MEDIBANK PRIVATE LIMITED - Annual Report 2021

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25 August 2021

Medibank Private Limited (MPL) – Financial results for year ended 30 June 2021

In accordance with the Listing Rules, Medibank releases the following documents to the market:

(a) FY21 Results – Appendix 4E, Directors’ Report (including Remuneration Report) and Financial Report;
(b) FY21 Results – Media Release; and
(c) FY21 Results – Investor Presentation.

These documents have been authorised for release by the Board.

Medibank Private Limited ABN 47 080 890 259 GPO Box 9999 Telephone 132 331 medibank.com.au

APPENDIX 4E

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MEDIBANK PRIVATE LIMITED ABN 47 080 890 259 RESULTS FOR ANNOUNCEMENT TO THE MARKET

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Medibank Private Limited Group
Financial year ended 30 June
2021 2020 Movement Movement
$m $m $m %
Health Insurance premium revenue 6,691.1 6,554.7 136.4 2.1%
Medibank Health revenue 219.3 214.9 4.4 2.0%
Revenue (excluding net investment and
other income) from continuing operations 6,910.4 6,769.6 140.8 2.1%
Revenue from discontinued operations (1) - 6.0 (6.0) (100.0%)
Total revenue from ordinary activities 6,910.4 6,775.6 134.8 2.0%
Net investment and other income 121.8 9.8 112.0 n.m
Total income from operations 7,032.2 6,785.4 246.8 3.6%
Profit from continuing operations after tax
attributable to shareholders 441.2 315.6 125.6 39.8%
Profit/(loss) from discontinued operations
after tax attributable to shareholders (1) - (0.6) 0.6 (100.0%)
Net profit from ordinary activities 441.2 315.0 126.2 40.1%
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(1) Discontinued operations relate to the Garrison Health Services contract, which ceased on 30 June 2019.

The results are summarised as follows:

Health Insurance premium revenue increased 2.1% or $136.4 million to $6,691.1 million.
Medibank Health revenue increased 2.0% or $4.4 million to $219.3 million.
Net investment and other income increased $112.0 million to $121.8 million.
Profit from continuing operations increased 39.8% or $125.6 million to $441.2 million.
Net profit attributable to shareholders increased 40.1% or $126.2 million to $441.2 million.

For further information refer to the directors’ report in the attached financial report of Medibank Private Limited for the year ended 30 June 2021.

Dividend information

A fully franked final ordinary dividend of 6.90 cents per ordinary share was determined on 25 August 2021 in respect of the six months ended 30 June 2021. This dividend is payable on 30 September 2021 to shareholders on the register at close of business on 9 September 2021.

A fully franked interim ordinary dividend of 5.80 cents per ordinary share was determined on 24 February 2021 in respect of the six months ended 31 December 2020, paid on 25 March 2021 to shareholders on the register at close of business on 4 March 2021.

Net tangible assets per ordinary share

Net tangible assets are defined as the net assets of the Medibank Private Limited Group less intangible assets. Right-of-use assets recognised under AASB 16 Leases are considered as intangible assets.

			June 2021	30 June 2020
			cents	cents
				(restated) (1)
Net tangible	assets per	ordinary share	54.4	49.5

(1) Restatement reflects the change in accounting policy for Software as a Service (SaaS) intangible assets detailed in Note 20(a) of the Financial Statements.

This report should be read in conjunction with the Medibank Private Limited financial report for the year ended 30 June 2021, together with any public announcements made by Medibank Private Limited in accordance with its continuous disclosure obligations, and is lodged with the ASX under listing rule 4.3A. This report is based on the consolidated financial statements of the Group which have been audited by the Group’s auditors, PricewaterhouseCoopers (PwC). A copy of PwC’s unqualified audit report can be found in the financial report that follows.

FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2021

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Table of contents
Operating and financial review	1
Directors’ report	10
Remuneration report	18
Auditor’s independence declaration	52
Consolidated financial statements	53
Directors’ declaration	110
Independent auditor’s report	111

OPERATING AND FINANCIAL REVIEW

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1. About Medibank

Medibank Private Limited (Medibank) is a leading private health insurer in Australia. Our core business is Health Insurance, whereby we underwrite and distribute private health insurance policies under the Medibank and ahm brands. Medibank Health complements our Health Insurance business by leveraging our experience and expertise to provide and coordinate health services to support our customers and the community. Medibank Health also includes diversified insurance products such as travel, life and pet. As we maintain assets to satisfy our regulatory reserves, we also generate investment income from our portfolio of investment assets.

Medibank was founded in 1976 as a private health insurer owned and operated by the Australian Government. We have operated on a for-profit basis since 2009, and on 25 November 2014, Medibank was sold by the Australian Government by way of an initial public offering (IPO) and listed on the Australian Securities Exchange. As at 30 June 2021, we had 3,409 full-time equivalent (FTE) employees, including 1,094 health professionals (excluding employees in associates and joint ventures).

2. Financial and operating performance

References to “2020”, “2021” and “2022” are to the financial years ended on 30 June 2020, 30 June 2021 and 30 June 2022 respectively, unless otherwise stated. The “Group” refers to the consolidated entity, consisting of Medibank and its subsidiaries.

Despite the challenging environment of the last year, our business has proved resilient. Our people remain engaged, our balance sheet remains strong, we have made good progress in growing policyholder numbers, managing our own expenses and setting up Medibank Health for growth.

2.1 Group summary income statement

2.1 Group summary income statement
Year ended 30 June($m)	2021 2020 Change
Group revenue from external customers1 Health Insurance operating profit Medibank Health segmentprofit1	6,910.4 6,769.6 2.1% 538.6 470.6 14.4% 31.4 27.8 12.9%
Segment operating profit Corporate overheads	570.0 498.4 14.4% (41.7) (37.4) 11.5%
Group operating profit - continuing operations Net investment income Amortisation of intangibles AASB 16 Leases transition adjustment Other income/(expenses)	528.3 461.0 14.6% 120.0 2.4 n.m. (4.6) (9.0) (48.9%) - 3.3 n.m. (11.4) (7.5) 52.0%
Profit before tax Income tax expense	632.3 450.2 40.4% (191.1) (134.6) 42.0%
Group net profit after tax (NPAT) - continuing operations Effective tax rate2 Earningsper share(EPS) (cents)2	441.2 315.6 39.8% 30.2% 29.9% 30bps 16.0 11.4 39.8%
Underlying NPAT3 UnderlyingEPS(cents)3	398.7 367.3 8.5% 14.5 13.3 8.5%
Dividend per share (cents) Dividendpayout ratio4	12.7 12.0 5.8% 87.7% 90.1% (2.7%)

Excludes discontinued operations
Calculated on total operations
Underlying NPAT, which adjusts for the normalisation of investment income, is from continuing operations
Dividend payout ratio based on underlying NPAT from total operations

Group operating profit from continuing operations increased by $67.3 million or 14.6%, largely due to Health Insurance operating profit, which increased by $68.0 million.

Net investment income was significantly higher than 2020 when investment markets were impacted by COVID-19, increasing by $117.6 million to $120.0 million.

OPERATING AND FINANCIAL REVIEW

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The combination of the above factors resulted in a $125.6 million, or 39.8% increase in NPAT to $441.2 million on a continuing basis. Underlying NPAT, which adjusts for the normalisation of investment returns, increased 8.5% or $31.4 million to $398.7 million.

The key reasons for the movements in the Health Insurance and Medibank Health results, as well as net investment income, are outlined in this report.

Health Insurance

Year ended 30 June ($m)	2021	2020	Change
Premium revenue	6,680.3	6,545.6	2.1%
Net claims expense(includingrisk equalisation)	(5,610.8)	(5,531.6)	1.4%
Grossprofit	1,069.5	1,014.0	5.5%
Management expenses	(530.9)	(543.4)	(2.3%)
Operating profit	538.6	470.6	14.4%
Gross margin	16.0%	15.5%	50bps
Management expense ratio	7.9%	8.3%	(40bps)
Operating margin	8.1%	7.2%	90bps

The solid result in our Health Insurance business demonstrates the benefit of the customer-led journey we have been on for the last five years. During the year we saw strong policyholder growth, improved retention, and we continued our focus on managing our costs.

Health Insurance revenue grew 2.1% to $6,680.3 million alongside strong policyholder growth. When adjusted for our COVID-19 customer support measures of $226.0 million in 2021 and $80.0 million in 2020, underlying revenue grew 4.2% to $6,906.3 million.

There has been encouraging hospital participation growth in the private health insurance market, with the Australian Prudential Regulation Authority (APRA) data for the 12 months ending 30 June 2021 indicating an increase of 95 basis points to 44.53%, and the number of people with hospital cover increasing by approximately 245,000. Customers are more focused on their health and wellbeing and are less likely to switch providers which has impacted favourably on our policyholder trajectory.

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Reported net resident policyholder growth
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4.6%
0.3%
0.8% 0.6%
FY18 FY19 FY20 FY21
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Our reported net resident policyholders increased by 82,500 or 4.6%. Adjusting for COVID-19 related suspensions, policyholder growth was 3.5% with the Medibank and ahm brands growing 1.3% and 10.9% respectively. Our ahm brand continues to attract younger customers which will have positive impacts on the overall sustainability of the health system. The acquisition rate was up 110 basis points, largely driven by strong growth in the new to industry segment, particularly in the Medibank brand. There was a significant improvement in customer retention which improved 130 basis points, reflecting improving customer advocacy across both brands and the benefit of increasing product value and differentiation in the Medibank brand. Our market share grew by 37 basis points over the year and stands at 27.3% as at 30 June 2021.

Medibank’s net claims increased 1.4% and gross claims expense increased 0.8%. This includes a $223.0 million reduction in claims expense due to lower than expected hospital and ancillary claims as a result of COVID-19, and a decrease in the COVID-19 deferred claims liability. Risk equalisation changed from a $7.9 million receivable in 2020 to a $24.6 million payable in 2021, reflecting our claims growth continuing to be below industry growth and strong policyholder growth in ahm which has a younger customer demographic. Underlying claims per policy unit which adjusts for both outstanding claims provision movements and COVID-19 impacts grew 3.1%. Resident underlying claims growth per policy unit was 2.5% with stable extras

OPERATING AND FINANCIAL REVIEW

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claims growth and lower hospital claims growth of 2.5% reflecting lower public hospital utilisation. Our COVID-19 claims liability, which is in recognition of claims that have likely been deferred during the pandemic, decreased to $223.8 million (30 June 2020: $297.1 million), largely due to hospital deferral assumptions moving from 100% to 59%.

Our productivity agenda and increasing Health Insurance management expense scale resulted in our management expense ratio ratio falling 40 basis points to 7.9%. Management expenses reduced by 2.3% due to lower overseas sales commissions 2021 7.9% and operating costs. Overseas sales commissions reduced by 41.2%, or $5.4 2020 8.3% million, with the closed borders reducing the number of new overseas customers. 2019 8.7% Operating expenses were down 1.4% and reflect productivity savings of 2018 8.8% approximately $20 million, partially offset by cost inflation and volume impacts. We 2017 9.1% are targeting productivity savings of approximately $40 million over the next three years, including $15 million in 2022.

Our Health Insurance operating profit of $538.6 million was 14.4% higher than 2020, and the operating margin improved 90 basis points to 8.1%. Underlying operating profit increased 6.6% to $541.6 million and the underlying profit margin was 7.8%.

Medibank Health

The role of Medibank Health is to strengthen and complement our core Health Insurance business, support long-term customer retention and to build successful standalone businesses. We build smarter healthcare models that focus on giving patients choice, making care more affordable and improving the health and wellbeing of all Australians. It includes the provision of health management, telehealth services for government and corporate customers, hospital care in the home, wellbeing programs and diversified insurance products. Our investments in associates and joint ventures also form part of this segment. They include our non-controlling investments in Myhealth (a leading operator of primary care clinics), East Sydney Private Hospital and a Medibank-Calvary joint venture to deliver My Home Hospital, a Wellbeing SA service.

The external environment remains favourable to the long-term prospects of Medibank Health, with increasing take up of care delivery in the home, focus in the community on health and wellbeing, and heightened pressure on the public health system. Revenue increased 5.1% with increased demand for in-home care and telehealth services, partly offset by significantly lower travel insurance sales. Medibank Health gross margin was stable at 41.2%.

Management expenses increased 1.7% largely due to inflation, however the management expense ratio improved 100 basis points to 29.9% as a result of the strong revenue growth.

Operating profit improved 15.8% to $32.2 million and Medibank Health segment profit, which includes our share of the results of Myhealth and other investments, improved 12.9% to $31.4 million. Myhealth contributed $0.7 million, while there was a loss (including interest income) of $1.5 million in relation to the other investments. We expect these losses to largely unwind in 2022.

Net investment income

Medibank’s investment portfolio was $3.0 billion as at 30 June 2021. This investment portfolio, which includes $2.8 billion relating to the fund portfolio, provides liquidity to cover insurance liabilities related to the Health Insurance business and satisfies Medibank’s obligations to maintain regulatory reserves to meet health claims and to fund ongoing operations. It includes an elevated defensive allocation of $326.8 million of assets to fund claims deferred due to COVID-19, which sits outside our target allocation of growth and defensive assets of 20% and 80% respectively.

OPERATING AND FINANCIAL REVIEW

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Net investment income in 2021 was significantly higher than 2020, increasing by $117.6 million to $120.0 million. The increased income in the growth portfolio reflects strong equity markets, and in the defensive portfolio the benefit of narrowing credit spreads was offset by the lower interest rate environment.

Our investment portfolio is subject to and compliant with our Responsible Investment Policy. Domestic and international equity investment portfolios remain aligned with socially responsible investment principles.

2.2 Group financial position

Medibank’s net asset position increased by $108.3 million or 6.0% to $1,906.1 million as at 30 June 2021.

Some of the major movements in the consolidated statement of financial position include:

A decrease in cash and cash equivalents driven by the shift to longer duration financial assets.
An increase in financial assets as a result of the shift from cash and stronger returns.
An increase in equity accounted investments due to the acquisition of new associates and joint ventures during the year. Refer to section 3 “Strategy and future prospects” for further details about associates and joint ventures.
An increase in provisions due to the recognition of the $103.0 million customer give back provision relating to the return of permanent COVID-19 net claims savings to customers through premium relief announced by the Group on 29 June 2021.

As at 30 June 2021, Medibank’s consolidated statement of financial position remained debt free.

2.3 Capital management and dividends

Medibank’s capital management objective is to maintain a strong financial risk profile and capacity to meet financial commitments. As at 30 June 2021:

Our total Health Insurance business-related capital was $942.0 million; equivalent to 13.0% of premium revenue after the allowance for determined but unpaid dividends. This was at the top end of Medibank’s target range of 11%-13%.
Non-fund required capital was $147.6 million.
Unallocated capital surplus was $170.7 million.

In November 2018, APRA announced its intention to harmonise the health insurance capital framework with Life and General Insurance Capital (LAGIC) standards. Since then, APRA has consulted with the industry and undertaken a partial Quantitative Impact Study (QIS). APRA is expected to release draft capital standards and a full QIS by December 2021. Final standards are then due in mid-2022 and planned to be effective from 1 July 2023. We are well placed to implement this framework as our Capital Management Policy is already closely aligned with LAGIC.

Dividends paid or payable in respect of profits from the financial year totalled 12.7 cents per share fully franked, amounting to $349.8 million comprising:

An interim ordinary dividend of 5.8 cents per share fully franked, amounting to $159.7 million paid on 25 March 2021 in respect of the six-month period ended 31 December 2020.
A final ordinary dividend of 6.9 cents per share fully franked, amounting to $190.0 million to be paid on 30 September 2021 in respect of the six-month period ended 30 June 2021.

The full year 2021 ordinary dividend of 12.7 cents per share represents a 87.7% payout ratio of underlying NPAT, normalising for investment market returns. This is slightly above the outlook statement provided in our half year results announcement, where we advised the market that the dividend payout ratio was expected to be towards the top end of our annual payout ratio range of between 75% and 85% of underlying NPAT, and reflects our strong capital position.

2.4 Management changes

On 24 February 2021, Chief Executive Officer Craig Drummond announced his retirement. Our Group Executive - Chief Customer Officer David Koczkar was appointed as Managing Director and Chief Executive Officer effective 17 May 2021.

Subsequent management changes were:

Dr Andrew Wilson was appointed to the role of Group Executive - CEO Health Services

OPERATING AND FINANCIAL REVIEW

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Mark Rogers took on expanded accountability as Group Executive - Chief Financial Officer & Group Strategy
Milosh Milisavljevic was appointed Group Executive - Customer Portfolios, responsible for the Group’s consumer products and services and provider partnerships
Rob Deeming was appointed Group Executive - Customer & Brands, responsible for the Medibank and ahm brands and customer channels as well as digital platforms and capabilities.

3. Strategy and future prospects

Medibank’s purpose is Better Health for Better Lives. As an organisation, we are committed to improving the health and wellbeing of Australians and helping them lead better quality lives. By working to provide affordable and quality health outcomes, we seek to sustainably build our customer base and grow shareholder value. With David Koczkar’s appointment to CEO in May, our strategy has evolved but our customers and people remain at the centre of everything we do.

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During 2021 we saw a shift in Australians prioritising their health and wellbeing given COVID-19 and heightened pressure on the public system. This has resulted in private health insurance becoming more compelling for many Australians, including those who were previously uninsured. We have continued to focus on differentiating and growing our private health Insurance business by leveraging our dual brand strategy to create a competitive advantage. We are also continuing our transformation into a health company.

We know that affordability continues to be an issue for consumers and have worked hard to deliver our lowest average premium increase in 20 years, with premiums rising by an average of 3.25% from 1 April. Our focus has been on making our business more efficient and to reduce and eliminate unnecessary costs in the health system, so that we can deliver greater value and choice for our customers.

We maintained strong cost discipline and have delivered approximately $60 million of productivity savings over the past three years. We will also target a further $40 million in productivity across the next three financial years, including $15 million in 2022.

We supported our customers during the COVID-19 pandemic with a package of approximately $300 million to date, including $195 million in support measures and $103 million of permanent COVID-19 net claims savings we are returning to customers through premium relief. We are committed to returning all permanent net claims savings due to COVID-19 to our customers once they are known.

Customers are at the heart of what we do and we are working to better support their healthcare needs by providing greater choice, more personalised advice and helping to reduce out-of-pocket medical costs.

OPERATING AND FINANCIAL REVIEW

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My Home Hospital, a Wellbeing SA service delivered by a joint venture between Calvary and Medibank, was launched in January. It is a public hospital-level service that delivers care to patients in the comfort and privacy of their own homes. Since launch, the service has had more than 900 admissions, reducing pressure on the wider health system while still providing the hospital-level care patients need. We see an opportunity to utilise the market leading technology platform behind My Home Hospital across both public and private settings.

In March, Medibank and 45 specialist doctors formed an entity to develop a new private hospital in Melbourne that will provide short stay surgical procedures. The investment is aimed at supporting our doctor partners to deliver a short-stay model of care that is already widely available at scale in other health systems internationally and for which there is a strong body of evidence. The entity will give patients more choice in where their care is delivered, reduce out-of-pocket medical costs, and most importantly deliver a great customer experience. The facility is due to open in 2023.

This investment follows our 49% investment in East Sydney Private Hospital in August 2020 which provided funding to the hospital and doctors to scale its short-stay model of care. It also complements Medibank’s nogap joint replacement pilot that is underway in seven hospitals across Australia.

We have strengthened our focus on preventative and doctor-led partnerships through the acquisition of a non-controlling interest in the Myhealth Medical Group, a leading operator of primary care clinics. Our investment will support GPs to enhance the health and quality of life of their patients which helps reduce high-cost hospital admissions and alleviate pressure on the health system. The investment will also give the GPs access to additional capabilities to improve data analytics and information management and enable Myhealth to continue its rapid growth. There were 95 Myhealth clinics at the end of 2021 and further growth will be supported by investment in greenfield practices and acquisition of existing practices.

These investments all demonstrate Medibank’s commitment to putting patients at the centre of treatment, and supporting healthcare providers to improve patient experience. We will continue to invest and partner to evolve new models of care in Australia, accessible to patients in both private and public systems.

We also continue to deepen relationships with our customers through other avenues. More customers are engaging with our health offerings. Approximately 133,000 Medibank customers engaged with a Member Health Service, representing a 51% increase on 2020. Around 20% of Medibank customers admitted to hospital were supported by our Health Concierge program in 2021, while there was a 32% increase in the number of customers receiving a Medibank at Home service.

Our Live Better program continues to scale, with more than 760,000 people joining our Live Better Rewards program or taking part in Live Better activities, a 51% increase since last year. In 2022 we will finish integrating the Live Better app into the My Medibank app to provide a single digital health experience across health insurance and health and wellbeing – transforming our customer relationship from ‘one day’ to ‘every day’. We see further opportunities for Live Better in the broader health and wellbeing market through new partnerships and tapping into other market segments.

7,183 Medibank customers engaged in a preventative health program in 2021, an increase of 23% from 2020. Our Healthier Weight, Healthier Me: Type 2 Diabetes pilot is supporting customers with this condition, which is one of the fastest growing chronic diseases in Australia. The program offers an evidence-based weight management program and aims to improve management of the condition and reverse the diagnosis in some cases. Better Knee, Better Me was made a permanent national program for all eligible customers this year following the success of our two-year pilot program combining personalised plans for exercise, weight loss and pain management.

Our people have responded well under difficult circumstances this year, navigating through lockdowns and other challenges that COVID-19 has created. When retail stores were closed, our team members were upskilled and redeployed to other customer support channels. We introduced our new Future Fit way of working that focuses on how employees connect and collaborate across the business, drawing upon the lessons learnt in 2020 and the success of our progressive support of flexible working. We continued to prioritise our people’s health and wellbeing, with many of our initiatives focused on mental health support and staying connected to one another.

The impact of COVID-19 in 2022 cannot be predicted with any certainty; however, Medibank remains positioned for growth. Our investment in our people, technology, and digitisation has been critical to our business resilience, and stood us apart from many of our competitors. In the year ahead, our focus will shift more towards embedding and scaling our existing health and wellbeing offers into our customers’

OPERATING AND FINANCIAL REVIEW

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experience. We will have an even sharper focus on enhancing value by moderating health system cost growth, particularly in a post-COVID-19 environment. Continuing to offer more choice to our customers and reducing out-of-pocket costs remains a priority, with clinically led, alternative ways of delivering care a key part of the solution. To achieve this, we will continue to strengthen and broaden our partnerships with healthcare providers and corporates.

Our strategy is the right strategy for our business and will continue to inform our decisions. Aligned with our evolved strategy, some of the milestones have been revised and are detailed below.

Pillar	Milestones	Milestones
Focus on our customers and people	Customer advocacy: Service NPS (average) FY21 FY22 benchmark1 Medibank 37.1 >35 ahm 43.0 >35		Employee advocacy: eNPS FY21 FY22 benchmark2 Place to work +30 ≥24 Products & services +26 ≥19

Grow the core business	Net policyholder growth FY213 FY224	Market share FY21 FY24 aspiration 27.3% Up 25-75 bps		Health Insurance productivity delivered FY21 FY22-FY24 target c. $20m $40m including $15m in FY22
	+3.5% / +64.3k c. 3%, including continued growth in the Medibank brand
Transform into a health company	Health and wellbeing FY21	FY22 c. 480k	Medibank Health operating profit (excluding Myhealth and other investments) FY21 FY22 $32.2m Organically replace the reported FY18 $30m operating profit of Garrison by FY22 (tracking broadly in line on an underlying basis)
	Customers engaged with Live Better5 c. 366k

Benchmark reflects sustaining service levels while continuing to digitise the service delivery model
FY22 benchmarks are based on the global average adjusted for Australian healthcare and financial insurance industry context
Adjusted for suspensions and reactivations occurring as a result of COVID-19
Assumes slowing participation growth compared to FY21
Includes total customers who have engaged with our preventative health offering, including Live Better Rewards, Live Better activities, preventative health programs and any new offerings developed

4. Material business risks

The material business risks which could affect Medibank’s operations, business strategies and financial prospects are summarised below.

The COVID-19 pandemic has, and will continue to have in 2022, the potential to impact Medibank’s material and strategic business risks. Medibank continuously monitors the uncertainty introduced by COVID-19 and its impact on its risk profile, both on financial and non-financial risks. Ongoing and emerging risks related to the pandemic include the demand for clinical services and therefore pressures on resourcing, attraction, retention and cost, and expectations regarding staff vaccination. Where appropriate, Medibank has strengthened its governance, monitoring and internal control system to address increased risk exposures caused by the pandemic in relation to its operational, financial and strategic risks.

OPERATING AND FINANCIAL REVIEW

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Risk	Mitigations	Material sustainability categories
Strategic The risk that we are unable to identify and execute the right strategic initiatives and projects on target and on time that deliver measurable and agreed outcomes to support our goals	Medibank’s strategic risks are identified and assessed as part of our annual strategic planning process and endorsed by the Board. Key strategic risks identified include loss of private health insurance customers, healthcare costs and utilisation, regulatory risk, and execution of non-private health insurance growth. These risks influence the prioritisation of investments and resources in the Corporate Plan, which is approved by the Board. To effectively understand and assess some key strategic risks that are broad in nature (e.g. regulatory and customer risks), we undertake detailed analysis on threats or opportunities that specific scenarios may pose to our business.	• Customer health • Community health
Operational The risk of financial loss resulting from inadequate or failed internal processes, people and systems or from external events	We have established risk management policies and procedures for identifying, assessing, monitoring and reporting operational risks and controls. This includes the important areas of information security, technology, business continuity, outsourcing, fraud, people, and health and safety risks. Management of operational risk is overseen by divisional risk committees, the Executive Risk Committee and the Board’s Risk Management Committee.	• Employee health • Governance • Environmental health
Credit The risk of financial loss due to counterparties failing to meet all or part of their contractual obligations	Exposure to this risk is primarily through Medibank’s investment portfolio. This risk is managed through the application of the Investment Management Policy. The effective implementation of this policy is overseen by the Board’s Investment and Capital Committee to ensure that credit risk is managed in line with the risk appetite set by the Board.	• Governance
Capital & liquidity The risk of not being able to meet financial commitments as and when they are due and in complying with APRA prudential standards on solvency and liquidity	Medibank has a Board-approved Liquidity Management Policy and a Board-endorsed plan designed to ensure it meets or exceeds regulatory solvency requirements and is able to meet all payments as and when they fall due. Liquidity risk is managed by our treasury function through daily cash management of cash flows and liquid asset positions and projected future cash flows, supported by actuarial forecasts that take into account anticipated seasonality as well as stressed market conditions	• Governance
Market & investment The risk of adverse financial impact market factors e.g. foreign exchange rates, interest rates and equity prices	We have a Board-approved Investment Management Policy. The Board’s Investment and Capital Committee oversees the investment process and compliance with investment mandates, performance against benchmarks and asset allocation. Our strategic asset allocation is weighted largely towards defensive assets and with limits applied to illiquid assets.	• Governance

OPERATING AND FINANCIAL REVIEW

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Risk	Mitigations	Material sustainability categories
Insurance The risk of misestimation of incurred and expected costs, frequency and severity of insured events	The Board approves the Pricing Policy, which includes pricing and profitability objectives and forms a key part of the Capital Management Plan. Our objective is to support customer growth through balancing the offer of competitive value to all customers with profitability objectives and the need to meet capital management and regulatory requirements. Insurance risk is a key part of regular portfolio monitoring and treatment plans are formulated and implemented in response to any potential for deviation from target measures.	• Governance
Clinical The risk of unexpected, adverse clinical outcomes from a health service provided by Medibank, or a third party acting on behalf of Medibank.	Clinical risk arises from clinical services that Medibank provides and procures, the provision of health-related information, and customer health initiatives. We have implemented a clinical governance and quality management framework that defines the principles, structures and processes that underpin service quality, continuous improvement and patient safety. Our Chief Medical Officer, supported by a clinical governance team, provides oversight and assurance. The Risk Management Committee and Board receive regular reporting on the performance of clinical risk management.	• Customer health • Community health
Regulatory compliance Failure to comply with regulatory requirements	We have established compliance management policies and procedures for identifying and managing Medibank’s regulatory obligations and incidents that may arise. Management of compliance risk is overseen by divisional risk committees, the Executive Risk Committee and the Board’s Risk Management Committee	• Governance

DIRECTORS’ REPORT

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The directors of Medibank Private Limited (Medibank) present their report on the consolidated entity consisting of Medibank and the entities it controlled (collectively referred to as the Group) for the year ended 30 June 2021.

References to 2020 and 2021 are to the financial years ended on 30 June 2020 and 30 June 2021 respectively unless otherwise stated.

Directors

The names of directors in office during the year and up to the date of this directors’ report, unless stated otherwise, are as follows:

Current:

Mike Wilkins AO – Chairman
David Koczkar – Chief Executive Officer (appointed effective 17 May 2021)
Dr Tracey Batten
Anna Bligh AC
Gerard Dalbosco (appointed effective 21 May 2021)
David Fagan
Peter Hodgett
Linda Bardo Nicholls AO
Christine O’Reilly

Former:

Elizabeth Alexander AO (retired effective 1 October 2020)
Craig Drummond (ceased as Chief Executive Officer effective 17 May 2021)

Mike Wilkins AO commenced as Chairman effective 1 October 2020, following the retirement of Elizabeth Alexander AO. Gerard Dalbosco commenced as a director effective 21 May 2021.

Principal activities

The principal activities of the Group during the financial year were as a private health insurer, underwriting and distributing private health insurance policies under its two brands, Medibank and ahm. Medibank is also a provider of health related services through the Medibank Health businesses, which capitalise on Medibank’s experience and expertise, and support the Health Insurance business. There were no significant changes in the nature of those activities during the year.

Operating and financial review

Details of the operating and financial review of the Group including a review of operations during the year and results of those operations is included in the operating and financial review on pages 1 to 9.

Significant changes in state of affairs

There were no significant changes in the state of affairs of the Group during the year.

Events since end of financial year

No matter or circumstance has arisen since the end of the financial year that has significantly affected, or may significantly affect, Medibank’s operations, or the results of those operations, or Medibank’s state of affairs in future financial years. Details of subsequent events are set out in Note 20(d).

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Future developments

Details of developments in Medibank’s operations in future financial years and the expected results of those operations are included in the operating and financial review on pages 1 to 9.

Dividends

Dividends paid or determined by Medibank during and since the end of the year are set out in Note 6 to the financial statements and further set out below:

A fully franked final ordinary dividend of 6.30 cents per share was determined in respect of the six-month period to 30 June 2020 and paid on 24 September 2020 to shareholders registered on 3 September 2020.
A fully franked interim ordinary dividend of 5.80 cents per share was determined in respect of the sixmonth period to 31 December 2020 and paid on 25 March 2021 to shareholders registered on 4 March 2021.
A fully franked final ordinary dividend of 6.90 cents per share has been determined in respect of the sixmonth period to 30 June 2021, payable on 30 September 2021 to shareholders registered on 9 September 2021.

Directors’ qualifications, experience and special responsibilities

Details of the qualifications, experience and special responsibilities of each director in office as at the date of this report are set out below.

Mike Wilkins AO – Chairman and Independent Non-executive Director

BCom, MBA, FAICD, FCA

Age: 64

Mike was appointed a director in May 2017 and Chairman effective 1 October 2020. He is Chairman of the Nomination Committee and a member of the Investment and Capital Committee and the People and Remuneration Committee.

Mike is the Chairman (since March 2020) and a director (since November 2016) of QBE Insurance Group Limited. He is also a director of Scentre Group Limited (since April 2020).

