- Gross Written Premium Growth (OUTsurance Personal): 9.4% excluding the FNB book.
- Operating Profit (OUTsurance Personal): Up 24%.
- Gross Written Premium Growth (OUTsurance Business): 11.7% overall, 21% in the OUTsurance broker channel.
- Profitability (OUTsurance Business): Up 71.2%.
- Gross Written Premium Growth (Youi Personal): 26.8% in rand terms.
- Operating Profit (Youi Personal): Up 6.3%.
- Gross Written Premium Growth (Youi CTP): 9.2%.
- Operating Profit (Youi CTP): Reached full-year profitability.
- Gross Written Premium Growth (OUTsurance SA): 9.1%.
- Operating Profit (OUTsurance SA): Up 17.2%.
- Investment Income (OUTsurance SA): Up 26.1%.
- Gross Written Premium Growth (Youi): 28.2% in rand terms, 25.4% in AUD terms.
- Net Earned Premium Growth (Youi): Up 32%.
- Operating Profit (Youi): Up 6.2%.
- Investment Income (Youi): Up 79.2% to ZAR654 million.
- Normalized Earnings (OUTsurance Group): Up 20.3% to ZAR3.5 billion.
- Normalized ROE: Increased.
- Normalized Earnings Per Share: Up 20.2%.
- Diluted Normalized Earnings Per Share: Up 19.6%.
- Full Year Dividend: ZAR1.744 per share, up 29.4%.
- Special Dividend: ZAR0.40 per share.
- Operating Profit (OUTsurance Life): Up 82%.
- Value of New Business (OUTsurance Life): More than doubled.
- Combined Ratio (OUTsurance Personal): Improved from 74.6% to 71.4%.
- Combined Ratio (Youi Personal): Increased from 86.6% to 89.9%.
Release Date: September 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OUTsurance Group Ltd (JSE:OUT, Financial) reported a 20.3% growth in normalized earnings to ZAR3.5 billion.
- Operating profit for OUTsurance Personal was up 24%, benefiting from improvements in both cost and claims ratios.
- OUTsurance Life saw an 82% increase in operating profit, driven by discontinuing face-to-face brokers and improving cost ratios.
- Youi Personal achieved a 26.8% growth in gross written premium in rand terms, with operating profit up 6.3%.
- The Group's investment income contributed significantly to earnings, with a 79.2% increase in Australia and 26.1% in South Africa.
Negative Points
- Elevated claims inflation due to supply chain issues, technological changes, and regulatory changes impacted profitability.
- The BZI channel in Youi experienced slower growth due to corrective pricing actions, resulting in an operating loss.
- OUTsurance Ireland is expected to take five years to break even, with a gradual ramp-up in operations.
- The increase in share-based payments expense was ZAR335 million higher than expected, impacting overall profitability.
- The direct commercial market in South Africa faced slow growth due to economic pressures and high market share saturation.
Q & A Highlights
Q: How do you think shopping behavior will change in Australia as premium inflation moderates into your 2025 financial year?
A: We expect some moderation in shopping behavior, but it’s hard to predict exactly. Insurance costs have become a larger portion of consumer budgets, incentivizing shopping around. We anticipate it might settle at a level higher than historic norms, which is beneficial for us as a challenger insurer.
Q: Are you comfortable with your current reinsurance structures, or are you aiming to reduce event retention levels as reinsurance rates soften?
A: We experienced a favorable reinsurance renewal season and maintained the same retention levels in nominal terms. Given our strong exposure growth, this implies a reduction in attachment points. We will evaluate different attachment points based on market capacity at the next renewal but are comfortable with current retention levels.
Q: As profitability improved in the OUTsurance brokers in South Africa during the '24 financial period, how do you see the outlook for profitability in that business, assuming a similar claims experience to 2024?
A: The move towards the target profit margin of 15% will be gradual, driven by ongoing scale and efficiency gains. We do not intend to take the channel back into a loss-making scenario, aiming for a steady progression towards the target margin.
Q: In terms of funding the losses in Ireland, are you changing the mix between retained earnings and debt or sticking to the plan of using some debt?
A: We initially used some debt but are seeing the debt facility come down quickly. We need to fund OUTsurance Ireland with EUR10 million per annum for six years, starting in November. We are comfortable this can be funded out of retained earnings without increasing the absolute debt level of the group.
Q: Could you provide some context on your targets for OUTsurance business, Youi Business, and CTP in terms of margins? Any guidance on the J-curve timelines for these businesses?
A: For OUTsurance South Africa brokers, we target a 15% margin, and for direct businesses, 25%-plus. At Youi, we target a 13% margin for direct business, 10% for BZI, and 10% for CTP. The J-curve for Youi CTP and BZI is about two to three years, while OUTsurance brokers in South Africa is also around three years. Ireland is expected to break even in five years, with a similar margin target of 13%-15% thereafter.
Q: Youi Personal GWP growth has been very impressive. Could you speak to your policy count growth and the potential for this growth to continue considering your market share?
A: Growth benefited from elevated claims inflation and strong unit growth. We do not disclose exact unit growth numbers, but with a market share just over 5% in core and 3% in home, there is significant runway left. We are optimistic about Youi Direct’s prospects given its quality growth.
Q: Could you elaborate on the profit share with Shoprite in the funeral JV?
A: It is an equal profit share between Shoprite and OUTsurance.
Q: Could you elaborate on the slow growth in the SA Commercial Lines direct business for the year compared to OUTsurance brokers?
A: The direct commercial market, which is smaller businesses, has been impacted by economic pressures. Additionally, the direct commercial market is only so big, and our market share is already very large. There is also some migration from the direct book to the face-to-face book as businesses grow and require more personalized service.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
