NobleOak Life Limited (NOL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the NobleOak Life Limited FY '23 Results Presentation. [Operator Instructions] Now I'd like to hand the conference over to Mr. Anthony Brown. Please go ahead, sir.

Thank you, and good morning all. Welcome to NobleOak Life's 2023 Financial Year Results Presentation. I'm Anthony Brown, the CEO of NobleOak, and I'm joined today by our CFO, Scott Pearson. And today, I'll start with an overview of the highlights from the year before handing over to Scott to cover the financials. Then I'll take you through our strategic priorities and the outlook for financial year '24 and then open up for questions. So just moving to Slide 4. I'm pleased to say that NobleOak continued to perform well in 2023. We delivered strong in-force premium growth ahead of our guidance, which we provided the half year, driven by the strength of our diversified distribution model. First half sales were impacted by lower industry new business volumes, we were pleased to see the sales start to bounce back in the second half of the year as we continue to grow and gain market share. The market is still experiencing relatively modest growth with around 5% annual growth across the life insurance industry, which is slowly recovering. And pleasingly, our claims and lapse experience also remains favorable to our long-term expectations and the wider industry. And alongside our strong financial disciplines and improving investment returns, it's enabled us to maintain stable margins while continuing to invest for long-term growth. And we're pleased to have successfully implemented actions to mitigate our regulatory capital position at asset 30 June '23, which gives us headroom to continue our organic growth plans. deliver good growth in premiums and profits. In-force premium, the real value driver of our business, grew by 24% year-on-year to over $315 million, reflecting continued market share growth, which increased to 2.7% of the market at December 2022. After new business sales were down around 46% on the prior year in the first half of the year, we were pleased to see sales bounce back in the second half to close the full year down around 26%. Our new business market share continues to track above our target at 13%. At 30 June '23, we had over 120,000 active life insurance policies, up 16% from prior year, which is supported by our lapse rate of 8.1% across the portfolio. This remains below both our long-term expectations and the industry average. Net insurance premium revenue was up by 22% to $77.6 million, with underlying NPAT growing by around 9% to $10.3 million, driven by our strong premium growth and disciplined approach to underwriting and expense management. Scott will provide some more specifics on these metrics in a few moments. And then moving to Slide 6. Looking operationally, it was another productive year for the team. We did a great job to remain very focused on delivering our strategy while continuing to provide excellent products and service for our customers. This enabled us to maintain our high customer satisfaction ratings to really crucial to managing our lapse rates and referrals as well as status as Australia's most awarded direct life insurer. We've made further progress on our ESG commitments, including achieving carbon-neutral certification for our business operations from Climate Active in support of our commitment to net zero by 2030 as well as relocating to a new greener head office in Sydney. We've kicked off an organization-wide IT and digital transformation program, which will further enhance our market positioning, and I'll talk a little bit more about that later. In the Direct Channel, we continue to build our network of alliance partners. We've recently partnered with Costco, which is the world's third largest retailer, and it provides us with access to more than 1 million members in Australia. We expect to launch to their member base in around October this year, and we're hoping to announce another large partnership that month also. We're also developing a market-leading omnichannel experience for our customers. This will further enhance our differentiation as customers are increasingly opting for soft service in life insurance. I'll now pass over to Scott to cover off the financials. Thanks, Scott.