Mike has more than 30 years of experience in financial services, predominantly in Australia and Asia. He served as Managing Director and Chief Executive Officer at Insurance Australia Group (November 2007 to November 2015), Managing Director and Chief Executive Officer at Promina Group Limited and Managing Director at Tyndall Australia Limited. He also served as Acting Chief Executive Officer (April 2018 to December 2018), Executive Chairman (April 2018 to June 2018) and a director (September 2016 to February 2020) of AMP Limited. He was previously a director of Maple-Brown Abbott Limited, Alinta Limited, The Geneva Association and the Australian Business and Community Network.

David Koczkar – Chief Executive Officer

BCom, PG Dip Finance, MAICD

Age: 48

David was appointed Chief Executive Officer in May 2021.

He commenced at Medibank in 2014, holding the roles of Chief Operating Officer from March 2014 and then Group Executive – Chief Customer Officer from September 2016, where he was responsible for the Health Insurance and Diversified portfolios, Live Better and the ahm business. David was also appointed Acting Chief Executive Officer between April 2016 and June 2016.

Prior to joining Medibank, David was the Group Chief Commercial Officer at Jetstar where he was responsible for the airline group’s network management, sales and marketing, customer channels and commercial operations, including as a director of Jetstar Pacific (Vietnam), Jetstar Hong Kong and NewStar (Singapore) JV businesses.

DIRECTORS’ REPORT

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David has more than 25 years of strategy, customer and commercial experience, including previous work in the strategy consulting and financial services industries.

Dr Tracey Batten – Independent Non-executive Director

MBBS, MHA, MBA, FAICD, FRACMA

Age: 55

Tracey was appointed a director in August 2017. She is a member of the Risk Management Committee and the People and Remuneration Committee.

Tracey has extensive experience in the health services sector, with strong commercial, business and change leadership skills.

Tracey is currently a director of EBOS Group Limited, the National Institute of Water and Atmospheric Research in New Zealand and the New Zealand Accident Compensation Corporation. Most recently, Tracey was the Chief Executive of the Imperial College Healthcare NHS Trust in the United Kingdom. In that role, Tracey focused on change leadership, in particular improving organisational culture and strengthening patient safety and experience. Tracey also oversaw the implementation of a range of digital initiatives as Chief Executive. Tracey is a former Chief Executive of St Vincent’s Health Australia, which runs a group of public hospitals, private hospitals and aged care facilities.

Anna Bligh AC – Independent Non-executive Director BA (QLD)

Age: 61

Anna was appointed a director in December 2012. She is a member of the Investment and Capital Committee and the People and Remuneration Committee.

Anna is currently the Chief Executive Officer of the Australian Banking Association and a director of the International Banking Federation (IBFed).

Anna has extensive experience in leadership and public policy, including in the fields of healthcare, finance, infrastructure and project management. She has held several roles in the Queensland Government, including Premier, Treasurer, Minister for Finance, Minister for State Development, Minister for Trade and Innovation and Minister for Education. She was also a member of the Queensland Cabinet Budget Review Committee for 11 years. Anna was a director of Bangarra Dance Theatre Australia (2012-2020) and is currently a non-executive director of Australian Plays Transform.

Gerard Dalbosco – Independent Non-executive Director

M.AppFin, B.Comm, FCA, FFIN, GAICD

Age: 58

Gerard was appointed a director in May 2021. He is a member of the Audit Committee and the Risk Management Committee.

Gerard held a number of senior leadership roles as a Partner of EY until September 2020. His most recent role was Melbourne Managing Partner where he led a large team responsible for EY’s go-to-market and client service strategies. Prior to this, Gerard held other roles at EY including Asia Pacific Managing Partner – Markets and Co-Deputy CEO where he led EY’s client-serving activities across the Asia-Pacific market. He was also Oceania Managing Partner and CEO, and Oceania Managing Partner of Transaction Advisory Services where he was responsible for EY’s Transaction Advisory Services business across Oceania.

Gerard is currently Chair of Melbourne Archdiocese Catholic Schools and Co-Deputy Chair and Chair of the Finance Committee of the Committee for Melbourne. He has previously held roles as a director and Chair of the Finance & Audit Committee of Mercy Health & Aged Care, director and member of the Finance Committee of Berry Street Victoria, and Chair of the National Gallery of Victoria’s Business Council.

DIRECTORS’ REPORT

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David Fagan – Independent Non-executive Director

LLB, LLM, GAICD Age: 64

David was appointed a director in March 2014. He is Chairman of the Risk Management Committee and a member of the Investment and Capital Committee and the Nomination Committee.

David is a highly experienced commercial lawyer. He held a variety of leadership positions at Clayton Utz culminating in the role of Chief Executive Partner for nine years. In this role, David had responsibility and accountability for leadership and transformation, strategy, finance, stakeholder engagement, and governance, including risk management. During David’s tenure as Chief Executive Partner, Clayton Utz entrenched itself as a first class top tier commercial law firm. David also chaired the Medibank Privatisation Committee which operated during 2014 in preparation for the privatisation process. David is a former director and Chair of the Audit Committee of The Global Foundation, a former director of Grocon Funds Management Group, the Hilco Group and UBS Grocon Real Estate Investment Management Australia Pty Limited and a former member of the advisory board of Chase Corporate Advisory.

David is currently a director of PayGroup Limited (since November 2017). He is Chair of BDO Group Holdings Limited and a member of the ASIC Corporate Governance Consultative Panel.

Peter Hodgett – Independent Non-executive Director

BSc (Hons) Age: 66

Peter was appointed a director in June 2013. He is Chairman of the Investment and Capital Committee and a member of the Audit Committee and the Nomination Committee.

He held a number of other non-executive directorships from 2008 and is currently a director of the Leukaemia Foundation of Australia.

Previously, Peter worked for AMP for more than 20 years in a wide variety of business and functional roles, including Chief Actuary during its demutualisation, General Manager of Human Resources and Strategy, and as Global Director of Finance and Operations for Henderson Global Investors in the United Kingdom.

Linda Bardo Nicholls AO – Independent Non-executive Director BA, MBA (Harvard), FAICD

Age: 73

Linda was appointed a director in March 2014. She is Chairman of the People and Remuneration Committee and a member of the Nomination Committee.

Linda has more than 30 years of experience as a senior executive and director in banking, insurance and funds management in Australia, New Zealand and the United States.

She is currently Chairman of Japara Healthcare Limited (since March 2014) and a director of Inghams Group Limited (since November 2016). Linda is also Chairman of the Board of Melbourne Health and a member of the Museums Board of Victoria.

Linda’s previous directorships include Fairfax Media Limited (February 2010 to December 2018), Pacific Brands Limited (October 2013 to July 2016), Sigma Pharmaceuticals Limited (December 2005 to December 2015) and Healthscope Limited, as Chairman (October 2008 to October 2010) and a director (January 2000 to October 2010).

DIRECTORS’ REPORT

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Christine O’Reilly – Independent Non-executive Director BBus

Age: 60

Christine was appointed a director in March 2014. She is Chairman of the Audit Committee and a member of the Risk Management Committee and the Nomination Committee.

Christine is currently a director of Stockland (since August 2018), BHP Group Limited (since October 2020), and the Baker Institute.

Christine has more than 30 years of financial and infrastructure experience both in Australia and internationally in various roles including as Co-head of Unlisted Infrastructure at Colonial First State Global Asset Management and Chief Executive and Managing Director of GasNet Australia Group. Christine’s early career includes eight years in investment banking and audit experience with Price Waterhouse, where she qualified as a chartered accountant. Her previous directorships include CSL Limited (February 2011 to October 2020) and the Transurban Group (April 2012 to October 2020).

Company Secretary

Mei Ramsay

Group Executive – Legal, Governance & Compliance and Company Secretary BA, LLB, LLM

Mei was appointed Group Executive – Legal, Governance & Compliance (previously Legal, Governance & Regulatory Affairs) in September 2016 and has been the Company Secretary for Medibank Private Limited since 2014. Mei previously held the position of Group General Counsel from 2011.

She is responsible for leading the legal and governance functions, including compliance, regulatory affairs and company secretariat, and providing legal and corporate governance advice to Medibank’s Board, Chief Executive Officer and senior management.

Mei has more than 25 years of experience in the legal profession, both as a senior in-house legal adviser for multinational and international companies, as well as a private practitioner.

Prior to joining Medibank, Mei was the General Counsel and Company Secretary for the Asia Pacific region at Cummins Inc. and before that held various senior legal positions at Coles Myer Ltd and Southcorp Limited. Mei started her legal career at Arnold Bloch Leibler and also worked as a Senior Associate at Minter Ellison.

Mei is currently the Vice President of the Association of Corporate Counsel (ACC) Australia, a member of the Executive of the ACC GC100 and former Chair of the ACC GC100, and a member of Chief Executive Women.

DIRECTORS’ REPORT

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Directors’ attendance at meetings

The table below shows the number of Board and committee meetings held and the number of meetings attended by directors during the year.

Director	Board (scheduled)	Board (scheduled)	Board (unscheduled)	Board (unscheduled)	Audit Committee	Audit Committee	Risk Management Committee	Risk Management Committee	Investment and Capital Committee	Investment and Capital Committee	Nomination Committee	Nomination Committee	People and Remuneration Committee	People and Remuneration Committee
	A	B	A	B	A	B	A	B	A1	B	A	B	A	B
Mike Wilkins	10	10	8	8	2	52	5	53	5	5	3	44	1	45
Elizabeth Alexander6	3	3			2	2	2	2		1*	1	1		1*
Dr TraceyBatten	10	10	8	8		4*	6	6		5*		3*	4	4
Anna Bligh	10	10	8	8		1*		3*	5	4		1*	4	4
Gerard Dalbosco7	1	1			1	1								1*
CraigDrummond8	8	8	6	6		4*		5*		5*				3*
David Fagan	10	10	8	8		5*	6	6	5	5	4	4		4*
Peter Hodgett	10	10	8	8	5	5		4*	5	5	4	4		3*
David Koczkar9	2	2				1*		1*		1*				1*
Linda Bardo Nicholls	10	10	8	8		4*		4*		5*	4	4	4	4
Christine O’Reilly	10	10	8	8	5	5	6	6		4*	4	4		3*

A Indicates the number of meetings held during the time the director held office or was a member of the committee during the year. B Indicates the number of meetings attended during the period.
Indicates that the director attended committee meetings as an invitee.
1 Includes one unscheduled meeting of the Investment and Capital Committee.
2 Mike Wilkins was appointed a member of the Audit Committee effective 1 October 2020 and retired as a member of that committee effective 21 May 2021. He attended 2 meetings as a member and 3 as an invitee.
3 Mike Wilkins retired as a member of the Risk Management Committee effective 21 May 2021. He attended 4 meetings as a member and 1 as an invitee.
4 Mike Wilkins was appointed a member of the Nomination Committee effective 1 October 2020. He attended 3 meetings as a member and 1 as an invitee.
5 Mike Wilkins was appointed a member of the People & Remuneration Committee effective 21 May 2021. He attended 1 meeting as a member and 3 as an invitee.
6 Elizabeth Alexander retired as a director effective 1 October 2020.
7 Gerard Dalbosco was appointed as a director and a member of the Risk Management Committee and Audit Committee effective 21 May 2021.
8 Craig Drummond retired as a director effective 17 May 2021.
9 David Koczkar was appointed as a director effective 17 May 2021.

In addition, ad-hoc committees were convened for special purposes, including in relation to financial reporting, selection of the new Chairman and Chief Executive Officer and other matters.

Options and performance rights

During the financial year, 3,168,794 performance rights were issued to senior executives pursuant to Medibank’s Performance Rights Plan. No performance rights have been issued since the end of the financial year up to the date of this directors’ report.

During the financial year, 1,980,272 performance rights became eligible to vest and were exercised. Further information regarding performance rights is included in the remuneration report from page 18.

DIRECTORS’ REPORT

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Directors’ interests in securities

The relevant interests of directors in Medibank securities at the date of this directors’ report were:

Director	Ordinary shares	Performance rights
Mike Wilkins	100,000
David Koczkar	793,689	590,232
Elizabeth Alexander*	124,786
Dr TraceyBatten	50,000
Anna Bligh	44,623
Gerard Dalbosco	24,432
CraigDrummond**	1,313,839	1,488,044
David Fagan	47,016
Peter Hodgett	67,800
Linda Bardo Nicholls	45,000
Christine O’Reilly	69,930

Elizabeth Alexander retired from the Board effective 1 October 2020, and her ordinary shareholding information is as at that date.

** Craig Drummond retired from the Board effective 17 May 2021, and his ordinary shareholding information is as at that date. Craig Drummond’s performance rights information reflects the lapsing of performance rights in accordance with Medibank’s Performance Rights Plan as set out in the ASX announcement dated 9 July 2021.

Environmental regulation

The Group’s operations are not subject to any particular or significant environmental regulation under either Commonwealth or State law.

Indemnification and insurance of directors and officers

The Medibank Constitution permits Medibank to indemnify, to the maximum extent permitted by law, every person who is or has been a director, secretary, officer or senior manager of the Group. The indemnity applies to liabilities incurred by a person in the relevant capacity (except liability for legal costs). The indemnity may however also apply to certain legal costs incurred in obtaining advice or defending legal proceedings. Further, the Medibank Constitution permits Medibank to maintain and pay insurance premiums for a director and officer liability insurance covering every person who is or has been a director, secretary, officer or senior manager of the Group, to the extent permitted by law.

Consistent with the provisions in Medibank’s Constitution, Medibank has entered into deeds of indemnity, insurance and access with current and former directors and secretaries of the Group. Under these deeds, Medibank:

Indemnifies current and former directors and secretaries against liabilities incurred as a director or secretary, as the case may be, to the maximum extent permitted by law.
Maintains a directors’ and officers’ insurance policy covering current and former directors and secretaries against liabilities incurred in their capacity as directors or secretaries, as the case may be. Disclosure of the insurance premium and the nature of the liabilities covered by the insurance are prohibited by the contract of insurance.
Grants current and former directors and secretaries access to Medibank’s records for the purpose of defending any relevant action.

DIRECTORS’ REPORT

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Auditor’s independence declaration

A copy of the auditor’s independence declaration given by PricewaterhouseCoopers (PwC) in relation to its compliance with independence requirements of section 307C of the Corporations Act is set out on page 52.

Non-audit services

During the year, PwC, the Group’s external auditor, performed certain other services to the Group in addition to its statutory responsibilities as auditor.

The amounts paid or payable for services provided by PwC were:

Year ended 30 June	2021	2020 $
	$
Audit fees	1,570,108	1,581,094
Assurance services fees:
Audit of regulatory compliancereturns	231,830	342,264
Accounting and otherassurance services	15,530	64,260
Total Audit and other assurance services fees	1,817,468	1,987,618
Non-audit servicefees	199,517	-
Total	2,016,985	1,987,618

Based on advice provided by the Audit Committee, the directors are satisfied that the provision of non-audit services during the year by PwC is compatible with the general standard of independence for auditors imposed by the Corporations Act , and that the provision of the non-audit services did not compromise the auditor independence requirements of the Corporations Act, for the following reasons:

All non-audit services provided were approved in accordance with the process set out in Medibank’s policies, including being reviewed by the Audit Committee Chair to ensure that provision of the services did not impact the integrity and objectivity of the auditor.
The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board.

Remuneration report

The remuneration report on pages 18 to 50 forms part of the directors’ report.

Rounding of amounts

The amounts contained in this directors’ report and in the financial report have been rounded to the nearest hundred thousand dollars (where rounding is applicable) unless specifically stated otherwise under the relief available pursuant to ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 . Medibank is an entity to which that relief applies.

DIRECTORS’ REPORT

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Dear shareholder,

On behalf of the Board, I am pleased to present Medibank’s remuneration report for 2021 which describes how non-executive directors and Executive Leadership Team (ELT) members are paid. Included in this report are the variable remuneration outcomes for the ELT, which were determined after considering the Company’s results and the individual performance of our executives.

Our remuneration strategy has been developed to ensure remuneration is fair and competitive, and in 2021 the Board has continued to focus on a governance framework that rewards responsible behaviours, aligns remuneration with regulatory requirements and has regard for the expectations of our customers, shareholders and the community.

As an organisation providing insurance and healthcare with a clear purpose of ‘Better Health for Better Lives’, the Board is proud of how Medibank has continued to support our customers, employees and the broader community through these challenging times.

Medibank has supported our customers through the pandemic with initiatives totalling around $300 million in financial support to date, the largest in our 45 year old history. This includes the return of $103 million of permanent net claims savings due to COVID-19 through premium relief. These initiatives are part of Medibank’s standing commitment to return all permanent net claims savings due to COVID-19 to our customers once they are known. Our employees showed great resilience during 2021 delivering high quality services and support throughout lockdowns and other challenges created by the pandemic. During the year we continued to prioritise our employee’s health and wellbeing, with initiatives focused on mental health support and staying connected to one another through the launch of our new Future Fit way of working. As stated last year, Medibank has been able to support our employees and customers without accessing any form of taxpayer funded government relief.

Chief Executive Officer transition

In February 2021, after nearly five years as Chief Executive Officer (CEO), Craig Drummond announced his intention to retire. The significant improvement in our dual brand proposition, customer acquisition and retention, brand advocacy and the expansion into delivering a broad suite of health services, demonstrate the strength and diversity that has been created at Medibank under Craig’s leadership. Craig has left the company in a much stronger position, on a clear strategic path, with a great team and accordingly has been deemed a ‘good leaver’ by the Board.

Following the announcement of Craig’s retirement, the Board was pleased to appoint David Koczkar as Medibank’s Chief Executive Officer, effective from 17 May 2021. In his previous role as Medibank’s Chief Customer Officer, David has been a champion for our customers and has played an instrumental role in the growth and re-positioning of Medibank. The Board is now working with David to progress our strategy of becoming a broader health company.

Changes to the Executive Leadership Team and key management personnel

Following the CEO transition, changes were made to the structure of the ELT to ensure Medibank continues to focus on providing greater choice for our customers, as well as working with our partners to be a driver of change within the health system. The key changes are outlined below, with all appointments completed prior to 30 June 2021:

Milosh Milisavljevic was appointed to the role of Group Executive – Customer Portfolios. Milosh’s experience leading customer transformations across various industries will be instrumental to strengthening Medibank’s products and services for our customers, and our provider relationships.
Rob Deeming was appointed to the role of Group Executive – Customer & Brands. Rob’s entrepreneurial spirit combined with his experience leading consumer brands and growing digital businesses will be key to continuing to grow the Medibank and ahm brands and our customer channels.

DIRECTORS’ REPORT

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Dr Andrew Wilson took on an expanded accountability as Group Executive – CEO Health Services. Andrew’s experience and expertise within the health sector is an asset to the company and he is well placed to oversee our growth in becoming a broader health services provider.
Mark Rogers took on an expanded accountability as Group Executive – Chief Financial Officer (CFO) & Group Strategy. Mark’s knowledge of our company, our sector and the broader market, as well as his previous experience in strategy development and mergers and acquisitions will be beneficial to expanding our role in health, including through future inorganic growth.

Following the changes to Medibank’s ELT composition and changes in ELT operation effective 1 July 2021, the Board assessed which ELT members had the requisite authority and responsibility within the Medibank Group to meet the definition of key management personnel (KMP) as set out in AASB 124 – Related Party Disclosures for the purposes of our remuneration reporting obligations. As a result of these changes, from 1 July 2021, Medibank’s Executive KMP will now include the following roles: CEO, Group Executive – CFO & Group Strategy, Group Executive – CEO Health Services and Group Executive – Customer Portfolios. Please note that the newly established Group Executive – Customer & Brands position is not recognised as a KMP under the accounting standard and is therefore not included in this report.

Changes to the Board

After joining the Medibank Board in October 2008 and serving as Chairman since March 2013, Elizabeth Alexander retired from Medibank on 1 October 2020. During her tenure, Elizabeth led Medibank through its highly successful public listing in 2014 and helped reposition the company for growth as it pursues a strategy of developing into a broader health company.

Following Elizabeth’s retirement, Mike Wilkins was appointed as the Chairman on 1 October 2020 and Gerard Dalbosco joined the Board as a non-executive director on 21 May 2021.

Remuneration decisions at a glance

All ELT members met their individual risk, compliance and behaviour gateways for 2021
Discretion was exercised to reduce 2021 short-term incentive (STI) outcomes for ELT members from an average of 80% of their maximum opportunity, to 70%
32% vesting of Medibank’s 2019 long-term incentive (LTI) in line with the terms of grant
Adjustments to ELT remuneration aligned with recent appointments – further details in section two of this report
Non-executive director fees maintained at their current levels and within the cap approved by shareholders at the 2018 annual general meeting

Short-term incentives

Despite the challenging environment, the resilience of our business and our highly engaged people have enabled Medibank to deliver a solid operational and financial performance aligned to our values and purpose of ‘Better Health for Better Lives’. In assessing Medibank’s 2021 performance against our STI measures, the Board adjusted outcomes to normalise for unbudgeted COVID-19 related impacts (both negative and positive) outside of management’s control to ensure that executives did not benefit from windfall gains. Following this assessment, Group operating profit and Brand Net Promoter Score (NPS) performance both exceeded target expectations, while Health Insurance revenue growth landed just below target expectations.

These performance outcomes resulted in STI awards for ELT members that averaged 80% of their maximum opportunity. However, with consideration of the challenging social and economic environment of the pandemic and the expectations of our shareholders, customers and the broader community, the Board exercised its discretion to reduce ELT incentive outcomes resulting in STI awards for ELT members that averaged 70% of their maximum opportunity. A similar reduction was applied to the Company-wide incentive pool. In the Board’s view, final incentive awards reflect an appropriate outcome based on Medibank’s 2021 performance.

Long-term incentives

Medibank’s 2019 LTI was tested following the completion of the performance period on 30 June 2021 and resulted in a vesting outcome of 32% in line with the terms of grant. This outcome reflects no vesting against

DIRECTORS’ REPORT

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the earnings per share compound annual growth rate (EPS CAGR) measure, and partial vesting against the relative total shareholder return (TSR) measure, with a performance rank at the 57[th] percentile against our comparator group.

ELT remuneration and non-executive director fees

The remuneration settings for ELT members recently appointed to new or changed positions were adjusted following a review of benchmark data, with details of these changes outlined in section two of this report. For the second consecutive year, non-executive director fees have been maintained at their current levels. The Board considered this to be an appropriate outcome with consideration of the current economic conditions and social environment of the pandemic and the positioning of non-executive directors against the benchmark data.

Shareholders are encouraged to vote to adopt the report at our annual general meeting in November.

Yours sincerely,

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Linda Bardo Nicholls AO

Chairman, People and Remuneration Committee

DIRECTORS’ REPORT

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REMUNERATION REPORT

1. Key management personnel overview

2. Summary of remuneration outcomes

3. Medibank’s remuneration strategy

4. Remuneration governance

4.1 The role of Board in remuneration
4.2 Executive remuneration policies

5. Risk and remuneration

5.1 Risk culture
5.2 Alignment of remuneration with prudent risk-taking
5.3 Consequence management

6. Executive remuneration components

6.1 2021 target remuneration mix
6.2 Total fixed remuneration
6.3 Short-term incentive
6.4 Long-term incentive

7. Linking remuneration and performance in 2021

7.1 2021 STI performance scorecard
7.2 Medibank’s 2021 financial performance
7.3 2021 STI awards
7.4 2019 LTI Plan outcomes

8. 2021 actual remuneration

9. Statutory remuneration tables

9.1 Statutory remuneration table
9.2 Performance-related remuneration statutory table

10. Executive Leadership Team equity awards

10.1 ELT equity award transactions
10.2 ELT members’ ordinary shareholdings

11. Non-executive director remuneration strategy and framework

11.1 Non-executive director remuneration
11.2 Non-executive director superannuation
11.3 Shareholding policy for non-executive directors

12. Non-executive director statutory remuneration table

13. Non-executive director ordinary shareholdings

14. Medibank’s comparator groups

DIRECTORS’ REPORT

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1. Key management personnel overview

Medibank’s key management personnel (KMP) includes all non-executive directors and executives who have authority and responsibility for planning, directing and controlling the activities of Medibank. In 2021, KMP were as follows:

Executive Leadership Team (ELT) member	Position	Term as KMP
David Koczkar1	Chief Executive Officer	Fullyear
Kylie Bishop	Group Executive – People & Culture	Full year
John Goodall	Group Executive – Technology & Operations	Full year
Milosh Milisavljevic	Group Executive - Customer Portfolios	From 22 June 2021
Mei Ramsay	Group Executive – Legal, Governance & Regulatory Affairs	Full year
Mark Rogers	Group Executive – Chief Financial Officer & GroupStrategy	Full year
Andrew Wilson	Group Executive – CEO Health Services	Full year
Non-executive directors
Mike Wilkins2	Chairman	Full year
Tracey Batten	Non-executive Director	Full year
Anna Bligh	Non-executive Director	Full year
Gerard Dalbosco3	Non-executive Director	From 21 May 2021
David Fagan	Non-executive Director	Full year
Peter Hodgett	Non-executive Director	Full year
Linda Bardo Nicholls	Non-executive Director	Full year
Christine O’Reilly	Non-executive Director	Full year
Former KMP
Elizabeth Alexander4	Retired Chairman	Retired 1 October 2020
Craig Drummond5	Retired Chief Executive Officer	Ceased as CEO on 17 May 2021

David Koczkar was in the position of Chief Customer Officer until his appointment as Chief Executive Officer on 17 May 2021.
Mike Wilkins was a non-executive director for the full year and was appointed Chairman on 1 October 2020
Gerard Dalbosco commenced as a non-executive director on 21 May 2021.
Elizabeth Alexander retired from the position of Chairman on 1 October 2020.
Craig Drummond retired from the position of Chief Executive Officer and Managing Director on 17 May 2021, however remained employed through to 30 June 2021.

DIRECTORS’ REPORT

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2. Summary of remuneration outcomes

Key remuneration outcomes for ELT members and non-executive directors during the year are summarised below, with more detailed information contained throughout the report.

Executive Leadership Team

Fixed remuneration	• Following a review of benchmark data the fixed remuneration for ELT members recently appointed to new or changed positions are as follows: `o` David Koczkar - $1,500,000 `o` Milosh Milisavljevic - $780,000 `o` Mark Rogers - $1,000,000 `o` Andrew Wilson - $1,000,000
Short-term incentive (STI)	• STI awards for ELT members reflected Group operating profit and Brand Net Promoter Score (NPS) performance exceeding target expectations, while Health Insurance revenue growth landed just below target expectations. • Discretion was exercised to reduce the 2021 STI outcomes for ELT members from an average of 80% of their maximum opportunity, to 70%. • 50% of STI awards for ELT members deferred for 12 months in the form of performance rights. • Changes to the 2022 target and maximum STI percentages for ELT members recently appointed to new or changed positions are as follows: `o` David Koczkar – 100% target / 150% maximum `o` Milosh Milisavljevic – 65% / 100% `o` Mark Rogers – 65% / 120% `o` Andrew Wilson – 65% / 120%
Long-term incentive (LTI)	• Medibank’s 2019 LTI was tested following the completion of the performance period on 30 June 2021 and resulted in a vesting outcome of 32% in line with terms of grant. • This outcome reflects no vesting against the earnings per share compound annual growth rate (EPS CAGR) measure, and partial vesting against the relative total shareholder return (TSR) measure, with a performance rank at the 57th percentile against our comparator group • Changes to the 2022 LTI opportunity percentages for ELT members recently appointed to new positions are as follows: `o` David Koczkar – 150% `o` Milosh Milisavljevic – 65%
Former Chief Executive Officer (CEO)	• In line with the terms of Medibank STI and LTI plans and on the basis of being a “good leaver”, Craig Drummond’s variable remuneration was treated as follows: `o`Full entitlement to a 2021 STI award on the basis of being employed for the entire performance year. 50% of Craig’s STI award will be paid in cash in September 2021, and 50% awarded as deferred cash, due to vest in September 2022. `o`Craig’s outstanding 2019, 2020 and 2021 LTI performance rights will be retained on a pro- rata basis and remain in restriction subject to the original performance hurdles `o`Craig will retain 253,972 of his 761,920 2021 LTI performance rights; 443,352 of his 665,028 2020 LTI performance rights; and all 790,720 of his 2019 LTI performance rights.

Non-executive directors

Non- executive director fees	• Non-executive director base and committee fees have been maintained at current levels for the second consecutive year. • Based on this decision, Medibank’s aggregate non-executive director fee spend will remain at $1,940,000 in 2022. • The total fee pool approved by shareholders at the annual general meeting in 2018 remains unchanged.

DIRECTORS’ REPORT

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3. Medibank’s remuneration strategy

At Medibank, we believe that remuneration is a key influencer of behaviour and can be used as a tool to reinforce our culture. Our people are guided by our strong set of values which are anchored to the core pillars of our culture – our purposes, our people and customers and our performance. We focus on our values every day to ensure we do the right thing by our customers, employees and the community.

Our remuneration strategy has been developed to focus ELT members on responsibly executing Medibank’s strategy, role-modelling behaviours that strengthen our values-based culture and achieving business objectives that increase value for our customers and shareholders. Supporting this strategy, our remuneration framework is designed to link reward to business outcomes, individual performance and behaviour, and to support Medibank’s long-term financial soundness and risk management framework.

The diagram below illustrates the relationship between Medibank’s remuneration strategy, reward framework and the timeline of when 2021 remuneration is delivered to ELT members.

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DIRECTORS’ REPORT

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4. Remuneration governance

Medibank has a robust governance framework in place to ensure that our remuneration and performance practices are fair, reasonable and aligned with the requirements outlined in our risk management framework. Our governance framework also considers regulatory compliance, customer outcomes, community expectations and the delivery of sustainable shareholder value.

4.1 The role of the Board in remuneration

The People and Remuneration Committee (P&RC) is a committee of the Board. The diagram below outlines the role of the P&RC in assisting and advising the Board on people and culture policies and practices, including remuneration:

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----- Start of picture text -----

Reviewing and overseeing
Medibank’s key people and
organisational strategies,
including employee
engagement, values,
behaviours and diversity
and inclusion
Reviewing employee
remuneration
arrangements with
Ensuring that
consideration for
Medibank’s
behaviours, regulatory
remuneration practices
compliance, customer
are consistent with the
outcomes, community
risk management
expectations and
framework and drives
P&RC
shareholder value
appropriate behaviours
Reviewing and monitoring
Reviewing and monitoring
Medibank’s health, safety and
Medibank’s strategies for
wellbeing strategy and
executive succession, talent
performance, workplace relations
acquisition and retention
and payroll integrity
----- End of picture text -----

Independent remuneration consultant

KPMG provides information to assist the P&RC in making remuneration decisions and recommendations to the Board
The work undertaken by KPMG in 2021 did not constitute a remuneration recommendation

DIRECTORS’ REPORT

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While there are four permanent members of the P&RC, a standing invitation exists to all non-executive directors to attend meetings. The Chief Executive Officer (CEO) and Group Executive – People & Culture are also invited to attend P&RC meetings, except where matters associated with their own performance or remuneration are considered. Specific governance activities with respect to the P&RC include regular reviews of the P&RC Charter to ensure consideration of changing regulations, guidelines and best practice and an annual audit of committee minutes against the P&RC Charter. For P&RC meeting attendance information, refer to the table on page 15 of the directors’ report.

