Health Insurance Update

Transcription

1 AUSTRALIA Medibank Private (MPL AU) Recommendation Outperform Price (CLOSE, 15 November 2016) $2.52 Target Price $2.76 NIB Holdings (NHF AU) Recommendation Outperform Price (CLOSE, 15 November 2016) $4.80 Target Price $ November 2016 Macquarie Securities (Australia) Limited Claims growth stays low in Sept qtr. Event Sept. quarter claims growth of +5. was 330bps below the 8-year average. On a 12-month rolling basis +5.9% premium growth exceeded +4.9% claims growth for the 9th consecutive quarter. Impact Claims trends: Given the inconsistent commentary from the key listed participants in the private health market, we illustrate in this report: #1) Slower growth in hospital visits: The growth in hospital visits per insured person per year remains below long-term trends. #2) Shorter stays: Patient length of hospital stays is becoming shorter (accelerating back to medium-term trends). #3) Benefits growth per person per year continues to moderate. We expect this is impacted by reduced coverage (i.e. downgrading). Premium increase: Initial premium rate submissions for the annual 1 April 2017 premium rate adjustment were lodged on 11 November. It is notable that the range of outcomes across the sector has narrowed, especially We forecast MPL to increase weighted average premiums by 4.2 from 1 April 2017 (vs +5.6 from 1 April 2016). Reconciliation to our revenue growth forecast in FY % and FY % premium growth reflects the impact of downgrading and loss of market share. September quarter highlights: #1: Sept qtr 2016 Net Margins: Net margins at +5.29% in the 12 mths to September 2016, increased 6bps vs. pp and +78bps vs. pcp. #2: Hospital claims growth rate slightly increased in the quarter: +5. in the 12 mths to September 2016 vs +4.7% pp and +7. pcp. #3: General (ancillary) claims growth rate continues to moderate: +3.7% in the 12 months to September 2016 vs +3.9% pp and +5. pcp. Long-term pain will require policy intervention to grow young members: Aging mix continues to worsen. Fewer under-65 policyholders are joining PHI. The community rating structure of PHI requires people under 65 to support the claims profile of those over 65. To arrest the trend, funds must attract young members, which is difficult (affordability) and will at some stage require government policy to encourage young members into PHI. The alternative is premiums continue to track upwards. Outlook Upgrade to FY17E with further upside risk to earnings: We have increased our FY17 EPS estimates by ~ for MPL and nib with minor changes in FY18 and beyond. Claims trends suggest that the risk to consensus forecasts remains to the upside. Medibank Private (MPL AU, A$2.52, Outperform, A$2.76) NIB Holdings (NIB AU, A$4.80, Outperform, A$5.20) Please refer to page 16 for important disclosures and analyst certification, or on our website

2 Private Health Insurance: Analysis of claims trends As a result of the inconsistent commentary across the key listed participants in the private health market, we review the visitor data (# of hospital stays, length of hospital stay and benefit per hospital stay) in the quarterly Private Health Insurance statistics. The commentary across the key listed participants in the private health market is as follows: Medibank AGM commentary: Profitability: MPL expect "the 2017 Health Insurance operating profit to be broadly in line with last year's result, excluding the 2016 claims provision release of $20m, which equates to a Health Insurance operating profit of $490m." Claims: MPL expect industry conditions are likely to be more comparable to 2H16 [2H16 Net Margin 7.7%], with utilisation rates to further normalise. MPL expect "to get incremental benefits from the payment integrity program and accumulating benefits from our hospital contracting." nib AGM commentary: Profitability: FY17 guidance for Consolidated UOP was unchanged at $130m-$140m, as was Statutory Operating Profit at $122m-$132m. nib did update the following in relation to the Australian Resident Health Insurance (arhi) market. o o FY17 arhi margin range increased from to (we believe this is driven by lower than expected claims inflation trends). Claims: Drawing rate inflation per person increased from 3%- to 3%- (based on claims trends, we expect current growth is towards the bottom of this range and the increase at the top end provides a range that is appropriate over the medium term). The improved arhi profitability and unchanged group expectations imply nib is investing in other parts of its business. Industry conditions remain favourable. Note that nib is a good proxy for claims performance across the market as nib is the largest contributor to the Risk Equalisation Transfer Fund. Fig 1 Risk equalisation contribution as a percentage of benefits paid Risk Equalisation on Benefits Paid 1 (older book) Benefit Cost (younger book) -2 June 2006 June 2007 June 2008 June 2009 June 2010 June 2011 June 2012 June 2013 June 2014 June 2015 AUHL BUPA MPL NIB HBF HCF Other 15 November

