisively on some of our choices, and that did mean our competitive positioning relative to peers was disadvantaged across the cycle.

Speaker #1: And so we've now pleasingly started to see that the actions we've taken puts us on strong sustainable footing and gives us a better comfort around our pricing outlook and ultimately our competitive positioning.

Speaker #1: And also, it did impact in the short first half in particular, service levels around our ability to support some customers. And so that did come with a short-term impact, two laps, and you can see that reflected in the policyholder growth.

Speaker #1: So a few factors there really around ensuring that we could restore margins to a sustainable level. And confident in the outlook, now that we are in the range that we're in.

Speaker #1: We also saw a shift in downgrading, as consumers started to look for higher excess tiers and lower levels of cover. One of the things, I guess, is unique about us is that we moved quite quickly and decisively on some of our choices. That did mean our competitive positioning relative to peers was disadvantaged across the cycle.

Speaker #1: And now competitors are starting to react with similar and higher both pricing and product design changes, which gives us some confidence around our proposition moving forward.

Speaker #3: Okay, thanks. And in terms of just the outlook for net margins, the second half was clearly very strong. Above your historical target ranges for the business of 8 to 10 percent.

Speaker #1: And so, we've now, pleasingly, started to see that the actions we've taken put us on a strong, sustainable footing and give us greater comfort around our pricing outlook and, ultimately, our competitive positioning.

Speaker #3: So what's the outlook for margins from here? Just given what you're putting through on price and what you're seeing on claims inflation?

Speaker #1: Yeah, so we talk about sustainable margins. We're not providing any specific outlook on the margin trajectory at this point, Julian, just given some of the movements that we've just touched upon.

Speaker #1: So, a few factors there really around ensuring that we could restore margins to a sustainable level, and confident in the outlook now that we are in the range that we're in.

Speaker #1: One thing that we are certainly committed to, though, is now that we have restored to a sustainable level, is that investment and focus on sustainable policyholder growth.

Speaker #1: And now competitors are starting to react with similar and higher pricing and product design changes, which gives us some confidence around our proposition moving forward.

Speaker #1: And so the balance for us moving forward is around disciplined investment in those areas but also ensuring that that net margin remains stable and improving over time.

Speaker #3: Okay, thanks. And in terms of the outlook for net margins, the second half was clearly very strong—above your historical target ranges for the business of 8 to 10 percent.

Speaker #1: But Nick, anything you want to add there?

Speaker #3: Yeah. Julian, one of the reasons that the second half was a bit stronger than everyone expected was that we had two months of really very low inflation that the industry is still scratching its head on, be it providers or health insurers.

Speaker #3: So, what's the outlook for margins from here, just given what you're putting through on price and what you're seeing on claims inflation?

Speaker #3: And so we're just we're not going to factor that into the inflation, into the first half. It looks a bit like an anomaly at this stage.

Speaker #1: One thing that we are certainly committed to, though, is that now that we have restored to a sustainable level, that investment and focus on sustainable policyholder growth.

Speaker #3: So maybe that might help a little bit. Okay, got it. And then maybe just on the resident business, if I look at your market share data, that's reduced now market share to about 9.7 percent as of March 2026.

Speaker #1: And so, the balance for us moving forward is around disciplined investment in those areas, but also ensuring that net margin remains stable and improves over time.

Speaker #1: But Nick, is there anything you wanted to add?

Speaker #3: Yeah, Julian, one of the reasons that the second half was a bit stronger than everyone expected was that we had two months of really very low inflation that the industry is still scratching its head over, be it providers or health insurers.

Speaker #3: So it looks like your policyholder growth is now tracking below system. So I just want to get your view here in terms of the outlook, the strategy, around how you're thinking about policyholder growth.

Speaker #3: And what initiatives you have in place to improve the trends relative to system? Thanks.

Speaker #3: And so we're just not going to factor that into the inflation in the first half. It looks a bit like an anomaly at this stage.

Speaker #1: Yeah, thanks, Julian. We've certainly signaled a shift in our focus and intent around disciplined policyholder growth in high-value segments. And we've called out a couple of factors there.

Speaker #3: So maybe that might help a little bit. Okay, got it. And then maybe just on the resident business, if I look at your market share data, so that's reduced now—market share to about 9.7% as of March 2026.

Speaker #1: Firstly, the choices we made around pricing and product design, as well as the exiting of some uneconomic corporate groups and low-value cohorts, has materially impacted policyholder growth in the last 12 months.

Speaker #3: So, it looks like your policyholder growth is now tracking below system. I just want to get your view here in terms of the outlook and the strategy, around how you're thinking about policyholder growth.

Speaker #1: And they were necessary and deliberate choices that we've made. And so this focus on high-value over high top-line growth is an important aspect of our proposition moving forward.

Speaker #3: And what initiatives do you have in place to improve the trends relative to the system? Thanks.

Speaker #1: I've also talked to some of the unsustainability around the use of offers ensuring that we are not seeing high levels of churn across some of the intermediated channels are other factors that have now got us thinking around what is a sustainable pathway.

Speaker #1: Yeah, thanks, Julian. We've certainly signaled a shift in our focus and intent around disciplined policyholder growth in high-value segments, and we've called out a couple of factors there.

Speaker #1: The other piece we just need to remain alert to is that there are some proposed rebate changes coming later in the second half of '27.

Speaker #1: And so it is difficult for us to, with confidence, predict exactly what that will look like in terms of our book and composition. So I think we're guiding to high-quality sustainable growth moving forward.

Speaker #1: They were necessary and deliberate choices that we've made. This focus on high value over high top-line growth is an important aspect of our proposition moving forward.

Speaker #1: And that should be a hallmark of our proposition moving forward.

Speaker #1: I've also talked to some of the unsustainability around the use of offers, ensuring that we are not seeing high levels of churn across some of the intermediated channels, and there are other factors that have now got us thinking around what is a sustainable pathway.

Speaker #3: Okay, just a last question for me in terms of the expense ratios. So you're flagging further benefits that could come through from here. I just want to understand what is the sort of magnitude of the opportunity that could potentially offset any further risk or downside risk to gross margins?

Speaker #1: The other piece we just need to remain alert to is that there are some proposed rebate changes coming later in the second half of 2027.

Speaker #3: I think you were 9.9 percent for R high. How are you thinking about that in terms of flexibility that could come through into next year from your productivity focus?

Speaker #3: Thanks.

Speaker #1: We kind of said decent reduction because of the travel business going. So depending on the timing of that, that will assist. And then I think it does depend a bit on how much simpler we can make the business as a result of travel exiting the group.

Speaker #1: And that should be a hallmark of our proposition, moving forward.

Speaker #3: Okay, just a last question from me in terms of the expense ratio. So you're flagging further benefits that could come through from here. I just want to understand, what is the sort of magnitude of the opportunity that could potentially offset any further risk or downside risk to gross margins?

Speaker #1: So I think that at this stage, we probably outperformed everyone's expectations this year. In terms of productivity, we still think there's more to go, but that'll depend on how much we can leverage the simplification and also the AI opportunities.

Speaker #3: I think you were 9.9% for R High. How are you thinking about that in terms of flexibility that could come through into next year from your productivity focus?

Speaker #3: Great. Thanks so much for that.

Speaker #3: Thanks.

Speaker #1: We kind of said, "decent reduction," because of the travel business going. So depending on the timing of that, that will assist. And then I think it does depend a bit on how much simpler we can make the business as a result of travel exiting the group.

Speaker #2: Thank you. Next, we have Siddharth Parameswaran from JP Morgan.

Speaker #1: Good morning, gentlemen. A couple of questions if I can. Sort of ask about claims inflation and the residents. If I look at slide 14, the incurred claims cost grew 8.9 percent.