4.2 Executive remuneration policies

4.2.1 Performance evaluation of ELT members

At the outset of each performance year, the Board determines the measures against which ELT members will be assessed. The measures are a combination of Medibank (Company) and role-specific performance measures that are aligned to the achievement of Medibank’s customer and financial milestones set out in the annual report. Aligned with Medibank’s Group wide performance framework ‘I Perform Better’, the role-specific measures for ELT members are known as ‘Big Goals’ (an acronym for Bold, Impactful Goals). Big Goals are designed to be ambitious, aspirational and shift expectations from delivering at a base level against core job requirements to driving strong, impactful performance. The Big Goals adopted by each ELT member then form the basis for the Big Goals adopted by their leadership team members and their respective teams to ensure all employees across the Group are working towards a shared and consistent strategy.

At the completion of the performance year, ELT members are individually assessed against the risk, compliance and behaviour gateway which is outlined in section 6.3. ELT members are then attributed an outcome against a 5-point rating scale (with a minimum rating of 3 required to receive a short-term incentive (STI) award) that assesses ELT member performance and behaviours against business outcomes and achievement of role-specific performance measures. The individual performance ratings of ELT members are then combined with performance against Company measures to determine STI outcomes.

With respect to fixed remuneration adjustments, consideration is given to role-specific performance, experience, the complexity of the role and Medibank’s market comparator group. Additional detail on STI performance measures are included in sections 6 and 7 of this report and further information on fixed remuneration levels for ELT members is outlined in section 6.2.

The CEO provides his performance assessment of each ELT member to the Board for consideration. The Chairman, in consultation with the Board, assesses the performance, behaviour and conduct of the CEO. The Board has ultimate discretion over final individual performance outcomes for all ELT members to ensure alignment with Medibank performance, customer outcomes, community and shareholder expectations.

4.2.2 Clawback of executive performance-based remuneration

Medibank has an Executive Remuneration Clawback Policy that provides discretion to the Board to reduce, cancel, or recover (clawback) any performance-based awards made to a senior executive employee in certain circumstances and subject to applicable laws, including the following:

Serious misconduct, fraud or dishonesty by the employee.
Any behaviour, act or omission by the employee that impacts on the Group’s reputation or long-term financial soundness.
A material misstatement of the Group’s financial statements.
The Board becomes aware of any other action or behaviour that it determines (acting in good faith) has resulted in the employee receiving an inappropriate benefit.

The Executive Remuneration Clawback Policy provides that if any of these events have occurred in the previous five financial years the Board may, in its absolute discretion, withhold an employee’s performancebased payments, require the repayment of all, or part of, previous performance-based awards, lapse previously deferred and unvested performance-based rewards, or otherwise alter an employee’s remuneration subject to applicable laws. In addition to a stand-alone policy, Medibank’s remuneration clawback provisions are outlined in executive employment contracts and employee equity offer documentation.

DIRECTORS’ REPORT

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4.2.3 Executive shareholding requirements

ELT members are subject to a Minimum Shareholding Policy that is designed to strengthen their alignment with customers and shareholders by requiring them to hold Medibank shares with a value equivalent to 100% of their annual fixed remuneration within five years of appointment to the ELT. The policy does not require an ELT member to purchase shares, however they are restricted from selling their vested employee equity holdings (other than to satisfy income tax obligations) until they meet the minimum shareholding requirement.

All Medibank shares and unvested performance rights that are subject to a tenure-based hurdle held by, or on behalf of, the ELT member (for example within a family trust or self-managed superannuation fund where they are the beneficial owner) will count towards satisfaction of the minimum shareholding requirement.

As at 30 June 2021, progress towards the minimum shareholding requirement for each ELT member is provided below:

provided below:
ELT member	Minimum shareholding requirement $1	Value of eligible shareholdings as at 30 June 2021$2	Minimum shareholding requirement timeline
David Koczkar	1,500,000	2,508,057	Requirement satisfied
Kylie Bishop	580,000	1,339,834	Requirement satisfied
John Goodall	555,000	467,494	5 December 2021
Milosh Milisavljevic	780,000	45,719	22 June 2026
Mei Ramsay	555,000	652,919	Requirement satisfied
Mark Rogers	1,000,000	1,085,555	Requirement satisfied
Andrew Wilson	1,000,000	2,927,740	Requirement satisfied

Minimum shareholding requirement based on ELT members’ total fixed remuneration (TFR) as at 30 June 2021.
Holding value is calculated with reference to the total number of eligible shares or performance rights held by each ELT member, multiplied by the closing price of Medibank’s shares on 30 June 2021 ($3.16).
Craig Drummond ceased to be a KMP on 17 May 2021 and was therefore no longer subject to this policy as at 30 June 2021.

4.2.4 Share Trading Policy

We have a Share Trading Policy to ensure that all employees understand their obligations in relation to dealing in Medibank shares. The Share Trading Policy describes restrictions on buying and selling Medibank shares for non-executive directors and other Medibank employees.

In addition, non-executive directors, ELT members, all senior leaders and employees with potential access to inside information are deemed to be ‘Restricted Employees.’ They are required to seek approval before dealing in Medibank shares and are subject to share trading blackouts prior to financial result announcements and other times, as required. The policy also prohibits employees from entering into transactions relating to Medibank shares which limit their economic risks, including in relation to the long-term incentive (LTI) Plan and equity-based component of the STI Plan.

Our Share Trading Policy can be found within the corporate governance section on our website.

4.2.5 Termination provisions in ELT member contracts

All current ELT members are employed under ongoing contracts with notice periods set at three months (employee) and six months (employer), or in the case of the CEO, six months (employee) and six months (employer). Termination provisions included in ELT member contracts are limited to six months payment of fixed remuneration, in lieu of notice.

If an ELT member is assessed by the Board as a ‘good leaver’ (meaning they cease employment by reason of death, serious disability, permanent incapacity, retirement, redundancy or with Board approval), the cash STI award in respect of the performance year in which they leave would be paid on a pro rata basis at the end of the STI performance period. The deferred component of the STI award will be paid in cash (rather than performance rights) on a pro rata basis with payment deferred until 12 months following the payment of the cash component. Any previously deferred STI remains restricted until the applicable vesting date, unless determined otherwise by the Board. Performance rights issued as LTI are retained on a pro rata basis by a ‘good leaver’. Retained performance rights remain unvested and subject to the same vesting conditions that

DIRECTORS’ REPORT

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will be assessed at the end of the performance period. Further details of the termination provisions that relate to the STI and LTI plans are detailed in section 6 of this report.

5. Risk and remuneration

A key focus for Medibank’s Board and People and Remuneration Committee (P&RC) is ensuring our remuneration policies and practices are consistent with our risk management framework, aligned with prudent risk taking and support the effective management of financial and non-financial risks.

5.1 Risk culture

An engaged culture is contingent on alignment between purpose, values, behaviours and strategic direction. With a focus on ensuring we do the right thing for our people, customers and community, Medibank’s purpose and values provide guidance for the behaviours we expect of our employees. Our strong purpose and values focus is the cornerstone of our organisational culture and has been consistently positive over a seven-year cultural transformation. This builds on Medibank’s Code of Conduct which sets out the way we work at Medibank and outlines practical principles and standards of behaviour and conduct which are expected of all Medibank employees. As further guidance, Medibank’s risk culture framework clearly articulates the behaviours employees are expected to exhibit from a risk culture perspective. As an organisation, we are committed to not only complying with legal obligations, but also acting ethically and responsibly in relation to our people, customers and the community. The behaviours that support our risk culture include:

We actively challenge risk decisions to ensure benefit for our customers, our employees, our brand and our shareholders.
We escalate risk issues without fear or favour.
We all own risk issues.
We expect that all our risk and reward discussions are viewed through our values and business goals.
We learn from our experiences and mistakes to ensure we do better.

5.2 Alignment of remuneration with prudent risk taking

We believe that the effective alignment of remuneration with the risk appetite set by the Board is critical to our remuneration strategy and framework. Under Medibank’s Group wide performance framework ‘I Perform Better’, at the end of each financial year all employees are assessed against their personal scorecard, which is a combination of financial and non-financial measures, including performance against their risk, compliance and behaviour obligations. Through the performance assessment process, both positive and negative risk, compliance and behaviour outcomes are considered as part of a holistic performance assessment. Employees are then attributed an outcome against a five-point rating scale (with a minimum rating of three required to receive a short-term incentive (STI) award) that focuses on behaviours, business outcomes and achievement of role-specific performance measures. This then informs remuneration and performance-based incentive outcomes for the period.

The management of financial and non-financial risks by senior executives is reviewed by the Risk Management Committee (RMC). As part of this review the RMC considers the effective operation of divisional risk committees, incident identification, audit findings, remediation actions, health and safety, and feedback on risk culture from employees. In addition, the Chief Risk Officer, Group Executive – People & Culture and Group Executive – Legal, Governance & Regulatory Affairs are specifically tasked with notifying the Board of any relevant risk and compliance outcomes and/or conduct which may impact performance and remuneration outcomes for ELT members (including the CEO) and other senior executives.

Further, as outlined throughout this report, Medibank’s executive reward framework includes long-term deferral across both our STI Plan and long-term incentive (LTI) Plan to ensure risk outcomes are considered over extended periods.

5.3 Consequence management

A well understood and consistently applied consequence management process is a key part of our risk culture and ensures risk, compliance and behaviour outcomes are aligned with remuneration outcomes. Consequences of employees breaching Medibank’s Code of Conduct are clearly articulated and may include an employee attending further training or counselling, a formal written warning being applied, or in certain circumstances, termination of employment. The issue of a final written warning automatically results in the

DIRECTORS’ REPORT

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employee being given an ‘unsatisfactory’ performance rating for the relevant performance period, meaning the individual is ineligible for any performance-based reward outcome or fixed remuneration increase. Medibank’s individual incentive plan rules also clearly articulate that failure to meet the risk, compliance and behaviour gateway in any given performance period will consequently lead to ineligibility for an incentive award for a period of 12 months and potential termination.

In 2021, 19 employees were issued with final written warnings following a breach of Medibank’s Code of Conduct, or another Medibank Group policy. In all cases, each employee received a performance rating of ‘unsatisfactory’ and was ineligible for any applicable performance-based incentive or fixed remuneration increase. A further 12 individuals in 2021 had their employment terminated following an incident of misconduct.

6. Executive remuneration components

Target remuneration for Executive Leadership Team (ELT) members is designed to reward sustained business performance with behaviours aligned with Medibank’s values and purpose that benefits both customers and shareholders. The Board aims to find a balance between:

Fixed and at-risk remuneration.
Short-term and long-term remuneration.
Remuneration delivered in cash and deferred equity.
6.1 2021 target remuneration mix

The 2021 target remuneration mix for Medibank’s ELT members is shown below.

2021 target remuneration mix

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1
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Former ELT member
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David Koczkar’s remuneration mix reflects his Chief Customer Officer position which is applicable to the 2021 performance period. 2. Milosh Milisavljevic has been excluded from this list as his 2021 target remuneration mix reflects his former position as Senior Executive Customer Strategy & Growth.

DIRECTORS’ REPORT

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6.2 Total fixed remuneration (TFR)

This is the fixed portion of remuneration and includes base salary and employer superannuation contributions. Fixed remuneration is determined with reference to the executive’s capabilities, experience, the complexity of the role, as well as median pay levels for similar roles at companies in the ASX 11-100 (excluding mining and energy companies). This ensures that fixed remuneration is set at competitive levels and enables Medibank to attract and retain high quality executives. Further details of Medibank’s comparator group of companies is outlined in section 14 of this report.

The table below outlines the current TFR settings for ELT members as at 30 June 2021. The TFR for David Koczkar, Milosh Milisavljevic, Mark Rogers and Andrew Wilson reflect adjustments to their fixed remuneration following their recent appointments and a review of benchmark data.

6.2.1 Total fixed remuneration

*6.2.1 Total fixed remuneration*
ELT member	30 June 2021 $
David Koczkar1	1,500,000
Kylie Bishop	580,000
John Goodall	555,000
Milosh Milisavljevic2	780,000
Mei Ramsay	555,000
Mark Rogers3	1,000,000
Andrew Wilson4	1,000,000
Former ELT member
Craig Drummond	1,534,000

This represents David Koczkar’s TFR as at 30 June 2021 following his appointment as Chief Executive Officer. David’s previous TFR of $960,000 was used for the purposes of calculating his 2021 short-term incentive and long-term incentive awards.
This represents Milosh Milisavljevic’s TFR as at 30 June 2021 following his appointment as Group Executive - Customer Portfolios. Milosh’s 2021 short-term incentive and long-term incentive awards were calculated based on his TFR prior to his appointment as a KMP.
This represents Mark Rogers’ TFR as at 30 June 2021 following his expanded accountability as Group Executive – Chief Financial Officer & Group Strategy. Mark’s previous TFR of $925,000 was used for the purposes of calculating his 2021 short-term incentive and long-term incentive awards.
This represents Andrew Wilson’s TFR as at 30 June 2021 following his expanded accountability as Group Executive – CEO Health Services. Andrew’s previous TFR of $960,000 was used for the purposes of calculating his 2021 short-term incentive and long-term incentive awards.

6.3 Short-term incentive (STI)

STI is an at-risk element of remuneration, which is designed to reward executives for the creation of customer and shareholder value during the financial year. Executives must pass two separate gateways to participate in the plan. Once both gateways are achieved, executives have the opportunity to earn a percentage of their fixed remuneration as an incentive, based on company and individual performance.

6.3.1 STI gateways

For an STI award to be made to an ELT member, the following gateways must be achieved:

Risk, compliance and behaviour gateway

Individually assessed, the risk, compliance and behaviour gateway requires ELT members to:

Adhere to Medibank’s Code of Conduct which covers standards of behaviour and conduct which includes anti-harassment, anti-discrimination and anti-bribery and corruption obligations. Our Code of Conduct requires all employees to not only comply with our legal obligations, but also to act ethically and responsibly in relation to our customers, colleagues and the community.

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Complete all mandatory compliance training which includes privacy, cyber-security, health and safety, bullying and harassment, bribery and corruption and meeting our legal, ethical and governance requirements.
Ensure that the risks in respect of their position are well managed. Multiple factors are considered when assessing risk management (including environment, social and corporate governance and climate risks where relevant), which differ based on an executive’s role. Common elements include the effective operation of divisional risk committees, incident identification, audit findings, remediation actions, health and safety, and feedback on risk culture from employees.

Assessment of the risk, compliance and behaviour gateway is also subject to feedback provided by the Chief Risk Officer, Group Executive – People & Culture and Group Executive – Legal, Governance & Regulatory Affairs as outlined in section 5.2.

Financial gateway

Assessed at the Group level, Medibank must achieve a baseline of financial performance as determined by the Board for the performance period. In 2021, this baseline financial performance was a Group operating profit target.

6.3.2 STI performance measurement

The Board determines challenging levels of performance for each Medibank and role-specific STI performance measure. When setting performance expectations, the Board considers numerous factors, including Medibank’s strategic objectives, prior year performance, the external environment, customer outcomes and shareholder expectations. The Board also ensures that performance levels are set for the current year in the context of achieving longer term customer and financial strategic goals. Further detail on each performance measure is outlined in section 7.1.

At the completion of the performance year, an assessment is first made on the achievement of the STI gateways. If achieved, ELT members are then assessed against the company and role-specific performance measures to determine STI award outcomes. As an example, for an ELT member to achieve a target STI award, performance against Medibank and role-specific measures must be at the target level of performance as set by the Board (for that element of the award) and delivered with behaviours aligned with Medibank’s purpose and values.

For an ELT member to achieve a stretch STI award (therefore, award at maximum), performance against all Medibank and role-specific measures must be at or above stretch performance as set by the Board (for that element of the award) and delivered with behaviour aligned with Medibank’s values and purpose. This would represent exceptional performance, well above that of Medibank’s strategic plan.

6.3.3 Key features of the STI plan

Over what period is performance assessed?	The STI performance period is the financial year 1 July to 30 June.
How are STI payments delivered?	50% of STI awarded to ELT members is paid as cash, with the remaining 50% deferred for 12 months (deferred STI). Deferred STI is provided in the form of 12-month deferred performance rights.
When are STI payments made?	The cash component of STI is paid following the release of audited financial results, with performance rights for the deferred STI component granted shortly thereafter.

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What method is used to determine the number of performance rights granted to each participant as part of the deferred STI?	Performance rights under the STI plan are granted at face value. The deferred STI value for each ELT member is divided by the volume weighted average share price (VWAP) of Medibank shares to determine the number of units granted. For the 2021 deferred STI component the VWAP will be calculated on the 10 tradingdays upto and including16 September 2021.
Are deferred STI performance rights entitled to receive a dividend payment?	Deferred STI performance rights do not attract dividends during the deferral period. To align participant outcomes with shareholders, on vesting of these performance rights additional Medibank shares are granted to ensure each participant receives a benefit equivalent to any dividends paid during the deferral period.
What gateways apply to the STI plan?	For an STI award to be made to an ELT member, both the risk, compliance and behaviour gateway, and the financial gateway must be achieved. Further detail on these gateways is outlined in section 6.3.1.
What are the performance measures under the STI plan?	Performance measures under the STI plan are determined by the Board at the commencement of each performance period. For 2021, the performance measures were: • Group operating profit (excluding investment income). • Health Insurance premium revenue growth. • Brand Net Promoter Score (NPS). • Role-specific metrics. Further detail on each performance measure is outlined in section 7.1.
Does Medibank disclose STI performance targets?	Section 7.1 of this report provides a detailed description of Medibank’s STI performance measures and a description of how the organisation has performed against each measure in 2021. Actual target values are not disclosed as this is considered to be commercially sensitive information.
Does Medibank have a clawback policy that applies to the STI plan?	Medibank has an Executive Remuneration Clawback Policy that provides discretion to the Board to reduce, cancel, or recover (clawback) any award made under the STI plan to an ELT member in certain circumstances subject to applicable laws. Further detail on this policy is outlined in section 4.2.2.
What happens to STI entitlements if an ELT member leaves Medibank?	If an ELT member is a ‘good leaver’ (meaning they cease employment by reason of death, serious disability, permanent incapacity, retirement, redundancy, or with Board approval), pro rata payment of STI applies. Section 4.2.5 provides additional information on the treatment of STI for people deemed as ‘good leavers’ by the Board.
In what circumstances are STI entitlements forfeited?	In the event an ELT member is not considered a ‘good leaver’ (meaning they cease employment for any reason other than death, serious disability, permanent incapacity, retirement, redundancy or with Board approval), the ELT member will forfeit any payment under the STI plan, including any unvested deferred STIgrants,unless otherwise determined bythe Board.

DIRECTORS’ REPORT

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6.3.4 Annual STI opportunity

The target and maximum annual STI opportunity as a percentage of TFR for ELT members is outlined in the table below.


ELT member	Target	Maximum
David Koczkar1	65%	100%
Kylie Bishop	55%	100%
John Goodall	55%	100%
Mei Ramsay	55%	100%
Mark Rogers	65%	100%
Andrew Wilson	65%	100%
Former ELT member
Craig Drummond	100%	150%

David Koczkar’s 2021 target and maximum STI opportunity reflects his previous position as Chief Customer Officer and is applicable for the 2021 performance period.
Milosh Milisavljevic’s 2021 STI opportunity is based on his previous position as Senior Executive Customer Strategy & Growth prior to his appointment as a KMP and is excluded from this table.

6.4 Long-term incentive (LTI)

LTI is an at-risk element of remuneration designed to reward executives for delivering sustainable business performance over the long term. Given the nature of the private health insurance industry and the fact that it is highly regulated, the Board considers it appropriate to measure long term performance over a three-year period. Each year executives are eligible to receive an LTI which is calculated as a percentage of their fixed remuneration. This incentive is subject to performance hurdles that will be tested at the end of the three-year performance period. Based on performance against these hurdles a percentage of the incentive will be retained by the executive with the remainder being forfeited.

6.4.1 Key features of the LTI plan

What is the aim of the LTI plan?	The Medibank LTI plan is designed to: • Align the interests of ELT members more closely with the interests of customers and shareholders, by providing an opportunity for those executives to receive an equity interest in Medibank through the granting of performance rights. • Assist in the motivation, retention and reward of ELT members over the three-year deferral period.
What is the performance period for 2021 LTIplan?	The performance period for the 2021 LTI plan is three financial years commencing 1 July 2020. A three-year performance period strikes a balance between providing a reasonable period to align reward with shareholder return and the LTI acting as a vehicle for executive motivation and retention.
What are performance rights?	Performance rights issued to ELT members under the LTI plan are conditional rights for the participant to subscribe for fully paid ordinary shares in Medibank. Each performance right entitles the ELT member to subscribe for one ordinary share if the performance hurdles are met at the conclusion of the performance period. No amount is payable by the participant upon exercise of the performance rights once they have vested.

What is the
aim of the LTI
plan?

The Medibank LTI plan is designed to:
•
Align the interests of ELT members more closely with the interests of
customers and shareholders, by providing an opportunity for those
executives to receive an equity interest in Medibank through the granting of
performance rights.
•
Assist in the motivation, retention and reward of ELT members over the
three-year deferral period.

What is the
performance
period for
2021 LTIplan?

The performance period for the 2021 LTI plan is three financial years commencing 1
July 2020. A three-year performance period strikes a balance between providing a
reasonable period to align reward with shareholder return and the LTI acting as a
vehicle for executive motivation and retention.

What are
performance
rights?

Performance rights issued to ELT members under the LTI plan are conditional rights
for the participant to subscribe for fully paid ordinary shares in Medibank.
Each performance right entitles the ELT member to subscribe for one ordinary share
if the performance hurdles are met at the conclusion of the performance period. No
amount is payable by the participant upon exercise of the performance rights once
they have vested.

DIRECTORS’ REPORT

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What method is used to determine the number of performance rights granted to each participant?	Performance rights under the LTI plan are granted at face value. Each ELT member receives a percentage of their fixed remuneration in LTI (refer to section 6.4.2 for details). This amount is then divided by the face value of Medibank shares. For the 2021 LTI plan, the number of performance rights granted to each ELT member was determined using the volume weighted average price of Medibank shares on the ASX during the 10 trading days up to and including, 30 June 2020. This average price was $3.02.
What gateways apply to the LTI plan?	For an LTI award to be granted to an ELT member, the risk, compliance and behaviour gateway must be met prior to grant. Further detail on this gateway is outlined in section 6.3.1.
What are the performance hurdles under the 2021 LTI plan?	Performance rights issued under the 2021 LTI plan are subject to three separate performance hurdles: • 35% of the performance rights are subject to a performance hurdle based on Medibank’s earnings per share compound annual growth rate (EPS CAGR) over the performance period. The starting point for EPS will be calculated using Medibank’s underlying profit as at 30 June 2020 and the performance period for the EPS performance hurdle will run for three years from 1 July 2020 through to 30 June 2023. Further detail on the profit measure used in the calculation of EPS is provided in section 6.4.3. • 35% of the performance rights are subject to a relative total shareholder return (TSR) performance hurdle, measured over the performance period. Medibank’s relative TSR will be compared to a comparator group comprising companies with a market capitalisation positioned within the ASX 11-100 (excluding mining and energy companies). • 30% of the performance rights are subject to a performance hurdle based on the growth of Medibank’s private health insurance market share (as reported by APRA) over the performance period. These performance hurdles were chosen by the Board as they are aligned with the interests of our customers and shareholders and represent well understood and transparent mechanisms to measure performance and provide a strong link between executive reward and shareholder wealth creation. The performance hurdles under the 2021 LTI plan have threshold levels which need to be achieved before vesting commences. Details of these thresholds are outlined in the vestingschedule in section 6.4.3.
When do the performance rights vest?	Performance hurdles are assessed as soon as practicable after the completion of the relevant performance period. The number of performance rights that vest (if any) will be relative to the achievement against the performance hurdles. See section 6.4.3 for the vesting schedule associated with each performance hurdle.
Are the performance hurdles re- tested?	No. Performance hurdles are only tested once at the end of the performance period. Any performance rights that remain unvested at the end of the performance period are immediately forfeited.
Are LTI performance rights entitled to receive a dividend payment?	LTI performance rights do not attract a dividend during the performance period, as they are still subject to performance hurdles that will determine the number of rights that convert to ordinary Medibank shares.

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Does Medibank have a clawback policy that applies to the LTIplan?	Medibank has an Executive Remuneration Clawback Policy that provides discretion to the Board to reduce, cancel, or recover (clawback) any award made under the LTI Plan to an ELT member in certain circumstances subject to applicable laws. Further detail on this policy is outlined in section 4.2.2.
What happens to LTI entitlements if an ELT member leaves Medibank?	If an ELT member is a ‘good leaver’ (meaning they cease employment by reason of death, serious disability, permanent incapacity, retirement, redundancy, or with Board approval), a portion of the performance rights held (granted, but not vested) by that participant on cessation of employment will be forfeited on a pro rata basis according to a formula which takes into account the length of time the participant has held the performance rights relative to the performance period for the grant. The retained performance rights will remain unvested and will be tested at the end of the performance period against the existing performance hurdles.
In what circumstances are LTI entitlements forfeited?	LTI entitlements are forfeited if performance hurdles are not met. In the event an ELT member is not considered a ‘good leaver’ (meaning they cease employment for any reason other than death, serious disability, permanent incapacity, retirement, redundancy or with Board approval), the performance rights held (granted, but not vested)bythatparticipant on cessation of employment will be automaticallyforfeited.

Does
Medibank
have a
clawback
policy that
applies to the
LTIplan?

Medibank has an Executive Remuneration Clawback Policy that provides discretion
to the Board to reduce, cancel, or recover (clawback) any award made under the LTI
Plan to an ELT member in certain circumstances subject to applicable laws. Further
detail on this policy is outlined in section 4.2.2.

What happens
to LTI
entitlements if
an ELT
member
leaves
Medibank?

If an ELT member is a ‘good leaver’ (meaning they cease employment by reason of
death, serious disability, permanent incapacity, retirement, redundancy, or with
Board approval), a portion of the performance rights held (granted, but not vested)
by that participant on cessation of employment will be forfeited on a pro rata basis
according to a formula which takes into account the length of time the participant
has held the performance rights relative to the performance period for the grant.
The retained performance rights will remain unvested and will be tested at the end
of the performance period against the existing performance hurdles.

In what
circumstances
are LTI
entitlements
forfeited?

LTI entitlements are forfeited if performance hurdles are not met. In the event an ELT
member is not considered a ‘good leaver’ (meaning they cease employment for any
reason other than death, serious disability, permanent incapacity, retirement,
redundancy or with Board approval), the performance rights held (granted, but not
vested)bythatparticipant on cessation of employment will be automaticallyforfeited.

The annual LTI allocation value as a percentage of TFR for ELT members is outlined in the table below.

6.4.2 Annual LTI allocation

	2021
ELT member	LTI allocation value as % of TFR
David Koczkar1	65%
Kylie Bishop	60%
John Goodall	60%
Mei Ramsay	60%
Mark Rogers	65%
Andrew Wilson	65%
Former ELT member
Craig Drummond	150%

David Koczkar’s 2021 LTI opportunity reflects his previous position as Chief Customer Officer and is applicable for the 2021 performance period.
Milosh Milisavljevic’s 2021 LTI opportunity is based on his previous position as Senior Executive Customer Strategy & Growth prior to his appointment as a KMP and is excluded from this table.

6.4.3 LTI hurdles explained

Each year, the Board reviews the LTI targets and vesting conditions in the context of Medibank’s operating environment. The Board is committed to setting targets which are appropriately challenging for management to meet while not being unattainable and which ultimately support the delivery of strong outcomes for our customers and shareholders. For the 2021 LTI offer, the Board also considered the uncertainty surrounding the economic and social impact of COVID-19 on Medibank’s operating environment and the PHI landscape more broadly.

2021 EPS performance rights (35% of award)

In this context, the Board approved maintaining a threshold EPS CAGR target of 3% for the 2021 LTI grant. The number of EPS performance rights that vest on achievement of the threshold EPS CAGR target has been increased by the Board to 50% of the EPS performance rights. The EPS CAGR target that must be met for 100% of the EPS performance rights to vest has been reduced by the Board to 7%. This change was made to

DIRECTORS’ REPORT

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achieve a more appropriate balance between the goals of attainability and challenge. Details of the vesting schedule are outlined in the table below:

achieve a more appropriate balance between schedule are outlined in the table below:	the goals of attainability and challenge. Details of the vesti
Medibank’s EPS CAGR over the performanceperiod	Percentage of EPS performance rights that vest
Less than 3% EPS CAGR	Nil
At 3% EPS CAGR	50%
Between 3% and 7% EPS CAGR	Straight-linepro rata vestingbetween 50% and 100%
7% EPS CAGR or greater	100%

Medibank’s performance against the EPS hurdle is calculated based on the compound annual growth rate (CAGR) of Medibank’s EPS over the performance period. EPS is based on underlying profit, which adjusts statutory net profit after tax (NPAT) where appropriate, for short-term outcomes that are expected to normalise over the medium to longer term, most notably in relation to the level of gains or losses from investments, due to the limited control that management has over these outcomes.

2021 TSR performance rights (35% of award)

Medibank’s TSR will be compared against companies within the ASX 11-100 (excluding mining and energy companies), which is the same comparator group used for executive and non-executive remuneration benchmarking. For any of the 2021 TSR performance rights to vest, Medibank must achieve the threshold TSR ranking over the performance period. The percentage of the 2021 TSR performance rights that vest, if any, will be based on Medibank’s TSR ranking at the end of the performance period, as set out in the following vesting schedule:

Medibank’s TSR rank in the 2021 comparatorgroup	Percentage of TSR performance rights that vest
Less than 50th percentile	Nil
Equal to 50th percentile	50%
Greater than 50th and up to 75th percentile	Straight-linepro rata vestingbetween 50% and 100%
At or above 75th percentile	100%

The TSR of Medibank and other companies within the comparator group, expressed as a compound annual rate of return, will be comprised of:

a) The change in share price of each company over the performance period. The change in share price is calculated using the volume weighted average price (VWAP) of each entity over the 20 trading days leading up to and including the performance period start and end dates. The VWAP at the end of the performance period will be adjusted for any stock splits that occur during the performance period.
b) The value of all dividends and other shareholder benefits paid by each company during the performance period assuming that:
i. The dividends and shareholder benefits are reinvested in the relevant company at the closing price of the securities on the date the dividend or shareholder benefit was paid.
ii. Franking credits are disregarded.

The entities comprising the 2021 comparator group are determined at the commencement of the performance period. If the ordinary shares or stock of a member of the 2021 comparator group is not quoted on the ASX at the end of the performance period (for example if the member has been delisted for any reason), then it will be excluded from calculations of the TSR calculation, unless the Board, acting in good faith and in its absolute discretion, determine otherwise. In exercising its discretion, the Board may have regard to such matters it deems relevant including (but not limited to) the length of time that the member was quoted on the ASX during the performance period.

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2021 market share performance rights (30% of award)

The Board approved maintaining a threshold private health insurance (PHI) market share growth target of 25 basis points. To maintain the balance between the goals of attainability and challenge, the number of market share performance rights that vest on achievement of the threshold target has been increased to 50% of the market share performance rights. The PHI market share growth target that must be met for 100% of the market share performance rights to vest has been maintained at 75 basis points. Details of the vesting schedule are set out below:

set out below:
Medibank’s PHI market share growth	Percentage of market share performance rights that vest
Less than 25 basis points	Nil
Equal to 25 basis points	50%
Greater than 25 basis points and up to 75 basis points	Straight-line pro rata vesting between 50% and 100%
At or above 75 basis points	100%

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7. Linking remuneration and performance 2021

7.1 2021 short-term incentive (STI) performance scorecard

The following table details the 2021 STI performance scorecard measures, weightings and assessment as applied to the Chief Executive Officer (CEO) and other Executive Leadership Team (ELT) members.

