ClearView Wealth Limited (CVW) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I am Geoff Black, Chairman of ClearView Wealth Limited, and I would like to welcome you to the 2022 Annual General Meeting. Firstly, I would like to acknowledge the traditional custodians of country throughout Australia and their connection to the land, sea and community. We pay our respects to the Elders past and present and extend that respect to all aboriginal and Torres Strait Islander peoples today. If we experience any technical issues today, we will communicate with registered participants on how to access the meeting again. The results of meeting will be announced on the ASX later today. As a quorum is present, I now declare the meeting and the poll open. I would like to introduce our directors who have joined us today. ClearView's Managing Director, Simon Swanson; Gary Burg; Jennifer Lyon; and Susan Young. I would also like to welcome Judilyn Beaumont, our General Counsel and Company Secretary, our other members of the executive leadership team and Imogen Connors and [ Peter Cordell ] from Deloitte, our auditors. Voting at today's meeting will be conducted in-person and via our online platform managed by Computershare. The Computershare Returning Officer, [ Lin Rogers ], is with us today. For those attending virtually and entitled to vote at today's meeting, please log into the online floating portal as provided in the Notice of Meeting and online voting guide. Voting on all resolutions today will be conducted by way of a poll to allow everyone attending our meeting virtually with enough time to vote. I advise that online voting is now also open on all resolutions. If you are eligible to vote at this meeting, please select the vote icon and this will bring up a list of resolutions and voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You will receive a vote confirmation on your screen. You can cast and change your vote on all resolutions up until the time I declare the voting closed. I welcome your questions at our AGM today and advise that Judilyn Beaumont, our company secretary, will monitor the Q&A function on the webinar. We will attend to all questions after all resolutions have been readout. Online attendees can submit questions at any time. Please note that while you can submit questions at any time, I will not address them until the relevant time in the meeting. [Operator Instructions] Questions may be moderated or combined if there are multiple questions on the same topic. When asking your questions, please identify yourself as a shareholder or visitor or if applicable, who you represent. Please also advise which on an item of business your question relates to. I will then determine whether the question is appropriate for me as Chairman, or the Auditor or Simon as Managing Director, to answer. The notice of this meeting was given to shareholders in accordance with the Corporations Act, and I therefore take the notice of meeting and the resolutions as read. The agenda for today's meeting is set out on the slide shown on the screen. I will deliver my address before handing over to Simon. I will then address the items of business, after which I will answer any questions. On behalf of the Board, welcome to ClearView's Annual General Meeting. It is great to welcome some of you in-person, and thank you also to those joining us online. It seems we have learned to live with COVID, and we are getting back to some degree of normality. Although the long-term impact of COVID is unknown, and we remain cautious in our outlook. We now, however, faced additional economic threats that brought about by rising inflation, escalating interest rates and external energy shortage caused by the war in the Ukraine. Resulting pressure on household budget has caused global financial markets to decline materially and impacted consumer and business confidence. Financial stress has an impact on claims and the affordability of life insurance is tested when customers see their household budget affected by rising cost of living. ClearView demonstrated through the dark days of the global pandemic where it's committed to supporting customers through difficult times. We see the current environment as another opportunity to meet or exceed our customers' expectations. Positively, from a financial perspective, rising interest rates improves the yield on our portfolio, which is predominantly invested in short-term fixed income securities. I'm proud of how ClearView has managed these past few years, and I'm confident we will continue to go from strength to strength. This, however, is not reflected in the share price. And we continue to believe the business is materially undervalued given the company is trading at around 62% of the embedded value, excluding franking credits. The business, especially the Life Insurance business is building strong momentum, which is reflected in the improved financial performance. In FY '22, ClearView reported a material improvement in every key financial performance metric. These positive improvements are a result of tough decisions made in recent years, including the tightening of policy benefits, increasing premium rates, focusing on customer retention and the launch of our new sustainable ClearView ClearChoice product series, which has been well received. We have also invested heavily to enhance our capability in claims and in risk management. This momentum is continuing into 2023. The wealth business has faced significant headwinds. Poor investment markets have made attracting new contributions difficult. ClearView has held a very defensive outlook for some time and is only in recent months that this is reflected in relative performance. In Wealth Management, we continue to simplify our product suite and migrate customers to a more contemporary offering. However, the Wealth business remains materially subscale and a drag on overall performance. The simplification transformation must continue, and we are exploring options to improve financial outcomes. Last year, I outlined that ClearView would continue to execute its transformation program. I'm pleased to report that the business has made solid progress towards its transformation goals. This included expanding its distribution footprint and increasing new sales. In FY '22, new business sales increased 24% on the previous corresponding period. The trend continues through Q1 2023 with new business sales up 17% from the same period year-to-date. We continue the implementation of our new Life Insurance platform. This has taken a little longer than planned, driven by challenging logistical factors caused by COVID-19 and the early part of this calendar year. The project has solid momentum and we are now beginning to see some of the benefits flowing through, although these will not be fully realized until 2024. We are also focused on enhancing the experience of our customers. In August, we completed the implementation of our market-leading Wealth Management digital front-end, increasing the ability of our wealth customers to monitor their investments and manage the personal details online. We are working towards a similar offering for our Life Insurance customers. In 2022, we completed the sale of our advice business to Centerpoint Alliance, retaining a 24.5% shareholding in Centerpoint Alliance. Simon sits on the Board of Centerpoint Alliance, and we see value being created through this investment as the advice sector continues to consolidate. Our relationship with Centerpoint Alliance also provides valued insights that enable us to optimize our adviser support. I would now like to make a few comments in relation to ClearView's strategic review. Last week, ClearView announced the conclusion of the strategic review and provided a trading update. After a thorough competitive process, the Board decided not to proceed with any transaction. ClearView will continue to operate as an AXS' listed financial services company. Originally, when ClearView commenced the strategic view, the objectives were to determine the group's optimal future direction, protect and enhance customer and policyholder outcomes and achieve a long-term shareholding base, including potential change of control transaction. While a number of interested parties participated in due diligence process, the Board determined that it did not receive any proposals that represented appropriate value for control of ClearView, particularly given the group's continued improved performance. In the quarter September 30, 2022, ClearView performed strongly and to expectation. The business is on track to achieve growth in underlying net profit after tax in FY '23 in the range of $28.5 million to $30 million. How do we see the future at ClearView? ClearView continues to focus on growing its life insurance business. Future growth will be underpinned by the continued evolution of ClearView ClearChoice as an attractive and sustainable offering and the efficiencies generated through maturing of our administration platform supported by a high-performing team. ClearView is also focused on simplifying the Wealth Management business, which may include outsourcing services to business partners. Looking ahead, we will continue to strengthen our risk management and compliance capability, including our continued focus on cybersecurity and data protection. The Board is very aware of the organization's responsibilities and the importance of having strong controls in this area. In '23, '24, ClearView's financial reports will look a little different as IFRS 17 will become the standard by which we report our financial results. This is a significant change, and work has been undertaken so the transition is as seamless as possible. However, there will be comparability challenges in respect to prior years. ClearView continues to proactively manage its capital requirements. Our strong capital position enabled the Board to increase the dividend from $0.01 to $0.02 per share this year. This is slightly under the midpoint of the target payout range and reflects the Board's position in seeking to pay dividends at sustainable levels. Finally, I would like to thank my fellow Board members for the work they have done this year. Their support and dedication throughout the year was much appreciated. I would also like to thank Simon and the team. Despite ongoing disruptions in 2022, their resilience and passion for the business showed through in the momentum we now have as a result but are starting to flow through. In particular, I would like to acknowledge the many hours the executive team has spent preparing presentations and supporting due diligence activity and other activities supporting the strategic review. We are excited about the future and look forward to your continued support. I will now hand over to Simon for his presentation. Thank you.

