ClearView Wealth Limited (CVW) Earnings Call Transcript & Summary

Welcome to ClearView's Financial year '23 Results Conference Call. I'm Nadine Gooderick, and I'm joined by ClearView's Chief Financial Officer, Athol Chiert. Since joining ClearView 3 years ago, I have led the group's transformation efforts and also previously the technology and development function. On the first 1st of July 2023, I took over from Simon Swanson as Managing Director, and I am excited to present ClearView's strong financial year '23 results today. I will also touch on the group's refresh strategy. ClearView's financial year '23 result reflects material growth across every key metric against the backdrop of improving life insurance market conditions. Our refresh strategy is focused on leveraging our competitive advantage in life insurance to achieve our goal of becoming a top player in the Australian market. In a moment, I will provide a summary of ClearView's financial year '23 highlights. I will then hand over to Athol, who will go through the results in greater detail. I will then wrap up with an update on ClearView's business outlook and open for questions at the end. Today, ClearView announced a record 41% increase in group underlying net profit after tax of $36.5 million for the year to the 30th of June 2023. The strong financial year '23 operating results and growth prospects are driven by the ongoing business simplification. As noted earlier, across all key financial metrics, ClearView outperformed in financial year '23, reporting a 25% increase in new business to $25.2 million, an 11% increase in in-force premiums to $305.9 million and Life Insurance underlying NPAT margin of 12.4%. In the past year, strong business momentum drove ClearView's new business market share to 9% and in-force premium market share to 3.2%. This impressive achievement reflects the strength of our flagship life insurance product series, ClearView ClearChoice and the quality of our expanding distribution footprint. The Board has also declared a final cash dividend of $0.03 per share, up 50% on financial year 2022. Page 3 provides a comprehensive snapshot of ClearView's current position and financial year '26 targets. With the sale of the financial advice businesses in 2021 and the pending divestment of the Wealth Management business, ClearView is now solely focused on life insurance. The group's focus on simplification and transformation has delivered significant growth and momentum, including the achievement of an 11% new business market share in the last quarter of the financial year. We're starting to see the benefits of our investment in people, processes and technology over the past 3 years, and this will only accelerate into the future. Looking ahead, ClearView is targeting circa $400 million in in-force premium and a circa 4% of in-force premium market share. Our strategic goals include boosting new business market share to 12% to 14% at a Life Insurance underlying NPAT margin of 11% to 13%, backed by a strong balance sheet and growing in-force portfolio, ClearView has the right people, strategy and structure to achieve its objectives. We are firmly on track to become a top player in the Australian market. Page 4 lists the 6 key factors underpinning ClearView's future growth, including our simplified business model, strong balance sheet and capital position and improving life insurance market conditions. While there is uncertainty around inflation and the broader economic outlook, as a life insurance company, ClearView has been a beneficiary of rising interest rates as we earn higher yields on our capital and investments. The majority of insurance policies are also inflation index, resulting in higher gross premiums. For our customers, indexation is a key benefit, ensuring that their insurance benefits keep pace with rising living costs so they are able to meet their financial obligations and cover expenses in the event of a sudden accident, illness or premature death. We have not seen signs of related economic stress in our portfolio to date. This is likely due to Australia's relatively low unemployment rate and the fact that a significant portion of the life insurance portfolio is funded from superannuation. Before handing over to Athol, I'd like to provide a strategy update. As you can see on Page 6, ClearView's refresh strategy is based on the 4 pillars of protect, optimize, diversify and explore. We are focused on protecting and optimizing our existing position as a dynamic challenger in the life insurance market. We will continue to differentiate by being easy to do business with and delivering an enhanced customer experience. Across the core areas of product, underwriting claims, data and rehabilitation, the business is focused on achieving operational excellence. We are also exploring opportunities to expand our offer, extend our relationships and diversify our revenue sources and risk as part of efforts to ensure ClearView continues to grow and meet the current and future needs of our customers and stakeholders. We are more than halfway through our transformation program and already benefits from our IT replatforming are beginning to flow through. These include scalability within our targeted marketplace and the ability to leverage a modern technology platform for new business. As we complete the build out and migration of our existing in-force portfolios to our new policy administration system, ClearView will have an even stronger competitive advantage due to the lack of legacy systems across the business. Associated operational benefits are expected to fully flow through from financial year '25. The adaptability of our system enables us to maintain a competitive edge over larger players that have multiple systems to manage. ClearView is able to be agile and move quickly by using our data and analytics to identifying segment key targeted areas and then get to market with new propositions. Turning to Page 8. ClearView is strategically focused on what we do best, life insurance. Recently, 2 significant strategic decisions were made. The first was to directly exit financial advice ownership and move to a holding in Centrepoint Alliance. This provides us with a 24.4% holding in a business with over 500 financial advisers and meaningful scale. Secondly, the Board decided to exit our wealth management business given its lack of scale and growth options. These decisions have reduced regulatory risk and minimize business distractions as we focus on our core life insurance offering. Due to our strong financial year '23 results, ClearView is in a position to increase underwriting risk, which is a key change for the business. We are confident that the ClearView ClearChoice product is sustainably priced and aligned to industry structural changes. As a result, in financial year '24, ClearView will take on more underwriting risks for new business, thereby reducing reinsurance costs and increasing some insurers retained. This will drive higher business profit over time.

