ClearView Wealth Limited (CVW) Earnings Call Transcript & Summary

Thank you, Christian. And I'm joined by my colleague, Athol Chiert, the Chief Financial Officer of ClearView. This morning, we announced a market update for the first quarter of financial year '21. We did this because we'd given guidance because of the uncertainty surrounding COVID-19. And we just thought it was appropriate at least to allow people to have some information about how the organization is performing in this obviously very difficult time. Our underlying profit increased by 35% quarter-on-quarter to almost $7 million. Primarily, that was driven by improved claims performance and by improvements in in-force Life Insurance premiums growing up to $276 million. Lapses were slightly higher than expected, but our retention strategies remain in place and are taking effect. And we believe the performance should be measured against our new assumptions that were reflected in our embedded value at the 30th of June. And it's fair to say that we're very comfortable with the way that is performing, including the allowances for potential COVID-19 impacts. We do believe there's a possibility of more claims coming through, particularly in the income protection portfolio. But as you'd be aware, we did allow for COVID overlays for financial year '21 and financial year '22 in our embedded value at the 30th of June. The strong claims performance in the first quarter was driven by effectively the Life Insurance income protection portfolio, which experienced a $1.1 million claims experience profit after tax, driven by lower claim numbers than expected and an increased focus on good case management in our claims team. The Non-Advice closed portfolio performed strongly, also making a significant claims experience profit for the quarter, but that does reflect also, in our view, statistical volatility, given both the size and the nature of the portfolio. This was partially offset by the LifeSolutions' lump sum claims experience loss of $0.5 million for total and permanent disablement and trauma claims. Death claims were broadly in line with expected. So if I turn to the next page, it just shows you some of the key statistics. The key point on LifeSolutions -- or, sorry, Life Premiums in-force, is that our in-force open portfolio, i.e., that in the gray box, LifeSolutions increased by almost 10%, and that will be the driver of the organization in the future. With respect to the wealth funds under management, the orange piece which is WealthFoundations, is our key go-forward platform for the future, and we're very pleased with the performance there. And then the number of financial advisers who use our back-office services, you can see that's improved year-on-year as well. The detail on the profit in each of the segments is below, and we'll be happy to take questions on that later. So on the last page, we believe the business is comfortably on track to meet our medium- to longer-term objectives. We reiterate our strong foundations for materially improved performance. Our guidance of $20 million to $24 million stays in place. We consider this financial year as a base transitional year for the industry and for ClearView as it shifts to rational pricing and sustainable product features, and we have seen encouraging improvements in that regard. Our actions are all about maintaining customer loyalty. And you can see the improvement in that with the increased in-force premiums, and we expect this strategy to underpin our medium- to long-term performance improvement. So we remain very focused on maintaining a strong balance sheet. You'll notice that our net shareholder cash position has increased to $280-odd million. Part of that is a $74 million injection from Swiss Re under our incurred claims treaty, and we continue to examine the opportunity to issue a Tier 2 capital instrument. And the outcome is expected to be announced before our AGM on, I think, it is the 12th of November. And the proceeds from that issue are intended to be used to repay certain existing indebtedness to National Australia Bank and to fund or support the funding of Tier 2 capital of the Life Insurance entity. So with that, I'll hand back to Christian to take any questions.

[Operator Instructions] Your first question today comes from the line of Glen Wellham from MST Financial.

Just wondering on the lower claims numbers, is that potentially some of it driven by lower business activity given COVID? Or is it better claims management? What's -- can you give us more color about why that's such an improvement?

Well, I think part of it is actually the adjustments we made to our embedded value. So I look at it in the sense, Glen, that the planned margin that we put through at the end of the 30th of June, at the end of the year, actually allows for that. So I think of it this way, we've increased our premiums from, say -- let's say, $100 to $140. By definition, we've increased our claims assumption. I think we said 35% for income protection, et cetera. So in reality, what that's actually allowed us is to have a far more robust look at the future, and therefore, fit inside our claims assumptions, and that's our hope. And so far, that has been the case. I think it's also fair to say that we actually haven't seen yet a huge impact from COVID-19 within claims but we have obviously allowed for that in this financial year and next financial year. I might ask Athol to comment if he's has got some comments to add.

I think that's right, Simon. I think that sort of addresses the question. Yes.

