ClearView Wealth Limited (CVW) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the ClearView Wealth Limited Half Year 2025 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Ms. Nadine Gooderick, Managing Director. Please go ahead, ma'am.

Thank you for joining ClearView's half year results briefing. I'm here today with Athol Chiert, ClearView's Chief Financial Officer. In a moment, Athol will take you through the results in detail, but first, I will provide an overview and business update. There will be an opportunity to ask questions at the end. ClearView achieved a half year 2025 life insurance underlying NPAT of $15.2 million, down 22% and the group underlying NPAT of $12.5 million, down 28%. Key items to note are as follows: the half year result includes a claims loss of $6.2 million in the first quarter that is considered an outlier. The gross claims loss ratio normalized back to trend in the second quarter. Underlying life insurance NPAT margin of 8% was achieved in the half year with margin being restored to 11% in the second quarter as claims performance normalized. In-force premiums are now $387.2 million with the market share up to 3.8%. Gross premiums achieved growth of 8% and the embedded value, excluding franking credits, increased to $525.7 million or $0.807 per share, up 9.5%. The strategic execution and business simplification remains on track. ClearView achieved new business sales of $16.3 million in the half year period. New business represents 4.8% of the average advice in-force portfolios. The overall IFA new business market has grown 10% [indiscernible] to circa $313 million of new sales with structural tailwinds supported by the stabilization of the adviser channel. At the same time, ClearView's rolling 12-month new business market share in the IFA market has remained broadly stable at between 10% to 11%. ClearView continues to strengthen distribution relationships, refine the ClearChoice product in line with customer needs and drive a data analytics focus. ClearView has a strong presence and reputation in the IFA market. The strong adviser support of the ClearView ClearChoice product means the business is well positioned to achieve its goal of 12% to 14% market share of new business by FY '26. From a business simplification perspective, the technology and business transformation program is expected to complete in the first half of FY '26 with the efficiencies to flow progressively thereafter. ClearView will have the advantage of having our entire portfolio on a single cloud-based platform and the significant flexibility and efficiency to customize our flagship ClearChoice product offerings at speed and scale in order to meet the evolving needs of our customers and distribution partners. The wealth management exit is in its final stages and should be fully complete by the end of the financial year, including the decommissioning of systems and the removal of the cost base. The FY '26 goals remain on track, and I will provide further details on this as part of the financial outlook later in the call. Before I hand over to Athol, it should also be noted that the Board has announced its intention to conduct a share buyback, subject to available surplus capital of up to 10% of the share capital over the next 12 months, given the significant discount of the share price to the embedded value and the company's view of value. This is in lieu of dividends and is considered by the Board to be the best use of the surplus capital. I will now hand over to Athol, who will take you through the results in more detail.

Thanks, Nadine. Starting with the overall half year '25 results and the first quarter claims NPAT. The life insurance underlying NPAT decreased by 22% to $15.2 million. The underlying NPAT margin decreased to 8% and includes a claims loss of $6.2 million in the first quarter that is considered to be an outlier. The first quarter's claims loss had a 3.2% negative impact on the margin. In the second quarter, claims normalized from a gross loss ratio of 88% down to 56% and back to trend. The normalized claims performance resulted in the margin being restored to 11% in the second quarter with an overall margin of 8% in the half year period. Key points to note are as follows: the first quarter's claims loss was predominantly related to the LifeSolutions portfolio. In the second quarter, the gross claims loss ratio reduced to 56% of gross premiums and reverted to trend, noting that the long-term average is 53% over the past 14 quarters. The first quarter claims ratio was 66% higher than the average for the past 14 quarters. The second quarter overall claims experience was broadly in line with expectations. Life insurance claims volatility can occur from time to time. A short period of elevated claims is not necessarily an indication of any longer-term trend. ClearView has continued its investment in claims capability, rehabilitation programs and other initiatives to support return-to-work outcomes. ClearView continues to monitor the claims experience closely, in particular, income protection and TPD experience. Moving to the front end of the business and the top line growth. The front end of the business continues to reflect growth. Gross premiums increased by 8% to $191.4 million and in-force premiums also increased 8% to $387.2 million, with new business market share remaining steady at between 10% and 11% within a growing life's advice new business market. ClearView continues to demonstrate a strong track record of top line growth with an in-force market share of 3.8% of the advice market, being on track to meet the FY '26 target of circa 4%. Gross premium income broadly represents the average in-force premiums between period with its growth of 8% in the half year period aligned to the growth of the in-force premiums. In-force premiums remain the key driver of growth. With regards to repricing lapses and retention, gross premium rate increases have been implemented from the 1st of February 2025 on the LifeSolutions portfolio. The repricing of this portfolio takes place through the general course of business to appropriately price for progressive risk and experience, including claims and reinsurance impacts. These changes do not affect the new ClearChoice product. The actuarial assumptions on the long-term income protection and TPD claims on the closed LifeSolutions portfolio were further refined in the half year period over and above those adopted at 30 June 2024. Lapses have continued to be better than industry, but there has been a more recent increased trend in lapse rates given the high interest rate environment and cost of living pressures. Affordability concerns and the repricing of the in-force portfolio resulted in the strengthening of the lapse assumptions at the half year with an additional overlay for the price changes and cost of living pressures over the next few years. Retention strategies are in place, including the ability to transition to the ClearChoice product, which may be a more affordable option for some customers. Furthermore, ClearView's target market and funding of premiums from superannuation are a risk mitigant to the increased trend with affordability continues to be closely monitored in the current economic environment. The above-mentioned changes to assumptions and increased reinsurance costs on the closed LifeSolutions portfolio have been allowed for in the current repricing cycle and the FY '26 target margin range of 11% to 13% that remains unchanged. The FY '26 gross premium target has been updated to $440 million from $400 million to reflect the net impact of new business momentum, repricing activities and retention management. Lastly, I'd like to touch on capital and embedded value. ClearView has net assets of $362.7 million or $0.551 per share and a surplus capital position of $7.1 million post the capital release from the wealth management business. The life insurance half year '25 capital generation was adversely impacted by the first quarter claims loss that, as noted earlier, is considered to be an outlier. An industry recognized measure of value of the life insurance business is the embedded value calculations, or EV, which represents the discounted value of projected future cash flows and capital requirements of the in-force book of the business at a point in time. EV calculations are based on the long-term view of the business, including claims and lapse assumptions that are consistent with those adopted in valuing the policy liability in the half year accounts. No account is also taken of any new business. ClearView has an embedded value of just under $0.81 per share, excluding franking credits or $0.94 per share, including franking credits, as at 31 December 2024. Lastly, given the favorable market pricing, a new Tier 2 issuance is under consideration, subject to regulatory approvals and market conditions. I'll now hand back to Nadine to wrap up before opening up for questions.