Thank you, Geoff. There is nothing boring about working in financial services. I can assure you of that. We are in the middle of yet another financial advice review. This is just 1 year on from the introduction of ASIC design and distribution obligations and the industry-wide launch of new Life Insurance products. Treasury's quality of advice review is an important opportunity to improve the accessibility and affordability of personal financial advice, and ClearView is broadly supportive of the proposals to date. We believe a move to more principles-based regulation is appropriate for the emerging financial advice profession. I note the recent release of the Quality of Advance reviews conflicted remuneration consultation paper. We are pleased that treasury's observations in relation to Life Insurance commissions are consistent with ClearView's long-standing position that consumers should be able to choose how they pay for their Life Insurance advice, be that a fee, a commission or a combination of both. The proposal to retain the existing exemption for Life Insurance products recognizes the important role that commissions play in solving the advice affordability and access of the puzzle. We commend treasury's commitment to working with the industry to ensure a sensible workable reforms that encourage more Australians to seek professional advice. In the current environment of rising interest rates, inflation and heightened market volatility, it is imperative that personal advice is accessible to more Australians. Uncertain times are often a catalyst for people seeking advice on how to both protect and manage their wealth. It is in times like this with global economic and political instability and the rising cost of living that advisers can add a lot of value not only in terms of guidance on budgeting, superannuation and investments and life insurance, but also reassurance and emotional support. At ClearView, the holistic well-being of our customers is a key priority, reflecting our purpose to support Australians to achieve their financial and well-being goals while being a positive force for our staff, the community and the environment. That vision lies at the heart of our corporate social responsibility strategy, which reinforces our commitment to our people, customers and business partners, the community, shareholders and of course, the environment. ClearView is an organization that is committed to being a good corporate citizen. We strongly believe that responsible behavior delivers better stakeholder outcomes and increases long-term capital value. I'm pleased that ClearView remains on track to achieve its short- to medium-term objectives. In the financial year 2022, operating earnings after tax increased by 22% to $28 million. Underlying net profit after tax from continuing operations, and this includes the underlying investment income and interest costs on corporate debt increased 22% to $26.4 million. As stated in our full year results in August, ClearView's solid performance was underpinned by steady growth in our in-force life insurance portfolio and strong underlying claims and lapse experience. ClearView's new business volumes also increased by 24% to $20.2 million in FY '22, and we are now achieving circa 7% to 8% market share of quotations in the independent financial adviser market since the launch of our new ClearView ClearChoice product suite. Looking ahead, we continue to invest in people, processes and technology as part of our transformation journey. We want to ensure that we remain easy to do business with and lay a strong foundation for future growth. Our new Policy Administration Platform, which was launched in October last year, continues to evolve with regular enhancements and upgrades scheduled over the next 12 to 24 months. All things being equal, the rising interest rate environment is a positive for ClearView. We benefit from a higher return on capital and relatively speaking, lower claims costs. Furthermore, the built-in indexation benefit that is available into contemporary life insurance customers, not only ensures their cover keeps with inflation, it also provides inflation protection for ClearView. As a result, it improves the profitability of some product lines. In Wealth Management, our superannuation and investment portfolios are conservatively positioned, reflecting the older age and risk tolerance of many of our customers. August marked the successful launch of our new wealth portals, including an adviser portal and a customer portal developed in consultation with customers and business partners. The wealth portals deliver enhanced digital experience, including a new online application process, access the tools and calculators and the ability for our customers to self-service. Currently, we are undertaking a review of the wealth business to determine the best way to take that segment forward. As Geoff mentioned, and you may have seen last week, we announced the conclusion of our group's strategic review. The Board determined that it did not receive any proposals that represented appropriate value to control of ClearView, particularly given the group's strong performance and the ongoing improvement over all of the broader Life Insurance industry. ClearView will remain an ASX-listed company, and I'm excited about continuing to grow the business and take it forward. Going through the strategic review process has been beneficial and have provided useful insights and made us a stronger organization. As a result, we have identified a number of areas of opportunity and growth, and we intend to focus on these. It is important to note that ClearView has a very solid financial base. The embedded value, which can be in a proxy for intrinsic value is $0.92 a share, including franking credits at the 30th of June 2022 or $0.78 a share, excluding franking credits. The embedded value is, by definition, a conservative indicator of the intrinsic value of the organization as it ignores both value created in the future from the existing platforms and any value that can be created from new lines of operations. With such a strong base, we believe the outlook for ClearView and the broader Life Insurance industry is positive. This is reinforced by our recent guidance for the year of an underlying net profit after tax of $28.5 million to $30 million. This excludes any contribution from our investment in Centrepoint Alliance. The Life Insurance market has shown strong resilience during a difficult period, and we are now seeing growth accelerating through an improved regulatory outlook and return to industry profitability, driven by structural reforms focused on sustainability. These tailwinds are further supported by an increasing interest rate environment, which is a further positive for ClearView. More specifically, good claims and lapse management when combined with these points I've made give us much confidence that ClearView can continue to grow both profitably and strategically. Finally, I'd like to acknowledge and thank Geoff and the Board for their support, along with the executive team, the people at ClearView and the financial advisers who recommend us to their clients. With that, I'll thank you and hand back to Geoff.