Measure	Description	Weighting	Weighting	2021 performance assessment
		CEO	Other ELT members
Risk, compliance and behaviour gateway	Individually assessed, ELT members must adhere to Medibank’s Code of Conduct, ensure that the risks in respect of their position are well managed and complete all mandatory compliance training. Medibank’s Code of Conduct requires all employees to not only comply with our legal obligations, but also to act ethically and responsibly in relation to our customers, colleagues and the community. The management of risks (including environment, social and corporate governance and climate risks where relevant) is reviewed by the Risk Management Committee and considers the effective operation of divisional risk committees, incident identification, audit findings, remediation actions, health and safety, feedback on risk culture from employees, and feedback provided by the Chief Risk Office, Group Executive – People & Culture and Group Executive – Legal,Governance & RegulatoryAffairs as outlined in section 5.2.	Gateway	Gateway	All achieved
Financial gateway	Medibank must achieve a baseline of financial performance, as determined by the Board for the performance period. In 2021, this baseline financial performance was a Group operating profit target.	Gateway	Gateway	Met
Group operating profit	Group operating profit represents the core financial measure for the annual STI Plan and reflects the Board’s belief that it is the best measure of underlying business performance and value created for customers and shareholders over the performance period.	45%	35%	Above target
Health Insurance premium revenue growth	Measured alongside the core metric of Group operating profit, the focus of this measure is sustainable and profitable revenue growth to ensure optimal value creation for customers and shareholders.	20%	25%	Below target
Brand Net Promoter Score (NPS)	Brand NPS is a key customer advocacy metric that measures the likelihood of people recommending Medibank or ahm to their families and friends.	20%	20%	Above target
Role-specific big goals	Aligned to one or more of the following milestones: 1. Customer and employee advocacy– Continue to achieve a high level of advocacy by delivering exceptional experiences for our customers and employees. 2. Health and wellbeing differentiation– Double the uptake of Medibank’s Live Better and Health Assist programs by FY22 while ensuring every customer has at least one personalised health interaction through the year 3. Health insurance growth– We aim to increase market share and achieve total policyholder growth in excess of 3%, including an expectation of growing the Medibank brand by c. 1% during FY21 4. In-home care– More than 300 virtual hospital beds by the end of FY22 5. Medibank Health– By FY22 organically replace the reported FY18 $30m operating profit of Garrison 6. Productivity– FY21 productivity target of $20 million and additional $30 million during FY22-FY23	15%	20%	Ranging between ‘on- track’ to ‘ahead of target’

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7.2 Medibank’s 2021 financial performance

Medibank’s 2021 annual financial performance is provided in the table below in addition to the average 2021 STI award achieved by ELT members, as a percentage of maximum opportunity. This table illustrates the relationship between the key indicators of shareholder wealth creation and STI outcomes for ELT members.

Measure	2021	2020	2019	2018	2017
Health Insurance premium revenue growth	2.1%	1.3%	2.4%	1.2%	1.2%
Group operating profit1	$528.3m	$461.0m	$558.7m	$548.8m	$500.5m
Group net profit after tax(NPAT)	$441.3m	$315.0m	$458.7m	$445.1m	$449.5m
Dividend	12.7 cents p/s	12.0 cents p/s	13.1 cents p/s	12.7 cents p/s	12.0 cents p/s
Share price as at 1 July	$2.99	$3.49	$2.92	$2.80	$2.95
Share price as at 30 June	$3.16	$2.99	$3.49	$2.92	$2.80
Average ELT STI as a percentage of maximum opportunity	70%	0%	56%	58%	44%

2019 Group operating profit of $558.7 million includes $30.2 million of operating profit attributable to discontinued operations.

7.3 2021 STI awards

The table below provides a summary of STI awards for the 2021 performance year. As outlined earlier in the report, in assessing Medibank’s 2021 performance against our STI measures, the Board adjusted outcomes to normalise for unbudgeted COVID-19 related impacts (both negative and positive) outside of management’s control to ensure that executives did not benefit from windfall gains. Further to this assessment, the Board exercised discretion to reduce the 2021 STI outcomes for ELT members from an average of 80% of their maximum opportunity, to 70%.

ELT member	Total STI achieved $	STI cash (50%) $	STI deferred (50%) $	Total STI achieved as % of target	Total STI achieved as % of max opportunity
David Koczkar	729,792	364,896	364,896	117.0%	76.0%
Kylie Bishop	395,792	197,896	197,896	124.1%	68.2%
John Goodall	353,758	176,879	176,879	115.9%	63.7%
Mei Ramsay	353,758	176,879	176,879	115.9%	63.7%
Mark Rogers	670,810	335,405	335,405	111.6%	72.5%
Andrew Wilson	662,592	331,296	331,296	106.2%	69.0%

Craig Drummond1	1,742,624	871,312	871,312	113.6%	75.7%

The deferred component of Craig Drummond’s 2021 STI outcome will be awarded as deferred cash, due to vest in September 2022.
The 2021 STI outcome for Milosh Milisavljevic was based on his performance and remuneration settings prior to becoming a KMP on 22 June 2021 and has therefore not been included in this table.

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7.4 2019 Long-term incentive plan outcomes

The performance period for the 2019 LTI plan concluded on 30 June 2021. The table below outlines the final outcome against each performance hurdle and associated vesting percentage for each hurdle, and the plan.

Performance hurdle	Weighting	Outcome	Vesting percentage
EPS CAGR	50%	-2.8%	0%
Relative TSR	50%	57th percentile	64%
	Total 2019 LTI vesting percentage		32%

Medibank’s 2019 LTI was tested following the completion of the performance period on 30 June 2021. Both performance hurdles were assessed in line with the terms of the plan and the Board did not use discretion in determining the final outcome. The performance rights under the 2019 LTI Plan that did not vest as a result of the performance hurdle outcomes not being met lapse immediately.

The 2020 and 2021 LTI plans remain in restriction and will be assessed against their performance hurdles at the completion of the 2022 and 2023 financial years respectively.

8. 2021 actual remuneration (Non-IFRS disclosure)

The table below represents the 2021 ‘actual’ remuneration for ELT members and includes all cash payments made in relation to 2021, in addition to deferred short-term incentive (STI) awards that vested in 2021.

Statutory remuneration disclosures prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards differ to the numbers presented below, as they include (among other benefits) expensing for equity grants that are yet to realise or may never be realised. The statutory remuneration table in respect of the ELT members is presented in section 9.

ELT member	Base salary and superannuation	Cash STI for performance to 30 June 2021	Total cash payments in relation to 2021	Deferred equity awards that vested in 20211	Total 2021 actual remuneration	Equity awards that lapsed in 20212
David Koczkar	1,011,923	364,896	1,376,819	503,064	1,879,883	283,546
Kylie Bishop	580,000	197,896	777,896	283,113	1,061,009	170,359
John Goodall	540,731	176,879	717,610	259,159	976,769	162,617
Mei Ramsay	555,000	176,879	731,879	258,618	990,497	162,076
Mark Rogers	895,220	335,405	1,230,625	378,433	1,609,058	213,725
Andrew Wilson	960,000	331,296	1,291,296	523,759	1,815,055	315,424
Former ELT member
Craig Drummond	1,534,000	871,312	2,405,312	1,699,960	4,105,272	1,187,878

Deferred equity awards that vested in 2021 relate to the 2018 LTI performance rights that vested during the year and the deferred STI performance rights in respect to the 2019 performance year that vested during the year.
Equity awards that lapsed in 2021 relate to the portion of the 2018 long-term incentive (LTI) performance rights that lapsed following the testing of the performance hurdles in July 2020.
Milosh Milisavljevic’s 2021 actual remuneration was primarily based on his remuneration settings prior to becoming a KMP on 22 June 2021 and has therefore not been included in this table.

DIRECTORS’ REPORT

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9. Statutory remuneration tables

9.1 Statutory remuneration table

The following table has been prepared in accordance with Section 300A of the Corporations Act 2001 and details the statutory accounting expense of all remuneration-related items for the ELT members. In contrast to the table in section 8 that details 2021 actual remuneration, the table below includes accrual amounts for equity awards being expensed throughout 2021 that are yet to, and may never be realised by the ELT member.

ELT member	Financial year		Short-term benefits	Short-term benefits		Post-employment benefits	Long-term benefits	Long-term benefits	Equity-based benefits	Other	Total remuneration $
		Salary $1	Short-term incentive (STI) $	Other $	Non-monetary benefits $2	Superannuation $	Leave $3	Deferred STI $4	Performance rights $5	Termination benefits $
David Koczkar	2021	1,027,440	364,896	-	18,895	22,650	174,791	-	512,839	-	2,121,511
	2020	919,211	-	-	19,444	21,174	58,896	-	230,115	-	1,248,840
Kylie Bishop	2021	537,080	197,896	-	13,387	25,365	40,266	-	284,154	-	1,098,148
	2020	555,459	-	-	13,209	25,192	40,978	-	123,040	-	757,878
John Goodall	2021	533,772	176,879	-	18,191	25,365	17,029	-	265,642	-	1,036,878
	2020	530,146	-	-	12,721	25,192	15,821	-	110,038	-	693,918
Milosh Milisavljevic6	2021	21,818	4,772	-	212	740	8	-	1,762	-	29,312
	2020	-	-	-	-	-	-	-	-	-	-
Mei Ramsay	2021	503,674	176,879	-	14,460	25,365	40,362	-	265,642	-	1,026,382
	2020	503,330	-	-	14,224	25,192	50,019	-	109,952	-	702,717
Mark Rogers	2021	838,236	335,405	-	17,457	21,802	191,358	-	458,958	-	1,863,216
	2020	759,523	-	-	13,246	21,174	84,014	-	178,851	-	1,056,808
Andrew Wilson	2021	963,798	331,296	-	22,936	25,096	33,501	-	498,587	-	1,875,214
	2020	935,307	-	-	16,273	25,192	25,593	-	225,710	-	1,228,075
Former ELT member
Craig Drummond	2021	1,555,477	871,312	-	15,364	25,096	51,868	871,312	1,227,715	-	4,618,144

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	2020	1,567,526	-	-	19,296	25,192	47,723	-	663,660	-	2,323,397
Total ELT remuneration	2021	5,981,295	2,459,335	-	120,902	171,479	549,183	871,312	3,515,299	-	13,668,805
	2020	5,770,502	-	-	108,413	168,308	323,044	-	1,641,366	-	8,011,633

Salary includes annual base salary paid on a fortnightly basis and accrued but untaken annual leave entitlements which are ex pected to be taken in the next 12 months.
Non-monetary benefits may include death, total and permanent disablement insurance, salary continuance insurance, subsidised Medibank health insurance and fringe benefits that are on the same terms and conditions that are available to all employees of the Group.
Long-term leave comprises an accrual for long service leave and accrued but untaken annual leave entitlements which are not expected to be taken in the next 12 months. The significant year-onyear movements in this expense for David Koczkar and Mark Rogers reflect adjustments to their fixed remuneration following their new appointments and additional untaken annual leave entitlements accrued during the year.
Deferred STI is in relation to Craig Drummond’s deferred component of his 2021 STI which will be awarded as deferred cash (rather than performance rights) and vest in September 2022, in accordance with Medibank’s Executive STI plan rules.
Performance rights include equity-based remuneration incurred during the relevant financial year. The values are based on the grant date fair value amortised on a straight-line basis over the performance period and any reversals required by AASB 2 Share-based Payments .
The remuneration figures disclosed for Milosh Milisavljevic reflect the period from his commencement as a KMP on 22 June 2021.

9.2 Performance-related remuneration statutory table

The following table provides an analysis of the non-performance-related (fixed remuneration) and performance-related (short-term incentive (STI) and long-term incentive (LTI)) components of the 2021 remuneration mix for Medibank’s ELT members as detailed in the ‘statutory remuneration table’.

ELT member	Financial year	*Non-performance- related*	*Performance-related remuneration*	*Performance-related remuneration*	*Performance-related remuneration*	Total performance- related remuneration
		Fixed remuneration1	Cash STI	Deferred STI2	LTI3
David Koczkar	2021	58.6%	17.2%	8.6%	15.6%	41.4%
Kylie Bishop	2021	56.1%	18.0%	9.0%	16.9%	43.9%
John Goodall	2021	57.3%	17.1%	8.5%	17.1%	42.7%
Milosh Milisavljevic	2021	77.7%	16.3%	0.0%	6.0%	22.3%
Mei Ramsay	2021	56.9%	17.2%	8.6%	17.3%	43.1%
Mark Rogers	2021	57.4%	18.0%	9.0%	15.6%	42.6%
Andrew Wilson	2021	55.7%	17.7%	8.8%	17.8%	44.3%
Former ELT member
Craig Drummond	2021	35.7%	18.9%	18.9%	26.6%	64.4%

Fixed remuneration includes the accounting expense from all columns of the ‘statutory remuneration table’ other than ‘cash STI’, ‘performance rights’ and ‘deferred STI’.
Deferred STI includes the 2021 accounting expense of the 2021 deferred STI components within the ‘performance rights’ and ‘deferred STI’ columns of the ‘statutory remuneration table’.
LTI includes the 2021 accounting expense of the 2019, 2020 and 2021 LTI component within the ‘performance rights’ column of the ‘statutory remuneration table’.

DIRECTORS’ REPORT

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10. ELT equity awards

10.1 ELT equity award transactions

Details of 2021 ELT equity award transactions and outstanding holdings granted in previous years are set out below.

ELT member	Award type	Units granted	Grant date	Vesting and exercise date1	Unit price at grant $2	Fair value at grant $3		Vested	Vested		Lapsed	Lapsed	Other changes	Unvested balance at 30 June 20214	Unvested balance at 30 June 20214

							Units	%	$	Units	%	$	Units	Units	$
David Koczkar	2021 LTI performance rights	206,622	26/11/2020	01/07/2023	3.02	2.20	-	-	-	-	-	-	-	206,622	455,395
	2020 LTI performance rights	180,346	28/11/2019	01/07/2022	3.46	2.23	-	-	-	-	-	-	-	180,346	402,172
	2019 deferred STI performance rights	86,766	28/11/2019	18/09/2020	3.41	-	86,766	100	219,518	-	-	-	-	-	-
	2019 LTI performance rights	203,264	06/12/2018	01/07/2021	2.91	1.91	-	-	-	-	-	-	-	203,264	387,218
	2018 LTI performance rights	198,284	27/12/2017	01/07/2020	2.77	1.90	99,142	50	283,546	99,142	50	283,546	-	-	-
Kylie Bishop	2021 LTI performance rights	115,230	26/11/2020	01/07/2023	3.02	2.20	-	-	-	-	-	-	-	115,230	253,967
	2020 LTI performance rights	100,578	28/11/2019	01/07/2022	3.46	2.23	-	-	-	-	-	-	-	100,578	224,289
	2019 deferred STI performance rights	44,567	28/11/2019	18/09/2020	3.41	-	44,567	100	112,755	-	-	-	-	-	-
	2019 LTI performance rights	117,524	06/12/2018	01/07/2021	2.91	1.91	-	-	-	-	-	-	-	117,524	223,883

DIRECTORS’ REPORT

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	2018 LTI performance rights	119,132	27/12/2017	01/07/2020	2.77	1.90	59,566	50	170,359	59,566	50	170,359	-	-	-
John Goodall	2021 LTI performance rights	110,264	26/11/2020	01/07/2023	3.02	2.20	-	-	-	-	-	-	-	110,264	243,022
	2020 LTI performance rights	96,242	28/11/2019	01/07/2022	3.46	2.23	-	-	-	-	-	-	-	96,242	214,620
	2019 deferred STI performance rights	38,159	28/11/2019	18/09/2020	3.41	-	38,159	100	96,542	-	-	-	-	-	-
	2019 LTI performance rights	112,370	06/12/2018	01/07/2021	2.91	1.91	-	-	-	-	-	-	-	112,370	214,065
	2018 LTI performance rights	113,718	27/12/2017	01/07/2020	2.77	1.90	56,859	50	162,617	56,859	50	162,617	-	-	-
Milosh Milisavljevic5	2021 LTI performance rights	42,980	26/11/2020	01/07/2023	3.02	2.20	-	-	-	-	-	-	-	42,980	94,728
	2020 LTI performance rights	36,814	28/11/2019	01/07/2022	3.46	2.23	-	-	-	-	-	-	-	36,814	82,095
	2019 LTI performance rights	30,154	06/12/2018	01/07/2021	2.91	1.91	-	-	-	-	-	-	-	30,154	57,443
Mei Ramsay	2021 LTI performance rights	110,264	26/11/2020	01/07/2023	3.02	2.20	-	-	-	-	-	-	-	110,264	243,022
	2020 LTI performance rights	96,242	28/11/2019	01/07/2022	3.46	2.23	-	-	-	-	-	-	-	96,242	214,620
	2019 deferred STI performance rights	38,159	28/11/2019	18/09/2020	3.41	-	38,159	100	96,542	-	-	-	-	-	-
	2019 LTI performance rights	112,370	06/12/2018	01/07/2021	2.91	1.91	-	-	-	-	-	-	-	112,370	214,065

DIRECTORS’ REPORT

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	2018 LTI performance rights	113,340	27/12/2017	01/07/2020	2.77	1.90	56,670	50	162,076	56,670	50	162,076	-	-	-
Mark Rogers	2021 LTI performance rights	199,088	26/11/2020	01/07/2023	3.02	2.20	-	-	-	-	-	-	-	199,088	438,790
	2020 LTI performance rights	150,288	28/11/2019	01/07/2022	3.46	2.23	-	-	-	-	-	-	-	150,288	335,142
	2019 deferred STI performance rights	65,102	28/11/2019	18/09/2020	3.41	-	65,102	100	164,708	-	-	-	-	-	-
	2019 LTI performance rights	152,576	06/12/2018	01/07/2021	2.91	1.91	-	-	-	-	-	-	-	152,576	290,657
	2018 LTI performance rights	149,458	27/12/2017	01/07/2020	2.77	1.90	74,729	50	213,725	74,729	50	213,725	-	-	-
Andrew Wilson	2021 LTI performance rights	206,622	26/11/2020	01/07/2023	3.02	2.20	-	-	-	-	-	-	-	206,622	455,395
	2020 LTI performance rights	180,346	28/11/2019	01/07/2022	3.46	2.23	-	-	-	-	-	-	-	180,346	402,172
	2019 deferred STI performance rights	82,346	28/11/2019	18/09/2020	3.41	-	82,346	100	208,335	-	-	-	-	-	-
	2019 LTI performance rights	214,432	06/12/2018	01/07/2021	2.91	1.91	-	-	-	-	-	-	-	214,432	408,493
	2018 LTI performance rights	220,576	27/12/2017	01/07/2020	2.77	1.90	110,288	50	315,424	110,288	50	315,424	-	-	-
Former ELT member

Craig Drummond6	2021 LTI performance rights	761,920	26/11/2020	01/07/2023	3.02	2.20	-	-	-	-	-	-	(761,920)	-	-
	2020 LTI performance rights	665,028	28/11/2019	01/07/2022	3.46	2.23	-	-	-	-	-	-	(665,028)	-	-

DIRECTORS’ REPORT

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	2019 deferred STI performance rights	202,404	28/11/2019	18/09/2020	3.41	-	202,404	100	512,082	-	-	-	-	-	-
	2019 LTI performance rights	790,720	06/12/2018	01/07/2021	2.91	1.91	-	-	-	-	-	-	(790,720)	-	-
	2018 LTI performance rights	830,684	27/12/2017	01/07/2020	2.77	1.90	415,342	50	1,187,878	415,342	50	1,187,878	-	-	-

The vesting and exercise dates represent the earliest possible date the performance rights may vest, being the end of the performance period. The actual vesting and exercise date will be at a time and manner determined by the Board, with Medibank to notify the holder at that time. Any performance rights that do not vest at this point will immediately expire.
The unit price at grant represents the price used to determine the number of units granted, in line with Medibank’s methodology of granting equity awards at face value. Unit prices have been rounded to the nearest cent.
The fair value at grant has been based on a valuation by independent external consultants in accordance with accounting standard AASB 2 Share Based Payments . The fair values for the 2019, 2020 and 2021 long-term incentive (LTI) grants are used for accounting purposes only as all LTI grants are made using the face value, as outlined in section 6.4. Unit prices have been rounded to the nearest cent.
The unvested balance has been determined by multiplying the balance of short-term incentive (STI) performance rights at 30 June 2021 by the unit price at grant, and the balance of LTI performance rights at 30 June 2021 by the fair value at grant.
Milosh Milisavljevic’s equity award transactions reflect his holdings following his commencement as a KMP on 22 June 2021.
Craig Drummond ceased to be a KMP on 17 May 2021 and therefore Craig’s unvested balance as at 30 June 2021 has been adjusted to reflect no further holdings as a KMP. Details of how Craig’s LTI performance rights have been treated on the basis of being a “good leaver” are detailed in section 2 of this report.

DIRECTORS’ REPORT

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10.2 ELT members’ ordinary shareholdings

Details of the ordinary shareholdings of ELT members and their related parties are provided in the table below.

ELT member	Balance 30 June 2020	Shares received on vesting of performance rights1	Net movement of shares due to other changes2	Balance 30 June 2021
David Koczkar	721,988	191,701	(120,000)	793,689
Kylie Bishop	360,889	107,109	(44,000)	423,998
John Goodall	83,415	97,566	(33,040)	147,941
Milosh Milisavljevic3	-	-	14,468	14,468
Mei Ramsay	109,243	97,377	-	206,620
Mark Rogers	199,352	144,178	-	343,530
Andrew Wilson	728,368	198,132	-	926,500
Former ELT member
Craig Drummond4	732,578	631,261	(1,363,839)	-

Shares received on the vesting of deferred STI performance rights include the additional Medibank shares credited to ELT members upon the vesting of the 2019 deferred STI performance rights as a benefit equivalent to any dividends paid during the deferral period. For further information, please refer to section 6.3.3.
Net movement of shares relates to acquisition and disposal transactions by the ELT member and their related parties during the year.
Milosh Milisavljevic’s ordinary shareholdings reflect his holdings and movements following his commencement as a KMP on 22 June 2021.
Craig Drummond ceased to a KMP on 17 May 2021 and therefore Craig’s balance as at 30 June 2021 has been adjusted to reflect no further holdings as a KMP.

11. Non-executive director remuneration and framework

Non-executive director fees are determined by the Board and reflect the role, market benchmarks and Medibank’s objective to attract highly skilled and experienced independent non-executive directors. All nonexecutive directors are required to hold shares in Medibank to align with shareholder interests.

11.1 Non-executive director remuneration

Component	Delivered	Description
Base fee	Cash and superannuation	The base fee represents remuneration for service on the Medibank Board. The base fee for the Chairman represents the entire remuneration for that role.
Committee fees	Cash and superannuation	Committee fees represent remuneration for chairing, or membership of, Board committees.

11.1.1 Non-executive director fee cap

Under Medibank’s Constitution, the total fees paid in any financial year to all non-executive directors for their services (excluding, for these purposes, the salary of any executive director) must not exceed, in aggregate, the amount fixed at Medibank’s annual general meeting in 2018 at $2,300,000 per annum (fee cap).

11.1.2 2021 and 2022 non-executive director remuneration

Under Medibank’s Constitution, the Board is responsible for determining the total amount paid to each nonexecutive director as remuneration for their services. In making this determination, the Board has taken into

DIRECTORS’ REPORT

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account the level of work required for the role and has regard to the median remuneration paid to non-executive directors of companies positioned within the ASX 11-100 (excluding mining and energy companies).

Following the annual benchmarking exercise and the position of non-executive directors against the median of the benchmark group, non-executive director base and committee fees have been maintained at their current levels for 2022. Based on the composition of the Board, non-executive director fee spend for 2022 will be $1,940,000 against the approved cap of $2,300,000. Non-executive director fees applicable throughout 2021 and 2022 are set out in the table below:

Non-executive director fees applicable throughout 2021 and 2022 are set out in the table below:

Position	2021 & 2022 $
Chairman	445,000
Non-executive directors	165,000
Committee chairman fees
Audit Committee	40,000
Risk Management Committee	40,000
People and Remuneration Committee	40,000
Investment and Capital Committee	40,000
Committee membership fees
Audit Committee	20,000
Risk Management Committee	20,000
People and Remuneration Committee	20,000
Investment and Capital Committee	20,000

11.2 Non-executive director superannuation

Medibank meets its obligations under the Superannuation Guarantee legislation by paying superannuation contributions in respect of non-executive directors to their nominated complying superannuation funds up to the concessional contribution limits. Superannuation contributions for non-executive directors are drawn from the overall fees paid to non-executive directors.

As permitted under the Superannuation Guarantee legislation, people with multiple employers can elect to be exempt from the superannuation guarantee where contributions are likely to take them over the annual concessional contribution cap. If a non-executive director applies and receives an exemption from superannuation guarantee payments, Medibank will make those payments in cash.

11.3 Shareholding policy for non-executive directors

Medibank has a Minimum Shareholding Policy that requires non-executive directors to acquire shares with a value equal to one year’s base fee after tax over a period of five years. Non-executive directors do not participate in, or receive, any performance-based remuneration as part of their role and do not participate in any equity plans that operate within Medibank.

As at 30 June 2021, all non-executive directors have either met the minimum shareholding requirement, or are on track to do so, within the five-year period. Further details of current non-executive director shareholdings are provided in section 13.

DIRECTORS’ REPORT

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12. 2021 non-executive director remuneration statutory table

Non-executive director	Financial year	Short-term benefits	Short-term benefits	Post-employment benefits	Total $
		Cash salary and fees $	Non- monetary1 $	Superannuation $
Mike Wilkins	2021	377,228	3,954	9,352	390,534
	2020	188,655	3,612	17,922	210,189
Tracey Batten	2021	187,935	2,581	17,854	208,370
	2020	188,655	2,729	17,923	209,307
Anna Bligh	2021	187,934	3,296	17,854	209,084
	2020	188,654	3,119	17,922	209,695
Gerard Dalbosco2	2021	20,882	-	1,984	22,866
	2020	-	-	-	-
David Fagan	2021	206,270	2,736	19,596	228,602
	2020	207,061	2,618	19,671	229,350
Peter Hodgett	2021	206,270	3,849	19,596	229,715
	2020	207,061	3,728	19,672	230,461
Linda Bardo Nicholls	2021	187,456	3,014	18,127	208,597
	2020	198,026	2,888	8,551	209,465
Christine O’Reilly	2021	225,865	2,765	-	228,630
	2020	217,346	2,602	9,385	229,333
Former non-executive directors
Elizabeth Alexander3	2021	107,435	9,434	6,112	122,981
	2020	427,250	-	21,174	448,424
Total non-executive director remuneration	2021	1,707,275	31,629	110,475	1,849,379
	2020	1,822,708	21,296	132,220	1.976.224

Non-monetary benefits may include death, total and permanent disablement insurance, salary continuance insurance, subsidised Medibank health insurance and fringe benefits that are on the same terms and conditions that are available to all Medibank employees.
Gerard Dalbosco’s 2021 remuneration reflects his commencement date as a non-executive director of 21 May 2021.
Elizabeth Alexander’s 2021 remuneration reflects her retirement date from the Medibank Board of 1 October 2020.

13. Non-executive director ordinary shareholdings

Non-executive director	Balance 30 June 2020	Acquired during the year	Other changes	Balance 30 June 2021	Minimum shareholding requirement $1	Value of eligible shareholdings as at 30 June 2021 $2	Minimum shareholding requirement timeline
Mike Wilkins	59,013	40,987	-	100,000	222,500	316,000	Requirement satisfied
Tracey Batten	50,000	-	-	50,000	82,500	158,000	Requirement satisfied
Anna Bligh	44,623	-	-	44,623	82,500	141,009	Requirement satisfied
Gerard Dalbosco3	-	-	24,432	24,432	82,500	77,205	21 May 2026
David Fagan	47,016	-	-	47,016	82,500	148,571	Requirement satisfied
Peter Hodgett	67,800	-	-	67,800	82,500	214,248	Requirement satisfied
Linda Bardo Nicholls	45,000	-	-	45,000	82,500	142,200	Requirement satisfied
Christine O’Reilly	69,930	-	-	69,930	82,500	220,979	Requirement satisfied
Former non-executive	director

Elizabeth Alexander4	124,786	-	(124,786)	-	Not applicable	-	Not applicable

DIRECTORS’ REPORT

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Minimum shareholding requirement based on annual non-executive director base fees for 2021 and an assumed tax rate of 50%.
Value has been calculated with reference to the total number of eligible shares held by each non-executive director, multiplied by the closing price of Medibank’s shares on 30 June 2021 ($3.16).
Gerard Dalbosco commenced as a non-executive director on 21 May 2021 and therefore his balance at the time of joining the Medibank Board is reflected in the ‘other changes’ column.
Elizabeth Alexander ceased to be a KMP on 1 October 2020 and therefore Elizabeth’s balance at 30 June 2021 has been adjusted to reflect no further holdings as a KMP.

14. Medibank’s comparator group

As outlined throughout this report, Medibank uses a comparator group for the purposes of benchmarking executive and non-executive director remuneration and for the assessment of Medibank’s relative total shareholder return (TSR) performance under its long-term incentive (LTI) plan. Medibank’s comparator group is the ASX 11-100, excluding mining and energy companies. In any given year, there may be changes in the mining and energy companies excluded from Medibank’s comparator group due to companies either falling outside the ASX 11-100 or companies no longer being considered exclusively as a mining or energy company.

DIRECTORS’ REPORT

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This report is made in accordance with a resolution of the directors.

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Mike Wilkins AO Chairman

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David Koczkar Chief Executive Officer

25 August 2021 Melbourne

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Auditor’s Independence Declaration

As lead auditor for the audit of Medibank Private Limited for the year ended 30 June 2021, I declare that to the best of my knowledge and belief, there have been:

(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Medibank Private Limited and the entities it controlled during the period.

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CJ Heath Partner PricewaterhouseCoopers

Melbourne 25 August 2021

PricewaterhouseCoopers, ABN 52 780 433 757

2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated statement of comprehensive income	Consolidated statement of comprehensive income	Consolidated statement of comprehensive income			Page 54
Consolidated statement of financial position					Page 55
Consolidated statement of changes in equity					Page 56
Consolidated statement of cash flows					Page 57

SECTION 1 Basis of preparation Page 58	SECTION 2 Operating performance Page 59	SECTION 3 Investment portfolio and capital Page 73	SECTION 4 Other assets and liabilities Page 87		SECTION 5 Other Page 98
1.Basis of preparation	2.Segment information	7.Investment portfolio	11.Property, plant and equipment	15.Income tax
	3.Insurance underwriting result	8.Financial risk management	12.Intangible assets	16.Group structure
	4.Deferred acquisition costs	9.Working capital	13.Provisions and employee entitlements	17.Related party transactions
	5.Unearned premium liability	10.Contributed equity and reserves	14.Leases	18.Share-based payments
	6.Shareholder returns			19.Auditor’s remuneration
				20.Other

Directors’ declaration					Page 110
Independent auditor’s report					Page 111

CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated statement of comprehensive income

For the financial year ended 30 June 2021

		2021	2020
	Note	$m	$m
*Continuing operations*
Revenue
Health Insurance premium revenue	2(b) 3(a)	6,691.1	6,554.7
Medibank Health revenue		219.3	214.9
		6,910.4	6,769.6
Other income		1.8	7.4
Expenses
Claims expense	3(a)	(5,557.9)	(5,486.6)
Medical services expense		(34.0)	(27.0)
Employee benefits expense	13(a)(ii)	(439.9)	(429.0)
Office and administration expense		(79.0)	(82.6)
Marketing expense		(81.4)	(94.1)
Information technology expense		(72.3)	(72.1)
Professional service expense		(9.6)	(7.5)
Depreciation and amortisation expense		(122.0)	(126.9)
Finance expense		(2.8)	(3.4)
Share of net profit/(loss)fromequity accountedinvestments	16(b)	(1.0)	-
		(6,399.9)	(6,329.2)
Profit before net investment income and income tax		512.3	447.8
Net investment income	7(a)	120.0	2.4
Profit for the year before income tax		632.3	450.2
Income taxexpense	15(a)	(191.1)	(134.6)
Profit for the year from continuing operations		441.2	315.6
*Discontinued operations*
Profit/(loss) after tax for the year from discontinued operations		-	(0.6)
Profit for the year		441.2	315.0
Other comprehensive income, net of tax
Items that will not be reclassified to profit or loss
Actuarialgain/(loss) on retirement benefit obligation		0.4	(0.2)
		0.4	(0.2)
Total comprehensive income for the year, net of tax, attributable to
members of the parent arising from:
Continuing operations		441.6	315.4
Discontinued operations		-	(0.6)
Total operations		441.6	314.8
Basic and diluted earnings per share attributable to ordinary equity
holders of the Company		Cents	Cents
Continuing operations	6(b)	16.0	11.5
Totaloperations	6(b)	16.0	11.4

The above statement should be read in conjunction with the accompanying notes.

CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated statement of financial position

As at 30 June 2021

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2021 2020 (restated)(1)
Note $m $m
Current assets
Cash and cash equivalents 671.7 871.4
Trade and other receivables 9(b) 215.9 207.1
Financial assets at fair value 7(b) 2,311.9 1,994.7
Deferred acquisition costs 4 33.6 34.5
Tax receivable 6.2 -
Other assets 18.8 22.9
Total current assets 3,258.1 3,130.6
Non-current assets
Property, plant and equipment 11 101.7 112.2
Intangible assets 12 345.3 363.7
Deferred acquisition costs 4 47.5 43.6
Deferred tax assets 15(c) 85.9 90.2
Equity accounted investments 16(b) 77.1 -
Other assets 8.2 7.4
Total non-current assets 665.7 617.1
Total assets 3,923.8 3,747.7
Current liabilities
Trade and other payables 9(c) 338.2 320.2
Claims liabilities 3(b) 622.4 628.3
Unearned premium liability 5 697.0 671.1
Tax liability - 57.7
Customer give back provision 13(c) 103.0 -
Provisions and employee entitlements 13 94.7 82.9
Total current liabilities 1,855.3 1,760.2
Non-current liabilities
Trade and other payables 9(c) 70.2 84.2
Claims liabilities 3(b) 9.1 10.9
Unearned premium liability 5 60.4 75.0
Provisions and employee entitlements 13 22.7 19.6
Total non-current liabilities 162.4 189.7
Total liabilities 2,017.7 1,949.9
Net assets 1,906.1 1,797.8
Equity
Contributed equity 85.0 85.0
Reserves 10(b) 22.3 22.4
Retained earnings 1,798.8 1,690.4
Total equity 1,906.1 1,797.8
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(1) Restatement reflects the change in accounting policy for Software as a Service (SaaS) intangible assets detailed in Note 20(a).

The above statement should be read in conjunction with the accompanying notes.

CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated statement of changes in equity

For the financial year ended 30 June 2021

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Contributed Retained Total
equity Reserves earnings equity
Note $m $m $m $m
Balance at 1 July 2019 85.0 24.4 1,821.3 1,930.7
Restatement (1) - - (16.1) (16.1)
Balance at 1 July 2019 (restated) 85.0 24.4 1,805.2 1,914.6
Profit for the year - - 315.0 315.0
Other comprehensive income - - (0.2) (0.2)
Total comprehensive income for the year - - 314.8 314.8
Transactions with owners in their
capacity as owners:
- -
Dividends paid 6(a)(i) (429.6) (429.6)
Acquisition and settlement of share-based
- -
payment, net of tax (3.2) (3.2)
Share-based payment transactions - 1.2 - 1.2
Balance at 30 June 2020 85.0 22.4 1,690.4 1,797.8
Profit for the year - - 441.2 441.2
Other comprehensive income - - 0.4 0.4
Total comprehensive income for the year - - 441.6 441.6
Transactions with owners in their
capacity as owners:
- -
Dividends paid 6(a)(i) (333.2) (333.2)
Acquisition and settlement of share-based
- -
payment, net of tax (5.3) (5.3)
Share-based payment transactions - 5.2 - 5.2
Balance at 30 June 2021 85.0 22.3 1,798.8 1,906.1
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(1) Restatement reflects the change in accounting policy for Software as a Service (SaaS) intangible assets detailed in Note 20(a).

The above statement should be read in conjunction with the accompanying notes.

CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated statement of cash flows

For the financial year ended 30 June 2021

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2021 2020
Note $m $m
Cash flows from operating activities
Premium receipts 6,798.8 6,522.7
Medibank Health receipts 234.9 299.3
Other receipts 3.8 5.5
Payments for claims and levies (5,542.7) (5,233.2)
Payments to suppliers and employees (762.5) (827.9)
Income taxes paid (250.1) (194.0)
Net cash inflow from operating activities 9(d) 482.2 572.4
Cash flows from investing activities
Interest received 16.0 27.8
Investment expenses (4.6) (4.6)
Proceeds from sale of financial assets 1,081.1 1,648.4
Purchase of financial assets (1,289.6) (1,533.1)
-
Net purchase of equity accounted investments 16(b) (71.0)
Loan to associate 16(b) (2.9) -
Purchase of plant and equipment (10.9) (3.2)
Purchase of intangible assets (24.2) (26.1)
Net cash inflow/(outflow) from investing activities (306.1) 109.2
Cash flows from financing activities
Purchase of shares to settle share-based payment (5.6) (3.8)
Lease principal and interest payments 14 (37.0) (33.3)
Dividends paid 6(a)(i) (333.2) (429.6)
Net cash outflow from financing activities (375.8) (466.7)
Net increase/(decrease) in cash and cash equivalents (199.7) 214.9
Cash and cash equivalents at beginning of the year 871.4 656.5
Cash and cash equivalents at end of the year 671.7 871.4
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The above statement should be read in conjunction with the accompanying notes.

Notes to the consolidated financial statements 30 June 2021

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SECTION 1: BASIS OF PREPARATION

Overview

This section outlines the basis on which the Group’s financial statements are prepared. Specific accounting policies are described in the note to which they relate.

Note 1: Basis of preparation

(a) Corporate information

Medibank Private Limited (“Medibank”) is a for-profit company incorporated in Australia, whose shares are publicly traded on the Australian Securities Exchange (ASX).

The financial statements of Medibank for the financial year ended 30 June 2021 were authorised for issue in accordance with a resolution of the directors on 25 August 2021. The directors have the power to amend and reissue the financial statements.

(b) Basis of preparation

The financial statements are general purpose financial statements which:

Are for the consolidated entity (“the Group”) consisting of Medibank (“parent entity”) and its subsidiaries. Refer to Note 16(a) for the full group structure.
Have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (AASB), International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and the Corporations Act 2001 .
Have been prepared under the historical cost convention, with the exception of financial assets measured at fair value and claims liabilities and lease liabilities which are measured at the present value of expected future payments.
Are presented in Australian dollars, which is Medibank’s functional and presentation currency.
Have been rounded in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 to the nearest hundred thousand dollars unless otherwise stated.
Include a change in accounting policy for configuration and customisation costs incurred in implementing Software-as-a-Service (SaaS) arrangements. Refer to Note 20(a) for further information.
Adopt all new and amended accounting standards that are mandatory for 30 June 2021 reporting periods. Refer to Note 20(a) for further information.
Do not apply any pronouncements before their operative date. Refer to Note 20(b) for further information on the new standards and interpretations which have been issued but are not effective for 30 June 2021 reporting periods.
Include, where necessary, updates to prior year comparatives for changes in classification of amounts in the current reporting period.

(c) Critical accounting estimates and judgements

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in the following notes:

Note 3: Insurance underwriting result.
Note 4: Deferred acquisition costs.
Note 12: Intangible assets.
Note 15: Income tax.

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Overview

This section explains the operating results of the Group for the year, and provides insights into the Group’s result by reference to key areas, including:

Results by operating segment.
Insurance underwriting result.
Shareholder returns.

Note 2: Segment information

Segment Reporting Accounting Policy

Operating segments are identified based on the separate financial information that is regularly reviewed by the Chief Operating Decision Maker (CODM). The term CODM refers to the function performed by the Chief Executive Officer (CEO) in assessing performance and determining the allocation of resources across the Group.

(a) Description of segments

Segment information is reported on the same basis as the Group’s internal management reporting structure at the reporting date. Transactions between segments are carried out on an arm’s length basis and are eliminated on consolidation. The Group is not reliant on any one major customer.

For the financial year ended 30 June 2021, the Group was organised for internal management reporting purposes into two reportable segments, Health Insurance and Medibank Health.

Health Insurance	Offers private health insurance products including hospital cover and ancillary cover, as stand-alone products or packaged products that combine the two. Hospital cover provides members with health cover for hospital treatments, whereas ancillary cover provides members with health cover for healthcare services such as dental, optical and physiotherapy. The segment also offers health insurance products to overseas visitors and overseas students.
	Private Health Insurance Premium Revenue Recognition Accounting Policy Premium revenue is measured at the fair value of the consideration received or receivable and is recognised on a straight-line basis between the date Medibank accepts the insurance risk and the date the premium has been paid up to. Premium revenue is classified as an unearned premium liability in the consolidated statement of financial position when it relates to future financial periods.

Medibank Health	Derives its revenue from a range of activities including contracting with government and corporate customers to provide health management and in-home care services, as well as providing a range of telehealth services in Australia. In addition, the Group distributes travel, life and pet insurance products on behalf of other insurers as part of a broader strategy to retain members and leverage its distribution network.
	Medibank Health Revenue Recognition Accounting Policy Medibank Health revenue is recognised when services are provided to the customer and at an amount the Group will be entitled to receive in relation to providing the services. A contract liability is recognised within trade and other payables in the consolidated statement of financial position when the Group has an obligation to transfer services to a customer for which it has already received consideration from the customer (or an amount of consideration is receivable). Contract liabilities are recognised as Medibank Health revenue when the services are provided.

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 2: Segment information (continued)

(b) Segment information provided to the CEO

The CEO measures the performance of the Group's reportable segments based on the operating profit of the segments. The segment information provided to the CEO for the year ended 30 June 2021 is as follows:

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Health Insurance Medibank Health
$538.6m $31.4m
$27.8m
$470.6m $283.8m
$6,680.3m
$270.0m
$6,545.6m
2020 2021 2020 2021
Revenue Revenue from continuing operations
Operating profit Operating profit from continuing operations
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		Health	Medibank
		Insurance	Health	Total
30 June 2021	Note	$m	$m	$m
Revenues
Total segment revenue	2(c)(iii)	6,680.3	283.8	6,964.1
Inter-segmentrevenue		-	(53.7)	(53.7)
Revenue from external customers from
continuing operations		6,680.3	230.1	6,910.4

Operating profit from continuing operations		538.6	31.4	570.0
Items included in segment operating profit:
Depreciation and amortisation		(104.8)	(8.3)	(113.1)
Interest income from loans to associates		-	0.2	0.2
Share of profit/(loss) from equity accounted
investments	16(b)	-	(1.0)	(1.0)
30 June 2020		Health Insurance $m	Medibank Health $m	Total $m
Revenues Total segment revenue Inter-segmentrevenue		6,545.6 -	270.0 (46.0)	6,815.6 (46.0)
Revenue from external customers from continuing operations		6,545.6	224.0	6,769.6

Operating profit from continuing operations		470.6	27.8	498.4
Items included in segment operating profit: Depreciationand amortisation		(105.2)	(7.9)	(113.1)

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 2: Segment information (continued)

(c) Other segment information

(i) Segment operating profit or loss

A reconciliation of the operating profit from continuing operations to the profit for the year before income tax from continuing operations of the Group is as follows:

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2021 2020
Note $m $m
Total segment operating profit from continuing operations 570.0 498.4
Unallocated to operating segments:
Corporate operating expenses (41.7) (37.4)
Group operating profit from continuing operations 528.3 461.0
Net investment income 7(a) 120.0 2.4
Acquisition intangible amortisation (4.6) (9.0)
Mergers and acquisitions expenses (5.5) (1.3)
Other income/(expenses) (5.9) (6.2)
AASB 16 Leases transition adjustment - 3.3
Profit for the year before income tax from continuing
operations 632.3 450.2
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(ii) Other items

Segment operating profit excludes the following:

Corporate operating expenses of $41.7 million (2020: $37.4 million) relating to the Group's corporate function.
Net investment income, which comprises:
Interest and distribution income and related investment management expenses (refer to Note 7(a)), as this arises from investments which are managed by a central treasury function.
Net gains and losses on disposals of and fair value movements on financial assets and liabilities (refer to Note 7(a)), as they are not indicative of the Group's long-term performance.
Acquisition intangible amortisation of $4.6 million (2020: $9.0 million) not allocated to segments.
Expenses in relation to mergers and acquisitions which are not allocated to the operating activities of the Group’s segments.
Other income/(expenses) of $5.9 million (2020: $6.2 million) which do not relate to the current year’s trading activities of the Group’s segments, comprising primarily net sublease rent.

(iii) Loyalty program

Segment private health insurance premium revenue is after $10.8 million (2020: $9.1 million) of transfers between the Group’s other operating segments in relation to the loyalty program.

(iv) Segment assets and segment liabilities

No information regarding segment assets and segment liabilities has been disclosed, as these amounts are not reported to the CEO for the purpose of making strategic decisions.

(v) Geographic information

Segment revenue based on the geographical location of customers has not been disclosed, as the Group derives all of its revenues from its Australian operations.

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 3: Insurance underwriting result

This note presents the Group’s insurance underwriting result and provides information on the Group’s claims liabilities, which comprise the outstanding claims liability, the COVID-19 claims liability and the provision for bonus entitlements.

2021 underwriting result after expenses

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$6,680.3m $538.6m
100% $(531.1)m 8.1%
$(5,610.8)m 8.0%
84.0%
Private health Net claims incurred Underwriting Underwriting result
insurance premium expenses after expenses
revenue
Insurance Contracts Accounting Policy
An insurance contract arises when the Group accepts significant insurance risk from another party by
agreeing to compensate them from the adverse effects of a specified uncertain future event. The significance
of insurance risk depends on both the probability and magnitude of an insurance event.
Once insurance cover has been classified as an insurance contract, it remains an insurance contract for the
remainder of its lifetime, even if the insurance risk significantly reduces during the period. With the exception
of travel, life and pet insurance, for which the Group does not act as an underwriter, all other types of
insurance cover are insurance contracts.
A specific COVID-19 claims liability has been recorded for deferred claims that were a result of surgeries and
other health services being restricted for policyholders during the COVID-19 pandemic period. Medibank has
an obligation to settle these claims as they become known in future periods.
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(a) Insurance underwriting result

(a) Insurance underwriting result
		2021	2020
	Note	$m	$m
Privatehealth insurance premium revenue	(i)	6,680.3	6,545.6
Claims expense
Claims incurred	(ii)	(5,606.2)	(5,190.8)
(Increase)/decrease in COVID-19 claims liability	(iv)	73.3	(297.1)
State levies		(53.3)	(51.6)
NetRisk EqualisationSpecial Accountrebates/(payments)		(24.6)	7.9
Net claims incurred excluding claims handling costs		(5,610.8)	(5,531.6)
Movementinclaimshandling costs onoutstanding claimsliabilities		0.2	(0.8)
Net claims incurred	(iii)	(5,610.6)	(5,532.4)
Underwriting expenses		(531.1)	(542.6)
Underwriting result after expenses		538.6	470.6

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 3: Insurance underwriting result (continued)

(a) Insurance underwriting result (continued)

(i) Private health insurance premium revenue is after $10.8 million (2020: $9.1 million) of transfers between the Group’s other operating segments in relation to the loyalty program and $103.0 million (2020: nil) in relation to premium relief granted as part of the customer give back.
(ii) Claims incurred are prior to elimination of transactions with the Group’s other operating segments of $52.7 million (2020: $45.8 million).
(iii) Net claims incurred consists of amounts paid and payable to hospital, medical and ancillary providers which consists of claims paid and payable, changes in claims liabilities, change in amounts receivable from and payable to the Risk Equalisation Special Account, applicable state levies, costs incurred in health management services and the COVID-19 claims liability.
(iv) This balance relates to the COVID-19 claims liability. Refer to Note 3(b) for further information.

Health Insurance Premium Revenue Recognition Accounting Policy

Premium revenue is recognised in the consolidated statement of comprehensive income when the amount can be reliably measured and it is probable that future economic benefits will flow to the entity. Premium revenue is measured at the fair value of the consideration received or receivable and is recognised on a straight-line basis between the date Medibank accepts the risk from the insured under the insurance contract and the date the premium has been paid up to.

Premium revenue includes the movement in the premiums in arrears which is assessed based on past experience of the likelihood of collection. Premium revenue is classified as an unearned premium liability in the consolidated statement of financial position when it relates to future financial periods.

The Australian Government contributes a rebate towards eligible policyholder’s premium and pays this directly to the Group. This rebate is recognised within premium revenue in the consolidated statement of comprehensive income. Rebates due from the government but not received at balance date are recognised as trade and other receivables in the consolidated statement of financial position.

Net Risk Equalisation Special Account Levies and Rebates Accounting Policy

Under legislation, all private health insurers must participate in the Risk Equalisation Special Account in which all private health insurers share the cost of the eligible claims of members aged 55 years and over, and claims meeting the high cost claim criteria.

The Australian Prudential Regulation Authority (APRA) determines the amount payable to or receivable from the Risk Equalisation Special Account after the end of each quarter. Estimates of amounts payable or receivable are provided for periods where determinations have not yet been made. This includes an estimate of risk equalisation for unpresented and outstanding claims.

Notes to the consolidated financial statements

30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 3: Insurance underwriting result (continued)

(b) Gross claims liabilities

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2021 2020
Note $m $m
Current
Outstanding claims liability - central estimate (i,ii) 347.2 284.4
COVID-19 claims liability (vi) 223.8 297.1
Risk margin (i,iii) 33.2 27.1
Claims handling costs (iv) 8.5 8.6
612.7 617.2
Claims liability - provision for bonus entitlements (v) 9.7 11.1
Gross claims liabilities (c) 622.4 628.3
Non-current
Outstanding claims liability - central estimate (i,ii) 1.8 2.1
Risk margin (i,iii) 0.2 0.2
Claims handling costs (iv) - 0.1
2.0 2.4
Claims liability - provision for bonus entitlements (v) 7.1 8.5
Gross claims liabilities (c) 9.1 10.9
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Claims Liability Accounting Policy

The outstanding claims liability provides for claims received but not assessed and claims incurred but not received. It is based on an actuarial assessment that considers historical patterns of claim incidence and processing. It is measured as the central estimate of the present value of expected future payments arising from claims incurred at the end of each reporting period under insurance cover issued by the Medibank health fund, plus a risk margin reflecting the inherent uncertainty in the central estimate. The expected future payments are discounted to present value using a risk-free rate.

The liability also allows for an estimate of claims handling costs, which comprise all direct expenses of the claims department and general administrative costs directly attributable to the claims function. These include internal and external costs incurred from the negotiation and settlement of claims.

COVID-19 Claims Liability

The COVID-19 claims liability is based on the best estimate, taking into account relevant risks and uncertainties, of expenditure required to settle claims deferred as a result of surgeries and other health services restricted for policyholders during the COVID-19 pandemic. Medibank has an obligation to settle these claims as they become known in future periods. The liability is calculated by comparing the difference between the actual and expected volume of insured surgical and non-surgical procedures since the commencement of restrictions in March 2020 (the COVID-19 period). The expected claims level is based on the estimated underlying claims growth per Single Equivalent Unit per policy (PSEU) that would have occurred if the COVID-19 pandemic did not eventuate, taking into account changes in the customer base during the COVID-19 period. The key judgements and inputs to determine the expected claims level are detailed in Note 3(b)(vi).

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 3: Insurance underwriting result (continued)

(b) Gross claims liability (continued)

Key estimate

The outstanding claims liability estimate is based on the hospital, ancillary and overseas claim categories.

*Key estimate* The outstanding claims liability estimate is based on the hospital, ancillary and overseas claim categories.	*Key estimate* The outstanding claims liability estimate is based on the hospital, ancillary and overseas claim categories.
Hospital and overseas	Calculated using statistical methods adopted for all service months but with service levels for the most recent service month (hospital) or two service months (overseas) being based on the latest forecast adjusted for any observed changes in payment patterns.

Ancillary	Calculated using statistical methods adopted for all service months.
The critical assumption in determining the outstanding claims liability is the extent to which claim incidence and development patterns are consistent with past experience. Adjustments are then applied to reflect any unusual or abnormal events that may affect the estimate of claims levels such as major variability to claims processing volumes. The process for establishing the outstanding claims liability involves consultation with internal actuaries (including the Chief Actuary), claims managers and other senior management. The process includes monthly internal claims review meetings attended by senior management.

(i) Outstanding claims liability - central estimate	The central estimate is an estimate of the level of the outstanding claims liability. *Key estimate* The central estimate is based on statistical analysis of historical experience which assumes an underlying pattern of claims development and payment. The final selected central estimate is based on a judgemental consideration of this analysis and other qualitative information, such as claims processing delays. The central estimate excludes the impact of the Risk Equalisation Special Account. A separate estimate is made of levies payable to and recoveries from the Risk Equalisation Special Account.
(ii) Discounting	The outstanding claims liability central estimate is discounted to present value using the three-month risk-free rate of 0.03% per annum which equates to a reduction in the central estimate of less than $0.1 million (2020: 0.10%, less than $0.1 million).
(iii) Risk margin	An overall risk margin considers the uncertainty surrounding the outstanding claims liability. The risk margin applied to the Group’s outstanding claims central estimate (net of risk equalisation) at 30 June 2021 is 9.4% (2020: 9.2%). *Key estimate* The risk margin is based on an analysis of past experience, including comparing the volatility of past payments to the adopted central estimate. The risk margin has been estimated to equate to the Group’s objective of achieving a probability of adequacy of at least 95% (2020: 95%). The risk margin is not applied to the COVID-19 claims liability. Relevant risks and uncertainties have been taken into account in determining the best estimate of the COVID-19 claims liability.
(iv) Claims handling costs	The allowance for claims handling costs at 30 June 2021 is 2.5% of the outstanding claims liability (2020: 3.0%).

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 3: Insurance underwriting result (continued)

(b) Gross claims liability (continued)

(v) Claims liability – provision for bonus entitlements	Certain private health insurance products (Package Bonus, Ultra Bonus and Membership Bonus) include benefits that carry forward. Package Bonus carries forward unused benefit entitlements in a calendar year for five calendar years. Membership Bonus carries forward unused benefit entitlements in a calendar year for 10 calendar years. Ultra Bonus carries forward unused benefit entitlements without limit. The Group’s claims liabilities include a provision to cover expected future utilisation of these benefit entitlements of the current membership. *Key estimate* The bonus provision includes the total entitlement available to members under the terms of the relevant insurance policies, less any amounts utilised, with a probability of utilisation based on past experience and current claiming patterns applied. The true cost of these entitlements cannot be known with certainty until any unclaimed entitlements are processed.
(vi) COVID-19 claims liability	The liability relates to claims deferred as a result of surgeries and other health services restricted for policyholders during the COVID-19 pandemic. At 30 June 2020, this impacted health services for hospital, ancillary and overseas claims. At 30 June 2021, the COVID-19 liability includes hospital claims of $220.2 million, which includes surgical and non-surgical claims, and ancillary claims of $3.6 million. *Key estimate – Hospital* The liability is calculated by comparing the difference between the actual and expected volume of insured surgical and non-surgical procedures since the commencement of restrictions in March 2020 (the COVID-19 period). Utilisation of the liability has been assessed by geography and modality (claim type) and occurs where actual claims exceed expected claims. Risks and uncertainties have been taken into account in the measurement of the liability and are reflected in the key inputs and judgements. The key judgements and inputs into this liability estimate include: • Statistical analysis of the expected claims level at the Single Equivalent Unit per policy (PSEU) during the COVID-19 period. • The expected claims level is based on the estimated underlying claims growth per PSEU that would have occurred if the COVID-19 pandemic did not eventuate. It has then been applied to the average actual number of PSEUs during the COVID-19 period. The extent of claims deferred has varied by geography based on the extent of COVID-19 restrictions. • The expected rate at which deferred insured surgical and non-surgical procedures will be caught up, which is based on the analysis and expert opinion of the Chief Medical Officer and internal analysis. The expected claims deferral rate is analysed based on modality and is 85% (2020: 100%) for surgical claims and 50% (2020: 100%) for non-surgical claims.

(v) Claims liability
– provision for
bonus
entitlements

Certain private health insurance products (Package Bonus, Ultra Bonus and
Membership Bonus) include benefits that carry forward. Package Bonus carries
forward unused benefit entitlements in a calendar year for five calendar years.
Membership Bonus carries forward unused benefit entitlements in a calendar year for
10 calendar years. Ultra Bonus carries forward unused benefit entitlements without
limit.
The Group’s claims liabilities include a provision to cover expected future utilisation
of these benefit entitlements of the current membership.
Key estimate
The bonus provision includes the total entitlement available to members under the
terms of the relevant insurance policies, less any amounts utilised, with a probability
of utilisation based on past experience and current claiming patterns applied. The
true cost of these entitlements cannot be known with certainty until any unclaimed
entitlements are processed.

(vi) COVID-19
claims liability

The liability relates to claims deferred as a result of surgeries and other health
services restricted for policyholders during the COVID-19 pandemic. At 30 June
2020, this impacted health services for hospital, ancillary and overseas claims. At 30
June 2021, the COVID-19 liability includes hospital claims of $220.2 million, which
includes surgical and non-surgical claims, and ancillary claims of $3.6 million.
Key estimate – Hospital
The liability is calculated by comparing the difference between the actual and
expected volume of insured surgical and non-surgical procedures since the
commencement of restrictions in March 2020 (the COVID-19 period). Utilisation of
the liability has been assessed by geography and modality (claim type) and occurs
where actual claims exceed expected claims.
Risks and uncertainties have been taken into account in the measurement of the
liability and are reflected in the key inputs and judgements.
The key judgements and inputs into this liability estimate include:
•
Statistical analysis of the expected claims level at the Single Equivalent Unit
per policy (PSEU) during the COVID-19 period.
•
The expected claims level is based on the estimated underlying claims
growth per PSEU that would have occurred if the COVID-19 pandemic did
not eventuate. It has then been applied to the average actual number of
PSEUs during the COVID-19 period. The extent of claims deferred has
varied by geography based on the extent of COVID-19 restrictions.
•
The expected rate at which deferred insured surgical and non-surgical
procedures will be caught up, which is based on the analysis and expert
opinion of the Chief Medical Officer and internal analysis. The expected
claims deferral rate is analysed based on modality and is 85% (2020: 100%)
for surgical claims and 50% (2020: 100%) for non-surgical claims.

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 3: Insurance underwriting result (continued)

(c) Reconciliation of movement in claims liabilities

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2021 2020
Note $m $m
Balance at 1 July 639.2 377.6
Claims incurred during the period 5,496.1 5,120.0
Increase/(decrease) in COVID-19 claims liability (i) (73.3) 297.1
Claims paid during the period (5,414.4) (5,180.8)
Amount (over)/under provided on central estimate (1) (22.0) 22.3
Risk margin 6.1 1.7
Claims handling costs (0.2) 0.8
Movement in discount rate - 0.5
Balance at 30 June 631.5 639.2
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Note: Movement includes both current and non-current. Claims incurred and claims settled exclude levies and rebates.

(1) The over provision recognised in the current year includes $19.8 million attributable to the COVID-19 period and has been recognised within the COVID-19 liability as at 30 June 2021 at the applicable deferral rate. Refer to Note 3(c)(i).

(i) Reconciliation of movement in COVID-19 claims liability

The table below provides a reconciliation of the movement in the COVID-19 claims liability during the year.

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Hospital Ancillary Total
$m $m $m
Balance at 1 July 2020 234.4 62.7 297.1
Amount over/(under) provided from central estimate 19.8 - 19.8
-
Change in expected deferral rate (73.1) (73.1)
Net (utilisation)/deferral during the period 39.1 (59.1) (20.0)
Balance at 30 June 2021 220.2 3.6 223.8
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(d) Impact of changes in key variables on the claims liabilities

Outstanding claims liability

The central estimate, discount rate, risk margin and weighted average term to settlement are the key outstanding claims variables. A 10% increase/decrease in the central estimate would result in a $24.4 million decrease/increase to profit after tax and equity (2020: $20.1 million). A 1% movement in other key outstanding claims variables, including discount rate, risk margin and weighted average term to settlement, would result in an insignificant decrease/increase to profit after tax and equity.

COVID-19 claims liability

The following describe the individual impacts of changes in the key estimate on the COVID-19 claims liability:

A 4% increase/decrease in the expected claims level would result in a $67.0 million decrease/increase to profit after tax and equity (2020: $44.8 million).
An increase/decrease of 10 percentage points in the adopted deferral rate for COVID-19 hospital claims would result in a $26.8 million decrease/increase to profit after tax and equity (2020: $16.4 million). The reasonable possible range for the hospital deferral assumption is 75-100% for surgical claims (2020: 90100%) and 30%-70% for non-surgical claims (2020: 90-100%).

(e) Insurance risk management

The Group provides private health insurance products including hospital cover and ancillary cover, as standalone products or packaged products that combine the two, for Australian residents, overseas students studying in Australia and overseas visitors to Australia. These services are categorised as two types of contracts: hospital and/or ancillary cover.

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 3: Insurance underwriting result (continued)

(e) Insurance risk management (continued)

The table below sets out the key variables upon which the cash flows of the insurance contracts are dependent.

Type of contract	Detail of contract workings	Nature of claims	Key variables that affect the timing and uncertainty of future cash flows
Hospital cover	Defined benefits paid for hospital treatment, including accommodation, medical and prostheses costs.	Hospital benefits defined by the insurance contract or relevant deed.	Claims incidence and claims inflation.
Ancillary cover	Defined benefits paid for ancillary treatment, such as dental, optical and physiotherapy services.	Ancillary benefits defined by the insurance contract or relevant deed.	Claims incidence and claims inflation.

Insurance risks and the holding of capital in excess of prudential requirements are managed through the use of claims management procedures, close monitoring of experience, the ability to vary premium rates, and risk equalisation.

Mechanisms to manage risk

Claims management	Strict claims management ensures the timely and correct payment of claims in accordance with policy conditions and provider contracts. Claims are monitored monthly to track the experience of the portfolios.
Experience monitoring	Monthly financial and operational results, including portfolio profitability and prudential capital requirements, are reported to management committees and the Board. Results are also monitored against industry for insurance risks and experience trends as published by the regulator, APRA. Monitoring of claims experience during the COVID-19 period included daily and weekly dashboard reports.
Prudential capital requirements	All private health insurers must comply with prudential capital requirements to provide a buffer against certain levels of adverse experience. The Board has a target level of capital which exceeds the regulatory requirement.
Ability to vary premium rates	The Group can vary future premium rates subject to the approval of the Minister for Health.
Risk equalisation	Private health insurance legislation requires resident private health insurance contracts to meet community rating requirements. This prohibits discrimination between people on the basis of their health status, gender, race, sexual orientation, religious belief, age (except as allowed under Lifetime Health Cover provisions), increased need for treatment or claims history. To support these restrictions, all private health insurers must participate in the Risk Equalisation Special Account.
Concentration of health risk	The Group has health insurance contracts covering hospital and ancillary cover, and private health insurance for overseas students and visitors to Australia. There is no significant exposure to concentrations of risk because contracts cover a large volume of people across Australia.
COVID-19 claims liability	The Group’s Capital Management Policy requires a sufficient level of capital to be held by the Group. The Group also created a sub-portfolio within the Health Fund Investment Portfolio with the express purpose of funding the COVID-19 claims liability.

