Recently listed insurer OUTsurance has posted a jump in earnings for its year to end-June, helped by an improved claims experience.The group’s dividend has doubled, while it is also paying out a special dividend.A weaker rand and better weather in Australia also helped the group, which is currently expanding its interests offshore.
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OUTsurance, the property and casualty insurer with businesses in SA and Australia, has declared a special dividend after posting bumper annual earnings from its continuing operations.
The Centurion-headquartered insurance group, which took over the listing of its former parent Rand Merchant Investment Holdings (RMI) in 2022, reported a just over 62% increase in normalised earnings from continuing operations to about R2.9 billion in the year to end-June. Operating profit increased by 41.7% to above R4 billion, primarily due to a reduction in the group’s net claims ratio from 56.1% to 53.6% and strong premium growth.
That strong financial performance allowed the board to declare a final cash dividend of 78c per ordinary share, which along with the 56.8c interim dividend declared March, took the total dividend for the year to 134.8c a share, double the previous year’s 65.5c. In addition, OUTsurance also declared a special dividend of 8.5c per ordinary share, which will be paid out of income reserves.
“The 2023 financial year was marked by strong revenue growth on account of the continued delivery of our strategy to scale our wider product set through all three major channels – digital, call centre and face-to-face,” CEO Marthinus Visser said in a statement.
“Profit growth was also robust on account of more favourable weather-related claims in Australia as well as timeous action to combat the effects of a sudden reset in vehicle accident frequency as well as higher claims inflation, load shedding, vehicle theft and reinsurance cost.”
The group’s earnings for the financial year were buoyed by a strong performance from OUTsurance Holdings Limited (OHL), the subsidiary that houses its insurance interests and in which it holds an 89.8% stake. Gross written premiums across the group increased by just over 21% to R28.5 billion benefitting from organic growth as well as higher premium inflation and a weaker rand, which flattered offshore earnings.
OUTsurance Group saw double-digit new business premium growth in 2023 aided by the higher inflationary environment. New initiatives, including OUTsurance Brokers, Youi’s underwriting partnership with Blue Zebra Insurance (Youi BZI), OUTsurance Life’s entry into the funeral market, and Youi’s Compulsory Third Party (CTP) product, accounted for almost half the new business premium written in the year.
While the group’s earnings from continuing operations performed well, when profit attributable to shareholders, slumped 87% to R2.9 billion.
However, OUTsurance CFO Jan Hofmeyr, said this was due to the flow through impact on the prior year’s results from the unbundling of former parent RMI’s stakes in Momentum Metropolitan and Discovery.
READ | OUTsurance officially joins the JSE
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“The value of that unbundling flowed through the earnings base. That created a very large profit in 2022 in the listed entity due to the unbundling of those two significant interests,” said Hofmeyr. “The important part of our results are the continuing operations because that compares the 2023 results with a 2022 base that references the continuing operations of OUTsurance.”
Offshore expansion
OUTsurance Group is also in the process of further bumping up its stake in Youi, which offers car, home, business and CTP products to the Australian market. The group announced in March that it had agreed to buy half the shareholding of Willem Roos for A$36 million (R443 million).
That would see subsidiary OUTsurance Holdings acquire a further 2.65% in Youi, taking its total stake in the Australian unit to 92.35%. With that deal concluded in May, the group is now in the process of buying a further 2.65% in Youi from Roos in a second tranche of the deal, which it hopes to conclude by end-October.
“The total transaction increases our stake in You by 5.3% but it is staggered across two tranches,” said Visser. “The first tranche has been completed. The plan is to complete the second tranche by the end of October. We’re quite excited about that investment – it’s one we understand with very good growth prospects.”
Visser said while the economic backdrop for the insurance market remains challenging, he is still bullish on the group’s growth prospects in SA and Australia. He is looking forward to expanding into Ireland, which has a good track record of profitability with a similar language and regulatory environment to SA.
OUTsurance Ireland is expected to officially launch in the first half of 2024 pending regulatory approval from the country’s central bank.
READ | Why OUTsurance is expanding to Ireland
“We believe the general insurance market will continue to experience real growth because of factors like climate change, the proliferation of solar panels and the increasing market penetration of electric vehicles driving real claims cost increases. In the medium to longer term, OUTsurance Ireland is expected to positively contribute to the growth potential,” said Visser.
“That said, it was not an easy year – we still had to navigate a number of headwinds. Those included quite strong claims inflation, a strong reset in vehicle accident claims frequency [post Covid-19] … and we also experienced elevated vehicle theft frequency in SA as well as claims linked to load shedding. On top of that we also experienced a material increase in the cost of reinsurance.”
Shares in OUTsurance were down just over 3% in morning trade on Friday but are still up almost 18% in the year to date.
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