Ann: Update to FY16 Health Insurance Financial Targets, page-5

Top line growth was slower than expected, but I don't think that this is so bad in the current highly competitive environment - I would prefer that they maintain and increase overall market share at the expense of maintaining high margins and making private health insurance more unaffordable to people. MER was relatively stable and it's good that they are investing more in the brand and marketing. Now is not the time to be stingy on this and I think it is better to accept slightly higher expenses now to maintain their competitive position. But these are both small fiddle to the big improvements in claims management which is where they have the most leverage to drive operating profit, and this is evidenced in the 30% increase in forecast FY16 operating profit, which seems huge to me, and notwithstanding lower second half performance compared to first half performance. And their resubmission to the Government is suggesting that cost leadership and affordability of private health insurance is at the forefront of their decision making. There does appear to be a slight slowing in the growth of hospital utilisation, though by their commentary this doesn't look like it will continue as a trend, as I presume the private hospital operators will easily find more ways to fill up their beds. Overall I think this is positive for MPL, but also for the private hospital operators RHC and HSO, given that any recent slowing in hospital utilisation growth is likely to be temporary. And as the market leader in health insurance (along with BUPA), I think MPL is doing the right things strategically in a competitive environment and this will make it even harder for the smaller private health insurers to compete with MPL and in the medium to long-term could result in more industry consolidation that should benefit MPL.