Thank you, Anthony, and good morning all. I'll begin on Slide 8, and I'll talk through the group results. As Anthony said, over the last 12 months, we have increased our active policy count to over 120,000, driving strong in-force premium growth of 24%, which was ahead of our guidance from the half year. In-force premiums is the key value driver for NobleOak, and our strong growth reflects that we continue to gain market share, so we are pleased with the results in a subdued market. While first half sales were down due to lower market sales activity, we were pleased to see them bounce back in the second half. We continued to outperform by taking larger share of new business sales than our current in-forced market share. Overall, our net margins remained relatively stable with a lower underlying gross insurance margin, offset by lower administration expenses and higher investment returns. Underlying net profit after tax grew by 9% to $10.3 million. This is a reasonable increase from the prior year with positive impacts from strong investment returns and disciplined expense management, offset by strengthening of our claims reserves as we increased granularity in our reserving analysis and some investment in ACRC mitigation instruments. While we don't expect these adjustments again in 2024, there is always an element of uncertainty with respect to claims experience. We continue to seek the right balance increasing our annual profits while investing in long-term growth and sustainability. I'll now turn to our operating segments, which provide a feature of the key drivers of our performance. In the Direct Channel, our strategy continues to deliver results with our investment in digital marketing, brand and our network of distribution partners driving momentum and growth in our market share. Our Direct policy count increased to over 45,000 with in-force premium growing by 16% to $80.3 million. Pleasingly, this is supported by low lapse rates that remain well below industry average at 10.6%. I know that the industry average is around 13% to 15%. The underlying gross insurance margin remains strong even after the impact of normalizing lapse rates. Whilst claims reserves strengthening reduced insurance margins by approximately 2%, overall, our claims experience remains better than the industry and better than our long-term assumptions. Our conservative reinsurance strategy helped to mitigate the impact of these changing actuarial assumptions. Our expense ratio was stable with operating leverage offsetting additional expenses for building capability and regulatory undertakings. So on the Direct segment, our underlying NPAT increased by 3% to $5.6 million. Turning now to our Strategic Partner Channel on Slide 10. Our Strategic Partners continue to deliver excellent growth with in-force premium up 27% to $235.6 million. Total active policies were up 18% to over 74,000 as NobleOak continues to gain share in the advised market, driven by our contemporary products and high-quality service. A combination of fewer industry advisers, less switching activity and higher sales in the prior year impacted the new business growth rate. However, we are pleased to see market activity improved in the second half of the year. Lapse rates continue to normalize in the Strategic Partner segment, but at 7.2%, they remain well below the market averages and below long-term expectations, as referred to earlier. Our gross insurance margin was impacted again by changing mix between partners as well as a 0.5% margin impact from strengthening claims reserves. However, our claims experience again remains better than industry averages. A stable expense ratio and higher investment returns preserve the overall margins with our conservative reinsurance strategy continuing to reduce volatility in net profits. So in the Strategic Partner segment, our underlying net NPAT increased by 23% to $4 million. On Slide 11, you can see the performance of our administration services business, Genus. In-force premium under management reduced by less than expected to $24.7 million, due to favorable lapse experience, which has improved materially since the conclusion of the Freedom portfolio remediation program in April 2022. Genus continues to contribute to the group's financial performance with underlying NPAT reducing in line with in-force premium to $0.8 million. Turning now to capital on Slide 12. NobleOak is in a sound capital position, above risk regulatory capital requirements, providing a platform for continued growth. At 30 June, our capital base was $40.3 million. This represents a multiple of 191% of the regulatory requirements with $7.7 million surplus, above our internal targets. On Slide 13, you can see that as disclosed in March, we were notified by APRA that our approach to calculating and reporting reinsurance asset exposures was inconsistent with APRA's interpretation of its prudential standards. At the time, we were already in the process of changing the way we operate our reinsurance arrangements, and we successfully implemented those actions to mitigate our reinsurance asset concentration exposures by 30 June 2023 as planned. On this slide, we have outlined the actions taken, including claims settlement arrangements, deposit back arrangements and letters of credit that all provide security over reinsurance asset exposures. The financial impact of these actions is outlined on the slide for modeling purposes. And effectively, we forgo investment returns on $109 million in investment assets due to fees paid to reinsurers with fees paid on letters of credit will also incrementally add to our net reinsurance commission costs. Importantly, the net impact of these arrangements is not material. APRA has confirmed that our arrangements meet its prudential standards, and we will continue to explore more and efficient long-term options as we grow as a business. On Slide 14, the other major regulatory implementation we are preparing for at the moment is the new insurance accounting standard, AASB 17, which took effect from 1 July 2023. The new accounting standard will fundamentally change the way we account for our business with the aim of increasing comparability between insurers in Australia and worldwide. From a financial perspective, the impact of the changes in the -- to the presentation of the financial statements is -- so from a financial perspective, apart from the changes to the presentation of the financial statements, the main differences in the accounting treatment is that you're required for policy liabilities to include an explicit risk margin, insurance contracts and reinsurance contracts are acquired accounted for independently and the timing of recognition of profit over time will change and the portfolio will be -- profitability will be required to be assessed at a more granular level. Importantly, though, from a commercial perspective, there is no material impact on the underlying economics of the business or our strategy. From these things, in terms of impact on the balance sheet, we expect to write down part or all of our deferred acquisition cost transition, which will likely provide us with a material capital benefit due to carried forward tax losses from that date as we can realize those tax losses over the years to come. In terms of impact on the profit and loss, while total profitability over time will not change, the timing of profit release from year to year will vary from the existing pattern. We plan to host an information session for investors and analysts ahead of our half year results in February, which will be the first time that we're required to report under the new accounting standard. With all that said, in summary, whilst it's been a very busy year from a regulatory perspective, we are pleased with the ongoing growth of the business and continue to focus on our financial disciplines. And with that, I'll hand back to Anthony.