Thank you, Simon. The first item in the ordinary business is to receive and consider the financial statements, Directors' report and the Auditor's report for the financial year ended June 30, 2022. There is no resolution, however, this item of business gives shareholders and their proxies, the opportunities to ask questions and make comments on the business, its management and financial statements. Shareholders and their proxies may also ask questions to our Auditor in relation to the conduct of the audit, the preparation and content of the Auditor's report, the accounting policies adopted by the company and the independence of the auditor. As mentioned earlier, [ Peter Cordell ], representing our auditors, Deloitte, is here today and will be available to answer questions. The company's financial statements for the year ended June 30, 2022, with Directors' report and the Auditor's report were distributed to shareholders and are also available on our website. A summary of today's resolution of the resolution to be dealt with during today's meeting appears on the next slide. Resolution 1 is to consider and adopt the remuneration report for the year-end of June 30, 2022. Shareholders are reminded that the poll is open, and you can vote at any time. Proxy votes are outlined on the screen and tend to vote all undirected proxies in favor of all resolutions. As stated in the notice of meeting, Gary Burg and Susan Young retire and stand for reelection today. The directors' details and experience were provided in the annual report, Notice of Meeting and on the ClearView website. Each of the Directors other than the Directors standing for reelection, recommends the reelection of Gary and Susan. Resolution 2 is to consider and if thought fit, approve the election of Gary Burg, who retires as a Director by rotation under the constitution. Proxy votes are outlined on the screen. Resolution 3 is to consider, and if thought fit, approve the election of Susan Young retires as a Director under the constitution. Shareholders are reminded that the poll is open, and you can vote at any time. Proxy votes are outlined on the screen. Resolution 4, is to consider and if thought fit, approve as a special resolution amendments to the company's constitution as described in the explanatory memorandum and on the ClearView website. The proposed amendments to the constitution reflect changes to corporate governance practices, the Corporations Act and the ASX listing rules to accommodate hybrid and virtual meetings and update legacy provisions and outdated terminology. Proxy votes are outlined on the screen. That concludes the resolutions. I will now take questions from attendees in the room and respond to any that have been submitted online. Are there any questions?