Thank you, Athol. My final call out is on the key future focus areas for ClearView in FY '25, FY '26 and our financial outlook. Completion of our business simplification and technology transformation continues to be key strategic priorities for the year ahead as we seek to fully realize the benefits of this work and amplify our differentiation as a dynamic challenger. We continue to strengthen our risk management through CPS 230 and FAR compliance to uplift the capability of our people and to simplify the way we do things, which will drive higher customer engagement, retention and satisfaction. As we execute the final phase of our strategic transformation, we are working to double down on growth, and we have started to look at future opportunities. Our ambition is to be the best at life insurance, leveraging our dynamic challenger ethos together with our simplified technological architecture and smaller, more agile company size to meet the targeted needs of our customers and advisers in faster, better and smarter ways. From a financial outlook perspective, we note our FY '25 guidance of gross premiums in the range of $395 million to $400 million and life insurance underlying NPAT margin of between 9% and 10%. The FY '26 goals remain on track. Gross premiums target have been updated to $444 million, up from the previous target of $400 million. Life insurance underlying NPAT margin of 11% to 13% remains unchanged as does the new business market share of 12% to 14% and advice in-force premium market share of 4%. As noted earlier, it is the intention of the Board to conduct a share buyback of up to 10% of the share capital over the next 12 months in lieu of dividends. Given the significant discount of the share price to embedded value and the company's view of value, this is considered by the Board to be the best use of the surplus capital. Any buyback is subject to the availability of surplus capital. Lastly, it has been a difficult 6 months, but we have come out stronger, and I am immensely proud of what the team has achieved. I'm excited about the future of ClearView as we continue to deliver on our strategy and think about the next horizon. I will now hand over to the operator to open up for questions. Thank you.

[Operator Instructions] And our first question will come from Glen Wellham with Trim Capital.

Well done on the results. Just a couple of questions, if I may. First one, just wondering, will all the costs associated with the wealth management business be done and dusted by financial year '25, close? Or there will be ongoing costs?

No, it will be done and dusted by 30 June '25, including the decommissioning of systems.

Excellent. And just a slight decrease in new business volumes in the half. Just a bit more color around that. Is that due to competition?

Yes, Glen, I think it's really about us maintaining our discipline actually at the front end of the business and just really focused on high quality within the segment that we like, sustainability. We've seen a little bit of market behavior around some upfront discounting and some lowering of standards on underwriting. So in the first half, we haven't participated in any of that, and we've just really held our ground for the first half. It is our intention to really focus on those key accounts in the second half and really drive that new business very hard in the second half and then into '26 once we get to the other side of our strategic imperatives, the big one being the migration, which will be done this calendar year.

Excellent. And just one final question, more of a strategic question, I suppose. You've got over 5,000 advisers selling ClearView product at the moment. There's probably about 15,000 advisers out there. How will you increase that number? Or are you sort of happy around that level around the quality of advisers that you have currently? Or what's the sort of [indiscernible] market?

