Southern Cross highlighted some interesting items. A surplus of $90 million comprised of $108 million in operating surplus and a $17 million loss on investments.

The $1.08 billion in claims paid out of $1.35 billion received in premiums represented a lower proportion than usual. Southern Cross Health said that this year’s higher than expected surplus is due to a much lower volume of health insurance claims incurred over the previous year due to the impacts of Covid-19.

These were people who were either unaware of the need for treatment (due to deferred diagnosis – as they couldn’t get in for the tests or checks during the long August to December lockdown) or they were unable to obtain treatment or were unwilling to obtain treatment either due to lockdown or a fear of catching covid in hospitals.

As a result, we have been expecting higher claims costs and volumes this year and next as conditions return to something like normal.

To estimate the potential impact, we looked at the historical surplus: 2.9% of premiums.

Last year the surplus rose to 8% of premiums. The undershoot compared to the average of the last five years was therefore 5.1%.

If this is a reasonable guide, then we can calculate the value of deferred claims as about $67 million if we apply this gap to the market as a whole. That ignores the medical rate of inflation, typically running higher than consumer price inflation, so the real value of deferred claims may be closer to $100 million under such a scenario.

I am confident that this will occur. My youngest child was one who had some non-urgent treatment deferred, which they caught up on in the school holidays just gone.

According to the surgeon, there is a lot of this happening and there is more pent-up demand to work through, with older clients in particular slow to return to normal.

 Annual financial results