3 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 HSO AGM commentary HSO has recently stated that it experienced "slower-than-expected" hospital revenue growth in the first quarter of FY17. CEO Robert Cooke provided additional granularity on the investor call, suggesting that July was a soft month for volumes, August was slightly better and that September was horrendous. HSO noted that if these trends were to persist throughout FY17, it is likely that Operating EBITDA growth for our Hospitals division would be flat year on year". Negative publicity to blame as patients defer elective procedures: HSO s management pointed the finger at recent press on healthcare affordability (i.e. prostheses pricing, PHI affordability, etc.) negatively influencing public decision making. Compounding this deferral of patient volumes is the fact that it is weighted towards higher-end, elective procedures such as orthopaedics and ophthalmology. RHC affirms market guidance: RHC's Australian business saw increased momentum in the second half, with "strong admissions growth" (+5. for FY16) driving full-year revenue growth of +8. (suggesting +10. growth in 2H17). Ramsay s large strategically diversified quality portfolio of hospitals continues to deliver admissions growth in line with its long term trend. Ramsay advises that its FY17 first quarter results are in line with its expectations and reaffirms that it is targeting Core NPAT and Core EPS growth for the Group of 10-1 for FY17. The APRA quarterly private health data supports the conclusion that trends remain favourable for private health funds. Fig 2 The growth in the # of hospital visits per insured person per year remains below long term trends, while the September quarter growth rate did increase versus the June and March quarter growth rates. The growth rate for older people (who have the highest average benefit) has seen the greatest moderation in growth. Growth in # of hospital visits per insured person per year 1 Total Growth in # of hospital visits per insured person per year November

4 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Fig 3 # of Private hospital visits per insured person per year (12 month rolling) # of hospital visits per insured person per year Total y.o. 30's and 40's 20's Older Children (10-19 y.o.) Children (<10y.o.) # of hospital visits per insured person per year Fig 4 The rate of decline in the Hospital Days per episode per year has reverted back towards medium term trends (i.e. patients length of stay in hospital is becoming shorter again) Growth in Hospital Days per episode per year Total Growth in # of days per hospital visit per year Fig 5 Private hospital # of days per visit (12 month rolling) # of days per hospital visit Total 80+ # of days per y.o. hospital visit 30's and 40's 20's 9 Older Children (10-19 y.o.) Children (<10y.o.) November

5 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Fig 6 The rate of growth of benefits per person per year continues to moderate, which we expect is also impacted by reduced coverage (i.e. downgrading) among PHI members Growth in Benefits per insured person per year 1 Total Growth in Benefits per insured person per year 1 Fig 7 Private hospital benefits per insured person per year (12 month rolling) Benefits per insured person per year 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Total y.o. 30's and 40's Older Children (10-19 y.o.) 20's Children (<10y.o.) Benefits per insured person per year 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, November

6 Private Health Insurance: Price submissions made last Friday (11 Nov) Initial premium rate submissions for the 1 April 2017 premium rate adjustment were lodged with the Department of Health on 11 November. Final price increases are released to health funds (typically in the last week of February each year), following health fund responses to any Department of Health and APRA considerations. The chart below illustrates the narrowing of the range of outcomes across the various health funds, especially from Fig 8 Variation of price rises by insurer (High, Low, Top Quartile, Bottom Quartile) Fig 9 PHI weighted average premium increase, claims growth per insured person and Net Margin Industry price rise Claims Growth per insured person Net Margin (industry) The recently released Private Health Insurance Operational Report to 30 June 2016, including data on profitability and change in market share, suggests that the range may widen in This is a result of some of the non-for-profit funds reporting negative net margins in FY16. It appears that some funds set pricing on the basis of prosthesis reform that was only more recently announced. This may have contributed to some funds reporting negative net margins. The average premium increase was +5. from 1 April 2016 and the impact of lower prosthesis pricing (cutting 30-40bps from the prior year) and lower claims growth suggests rate increase of are likely. We forecast MPL to increase weighted average premiums by 4.2 from 1 April 2017 (vs +5.6 from 1 April 2016). Reconciliation to our revenue growth forecast in FY % and FY % premium growth reflects the impact of downgrading and loss of market share. 15 November

