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Medibank Private’s turnaround strategy is beginning to pay off with the rate of customer declines slowing and company costs narrowing.

The health insurer has booked a 5.9 per cent increase in half-year profit to $245.6 million thanks to improved operating profit in its Health Insurance and Medibank Health businesses, and allowing it to increase its interim dividend to 5.5 cents, from 5.25 cent a year ago.

Chief executive Craig Drummond says that while cost pressures on consumers has kept growth in health insurance premium revenue to less than two per cent, the decline has eased.

“We are beginning to see the benefit of focusing on our customers and fixing the foundations of our business, albeit there is more work to be done,” Mr Drummond said on Friday.

“While we still lost 13 basis points per share at a fund level, which is not acceptable, we still had the smallest loss of market share over a six-month period since December 2013.”

Health insurance premium revenue grew 1.8 per cent to $3.2 billion in the six months amid slow uptake in cover industry-wide but, Mr Drummond said, a focus on new products and customer service had helped improve growth by 23 basis points compared to a year ago.

The rate of customer loss had slowed dramatically in the six months to December 31, from 4.1 per cent in the previous corresponding period to 3.5 per cent in the reported half.

Medibank also reduced management expenses by 1.9 per cent and lifted operating profit four per cent on the previous corresponding half-year.

Mr Drummond said the company had delivered its lowest premium increase in 17 years thanks to Medibank’s efforts to cut costs and to pass on savings from reforms over the past 18 months.

“Today’s result reflects the progress we have made in delivering our customers a better experience, better service, better products and more value,” he said.

“We are now positioning for growth which will allow us to leverage our scale to build the core business and transform into a broader health services company.”

The company on Friday vowed to return $20 million in one-off “loyalty” bonuses to customers who have been with Medibank for more than a decade and who have hospital and extras cover.

Chief financial officer Mark Rogers said the program would help maintain the momentum in Medibank’s performance.

Medibank Health revenue rose by 4.5 per cent to $291.9 million and operating profit in the division lifted 45.7 per cent to $25.2 million thanks to an improvement in performance across all units, including the recently acquired HealthStrong business which provides health services to age-care facilities.

Improvements in Medibank’s health insurance businesses lifted overall revenue from ordinary activities 2.1 per cent to $3.5 billion.

Medibank expects similar underlying revenue trends in its full-year results, but has warned that management expenses are likely to be marginally higher in the second half, but below those recorded in the 2017 financial year.

Medibank shares were up 2.3 per cent to $3.11 at 1117 AEDT.

MEDIBANK BUILDS HALF-YEAR PROFITS:

* Net profit up 5.9pct to $245.6m

* Revenue up 2.1pct to $3.5b

* Interim fully franked dividend up 0.25 cents, to 5.5 cents