Speaker #1: So, I think that at this stage, we probably outperformed everyone's expectations this year. In terms of productivity, we still think there's more to go, but that'll depend on how much we can leverage the simplification and also the opportunities.

Speaker #1: And you had policyholder growth of 1.9 percent. I know there was a lower reserve releases this year than last year, but it's still suggests that underlying incurred policy inflation as you see it per policy stripping out the claims inflation was roughly 6 percent.

Speaker #3: Great, thanks so much for that.

Speaker #2: Thank you. Next, we have Siddhiv Parameswaran from JPMorgan.

Speaker #1: And that seems quite high. I know that you're flagging underlying inflation as 4.1, but you're stripping out the risk equalization impact there. I'm just keen to understand exactly what is driving these numbers.

Speaker #4: Good morning, gentlemen. I have a couple of questions, if I can, about claims inflation and the residents. If I look at slide 14, the incurred claims cost grew 8.9%.

Speaker #1: It seems very high, much higher than your revenues per policy. And I'm just keen to understand whether it's likely to continue into next year.

Speaker #4: And you had policyholder growth of 1.9%. I know there's a lower reserve release this year than last year, but it still suggests that underlying incurred policy inflation as you see it per policy, stripping out the claims inflation, was roughly 6%.

Speaker #1: And yeah, if you could give us some color around that. I think, Sidd, there's two things. The first one is that inflation's on per customer basis.

Speaker #1: So there's also that exposure gap between the policyholder growth and the customer growth. And we would include all of that in mix around the net pricing.

Speaker #4: And that seems quite high. I know that you're flagging underlying inflation as 4.1%, but you're stripping out the risk equalization impact there. I'm just keen to understand exactly what is driving these numbers.

Speaker #1: Because pricing's on a per policy basis. And then the second is that the LIC had a big benefit in the prior comparable period.

Speaker #3: And just just building on Nick's comments, the 4.1 percent that we referenced there, that includes the risk equalization impacts? So we haven't backed that out, the risk equalization?

Speaker #4: It seems very high, much higher than your revenue per policy, and I'm just keen to understand whether it's likely to continue into next year. If you could give us some color around that, that would be great.

Speaker #1: So maybe you could just help me sorry, I was just going to ask. I mean, maybe if you could just help me. Actually, sorry.

Speaker #1: I think, Sidd, there are two things. The first one is that inflation's on a per-customer basis. So there's also that exposure gap between the policyholder growth and the customer growth.

Speaker #1: Maybe you just finish, but I just can't reconcile the high incurred claims number that we're seeing here. If I take out the LC, I strip that out in the question that I asked.

Speaker #1: And we would include all of that in the mix around the net pricing, because pricing is on a per policy basis. And then the second is that the LIC had a big benefit in the prior comparable period.

Speaker #1: It still seems very, very elevated versus the 4.1. So you're saying that includes the RE, but maybe if you could just comment on 8.9 minus the 0.8 you had, which was the LIC development last year, there's not much contribution this year.

Speaker #5: And just building on Nick's comments,

Speaker #4: The 4.1 percent that we referenced there—that includes the risk equalization impacts? So we haven't backed that out, the risk equalization.

Speaker #1: We're still looking at sort of 8 percent incurred inflation. You've got roughly 2 percent policyholder growth. That was the 6 percent that I was referring to.

Speaker #1: Maybe you could just help me.

Speaker #4: You go.

Speaker #5: Sorry, I was just going to ask—I mean, maybe if you could just help me. Actually, sorry, maybe you should just finish. I just can't reconcile the high incurred claims number that we're seeing here.

Speaker #1: Just keen to make sure I understand the gap between the 6 and the 4 and a half or the 4.1, whichever one you're focusing on.

Speaker #3: So rough numbers, I think I'm seeing about 8.9 percent growth in incurred, less 2.2 percent average policy growth, less about 0.7.8 of people growth, less about 1.1 percent of LIC impact gets me down to about just under 4.

Speaker #5: If I take out the LC, I strip that out in the question that I asked. It still seems very, very elevated versus the 4.1.

Speaker #5: So you're saying that includes the RE, but maybe if you could just comment on $8.9 million minus the $0.8 million you had, which was the LIC development last year. There's not much contribution this year.

Speaker #3: Sorry, just under 5. And I'd have to sort of work through the next 40 basis points to the 4.5. Sidd, maybe we can do that this afternoon?

Speaker #5: We're still looking at sort of 8% incurred inflation. You've got roughly 2% policyholder growth. That was the 6% that I was referring to.

Speaker #1: Okay. Okay, no worries. Okay, I'll ask it a different way then. It seems like there is gross margin pressure, which was partly offset by MER savings, which were very substantial.

Speaker #5: Just keen to make sure I understand the gap between the 6 and the 4.5, or the 4.1—whichever one you're focusing on.

Speaker #1: So, rough numbers, I think I'm seeing about 8.9% growth in incurred, less 2.2% average policy growth, less about 0.7 or 0.8 of people growth, less about 1.1% of LIC impact—gets me down to just under 4, sorry, just under 5.

Speaker #1: Just keen to make sure I understand your views on trajectory into next year on the MER versus the gross margin trajectory. Because can you sustain that level of improvement again next year in your view, whether there'll be any strand of cost from the travel sale, which might have to be taken up, and also just whether you think that I mean, the 4.1 seems very low.

Speaker #1: And I'd have to sort of work through the next 40 basis points, to the 4.5. Sidd, maybe we can do that this afternoon?

Speaker #1: I'm just wondering, are you suggesting that that should be the increase that we should be factoring in for next year?

Speaker #5: Okay. Okay, no worries. I'll ask it a different way, then. It seems like there is gross margin pressure, which was partly offset by MER savings, which were very substantial.

Speaker #3: Sidd, we've guided to we've given you some guidance around the gross margin. In the outlook, we've given you some indication around the net margin target range.

Speaker #5: Just keen to make sure I understand your views on the trajectory into next year on the MER versus the gross margin trajectory. Can you sustain that level of improvement again next year, in your view? Will there be any strand of cost from the travel sale which might have to be taken up? Also, just whether you think that—I mean, the 4.1 seems very low.

Speaker #3: And we've given you a group UOP guidance range. I guess there's a number of variables there that we've talked in around risk equalization, volatility in particular, that can be one of the key movements there.

Speaker #3: But I thought it was important to then introduce that additional outlook statement around broadly stable Australian resident gross margins. We also feel between pricing, discounting optionality, and other levers, you've called out MER as a material one as well that we've got practical ways that we can manage that margin well in the 6 to 7 target range.

Speaker #5: I'm just wondering, are you suggesting that that should be the increase we should be factoring in for next year?

Speaker #1: Sidd, we've given you some guidance around the gross margin. In the outlook, we've also provided some indication of the net margin target range.

Speaker #3: So that's the outlook from our perspective. And we haven't specifically given claims inflation, but you've touched on some of the key numbers there.

Speaker #1: And we've given you a group UOP guidance range. I guess there are a number of variables there that we've talked about around risk equalization volatility, in particular. That can be one of the key movements there.

Speaker #1: Okay. Okay, that's helpful. Thank you. Okay, if I could ask one other. Just around international. So I just want to make sure I'm clear on understanding your list of competitors that they are now one of the providers on the ARM contract.

Speaker #1: But I thought it was important to then introduce that additional outlook statement around broadly stable Australian resident gross margins. We also feel, between pricing, discounting optionality, and other levers, you’ve called out MER as a material one as well, that we’ve got practical ways that we can manage that margin well in the 6% to 7% target range.

Speaker #1: Maybe if you could just comment on whether that's likely to have any impact on policyholder numbers at all. Yeah.

Speaker #3: Yeah, we're really proud and pleased with the work that we've done in that PARM segment in particular, Sidd. So we've had a longstanding relationship with industry and government.