This is Ron Shamgar from TAMIM Asset Management. I've got a couple of questions. The first one is regarding the strategic review. Obviously, it seems that there's a disconnect between what the market thinks that ClearView business is worth, trading at sort of $0.48 and what the Board believes the undervalue -- the underlying value of the business is. Now the Board has pretty much shopped the business around for over a year, and there hasn't been -- well, we don't know what the offers have been because the Board hasn't disclosed what price was offered for the business. And I think the Board should tell shareholders why they rejected those offers, what the offer was because obviously, there's a disconnect here between the 2.

First of all, we've signed confidentiality agreements with all the parties we're involved with. Price isn't the only factor in consideration. We're looking at it from the perspective of all shareholders, from customers, policyholders as well as some regulatory risks around that, execution risks in terms of the different structures put forward. So to say it's just a price discussion sort of not quite how we looked at it. But underlying it all, the Board does have a firm belief as to where value and where the business is best served in terms of moving forward. And the discussions we had with various entities we felt we were better remain in a listed company and focusing on improving the performance of the business, generating improved profits, improving our dividends over time that will ultimately reflect in a higher share price.

Okay. And then second question is just about the financial performance. You've given guidance $28.5 million to $30 million. If I'm correct to comparing it to last year, it's about 12%, 13% underlying profit growth. But if you actually look at the contribution of rising interest rates, it seems like the business isn't really growing if you exclude the interest rate benefit this year. Can you maybe clarify that or sort of explain?

