NIB Holdings. Lowest in 4 years still enough A$3.72 AUSTRALIA. Event. Impact. Earnings and target price revision. Price catalyst

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AUSTRALIA NHF AU Price (at 09:52, 02 Mar 2016 GMT) Outperform A$3.72 Valuation A$ 3.85 - DCF (WACC 8.5%, beta 1.0, ERP 5.0%, RFR 3.8%, TGR 2.5%) 12-month target A$ 4.00 12-month TSR % +11.7 Volatility Index Low/Medium GICS sector Insurance Market cap A$m 1,633 30-day avg turnover A$m 1.1 Number shares on issue m 439.0 Investment fundamentals Year end 30 Jun 2015A 2016E 2017E 2018E NEP m 1,634.9 1,835.4 2,031.5 2,229.7 Underwriting Result m 88.6 107.7 109.3 121.4 Investment Income m 20.4 12.9 19.0 24.1 Reported profit m 75.8 89.1 102.6 111.8 Net Op Income m 69.5 89.1 102.6 111.8 EPS adj 15.8 20.3 23.4 25.5 PER adj x 23.5 18.3 15.9 14.6 PER rel x 1.41 1.16 1.27 1.30 DPS 11.5 13.3 15.7 17.2 Dividend yield % 3.1 3.6 4.2 4.6 Franking % 100 100 100 100 Total SH Funds m 344.3 376.2 412.5 453.7 BV/S 78.6 85.9 94.2 103.6 ROE % 19.8 24.7 26.0 25.8 ROA % 8.5 9.8 10.1 10.0 P/BV x 4.7 4.3 3.9 3.6 NHF AU vs Small Ordinaries, & rec history 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, March 2016 (all figures in AUD unless noted) 2 March 2016 Macquarie Securities (Australia) Limited Lowest in 4 years still enough Event The Health Minister has approved the PHI premium rate rises that apply from 1 April 2016. The average rate rise for nib will be +5.55% (industry +5.59%) vs. our expectation of 5.5%-6.0% and April 2015 +6.55% (industry +6.18%). Impact nib double digit Total Group Revenue growth: The premium rate approval is a key component of nib delivering total group premium growth of +12.3% in FY16 and +10.7% in FY17 from a combination of the premium rate increase, the net impact of mix/downgrading and unit growth. In FY15, Total Group Premium Growth rate was +9.6%. The industry average rate increase, while materially lower than over the previous two years (+6.18% 2015, +6.20% 2014), had the potential to be even lower given the commentary from the Health Minister around margins and capital. Capital does not appear to be a major factor: Among the large funds with capital materially in excess of the regulatory requirement, HCF was approved for a +5.42% rate increase and HBF +4.94%. The Minister stated that PHI is a fundamental element of our health system that offers consumers greater choice while taking pressure off of Medicare so that its universality remains sustainable. Effective rate increase: The government policy to limit the increase in the PHI rebate funding growth to the lesser of CPI and premium rate increases will mean that policyholders, who continue to receive a rebate for some or all of their premium, will incur an effective rate increase above the headline premium rate increase. Mix/Downgrading: Following the introduction of income testing of the PHI rebate in 2012, there has been a net impact of downgrading/mix impacts of ~1.3% per year for the industry. At their last result, nib stated that they are currently not seeing a material net impact from upgrades vs downgrades. Earnings and target price revision No change. Price catalyst 12-month price target: A$4.00 based on a DCF methodology. Catalyst: Claims growth trends, Federal Budget released in May 2016. Action and recommendation Outperform. The key events over the next few months remain: 1) ongoing claims trends (which remained low in January - hospital volumes +2.1% - although January is not a representative month for elective surgery volumes); and 2) policy change at the May 2016 Federal Budget (we expect that Federal Government Health policy will remain supportive of the PHI sector, albeit policy risk remains [e.g. removal of the ancillary rebate without any compensating policy change cannot be completely discounted]). Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.

Dec '12a Jun '13a Dec '13a Jun '14a Dec '14a Jun '15a Dec '15a Premium rate approvals The Health Minister has approved the following premium rate increases for the Private Health Insurance funds. Note that it is our understanding that the new product impact is not easily captured in the headline rate increase, understating the 'actual' premium rate increase. nib: April 2016 +5.55% vs. April 2015 +6.55% The top 4 funds (BUPA, MPL, nib, HCF, accounting for ~75% of premiums) all increased premiums by between +5.42% and +5.69%. MPL: April 2016 +5.64% vs. April 2015 +6.59%. BUPA: April 2016 +5.69% vs. April 2015 +5.59% Industry Average: April 2016 +5.59% vs. April 2015 +6.18%. Fig 1 Historical Health Insurance premium rate rises Annual Premium Rate Increases 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 2010 2011 2012 2013 2014 2015 2016 Industry Bupa MPL nib Source: Department of Health, Company data, Macquarie Research, March 2016 Impact of mix/downgrading on growth Mix/Downgrading: Following the introduction of income testing of the PHI rebate in 2012, there has been a net impact of downgrading/mix impacts of ~1.3% per year for the industry with Medibank seeing a greater mix/downgrading impact than experienced by the industry. At their last result, nib stated that they are not seeing a material net impact from upgrades vs downgrades. Fig 2 nib vs Industry and MPL mix/downgrading impact Mix / downgrade impact (pcp) 2% 1% 0% -1% -2% -3% -4% Source: Company data, Macquarie Research, March 2016 Industry Excl. Medibank MPL NIB 2 March 2016 2