Speaker #1: So, that's the outlook from our perspective. We haven't specifically given claims inflation, but you've touched on some of the key numbers there.

Speaker #3: You're right in that there are it's always been a non-exclusive preferred partnership, I should stress that. And those having another competitor on opportunity for both players to really deliver great outcomes for that seasonal worker offering in the Pacific Islands.

Speaker #5: Okay, okay, that's helpful. Thank you. Okay, if I could ask one other, just around international—so I just want to make sure I'm clear on understanding your list of competitors, that they are now one of the providers on the ARM contract.

Speaker #3: We have really built those relationships through the employers and directly with those end customers. And so whilst it is important to have preferred provider status, ultimately, our go-to-market proposition and the strength of those relationships directly with the employers and the individuals is what is giving us confidence around continued growth in PARM market share.

Speaker #5: Maybe if you could just comment on whether that's likely to have any impact on policyholder numbers at all? Yeah.

Speaker #1: Yeah, we're really proud and pleased with the work that we've done in that PARM segment in particular, Sidd. We've had a longstanding relationship with industry and government.

Speaker #1: You're right in that it's always been a non-exclusive preferred partnership—I should stress that. And having another competitor on the panel presents an opportunity for both players to really deliver great outcomes for that seasonal worker offering. In the Pacific Islands, we have really built those relationships through the employers and directly with those end customers.

Speaker #3: And we're really proud of that work that we've done in that space. Also, aided by some positive signs in skilled workers as well. So yeah, it's been a fantastic result more generally in the international visitors segment, supported again through pricing discipline and the productivity piece.

Speaker #3: And being very selective around which segments we play in, because we know particularly in the backdrop of migration settings, they're not all segments will behave equally.

Speaker #1: And so, whilst it is important to have preferred provider status, ultimately our go-to-market proposition and the strength of those relationships—directly with the employers and the individuals—is what is giving us confidence around continued growth in PARM market share.

Speaker #3: And so we feel well positioned to continue with some ongoing performance in that segment.

Speaker #1: Okay, thank you.

Speaker #2: Thank you. Just a moment for our next question, please. Next, we have Andrew Buncombe from Macquarie.

Speaker #1: And we're really proud of the work that we've done in that space, also aided by some positive signs in skilled workers as well. So yeah, it's been a fantastic result more generally in the international visitors segment, supported again through pricing discipline and the productivity piece.

Speaker #4: Hi guys. Thanks for taking my questions. Just two from me, please. Apologies if I've missed it, but I seem to remember in February, on the group call, you made comments about doing a holistic end-to-end review of benefits across the group, but I can't see at this time around.

Speaker #1: And being very selective around which segments we play in, because we know, particularly in the backdrop of migration settings, that not all segments will behave equally.

Speaker #4: Maybe just an update on how that is tracking would be great. Thanks.

Speaker #1: And so, we feel well positioned to continue with some ongoing performance in that segment.

Speaker #3: Good morning, Andrew. No, I certainly continue as a key part of our strategy and focus moving forward. I think we call it out explicitly in the strategy slide for our core business.

Speaker #5: Okay, thank you.

Speaker #2: Thank you. Just a moment for our next question, please. Next, we have Andrew Bunken from Macquarie.

Speaker #3: And that extends to both our Australian business there. You'll see through the bottom section, customer value through claims excellence. But we do see material opportunity in both Australia and New Zealand around improving and enhancing our proactive claims management.

Speaker #6: Hi, guys. Thanks for taking my questions. Just two from me, please. Apologies if I've missed it, but I seem to remember in February, on the group call, you made comments about doing a holistic end-to-end review of benefits across the group, but I can't see that this time around.

Speaker #3: It is multifaceted. Everything from partnership contracts with hospital providers through strengthening payment integrity and assurance, particularly with the role of AI and patent recognition, giving us further clarity and opportunity.

Speaker #6: Maybe just an update on how that's tracking would be great. Thanks.

Speaker #3: And delivering better consumer outcomes through affordability in some of our network strategies. So certainly, a fundamental part of our proposition moving forward. And the progress has been solid in the last 12 months in both businesses.

Speaker #1: Morning, Andrew. No, it certainly continues as a key part of our strategy and focus moving forward. I think we call it out explicitly in the strategy slide for our core business.

Speaker #1: And that extends to both our Australian business there. You'll see through the bottom section, customer value through claims excellence. But we do see material opportunity in both Australia and New Zealand around improving and enhancing our proactive claims management.

Speaker #3: And you see how we've containing claims inflation in New Zealand, but equally starting to see some positive moderation in the Australian business as well.

Speaker #4: Excellent. And then the other one from me, given some of the scheme reforms that are coming down the pike for Thrive and NDIS, how should we be thinking about participant growth for yourselves in Thrive and FY27?

Speaker #1: It is multifaceted—everything from partnership contracts with hospital providers, through to strengthening payment integrity and assurance, particularly with the role of AI and pattern recognition, giving us further clarity and opportunity.

Speaker #4: Thanks.

Speaker #3: Yeah, we remain alert to modest growth in the plan management and NDIS sector more generally in '27. And that's because these reforms are still gaining traction, and we're still seeking clarity as to what exactly they look to look like.

Speaker #1: And delivering better consumer outcomes through affordability in some of our network strategies. So, certainly a fundamental part of our proposition moving forward. The progress has been solid in the last 12 months in both businesses.

Speaker #1: And you see how we've been containing claims inflation in New Zealand, but equally starting to see some positive moderation in the Australian business as well.

Speaker #3: So we the pleasing part has been lapses materially stabilized over the past 12 to 18 months. We did have a significant service disruption about 18 months ago, and we're now really improving customer advocacy.

Speaker #6: Excellent. And then the other one from me: given some of these game reforms that are coming down the pike for Thrive and NDIS, how should we be thinking about participant growth for yourselves in Thrive and FY27?

Speaker #3: So our proposition has really strengthened over the past 12 months. And we actually remain quite excited about the future potential of plan management more generally, despite some of the changes around eligibility and scheme sustainability, which we fully support.

Speaker #6: Thanks.

Speaker #1: Yeah, we remain alert to modest growth in the plan management and NDIS sector more generally in '27. And that's because these reforms are still gaining traction, and we're still seeking clarity as to what exactly they look like.

Speaker #3: We see a really important role for plan managers, particularly those plan managers that are scaled compliant and acting in the best interests of all participants.

Speaker #3: And we certainly believe that NIB Thrive is one of those. So we anticipate that off the back of these reforms, that we will see further consolidation across the plan management market.

Speaker #1: So, the pleasing part has been lapses materially stabilized over the past 12 to 18 months. We did have a significant service disruption about 18 months ago, and we're now really improving customer advocacy.

Speaker #3: We are seeing some indications now that plan managers are varying shapes and sizes are starting to exit the system as the compliance burden is increasing, which we see as an absolutely valuable thing for overall participant outcomes.

Speaker #1: So, our proposition has really strengthened over the past 12 months, and we actually remain quite excited about the future potential of plan management more generally, despite some of the changes around eligibility and scheme sustainability, which we fully support.

Speaker #3: So we do see some opportunity here around market share growth that we are guiding to in the medium term. That said, these changes will take some time to bed down, and we're not expecting any wholesale change in the next 6 to 12 months.

Speaker #1: We see a really important role for plan managers, particularly those plan managers that are scale compliant and acting in the best interests of all participants.

Speaker #1: And we certainly believe that NIB Thrive is one of those. So we anticipate that, off the back of these reforms, we will see further consolidation across the plan management market.

Speaker #3: Our priority focus in this business is ensuring that we ready the proposition to be well placed when these reforms take effect.