The business is certainly growing if you have details of the financials. Simon, I might refer it to you potentially on this one.

I think I'd say interest rates don't close to straight away. So for example, if you take the last quarter of last financial really interest rates only rose for the April quarter. So the reserve bank increase of two weeks ago, only starts to come through now. So you don't annualize that growth. It takes time to come through. So as interest rates increase, that will flow through more into the following year, not this year's rate. So it does take time for the business to flow through. With respect to claims, as you discount the fact the claims costs that are higher rate, you only do that to new claims, not for old claims and so on. So these things take time to come through. CPI indexation, which goes through on policies will only take place as the actual CPI is reported and then flow through. So it doesn't come through immediately and that's why there's not a direct link, so to speak, to interest rates flow through to the profit growth, that will occur later on. I think the other point I'd make in respect to your first question is the embedded value of the organization is actually an actuarial calculation. It is independently audited as part of the policy liabilities and that gives you a firm handle on the value of the organization in one-off situation. So you had $0.78 a share, excluding the franking credits and $0.92 a share including franking credit. So I think that gives the Board a further handle on value per se. So it's not just something we've made [indiscernible] so to speak.

I would just say that I mean value is at the end of the day, what you can extract for shareholders and what someone is willing to pay. So if someone is not willing to pay that, maybe just run the business off and shareholders can collect $0.93.

Maybe we can take some of that offline, but I just leave a thought with you that a Life Insurance company has pretty strong obligations to policyholders. And runoff scenario might not necessarily in the best interest of those policyholders. So we're very, very cognizant with that.

This is [indiscernible]. My -- two questions. The first is on reinsurance costs. It's been a bit about inflation in that capacity. Is that impacting your business at all?

Reinsurance definitely impacts our business. It's probably our single largest experience.

And I mean, obviously, your guidance, does that take into account the recent inflation? And do you see that being impacted going forward anymore?

The arrangements we had, like, certainly, our reinsurance costs have gone up quite significantly over recent times, simply reflecting the claims experience at the past product. We work pretty closely with Swiss Re or our primary reinsurer to have a consistent view so that we have a sustainable product in the market. We don't want them to losing and us winning. So it's very much work in partnership. So in terms of those costs, we've negotiated pretty, I think, competitive terms with them for them to increase rates, they need to demonstrate to us why the rates need to go up. It is a competitive reinsurance market out there. There's almost as many reinsurers as our life insurers in Australia. So there are options available and that does keep -- but the reinsurer is on us. But I think the efforts the industry has made in terms of delivering a sustainable product will hopefully take some of the volatility that we've seen in reinsurance over the past 3, 4, 5 years sort of make it more stable in that respect. But we monitor that very, very closely.

And the other question is on your investment portfolio. The fixed interest securities that you own through PIMCO. Has the capital value of those not been impacted by Bonds they also short term that it hasn't been and shouldn't be impacted?

Yes. So first thing, the makeup portfolio is an asset liability matching that takes place, and that's a combination of investment length -- sorry, inflation length bonds too. So we have long-dated liabilities in our income protection and claims portfolio. So let's just say they're matched. So the investment in -- sorry, and we also incurred claims this week. That's quite a complex issue. So they have some -- we are high in investment returns on that. So net-net, you come down to having a couple of hundred million plus of short-duration assets. They don't have to be on building matched at all. Then you'll see any spreads come through below the line because we hold last 2 durations. It's a very conservatively invested portfolio, primarily in government securities is a very small credit exposure in the portfolio.

[ Phil Pepe, Sharan Partners ]. As Ron pointed out, the strategic review took a long time, 12 months or so. Presumably other growth options may have been put on hold while you're assessing whether or not there's a strategic buyer. So now that that's behind you. Do we look to more growth opportunities, organic, inorganic in the Australian market now that you're no longer distracted?

As part of that process, all of that was actually considered along the way. And as we sort of outlined last year, the main focus is transforming the business to getting it. We had to launch a complete new product during the year. So the near-term focus is absolutely on how we accelerate the growth from our existing channels. That's not to say that the business isn't exploring and thinking about other opportunities, whether they be in alternative channels and life insurance or in terms of retirement products. I don't know, Simon, probably...