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 4: Deferred acquisition costs

Movements in the deferred acquisition costs are as follows:

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2021 2020
$m $m
Balance at 1 July 78.1 79.6
Costs deferred during the year 42.3 36.6
Amortisation expense (39.3) (38.1)
Balance at 30 June 81.1 78.1
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Note: Movement includes both current and non-current.

Deferred Acquisition Costs Accounting Policy

Costs incurred in obtaining health insurance contracts are deferred and recognised as assets where they can be reliably measured and where it is probable that they will give rise to premium revenue that will be recognised in the consolidated statement of comprehensive income in subsequent reporting periods.

Deferred acquisition costs are amortised systematically over the average expected retention period of the insurance contracts to which they relate. This is in accordance with the expected pattern of the incidence of risk under the insurance contracts to which they relate and corresponds to the earning pattern of the corresponding actual and expected premium revenue. The Group amortises these costs on a straight-line basis over a period of four years (2020: four years). The recoverability of deferred acquisition costs is considered as part of the liability adequacy test (refer to Note 5). Deferred acquisition costs which are not included in this test are separately assessed for recoverability in accordance with the Group’s accounting policy set out in Note 20(c).

Key judgement and estimate

The amortisation period of four years has been determined based on the average expected retention period of members. The actual retention period of a member can be longer or shorter than four years. The straightline method systematically follows the initial period of customer tenure with some customers remaining with Medibank over a longer period of time. The Group maintains data on the retention period of all members, and performs a retention period analysis of those who are subject to these acquisition costs to ensure the period of amortisation remains appropriate.

Note 5: Unearned premium liability

Movement in the unearned premium liability is as follows:

Movement in the unearned premium liability is as follows:
	2021	2020
	$m	$m
Balance at 1 July	746.1	770.6
Deferral of premium on contracts written during the year	682.4	658.3
Earnings ofpremiums deferredinprioryears	(671.1)	(682.8)
Balance at 30 June	757.4	746.1

Note: Movement includes both current and non-current.

The expected cash outflows and the risk margin in the 30 June 2021 liability adequacy testing (LAT) includes the impacts of COVID-19. The LAT did not result in the identification of any deficiency as at 30 June 2021 and 2020. The LAT is not sensitive to reasonably plausible changes in key assumptions applied.

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 5: Unearned premium liability (continued)

Unearned Premium Liability Accounting Policy

The proportion of premium received that has not been earned at the end of each reporting period is recognised in the consolidated statement of financial position as an unearned premium liability. The unearned premium liability is released to the consolidated statement of comprehensive income as revenue in accordance with Note 3(a) over the term of the insurance cover.

Unexpired Risk Liability Accounting Policy

A liability adequacy test is required to be performed in respect of the unearned premium liability and insurance contracts renewable before the next pricing review (constructive obligation). The purpose of the test is to determine whether the insurance liability, net of related deferred acquisition costs, is adequate to cover the present value of expected cash outflows relating to future claims arising from rights and obligations under current insurance coverage. An additional risk margin is included in the test to reflect the inherent uncertainty in the central estimate. The liability adequacy test is performed at the level of a portfolio of contracts that are subject to broadly similar risks and that are managed together as a single portfolio.

The unearned premium liability is deemed to be deficient where:

Present value of the expected future
cash outflows relating to future Unearned premium liability
claims less
add Additional risk margin to reflect the Related intangible assets less greater than	= Deficiency
inherent uncertainty in the central Related deferred acquisition costs
estimate
The entire deficiency is recorded immediately in the statement of comprehensive income. The deficiency is
recognised first by writing down any related intangible assets and then related deferred acquisition costs,
with any excess being recorded in the consolidated statement of financial position as an unexpired risk
liability.
Deferred acquisition costs which are not included in this test are separately assessed for recoverability and
are amortised in accordance with the Group’s accounting policy set out in Note 4.

Notes to the consolidated financial statements 30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 6: Shareholder returns

(a) Dividends

(i) Dividends paid or payable

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Cents per fully
paid share $m Payment date
2021
2020 final fully franked dividend 6.30 173.5 24 September 2020
2021 interim fully franked dividend 5.80 159.7 25 March 2021
2020
2019 final fully franked dividend 7.40 203.8 26 September 2019
2019 final fully franked special dividend 2.50 68.9 26 September 2019
2020 interim fully franked dividend 5.70 157.0 26 March 2020
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(ii) Dividends not recognised at the end of the reporting period

On 25 August 2021, the directors determined a final fully franked ordinary dividend for the six months ended 30 June 2021 of 6.90 cents per share. The dividend is expected to be paid on 30 September 2021 and has not been provided for as at 30 June 2021.

(iii) Franking account

Franking credits available at 30 June 2021 for subsequent reporting periods based on a tax rate of 30% are $324.2 million (2020: $215.7 million).

(iv) Calculation of dividend paid

Medibank’s target dividend payout ratio for the 2021 financial year is 75-85% (2020: 75-85%) of full year normalised net profit after tax (underlying NPAT). Normalised net profit after tax is calculated based on statutory net profit after tax adjusted for short-term outcomes that are expected to normalise over the medium to longer term, most notably in relation to the level of gains or losses from investments and movement in credit spreads, and for one-off items, especially those that are non-cash, such as impairments.

	2021	2020
Profit for the year - after tax	$m 441.2	$m 315.0
Normalisation for growth asset returns	(31.2)	43.2
Normalisation for defensive asset returns – credit spread movement	(11.3)	8.5
Underlying NPAT	398.7	366.7

Dividends Accounting Policy

A liability is recorded for any dividends determined on or before the reporting date, but that have not been distributed at that date.

Notes to the consolidated financial statements

30 June 2021

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SECTION 2: OPERATING PERFORMANCE

Note 6: Shareholder returns (continued)

(b) Earnings per share

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2021 2020
Attributable to ordinary equity holders of the Company
Profit for the year attributable to ordinary equity holders of the Company ($m) 441.2 315.0
Basic and diluted earnings per share attributable to ordinary equity holders of
the Company (cents) 16.0 11.4
Attributable to continuing operations
Profit for the year attributable to ordinary equity holders of the Company ($m) 441.2 315.6
Basic and diluted earnings per share attributable to ordinary equity holders of
the Company (cents) 16.0 11.5
Weighted average number of ordinary shares used in calculating basic and
diluted earnings per share 2,754,003,240 2,754,003,240
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Basic Earnings Per Share Accounting Policy

Basic earnings per share (EPS) is calculated by dividing the profit attributable to equity holders of Medibank, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the reporting period, adjusted for bonus elements in ordinary shares issued during the reporting period and excluding treasury shares.

Diluted Earnings Per Share Accounting Policy

Diluted EPS adjusts the figures used in the determination of basic EPS to take into account:

The after income tax effect of any interest and other financing costs associated with dilutive potential ordinary shares.
The weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Overview

This section provides insights into the Group’s exposure to market and financial risks and outlines how these risks are managed. This section also describes how the Group’s capital is managed.

Note 7: Investment portfolios

This note contains information on the Group’s net investment income and the carrying amount of the Group’s investments.

Medibank has established two investment portfolios for managing its investment assets, the Health Fund Investment Portfolio and the Non-Health Fund Investment Portfolio.

The Chief Financial Officer (CFO) is responsible for the management of the Health Fund Investment Portfolio in accordance with the requirements of the Board approved Capital Management Policy, APRA regulatory requirements and the overall objective of achieving a capital base that is both stable and liquid. The asset allocation of Medibank’s Health Fund Investment Portfolio is skewed towards defensive assets (less risky and generally lower returning) rather than growth assets (riskier but potentially higher returning). The Board reviewed and has maintained the short-term target asset allocation for the Health Fund Investment Portfolio at 20%/80% for growth and defensive assets. The long-term target asset allocation remains at 25%/75% for growth and defensive assets. During, and because of, the COVID-19 pandemic the Fund created a subportfolio of the Health Fund Investment Portfolio (the Short-term Operational Cash sub-portfolio) consisting of exclusively defensive assets with the express purpose of funding the COVID-19 liability and customer give back provision. Given its short-term nature, this sub-portfolio is managed separately from the Target Asset Allocation (TAA) framework. This portfolio is permitted to invest in bank deposits, short-term domestic money market securities with a minimum credit rating of A-1+ and Fixed Income securities with a minimum credit rating of AA-.

The Non-Health Fund Investment Portfolio is designed to provide the Group with additional liquidity and financial flexibility. The CFO is responsible for the management of the Non-Health Fund Investment Portfolio in accordance with the Board’s approved Investment Management Policy, investment strategy and delegation from the Investment and Capital Committee. This portfolio resides outside of the health fund and is not subject to the same regulatory requirements as the Health Fund Investment Portfolio. The Non-Health Fund Investment Portfolio is permitted to invest in bank deposits, short-term domestic money market securities with a minimum credit rating of A-1+ and Fixed Income securities with a minimum credit rating of AA-.

This note provides information on the net investment income and the carrying amounts of the investment assets residing in the Health Fund Investment Portfolio (including the sub-portfolio) and the Non-Health Fund Investment Portfolio.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 7: Investment portfolio (continued)

Portfolio composition 30 June 2021 ($m)

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Health Fund Non-Health Fund
Investment Investment Total
Portfolio Portfolio
Cash portfolio
Cash and cash equivalents (as reported in the 588.6 52.9 641.5
statement of financial position) (1) (2)
Cash investments with longer maturities 179.0 - 179.0
-
Less cash allocated to the Fixed income portfolio (37.3) (37.3)
Fixed income portfolio
Fixed income (as reported in the statement of 1,712.2 111.2 1,823.4
financial position) (3)
-
Less cash investments with longer maturities (179.0) (179.0)
Cash allocated to the Fixed income portfolio 37.3 - 37.3
Growth portfolio
Equities and investment trusts 488.5 - 488.5
Total investment portfolio 2,789.3 164.1 2,953.4
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Portfolio composition 30 June 2020 ($m)

Portfolio composition 30 June 2020 ($m)
	Health Fund	Non-Health Fund
	Investment	Investment	Total
	Portfolio	Portfolio
Cash portfolio
Cash and cash equivalents (as reported in the	676.5	170.5	847.0
statement of financial position)(1) (2)
Cash investments with longer maturities	185.0	-	185.0
Fixed income portfolio
Fixed income (as reported in the statement of	1,480.7	47.2	1,527.9
financial position)(3)
Less cash investments with longer maturities	(185.0)	-	(185.0)
Growth portfolio
Equities andinvestment trusts	466.8	-	466.8
Total investment portfolio	2,624.0	217.7	2,841.7

(1) Cash and cash equivalents as reported in the statement of financial position also include operational cash of $30.2 million (2020: $24.4 million).

(2) Cash and cash equivalents in the Health Fund Investment Portfolio includes $178.2 million (2020: $236.5 million) in relation to the Short-term Operational Cash sub-portfolio.

(3) Fixed income in the Health Fund Investment Portfolio includes $148.6 million (2020: $60.6 million) relating to the Short-term Operational Cash sub-portfolio.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 7: Investment portfolio (continued)

The Health Fund Investment Portfolio excluding the Short-term Operational Cash sub-portfolio comprises the following:

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Portfolio Portfolio
Health Fund Investment Portfolio
composition composition Target asset
30 June 2021 30 June 2020 allocation $119.3m $147.4m
Australian
Growth International
Australian equities 4.8% 6.3% 5.0% $552.1m equities equities
International equities 6.0% 6.5% 6.0% Cash $169.3m
Property
Property 6.9% 7.0% 7.0%
Infrastructure 2.1% 0.3% 2.0% $52.5m
19.8% 20.1% 20.0% Infrastructure
Defensive
Fixed income 57.8% 53.0% 60% (1)
Cash 22.4% 26.9% 20% (1)
80.2% 79.9% 80.0%
$1,421.9m
100.0% 100.0% 100.0% Fixed income
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(1) During the period, the target Fixed Income allocation increased to 60% (2020: 52%) and the target Cash allocation reduced to 20% (2020: 28%).

Financial Assets at Fair Value Accounting Policy

Investments in listed and unlisted equity securities held by Medibank’s health insurance fund are accounted for at fair value through profit or loss (FVTPL). Fixed income investments held by Medibank’s health insurance fund are also accounted for at FVTPL, as the Group applies the fair value option to eliminate an accounting mismatch. Transaction costs relating to these financial assets are expensed in the consolidated statement of comprehensive income. These assets are subsequently carried at fair value, with gains and losses recognised within net investment income in the consolidated statement of comprehensive income. Financial assets at FVTPL, consist of externally managed equity trusts and direct mandates, and an internally managed fixed income portfolio.

Fixed income investments not held by Medibank’s health insurance fund are accounted for at fair value through other comprehensive income (FVOCI), as the objective of these assets is to collect contractual cash flows and to sell the assets if required, and the contractual cash flows are solely payments of principal and interest. These assets are initially and subsequently carried at fair value, with gains and losses recognised within equity in other comprehensive income until the asset is derecognised. When the assets are derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. Interest income accrues using the effective interest method and is included within net investment income in the consolidated statement of comprehensive income.

For financial assets classified at FVOCI, the Group applies the general impairment approach under AASB 9, which requires recognition of a loss allowance based on either 12-month expected credit losses or lifetime expected credit losses depending on whether there has been a significant increase in credit risk since initial recognition. Expected credit losses do not reduce the carrying amount of the financial asset in the statement of financial position, which remains at fair value. Instead, a loss allowance is recognised in other comprehensive income as the accumulated impairment amount.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 7: Investment portfolio (continued)

Key judgement and estimate

Fair value measurement may be subjective, and investments are categorised into a hierarchy depending on the level of subjectivity involved. The hierarchy is described in Note 7(b).

The fair value of level 2 financial instruments is determined using a variety of valuation techniques, which make assumptions based on market conditions existing at the end of each reporting period. Valuation methods include quoted market prices or dealer quotes for similar instruments, yield curve calculations using the mid yield, vendor or independent developed models.

The fair value of level 3 financial instruments is determined using inputs that are not based on observable market data.

(a) Net investment income

Net investment income is presented net of investment management fees in the consolidated statement of comprehensive income.

2021 $m 2020 $m Interest(1) 17.7 29.7 Trust distributions 38.0 29.5 Investment management expenses (4.7) (4.6) Net gain/(loss) on fair value movements on financial assets 47.8 (53.0) Net gain/(loss) ondisposalof financialassets 21.2 0.8	2021 $m 2020 $m Interest(1) 17.7 29.7 Trust distributions 38.0 29.5 Investment management expenses (4.7) (4.6) Net gain/(loss) on fair value movements on financial assets 47.8 (53.0) Net gain/(loss) ondisposalof financialassets 21.2 0.8
	29.7 29.5 (4.6) (53.0) 0.8
Net investment income 120.0	2.4

(1) Includes interest income of $0.7 million (2020: $1.7 million) relating to financial assets at fair value through other comprehensive income (Non-Health Fund Investments).

Net Investment Income Accounting Policy

Gains or losses arising from changes in the fair value of the financial assets at FVTPL category are presented in the consolidated statement of comprehensive income within net investment income in the period in which they arise.

Trust distribution income derived from financial assets at FVTPL is recognised in the consolidated statement of comprehensive income as part of net investment income when the Group’s right to receive payments is established. Interest income from financial assets accrues using the effective interest method and is also included in net investment income.

(b) Fair value hierarchy

The fair value of the Group’s investments is measured according to the following fair value measurement hierarchy:

Level 1: Quoted prices (unadjusted current bid price) in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable market data.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 7: Investment portfolio (continued)

(b) Fair value hierarchy (continued)

The following tables present the Group’s financial assets measured and recognised at fair value on a recurring basis.

recurring basis.
	Level 1	Level 2	Level 3	Total
30 June 2021	$m	$m	$m	$m
Financial assets at fair value through profit or loss
Australian equities(1)	-	119.3	-	119.3
International equities(1)	-	147.4	-	147.4
Property(1)	-	-	169.3	169.3
Infrastructure(1)	-	-	52.5	52.5
Fixed income	82.0	1,630.2	-	1,712.2
Financial assets at fair value through other
comprehensive income - Fixed income	-	111.2	-	111.2
Balance at 30 June 2021	82.0	2,008.1	221.8	2,311.9
	Level 1	Level 2	Level 3	Total
30 June 2020	$m	$m	$m	$m
Financial assets at fair value through profit or loss
Australian equities(1)	-	146.8	-	146.8
International equities(1)	-	151.6	-	151.6
Property(1)	-	162.5	-	162.5
Infrastructure(1)	-	-	5.9	5.9
Fixed income	97.9	1,382.8	-	1,480.7
Financial assets at fair value through other
comprehensive income - Fixed income	-	47.2	-	47.2
Balance at 30 June 2020	97.9	1,890.9	5.9	1,994.7

(1) Australian equities, international equities, property and infrastructure are indirectly held through unit trusts.

The Group’s other financial instruments, being trade and other receivables and trade and other payables, are not measured at fair value. The fair value of these instruments has not been disclosed, as due to their shortterm nature, their carrying amounts are assumed to approximate their fair values.

The Group did not measure any financial assets or financial liabilities at fair value on a non-recurring basis at 30 June 2021.

The Group recognises transfers into and transfers out of fair value hierarchy levels from the date of effect of the transfer. There were no transfers between level 1 and level 2 during the year.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 7: Investment portfolio (continued)

(b) Fair value hierarchy (continued)

Fair value measurements using significant unobservable market data (level 3)

As at 30 June 2021, the Group classified $52.5 million of infrastructure financial assets (2020: $5.9 million) and $169.3 million of property financial assets (2020: nil) as level 3 financial instruments. These instruments are held in unlisted unit trusts and are valued at the redemption value per unit as reported by the managers of such funds. These investments are classified within level 3 of the fair value hierarchy as they are not based on observable market data as they trade infrequently and therefore have limited price transparency.

The following table presents the changes in level 3 financial instruments during the period.

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Infrastructure Property Total
$m $m $m
Balance at 1 July 2020 5.9 - 5.9
Acquisitions 44.0 - 44.0
Net unrealised gain/(loss) on fair value movements 2.6 1.5 4.1
Transfer from level 2 (1) - 167.8 167.8
Balance at 30 June 2021 52.5 169.3 221.8
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(1) During the period, $167.8 million of property financial assets were transferred from level 2 into level 3 due to changes in the observability of inputs.

The valuation of unlisted infrastructure and property assets is based on unit prices provided by investment managers. A 10% increase/decrease in the redemption price would decrease/increase the fair value of the financial asset by $22.2 million.

Note 8: Financial risk management

This note reflects risk management policies and procedures associated with financial instruments and capital and insurance contracts. The Group’s principal financial instruments comprise cash and cash equivalents, which are short-term money market instruments, fixed income (floating rate notes, asset-backed securities, syndicated loans, fixed income absolute return funds and hybrid investments), property, infrastructure, Australian equities and international equities.

A strategic asset allocation is set and reviewed at least annually by the Board, which establishes the maximum and minimum exposures in each asset class. Transacting in individual instruments is subject to delegated authorities and an approval process which is also established and reviewed by the Investment and Capital Committee. At no time throughout the period will trading of derivative instruments for purposes other than risk management be undertaken, unless explicitly approved by the Investment and Capital Committee. The Group was in compliance with this policy during the current and prior financial year.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, price risk, credit risk and liquidity risk.

Primary responsibility for consideration and control of financial risks rests with the Investment and Capital Committee under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identified, including the setting of limits for trading in derivatives, foreign currency contracts and other instruments. Limits are also set for credit exposure and interest rate risk.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 8: Financial risk management (continued)

(a) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.

(i) Interest rate risk

Description

The risk that the fair value or future cash flows of a financial instrument will fluctuate due to
changes in market interest rates.
At balance date, the Group had exposure to the risk of changes in market interest rates in
respect of its cash and cash equivalents and fixed income investments. Both classes of
financial assets have variable interest rates and are therefore exposed to cash flow
movements if these interest rates change.

Exposure

At balance date, the Group’s cash and cash equivalents (2021: $671.7 million, 2020:
$871.4 million) and fixed income investments (2021: $1,823.4 million, 2020: $1,527.9 million)
were exposed to Australian variable interest rate risk. The Group regularly analyses its
interest rate exposure and resets interest rates on longer-term investments every 90 days on
average. At balance date, the Group’s fixed income investments had a modified duration of
0.5 years (2020: 0.6 years).

Sensitivity

50 bps increase/decrease in interest rates for the entire reporting period, with all other
variables remaining constant, would have resulted in a $4.4 million increase/decrease to profit
after tax and equity (2020: $3.9 million). The sensitivity analysis has been conducted using
assumptions from published economic data.

(ii) Foreign currency risk

Description	The risk that the fair value of a financial instrument will fluctuate because of changes in foreign exchange rates. All of the Group’s investments with a non-AUD currency exposure are fully economically hedged, except for International equities which are unhedged (2020: 50% target hedge ratio).
Exposure	At 30 June 2021, $147.4 million (2020: $76.0 million) of the international equities portfolio, within financial assets at fair value through profit or loss, had net exposure to foreign currency movements.
Sensitivity	A 10% increase/decrease in foreign exchange rates, with all other variables remaining constant, would have resulted in a $11.5 million decrease/increase to profit after tax and equity (2020: $5.9 million) in the AUD valuation of international equities. Balance date risk exposures represent the risk exposure inherent in the financial instruments.

(iii) Price risk

Description

The risk that the fair value of future cash flows of a financial instrument will fluctuate because
of changes in market prices, whether those changes are caused by factors specific to the
individual financial instrument or its issuer, or factors affecting all similar financial instruments
traded in the market.
The Group is exposed to price risk in respect of its fixed income investments primarily due to
movements in credit spreads. This risk is managed through active management of credit
exposures and credit spread duration.
The Group’s equity price risk arises from investments in property, infrastructure, Australian
equities and international equities. It is managed by setting and monitoring objectives and
constraints on investments, diversification plans and limits on investments in each country,
sector and market.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 8: Financial risk management (continued)

(a) Market risk (continued)

(iii) Price risk (continued)

Sensitivity These investments are exposed to short-term fluctuations in price with their fair value movements being recorded in the consolidated statement of comprehensive income. Price risk is managed by taking a longer-term view of the investment portfolio.

The following sensitivity analysis is based on the equity price risk exposures on average balances at balance date. It shows the effect on profit after tax and equity if market prices had moved, with all other variables held constant.

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2021 2020
$m $m
+10.0% -10.0% +10.0% -10.0%
Australian equities 8.7 (8.7) 9.5 (9.5)
International equities 10.1 (10.1) 11.1 (11.1)
Property 11.6 (11.6) 10.9 (10.9)
Infrastructure 2.1 (2.1) 1.1 (1.1)
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In relation to fixed income investments, a 25 bps increase/decrease in credit spreads, with all other variables remaining constant, would have resulted in a $5.9 million decrease/increase to profit after tax and equity (2020: $6.1 million). Balance date risk exposures represent the risk exposure inherent in the financial instruments.

(b) Credit risk

(i) Cash and cash equivalents and financial assets at fair value through profit or loss

Description

The risk of potential default of a counterparty, with a maximum exposure equal to the carrying
amount of these instruments. Credit risk arises from the financial assets of the Group and
credit risk exposure is measured by reference to exposures by ratings bands, country,
industry and instrument type.

Exposure

The Investment Management Policy limits the majority of internally managed credit exposure
to A- or higher rated categories for long-term investments, and A2 or higher for short-term
investments (as measured by external rating agencies such as Standard & Poor’s).
Departures from this policy and the appointment of external managers require Board
approval.
The Group does not have any financial instruments to mitigate credit risk and all investments
are unsecured (except for covered bonds, asset-backed securities and mortgage-backed
securities). However, the impact of counterparty default is managed through the use of Board
approved limits by counterparty and rating and diversification of counterparties.

Sensitivity

The Group’s cash and fixed income portfolio is subject to counterparty exposure limits. These
limits specify that no more than 50% (2020: 25%) of the cash portfolio can be invested in any
one counterparty bank and no more than 10% (2020: 10%) in any one counterparty corporate
entity. In the Group’s fixed income portfolio, the maximum amounts that can be invested in
any one counterparty bank and any one counterparty corporate entity are 50% (2020: 50%)
and 15% (2020: 15%) of the portfolio respectively. As at 30 June 2021 and 2020, the
counterparty exposure of the Group was within these limits.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 8: Financial risk management (continued)

(b) Credit risk (continued)

(ii) Trade and other receivables

Description

Due to the nature of the industry and value of individual policies, the Group does not request
any collateral nor is it the policy to secure its premiums in arrears and trade and other
receivables. The Group regularly monitors its premiums in arrears and trade and other
receivables, with the result that exposure to bad debts is not significant. The credit risk in
respect to premiums in arrears, incurred on non-payment of premiums, will only persist during
the grace period of 63 days as specified in the Fund Rules when the policy may be
terminated. The Group is not exposed to claims whilst a membership is in arrears, although a
customer can settle their arrears up to the 63 day grace period and a claim for that arrears
period will be paid. Trade and other receivables are monitored regularly and escalated when
they fall outside of terms. The use of debt collection agencies may be used to obtain
settlement.

Exposure

There are no significant concentrations of premium credit risk within the Group.

(iii) Counterparty credit risk ratings

The following tables outline the Group’s credit risk exposure at 30 June 2021 by classifying assets according to credit ratings of the counterparties. AAA is the highest possible rating. Assets that fall outside the range AAA to BBB are classified as non-investment grade. The table highlights the short-term rating as well as the equivalent long-term rating bands as per published Standard & Poor’s correlations. The Group’s maximum exposure to credit risk at balance date in relation to each class of recognised financial asset is the carrying amount of those assets in the consolidated statement of financial position.

Short-term	A-1+	A-1+	A-1	A-2	B & below
Long-term	AAA	AA	A	BBB	BB & below	Not rated	Total
2021	$m	$m	$m	$m	$m	$m	$m
Cash and cash equivalents	-	671.7	-	-	-	-	671.7
Premiums in arrears	-	-	-	-	-	8.5	8.5
Trade and other receivables	-	-	-	-	-	207.4	207.4
Financial assets
Australian equities	-	-	-	-	-	119.3	119.3
International equities	-	-	-	-	-	147.4	147.4
Property	-	-	-	-	-	169.3	169.3
Infrastructure	-	-	-	-	-	52.5	52.5
Fixed income	183.2	528.4	293.0	301.3	7.9	398.4	1,712.2
Financial assets at fair value through
othercomprehensiveincome	-	111.2	-	-	-	-	111.2
Total	183.2	1,311.3	293.0	301.3	7.9	1,102.8	3,199.5
Short-term	A-1+	A-1+	A-1	A-2	B & below
Long-term	AAA	AA	A	BBB	BB & below	Not rated	Total
2020	$m	$m	$m	$m	$m	$m	$m
Cash and cash equivalents	-	836.4	35.0	-	-	-	871.4
Premiums in arrears	-	-	-	-	-	10.8	10.8
Trade and other receivables	-	-	-	-	-	196.3	196.3
Financial assets
Australian equities	-	-	-	-	-	146.8	146.8
International equities	-	-	-	-	-	151.6	151.6
Property	-	-	-	-	-	162.5	162.5
Infrastructure	-	-	-	-	-	5.9	5.9
Fixed income	81.1	483.6	328.6	271.9	-	315.5	1,480.7
Financial assets at fair value through
othercomprehensiveincome	-	47.2	-	-	-	-	47.2
Total	81.1	1,367.2	363.6	271.9	-	989.4	3,073.2

Within the not rated fixed income portfolio, $398.4 million (2020: $290.1 million) is invested in unrated unit trusts, of which the majority of the underlying securities held are investment grade assets and Senior Loans.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 9: Working capital

The Group’s working capital balances are summarised in this note.

(a) Capital management

Medibank’s health insurance fund is required to maintain sufficient capital to comply with APRA’s solvency and capital adequacy standards. The solvency standard aims to ensure that the fund has enough cash or liquid assets to meet all of its liabilities as they become due, even if the cash flow is ‘stressed’. The standard consists of a requirement to hold a prescribed level of cash, and also mandates a Liquidity Management Plan.

The capital adequacy standard aims to ensure that there is sufficient capital within a health insurance fund to enable the ongoing conduct of the business of the fund. The standard consists of a requirement to hold a prescribed level of assets to be able to withstand adverse experience, and also mandates a Capital Management Policy. The Capital Management Policy includes target capital levels, capital trigger points and corrective action plans.

The health insurance fund is required to comply with these standards on a continuous basis and report results to APRA on a quarterly basis. The fund has been in compliance with these standards throughout the year.

The Board has established a Capital Management Policy for the health insurance fund. Capital is managed against this policy and performance is reported to the Board on a monthly basis.

(b) Trade and other receivables

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2021 2020
Note $m $m
Premiums in arrears 13.2 14.9
Allowance for impairment loss (4.7) (4.1)
(i) 8.5 10.8
Trade receivables 59.0 51.4
Allowance for impairment loss (2.2) (3.2)
(ii) 56.8 48.2
Government rebate scheme 133.8 124.2
Risk Equalisation Special Account 9(c) - 6.5
Accrued revenue 13.2 14.7
Other receivables 3.6 2.7
150.6 148.1
Total trade and other receivables 215.9 207.1
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Note: Government rebate scheme is non-interest bearing and generally on 15-day terms.

Past due but not considered impaired

(i) Premiums in arrears past due but not impaired at 30 June 2021 for the Group are $8.5 million (2020: $10.8 million).
(ii) Trade receivables past due but not impaired at 30 June 2021 for the Group are $8.3 million (2020: $3.7 million). Each business unit of the Group has reviewed their individual debtors and is satisfied that payment will be received in full.

Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 9: Working capital (continued)

(b) Trade and other receivables (continued)

Trade and Other Receivables Accounting Policy

Trade and other receivables are:

Recognised initially at fair value.
Subsequently measured at amortised cost using the effective interest method, less an allowance for impairment loss.
Presented as current assets except for those with maturities greater than 12 months after the reporting period.
Non-interest bearing.
Generally due for settlement within 7 - 30 days.

Collectability of trade receivables is reviewed on an ongoing basis. For trade receivables, the Group applies the simplified impairment approach under AASB 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Expected lifetime losses are assessed based on historical bad and doubtful debt roll rates adjusted for forward looking information, where required. When a trade receivable for which an impairment allowance has been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Any impairment loss on trade receivables is recognised within other expenses in the consolidated statement of comprehensive income. Subsequent recoveries of previously written off trade receivables are credited against other expenses in the consolidated statement of comprehensive income. Any impairment loss on premiums in arrears is offset against premium revenue.

(c) Trade and other payables

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2021 2020
Note $m $m
Current
Trade creditors (1) 239.9 230.2
Other creditors and accrued expenses (2) 55.6 53.8
Lease liabilities (1) 14 28.1 27.9
Risk Equalisation Special Account 9(b) 7.7 -
Other payables (3) 6.9 8.3
Total current 338.2 320.2
Non-current
Lease liabilities (1) 14 65.3 81.3
Other payables (3) 4.9 2.9
Total non-current 70.2 84.2
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Terms and conditions relating to the above financial instruments:

(1) Trade creditors and lease liabilities are non-interest bearing and are normally settled up to 30 days.
(2) Other creditors and accrued expenses are non-interest bearing.
(3) Other payables include a contract liability in relation to the loyalty program. Refer to the accounting policy in Note 20(c).