Thanks, Scott. Slide 16, a little bit more on our Direct Channel. So in the Direct Channel, our unique brand and diversified distribution continues to drive growth. And as I mentioned, our team really did an excellent job over the last 12 months to provide outstanding customer service. And that actually resulted in its remaining as Australia's most awarded direct life insurer, and our direct contact center is being named #1 in Australia overall, and that's compared to a number of other industries as well. So it's a great achievement for the team. This year, we designed and commenced a 2-year project road map to enhance our direct customer experience. And that includes our omnichannel platform upgrades, which will enable us to increase the efficiency of our sales and underwriting process and our online servicing. So there are three main benefits to this initiative. We will get a modernized IT platform that's more scalable, more flexible and allowing customers to access data, a new data warehouse and a redesigned front end with a more simplified product for new channels. Our white label partnerships with RAC WA and Budget Direct have had really strong momentum and they're really good partners for us. Delivering strong lead volumes, and actually, we just clocked over $2 million of sales from the Budget Direct channel, which both Budget Direct and NobleOak are very pleased about. We now have partnerships with 17 professional associations, which provide access to over 400,000 target customers, and our network of alliance partners that promote our Direct product continue to grow, and we now have over 40, including Costco, as I mentioned earlier. And we continue to develop and convert our pipeline of potential distribution partners. Our diversified distribution model and strong brand really continues to deliver market share. On the next slide, turning to our Strategic Partner Channel. Our partners also continue to outperform in the advised market. Industry new business activity does remain subdued and was quite flat in the first half. But as the market continued to settle, post the introduction of the new IDII products, which you may remember, were launched in October 21, compounded by a reduction of advisers in the market, but we have seen this improve in the second half with new business sales recovering and NobleOak's partners continuing to gain market share with their own new products and pricing, which resulted in multiple award wins for both PPS and NEOS. Overall, our claims and lapse experience in the Strategic Partner Channel remains positive to industry as well, and we're entering the final stage of our reinsurance tender with PPS, which will support the ongoing growth of that portfolio. With PPS having recently expanded its addressable market by adding further eligible professions to its target customer base. Our Strategic Partner products continue to deliver good market share growth with a 13% share of new business driving our in-force share up to 2.2% of the [ advice ] market. Our IT transformation program that I briefly mentioned will materially improve the way our customers interact with our products and services, and it will enhance the scalability of our business to support the next stage of growth. We're upgrading our core policy admin system to a new secure cloud-based platform and building in a self-service portal that will enable customers to modify and update their policies. This will deliver material efficiency benefits as well over time. We're investing in a new data warehouse, which will provide us with far more powerful analytics capability, which will support sales service and reporting functions. And we're building a modernized front-end to our Direct product. Our aim is to enhance the market-leading omnichannel experience we already have for our customers, and we think this will be a real differentiator for us as customers are increasingly opting for self-service in life insurance. It will also result in some economies of scale as more customers will be able to access cover without any human interaction, all while building better automation to generate some economies of scale. Ultimately, we do expect these deliverables to provide us with a better view of our customers and enable us to automate processes and enhance our data analytics to enable us to deliver tailored products and pricing for customers. The project has been very tightly scoped and managed. We're currently about 1/3 of the way through the project, and we remain confident in achieving the original budget and the objectives. Slide 19. Sustainable growth is a big priority for NobleOak and following the introduction of our ESG framework in '22, we made further progress this year. In the first half, we relocated our new office in Sydney, which has the highest 5-star NABERS rating, enabling us to more accurately measure our carbon emissions. We also achieved carbon-neutral certification for our business operations from Climate Active after measuring and reducing our carbon emissions and purchasing 100% Australian Carbon Credit Units. You can see in the right-hand column that we're on track to meet our core sustainability targets with a highly diverse workforce, strong culture and governance all features of our business. I'm very proud of the progress that we've made, but there's still much more to come. briefly talk through some of our strategic priorities and the key focus areas for the year. Our key priority is really to build on our position as Australia's leading direct life insurer. We think there's plenty of opportunity in the market. The Direct Channel is our core long-term growth engine, and we're committed to continuing to invest in our brand, technology and diversified network of distribution partners. Secondly, we will build and support our network of adviser partners, particularly NEOS and PPS in the Strategic Partner Channel. The advice market remains an important growth opportunity for us, and we're committing to work closely with our partners and continue to grow their share. And thirdly, we will focus on optimizing the business to achieve more economies of scale in the next couple of years. This will be driven by our growth and further assisted by our ongoing investment in technology that I mentioned. These strategic priorities are underpinned by our eight key focus areas and supported by our ongoing investment in people, who are really at the heart of our business. Slide 22, you can see key initiatives that really underpin those priorities. And I won't go through each of these, but overall, it is shaping up to be another really productive year for us, and I have great confidence in the team's ability to deliver while keeping their eye on the ball and our customers at the heart of everything we do. Slide 23, just turning to the outlook for '24. It's pleasing that market conditions are seeming to improve. And while the industry new business volumes are below historical levels, they appear to continue to recover. In fact, we've just experienced a really positive July -- one of our strongest July's to date. And against this backdrop, we do expect to achieve above-market growth supported by lapse rates that we also expect to remain favorable to the market, despite the economic outlook remaining cautious. Rising interest rates have been a tailwind for NobleOak with significantly improved investment returns and inflation-linked premiums combining to offset some of the inflationary impacts on our cost base and help protect margins. We will retain our strong financial disciplines, while investing for growth and capability, particularly as we implement the next phase of our IT transformation. While the industry continues to be impacted by regulatory change, we do expect the Quality of Advice Review, or QAR, to also be a bit of a tailwind for us because it appears to support the direct model and provides options for moving into adjacent areas of direct advice. We remain well capitalized to continue our organic growth trajectory, and we'll continue to selectively evaluate inorganic opportunities in line with our established growth strategy. In financial year '24, we'd expect to continue to perform well and punch above our weight with continued in-force premium market share growth and a disciplined approach to enhance profitability. So before I close, I just wanted to reflect on why we feel really confident in the long-term opportunity ahead for NobleOak. We are Australia's fastest-growing direct life insurer, and we're continuing to capture market share from the incumbents, as I've mentioned. And we operate in a market that has over $11 billion of annual premiums, reflecting a huge opportunity. And we are uniquely positioned to take advantage of the structural market tailwinds, including increasing preferences for buying insurance directly and online. We want to be at the forefront of this behavioral change. Our direct distribution model and diversified growth strategy provides us with options, and our unique brands and highly customer-focused value proposition continues to win new customers. Finally, our strong financial discipline and high-quality fully underwritten products with minimal legacy enables us to deliver relatively stable margins. 2024 will be another exciting year for us as we launch our newly designed products and access more growth channels. So in closing, I would like to thank the passion at NobleOak team for their amazing efforts for another huge year. They're a small team. They continue to work diligently to deliver our strategy while providing wonderful service to our customers. One small development that we found out about this morning is we actually won Employer of Choice Award, part of the Australian business awards. And it's a great endorsement for the -- how engaged and productive our team is. So it's a really pleasing credit for the business and for our team. Also, thank you very much to the shareholders who have continued to support us in our journey. It's greatly appreciated. Thank you very much. And I'll now open up for Q&A.