Thanks, Glen. Look, we're pretty happy with the mix that we have. For us, it's all around being targeted and focusing in the right segments. We have the data and analytics capability to do that really well now. It's about increasing the share within those key adviser groups, particularly in the Tier 1s and the Tier 2s. So looking at working with the same adviser groups that we have very strong relationships, and it's more about increasing share. Of course, we're always looking for new advisers to work with, and we are seeing some different adviser groups come in that are -- got a little bit more diversity, younger, very much on the digital side of things. So we're working to support some of those groups at the same time. But I think for us, we remain targeted. We remain focused on increasing share in those Tier 1 and Tier 2 relationships through our data and our targeting.

The next question will come from Scott Hudson with MST.

First question, just on the strategy technology transformation, does that slip slightly into first half of FY '26?

No. No. That's always been the plan, Scott. So I would say we're well on track with that. It's going very well for where we're at. We're into the kind of the detailed testing around migration. For us, we're just looking at what we've got on in the business for the remainder of the year and the best time to actually go live. But we're very much in the testing phase and getting prepared for the kind of big dress rehearsals that we have as part of that. But it was always the intention that it would be this calendar year.

That's early first half '26 go-live event?

First half '26, Scott.

First half, Scott.

Yes. Yes. That's what I said, didn't I? First half FY '26, yes.

Yes.

Yes.

Just on the, I guess, the negative impact from adverse claims in the first quarter. How do we -- or how do you mitigate those type of impacts going forward?

Well, I think what we've tried to highlight is that claims and volatility is part of our business. What we tried to reflect was the average claims loss ratio going back 14 quarters. And over a period of time, it averaged at 53% and seeing the trend line in and around that average and the abnormality of that first quarter relative to experience going back to FY '22. So in terms of going forward, you can see the history and the track record relative to looking forward.

That's helpful. And then just on the, I guess, medium-term strategy, have you given any more thoughts as to -- I know you're focus on the technology transformation right now. But if you have any thoughts as to additional product areas or market segments that you [indiscernible] into FY '26 or beyond?

Yes, Scott, thanks. That's a good question. Look, to be perfectly honest, we've been heavily, heavily focused on the business, obviously, looking across in terms of claims management. We've been through repricing. We're looking at retention. So there is a little bit of work going on in terms of the what next. I don't have anything I can say on that today. We certainly are thinking about it. We can see that we're going to get to that point later this year and early into next year. But right now, we're just heavily focused on the second half of the year, making sure we get that right, really focused on the mechanics of the business and driving that new business share, making sure that we're very, very disciplined over the next few months, and we have a really strong second half of the year.

The next question will come from Richard Coles with Morgans Financial.

Just sort of wondering if you go into sort of how much do you think the turnaround in Q2 is just a natural sort of [ righting ] of the book? Or how much do you think of it has come down to remediation work that you've put into the business sort of maybe you can -- I mean did you find more challenges when you started to look into the detail of claims? Or maybe you can just talk to sort of the righting of the ship.

Yes. Look, I think I've said previously, I feel like we're very strong on claims. We've -- on claims management, we've invested heavily in our data and analytics and heavily in claims management as part of our transformation over the last couple of years. So very, very confident there. We have had an independent review come in and have a look at our claims processes, particularly on the TPD, and that's all very smooth as expected. I think it's really clear, and you can kind of see it in the investor pack on that Page 5, it really is an outlier. When you actually look across from '22 to '25, you can see those 14 quarters, you can see that average claims -- the gross claims loss ratio is around that 53%. You can see that, that quarter, in particular, that Q1 was at 88%. You can just see the spike. So it's very clear. I mean these things do happen in life insurance. It's very hard to see it coming to that extent. It really is a one-off, and we obviously don't want to see that again for some time. But it's really how you then react to it and at the speed of which you get on top of it. And I've been immensely proud of the team in terms of what we've achieved and how we've come out the other side of that and now able to look at that back half of the year.

Okay. And just maybe on the buyback, you've obviously talked to sort of $7 million of net surplus capital. I mean maybe talk to what you see as a reasonable level of surplus capital and how we sort of think about the buyback in the context of that surplus?

I think we've tried to articulate that it's subject to available surplus capital, which is surplus capital, which is above your target. I think through the half in generation over the 12-month period, the way to view it is that the Board feels that the best use of that surplus capital is a buyback given the return that a shareholder will get out of it.

Okay. Okay. So that -- so you basically see the $7 million as money to play with. It's the $7 million a buck that is the surplus is what you see as available for potential capital returns in your view? Is that how to think of it?

That's the starting position, but you generate capital over the half, and you generate capital over a period of time, and it's over a 12-month period relative to that capital generation and the starting position in the overall capital outlook of the business.

Congrats on the result.

Thanks, Richard.

There are no further questions at this time. I would now like to hand the call back over to Ms. Nadine Gooderick for any closing remarks. Please go ahead.

Thank you. I'd just like to thank everyone for joining us today, and we'll see some of you very soon. So thank you very much. Appreciate it.

That concludes our conference for today. Thank you for your participation. You may now disconnect.