Business

Natural disasters hit OUTsurance

Luke Fraser

 ·18 Mar 2024

Start-up costs in Ireland and higher natural disaster claims have hit OUTsurance’s bottom line.

In a trading update for the six Months Ended 31 December 2023 (H1 2024), Outsurance Group Limited saw its normalised earnings increase by 0.5% to R1,411 million.

Despite a slight (0.8%) drop in headline earnings per share to 91.6 cents per share, the group also upped its interim dividend by 7.7% to 61.2 cents per share.

However, Outsurance Holdings Limited (OHL), which is nearly 90% owned by the overall group, saw its normalised earnings decrease by 3.3% to R1,546 million, while its operating profit decreased by 10.7% million to R1,788 million.

“This reduction in earnings was primarily driven by the impact of higher natural perils (disasters) claims incurred, most prominently in Australia.”

The OUTsurance South African Employee Share Option Scheme (ESOP) cost also increased significantly following the increase in the OGL share price over the six months under review.

“The ESOP scheme is marked to market and is a cash-settled scheme which creates volatility in the share-based expense and consequently in the cost-to-income ratio. We are in the process of replacing the ESOP with a Conditional Share Plan (CSP), which will remove volatility in the cost of the share-based expense.”

“The volatility of the share-based payments expense will, therefore, rebase incrementally over the next two financial years before being fully replaced by the CSP scheme. The share-based payments expense was R293 million higher than the comparative six months.”

“The OHL Group’s operating earnings would have been R293 million higher if this expense is adjusted for, and similarly normalised earnings would have been R214 million (post-tax) or 13.4% higher.”

OUTsurance Ireland also incurred R59 million (December 2022: R2 million) in start-up losses during the six months under review, with the expenses escalating as the business is operationalising for the launch phase.

OUTsurance Ireland has already received regulatory approval to trade as a non-life insurer, specialising in the car and home insurance market.

“The business is in the soft launch phase to test systems and processes. It is anticipated that the business
will be further activated during the next quarter.”

Looking more positively, the life insurance delivered an improved operating result following the impact of stronger growth achieved in the funeral marketplace and favourable yield movements compared to the comparative period.

Looking ahead

The group expects the South African economy to continue to deliver range-bound economic growth, with real growth opportunities stimulated by higher natural perils claims and increased solar penetration.

“The Australian economy is in a stronger position and offers real growth opportunities in the insurance sector where shopping activity is stimulated by the high inflationary environment. As a challenger brand, we remain excited by Youi’s growth prospects.”

“We expect that premium inflation will start normalising over the next 12 to 24 months with a sticky near-term outlook.”

“Weather patterns will continue to impact our earnings volatility in the Group, and periods of high weather-related losses coupled with reinsurance pricing disruption will drive higher premium inflation in the markets in which we operate.”

The group is, however, looking forward to the long-term earnings diversification that OUTsurance Ireland offers.

Read: South Africans are flocking to private universities – with a twist