7 AUHL BUPA CUA DHF GUC MPL NIB TFH ACA CBHS CDH Defence GMHBA HBF HCF HCI HIF HP HPL Latrobe Mildura Navy NHBA Peoplecare Phoenix Police QCH QTUH RBHS RT St Luke's Transport Westfund AUHL BUPA CUA DHF GUC MPL NIB TFH ACA CBHS CDH Defence GMHBA HBF HCF HCI HIF HP HPL Latrobe Mildura Navy NHBA Peoplecare Phoenix Police QCH QTUH RBHS RT St Luke's Transport Westfund Fig 10 Margins consistently higher at for-profit funds vs. not-for-profit (FY16) Net Margin 1 1 'For-profit' average: 6.9% 'Not-for-profit' average: 2. Net Margin Source: APRA, Macquarie Research, Nov 16 nib, HBF and some of the smaller funds, typically not-for-profit, are growing share at the expense of the larger funds, principally Medibank. Fig 11 Medibank were the only for-profit fund with negative policyholder growth in FY16 Policyholder Growth 2 2 'For-profit' average: 0. 'Not-for-profit' average: 1.3% Policyholder Growth Source: APRA, Macquarie Research, Nov 16 The level of capital held by the smaller funds would sustain very low or negative net margin outcomes without Prudential concerns, as long as the premium rate and levels of capital are consistent with the capital plans of individual health funds. The BUPA, MPL, nib and Australian Unity Health Funds are operating at efficient capital to premiums ratios relative to peers. The excess capital in the industry remains with HBF, HCF and smaller health funds, which mostly have structures (e.g. mutual) that do not allow active capital management. 15 November

8 Fig 12 Capital to Premium Ratio for MPL and nib were steady FY14 through FY16 Capital to Premium Ratio MPL BUPA HCF NIB HBF Aust. Unity Other Source: PHIAC, APRA, Macquarie Research, Nov 16 APRA have recently set the PHI Prudential Policy Outlook for the next three years and commenced consultation with the industry on the medium-term PHI policy agenda. Background: APRA assumed PHI industry prudential supervision responsibility in July APRA undertook not to make any substantive regulatory changes during its first year of supervision. Macquarie comment: Based on the APRA PHI Prudential Policy Outlook statement we note the following: No significant prudential concerns: APRA s observations of the industry so far do not indicate any significant prudential concerns or an urgent need to modify the PHI prudential framework. Levels of capital are considered appropriate and it is envisaged a review of capital standards may occur in 2018/2019 at the earliest. 15 November

9 Sep-08 Dec-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep % % % 7.3% 6.9% % % % % % % 11.3% 14. Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep Private Health Insurance: Industry Financial Highlights Sept qtr 2016 Net margin expansion: 5.29% net margins for 12 months to September 2016, +78bps vs 12 months to September 2015 and broadly flat versus the net margins for 12 months to June Fig 13 Sept months net & gross margin expanded again Margin 1 Margin Net Margin Gross Margin Fig 14 Total (hospital + ancillary) claims growth (+4.9% YoY) continues to track below premium growth (+5.9% YoY) for the ninth consecutive quarter Growth (YoY) Growth (YoY) Premium growth (YoY) Claims Growth (YoY) Fig 15 Quarterly Claims growth stepped down again in the September 2016 quarter to be 330bps below the 8-year average of +8.3% Quarterly Claims Growth vs. pcp November