January February March April May June July August September October November December Trends in hospital volumes remain supportive for PHI margins to the end of Jan 2016 Trends in PHI claims growth and margins are supported by the current versus historical hospital volume growth data. Fig 3 Hospital volumes growth is currently lower than historical levels Hospital volumes vs. pcp 12% 10% 8% 6% 5.2% 4% 2% 0% 2.6% 3m growth 12m growth Source: Medicare, Macquarie Research, March 2016 Fig 4 Hospital volumes time series Hospitals volumes ('000) 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 Source: Medicare, Macquarie Research, March 2016 2010 2011 2012 2013 2014 2015 2 March 2016 3

nib holdings Price: $ 3.72 Year Ending June 30 Consolidated P&L ($m) 1H15A 2H15A 1H16A 2H16E FY14A FY15A FY16E FY17E FY18E Premium revenue 802.3 832.6 902.7 932.7 1,491.6 1,634.9 1,835.4 2,031.5 2,229.7 Claims expense 560.6 590.8 638.8 672.6 1,040.0 1,151.4 1,311.4 1,461.6 1,617.5 Risk equalisation Levy 94.7 90.8 94.1 94.0 190.6 185.5 188.1 196.0 205.5 State levies 14.2 14.0 14.7 15.1 28.2 28.2 29.8 32.4 34.9 Increase/(Decrease) in PPB 0.6 1.3-7.8 0.0-3.3 1.9-7.8 0.0 0.0 Net claims incurred 670.1 697.0 739.9 781.7 1,255.5 1,367.1 1,521.5 1,690.0 1,857.9 Gross underwriting result 132.2 135.6 162.8 151.0 236.2 267.8 313.8 341.5 371.7 Management expenses 86.5 92.7 100.0 106.1 162.1 179.2 206.1 232.2 250.4 Net underwriting result 45.7 42.9 62.8 44.9 74.1 88.6 107.7 109.3 121.4 Other income 2.7 2.4 24.5 30.8 5.7 5.1 55.3 70.2 73.0 Other expenses 6.4 5.6 21.2 24.3 7.5 12.0 45.5 47.7 54.5 Operating Profit 42.1 39.6 66.1 51.4 72.3 81.7 117.5 131.8 139.8 Normalised investment income 10.4 10.0 9.3 6.4 20.1 20.4 15.7 19.0 24.1 Investment experience 9.6 1.3-2.8 0.0 9.6 11.0-2.8 0.0 0.0 Interest Expense 1.7 1.7 2.6 2.6 2.7 3.4 5.2 5.2 5.2 Profit before tax 60.4 49.3 70.0 55.2 99.2 109.7 125.2 145.6 158.7 Tax 19.3 15.1 20.2 16.6 29.4 34.3 36.7 43.7 47.6 Non-controlling Interest -0.2-0.3-0.3-0.3-0.1-0.5-0.6-0.7-0.7 One-off & intangible amort. -6.3-0.0 0.0 0.0-9.0-6.3 0.0 0.0 0.0 Underlying NPAT 35.1 34.4 50.2 38.9 60.9 69.5 89.1 102.6 111.8 Ratio Analysis 1H15A 2H15A 1H16A 2H16E FY14A FY15A FY16E FY17E FY18E Premium grow th 9.1% 10.1% 12.5% 12.0% 15.6% 9.6% 12.3% 10.7% 9.8% Claims ratio 83.5% 83.7% 82.0% 83.8% 84.2% 83.6% 82.9% 83.2% 83.3% Expense ratio 10.8% 11.1% 11.1% 11.4% 10.9% 11.0% 11.2% 11.4% 11.2% Combined ratio 94.3% 94.8% 93.0% 95.2% 95.0% 94.6% 94.1% 94.6% 94.6% Underwriting margin 5.7% 5.2% 7.0% 4.8% 5.0% 5.4% 5.9% 5.4% 5.4% Net Insurance Margin 7.0% 6.4% 8.0% 5.5% 6.3% 6.7% 6.7% 6.3% 6.5% Underlying NPAT grow th 6.3% 23.1% 43.1% 13.1% 4.0% 14.0% 28.2% 15.2% 9.0% ROA 10.6% 8.2% 11.3% 8.0% 9.3% 9.5% 9.7% 10.1% 10.0% ROE 24.0% 20.4% 28.4% 21.1% 20.3% 22.0% 24.7% 25.8% 25.7% Investment Fundamentals 1H15A 2H15A 1H16A 2H16E FY14A FY15A FY16E FY17E FY18E EPS (Reported) 9.4 7.9 11.4 8.9 15.9 17.3 20.3 23.4 25.5 EPS (Adjusted) 8.0 7.8 11.4 8.9 13.9 15.8 20.3 23.4 25.5 EPS Grow th 6.3% 23.1% 43.1% 13.1% 4.0% 14.0% 28.2% 15.2% 9.0% PER (Adjusted) 23.3x 23.7x 16.3x 21.0x 26.8x 23.5x 18.3x 15.9x 14.6x Total DPS 5.50 6.00 5.75 7.50 20.00 11.50 13.25 15.70 17.20 Dividend Yield 3.0% 3.2% 3.1% 4.0% 5.4% 3.1% 3.6% 4.2% 4.6% Dividend payout ratio (adj EPS) 69% 76% 50% 85% 144% 73% 65% 67% 68% Price to NAB 4.9 4.7 4.5 4.3 4.6 4.7 4.3 3.9 3.6 Price to NTA 6.9 6.4 11.2 10.2 6.3 6.4 10.2 8.3 6.9 EFPOWA 439 439 439 439 439 439 439 439 439 Balance Sheet ($m) FY14A FY15A FY16E FY17E Assets Cash & cash equivalents 149 124 141 211 Sum of distributable cash profits 389 Intangibles 95 90 216 216 Surplus Capital 10 Other assets 554 623 618 633 Terminal value 1,292 Total assets 798 837 975 1,060 Total valuation 1,692 Liabilities Shares on issue 439 Unearned Premiums 114 127 142 156 Value per share A$3.85 Outstanding claims 94 97 111 122 Target price A$4.00 Borrow ings 65 63 151 151 Other liabilities 169 206 196 218 Capital Return 7.5% Total liabilities 442 493 599 648 Dividend Yield 4.1% Retained Earnings 320 307 338 374 Total Return 11.6% Total shareholder equity 356 344 376 413 Recommendation Outperform Source: Company data, Macquarie Research, March 2016 2 March 2016 4

