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The Retail platform brings together Australian Unity’s private health insurance, banking, broking and general insurance businesses. With a combined focus on the needs of members and broader community value, the Retail platform provides packages and solutions that contribute to solving affordability challenges and meet the contemporary needs of Australians.

Financial performance

Retail financial result Full year to 2019 $million Full year to 2018 $million Variance
Total segment revenue $722.1 $726.1 (0.6%)
Operating expenses $647.7 $661.5 2.1%
Adjusted EBITDA $74.4 $64.6 15.2%

The Retail business delivered a solid result despite challenging conditions, with adjusted EBITDA up by $9.8 million or 15.2 percent to $74.4 million compared to the previous year. This result was driven principally by a favourable underwriting experience in the health insurance business, strong growth in net interest income in the banking business and sound containment of operating expenses.

Total operating expenses were $647.7 million, which was $13.8 million or 2.1 percent lower than the previous year. This decrease reflects a $6.4 million decrease in health insurance claims net of risk equalisation, and a $7.4 million decrease in operating expenses across the Retail platform.

Australian Unity Health Limited (retail health insurance)

During the year under review, Australian Unity Health Limited successfully executed a significant change agenda in response to the private health insurance reforms, the largest regulatory change to the sector in a decade. Responding to these reforms included the launch of new products, significant rationalisation and simplification of the product portfolio and re-classification of products in line with the new gold-silver-bronze-basic product tiers.

Retail health fund policyholders (including overseas visitor cover policyholders) decreased by 4.0 percent to 185,936 at 30 June 2019 (2018: 193,771). Policyholder numbers declined across the industry and in the case of Australian Unity were also impacted by a considered strategy to review and curtail unsustainable products and uncommercial arrangements and means of distribution.

During the year, the retail health insurance business managed an average premium increase of 3.35 percent, approximately in line with the sector average of 3.25 percent. Importantly, it was the lowest Australian Unity Health Limited increase in 18 years and a reflection of continued efforts to reduce operating costs and contribute to sector-wide advocacy for reforms, particularly in an environment of weak real income growth and spiralling healthcare costs.

The Group continued its role in providing guidance and advice to policy and decision-makers in understanding the root cause of healthcare cost pressures and diminished patient outcomes. Australian Unity’s commitment to this is demonstrated through the long-term investment in businesses such as Remedy Healthcare, a business that creates patient-centered and evidence-based healthcare solutions.

Banking

As at 30 June 2019, Australian Unity Bank had approximately 24,400 customers and its total assets grew by $108.6 million to $886.0 million (2018: $777.4 million).

Despite challenging conditions within the retail banking sector, Australian Unity Bank maintained strong lending momentum throughout the year, with $173.3 million in new loans written. In combination with improved retention rates, this has lifted the loan book by a net $85.5 million.

Following the successful rebranding of Big Sky Building Society Limited to Australian Unity Bank Limited in the first half of the financial year, Australia Unity Bank launched in April the ‘banking that’s good for you’ customer value proposition. This is a program of work that identifies the benefits to the customer beyond the product itself. It will be progressively extended through all areas of the banking business including product, marketing, sales and servicing over the next three years.

During the year, Australian Unity consolidated its retail general insurance offering with a single provider. Australian Unity Bank customers can now access a broad range of insurance products and services through this one provider.

Standard & Poor’s (S&P) Ratings upgraded Australian Unity Bank’s issuer credit rating on 29 July 2019 to ‘BBB+’ from ‘BBB’.

Outlook

Affordability pressures and trust will remain key concerns within the community in the consideration of private health insurance and banking needs. The period ahead will continue to provide opportunities for the Retail platform to offer customers value arising from health insurance and banking adjacencies.

Australian Unity anticipates increased oversight and a growing cost of compliance as prudential regulators bring the private health insurance industry in line with financial services, and policy makers and regulators respond to the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. For these and general governance reasons, the areas of financial strength, risk management, conduct, controls and compliance will be a significant focus across the Retail platform over the coming year.

As a niche provider within the health insurance and banking sectors, Australian Unity needs to accurately target its brand and value proposition, as well as acquisition and distribution strategy in its markets.

In addition to its customer value propositions, Australian Unity will seek sustainable growth through balanced, multi-channel distribution. For the health insurance business, this means enhancing its partnership and digital models. In banking, Australian Unity will continue to build selective relationships in the third party (mortgage broking) channel and concurrently target chosen segments via direct channels.



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