Southern Cross posts $16.5m annual loss as it capped premium prices

The Southern Cross Health Society says it made a $16.5 million net loss for the year ended June as it used the previous year's windfall $90 million profit to keep premiums lower than they might otherwise have been.

Friday, September 29th 2023, 7:00AM

by Jenny Ruth

Chief executive Nick Astwick says premium prices were up about 5.1% in the latest year compared with the more usual 6% increase.

The results showed net premium revenue rose 12.6% to $1.56 billion in the year with membership growing by nearly 32,000 to 940,105, giving the company about 60% of the health insurance market. That followed growth of 20,000 net new members the previous year.

However, Astwick is warning that the Reserve Bank's decision to raise solvency requirements for insurance companies will mean Southern Cross will have to raise premiums and make more profits during the next five or six years.

“The intention of having well-capitalised financial institutions is essential,” Astwick says, but adds that what the central bank is planning may have “some unintended consequences” and “may demand more capital than we think is necessary.”

Southern Cross' annual report shows its solvency ratio is more than three times the current regulatory minimum with consolidated solvency capital of $562.3 million at June 30, down slightly from $569.7 million a year earlier.

Astwick says he can't put a number on how much additional capital his organisation might need because RBNZ is still finalising the new rules and the Southern Cross board is still considering how it will impact the firm.

The company retains its “A+”, or “strong”, rating by international ratings agency Standard & Poor's “The results are probably what we were planning for, there or there abouts. As a not-for-profit, there will be times when there is a deficit,” Astwick says.

The previous year's covid-impacted profit had been nearly three times the average profit of $34.5 million in the five years before that, and had reflected a softer claims position.

In the latest year, Southern Cross paid out 88.4 cents in claims for every $1 it received in premiums.

Astwick says if Southern Cross' claims payout ratio matched that of the rest of the industry, it would have paid out about $300 million less than the nearly $1.3 billion it did pay in claims.

While the company's operating costs rose 42.5% to $245.7 million in the latest year, that reflected the acquisition of a travel insurance business. Commissions to agents rose 21.3% to $25.8 million in the year.

Tags: Southern Cross