HBF records $39m profit

HBF achieved a net positive result in the previous financial year, despite declining investment returns contributing to a more than halving of its year-on-year profitability.

Those results, revealed in the not-for-profit insurer’s annual report released this afternoon, show a decline in year-on-year net profit from $94 million to $39 million.

That was partially attributable to a near halving of net investment income, from $66 million to $35 million.

HBF opted for a more conservative investment strategy in October of last year, when managing director John Van Der Wielen told Business News the fund manager would shift substantial holdings to interest-bearing securities and term deposits.

More than a quarter of HBF’s investment portfolio is now tailored towards fixed-interest assets, up on 5 per cent in the previous financial year.

That strategy may have helped the business to achieve returns of 2.1 per cent on its investments, compared to a 7.6 per cent decrease in returns on ASX equities in the past financial year.

Mr Van Der Wielen said the decision to sell down 50 per cent of HBF’s equity portfolio in October and November of last year, coupled with the decision to buy back in when the market bottomed out, contributed to the result.

He estimated that if HBF hadn’t sold down those equities, net investment income would have shown a loss of $7 million.

“We actually had a lower risk portfolio and yet we produced a 2.1 per cent return,” he said.

“Interestingly, this year, we’ve had really good investment returns.

“About eight weeks we took out a small hedge in the portfolio because we thought the markets had really run ahead.

“That investment hedge … has also proved to be positive.

“We think we’ll have a strong investment performance this year because we have the right people focused on it.

“Our new strategy is not to try and be a fund manager to have double-digit investment returns.

“It’s trying to make sure HBF has consistent investment performance that we can bank so we know what rate increases need to be and how competitive we can be in the future.

“Our investment strategy is what’s making an enormous difference.”

HBF’s final results also include a provision for $94 million of deferred claims caused by elective surgery shutdowns and government control measures during the COVID-19 pandemic.

If those claims are removed from the net result, net profit would have increased by 30 per cent, to $133 million.

The report states that these claims are still expected to be incurred on behalf of members.

Mr Van Der Wielen said that, although the figure was an estimate, HBF would refund any additional savings that were not paid out.

He said HBF would know whether that were the case by December, with members likely to know if they’ll receive a refund by January of next year.

“We’ve put that $94 million aside … if that is not claimed, we would refund the differential,” Mr Van Der Wielen said.

“We believe the majority of that will be used up.

“No-one goes in to have an operation for fun.

“If I had to put an estimate on it, 100 per cent of hospital claims will come back, but there could be a percentage of extras claims … there might be a bit of a saving on [that] side.”

Despite launching a marketing campaign to drive east coast expansion in February, HBF’s share of the national market dropped marginally in the year to June 30, by 0.2 per cent.

In addition, income from premiums fell by 3.2 per cent, while net claims rose by just under 2 per cent.

HBF’s decision to cancel premium increases in March, alongside members shifting towards lower-tier plans and a decline in membership overall, was cited among the reasons for the decrease in premium income.

Mr Van Der Wielen acknowledged that profit was likely to remain subdued in the coming years, especially as national unemployment was projected to increase.

He argued the insurer’s scalability and affordability were unlikely to be affected by broader difficulties in the market, given about 75 per cent of new customers on the east coast were under the age of 45.

“The problem with HBF’s fund is that, it’s a great fund, huge market share in one state, but an older age cohort,” he said.

“We’re chasing younger people on the east coast.

“That helps the margins.”