10 Jun-07 Dec-07 Dec % 1.3% 1.3% 1.3% % 1.7% % % % % % 1.9% % 3.1% % % % % % % % % 3.9% 3.9% 3.9% 3.3% 4. Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep Management expense ratio: 8.5 for 12 months to September 2016, +8bps vs. 12 months to September 2015 and +4bp vs. 12 months to June Fig 16 Management expense ratio seasonality at 8.5 Margin YoY growth Management Expense Ratio (LHS) Management Expense growth (YoY, RHS) Switching was 3.9% for the 12 months to September 2016 versus 4. for the 12 months to September 2015 and 3.9% for the 12 months to June Switching is being impacted by: 1) Premium rate increases; 2) increased aggregator awareness; and 3) the perceived customer value proposition. Lapse vs switching: We expect that the level of switching is understated (and lapse, i.e. policyholders leaving PHI, overstated) as data from funds does not accurately capture switch vs lapse events, overstating the reporting of lapse. This overstates revenue for companies trying to hit revenue targets. New to PHI: The growth in new to PHI policyholders (important due to waiting periods) at +6.1% in September 2016 continued to moderate vs +6.3% June 2016 and +6. September Consistent with our view that the level of switching is understated and lapse overstated, this results in the New to PHI category also being overstated in sector data. Fig month rolling switching rates appear to have moderated at 3.9%... Switch rate Switch rate 3% 3% 1% 1% Switching between funds (pq) Switching between funds (12m rolling) 15 November

11 Dec-07 Dec-08 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Dec-08 Fig and policyholders leaving the industry also appear to have stabilised % of hospital policyholders 13% 1 11% 1 9% 7% 3% 1% % of hospital policyholders 13% 1 11% 1 9% 7% 3% 1% Leaving the Industry Switching between funds (12m rolling) New to PHI (12m rolling) Membership: Hospital cover: 46. of population, down 20bps vs. pp. General (Ancillary) cover including ambulance: 55. of population, down 10bps vs. pp. General (Ancillary) cover excluding ambulance: 50. of the population, down 10bps vs. pp. and down 10bps vs. pcp. We present ancillary treatment excluding ambulance in the chart below. Fig 19 Hospital penetration 47. in September 2016 quarter Participation Participation Ancillary participation (ex Ambulance Only) Hospital participation Benefits growth continues to moderate on a 12 month basis but did rebound in the September quarter 2016: Hospital claims growth bounced in Sept-16: +5. in the 12 mths to September 2016 vs +4.7% for the 12 months to June 2016 but was still down versus +7. for the 12 months to September o On a quarterly basis, hospital claims growth was +5. for the September 2016 quarter vs pcp. 15 November

12 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Dec-08 Dec-08 General (Ancillary) claims growth continues to moderate: +3.7% in the 12 mths to September 2016 vs +3.9% for the 12 months to June 2016 and +5. for the 12 months to September o On a quarterly basis, Ancillary claims growth was +3.1% for the September 2016 quarter vs pcp. Fig 20 Hospital claims growth increased through Sept 2016, while ancillary claims growth continued to decline PHI Benefits growth (rolling 12m) Hospital - 12m Ancillary - 12m Fig 21 Reduced penetration appears to be the largest contributor to hospital benefits growth remaining near long term lows. Growth in Hospital Benefits (ann. ave) Volume (population growth) Volume (penetration) Inflation (benefits per episode) Utilisation (episodes per insured person) Other Total 15 November

13 Mar-08 Sep-08 Dec-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep % 10.1% % 10.3% 10.3% 10.3% % 10.1% % % 11.3% 11.7% 11.7% 11.9% % 11.3% Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Fig 22 Fewer under-65 policyholders are driving the moderation in policyholder growth the community rating structure of PHI in Australia requires people under 65 to support the claims profile of people over 65 Policyholder growth (Hospital - Under 65) 3% 1% -1% - -3% Under 65 Population growth Under 65 Impact of Hospital PHI penetration Under 65 Hospital Policyholder growth Fig 23 Industry mix/downgrading drag has improved over the last two quarters but remains negative Mix / downgrade impact (pcp) Rebate adjust. 1/7/12 Pre Rebate Adjust. Post Rebate Adjust. Fig 24 Private treatment in public hospitals as % of Total Benefits Paid appears to have peaked in December 2015 Public Hospital/ Total Benefits Paid (rolling 12m) November