Speaker #4: So on that basis, would you see M&A as an option for your Thrive business in FY27 then? Or continue to focus on the organic as the sector continues to shake out?

Speaker #1: We are seeing some indications now that plan managers of varying shapes and sizes are starting to exit the system as the compliance burden is increasing, which we see as an absolutely valuable thing for overall participant outcomes.

Speaker #3: Yeah, we're very focused on maximizing the return on those existing investments Andrew, and we do see some opportunity around organic growth. And as I mentioned, starting to see some players exit the sector.

Speaker #1: So, we do see some opportunity here around market share growth that we are guiding to in the medium term. That said, these changes will take some time to bed down, and we're not expecting any wholesale change in the next 6 to 12 months.

Speaker #3: So not at this stage, not anticipating any inorganic growth in this market.

Speaker #1: Our priority focus in this business is ensuring that we ready the proposition to be well placed when these reforms take effect.

Speaker #4: Great. That's it from me. Thank you.

Speaker #6: So, on that basis, would you see M&A as an option for your Thrive business in FY27 then, or continue to focus on the organic as the sector continues to shake out?

Speaker #2: Thank you. Next, we have Nigel Pittaway from Siddhi. Please go ahead.

Speaker #4: Oh, good morning, guys. Just first of all, coming back to claims inflation in our high, it seems as if you must be expecting some further modest improvement next year with this flat gross margin guidance.

Speaker #1: Yeah, we're very focused on maximizing the return on those existing investments, Andrew, and we do see some opportunity around organic growth. And, as I mentioned, we're starting to see some players exit the sector.

Speaker #4: Because obviously, if you take even take the 4.1 add back, you sort of revenue mix impact, you are getting a number slightly higher than the price rise you got on 1st of April.

Speaker #1: So, not at this stage—not anticipating any inorganic growth in this market.

Speaker #4: So is that a reasonable expectation that claims inflation does continue to moderate a little next year?

Speaker #6: Great. That's it from me. Thank you.

Speaker #3: Good morning, Nigel. It's a good question, but we have guided to those broadly stable gross margins. So it's certainly a good guide looking forward.

Speaker #2: Thank you. Next, we have Nigel Pettaway from CETI. Please go ahead.

Speaker #3: There are some material things and just on the prior question, I touched on the progress we're making around benefits management and claims management in particular, product design and making sure that our product design is appropriately fit for purpose in this new environment.

Speaker #7: Oh, good morning, guys. Just, first of all, coming back to claims inflation in HI, it seems as if you must be expecting some further modest improvement next year with this flat gross margin guidance.

Speaker #7: Because, obviously, if you even take the 4.1 and add it back, you sort of remove the mix impact, and you are getting a number slightly higher than the price rise you got on the 1st of April.

Speaker #3: And that includes some fairly significant changes across our dental proposition that we've put through more recently that will take effect from 1 October. And that's a big opportunity for our consumer value proposition around better outcomes where our members choose a first choice dental provider in network.

Speaker #7: So, is it a reasonable expectation that claims inflation will continue to moderate a little next year?

Speaker #1: Morning, Nigel. It's a good question, but we have guided to those broadly stable gross margins, so it's certainly a good guide looking forward. There are some material things, and just on the prior question, I touched on management and claims management in particular, product design, and making sure that our product design is appropriately fit for purpose in this new environment.

Speaker #3: That will receive enhanced benefits and if our customers continue to choose to go out of network, which they are which we make available, then they'll see a different benefit construct.

Speaker #3: So we are pushing through a combination of product design and claims management changes that gives us confidence around that gross margin stability. And of course, as we've stressed on the call, we do remain alert to this risk equalization volatility.

Speaker #1: And that includes some fairly significant changes across our dental proposition that we've put through more recently, which will take effect from 1 October. That's a big opportunity for our consumer value proposition around better outcomes when our members choose a First Choice dental provider in-network.

Speaker #3: So if you take a longer-term outlook and based on that pre-COVID and five-year trend, that gap to industry on gross deficit inflation has consistently been in NIB's favor as our younger book ages.

Speaker #3: And we also shift our focus to older consumers that are that do benefit from risk equalization. So we were surprised, I think it's fair to say, particularly in the Q3 and Q4 around this volatility occurring in risk equalization.

Speaker #1: They will receive enhanced benefits, and if our customers continue to choose to go out-of-network—which they are, which we make available—then they'll see a different benefit construct.

Speaker #1: So, we are pushing through a combination of product design and claims management changes that gives us confidence around that gross margin stability. And, of course, as we've stressed on the call, we do remain alert to this risk equalization volatility.

Speaker #3: We remain cautious around it's prudent to do so in the short term. But those underlying settings around our book aging and also this shift in policy holder mix should bode well around gross deficit inflation moving forward.

Speaker #1: So, if you take a longer-term outlook, and based on that pre-COVID and five-year trend, that gap to industry on gross deficit inflation has consistently been in NIB's favor, as our younger book ages and we also shift our focus to older consumers that do benefit from risk equalization.

Speaker #4: Okay. Thank you for that. And secondly, just on obviously the lapses at 16.2 and probably above 17 in the second half, probably reflecting the industry conditions to some degree.

Speaker #4: But it is something that you've sort of identified potentially as an area of focus before. Moving forward. So presumably so far, none of those initiatives have gone in, but they're still in hand and you expect are they still sort of a strong focus for next year in terms of getting that lapsed down from the above 17?

Speaker #1: So, we were surprised. I think it's fair to say, particularly in Q3 and Q4, around this volatility occurring in risk equalization. We remain cautious, and it's prudent to do so in the short term, but those underlying settings around our book aging and also this shift in policyholder mix should bode well for gross deficit inflation moving forward.

Speaker #4: It reached in second half.

Speaker #3: Yeah. Retention is certainly high priority for the business, Nigel. We did signal some deliberate choices that were made around pricing and offboarding some unprofitable cohorts.

Speaker #6: Okay, thank you for that. Secondly, just on, obviously, the lapses at 16.2 and probably above 17% in the second half—probably reflecting the industry conditions to some degree—but it is something that you've sort of identified potentially as an area of focus before.

Speaker #3: They were necessary decisions, and that did impact net growth by about 60 basis points. So if you normalize for that net growth for the year would have been more around the two and a half percent mark rather than the 1.9.

Speaker #6: Moving forward. So presumably so far, none of those initiatives have gone in, but they're still in hand and you expect are they still sort of a strong focus for next year in terms of getting that lapsed down from the above 17.

Speaker #3: And that directly hit that lapsed number. Those choices are important, and I have signaled some other product design changes. So this will come with some short-term lapsed volatility but certainly we are stepping into this opportunity to drive high-value retention in those priority segments.

Speaker #6: It reached in second half.

Speaker #1: Retention is certainly a high priority for the business, Nigel. We did signal some deliberate choices that were made around pricing and offboarding some unprofitable cohorts.

Speaker #3: It indicated that portfolio repositioning and a shift around channel mix and also being more disciplined around acquisition offer costs, particularly off the back of the rebate clarification.

Speaker #3: And just to give you some color around that, effectively that means the average cost of an offer increased overnight by about 25%. And so we've had to adjust quite quickly in the back half of '26 and looking forward, that will then mean we take a more focused view around quality growth with a bias towards retention and loyalty.

Speaker #1: They were necessary decisions, and that did impact net growth by about 60 basis points. So, if you normalize for that, net growth for the year would have been more around the 2.5% mark, rather than the 1.9%.

Speaker #1: And that directly hit that lapsed number. Those choices are important, and I did have signal for some other product design changes. So this will come with some short-term lapsed volatility, but certainly we are stepping into this opportunity to drive high-value retention in those priority segments.

Speaker #3: We do have a range of different initiatives, particularly around the way we support members our longer tended members through improved discounts and offers. And so we'll be looking to maximize that total growth investment, which you can see there in the marketing MER.

