OUTsurance Group’s Australian subsidiary, Youi, may face losses of $40 million (about R459m) arising from the still uncertain insurance outcomes of Cyclone Alfred making landfall on the Queensland coast on March 7.
The main peril from this event is flooding, OUTsurance directors said on Friday at the release of results for the six months to December 31. The cyclone brought strong winds, heavy rainfall, and flooding, leading to widespread power outages, road closures, and property damage.
Youi’s reinsurance attachment point for its first two catastrophe events is $40m per event.
“Estimating the loss from this event is currently highly uncertain, and it is expected a substantial portion of the loss will be covered by the Australian Reinsurance Pool Corporation (ARPC),” OUTsurance CEO Marthinus Visser said.
“Should the net loss after the recovery from ARPC breach $40m, Youi’s loss will be limited to $40m, plus reinstatement premiums to the extent that reinsurance is utilised.”
Meanwhile, OUTsurance Group did well to increase normalised headline earnings per share by 53% for the six months to December 31, and the losses incurred with the start-up in Ireland had been anticipated.
Visser said a “pleasing” increase in earnings was due to much fewer natural peril claims in Youi and OUTsurance SA, coupled with strong organic premium growth, and higher investment income. Higher gross premiums were written while the claims ratio decreased.
The dividend was increased by 44.8% to 88.6 cents a share. Normalised earnings were up 52.9% to R2.16 billion. Diluted normalised earnings a share increased 53% to 138.6 cents per share.
OUTsurance Ireland incurred R218m in start-up losses after launching in May 2024, and was performing in line with expectations, Visser said. The higher loss was due to an increased operational cost base post-launch and losses recognised for new insurance contracts.
On the group results, Visser said the focus on a simplified product and distribution strategy was yielding good results, as demonstrated by the organic growth, coupled with the optimisation of the cost base.
OUTsurance SA’s normalised earnings increased by 27% to R1.17bn compared with the same time last year. Youi Group’s earnings contribution increased more than 100% to R1.2bn from R556m. OUTsurance Life’s earnings also increased by more than 100% to R142m.
The South African group’s share-based payments expense linked to the Employee Share Option Scheme (ESOP) remained a volatile and significant expense for the group in the first half.
The ESOP scheme is a cash-settled scheme where option values are marked-to-market at each reporting interval. It had created volatility in the share-based payment expense and a resulting volatile impact on cost-to-income ratios within the group.
The share-based payments expense linked to the final tranche of the ESOP was R776m for the six months, R342m higher than the comparative six months, when there were two remaining tranches.
This rapid increase in the expense was due to the 43.3% increase in the share price for the last six months. On Friday morning, the share price slipped 1.77% to R63.76, but it is a hefty 64.7% higher than a year before.
In the P&C (property and casualty) business, gross written premium grew by 17.4%. Notwithstanding premium inflation, the growth was supported by organic growth.
Premium inflation was impacted by elevated claims cost inflation and the earn-through of the pricing actions in the prior year. In rand terms, Youi’s premium growth rate was negatively impacted by the strengthening of the rand against the Australian dollar.
Annualised new business increased by 17.9%. The claims ratio decreased from 59.1% to 53%, from materially lower natural perils claims, improvement in working claims experience, and higher prior year reserve releases.
Over the last two years, premium revenue was impacted by average premium inflation, emanating from the post-pandemic wave of global inflation, industry-specific supply shortages, and constrained reinsurance markets.
“We expect premium inflation will normalise in line with the trend of general inflation over the next twelve months. In the long run, however, we expect premium inflation to be higher than CPI as a result of the effects of climate change, penetration of electric vehicles, and increased technology penetration in new vehicle models,” said Visser.
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