Thank you, Nadine. The table on Page 10 illustrates that across every key metric, ClearView outperformed in financial year '23. The group's 41% increase in underlying net profit after tax is reflective of the strong business momentum against the backdrop of the improving life insurance market conditions. In financial year '23, ClearView's performance was driven by growth in gross premium income in line with the average in-force premiums over the period, strong IFA support for the ClearView ClearChoice product at sustainable margins, a gradual repricing of the existing in-force portfolios, positive underlying claims and lapse performance, significant ongoing investment in business transformation and a higher interest rate environment. The graph on Page 12 effectively tells the ClearView story to date. From inception, the business had been running hard and growing strongly, but we knew we needed to invest in systems and technology to maintain our long-term growth trajectory and future proof for business. In 2020, we made a deliberate decision to reset the business and focus on retention, given the market conditions at the time. For the past 3 years, ClearView has been on the journey of simplification and transformation. As part of a multiyear transformation program, the business developed and launched a new policy administration system in financial year '22. The past 3 years has also seen improvements to our risk, compliance and governance framework and the launch of our new product series, the ClearView ClearChoice product aligned to the structural changes in the market. In financial year '23, we rolled out a number of enhancements to ClearView ClearChoice, and we continue to upgrade our technology. A year ago, we shifted our focus back on to sales and new business, which has seen ClearView's market share grow significantly. In financial year '23, the group's new business market share jumped to 9%, surpassing our prior peak in 2019. Over the next 2 to 3 years, ClearView is targeting a 12% to 14% new business market share. We believe the business is strongly positioned to take further advantage of a market rebound, and we are focused on pursuing quality advice relationships and expanding our distribution footprint. Turning to the graphs on Page 13 and 14. ClearView's growth profile is underpinned by our strong in-force portfolio and annuity style recurring revenue base. In financial year '23, in-force premiums increased 11% to $305.9 million, pushing ClearView's in-force market share of their vast channel to over 3%. We have a financial year '26 gross premium target of circa $400 million and lifting our in-force market share to circa 4%. ClearView's significant and ongoing investment in business transformation combined with improving industry performance, rising interest rates and the positive impact of structural changes will underpin the group's earnings growth. This can be seen in the performance of the business over time. The balance sheet reflects net assets of $485.3 million and a net surplus capital position of $27.5 million prior to the financial year '23 final cash dividend of $0.03 per share. The balance sheet increased net cash and investments of $516.9 million. Overall rising interest rates are net positive for a business like ClearView, given its positive impact on investment returns and the discounted cost of future income protection claims taking into account the estimated claims duration and adjusting for changes in expected inflation. The life insurance in-force portfolios generate significant capital, which has subsequently reinvested into new business generation. This can be seen in more detail on Slide 17. ClearView's strong capital base and cash generation is implicit in the better value of the business. ClearView's life insurance embedded value increased 7% to $558.7 million including, franking credits and net of capital transfers as of the 30th of June 2023. Overall, the EVs $587.1 million or $0.912 per share, including franking credits of $499.4 million or $0.776 per share, excluding franking credits. The EV calculations are now based on an increased risk free rate of 4%, up from 3.5% in financial year '22, which had an adverse $9.6 million impact on the EV calculations in the year. Before handing back to Nadine, I'd just like to touch on AASB 17, which is the new accounting standard for insurance contracts that came into effect on 1 July 2023. AASB 17 is not expected to change the underlying economics or cash flows of ClearView's business, but it is expected to have an impact on the timing of the emergence of profits and retained earnings on adoption of the new accounting standard. It is expected that AASB 17 will result in a decrease of between $40 million and $80 million in net assets after tax impacts for the restated opening statement of financial position as at 1 July 2022. ClearView expects to provide pro forma AASB 17 historical financials for both analysts and investors in advance of the first half '24 financial results. I'd like to reiterate that AASB 17 is not expected to change the underlying economics or cash flows of ClearView's business. I'll now hand back to Nadine.

Thank you, Athol. In summary, ClearView is a resilient business that is strongly positioned for future growth. After a period of resetting and investment and as the operating environment continues to improve, ClearView is poised to outperform its peers. Being more than halfway through our transformation efforts, our IT investment is beginning to show benefits for the business by providing scalability within our new business flows noting that the operational back-end benefits are expected to start to flow through from financial year '25. Our simplified business model and refresh strategy will see a sharper focus on operational excellence in the core life insurance areas of product underwriting, claims, data and rehabilitation. This is reflected in the group's reinvigorated executive leadership team, which includes the addition of Joanne Faglioni, Group Executive, Operations; and Nick Kulikov, Group Executive, Product and Pricing. As Athol mentioned, we are planning on an Investor Day in the advance of the first half financial year '24 results to introduce members of the broader team and provide an update on how we are tracking against our key metrics. As we strive to achieve our financial year '26 targets, ClearView will continue to invest in new business growth and extract operational efficiencies. Looking ahead, we are focused on executing our refresh strategy to protect, optimize, diversify and explore. ClearView's record financial year '23 result reflects strong business momentum and improving margins. While rising interest rates and the high cost of living in Australia is creating challenges for households, we are not seeing signs of related economic stress in our portfolio. The group's balance sheet and capital base is strong and the current high interest rate environment is favorable for the business and positive for underlying earnings. As a life insurance company, ClearView has been a beneficiary of rising interest rates, earning higher yields on our capital and investments. The majority of insurance policies are also inflation index, resulting in higher growth premiums. We are not providing any financial year '24 direct guidance, given the implementation of new accounting standard, AASB 17. We are now in the process of finalizing AASB 17 implementation. But in the medium term, as noted earlier, this is not expected to impact the business economics, including cash flows, underlying growth rate and end point of earnings in financial year '26. Our underlying NPAT is targeted to continue to grow at double digits of the financial year '24 underlying NPAT base under the new accounting standard, whilst at the same time, paying an attractive dividend yield. I will now hand back to the operator to take questions.

[Operator Instructions] Your first question comes from the line of Philip Pepe with Shawn Partners.

Nadine and Athol, Congratulations on a good results. Impressive FY '26 targets in terms of gross premium, it looks to me, just based on the FY '23 data, you're either expecting the market share -- market to grow or your market share to continue to improve in that time, just between $325 million and $400 million. Is that -- how much of it is market share and how much of it is market growth do you think in that time?

Well, I think given the market conditions, we've assumed limited sort of growth in the market itself. I think we're comfortable with that performance. You can see in the fourth quarter of the financial year, we actually achieved an 11% market share. So I think from our perspective, we're pretty comfortable and confident in the plan in itself, given where we're at.

Yes. I think it also -- we're looking at some of the upside as well around just our distribution depth and expansion and the improvements we've made on claims, and just really I guess, the focus on the core business and trying to extract the value that we see in our business now. So I'd say it's a combination of both. We feel it's a realistic plan. We're really comfortable with the projection.

And you've also given us -- you've also given us a profit margin target. It's basically where the business is now. Can that not improve over time as you get some scale and more diversification? Are you being conservative? Or will you manage it to 11% to 13% target?

Yes. Look, I think it's all about managing the margins. So I think, again, we just have to take into account the external environment, look at where we're at in terms of our share, the way our product is going. I think there is potential upside on that projection as well, but it really just depends in terms of what's going on in the external market.

And I think we do expect as we've outlined from FY '25 to that margin to accrete given the operational efficiencies we'll get from, I guess, the transformation program as well as over time, the plans to increase the retention on the reinsurance for new business only. So I think over time, do you expect the margins to accrete, but as Nadine outlined, we'll be comfortable within that range. But there is upside to it as well.

There are no further questions at this time. I would like to turn the call back over to the presenters.

Okay. I would just like to say thank you to everyone for joining the call today. Have a great day. Thank you.

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