[Operator Instructions] The first question comes from Philip Pepe of Shaw and Partners.

Congratulations on the good result. Just a question around operating leverage. So I mean, as you said, in-force premium growth up over 20%, which is solid. The -- it looks like the NPAT growth of 9 was pulled down a little by the underlying insurance margin movement sort of 3 percentage points, and that kind of looks like it's the Direct Channel that didn't show the operating leverage that one would expect. Can you just talk us through perhaps in great detail on Slide 9? And more importantly what happens going forward because 16% in-force premium growth with only 3% NPAT growth seems like an anomaly. So what happens in a normal year? And in terms of claim ratios, are we normalized now? And what's FY '24 look like for the Direct Channel, please?

Thanks, Philip. It's Scott. I'll come at that with two points if I can, two angles. The first one is the group result impact ratio or gross insurance margin did drop by 300 points in the year. At a group level, it's important to recognize that probably 200 of those points is just a change in mix between the segments. So with the Strategic Partners with lower margins growing a little bit faster than the Direct business. So that was probably 2/3 of the group's gross insurance margin. But you're right when it comes to looking at the Direct business has actually had its own 300 basis points drop in margin and gross insurance margin also. And that was materially impacted by that claims reserve strengthening we referred to earlier, where we saw an improvement in our reserving processes on IP claims during the year, which will have seen a 200 basis point impact to the gross insurance margin in FY '23, which we wouldn't expect to continue to happen in the future.

Got you. Understood. And I guess I can squeeze in a second one. In terms of current trading conditions, I guess you mentioned July was strong. We'll get the APRA data when it comes out. But are you continuing to grow at sort of 20% per annum strong? Or at which point -- still long way to go, but at which point to you closing on the industry growth of 5% per annum?