Speaker #1: It indicated that portfolio repositioning and a shift around channel mix, and also being more disciplined around acquisition offer costs, particularly off the back of the rebate clarification.

Speaker #3: To make sure that it has a balanced positive balance towards retention as well as acquisition.

Speaker #1: And just to give you some color around that, effectively that means the average cost of an offer increased overnight by about 25%. And so we've had to adjust quite quickly in the back half of '26, and looking forward, that will then mean we take a more focused view around quality growth with a bias towards retention and loyalty.

Speaker #4: Great. Thank you for that. That's a useful color. And then maybe just finally on New Zealand, I mean, can you sort of maybe comment on whether the lapses post the change in pricing and co-contributions were in line with expectations and sort of give us some idea of how that sort of growth well, sort of contraction, I should say, was sort of more was it more lack of new business growth than it was lapses going higher than expectations, I guess is the crux of the question.

Speaker #1: We do have a range of different initiatives, particularly around the way we support our longer-tenured members through improved discounts and offers. And so, we'll be looking to maximize that total growth investment, which you can see there in the marketing MER, to make sure that it has a balanced, positive impact towards retention as well as acquisition.

Speaker #3: Yeah. So whilst we did experience that 8.3% decline in policy holders, it actually performed ahead of expectation, Nigel, on a total book basis. And we did anticipate that when you're putting through premium increases at the order of magnitude that we have had to, alongside some fairly material changes in the product space, particularly around the introduction of co-pays.

Speaker #6: Great. Thank you for that. That's a useful color. And then maybe just finally on New Zealand, I mean, can you sort of maybe comment on whether the lapses post the change in pricing and co-contributions were in line with expectations and sort of give us some idea of how that sort of growth well, sort of contraction, I should say, was sort of more was it more lack of new business growth than it was lapses going higher than expectations, I guess is the crux of the question.

Speaker #3: And us leading the market, that it was always going to come with a material reduction in policy holder growth. So it wasn't a major surprise to us.

Speaker #3: Nonetheless, now that we are on sustainable footing from a margin profile and we have that stronger base, we can certainly turn our attention now as the team are around disciplined policy holder growth.

Speaker #1: Yeah. So, whilst we did experience that 8.3% decline in policyholders, it actually performed ahead of expectation, Nigel, on a total book basis. And we did anticipate that when you're putting through premium increases of the order of magnitude that we have had to, alongside some fairly material changes in the product space, particularly around the introduction of co-pays and us leading the market, that it was always going to come with a material reduction in policyholder growth.

Speaker #3: And we think there's a couple of opportunities both in the advisor, the financial advisor market, and how we can strengthen relationships in our partnerships with advisors.

Speaker #3: But also in our direct-to-consumer offering, both through NIB and the strategic partnership we have with AA Health in New Zealand, who's one of the leading insurance brands in that market.

Speaker #3: So we feel well placed both through direct advisor and increasingly looking at the corporate group that there are growth avenues available. And as I stressed earlier, because of that price leadership approach and first mover position, we have now started to see our competitive positioning move much closer to the rest of the market and all of our peers are putting through material price increases.

Speaker #1: So it wasn't a major surprise to us. Nonetheless, now that we are on sustainable footing from a margin profile and we have that stronger base, we can certainly turn our attention now, as the team, around disciplined policyholder growth.

Speaker #1: And we think there are a couple of opportunities, both in the advisor—the financial advisor—market, and in how we can strengthen relationships in our partnerships with advisors.

Speaker #3: And further product changes. So feeling well placed around the outlook. We do remain cautious that these things don't turn around overnight given that is a material reduction in policy holder growth.

Speaker #1: But also in our direct-to-consumer offering, both through NIB and the strategic partnership we have with AA Health in New Zealand, which is one of the leading insurance brands in that market.

Speaker #3: But our proposition does remain compelling, and we're starting to see particularly around customer advocacy strong improvement in the second half there around NPS.

Speaker #1: So we feel well placed, both through direct adviser and increasingly looking at the corporate group, that there are growth avenues available. And as I stressed earlier, because of that price leadership approach and first-mover position, we have now started to see our competitive positioning move much closer to the rest of the market, and all of our peers are putting through material price increases.

Speaker #4: Great. Thank you very much.

Speaker #1: Thank you. Next, we have Andre Stanek from RBC.

Speaker #5: Yeah. Good morning, Andre here from Royal Bank of Canada. Can I ask just one question really around the some of the threat and residential margin movements half and half and year and year.

Speaker #1: And further product changes. So, feeling well placed around the outlook. We do remain cautious that these things don't turn around overnight, given that it is a material reduction in policyholder growth. But our proposition does remain compelling, and we're starting to see, particularly around customer advocacy, strong improvement in the second half there around NPS.

Speaker #5: So I appreciate that risk equalization is something that's very difficult to avoid in terms of some of the margin movement noise. But the LIC, the claims development, is also I think been featuring us three times in the last 18 months.

Speaker #5: So what are some of your thoughts on how you can improve margin stability for the benefit of your shareholders?

Speaker #6: Great. Thank you very much.

Speaker #7: Thank you. Next, we have Andre Stanek from RBC.

Speaker #3: I think it's a good question. It's around I think if you look at historically our results, we've always had claims development and the under or the over of the LIC or OSC as it was.

Speaker #8: Yeah. Good morning, Andre here from Royal Bank of Canada. Can I ask just one question really around some of the threat and residential margin movements, half on half and year on year.

Speaker #3: We've always reported that in terms of our margin walks. This has been a relatively unusual especially the FY24 to FY25. And I think that's more a hangover from COVID whereupon the LICs were very high.

Speaker #8: So, I appreciate that risk equalization is something that's very difficult to avoid in terms of some of the margin movement noise. But the LIC, or the claims development, has also, I think, been featured now three times in the last 18 months.

Speaker #8: So, what are some of your thoughts on how you can improve margin stability for the benefit of your shareholders?

Speaker #3: They then got released we suggested that we were all done in FY23. Then it wasn't so much in FY24. But now you can see that the current year is only 10 basis points.

Speaker #1: I think it's a good question. I think if you look at, historically, our results, we've always had claims development and the under- or the over- of the LIC, or OSC as it was.

Speaker #3: In terms of what was happening in the first half and the second half, that's really more like a 0.3% or 30 basis point impact across the full year because we've got to remember that that 70 basis point that you're seeing in that table is actually just a half, which is only half a year's claim.

Speaker #1: We've always reported that in terms of our margin walks. This has been relatively unusual, especially from FY24 to FY25. And I think that's more a hangover from COVID, whereupon the LIC.

Speaker #3: So the margin impact is magnified because the claims base is smaller, at about one and a quarter billion dollars, whereas it's two and a half over the full year.

Speaker #1: They were very high. Then they got released. We suggested that we were all done in FY23. Then it wasn't so much in FY24. But now you can see that the current year is only 10 basis points.

Speaker #3: But the LIC impact is the same, no matter what. It just is a it's a balance sheet amount that just gets accrued or released at the end of each period.

Speaker #1: In terms of what was happening in the first half and the second half, that's really more like a 0.3%, or 30 basis point, impact across the full year because we've got to remember that that 70 basis points that you're seeing in that table is actually just a half, which is only half a year's claim.

Speaker #3: So here you're on trying to see that. I think the half on half's hard to avoid because of those impacts. But across the full year, we would like to see a smaller impact going forward.

Speaker #6: And Andrea, just to build on that, a couple of things that are happening at the industry level and NIBs also experiencing this is that over the last 18 months, as you referenced, there's been quite a significant uplift in processing speeds.

Speaker #1: So the margin impact is magnified because the claims base is smaller, at about one and a quarter billion dollars, whereas it's two and a half over the full year.

