Medibank Wins Favour as a Defensive Earner With a Rising Rate Kicker

Fund managers are leaning on Medibank's steady mid-single digit growth, its investment float and a health services strategy, while watching claims pressure and aggregator-channel competition.

· 4 min read

A defensive stock for a higher rate world

Medibank has become a quiet favourite among Australian fund managers looking for resilience. In September, Atlas Funds Management grouped the health insurer among its significant exposures to insurers that benefit from rising yields on their investment floats, the billions in premiums held between when they are received and when claims are paid. Atlas had added to the position in August following share price weakness despite what it described as strong results and guidance for a stronger 2027.

The rate argument is not new. Antares Capital noted in April that with Australian interest rates moving higher again, Medibank's investment case may be strengthened as a beneficiary of a rising rate environment through its investment portfolio, alongside its valuation appeal and defensive earnings profile. Perennial Partners established a new position in August, noting Medibank's dividend per share rose 8 per cent at its recent result.

Steady growth at a reasonable price

Pendal Group's August review of the result framed the core of the thesis. Second-half operating profit rose 7 per cent but missed consensus by 1 per cent, claims pressure eased in the second half, and FY27 net margin guidance is flat, with potential upside if affordability pressures reduce extras claims. Pendal said a fourth-quarter slowdown in volume growth, tied to aggregator-channel competition after Medibank pulled its AHM brand from Compare the Market, triggered modest FY27 downgrades. Even so, Pendal views the current multiple of around 19 times as reasonable for a defensive earnings growth profile of around 6 per cent.

Perpetual Asset Management made the income case in March, highlighting a gross yield of 5.9 per cent including franking and a business it considers really well run in a stable industry. Perpetual noted the government's approval of a 5.1 per cent premium increase underpins profits for the coming year, and pointed to cost initiatives such as moving more post-surgery patients to treatment at home. Alliance Bernstein said in April that it continues to believe “Medibank is well positioned to deliver resilient earnings growth, underpinned by its leading market position, disciplined pricing and strong capital position.”

Medibank is well positioned to deliver resilient earnings growth, underpinned by its leading market position, disciplined pricing and strong capital position.

— Alliance Bernstein, Monthly Report, April 2026

Building beyond insurance

The longer-term growth story sits in Medibank Health. At an investor day in November 2025, Medibank set a target to grow the division, which spans wellbeing services, telehealth, at-home care and hospital ventures, to $200 million of operating profit by FY30, well above consensus at the time of $126 million, according to Pendal. Pendal said the building blocks looked reasonable and that “If achieved, MPL would have mid-to-high single digit EPS CAGR and a differentiated franchise vs health insurance peers.”

If achieved, MPL would have mid-to-high single digit EPS CAGR and a differentiated franchise vs health insurance peers.

— Pendal Group, Monthly Report, November 2025

Investors Mutual Limited highlighted the acquisition of Better Medical, a network of 61 medical clinics, for $159 million in December 2025, which builds on Medibank's existing primary care business of 105 centres. IML said the strategy should earn a reasonable standalone return on capital while helping reduce hospitalisations, benefiting the insurance business.

The risks managers flag

Managers are clear that the margin for error is thin. Pendal's February review of the half-year result noted revenue mix headwinds and rising cash claims per policy fully accounted for the 5 per cent pricing increase, leaving no obvious buffer to absorb industry or political headwinds, and described the result as more opaque than usual. Perpetual identified more government regulation as the big risk for the industry. Alliance Bernstein noted in April that the announced removal of age-based rebates for older, higher-claiming cohorts was viewed as supportive for Medibank's claims outlook, a reminder that policy can cut both ways.

Positioning has also been active. Ellerston Capital rotated into Medibank in November 2025 and out again in January 2026 to buy gold stocks, and Investors Mutual trimmed its position early in the September quarter. Airlie Funds Management holds the stock within its defensives bucket, deliberately favouring inexpensive defensives over names it believes have re-rated to all-time high multiples.

What managers are watching next

For FY27, managers will watch whether claims inflation stays contained, whether volume growth recovers after the aggregator-channel slowdown, and how quickly Medibank Health builds toward its FY30 target. With rates still rising, the investment float remains a supporting factor, and Sharpbridge Funds Management portfolio manager Jarrad Stuart naming the insurer among his most bullish bets in May suggests the defensive case still has conviction behind it.