Yes, I think [indiscernible] retirement income area and every superannuation reason fund has to have a retirement income covenant in place. There is no doubt that Australia is now moving into the decumulation phase, having gone for huge growth in accumulation and superannuation. I think there are also other adjacencies in Life Insurance that we can consider, corporate life insurance markets and so on. Our new platform does allow us to do new products like annuities, like our long-term care products, like group life and so on because -- universal life products, too. So there's a lot of flexibility. I think the key thing with ClearView today, it has two things we actually find hard to get in doing new initiatives. It has a platform that has the capability [indiscernible] has licenses to do.

[indiscernible] representing the Australian Shareholders Association, also a significant shareholder in the company. I've got a couple of questions for you and the Board. Michael and Nathanial here today?

They are online, I think, from...

Are they able to answer questions or not?

Not sure.

Not sure, to be honest.

Okay. Well, I'd love to pose a question for them. Michael Chairs ACL. Nathanial is on the Board of ACL as well. They've had a very significant hack and data breach recently, which they disclosed quite late in the piece. I'd like to ask them what they learned from that and have they brought any learnings to the ClearView Board. And if there's anything that ClearView Board is aware of in that area that needs to be disclosed.

Sure. I'd answer second part in that. The senior executive team, in particular, the technology team have had a session with Crescent on the learnings and issues. Interestingly enough, we've actually got a Board meeting after this and one of the subjects is cybersecurity and the learnings from that particular example. But I can speak from my engagement with the executive team. They found what they got out of the discussions of Crescent really useful intangible benefits that we need to be thinking about. And it's not necessarily what are you secure at the point in time, it's what you do in the event that it potentially happens, and that's some of the learnings.

Okay. I guess my second question for both of them as well as around workload. I think Michael was chairing four other ASX companies as well as sitting on the Board and also running a private equity firm. So I had question how much time he's really got to devote to the operations of ClearView? And I noticed in the annual report that you only attended 2 of the 5 noncommittee meetings for the year. And yet I think as shareholders, we probably still paid in his full fees for attending those committee meetings. So just a question going forward, whether we've got enough time and dedication from what I'm sure are very smart and capable guys dedicated to this business.

Yes. What I will say, the Board every year has performance reviews, and the Board sets out objectives that we want to achieve with that. I certainly meet regularly with all the directors individually, including Michael and Nat. And I'm confident that his contribution is worthy, often being on the Board. But maybe off-line might be something that we going to ask Michael. I can't really comment on that on his contribution to our Board.

Sure. And then final question is just around your policies around skinning the game for Directors. So according to the annual report, I think 5 of the 7 Directors don't have any significant skin in the game. Now I'm an investor in the company because I think it's materially undervalued. So it does worry me that other directors don't have any significant holdings. So I'm not sure if Michael and Nathanial have holdings that aren't disclosed as personal holdings possibly, I hope that they do. But yes, I just wondered if you've got a policy on that around your Directors in general and general comments on that.

Just at a high level, we certainly will understand our Directors obligations. And one of the challenges we have, and we do have discussions with APRA on this in detail that they're very interested -- very concerned when there's a significant shareholder on a Board that they might put shareholders before policyholders and they are looking for a balance and they really want -- they do want to see true independent Directors. So whilst I might like -- believe ClearView is clearly undervalued, it might change APRA's perspective of me as an Independent Director if I had 1 million shares. And it is a big issue for APRA, particularly post the Royal Commission a few years back that people are looking after policyholders first. And so that's kind of -- that's where our positioning lies on that. So that's the #1 priority from a government's perspective as opposed to you should have some skin in the game. Judilyn, do have we received any online questions?

[ We haven't ] received any online questions.

Okay. As there are no further questions, I will give shareholders one final opportunity to cast their vote, and the poll will be closing shortly. [Voting]

That completes the items of business for today, and I advise that voting will now close on all resolutions. For those attendees in the room, please would you hand your completed voting paper to the returning officer walking around at the moment. I'll now close the meeting, and we'll announce the results of the poll to the ASX later today. Thank you for your attendance. The Board appreciates you taking the time to participate in our hybrid AGM and hope you and your family and loved ones stay safe and well. Thank you very much.