The newly listed private health insurer Medibank Private has tabled a 10.8 per cent increase in net profit to $151.2 million for the six months to December.
The result was primarily driven by strong cost control, with total revenue rising a more subdued 3.8 per cent, and revenue from insurance premiums growing 5.2 per cent.
“The level of product downgrading and churn across the industry is a clear sign that affordability remains an important issue for customers,” said Medibank Private managing director George Savvides.
Those affordability challenges have also seen a shift in sales between Medibank’s top-tier and lower-cost insurance products.
The company said, while volume for its Medibank brand has decreased slightly, its lower-cost offering AHM is growing strongly with over 500,000 members.
Medibank Private said an increase in operating margin (a ratio of profit to total revenue) from 4.5 per cent to 5.9 per cent was driven by its programs with health care providers to contain costs.
However, it says product downgrading and customer churn are continuing to put downward pressure on margins.
Retail investors who bought into the Medibank float at $2 per share in November have enjoyed spectacular paper gains, with the stock closing on Thursday at $2.56.
However, analysts at UBS warned earlier this month that Medibank’s best days might be behind it, putting a “sell” recommendation on the stock and saying, “the share’s post-IPO performance appears to have captured virtually every positive them but no negative ones”.
UBS said Medibank was in a “loveless marriage” with health providers – with the insurer trying to minimise the cost of health care, and private hospitals trying to maximise revenue.
Despite the challenging environment, Medibank said it remains on target to meet its forecast full-year profit of $250 million and will pay its first dividend as a listed company in September.
Medibank is Australia’s largest private health insurer with 29.5 per cent market share, followed by BUPA at 26.8 per cent.