Blowout profits for South African insurance giant

The OUTsurance group has seen a large increase in profit, but startup losses at the group’s recently launched Ireland business remain high.

The group’s normalised earnings were 43.5% higher at R2,219 million. The group said the increase was driven by significantly fewer natural peril claims for Australia’s Youi and OUTsurance South Africa.

It also benefited from organic premium growth and higher investment income. However, the share-based payment expenses linked to its Employee Share Option (ESOP) scheme remained expensive and volatile.

The final tranche of the ESOP vests in September 2025, after which all the long-term incentive vintages will be transitioned to the new Conditional Share Plan (CSP).

The CSP will be far less geared than the ESOP scheme, resulting in a more stable expense base going forward.

The share-based payments for the final tranche of the ESOP were R776 million, far more than the R342 million in the prior period, and were driven by the 43.3% increase in the OGL share price over the period.

The group also noted that OUTsurance Ireland incurred R218 million in normalised start-up losses during the six months under review.

OUTsurance Ireland was launched in May 2024 and is performing in line with the group’s expectations.

The higher loss is due to the increased operational cost base after launch and the onerous losses recognised for new insurance contracts issued.

The operating loss, excluding onerous losses, increased from R64 million to R181 million, driven by increased operational costs related to marketing and operational infrastructure.

“OUTsurance Ireland has delivered a satisfactory performance thus far, and we look forward to steering the business to break even through incremental and disciplined expansion,” said the group.

Financials

The group said the gross written premium grew by 17.4%, supported by ‘satisfactory’ growth across the operating segments despite premium inflation remaining sticky.

The group said that premium inflation continued to be impacted by elevated claims cost inflation and the earn-through of the pricing actions taken in the prior year.

With the rand strengthening against the Australian dollar over the period, Youi’s translated premium growth rate was negatively impacted

The annualised new business increased by 17.9% off a high base in the prior period. The claims ratio also dropped from 59.1% to 53.0%.

The drop in the claims ratio is linked to materially lower natural perils claims, improvement in working claims experience, and higher prior-year reserve releases.

OUTsurance SA and Youi also delivered structural improvements in the cost base of all operating segments.

OUTsurance SA and Youi also saw structural improvements in the cost base of all operating segments. Nevertheless, share-based payment expense distorts the cost-to-income ratio.

OUTsurance Life also delivered strong operating and earnings outcomes, with operating profit rising from R57 million to R185 million.

The group said the satisfactory performance was due to new business generation and cost efficiency over the period.

The group’s overall operating profit increased by 58.8% from R1.7 billion to R2.8 billion. Its headline earnings per share also rose by 45.1% to 132.9 cents per share.

The group thus increased its interim dividend by 44.8% to 88.6 cents per share. The group’s key financial details can be found below: