ClearView Wealth Limited (CVW) Earnings Call Transcript & Summary

Good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the ClearView Wealth Limited Half Year 2023 Results Conference Call. [Operator Instructions] Mr. Simon Swanson, Managing Director, you may begin your conference.

Thank you for joining us for ClearView's half year results briefing. I'm here today with Athol Chiert, ClearView's Chief Financial Officer. In a moment, we'll take you through the investor report, but first, I will provide a general overview and business update. There will be time for questions at the end. Turning to Slide 3. This is a strong result, reflecting business momentum and improving favorable market conditions. For the half year, ClearView reported a $16.3 million underlying net profit after tax, up 31% on the previous corresponding period. We are particularly pleased with the improving profit margins in our core life insurance business. Life insurance is the main driver of performance, with the segment posting a 46% increase in underlying net profit after tax. This was partially offset by the wealth management business. ClearView's strong half year '23 performance was underpinned by a number of factors, and these factors will continue to drive long-term growth. First, ClearView was the first mover in the life insurance product repricing cycle. In 2021, we launched our next-generation life insurance product series, ClearView's ClearChoice, which is focused on improving customer outcomes and long-term sustainability. We are pleased with the performance of ClearChoice, which is highly rated and well supported by our distribution network of over 4,000 financial advisers. We're also starting to see benefits from our multiyear transformation strategy. Over the past few years, ClearView has ramped up its investment in people, processes and technology to ensure we continue to meet the evolving needs of our customers and remain easy to do business with. Our significant investment in transformation during a period of uncertainty through COVID-19, the war in Ukraine and the breakout of inflation sees us strongly positioned to capture opportunities from the improving life insurance market. After a difficult period for the life insurance industry, signs of revival are emerging. The industry's recent return to profitability followed positive structural and regulatory changes, including capital charges, product changes and repricing of historical portfolios. Ongoing structural and regulatory reform, including the potential for more accommodative policy settings under the Quality of Advice Review will continue to buoy market conditions. Today, ClearView also announced that it has entered into an agreement to sell its managed investment business to investment management and technology company, Human Financial. Last year, ClearView commenced a review of our wealth management business to determine the best way to take that business forward. From that review, we believe a strategic partnership with Human Financial will deliver better outcomes for customers, including greater product choice, improved investment performance and a better customer experience. Under the proposed deal, ClearView will acquire a 40% stake in Human Financial, allowing us to maintain an exposure to the attractive wealth management sector while also ensuring our focus is on lifting life insurance profitability and market share. I will now hand over to Athol to talk about our half year '23 result in more detail.

Thank you, Simon. The slides on Page 6 and 7 provide a snapshot of our results. For the half year period, our life insurance underlying NPAT increased 46% to $19.4 million, reflecting the solid growth in in-force premiums and new business sales, the increasing interest rate environment and the positive claims and lapsed performance relative to the underlying assumptions. Our strategic stake in Centrepoint Alliance also contributed $1.7 million to the group's result, although the wealth management business continued to be a drag on performance. As Simon mentioned, our ongoing investment in people, processes and technology is starting to materialize into strong financial performance. Our focus is on high-quality earnings and profitable growth, with our flagship product series ClearView ClearChoice priced for sustainability whilst delivering value for our customers. The ClearChoice product has been well accepted with both increased new business flows as well as a gain in market share over the half year period. ClearView's also commenced in January '23, the next phase of its current cycle of premium rate increases and will continue to progress on our transformation journey. Slide 8 shows how ClearView has extended its position as a key challenger. Our share of advice life insurance in-force premium has been steadily climbing. And since 2021, when we shifted our focus back to growth, we have seen a material uplift in new business market share to circa 8%. So while our market share has been improving, even more importantly, so has our underlying NPAT margin, which increased to 12.1% for the half year period. Backed by a strong recurring revenue base and solid capital position, ClearView is ideally positioned to benefit from structural and regulatory tailwinds in a rising interest rate environment. The graphs on Page 9 show ClearView's net surplus capital position of $14.6 million and $476.7 million in net assets, which are backed by cash and highly rated securities. You'll also see on Page 10 that during the half year period, our life insurance embedded value increased by circa 5% to $570 million. Overall, the group embedded value is $583.5 million or $0.902 per share, including franking credits. I'll now hand back to Simon to outline some key business highlights and to take questions.

Thank you, Athol. I think the past few years at ClearView can be best summed up by 2 words, simplification and transformation. This is supported by our relentless focus on margin management so that we continue to build a highly focused life insurance business in a recovering market. The sale of our financial advice business to Centrepoint Alliance in 2021, and the proposed divestment of our wealth management business will result in a simpler ClearView that is focused purely on extending our position in the life insurance market. We are excited about pursuing a strategic partnership with Human Financial, who we have been working closely with over the past 2 years to deliver our innovative wealth management client and adviser portals. We believe that together, we can build a differentiated and profitable wealth management business that combines Human Financial's technology and asset management platform and ClearView's distribution capabilities. Importantly, our customers will benefit from a large experienced team of investment professionals and a dedicated management team to drive performance and efficiency. For our proposed 40% strategic stake in Human Financial, ClearView will continue to participate in the wealth management sector as we do in financial advice via our strategic stake in Centrepoint Alliance. We are pleased with the performance of Centrepoint Alliance, which is now Australia's third largest licensee, and this half made a positive contribution to ClearView's financial performance. Looking ahead, we'll continue taking advantage of improving market conditions. Due to the strong half year '23 result, FY '23 full year underlying NPAT guidance, excluding the Centrepoint Alliance contribution, has increased from the range of $28.5 million to $30 million to the range of $30 million to $32 million. Our decision to invest through the cycle during periods of uncertainty has strengthened our ability to effectively compete. Over the past year, we have been ramping up our focus on new business and expanding our distribution footprint while maintaining a laser-like focus on margin management. This is a high-quality, resilient business. We have a large and growing revenue base. This underpinned our performance during the pandemic years and continues to drive momentum. The indexation benefit that is built into our contemporary products ensures that our customers are covered against the rising cost of living. Their benefit amount automatically increase each year without the need to undergo additional underwriting. Furthermore, the associated impact of age-based premiums alongside our latest cycle of price increases is expected to substantially offset cost inflation pressures and underpin ongoing growth. So thank you very much, and I'll hand back to take some questions. Thank you.

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

Well done on a great result. In particular, obviously, the life business is performing very well. And I really like the slide on Slide 8, showing market share and the growth in market share for new business. You got that at 8.4% at the moment and you note that peak was around 9%. I suppose looking forward to next year, do you expect to exceed that peak going forward? And can you give us a bit of an outline on what your competitive advantage is on that new business relative to your competitors out there?

Yes. Well, thanks, Glen. Obviously, we'd like to be increasing our new business market share, but we also would like to continue to increase our in-force by managing our lapses well. So our view is that we should have strong growth in our in-force premiums, which will be a combination of good new business growth as well as maintaining a good look at our lapses. And I think that and the expanding margins is how we look at the future.

All right. And also on the wealth management, obviously, there's a slight drag on usual result on sort of the wealth management business, but obviously, the sale is going to tidy that up. Just how quickly is that all going to tidy up in terms of conditions precedent for that deal to go ahead? I'd sort of note that there is a few conditions present in the footnote to happen. And also the $1.5 million of so-called stranded expenses in that business, how long does that continue for?

Right, I'll take the first half and Athol can take the second half of that. Our objective, Glen, is to have this all tidied up in the second half of this calendar year, right? Obviously, there are conditions precedent. The good news is that we have worked with Human Financial for the last couple of years. They've done some great work for us, particularly around technology. And I think the addition of Angus Sippe as CIO will be fantastic for Human Financial, and so we're very pleased to have a 40% stake in it. And we do see a good contribution from them as we've had in the Centrepoint Alliance deal. I'll ask Athol to talk about the stranded costs.

Thanks, Simon. I think, Glen, that's probably the level of stranded costs you should assume going forward, mainly relates to rent, some IT and some insurance-related costs. I think our caution is when that gets allocated now to the life insurance segment, it doesn't flow dollars per dollars through profit because there's the deferral effect potentially through some acquisition costs. So ultimately, you would times up by 70% and then assume a deferral component to understand the profit impact of those stranded costs going forward post the sale of the wealth business.

Your next question comes from the line of Philip Pepe from Shaw and Partners.

Congratulations on a good result. Just on new business sales, they've obviously been volatile over the last 12 months, given the changes to the industry. Good job on getting 9%. Have we seen them stabilize now? Like how have they tracked post the half year-end? Obviously, [ given the updated ] guidance. So have things normalized in January and February to date?

Yes. I think what's actually happened, Philip, is the -- well, sorry, first, thank you. The second thing is the sales in the comparative period in '21 were boosted by the changes to income protection. So there's a kind of last rush to get sales through. So the sales in 2021 in a sense were overstated, so we're expecting things to pick up. I think we're at the bottom of the cycle, to be frank, and we would expect a slow, steady building up of new business. I would say that should the Quality of Advice Review get executed, that could actually have a substantial impact positively, yes.

Excellent. If I could sneak in a second one, where are you on the bond curve in terms of average maturity? Are you benefiting from interest rate rises or copping a bit of pain? What's the outlook like on the investment portfolio?

I think overall, on underlying NPAT level, interest rates and rising interest rates is positive for us, Glen. I think we earn more on -- I mean, Phil, as we earn more on our physical cash and capital, that backs the life insurance business, at the same time, on income protection claims when you discount that back based on real rate. Effectively, your claims cost reduces because of the PV of that. So overall, we benefit from that. Our insurance premiums themselves are inflation-linked, and that in combination of the price rises, we feel like we're protected as well from the inflationary pressures on the cost side.

Yes. All in all, Phil, it's actually -- it's all good news really on that front.

Excellent. Thank you, and well done again.

[Operator Instructions] There are no further questions at this time. Mr. Simon Swanson, I'd turn the call back over to you.

Thank you very much, and I'd like to thank everyone on the call for their support, and I look forward to keeping in contact on the progress of ClearView. Thank you very much.

This concludes today's conference call. You may now disconnect.