Adequate capital?

28 Jun 2023

Sector: Financials

APRA INCREASES CAPITAL REQUIREMENT

Need To Know

APRA imposes an increase in MPL’s capital adequacy requirement of $250m, reflecting weaknesses identified in MPL’s information security environment
Current requirements are for 10-12% of forecast premium revenue (~$850m). MPL is already well capitalised above the new requirement, with ~$148m surplus unallocated
We don’t expect any earnings downgrades, however, the new requirement will likely mean no capital management initiatives

APRA has required MPL to hold an additional $250m in capital following its review of the cybercrime event as of 1 July 2023. MPL noted that using June 2022 levels, it remains well capitalised above the new requirement, currently having an additional ~$148m surplus unallocated given it already had overly conservative provisions in place.

APRA noted that the requirements will remain in place until MPL has met key remediation milestones and that it would conduct a further review of MPL’s technology. APRA had commented that MPL has already strengthened and addressed control weaknesses, however ‘still has further work to do’.

Investment View

We don’t expect any material changes in earnings as a result of the APRA announcement although note that there is likely much less opportunity for capital management initiatives in the short term. Immigration is providing key non-resident policyholder growth for MPL, and it should continue to benefit from further immigration, evidenced by strong non-resident gross profit growth. The resident policyholder growth should see renewed momentum into FY24, and we expect the business to remain resilient post the cyberattack. We retain our Buy recommendation.

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Medibank Private is one of Australia’s largest private health insurers covering ~3.7 million people in 2022.

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