NIB Holdings Limited (ASX: NHF) shares have been outperforming this year and delivered very strong returns for shareholders.

Since the start of the year, the private health insurer's shares are up a sizeable 24%.

This compares very favourably to the benchmark ASX 200 index, which is up approximately 6.5% over the same period.

Can NIB shares keep rising?

Unfortunately, the team at Macquarie thinks that the run is coming to an end, particularly given that a new headwind is emerging for one of NIB's businesses.

That headwind is the Department of Health preparing to respond to an Issues Paper assessing the level of commissions paid to third party agents.

The Department of Health is looking at the Overseas Student Health Cover market and is testing three items. Of particular interest to Macquarie is a potential cap on payments to third-party agents for distributing insurance policies to students.

While Macquarie notes that commission caps could make larger university contracts more valuable to NIB, it suspects that it could pressure the business model for agents.

Commenting on this potential headwind, the broker said:

A ~12% commission cap could be an outcome (some arrangements are currently 30%-40%). While insurer margins could increase in the short term, sales driven businesses (not supported by ancillary offerings) could struggle. Notably, NHF relies on sales agents (particularly in India), which could be at risk, while being underweight university contracts. Additionally, as one of the few insurers offering a full product lifecycle, slower sales to Students would negatively impact NHF's higher-margin Workers' policyholders.

We estimate Students represented ~33% / ~20% of Revenue / UOP in NHF's IIHI division in FY24. This would equate to ~2.2% of Group UOP, before accounting for stranded costs and conversion into Workers policies.

Shares tipped to fall

The note reveals that Macquarie has reaffirmed its underperform rating and $5.55 price target on NIB's shares. Based on its current share price of $6.87, this implies potential downside of 19% for investors over the next 12 months.

And while a ~4% dividend yield is expected over the next 12 months, this only limits the total negative return to approximately 15%.

Commenting on its underperform rating, the broker said:

Underperform. With multiple sub-divisions now experiencing operational headwinds, we retain our cautious outlook.

In light of this, investors may want to keep their powder dry for the time being and wait for a better entry point or for its headwinds to clear and tailwinds to emerge.