Trade and Other Payables Accounting Policy

Trade and other payables, with the exception of lease liabilities, are:

Recognised initially at their fair value.
Subsequently measured at amortised cost using the effective interest method.
Unsecured.
Presented as current liabilities unless payment is not due within 12 months from the reporting date.

Refer to Note 14 for the accounting policy for lease liabilities.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 9: Working capital (continued)

(d) Reconciliation of profit after income tax to net cash flow from operating activities

		2021	2020
	Note	$m	$m
Profit for the year		441.2	315.0
Depreciation	11	13.3	13.2
Depreciation of right-of-use assets	11,14	27.2	27.0
Amortisation of intangibles assets	12	42.2	48.6
Amortisation of deferred acquisition costs	4	39.3	38.1
Net realised loss/(gain) on financial assets		(21.2)	(0.8)
Net unrealised loss/(gain) on financial assets		(47.8)	53.0
Interest income		(17.7)	(29.7)
Trust distribution reinvested		(38.0)	(29.5)
Investment expenses		4.7	4.6
Interest paid - leases	14	2.8	3.4
AASB 16 transition adjustment - recognition of finance subleases	20(a)(ii)	-	3.3
Non-cash share-based payments expense		5.2	1.2
Share of loss/(profit) from associates and joint ventures	16(b)	1.0	-
Change in operating assets and liabilities - continuing operations:
Decrease/(increase) in trade and other receivables		(8.8)	9.9
Decrease/(increase) in deferred acquisition costs		(42.3)	(36.7)
Decrease/(increase) in other assets		6.2	(5.4)
Decrease/(increase) in net deferred tax liabilities/assets		4.3	(95.5)
(Decrease)/increase in trade and other payables		15.7	(38.6)
(Decrease)/increase in unearned premium liability		11.3	(23.5)
(Decrease)/increase in claims liabilities		(7.7)	261.6
(Decrease)/increase in income tax liability/receivable		(63.9)	36.3
(Decrease)/increase in provisions and employee entitlements		115.2	8.6
Change in operating assets and liabilities - discontinued operations:
Decrease/(increase) in trade and other receivables		-	66.9
(Decrease)/increase in trade and other payables		-	(47.6)
(Decrease)/increaseinprovisions and employee entitlements		-	(11.0)
Net cash inflow from operating activities		482.2	572.4

Cash and Cash Equivalents Accounting Policy

Cash and cash equivalents are stated at amortised cost which approximates fair value and include cash on hand, short-term bank bills and term deposits, commercial paper, negotiable certificate of deposit, and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant change in value.

For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents include all cash assets, net of outstanding bank overdrafts.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 9: Working capital (continued)

(e) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet cash commitments associated with financial instruments. It may result from either the inability to sell financial assets quickly at their fair values; or a counterparty failing on repayment of a contractual obligation; or insurance liability falling due for payment earlier than expected; or inability to generate cash inflows as anticipated.

In order to maintain appropriate levels of liquidity, the Health Fund Investment Portfolio’s target asset allocation is to hold 20% (2020: 28%) of its total investment assets in cash/bank deposits and highly liquid short-term money market instruments and fixed income securities. The Non-Health Fund Investment Portfolio provides the Group with additional liquidity and financial flexibility over and above the Fund’s target allocation.

Trade payables and other financial liabilities mainly originate from the financing of assets used in ongoing operations such as property, plant and equipment and investments in working capital. These assets are considered by the Group in the overall liquidity risk. To monitor existing financial liabilities as well as to enable an effective overall controlling of future risks, the Group has established comprehensive risk reporting that reflects expectations of management of expected settlement of financial liabilities.

The tables below reflect all contractually fixed pay-offs for settlement and interest resulting from recognised financial liabilities as at 30 June 2021, as well as the respective undiscounted cash flows for the respective upcoming fiscal years. Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing at 30 June 2021.

conditions existing at 30 June 2021.
					Total
	Under 6	6 to 12	1 to 2	Over 2	contractual	Carrying
	months	months	years	years	cash flows	amount
	$m	$m	$m	$m	$m	$m
2021
Other trade and other payables(1)	309.4	0.7	1.1	3.8	315.0	315.0
Lease liabilities(2)	16.1	15.4	29.7	36.4	97.6	93.4
Total trade and other payables	325.5	16.1	30.8	40.2	412.6	408.4
Claims liabilities	376.7	21.9	5.5	3.6	407.7	407.7
COVID-19 claims liability(3)	63.5	160.3	-	-	223.8	223.8
Total claims liabilities	440.2	182.2	5.5	3.6	631.5	631.5
2020
Other trade and other payables(1)	292.1	0.2	0.4	2.5	295.2	295.2
Lease liabilities(2)	15.3	14.5	27.8	58.2	115.8	109.2
Total trade and other payables	307.4	14.7	28.2	60.7	411.0	404.4
Claims liabilities	310.3	20.9	6.5	4.4	342.1	342.1
COVID-19 claims liability(3)	145.7	151.4	-	-	297.1	297.1
Total claims liabilities	456.0	172.3	6.5	4.4	639.2	639.2

(1) Contractual cash flows greater than 6 months primarily relate to the loyalty program.

(2) Refer to Note 14 for further information on lease liabilities.

(3) Refer to Note 3(b) for further information on the COVID-19 claims liability.

It is not possible for a company primarily transacting in insurance business to predict the requirements of funding with absolute certainty. The theory of probability is applied based on past observed practices. The amounts and maturities in respect of insurance liabilities are therefore, based on management’s best estimate which incorporates statistical techniques and past experience. It is not possible for the Group to predict the ongoing restrictions on surgeries and other health services due to COVID-19 which could result in the maturity profile of the claims liability extending beyond 12 months.

Notes to the consolidated financial statements 30 June 2021

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SECTION 3: INVESTMENT PORTFOLIO AND CAPITAL

Note 10: Contributed equity and reserves

(a) Contributed equity

Contributed equity consists of 2,754,003,240 fully paid ordinary shares at $0.03 per share. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of Medibank, and in a winding up or reduction of capital, the right to repayment of the capital paid up on the shares.

Ordinary shares entitle their holders to receive dividends and, in the event of winding up Medibank or reduction of capital, entitle their holders to participate in the distribution of the surplus assets of Medibank.

(b) Reserves

Reserve	2021 $m	2020 $m	Nature and purpose of reserve
Equity reserve	17.8	17.8	During the 2009 financial year, the parent entity entered into a restructure of administrative arrangements, which gave rise to an equity reserve representing the difference between the book value of the net assets acquired from Medibank Health Solutions Pty Ltd (formerly Health Services Australia Pty Ltd) and the total purchase consideration.
Share-based payments reserve	4.5	4.6	The share-based payments reserve is used to record the cumulative expense recognised in respect of performance rights issued to key management personnel. Refer to Note 18 for further information.
Total	22.3	22.4

Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Overview

This section provides insights into the operating assets used and liabilities incurred to generate the Group’s operating result.

Note 11: Property, plant and equipment

(a) Closing net book amount

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||||||
|---|---|---|---|---|
|2021|2020|
|Note|$m|$m|
|Closing net book amount|
|Plant and equipment|10.2|6.1|
|Leasehold improvements|23.7|31.0|
|Assets under construction|4.5|3.0|
|Right-of-use|assets|14|63.3|72.1|
|Total property,plant|and|equipment|101.7|112.2|

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(b) Reconciliation of the net book amount at the beginning and end of the period

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|||||||||
|---|---|---|---|---|---|---|---|
|Plant and|Leasehold|Assets under|
|equipment|improvements|construction|Total|
|$m|$m|$m|$m|
|2021|
|Gross carrying amount|
|Balance at 1 July 2020|15.0|92.8|3.0|110.8|
|Additions|6.2|1.0|4.4|11.6|
|Transfers in/(out)|1.7|1.2|(2.9)|-|
|Balance|at|30|June 2021|22.9|95.0|4.5|122.4|
|Accumulated depreciation and|
|impairment|
|-|
|Balance at 1 July 2020|(8.9)|(61.8)|(70.7)|
|Depreciation expense|(3.8)|(9.5)|-|(13.3)|
|Balance|at|30|June 2021|(12.7)|(71.3)|-|(84.0)|
|2020|
|Gross carrying amount|
|Balance at 1 July 2019|14.3|90.2|2.3|106.8|
|Additions|0.3|1.3|2.8|4.4|
|Transfers in/(out)|0.4|1.7|(2.1)|-|
|Disposals|-|(0.4)|-|(0.4)|
|Balance|at|30|June 2020|15.0|92.8|3.0|110.8|
|Accumulated depreciation and|
|impairment|
|-|
|Balance at 1 July 2019|(5.5)|(52.0)|(57.5)|
|-|
|Depreciation expense|(3.4)|(9.8)|(13.2)|
|Disposals|-|-|-|-|
|Balance|at|30|June 2020|(8.9)|(61.8)|-|(70.7)|
|Closing net book amount|
|As|at|30|June 2021|10.2|23.7|4.5|38.4|
|As|at|30|June 2020|6.1|31.0|3.0|40.1|

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Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Note 11: Property, plant and equipment (continued)

(c) Property, plant and equipment capital expenditure commitments

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2021 2020
$m $m
Capital expenditure contracted for at the end of the reporting period but not
recognised as liabilities 0.2 -
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Property, Plant and Equipment Accounting Policy Refer to Note 14 for the accounting policy for right-of-use assets.

Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are recognised as an asset when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the consolidated statement of comprehensive income during the reporting period in which they are incurred.

Depreciation

Depreciation is calculated using the straight-line method over the estimated useful life or lease term as follows:

Plant and equipment 3 - 15 years
Leasehold improvements the lease term
Assets under construction not depreciated until in use
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.
Disposal
The gain or loss on disposal of property, plant and equipment is calculated as the difference between the
carrying amount of the asset at the time of disposal and the net proceeds on disposal (including incidental
costs). These gains or losses are included in the consolidated statement of comprehensive income.

Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Note 12: Intangible assets

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Customer
contracts and Assets under
Goodwill relationships Software construction Total
$m $m $m $m $m
2021
Gross carrying amount
Balance at 1 July 2020 282.9 89.7 430.7 26.2 829.5
Additions - - 4.1 19.7 23.8
Transfers in/(out) - - 20.7 (20.7) -
Balance at 30 June 2021 282.9 89.7 455.5 25.2 853.3
Accumulated amortisation
and impairment
-
Balance at 1 July 2020 (78.4) (81.4) (306.0) (465.8)
Amortisation expense - (4.6) (37.6) - (42.2)
Balance at 30 June 2021 (78.4) (86.0) (343.6) - (508.0)
2020
Gross carrying amount
Balance at 1 July 2019 282.9 89.7 426.4 38.2 837.2
Restatement (1) - - (34.6) (1.8) (36.4)
Balance at 1 July 2019 (restated) 282.9 89.7 391.8 36.4 800.8
Additions - - 2.5 26.2 28.7
Transfers in/(out) - - 36.4 (36.4) -
Balance at 30 June 2020 282.9 89.7 430.7 26.2 829.5
Accumulated amortisation
and impairment
-
Balance at 1 July 2019 (78.4) (72.4) (280.5) (431.3)
Restatement (1) - - 14.1 - 14.1
-
Balance at 1 July 2019 (restated) (78.4) (72.4) (266.4) (417.2)
Amortisation expense - (9.0) (39.6) - (48.6)
Balance at 30 June 2020 (78.4) (81.4) (306.0) - (465.8)
Closing net book amount
As at 30 June 2021 204.5 3.7 111.9 25.2 345.3
As at 30 June 2020 204.5 8.3 124.7 26.2 363.7
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(1) Restatement reflects the change in accounting policy for Software as a Service (SaaS) intangible assets detailed in Note 20(a).

Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Note 12: Intangible assets (continued)

(a) Impairment tests for goodwill – key assumptions and judgements

Below is a cash generating unit (CGU) level summary of the Group’s goodwill allocation and the key assumptions made in determining the recoverable amounts.

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2021 2020
Goodwill Pre-tax Goodwill Pre-tax
allocation Growth discount allocation Growth discount
$m rate % rate % $m rate % rate %
Health Insurance 96.2 2.5 10.5 96.2 2.5 10.7
Medibank Health Telehealth 11.1 1.0 11.3 11.1 2.5 11.3
Medibank Health Home Care 97.2 2.5 11.3 97.2 2.5 11.3
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Growth rates
and discount
rates

The growth rate disclosed above represents the weighted average growth rate used to
extrapolate cash flows beyond the budget period. The growth rate does not exceed the
long-term average growth rate for the business in which the CGU operates as per
industry forecasts.
In performing the recoverable amount calculations for each CGU, the Group has
applied post-tax discount rates to discount the forecast future attributable post-tax cash
flows. The equivalent pre-tax discount rates are disclosed above. The discount rates
used reflect specific risks relating to the relevant CGU.

Health Insurance
CGU

The recoverable amount is based on a value-in-use calculation, which uses a three
year cash flow projection per the Group’s Corporate Plan approved by the Board. Cash
flows beyond the Corporate Plan period are extrapolated using the estimated growth
rates, with a terminal value assumed in the calculations.
Key assumptions
•Forecast revenue comprising estimated change in the number of members and
future premium revenue rate rises.
•Forecast claims and operating expenses.

Medibank Health
Telehealth CGU

The recoverable amount is based on a value-in-use calculation, which uses a three
year cash flow projection per the Group’s Corporate Plan approved by the Board. Cash
flows that are beyond this period, but within the period that management can reliably
estimate, are extrapolated using the estimated growth rates. No terminal value has
been assumed in the calculations.
Key assumptions
•Forecast revenue for the market sector and specific forecasts for key customer
contracts.
•Forecast direct expenses and allocated corporate costs.
•Period over which to assess the forecasts.
The key assumption in the Medibank Health Telehealth CGU is the cash flow forecast.
The ability to meet these cash flows, which are based on the Group’s Corporate Plan,
could impact the recoverability of the CGU. The business model of the CGU is contract
based by nature and the forecast cash flows contain assumptions around expected
contract renewals, new wins and losses. This cash flow estimate assumes that current
contract renewal options will be exercised by the customers. This assumption is based
on management’s past experience and knowledge of the market in which the CGU
operates.

Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Note 12: Intangible assets (continued)

(a) Impairment tests for goodwill – key assumptions and judgements (continued)

Medibank Health
Home Care
group of CGUs Home Care comprises acquired and internally developed in-home care businesses.
Goodwill has been allocated to the Home Care CGUs as the Group derives strategic
and operational synergies, and the Group monitors business performance at the
combined Home Care level.
The recoverable amount is based on a value-in-use calculation, which uses a three
year cash flow projection per the Group’s Corporate Plan approved by the Board. Cash
flows that are beyond this period, but within the period that management can reliably
estimate, are extrapolated using the estimated growth rates with a terminal value
assumed in the calculations.
Key assumptions
•Forecast revenue based on market sector growth, customer contracts and specific
volume forecasts for geographic areas.
•Forecast direct expenses and allocated corporate costs.
•Continued synergies from:
o
Single go-to-market approach.
o
Integration of the chronic diseases management and rehab at home programs.
o
Workforce management.
The key assumption in the Medibank Health Home Care group of CGUs is the cash
flow forecast. The ability to meet these cash flows, which are based on the Group’s
Corporate Plan, could impact the recoverability of the CGUs. The business model of
the Home Care group of CGUs is volume and contract based and the forecast cash
flows contain assumptions including volumes of services performed across geographic
areas and expected contract renewals, new wins and losses. The cash flow forecast
assumes that service volumes will increase based on geographic growth and new
contracts. This assumption is based on management’s past experience and knowledge
of the market in which the CGUs operate.

There are no reasonably possible changes in key assumptions that could have resulted in an impairment loss for the Health Insurance CGU, Medibank Health Telehealth CGU or the Medibank Health Home Care group of CGUs in the current or prior financial year.

Impairment Accounting Policy

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and its value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets called cash-generating units (CGUs). Goodwill is allocated to the CGU, or group of CGUs, at which the goodwill is monitored and where the synergies of the combination are expected.

Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Note 12: Intangible assets (continued)

(b) Intangible assets capital expenditure commitments

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2021 2020
$m $m
Capital expenditure contracted for at the end of the
reporting period but not recognised as liabilities 1.9 1.7
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Intangible Assets Accounting Policy	Intangible Assets Accounting Policy

	Accounting policy	Key estimates
Goodwill	Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses.	Refer to Note 12(a) above for further information on the assumptions used in the recoverable amount calculations.
Software	Software intangibles are carried at cost less accumulated amortisation and impairment losses. Costs incurred in acquiring software and licences (including external direct costs of materials and service and direct payroll-related costs of employees’ time spent on the project) are capitalised where there is control of the underlying software asset and where they will contribute to future financial benefits, through revenue generation and/or cost reduction. Amortisation is calculated on a straight-line basis over the expected useful lives of the software (1.5 to 10 years) and is recognised in depreciation and amortisation expense in the consolidated statement of comprehensive income.	The estimated useful lives are based on projected product lifecycles and could change significantly as a result of technical innovations and competitor actions.
Customer contracts and relationships	Customer contracts and relationships acquired as part of a business combination are carried at their fair value at the date of acquisition less accumulated amortisation and impairment losses. Amortisation is calculated on a straight-line basis over the expected useful lives (5 to 12 years) and is recognised in depreciation and amortisation expense in the consolidated statement of comprehensive income.	Customer contracts and relationships are assessed for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. A key assumption in assessing customer contracts and relationships for impairment is the retention of the underlying contracts. Assumptions are made around renewal of these contracts, associated cash flows based on contracted renewal options and the Group’s commercial and strategic long-term plans.

Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Note 13: Provisions and employee entitlements

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2021 2020
Note $m $m
Current
Customer give back provision 13(c) 103.0 -
Employee entitlements 13(a) 69.7 52.5
Provisions 13(b) 25.0 30.4
Total current 197.7 82.9
Non-current
Employee entitlements 13(a) 13.0 12.6
Provisions 13(b) 9.7 7.0
Total non-current 22.7 19.6
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(a) Employee entitlements

(i) Employee entitlements provision

2021 $m Employee entitlements	2020 $m
Current 69.7	52.5
Non-current 13.0 Total employee entitlements 82.7	12.6 65.1

This provision incorporates annual leave, long service leave, termination payments and bonus plans.

(ii) Employee benefits expense

Included in the Group’s employee benefits expense are the following:

2021 $m Superannuation expense 30.4	2020 $m 29.7
Other long-term benefits expense 5.4	5.0
Termination benefits expense 3.7	2.7
Share-based payment expense 5.2	1.2

Employee Entitlements Accounting Policy

Short-term
obligations

Liabilities for wages and salaries, including non-monetary benefits, are recognised in
respect of employees’ services up to the end of the reporting period and are measured at
the amounts expected to bepaid when the liabilities are settled.

Other long-
term
employee
benefit
obligations

Liabilities for employee entitlements includes long service leave and annual leave which
are not expected to be settled wholly within 12 months after the end of the period. The
liabilities are measured at the present value of expected future payments using the
projected unit credit method, taking into account:
•
Expected future wage and salary levels.
•
Experience of employee departures.
•
Periods of service.
Expected future payments are discounted using market yields at the end of the reporting
period, using corporate bonds with terms to maturity that closely match the estimated
future cash outflows. The obligations are presented as current liabilities in the consolidated
statement of financial position if the Group does not have an unconditional right to defer
settlement for at least 12 months after the reporting date, regardless of when the actual
settlement is expected to occur.

Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Note 13: Provisions and employee entitlements (continued)

(a) Employee entitlements (continued)

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||||
|---|---|---|
|Employee Entitlements Accounting Policy|
|Bonus plans|Liabilities for bonuses are based on a formula that takes into consideration the|
|performance of the employee against targeted and stretch objectives, the profit of the|
|Group and other financial and non-financial key performance indicators. The Group|
|recognises a provision when it is contractually obliged or where there is a past practice|
|that has created a constructive obligation.|
|Termination|Termination benefits are payable when employment is terminated by the Group before the|
|benefits|normal retirement date, or when an employee accepts voluntary redundancy in exchange|
|for these benefits. The Group recognises termination benefits at the earlier of the following|
|dates:|
|•|When the Group can no longer withdraw the offer of those benefits.|
|•|When the Group recognises costs for a restructuring that is within the scope of|
|AASB 137|Provisions, Contingent Liabilities and Contingent Assets|and involves the|
|payment of termination benefits.|
|In the case of an offer made to encourage voluntary redundancy, the termination benefits|
|are measured based on the number of employees expected to accept the offer. Benefits|
|falling due more than 12 months after the end of the reporting period are discounted to|
|present value.|

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(b) Provisions

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|||||||||
|---|---|---|---|---|---|---|---|
|Workers|Corporate|
|Commissions|Make good|compensation|loyalty benefits|Other|Total|
|$m|$m|$m|$m|$m|$m|
|Balance at 1 July 2020|8.1|4.5|4.8|6.7|13.1|37.2|
|Additional provision|7.5|0.5|1.6|3.2|3.2|16.0|
|-|
|Amounts utilised during the year|(6.7)|(1.1)|(2.0)|(7.7)|(17.5)|
|Reversal of unused|provision|-|-|-|(0.9)|(0.1)|(1.0)|
|Balance at 30 June 2021|8.9|5.0|5.3|7.0|8.5|34.7|
|Balance comprised of:|
|Current|8.9|2.2|1.4|7.0|5.5|25.0|
|Non-current|-|2.8|3.9|-|3.0|9.7|

----- End of picture text -----

(i) Commissions provision

This provision relates to estimated commissions payable to third parties in relation to the acquisition of health insurance contracts.

(ii) Make good provision

In accordance with certain lease agreements, the Group is obligated to restore leased premises to their original condition at the end of the lease term. Due to the long-term nature of the liability, there is uncertainty in estimating the ultimate amount of these costs. The provision has been discounted to take into account the time value of money throughout the remaining term of the lease.

(iii) Workers compensation provision

The Group is self-insured for workers’ compensation claims. Provisions are recognised based on claims reported and an estimate of claims incurred but not reported. These provisions are determined on a discounted basis, using an actuarial valuation performed at each reporting date. The Group has entered into $10.0 million (2020: $8.8 million) of bank guarantees in relation to its self-insured workers compensation obligations.

Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Note 13: Provisions and employee entitlements (continued)

(b) Provisions (continued)

(iv) Corporate loyalty benefits provision

This provision relates to estimated incentives payable to third parties in relation to the acquisition of Corporate health insurance contracts.

(c) Customer give back provision

A customer give back provision of $103.0 million has been recognised at 30 June 2021 (2020: nil). This provision relates to the return of permanent COVID-19 savings to customers through premium relief announced by the Group on 29 June 2021. The provision has been recognised within Health Insurance premium revenue in the consolidated statement of comprehensive income and is expected to be utilised via a one-time cash payment to former eligible policyholders or a one-time reduction in future premiums payable by active eligible policyholders within the next 12 months.

Provisions Accounting Policy

Provisions are recognised when:

The Group has a present legal or constructive obligation as a result of past events.
It is probable that an outflow of resources will be required to settle the obligation.
The amount has been reliably estimated.

Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Expected future payments are discounted using market yields at the end of the reporting period using corporate bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows. The increase in the provision due to the passage of time is recognised as interest expense.

(d) Contingent liabilities

From time to time, the Group is exposed to contingent liabilities which arise from the ordinary course of business, including:

Losses which might arise from litigation.
Investigations from internal reviews and by regulatory bodies such as the ACCC, ASIC or APRA into past conduct on either industry-wide or Medibank specific matters.

It is anticipated that the likelihood of any unprovided liabilities arising is either remote or not material.

Note 14: Leases

(a) Group as a lessee

Leases are entered into as a means of acquiring access to corporate and retail property. Rental payments are generally fixed, with differing clauses to adjust the rental to reflect increases in market rates. These clauses include fixed incremental increases, market reviews and inflation escalation clauses during a lease on which contingent rentals are determined. No operating leases contain restrictions on financing or other leasing activities. The Group leases unused office space under non-cancellable leases agreements. The leases have varying terms, escalation clauses and renewal rights.

As at 30 June 2021, management have determined it is not reasonably certain that any of its leases will be extended or terminated.

Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Note 14: Leases (continued)

The table below sets out the carrying amounts of the right-of-use asset and the movements during the year.

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----- Start of picture text -----

2021 2020
$m $m
Balance at 1 July 72.1 88.0
Net additions 18.4 11.1
Depreciation expense (27.2) (27.0)
Balance at 30 June 63.3 72.1
----- End of picture text -----

The table below sets out the carrying amounts of the lease liabilities and the movements during the year.

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----- Start of picture text -----

2021 2020
$m $m
Balance at 1 July 109.2 132.5
Additions 18.4 6.6
Accretion of interest 2.8 3.4
Lease payments (37.0) (33.3)
Balance at 30 June 93.4 109.2
Balance comprised of:
Current 28.1 27.9
Non-current 65.3 81.3
----- End of picture text -----

The maturity profile of the Group's lease liabilities based on contractual undiscounted payments is provided in Note 9(e).

Leases Accounting Policy

As a lessee

At inception of a contract, the Group assesses whether a contract is, or contains, a lease by determining whether:

The contract involves the use of an identified asset.
The Group has the right to direct the use of the asset

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The rightof-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to restore the underlying asset less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use or the end of the lease term. In addition, the right-of-use is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the Group’s incremental borrowing rate. In determining the incremental borrowing rate, the following components are considered:

Reference rate (incorporating currency, environment, term).
Financing spread adjustment (incorporating term, indebtedness, entity, environment).
Lease specific adjustment (incorporating asset type).

Notes to the consolidated financial statements 30 June 2021

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SECTION 4: OTHER ASSETS AND LIABILITIES

Note 14: Leases (continued)

Leases Accounting Policy (continued)

As a lessee (continued)

The interest expense recognised on the lease liability is measured at amortised cost using the effective interest method. The lease liability is remeasured when there is a change in future lease payments, with a corresponding adjustment made to the carrying amount of the right-of-use asset (or profit or loss if the carrying amount of the right-of-use asset has been reduced to zero).

The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

(b) Group as a Lessor

Finance lease receivables of $7.0 million have been recognised by the Group at 30 June 2021 (2020: $8.9 million). These are presented within other assets in the consolidated statement of financial position. The Group recognised income of $1.1 million (2020: $2.3 million) for the year with respect to subleasing of its right-of-use assets.

Leases Accounting Policy

As a lessor

The Group acts as an intermediate lessor for two of its four subleases. The Group’s interest in the head lease and sublease are accounted for separately. At the sublease commencement, the Group determines whether it is a finance or operating lease by assessing whether the lease transfers substantially all of the risks and rewards of ownership to the lessee, with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset.

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Overview

This section includes additional information that must be disclosed to comply with Australian Accounting Standards, the Corporations Act 2001 and the Corporations Regulations.

Note 15: Income tax

Tax consolidation legislation

Medibank and its wholly-owned Australian controlled entities are members of a tax consolidated group. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are offset in the consolidated financial statements.

The entities in the tax consolidated group entered into a tax sharing agreement which limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, Medibank.

The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Medibank for any current tax payable and are compensated by Medibank for any current tax receivable.

(a) Income tax expense

(a) Income tax expense
	2021	2020
	$m	$m
*Continuing operations*
Current tax	182.2	226.8
Deferred tax(1)	8.6	(93.9)
Adjustmentfortaxofpriorperiod	0.3	1.7
Income tax expense reported in the statement of
comprehensive income	191.1	134.6

(1) Prior period includes deferred tax of $89.1 million in relation to the COVID-19 claims liability. Refer to Note 3(b) for further information on the COVID-19 claims liability.

(b) Numerical reconciliation of income tax expense to prima facie tax payable

	2021	2020
	$m	$m
Profit for the year from continuing operations before income
tax expense	632.3	450.2
Tax at the Australian tax rate of 30%	189.7	135.1
Tax effect of amounts which are not deductible (taxable) in
calculating taxable income:
Non-deductible expenses	2.8	-
Tax offset for franked dividends	(1.2)	(1.8)
Other items	(0.5)	(0.4)
	190.8	132.9
Adjustmentfortaxofpriorperiod	0.3	1.7
Income tax expense reported in the statement of
comprehensive income	191.1	134.6

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 15: Income tax (continued)

(c) Deferred tax assets and liabilities

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----- Start of picture text -----

2021 2020 (restated)(3)
$m $m
Deferred tax balances comprise temporary differences
attributable to items:
Recognised in the income statement
Trade and other receivables 2.0 2.1
Financial assets at fair value through profit or loss (28.4) (16.0)
Deferred acquisition costs (24.3) (23.4)
Property, plant and equipment (19.6) (22.8)
Intangible assets (13.0) (10.6)
Trade and other payables 30.6 34.5
Employee entitlements 24.8 19.5
Claims liabilities (1) 72.2 95.0
Provisions (2) 40.6 11.4
Business capital costs 0.3 0.5
Other (liabilities)/assets 0.3 (0.6)
Recognised in the income statement 85.5 89.6
Recognised directly in other comprehensive income
Actuarial loss on retirement benefit obligation 0.4 0.6
Recognised directly in other comprehensive income 0.4 0.6
Net deferred tax (liabilities)/assets 85.9 90.2
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(1) Includes deferred tax of $67.1 million (2020: $89.1 million) in relation to the COVID-19 claims liability. Refer to Note 3(b) for further information on the COVID-19 claims liability.
(2) Includes deferred tax of $30.9 million (2020: nil) in relation to the customer give back provision. Refer to Note 13(c) for further information.
(3) Restatement reflects the change in accounting policy for Software as a Service (SaaS) intangible assets detailed in Note 20(a).

Income Tax Accounting Policy

Current Taxes Accounting Policy

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation, and establishes provisions where appropriate.

Deferred Taxes Accounting Policy

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted at the end of each reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax is provided on temporary

differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements, other than for the following:

Where they arise from the initial recognition of goodwill.
Where they arise from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
For temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 15: Income tax (continued)

Income Tax Accounting Policy (continued)

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Current and deferred tax is recognised in the profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

Offsetting balances

Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.

Key judgement

The deferred tax asset in relation to the COVID-19 claims liability has been recognised in the consolidated statement of financial position. Recognition is on the basis that the Group can demonstrate that:

The temporary difference will reverse when the expected deferred claims are incurred.
Sufficient profits are forecast to exist to utilise the tax asset in the future.

Note 16: Group structure

(a) Group structure

The consolidated financial statements incorporate the following entities. All entities, unless otherwise stated, are 100% controlled.

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----- Start of picture text -----

Medibank Private
Limited
Australian Health Medibank Private
Medibank Health
Management Employee Share
Group Pty Ltd Solutions Pty Ltd Plan Trust [(1)]
Medibank Health
Live Better MH Solutions
Solutions Integrated Care Medi Financial MH Investment
Management Pty Investments Pty
Telehealth Pty Services Pty Ltd Services Pty Ltd Ltd Holdings Pty Ltd Ltd
Ltd
Calvary MHIH JV East Sydney Day Adeney Private Myhealth Medical
HealthStrong Pty Home Support
Ltd Services Pty Ltd Pty Ltd Hospital Pty Ltd Hospital Pty Ltd Holdings Pty Ltd
(50%) (49%) (49%) (49%)
----- End of picture text -----

These subsidiaries are wholly owned by Medibank Health Solutions Pty Ltd and have been granted relief from the necessity to prepare financial reports in accordance with the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 . These entities are equity accounted investments. Refer to Note 16(b) for further information.

(1) Refer to Note 18(a) for further information on the Employee Share Plan Trust.