Speaker #6: At both the fund level, but also the hospital level as well. And so that adoption of automation straight through processing and accelerated payment patterns can materially distort particularly our modeling around, well, when is that claim actually being incurred and in which period does that actually relate to?

Speaker #1: But the LIC impact is the same, no matter what. It's just a balance sheet amount that gets accrued or released at the end of each period.

Speaker #1: So here you are trying to see that. I think the half-on-half's hard to avoid because of those impacts. But across the full year, we would like to see a smaller impact going forward.

Speaker #6: So there are some unusual circumstances as we've come out of COVID, as Nick stressed, that there was some of that base has been distorted.

Speaker #6: But you'll see on slide 16 in the pack that we actually step out that continuing acceleration around faster claims processing, which can then have licked volatility particularly around which periods that those impacts take place.

Speaker #8: And Andre, just to build on that.

Speaker #1: A couple of things that are happening at the industry level, and that NIB is also experiencing, are that over the last 18 months—as you referenced—there's been quite a significant uplift in processing speeds.

Speaker #6: We've also called out previously the workday and claim seasonality, which again has been a little bit more unique in the last 12 months as an increased feature.

Speaker #1: At both the fund level and the hospital level as well. That adoption of automation, straight-through processing, and accelerated payment patterns can materially distort, particularly our modeling around, well, when is that claim actually being incurred, and in which period does that actually relate to?

Speaker #6: We're expecting that to sort of start to stabilize a little bit moving forward. And so some of those factors, I guess, are unique in some ways around the last 18 months.

Speaker #6: But I guess what we haven't stepped away from and what we've been consistent in our messaging to the market has been that underlying stable margin of 6 to 7 percent is what we've typically targeted.

Speaker #1: So there are some unusual circumstances as we've come out of COVID, as Nick stressed, in that some of that base has been distorted.

Speaker #1: But you'll see on slide 16 in the pack that we actually step out that continuing acceleration around faster claims processing, which can then have linked volatility, particularly around which periods that those impacts take place.

Speaker #6: And whilst there is sometimes variation across the cycle, as we've stepped out this morning, that continues to remain in the 27 and outlook. Thanks so much.

Speaker #1: We've also previously called out the workday and claim seasonality, which again has been a little bit more unique in the last 12 months as an increased feature.

Speaker #1: Thank you. Next, we have Vanessa Thompson from Jefferies.

Speaker #1: We're expecting that to sort of start to stabilize a little bit moving forward. And so, some of those factors, I guess, are unique in some ways around the last 18 months.

Speaker #7: Good morning. Thank you for taking my questions. I just wondered if you could give us a bit more color around the hospital contribution to claims inflation.

Speaker #1: But I guess what we haven't stepped away from, what we've been consistent in our messaging to the market, has been that underlying stable margin of 6 to 7 percent is what we've typically targeted.

Speaker #7: I see you've got bigger growth from medical period. I just wanted to understand the hospital claims and the proportion covered by contracts. And dynamic indexation therein.

Speaker #1: And whilst there is sometimes variation across the cycle, as we've stepped out this morning, that continues to remain in the 27 and outlook.

Speaker #7: Thank you.

Speaker #6: Good morning, Vanessa. Yeah, it's a good question. So you will see in the chart on slide 17 that the big drivers of risk equalization have been risk equalization and also medical.

Speaker #8: Thanks so much.

Speaker #7: Thank you. Next, we have Vanessa Thompson from Jefferies.

Speaker #6: That medical inflation is primarily driven by our investment in known gap. And so that investment has been really starting to wash through the book now.

Speaker #9: Good morning. Thank you for taking my questions. I just wondered if you could give us a bit more color around the hospital contribution to claims inflation.

Speaker #6: And that's about giving our members better certainty around either no gap or known gap when they go in for surgery. And so that's why you're seeing that driver in particularly more pronounced than others.

Speaker #9: I see you've got bigger growth from medical period. I just wanted to understand the hospital claims and the proportion covered by contracts, and dynamic indexation therein.

Speaker #6: We have started to see that hospital inflation stabilize. We've also called out the hospital payout ratio. It almost 89%, which again around meeting the statement of expectations and industry expectations more generally, we're very proud of the work that we've done around supporting the hospital viability and the broader sector.

Speaker #9: Thank you.

Speaker #1: Good morning, Vanessa. Yeah, that's a good question. So, you will see in the chart on slide 17 that the big drivers of risk equalization have been risk equalization itself and also medical.

Speaker #1: That medical inflation is primarily driven by our investment in Known Gap, and so that investment has really started to wash through the book now.

Speaker #6: And so a combination of those things we feel that the package that we're delivering now around risk equalization and how we manage that and that gross margin that we've talked about at more stable levels around the 16s is a more sustainable proposition moving forward.

Speaker #1: And that's about giving our members better certainty around either no gap or known gap when they go in for surgery. And so that's why you're seeing that driver in particular being more pronounced than others.

Speaker #6: And it gives us more flexibility when you think about being able to make sure that we're managing all stakeholder expectations through the cycle.

Speaker #1: We have started to see that hospital inflation has stabilized. We've also called out the hospital payout ratio at almost 89%, which again is around meeting the Statement of Expectations and industry expectations more generally. We're very proud of the work that we've done around supporting hospital viability and the broader sector.

Speaker #1: All right. Thank you. And so if there's a known gap arrangement,

Speaker #7: the cost of that to you is reflected in medical claims, not hospital claims.

Speaker #6: Yeah, that's correct. Because effectively, it's the cost of the specialist that we are trying to contain that through dedicated agreements that we hold with those doctors and specialists.

Speaker #1: And so, a combination of those things, we feel that the package that we're delivering now around risk equalization and how we manage that, and that gross margin that we've talked about at more stable levels around the 16s, is a more sustainable proposition moving forward.

Speaker #7: Okay. Thank you. And then just one more question just following up on the NIB Thrive question. Is the target still for 50,000 participants? I think that was in FY25 because I just think there's a little bit more of a drift into FY26 downwards.

Speaker #1: And it gives us more flexibility when you think about being able to make sure that we're managing all stakeholder expectations through the cycle.

Speaker #9: All right, thank you. And so, if there's a known gap arrangement, the cost of that to you is reflected in medical claims, not hospital claims.

Speaker #7: Thank you.

Speaker #3: Yeah, as I touched on earlier, Vanessa, it is more difficult for us to project with confidence given some of this reform uncertainty around that 50,000 target.

Speaker #1: Yeah, that's correct. Because, effectively, it's the cost of the specialist that we are trying to contain through dedicated agreements that we hold with those doctors and specialists.

Speaker #3: And so we do reference on slide 22 that we do see material market share growth opportunity as these reforms take effect. But as we're going through this at the NDI scheme level, that is a broader reset and refocus around, well, what does eligibility mean?

Speaker #9: Okay, thank you. And then just one more question—just following up on the NIB Thrive question. Is the target still for 50,000 participants? I think that was in FY25.

Speaker #3: What's going to be the adoption of plan management within the scheme moving forward? It's prudent for us to take a more cautious outlook in the short term on participants that, as I mentioned, we remain really encouraged around the opportunity that can present itself with a much smaller cohort of plan managers on a commission panel.

Speaker #9: Because I just think there’s a little bit more of a drift into FY26 downwards. Thank you.

Speaker #1: Yeah, as I touched on earlier, Vanessa, it is more difficult for us to project with confidence given some of this reform uncertainty around that 50,000 target.

Speaker #3: Where there are high-quality scaled and compliant delivering great participant outcomes. We're actually very encouraged and buoyed by that trajectory of where the sector's going.

Speaker #1: And so, we do reference on slide 22 that we see material market share growth opportunity as these reforms take effect. But as we're going through this at the NDI Scheme level, that is a broader reset and refocus around, well, what does eligibility mean?