14 Medibank Private Price: $ 2.52 Balance Date: June 30 Private Health Insurance 1H16A 2H16A 1H17E 2H17E FY15A FY16A FY17E FY18E FY19E Premium revenue 3, , , , , , , , ,694.5 Claims -2, , , , , , , , ,681.6 Gross Margin , , , ,012.8 Management Expenses Operating Profit Complementary Services 1H16A 2H16A 1H17E 2H17E FY15A FY16A FY17E FY18E FY19E Revenue Cost of Sales Gross Profit Management Expenses Operating Profit Medibank Private Group 1H16A 2H16A 1H17E 2H17E FY15A FY16A FY17E FY18E FY19E Health Insurance premium revenue 3, , , , , , , , ,694.5 Other revenue (Complementary services) Total Revenue 3, , , , , , , , ,260.6 Net Claims -2, , , , , , , , ,681.6 Cost of Sales (Complementary services) Gross Profit , , , ,133.1 Health Insurance Management Expenses Complementary services Management Expenses Segment Operating Profit Corporate Overheads Operating Profit Net Investment income Other income/expense Profit before tax Tax expense Pro-forma Net Profit After Tax Key ratios 1H16A 2H16A 1H17E 2H17E FY15A FY16A FY17E FY18E FY19E Private Health Insurance: Premium growth % % 2.7% 3. Gross Margin % 16.7% % MER Net Margin % 8.1% % 7.9% 7.3% 6.7% Complementary Services: Revenue growth -9.3% % % Revenue growth - ex Immigration contract Gross Profit Margin % 21.3% 21.3% % 21.3% 21.3% 21.3% Operating Profit Margin 3.1% % 5.9% 5.9% Operating Profit Margin - ex immigration contract 3.1% % % 5.9% 5.9% Group: EPS DPS EPS growth 50.3% 35.3% % 43.1% -2.1% -4.1% -2. PER (x) Dividend Yield % % % Franking ROE 14.9% 11.7% % 19.9% 26.1% Revenue growth % 3.3% % Revenue growth ex Immigration 3.3% % % Gross Profit Margin 17.3% % % 16.9% Operating Profit Margin 7.9% 7.1% % 4.9% % Operating Profit Margin - ex immigration contract 7.9% 6.9% % 4.9% % NPAT growth 50.3% 35.3% % 12.9% 43.1% -2.1% -4.1% -2. Underlying NPAT growth 50.9% % % -2. Balance Sheet FY16A FY17E FY18E FY19E Cash and Equiv Valuation Financial Assets 2,016 1,844 1,902 1,967 Valuation as at today 7,332 Receivables Number of shares 2,754 DAC Valuation 2.66 PPE Intangible assets Share price target (12m) 2.76 Other Total Assets 3,266 3,349 3,418 3,506 Capital return 9.3% Payables Dividend Yield 4. Claims Liabilities Total Return 13. UEP Other Total Liabilities 1,688 1,764 1,816 1,874 PER at Current share price (1yr fwd) PER at Price Target (2yr fwd) Net Assets 1,579 1,585 1,602 1,632 Source: Company data, Macquarie Research, Nov November