Fundamentals Macquarie Quant View The quant model currently holds a reasonably positive view on NIB Holdings. The strongest style exposure is Quality, indicating this stock is likely to have a superior and more stable underlying earnings stream. The weakest style exposure is Valuations, indicating this stock is over-priced in the market relative to its peers. 111/248 Global rank in Insurance % of BUY recommendations 31% (4/13) Number of Price Target downgrades 3 Number of Price Target upgrades 8 Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Insurance) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. 1.2 0.7-0.3 0.7-0.9-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. 0.3 0.5 1.4-0.1 0.6-3.0-2.0-1.0 0.0 1.0 2.0 3.0-40% -30% -20% -10% 0% 10% 20% 30% 40% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. EV/EBITDA FY0 Price to Sales FY1 Price to Cash LTM Price to Sales NTM Operating Leverage NTM Momentum 6 Month 3M Price Target Revisions Momentum 12 Month Negatives Positives -27% -28% -32% -22% 27% 23% 22% 45% -60% -40% -20% 0% 20% 40% 60% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score 0.69-0.09 0.06 0.31 0.52 0.22 0.85 0.11-1.32 0.20-0.47 Percentile relative to sector(/248) Percentile relative to market(/394) 0 50 100 0 50 100 0 0 1 1 Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 2 March 2016 5

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 >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* Recommendation proportions For quarter ending 31 December 2015 This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 60 100% 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 60% 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 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% 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). AU/NZ Asia RSA USA CA EUR Outperform 50.68% 61.04% 53.16% 47.90% 65.22% 43.59% (for global coverage by Macquarie, 5.33% of stocks followed are investment banking clients) Neutral 31.51% 24.66% 34.18% 47.70% 29.71% 34.62% (for global coverage by Macquarie, 5.02% of stocks followed are investment banking clients) Underperform 17.81% 14.30% 12.66% 4.39% 5.07% 21.79% (for global coverage by Macquarie, 3.78% of stocks followed are investment banking clients) NHF AU vs Small Ordinaries, & rec history (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, March 2016 12-month target price methodology NHF AU: A$4.00 based on a DCF methodology Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Date Stock Code (BBG code) Recommendation Target Price 23-Feb-2016 NHF AU Outperform A$4.00 04-Nov-2015 NHF AU Outperform A$3.90 15-Oct-2015 NHF AU Outperform A$3.80 07-Sep-2015 NHF AU Outperform A$3.70 24-Aug-2015 NHF AU Outperform A$3.80 08-Jul-2015 NHF AU Outperform A$4.10 23-Feb-2015 NHF AU Outperform A$4.00 25-Aug-2014 NHF AU Outperform A$3.50 19-Jun-2014 NHF AU Outperform A$3.40 16-May-2014 NHF AU Outperform A$3.20 24-Feb-2014 NHF AU Outperform A$2.90 13-Jan-2014 NHF AU Outperform A$3.00 18-Nov-2013 NHF AU Outperform A$2.50 26-Aug-2013 NHF AU Outperform A$2.42 Target price risk disclosures: 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. 2 March 2016 6

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