Speaker #3: But given the near-term uncertainties, we have a bit more of a cautious outlook around participant growth.

Speaker #7: And presumably that plan management panel you guys will be on that, right? So that's, I guess, October 27. So that's, I guess, the timeline we should be thinking about.

Speaker #1: What's going to be the adoption of plan management within the scheme moving forward? It's prudent for us to take a more cautious outlook in the short term on participants.

Speaker #3: Yeah. No surprises. We're very motivated to ensure that the business is well positioned to respond to those reforms, Vanessa, and place NIB Thrive within that panel.

Speaker #1: But as I mentioned, we remain really encouraged around the opportunity that can present itself with a much smaller cohort of plan managers on a commission panel.

Speaker #1: Where there are high-quality, scaled, and compliant providers delivering great participant outcomes, we're actually very encouraged and buoyed by that trajectory of where the sector's going.

Speaker #7: Yeah. Great. Okay. Thank you.

Speaker #1: Thank you. Last question comes from our lines of Karen Kidgey from UBS. Please go ahead.

Speaker #1: But given the near-term uncertainties, we have a slightly more cautious outlook on participant growth.

Speaker #5: Morning, Ed and Nick. Ed, can I just go back to sort of your commentary on policyholder growth in AHA? You're talking about sort of a shift in strategy.

Speaker #9: And presumably that plan management panel, I mean, you guys will be on that, right? So that's, I guess, October 27. So that's, I guess, the timeline we should be thinking about.

Speaker #5: When I have a look at your sales channel. Data for this period, the use of aggregators. Has gone up on my maths sort of 12% growth.

Speaker #1: Yeah, no surprise as well. We're very motivated to ensure that the business is well positioned to respond to those reforms, Vanessa, and place NIB Thrive within that panel.

Speaker #5: Sales year on year through that channel, 8% drop in direct-to-consumer. So yeah, it appears that you've kind of more lent into that aggregator channel where we're seeing more offers and more churn.

Speaker #9: Yeah. Great. Okay. Thank you.

Speaker #7: Thank you. The last question comes from Reliance of Karen Kitchie from UBS. Please go ahead.

Speaker #5: Is the change in stance you're talking about from FY27 onwards and are you signaling sort of a clean or clear desire to pull back in that aggregator channel, which is quite material to your overall sales composition?

Speaker #10: Good morning, Ed and Nick. Ed, can I just go back to your commentary on policyholder growth in AHA? You're talking about a shift in strategy.

Speaker #10: When I have a look at your sales channel data for this period, the use of aggregators has gone up, on my maths, sort of 12% growth.

Speaker #6: Yeah. Morning, Kieren. Good call out. So certainly from 27 onwards, we are looking to optimize that mix of business coming through direct brokers, white label partners, and corporate to a more sustainable composition, I guess, in line with where we've been historically.

Speaker #10: Sales year on year through that channel: 8% drop in direct-to-consumer. So, yeah, it appears that you've kind of more leant into that aggregator channel where we're seeing more offers and more churn.

Speaker #6: You're right that there is an increasing uptake of and this is at an industry level of the usage of brokers and aggregators across the system.

Speaker #10: Is the change in stance you're talking about from FY27 onwards, and are you signaling a clear desire to pull back in that aggregator channel, which is quite material to your overall sales composition?

Speaker #6: And that is being fueled further by offers now becoming very prevalent in the broker space. We're now of the view that there's certainly a strong role for the brokers and intermediaries to play but we do want to ensure that those partnership terms that we do set down and agree with those partners are on sustainable terms that drive retention and lifetime value.

Speaker #1: Yeah. Morning, Karen. Good call-out. So, certainly from '27 onwards, we are looking to optimize that mix of business coming through direct brokers, white label partners, and corporate.

Speaker #6: And so you will note that I've guided around this shift towards higher value policyholder growth and that with the short term is coming with some lapse impacts because that means we need to address uneconomic cohorts within the book as well as think about our go-to-market proposition moving forward.

Speaker #1: To a more sustainable composition, I guess, in line with where we've been historically. You're right that there is an increasing uptake of, and this is at an industry level, of the usage of brokers and aggregators across the system.

Speaker #1: And that is being fueled further by offers now becoming very prevalent in the broker space. We're now of the view that there's certainly a strong role for brokers and intermediaries to play, but we do want to ensure that those partnership terms that we set down and agree with those partners are on sustainable terms that drive retention and lifetime value.

Speaker #6: And so we are proactively engaging with all of our partners, both in the corporate space but also in the broker space and our white label partners around what are the most prudent sustainable commercial outcomes that we can deliver but equally what is going to drive the best outcome for consumers given that there are elevated usage of brokers and offers more generally.

Speaker #1: And so you will note that I've guided around this shift towards higher-value policyholder growth. And that, in the short term, is coming with some lapse impacts because that means we need to address uneconomic cohorts within the book, as well as think about our go-to-market proposition moving forward.

Speaker #6: And so health funds themselves, ourselves included, need to think deeply around the use of these offers sometimes these offers are 12, 14 weeks at a time plus gift cards, plus waivers.

Speaker #6: Is that a sustainable proposition and or is that driving short-term churn? I think that's a good question that all health funds, ourselves included, need to step into.

Speaker #1: And so we are proactively engaging with all of our partners, both in the corporate space but also in the broker space and our white label partners around what are the most prudent sustainable commercial outcomes that we can deliver, but equally what is going to drive the best outcome for consumers given that there are elevated usage of brokers and offers more generally.

Speaker #5: And Ed, if you don't see enough of behavioral change from your competitors, are you signaling sort of a desire to maximize margin or sustain margin?

Speaker #5: Probably a better way of putting it. And forego growth or grow below system. As we move forward.

Speaker #1: And so health funds themselves, ourselves included, need to think deeply around the use of these offers. Sometimes these offers are 12, 14 weeks at a time, plus gift cards, plus waivers.

Speaker #6: Yeah. Well, I think you'll see that we've quite deliberately signaled that shift just to stress again to higher repositioning to higher value and be very disciplined around our approach moving forward, Kieran.

Speaker #1: Is that a sustainable proposition, and/or is that driving short-term churn? I think that's a good question that all health funds, ourselves included, need to step into.

Speaker #6: You'll also no doubt be alert to the fact that our in the Australian residence business, if you look at the total MER composition, there is a lot of investment that is flowing through that marketing expense line.

Speaker #10: And Ed, if you don't see enough behavioral change from your competitors, are you signaling a desire to maximize margin or sustain margin?

Speaker #6: And we need to step back and the work that we've done around productivity, digital, and AI, giving us material benefits and capacity in the non-marketing expense and we're proud to now have a non-marketing expense ratio that is one of the leading health funds in the marketplace we do need to now step into that other very large bucket of investment, which is our marketing and growth investment and make sure that that is optimized appropriately for the conditions that we're navigating.

Speaker #10: Probably a better way of putting it. And forego growth, or grow below system, as we move forward?

Speaker #1: Yeah. Well, I think you'll see that we've quite deliberately signaled that shift, just to stress again our repositioning to higher value and being very disciplined around our approach moving forward, Karen.

Speaker #1: You'll also, no doubt, be alert to the fact that in our Australian Residence business, if you look at the total MER composition, there is a lot of investment that is flowing through that marketing expense line.

Speaker #6: So we think there's some material capacity in that value given the material spend that we spend on our commissions offers intermediated sales and also our direct investment.

Speaker #1: And we need to step back, and the work that we've done around productivity, digital, and AI is giving us material benefits and capacity in non-marketing expense. We're proud to now have a non-marketing expense ratio that is one of the leading health funds in the marketplace. We do need to now step into that other very large bucket of investment, which is our marketing and growth investment, and make sure that that is optimized appropriately for the conditions that we're navigating.

