Given the history of Medibank Private Ltd (ASX: MPL) as a government owned entity and its $6.5 billion market capitalisation, there are obviously many Australians who own the stock.
Medibank's market-leading status and size are arguably something of a double-edged sword for investors however.
Yes, the leading health insurer has market power and attractive defensive attributes which provide a higher degree of certainty for shareholders regarding its earnings and its all-important dividend, however, its size and influence also makes it difficult for Medibank to grow meaningfully larger – its already a big fish in a somewhat crowded pond!
It's a significantly different scenario for investors weighing up the benefits of an investment in the small and nimble $1.6 billion NIB Holdings Limited (ASX: NHF), a health insurer with around one million Australian policy holders compared with Medibank which is approaching four million members.
As at June 2014, NIB was able to boast a total shareholder return (TSR) since its initial listing on the ASX in November 2007 of over 475%, in comparison, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) had produced a TSR of just 9% over the same timeframe.
NIB's agility has allowed the health insurer to grow shareholder value through both organic and acquisitive measures.
In November 2012 the group expanded into New Zealand through the $81 million purchase of Tower Medical Insurance which at the time was NZ's second largest health and medical insurer.
NIB has also expanded into parallel lines of business such as life and travel insurance and niche areas such as international workers health insurance and international student health insurance with all new businesses performing well and producing pleasing levels of growth.
Comparing NIB's return on equity (ROE) against Medibank's highlights the quality of this business. For the recent half yearly result respectively, NIB achieved a ROE of 21.4%, while Medibank produced a ROE of 20.3%.