100

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 16: Group structure (continued)

(a) Group structure (continued)

Consolidation Accounting Policy

Subsidiaries are all those entities over which the Group has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred and the liabilities incurred. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired, is recorded as goodwill.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries are consistent with the policies adopted by the Group.

(b) Equity accounted investments

As at 30 June 2021 the Group held the following investments in associates and joint ventures:

Name of company	Principal activity	Place of incorporation	Type	2021 2020 Ownership interest %	2021 2020 Ownership interest %
East Sydney Day Hospital Pty Ltd(i)	Short-stay hospital	Australia	Associate	49%	-
Calvary MHIH JV Pty Ltd(ii)	Medical services	Australia	Joint Venture	50%	-
Myhealth Medical Holdings Pty Ltd(iii)	Medical services	Australia	Associate	49%	-
AdeneyPrivate Hospital PtyLtd(iv)	Short-stayhospital	Australia	Associate	49%	-

The following table shows the Group’s aggregated interests in equity accounted investments.

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----- Start of picture text -----

2021 2020
$m $m
- -
Balance at 1 July
Net additions (1) 78.1 -
-
Share of net profit/(loss) for the year (1.0)
Balance at 30 June 77.1 -
----- End of picture text -----

(1) Net additions during the period include purchases of equity accounted investments ($82.6 million) and proceeds from sale of equity accounted investments ($11.6 million).

(i) East Sydney Day Hospital Pty Ltd - Associate

On 6 August 2020, MH Solutions Investments Pty Ltd acquired a 49% shareholding in East Sydney Day Hospital Pty Ltd (ESPH) for $8.8 million, of which $4.4 million is recognised as a current payable and due 12 months following completion. The purchase agreement contains an additional $10.8 million contingent consideration that is subject to ESPH achieving certain earnings targets over three years. The fair value of this contingent consideration is $2.7 million at 30 June 2021 and has been recorded as a non-current provision in the consolidated statement of financial position.

An interest-bearing three-year loan of $2.9 million was also advanced to ESPH on acquisition.

101

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 16: Group structure (continued)

(b) Equity accounted investments (continued)

(ii) Joint venture with Calvary Hospital

On 29 September 2020, MH Investment Holdings Pty Limited acquired a 50% shareholding in Calvary MHIH JV Pty Ltd for $2.7 million. This joint venture was determined to be the successful bidder on a tender for the South Australian Government’s “My Home Hospital” program during the period.

(iii) Myhealth Medical Holdings Pty Ltd - Associate

On 31 March 2021, MH Solutions Investments Pty Ltd acquired a 49% shareholding in Myhealth Medical Holdings Pty Ltd for $68.6 million. The Group subsequently reduced its shareholding to 43% on the same day for proceeds of $11.6 million, before increasing its shareholding again to 49% on 1 April for consideration of $5.9 million. The net consideration paid for the 49% investment is $62.9 million.

(iv) Adeney Private Hospital Pty Ltd - Associate

On 9 March 2021, MH Solutions Investments Pty Ltd acquired a 49% shareholding in Adeney Private Hospital Pty Ltd (APH) for $1.0 million, to develop a hospital in Victoria for short stay surgical procedures. As part of the purchase agreement, the Group may make future equity purchases in APH up to $8.0 million over the next 3 years. These future equity purchases are contingent on APH achieving certain milestones in the development of the hospital and therefore will only be recognised when the milestones are achieved.

Equity Accounted Investments Accounting Policy

The Group’s associates and joint ventures, which are entities over which the Group has significant influence or joint control, are accounted for using the equity method. Under this method, the investment associate or joint venture is initially recognised at cost and is increased or decreased to recognise the Group’s share of profit or loss. Equity accounting of losses is restricted to the Group’s interest in the associate or joint venture. The Group’s share of profit or loss for the period is reflected in the consolidated statement of comprehensive income. Investments in associates and joint ventures are tested for impairment if an event occurs that has an impact on the estimated future cash flows from the net investment.

102

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 16: Group structure (continued)

(c) Parent entity financial information

(i) Summary financial information

The individual financial statements for the parent entity show the following aggregate amounts:

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----- Start of picture text -----

2021 2020 (restated)(1)
$m $m
Statement of financial position
Current assets 3,186.5 3,053.3
Total assets 3,794.7 3,632.6
Current liabilities 1,832.2 1,731.7
Total liabilities 1,980.2 1,917.6
Shareholders' equity
Issued capital 85.0 85.0
Reserves
Equity reserve 6.3 6.3
Share-based payment reserve 4.5 4.5
Retained earnings 1,718.7 1,619.2
Total shareholders' equity 1,814.5 1,715.0
Profit for the year 432.7 311.4
Total comprehensive income 432.7 311.4
----- End of picture text -----

(1) Restatement reflects the change in accounting policy for Software as a Service (SaaS) intangible assets detailed in Note 20(a).

(ii) Guarantees entered into by parent entity

The parent entity has entered into $10.0 million (2020: $8.5 million) of bank guarantees in relation to its selfinsured workers compensation obligations. Refer to Note 13(b)(iii) for further information on the provision for workers compensation. The parent entity also provided guarantees in respect of service obligations assumed by members of the Group. No liability has been recognised in relation to these guarantees by the parent entity or the Group as the fair value of the guarantees is not material.

(iii) Contingent liabilities of the parent entity

Refer to Note 13(d) for details of the contingent liability of the parent entity.

(iv) Parent entity capital expenditure commitments

(iv) Parent entity capital expenditure commitments
	2021	2020
	$m	$m
Capital expenditure contracted for at the end of the reporting period
but not recognised as liabilities
Property, plant and equipment	0.2	-
Intangible assets	1.6	1.5

Parent Entity Financial Information Accounting Policy

The financial information for the parent entity, Medibank, has been prepared on the same basis as the consolidated financial statements, except as set out below:

Investments in subsidiaries are accounted for at cost less accumulated impairment losses in the financial statements of Medibank.
Assets or liabilities arising under tax funding arrangements with the tax consolidated entities are recognised by Medibank as current assets or current liabilities.

103

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 17: Related party transactions

(a) Transactions with equity accounted investments

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----- Start of picture text -----

2021 2020
$m $m
Transactions with equity accounted investments
Claims incurred (2.9) -
Services provided 1.7 -
Interest received 0.2 -
Outstanding balances with related parties
- -
Amounts payable
Amounts receivable 1.5 -
Loan receivable 2.9 -
----- End of picture text -----

The Group has entered into the following transactions with its equity accounted investments during the year:

Payment of policyholder claims. These transactions are under normal commercial terms.
Interest-bearing three-year loan of $2.9 million advanced to ESPH on acquisition.
Reimbursement of costs incurred.

(b) Key management personnel remuneration

Total remuneration for key management personnel of the Group during the financial year are set out below:

	2021 $ 2020 $
Short-term benefits Post-employment benefits Long-term benefits Share-based payments Total key management personnel	10,300,436 7,722,918 281,954 300,528 1,420,495 323,044 3,515,299 1,641,366 15,518,184 9,987,856

(c) Transactions with other related parties

Certain key management personnel hold director positions in other entities, some of which transacted with the Group during the 2021 financial year. All transactions that occurred were in the normal course of business on terms and conditions no more favourable than those available on an arm’s length basis.

Note 18: Share-based payments

(a) Share-based payments arrangements

Performance rights to acquire shares in Medibank are granted to Executive Leadership Team (ELT) and Senior Executive Group (SEG) members as part of Medibank’s short-term incentive (STI) and long-term incentive (LTI) plans. The plans are designed to:

Align the interests of employees participating in the plan more closely with the interests of customers and shareholders by providing an opportunity for those employees to receive an equity interest in Medibank through the granting of performance rights.
Assist in the motivation, retention and reward of ELT and SEG members.

Performance rights granted do not carry any voting rights.

Medibank has an Employee Share Plan Trust to manage its share-based payments arrangements. Shares allocated by the trust to the employees are acquired on-market prior to allocation. The Trust held nil shares at 30 June 2021.

104

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 18: Share-based payments (continued)

(a) Share-based payments arrangements (continued)

(i) LTI offer

Under the LTI Plan, performance rights were granted to members of the ELT and SEG as part of their remuneration. Performance rights granted under the LTI Plan are subject to the following performance hurdles:

35% of the performance rights will be subject to a vesting condition based on Medibank’s earnings per share compound annual growth rate (EPS CAGR) over the performance period.
35% of the performance rights will be subject to a relative total shareholder return (TSR) vesting condition, measured over the performance period against a comparator group of companies.
30% of the performance rights will be subject to a performance hurdle based on the growth of Medibank’s private health insurance market share (as reported by APRA) over the performance period.

Each performance hurdle under the LTI Plan has a threshold level of performance which needs to be achieved before vesting commences. Details of these thresholds are outlined in the remuneration report. The vesting conditions for performance rights in grants will be tested over a three-year performance period commencing on 1 July of the relevant period. The vesting conditions must be satisfied for the performance rights to vest. On satisfaction of the vesting conditions, each performance right will convert into a fully paid ordinary share on a one-for-one basis.

The number of rights granted in the 2021 grants were determined based on the monetary value of the LTI award, divided by the volume-weighted average share price of Medibank shares on the ASX during the 10 trading days up to and including 30 June 2020. This average price was $3.02.

(ii) Annual STI offer

Under the Group’s STI Plan, 50% of STI awarded to ELT members is paid in cash after the announcement of financial results. The remaining 50% is deferred for 12 months in the form of performance rights granted under the Performance Rights Plan. Vesting of deferred performance rights is conditional on the participant remaining employed by Medibank until the end of the 12-month deferral period.

On vesting of the performance rights, each performance right will convert into a share on a one-for-one basis, subject to any adjustment required to ensure that the participant receives a benefit equivalent to any dividends paid by Medibank during the deferral period.

The number of rights to be granted will be determined based on the monetary value of the STI award, divided by the volume-weighted average share price over the 10 trading days up to and including the payment date of cash STI.

Share-based Payments Accounting Policy

The fair value of the performance rights is recognised as an employee benefits expense, with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the performance rights granted, which includes any market performance conditions and the impact of any nonvesting conditions, but excludes the impact of any service and non-market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of performance rights that are expected to vest.

The total expense is recognised over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date).

At the end of each reporting period, the Group revises its estimates of the number of awards that are expected to vest based on the non-market vesting conditions. The impact of the revision to original estimates, if any, is recognised in profit or loss, with a corresponding adjustment to equity.

105

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 18: Share-based payments (continued)

(b) Performance rights - Group

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Number of equity instruments
Note 2021 2020
Outstanding at 1 July 8,938,073 8,430,879
Granted 3,168,794 3,338,273
Forfeited (i) (624,784) (594,482)
Exercised (ii) (1,980,272) (1,068,721)
Lapsed (iii) (1,422,769) (1,167,876)
Outstanding at 30 June 8,079,042 8,938,073
Exercisable at 30 June - -
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(i) Forfeited relates to instruments that lapsed on cessation of employment.

(ii) Performance rights are exercised as soon as they vest.

(iii) Lapsed relates to instruments that lapsed on failure to meet the performance hurdles.

(c) Fair value of performance rights granted

Below is a summary of the fair values of the 2020 and 2021 LTI plans and the key assumptions used in determining the valuation. The fair value was determined in consultation with the Group’s professional service advisors, KPMG including key inputs and the valuation methodology for the performance rights granted. The fair value at grant date differs for each grant primarily due to the Medibank share price on that grant date and for the TSR performance rights, the Medibank share price relative to the comparator group.

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TSR EPS Market share
performance rights performance rights performance rights
2021 2020 2021 2020 2021 2020
Grant date 1 July 2020 1 July 2019 1 July 2020 1 July 2019 1 July 2020 1 July 2019
Date of commencement of service
1 July 2020 1 July 2019 1 July 2020 1 July 2019 1 July 2020 1 July 2019
and performance period
Expected vesting date 30 June 2023 30 June 2022 30 June 2023 30 June 2022 30 June 2023 30 June 2022
Fair value at grant date $1.58 $1.09 $2.54 $2.80 $2.54 $2.80
Share price at grant date $2.97 $3.21 $2.97 $3.21 $2.97 $3.21
Dividend yield (per annum effective) 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Franking rate 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Risk free discount rate (per annum) 0.3% 0.6% n/a n/a n/a n/a
Valuation method Monte Carlo Monte Carlo Black-Scholes Black-Scholes Black-Scholes Black-Scholes
simulation simulation option pricing option pricing option pricing option pricing
model model methodology methodology methodology methodology
Volatility assumptions (per annum)
Medibank 28% 20% n/a n/a n/a n/a
Comparator group average 35% 23% n/a n/a n/a n/a
Correlation between comparator
companies' TSR 25% 25% n/a n/a n/a n/a
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106

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 19: Auditor's remuneration

During the year the following fees were paid or payable for services provided by the auditor of Medibank, its related practices and non-related audit firms:

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2021 2020
Note $ $
PricewaterhouseCoopers Australia (PwC):
Amounts received or due and receivable by the Company's auditor for:
- An audit or review of the financial report of the Company and any other entity
within the Group 1,570,108 1,581,094
Other assurance services in relation to the Company and any other entity within
the Group:
- Audit of regulatory compliance returns 231,830 342,264
- Accounting and other assurance services 15,530 64,260
Other services in relation to the Company and any other entity within the Group:
- Other non-audit services 199,517 -
Total remuneration of PwC 2,016,985 1,987,618
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Note 20: Other

(a) New and amended standards adopted

(i) Adopted in the current period

During the period, the IFRS Interpretations Committee (IFRIC) issued a final agenda decision, ‘Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS 38 Intangible Assets)’. The agenda decision clarifies when configuration and customisation costs incurred in implementing a Software as a Service (‘SaaS’) arrangement can be recognised as an intangible asset and if not, over what time period the expenditure is expensed.

Medibank has implemented this guidance retrospectively as a change in accounting policy and has recognised the following adjustments in the prior year financial statements of the Group and Parent Entity as follows:

A decrease in intangible assets as at 1 July 2019 of $22.3 million (Parent Entity: $20.1 million).
An increase in deferred tax assets as at 1 July 2019 $6.2 million (Parent Entity: $5.9 million).
A decrease in retained earnings as at 1 July 2019 of $16.1 million (Parent Entity: $14.2 million).

There are no other material impacts as a result of this change in accounting policy.

The following standards became effective for the annual reporting period commencing on 1 July 2020 but did not have a material impact on the Group’s accounting policies or on the consolidated interim financial report.

AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material
Amendments to References to the Conceptual Framework in IFRS Standards
AASB 2020-4 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions

(ii) Adopted in the previous period

The Group adopted AASB 16 Leases on 1 July 2019 using the modified retrospective approach. The net impact after tax of initially applying AASB 16 was recognised as a decrease of $4.7 million to the opening balance of retained earnings at 1 July 2019.

107

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 20: Other (continued)

(b) New accounting standards and interpretations not yet adopted

Certain new accounting standards have been published that are not mandatory for 30 June 2021 reporting periods, but will be applicable to the Group in future reporting periods. The Group’s assessment of the impact of these new standards is set out below.

(i) AASB 17: Insurance Contracts

AASB 17 Insurance Contracts is effective for reporting periods beginning on or after 1 January 2023 and will replace AASB 4 Insurance Contracts , AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts . The Group will apply AASB 17 for the annual period beginning 1 July 2023.

The standard introduces a new general measurement model for accounting for insurance contracts. However, a simplified premium allocation approach, similar in nature to the Group’s existing measurement basis under AASB 1023 is permitted in certain circumstances (such as for short-duration contracts).

The Group has a comprehensive project underway to assess the potential impact on its consolidated financial statements. This includes identifying changes to the Group’s accounting policies, reporting requirements, systems, processes and controls and consideration of industry interpretations and regulatory responses.

The final impact of AASB 17 is currently being evaluated by the Group. The Group expects to apply the simplified premium allocation approach to all of its insurance contracts and therefore the measurement basis is not expected to significantly change. The key estimates and judgements in relation to the measurement of the Group’s claim liabilities are expected to remain largely the same under the new standard, albeit with some differences in their application. However, it is expected that under AASB 17 there will be substantial changes in presentation of the financial statements and disclosures.

(ii) Other accounting standards or amendments that will become applicable in future reporting periods

Other accounting standards or amendments that will become applicable in future reporting periods are not expected to have a material impact on the Group’s accounting policies or on the consolidated financial report.

(c) Other accounting policies

Impairment of Tangible and Intangible Assets (other than Goodwill) Accounting Policy

Assets other than goodwill and financial assets classified at fair value through other comprehensive income, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and its value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (CGUs).

Financial Assets and Financial Liabilities Accounting Policy

The Group’s financial assets consist of cash and cash equivalents, financial assets at fair value and trade and other receivables. Management determines the classification of its financial assets at initial recognition based on the business model test and cash flow characteristics. Purchases and sales of financial assets are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred. The Group’s financial liabilities comprise trade and other payables. Financial liabilities are classified and measured at amortised cost and derecognised when the Group’s contractual obligations are discharged, cancelled or expired.

108

Notes to the consolidated financial statements 30 June 2021

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SECTION 5: OTHER

Note 20: Other (continued)

(c) Other accounting policies (continued)

Goods and Services Tax (GST) Accounting Policy

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated statement of financial position.

Cash flows are presented on a gross basis. The GST component of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

Loyalty Program Accounting Policy

Where the amount of health insurance premium revenue includes a loyalty component, revenue is allocated to this component based on the relative estimated stand-alone selling price. The component of loyalty revenue is initially deferred as a liability on the consolidated statement of financial position, and subsequently recognised in the consolidated statement of comprehensive income upon redemption when Medibank is obliged to provide the specified goods or services itself.

(d) Events occurring after the reporting period

There have been no events occurring after the reporting period which would have a material effect on the Group’s financial statements at 30 June 2021.

109

DIRECTORS’ DECLARATION

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The directors declare that, in the opinion of the directors:

(a) the financial statements and notes set out on pages 53 to 109 are in accordance with the Corporations Act 2001 , including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its performance for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Note 1(b) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

This declaration has been made after receiving the declarations required to be made to the directors by the Chief Executive Officer and Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 for the year ended 30 June 2021.

This declaration is made in accordance with a resolution of the directors.

On behalf of the Board,

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Mike Wilkins AO Chairman

David Koczkar

Chief Executive Officer

25 August 2021 Melbourne

110

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Independent auditor’s report

To the members of Medibank Private Limited

Report on the audit of the financial report

Our opinion

In our opinion:

The accompanying financial report of Medibank Private Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001 , including:

(a) giving a true and fair view of the Group's financial position as at 30 June 2021 and of its financial performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001 .

What we have audited

The Group financial report comprises:

the consolidated statement of financial position as at 30 June 2021
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information
the directors’ declaration.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

PricewaterhouseCoopers, ABN 52 780 433 757

2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

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Our audit approach

An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates.

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Materiality Audit scope

Key audit matters

For the purpose of our audit we used overall Group materiality of $27 million, which represents approximately 5% of the Group’s profit before tax.

We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.

We chose Group profit before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured.

We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds.

Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events.

We performed:

An audit of the financially significant component of the Group, being the Health Insurance segment.
Specific audit procedures over significant risks and financially significant balances of the Medibank Health segment.

Amongst other relevant topics, we communicated the following key audit matters to the Audit Committee:

Estimation of the COVID-19 claims liability
Estimation of the outstanding claims liability
Impairment test of goodwill allocated to the Home Care Cash Generating Unit (CGU)
Reliance on automated processes and controls

These are further described in the Key audit matters section of our report.

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Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context.

Key audit matter

Estimation of the COVID-19 claims liability (Refer to Note 3) $223.8m

The COVID-19 claims liability relates to a constructive obligation arising from the Group’s commitments to pass-back to customers unforeseen financial gains arising from the temporary closure of elective surgery and reduced access to ancillary services as a result of restrictions imposed in response to the Coronavirus pandemic (COVID-19). The COVID-19 claims liability is calculated by comparing the difference between the actual and expected volume of insured surgical and non-surgical procedures since the commencement of restrictions in March 2020 (the COVID-19 period). Utilisation of the COVID-19 claims liability is assessed by geography and modality (claim type) and occurs where actual claims exceed expected claims.

The COVID-19 claims liability is included in the financial statement line item titled ‘Claims liabilities’ recognised on the consolidated statement of financial position but does not form part of the outstanding claims liability (refer to the Key Audit Matters titled ‘ Estimation of outstanding claims liability ’).

We considered this a key audit matter due to the:

significant uncertainties impacting the Group’s estimate of the liability, including:
the impact and variability of disruptions to planned insured surgeries and other insured procedures arising from COVID-19 restrictions and lock-downs
an absence of historical precedent on which to analyse data due to the impact of COVID-19 on claims patterns in the current and future periods
determining the proportion of claims not incurred due to COVID-19 restrictions
determining expected future claims utilisation patterns.

How our audit addressed the key audit matter We performed the following audit procedures, amongst others:

Evaluated the design of the Group’s relevant key controls over the COVID-19 provisioning process.
Developed an understanding of the Group’s public announcements and commitments to financial analysts, shareholders and policyholders during the year.
● Evaluated the Group’s accounting policy for the deferral of claims due to the COVID-19 pandemic against applicable Australian Accounting Standard requirements and private health insurance industry practices.
● Assessed, on a sample basis, significant data inputs used in the Group’s modelling and estimation of the COVID-19 claims liability (including relevance and reliability of data, appropriateness of data in the context of the applicable financial reporting framework, and potential indicators of management bias).
Analysed claims patterns across key claims attributes (e.g. hospital versus ancillary claims and surgical versus non-surgical).
Together with PwC actuarial experts, we:
Assessed significant assumptions applied by the Group in determining the impact of continued COVID-19 restrictions on claims deferred to future periods, including consideration of practices adopted across the private health insurance industry.
Considered the appropriateness of the Group’s methodologies used to determine claims deferred to future periods.
On a sample basis, performed recalculations over the mathematical accuracy of the Group’s COVID-19 claims liability model.

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Key audit matter

reasonableness of disclosure of the COVID-19 claims liability within the financial report.

Estimation of the outstanding claims liability (Refer to Note 3) $390.9m

The liability for outstanding claims relates to claims incurred during the financial year or prior periods but either not assessed or received by the Group at year end.

The liability for outstanding claims is estimated by the Group as a central estimate but, as is the case with any accounting estimate, there is a risk that the ultimate claims paid will differ from the initial estimates. There is also additional uncertainty relating to the continued impact of the COVID-19 pandemic on claims patterns.

A risk margin is applied by the Group to reflect the uncertainty in the estimate. The central estimate and risk margin combined, which are estimated based on judgements and actuarial expertise, are intended to achieve an actuarially defined probability of adequacy (PoA) of 95% (2020: 95%).

The estimation of the outstanding claims liability involves complex and subjective judgements about future events, both internal and external to the business. Primarily, judgement is required by the Group in order to estimate the:

type and amount of claims incurred during the last two months of financial year but not received or processed by year end
speed of processing claims by providers issuing claims on behalf of policyholders
claims cost inflation and medical trends impacting utilisation of benefits by members
impact of the COVID-19 pandemic on claims patterns.

How our audit addressed the key audit matter

Assessed the reasonableness of disclosure of the COVID-19 claims liability in the financial report against the requirements of the applicable Australian Accounting Standards.

We performed the following audit procedures, amongst others:

Controls design and operating effectiveness

We evaluated the design of the Group’s relevant key controls over the claims reserving process (including data reconciliation, data inputs, data quality, and the Group’s review of the estimate) and assessed whether these controls were operating effectively throughout the year.

The use of actuarial expertise

Together with PwC actuarial experts, we:

Assessed, on a sample basis, significant data inputs used in the Group’s modelling and measurement of the central estimate (including relevance and reliability of data, appropriateness of data in the context of the applicable financial reporting framework, and potential indicators of management bias).
Considered whether the Group’s actuarial methodologies were consistent with actuarial practices and those used in the industry.
On a sample basis, performed recalculations over the mathematical accuracy of the Group’s actuarial models.
Assessed the significant actuarial assumptions used by the Group in forecasting expected claims particularly those relating to the two months prior to the year end. This included comparing the significant actuarial assumptions to the Group’s historical experience, observable market trends, environmental factors, estimated payment patterns, member claiming patterns, and our industry knowledge.
Considered the impact on the estimate of reasonably plausible alternative assumptions such as changes in service levels, payment history, recent claims trends, and COVID-19 environmental factors.

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Key audit matter

We considered this a key audit matter because of the significant judgement required by the Group in estimating claims liabilities, including continued uncertainty on member claiming patterns due to impact of the COVID-19 pandemic, and because a small change in assumptions can result in a material change in the estimated liability and corresponding charge to profit for the year.

How our audit addressed the key audit matter

Assessed the Group’s approach to setting the risk margin in accordance with the requirements of Australian Accounting Standards, including an assessment of the reasonableness of the Group’s actuarial calculation of the PoA.
Assessed the reasonableness of disclosure of the outstanding claims liability in the financial report against the requirements of the applicable Australian Accounting Standards.

Claims received after the year end

We considered whether actual claiming activity after year end supported the key assumptions used by the Group to estimate the outstanding claims liability at year end.

Impairment test of goodwill allocated to Home Care Group of Cash Generating Unit (CGU) (Refer to Note 12) $97.2m

The Group recognised goodwill of $97.2 million in respect of the acquisition of a number of in-home care businesses. This goodwill has been allocated to a Cash Generating Unit (CGU) referred to as the Home Care CGU (Home Care).

An impairment test of Home Care is performed annually by the Group by comparing the carrying value of Home Care to the recoverable amount.

We considered this to be a key audit matter due to the:

financial significance of the goodwill allocated to Home Care which accounts for 48% of the goodwill balance recognised by the Group
recoverable amount of Home Care is determined using a value-in-use model that requires significant judgement by the Group to estimate future cash flows based on a number of key assumptions, including revenue forecasts and expected synergies
judgements and assumptions applied by the Group in performing the impairment test, including cash flows forecasts related to the realisation of planned strategic objectives for Home Care over the next three years, discount rates and growth rates.

We performed the following procedures, amongst others:

Developed an understanding of the process by which the projected future cash flows of Home Care were developed, including consideration of expected operational, productivity and financial synergies, and realisation of planned strategic objectives.
Considered the level of business performance monitoring by the Group and assessed whether the monitoring was performed at the Home Care level.
Compared the cash flows included in the impairment assessment with the three-year business plan presented to and approved by the Board.
Considered whether the cash flow forecasts were reasonable and were based on supportable assumptions, by comparing the forecasts to actual cash flows from previous years.
Considered the impact on the impairment test of reasonably plausible alternative assumptions such as achieving cash flow forecasts and changes in the discount rate.
Compared the growth rate assumed in the cash flow projections extrapolated beyond three years to industry research.

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*Key audit matter*	*How*	*our audit addressed the key audit matter*
	●	Assessed the reasonableness of disclosure of the
		impairment test for Home Care goodwill in the
		Group financial report against the requirements
		of the applicable Australian Accounting
		Standards.
	Together with PwC valuation experts, we:
	●	Developed an understanding of the Group’s
		impairment test methodology, including testing
		judgements and assumptions.
	●	Evaluated the valuation methodology supporting
		the Group’s impairment analysis against
		applicable Australian Accounting Standards.
	●	Evaluated the Group’s discount rate assumptions
		to market data, comparable data, and industry
		research.
	●	Tested the mathematical accuracy of the
		value-in-use model.

Reliance on automated processes and controls

The Group utilises a number of complex and interdependent Information Technology (IT) systems to capture, process and report a high volume of transactions.

We considered this a key audit matter because the:

operations and financial reporting processes of the Group are heavily reliant on IT systems
underlying IT controls over business processes are significant to the financial reporting process
data migration activities which occurred during the year impacted the key IT processes, systems, and controls relevant to the financial reporting process.

We developed an understanding of the Group’s IT governance framework as well as the internal controls designed to mitigate the risk of fraud or error over:

program development and changes
access to programs and data
computer operations
business process.

Together with PwC IT specialists, we performed the following procedures, amongst others:

Evaluated the design and tested the operating effectiveness of a sample of key IT controls that are relevant to the financial reporting process and our audit
Considered the risks of the system implementation and data centre migration activities applicable to the financial reporting process and tested controls, where relevant.

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Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2021, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the Operating and Financial Review and the Directors' Report. We expect the remaining other information to be made available to us after the date of this auditor's report.

Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take.

Responsibilities of the directors for the financial report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.

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A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at:

https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report.

Report on the remuneration report

Our opinion on the remuneration report

We have audited the remuneration report included in pages 18 to 50 of the directors’ report for the year ended 30 June 2021.

In our opinion, the remuneration report of Medibank Private Limited for the year ended 30 June 2021 complies with section 300A of the Corporations Act 2001.

Responsibilities

The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

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PricewaterhouseCoopers

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CJ Heath Partner

Melbourne 25 August 2021

AI assistant

MEDIBANK PRIVATE LIMITED — Annual Report 2021

65365_rns_2021-08-24_34239fa2-7da4-4c49-9fd1-b0809e280551.pdf

Medibank Private Limited (MPL) – Financial results for year ended 30 June 2021

MEDIBANK PRIVATE LIMITED ABN 47 080 890 259 RESULTS FOR ANNOUNCEMENT TO THE MARKET

Dividend information

Net tangible assets per ordinary share

OPERATING AND FINANCIAL REVIEW

1. About Medibank

2. Financial and operating performance

2.1 Group summary income statement

Medibank Health

Net investment income

OPERATING AND FINANCIAL REVIEW

2.2 Group financial position

2.3 Capital management and dividends

2.4 Management changes

3. Strategy and future prospects

OPERATING AND FINANCIAL REVIEW

4. Material business risks

OPERATING AND FINANCIAL REVIEW

OPERATING AND FINANCIAL REVIEW

Directors

Current:

Former:

Principal activities

Operating and financial review

Significant changes in state of affairs

Events since end of financial year

Future developments

Dividends

Directors’ qualifications, experience and special responsibilities

Mike Wilkins AO – Chairman and Independent Non-executive Director

BCom, MBA, FAICD, FCA

David Koczkar – Chief Executive Officer

BCom, PG Dip Finance, MAICD

Dr Tracey Batten – Independent Non-executive Director

MBBS, MHA, MBA, FAICD, FRACMA

Anna Bligh AC – Independent Non-executive Director BA (QLD)

Gerard Dalbosco – Independent Non-executive Director

M.AppFin, B.Comm, FCA, FFIN, GAICD

David Fagan – Independent Non-executive Director

Peter Hodgett – Independent Non-executive Director

Linda Bardo Nicholls AO – Independent Non-executive Director BA, MBA (Harvard), FAICD

Christine O’Reilly – Independent Non-executive Director BBus

Company Secretary

Mei Ramsay

Options and performance rights

DIRECTORS’ REPORT

Environmental regulation

Indemnification and insurance of directors and officers

Non-audit services

Remuneration report

Rounding of amounts

Dear shareholder,

Chief Executive Officer transition

Changes to the Executive Leadership Team and key management personnel

Changes to the Board

Remuneration decisions at a glance

Short-term incentives

Long-term incentives

ELT remuneration and non-executive director fees

Linda Bardo Nicholls AO

REMUNERATION REPORT

Contents

5. Risk and remuneration

8. 2021 actual remuneration

10. Executive Leadership Team equity awards

11. Non-executive director remuneration strategy and framework

12. Non-executive director statutory remuneration table

13. Non-executive director ordinary shareholdings

14. Medibank’s comparator groups

1. Key management personnel overview

2. Summary of remuneration outcomes

Executive Leadership Team

Non-executive directors

3. Medibank’s remuneration strategy

4. Remuneration governance

4.1 The role of the Board in remuneration

Independent remuneration consultant

MEDIBANK PRIVATE LIMITED Annual Report 2021