Speaker #6: And so we want to be very prudent around how we lay that investment down.

Speaker #5: All right. Thanks. So second question, just on claims inflation. Nick, I know sort of a lot of noise through last year, sort of with risk equalization, reserve movements that you've called out.

Speaker #5: When I have a look at the payment data you guys provide in your appendix, that is a pre-risk equalization. So putting that aside, 5.5% per policy year on year.

Speaker #1: So we think there’s some material capacity in that value, given the material spend that we have on our commissions, offers, intermediated sales, and also our direct investment.

Speaker #5: Now, clearly, we saw an improvement in second half on paid given that bring forward you'd spoken about previously in first half. But five and a half does feel like payments across the full year are still tracking comfortably ahead of where net revenue per policies likely to land next year.

Speaker #1: And so we want to be very prudent around how we lay that investment down.

Speaker #10: All right, thanks. So, second question, just on claims inflation. Nick, I know there's been a lot of noise through last year, with risk equalization reserve movements that you've called out.

Speaker #5: So just interested in your views on sort of reconciling that with the stable gross margin outlook?

Speaker #10: When I have a look at the payment data you guys provide in your appendix, that is a pre-risk equalization. So putting that aside, 5.5% per policy year on year.

Speaker #6: I think it's a continuation of that payment speed that we've been experiencing back on I think it was about slide 16 or thereabouts. That we put that chart in because it has been really quite noticeable.

Speaker #10: Now, clearly, we saw an improvement in the second half on paid, given that bring-forward you'd spoken about previously in the first half. But five and a half does feel like payments across the full year are still tracking comfortably ahead of where net revenue per policy is likely to land next year.

Speaker #6: And you've seen that additionally from the start of FY23. So back to Andre's question, the FY24 LIC was so overstated because of this acceleration in payment speed with adapted a bit better to that.

Speaker #10: So, just interested in your views on reconciling that with the stable gross margin outlook?

Speaker #6: But it is flowing through from a cash perspective. What I would say is that our operating cash flow continues to strengthen. So I see that as a positive.

Speaker #1: I think it's a continuation of that payment speed that we've been experiencing. Back on, I think it was about slide 16 or thereabouts, we put that chart in because it has been really quite noticeable.

Speaker #6: And we would look to see the two normalize more closely together but I'd also highlight that looking at the gross deficit anyway and we don't see obviously everything across the industry until sort of November when the annual report comes out from APRA.

Speaker #1: And you've seen that additionally from the start of FY23. So, back to Andre's question: the FY24 LIC was so overstated because of this acceleration in payment speed. We’ve adapted a bit better to that.

Speaker #6: But looking at the gross deficit, it does look like the gross deficit which is on a paid basis has also increased quite a lot across the industry because it was going along a that 4, 5 percent and now it's 7.5%.

Speaker #1: But it is flowing through from a cash perspective. What I would say is that our operating cash flow continues to strengthen, so I see that as a positive.

Speaker #6: So I think that the industry phenomena is there. It's in our numbers as well. And we would look to see it hopefully improve or be more closely aligned into 27 and 28.

Speaker #1: And we would look to see the two normalize more closely together but I'd also highlight that looking at the gross deficit anyway, and and we don't see obviously everything across the industry until sort of November when the annual report comes out from APRA, but look at the gross deficit, it does look like the gross deficit which is on a paid basis has also increased quite a lot across the industry because it was going along that 4, 5 percent and now it's 7.5%.

Speaker #6: But at this stage, we are seeing that acceleration occur.

Speaker #5: Thanks. Just one final quick question. Your PCA coverage in the health fund fell quite a bit year on year, 1.89 down to 1.65. I think you call out some changes around investments.

Speaker #1: So, I think that the industry phenomenon is there—it's in our numbers as well. And we would look to see it hopefully improve, or be more closely aligned, in '27 and '28.

Speaker #5: And the like. But is that all complete? Nick, is that all in the base? Or sort of just interested how you think about that capital coverage moving forward?

Speaker #6: No, it's good. It's a really good question. So roughly that 30 basis points. You've got about 10 basis points in the increase in the PCA of which half is just normal growth.

Speaker #1: But at this stage, we are seeing that acceleration occur.

Speaker #6: And half is that change in asset risk charge which is due to shifting over the bond portfolios to a different investment manager. Who has more corporate bonds versus sovereign bonds and they attract a higher rate.

Speaker #10: Thanks. Just one final quick question. Your PCA coverage in the health fund fell quite a bit year on year, 1.89 down to 1.65. I think you call out some changes around investments.

Speaker #6: They should get a higher return but they attract a higher rate. And so we'll consider whether we go back to more sovereign bonds but literally over the last few months, we've just been changing that across into one of their normal funds.

Speaker #10: And the like. But yeah, is that all complete? Nick, is that all in the base, or just—I'm sort of just interested in how you're rethinking about that capital coverage moving forward?

Speaker #6: In terms of the capital base, roughly an increase in the DAC. So that was essentially cash coming out of the health fund and into commissions.

Speaker #1: That's a really good question. So, roughly, that's 30 basis points. You've got about 10 basis points in the increase in the PCA, of which half is just normal growth.

Speaker #1: And half is that change in asset risk charge, which is due to shifting over the bond portfolios to a different investment manager, who has more corporate bonds versus sovereign bonds, and they attract a higher rate.

Speaker #6: And then there was about half of that also in a dividend up to the shareholder or up to the group. So that assisted the gearing.

Speaker #1: They should get a higher return, but they attract a higher rate. And so we'll consider whether we go back to more sovereign bonds, but literally over the last few months we've just been changing that across into one of their normal funds.

Speaker #6: So looking at it, I mean, we'll manage above the 1.5 to 1.6 target range. This time because of the payment that we made last year in terms of the health fund dividend, it was probably a little bit higher.

Speaker #1: In terms of the capital base, roughly an increase in the DAC. So that was essentially cash coming out of the health fund and into commissions.

Speaker #6: And then we were anticipating 1.65 but we'll continue to manage it above that. And we'll look at the group balance sheet as well quite importantly because that gearing ratio has really come down.

Speaker #1: And then there was about half of that also in a dividend up to the shareholder, or up to the group. So that assisted the gearing.

Speaker #6: That's a good sign of strength. And also the leverage ratio is right down. So I think the group's in a really, really strong position.

Speaker #6: We could send some more money down into the health funds if we had to. And it was just really an alignment of that dividend payment.

Speaker #1: So, looking at it, I mean, we'll manage above the 1.5 to 1.6 target range. This time, because of the payment that we made last year in terms of the health fund dividend, it was probably a little bit higher.

Speaker #5: All right. Thank you.

Speaker #4: Thank you. Thank you for all the questions. This concludes the Q&A session. I will now pass back to Ed for closing remarks.

Speaker #1: And then we were anticipating with 1.65, but we'll continue to manage it above that. We'll also look at the group balance sheet as well, quite importantly, because that gearing ratio has really come down.

Speaker #6: Just a big thank you for everybody for joining us. A big thank you to the NIB team more broadly for the outstanding work that happened across FY26.

Speaker #1: That's a good sign of strength. And also, the leverage ratio is right down. So I think the group's in a really, really strong position.

Speaker #1: We could send some more money down into the health funds if we had to, and it was just really an alignment of that dividend payment.

Speaker #10: All right. Thank you.

Speaker #11: Thank you. Thank you for all the questions. This concludes the Q&A session. I'll now pass back to Ed for closing remarks.

Speaker #1: Just a big thank you to everybody for joining us, and a big thank you to the NIB team more broadly for the outstanding work that happened across FY26.

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Full Year 2026 NIB Holdings Ltd Earnings Call

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