15 nib holdings Price: $ 4.80 Year Ending June 30 Consolidated P&L ($m) 1H16A 2H16A 1H17E 2H17E FY15A FY16A FY17E FY18E FY19E Premium revenue , , , , , ,337.8 Claims expense , , , , ,652.1 Risk equalisation Levy State levies Increase/(Decrease) in PPB Net claims incurred , , , , ,920.0 Gross underwriting result Management expenses Net underwriting result Other income Other expenses Operating Profit Normalised investment income Investment experience Interest Expense Profit before tax Tax Non-controlling Interest One-off & intangible amort Reported Profit after tax Ratio Analysis 1H16A 2H16A 1H17E 2H17E FY15A FY16A FY17E FY18E FY19E Premium grow th % % Claims ratio % 81.3% % Expense ratio 10.9% 12.1% % 11. Combined ratio % % % % 93.3% Underwriting Margin % % % % 6.7% Net Insurance Margin % 8.1% % 8.1% % 7.7% Underlying NPAT grow th % 4.7% -0.7% % % ROA % 8.9% 9.1% 9.7% ROE % 24. Investment Fundamentals 1H16A 2H16A 1H17E 2H17E FY15A FY16A FY17E FY18E FY19E EPS (Reported) EPS (Underlying) EPS Grow th (Adjusted) % 4.7% -0.7% % % PER (Adjusted) 21.0x 20.1x 20.0x 20.3x 29.0x 20.5x 20.2x 18.7x 17.1x Total DPS Dividend Yield % % Dividend payout ratio (adj EPS) % 63% Price to NAB Price to NTA EFPOWA Balance Sheet ($m) FY15A FY16A FY17E FY18E Assets Cash & cash equivalents Intangibles Sum of distributable cash profits 678 Other assets Terminal value 1,482 Total assets 837 1,039 1,153 1,275 Total valuation 2,160 Liabilities Shares on issue 439 Unearned Premiums Value per share A$4.92 Outstanding claims Target price A$5.20 Borrow ings Other liabilities Capital Return 8.3% Total liabilities Dividend Yield 3.3% Retained Earnings Total Return 11. Total shareholder equity Recommendation Outperform Source: Company data, Macquarie Research, Nov November

16 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+1 Neutral expected return from -1 to +1 Underperform expected return <-1 Macquarie South Africa Outperform expected return >+1 Neutral expected return from -1 to +1 Underperform expected return <-1 Macquarie - Canada Outperform return > in excess of benchmark return Neutral return within of benchmark return Underperform return > below benchmark return Macquarie - USA Outperform (Buy) return > in excess of Russell 3000 index return Neutral (Hold) return within of Russell 3000 index return Underperform (Sell) return > below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 6 in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 4 in a year. Low medium stock should be expected to move up or down at least 25 3 in a year. Low stock should be expected to move up or down at least 15 2 in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 30 September 2016 AU/NZ Asia RSA USA CA EUR Outperform % 59.09% 48.21% (for US coverage by MCUSA, 8.2 of stocks followed are investment banking clients) Neutral 38.01% 29.31% % % (for US coverage by MCUSA, 8.2 of stocks followed are investment banking clients) Underperform 14.73% 15.19% % 15.0 (for US coverage by MCUSA, 8.0 of stocks followed are investment banking clients) MPL AU vs ASX 100, & rec history NHF AU vs Small Ordinaries, & rec history (all figures in AUD currency unless noted) (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, November month target price methodology MPL AU: A$2. 76 based on a DCF methodology NHF AU: A$5. 20based on a DCF methodology Company-specific disclosures: MPL AU: MACQUARIE EQUITIES LIMITED or one of its affiliates managed or co-managed a public offering of securities of Medibank Private Ltd in the past 24 months, for which it received compensation. MACQUARIE EQUITIES NEW ZEALAND LIMITED or one of its affiliates managed or co-managed a public offering of securities of Medibank Private Ltd in the past 24 months, for which it received compensation. Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Medibank Private Limited's equity securities. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates managed or co-managed a public offering of securities of Medibank Private Ltd in the past 24 months, for which it received compensation. NHF AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of NIB Holdings' equity securities. Important disclosure information regarding the subject companies covered in this report is available at Target price risk disclosures: MPL AU: The PHI sector in Australia is highly regulated. MPL does not control the enactment or content of new legislation and regulations. Product design and inadequate premium rate approvals may impact the net margin that MPL s PHI products generate. Complementary Services operations are subject to contract execution and renewal risk. IT renewal: MPL is undertaking a major IT project to replace its core policy and CRM systems. Failure to deliver the project as expected could impact performance. NHF AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN , AFSL , a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by, a division of Macquarie Equities 15 November

17 This publication was disseminated on 15 November 2016 at 11:45 UTC. Limited ABN AFSL ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Apart from Macquarie Bank Limited ABN (MBL), any MGL subsidiary noted in this research,, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return and delete the document. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at Macquarie Group 15 November