I suppose that COVID allowance that you've made previously, obviously, that's not sort of bearing out yet, I suppose.

Yes.

So you've almost been too conservative at this point in time. But obviously, who knows what will happen in the future.

Yes. Glen, I think just to emphasize what Simon articulated in that when we changed assumption in June, there was a dual change. One was relative to the underlying claims performance, and that was an increase of 35% in terms of the expected claims assumption. And then over and above that, there was a COVID overlay that was put in place for FY '21 and then lower in FY '22, given the expected likely increase from the secondary impacts of the pandemic and the social and health challenges that are associated with it. So just reiterating the point and the performance that's measured as relative to that change in assumption.

And just one more question, if I may. Just the financial planning business seems to be performing well. Is that as expected? Or do -- are you going to put more resources into that now? Or how is that -- what's the turnaround due to it?

I think the financial planning business and what we tried to articulate at the end of the year has really a step fixed cost structure. And I think the first step is quite a big step and then incrementally, as you bring on more advisers, a sort of like a funds management business but you don't need the whole office and the desks and the infrastructure. If you get another $100 million or $200 million of fund where you -- in our world, you get more advisers, it's really the incremental costs that go on. So I think in last year, we also had some advice remediation costs. So overall, given the scale of that business and the growth in LaVista, I think that's ultimately where the business is aimed on its own path to parity or economically viable entity by itself as we've sort of articulated in our public announcements.

Your next question comes from the line of Philip Pepe from Blue Ocean Equities.

Firstly, well done on a good quarter. Just on the in-force premium increases, it looks like LifeSolutions could increase in volume sort of 10% on the PCP. I believe prices went up over the period. What was the average price increase? Because it looks to me like people are hanging on despite the price increases in the LifeSolutions' book.

I think what we disclosed is that the average -- it was around 35% around the income protection. But overall across -- you've got to look at it across our overall portfolio in terms of it, and it depends on what cohorts and pockets it was for. So on average, we can certainly come back around the average across the portfolio as a whole should the need be.

Yes. And I think the point we've been trying to manage through this product is the retention initiatives because, obviously, we're managing to the margin is the way we describe it internally in ClearView. So we've been putting through both price increases and trying to manage the portfolio. And I'll give you a specific example. So as you're aware, APRA, they had agreed value policies from the 31st of March, ClearView pulled out earlier than that. So on renewal, those price increases are substantial. So what we actually say to people is, look, here's your price increase, let's say, 38% or whatever Athol said, however, if you move it to an indemnity contract, it's going to be a lower price increase, say, 18%, for example. And what that does is actually derisk the portfolio. So we've spent a lot of time in trying to actually manage that process where we both renew the portfolio and at the same time, manage the exposures that we have.

Yes. And just to stress more. Sorry, just -- I don't want to be beholden by a particular percentage. I think the message is that there were different pockets within the income protection book that had different price increases, some more substantial than others, depending on the type of product and policy that it was. So I'm not sort of trying to skirt the question. It's just that there's very different price increases across different pockets within the income protection portfolio as a whole.

The prices have gone up and volumes have gone up, I guess, is the bottom line.

Your movement in in-force has really driven -- you've got period-to-period where it goes from what you had, plus new business that you've written, plus the price increases, plus increases because you've got older or your CPI benefit left lapses. And to Simon's point, our focus has been on retention and the lapses to maintain that in-force relative to the price increases that were put through. New business is a lot less of a driver in terms of that growth in the in-force than it was in our younger years. So I think the point is really the focus around retention, which is a key strategic priority, and the repricing and sustainability of the product across the industry.

Your next question comes from the line of David Birrell from Croxon.

Just interested in the IP book. Is there any difference that you're spotting in the development of claims between the different states, for example, that might give us some insight into the differences that you might see going forward around the economic performance of different spots?

Yes, good question. Not yet. Obviously, we'd be concerned about Victoria. ClearView is actually underweight in Victoria, generally speaking. So we haven't seen that yet. You'd also say from a new business perspective as well, we actually haven't seen the differences yet. Victoria is slightly down. But really I've been amazed at how much we're still writing in Victoria as they're in the center of their lockdown.

[Operator Instructions] There are no further questions at this time. I'd like to hand the conference back to today's presenters. Please continue.

On behalf of Athol and I, thank you for joining this morning, and we look forward to keeping you updated at our AGM in November. Thanks very much for your time.