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#Bull Case
Added 4 weeks ago

MPL provides an opportunistic buy

Overall, I haven't been a fan of company and still retain some of that disdain. However, there is a big factor at play that should see its profits substantially rise this half and next. Over the last 1-2 months, the restrictions in place for the outbreak have resulted in:

-Cancellation of all non-essential elective surgery (which makes you wonder if it's elective, how can any of it be "non-essential")

-Massive reductions in dental care access

-Significant decline in hospital admissions due to lockdown reducing things like car accidents and other related factors. Morbidly, the outbreak has seen people with serious conditions not visiting hospitals for fear ofcontracting the virus.

Since MPL is a health insurer, it has been collecting premiums but had very low claims due to the above factors. Underwriting profit margin is a key driver of overall profit, therefore less claims will result in a greater contribution to the bottom line. The other area of profit is investment income, but this is likely to be lower due to falling interest rates, and lower markets overall.

In the last half-yearly report (FY20 H1), profit from health insurance was circa $200 million and, from investment, $40million. Premiums run at around $6.5billion annualised. Claims at $5.4 billion, which averages at $450 million per month. It’s easy to see from this how the profit will be postively impacted from a decrease in claims while premiums still flow.

Additionally, the social distancing restrictions will be ongoing, therefore keeping a lid on elective surgery, dental visits and hospital admissions in coming months

These factors should underpin increased profits for the current half and next half.

Risk factors

-This is a big one: government intervention/regulation to refund premiums during outbreak period.

-Poor investment returns (negative) but likely to be somewhat limited

-Deep recession causes customers to cancel private policies (more likely to start in the next half).

Other medical insurers

I looked at NIB, but it's biggest downside problem is the recent expansion into.... travel insurance, which is likely to tank profits for at least two years.


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