Phil, it's Anthony here. Thanks for the questions. Just -- I guess, just touching on the growth rate. So the -- you're probably aware just from previous presentations that retail sales across the industry and retail, including both adviser and direct sales, are down probably 40% from five years ago. And that's been driven through lower advisers and the new IDII products that came out on October '21. It has been slowly recovering from there. It has been quite a slow recovery. But as we mentioned, we did see it increase a bit in the second half of last financial year when we're reporting on and that has continued to increase. So we're not giving any guidance, obviously, about the year. But we certainly are optimistic that we'll continue to grow at market share in excess of our in-force premium market share and quite -- at quite sizable differences. At the moment, we're growing at around 4x our actual in-force market share. We don't see any real reasons why that would change a lot over the coming year.

The next question will be from Nicholas McGarrigle, Barrenjoey.

Just to clarify on that gross insurance margin question. You mentioned a 200 basis point impact. Is that expected to reverse? Or it's more a step down by 200 bps and the gross insurance margin on the Direct side stage at that level permanently?

Yes. From a margin perspective, it should reverse. Obviously, there was a one-off step change in reserves in FY '23, which we would not expect to occur in '24, which therefore, the ratio should revert.

So it's more of a change to reflect sort of everything that's happened to date, and it's not necessarily the claims experience -- the claims expense you expect in your P&L on a recurring basis?

Yes, good point, Nick. It's -- it wasn't driven by experience or incidents in the year. It was reassessment of prior reserve estimates. So it was a restatement. But importantly, Nick, make sure that everyone understands that our claims experience continues to be below market average and our long-term expectations. It's just a little bit reserve, little bit higher than we previously expected to need to be.

Yes. So I mean because if I look at your insurance costs in the Direct side, they went from kind of $9 million in the first half to $12 million in the second. And I guess, it's the implication that 200 or 2% of your gross premium segment. So of the $38 million of gross premium, 2% of that is sort of the one-off cost in the insurance cost line?

Yes, that's right.

Yes. Okay. I mean, because, I guess, if we look at the underlying NPAT margin, excluding investments income, it went backwards in FY '23 by about 1.5 percentage points. So to your mind, is that mostly explained by that one-off reserve adjustment?

That's correct. So the 2% is obviously pretax. You take the net of that, you get back to closer to the 1.4%, which would be similar to 1.5%, I think, [ delta ] you're just describing.

Yes. Okay. So we should see a Direct -- an NPAT direct margin improvement reasonably considerable on that normalizing into next year?

That's correct -- under the current accounting standard, that's correct.

Yes. Okay. That's clarify. And then just in terms of the admin expenses, was there any one-off expense there or that was normalized in that underlying NPAT number you've sort of stripped out some of those regulatory costs that had to be in terms of the things you have to deal with in FY '23?

We have split out the most material line items. We don't like to normalize things too much, but there were the two significant activities happening during the period, which is the commencement of that -- of our IT projects, but also the accounting standard implementation, both material events occurring. The other things happened during the period, which we referred to the regulatory matters, but those weren't material. And so there's nothing else we would suggest you normalize at this point.

Okay. Great. I mean because, I guess, in terms of sales and in-force, they were all very strong. It was more just the NPAT result was diminished by that reserve adjustment. Can you just talk through the reason for that change as well?

Sure, Nick. What we've done during the period in the last few months of the year, we're lifting our reserving practices, particularly in the IP space, where we've moved from more of a portfolio assessment of the claims reserves to a more granular analysis of claims estimates at a claim level in line with an industry expectations around claims for those levels. That did change -- have a step change in the reserves where we found for more and longer duration in claims. We were being more precise. Importantly, I guess, it showed the value of our reinsurance arrangements -- conservative reinsurance arrangements where our margins have been made it's been held stable by the reinsurers participating in much of those reserve changes.

Okay. And then just in terms of that Direct comment that you made $2 million of sales. Is that -- and that really has only been reflected really in that FY '23 year, is that right sort of accounted circa 20% of new business written in the Direct line in '23?

It's actually since the start of the Budget Direct relationship, which was a memory around October '21 up until now, Nick. So it's not all of that is reflected in the '23 number. But what we're finding is, like all these partnerships, they generally take a little bit of time to get traction, and we're finding both of these partners. The traction is improving on them as we sort of learn how to target their membership and customer base more effectively.

I mean the Costco relationship you're truly interesting, it's obviously a very large member base. Can you just talk how you're looking to activate that base?

Yes. Look, obviously, it's really early days because we haven't actually launched officially yet, but we have -- we've signed the arrangement with them. But they're really strong on membership marketing Costco. So they've got their outlets in Australia, which they're planning to double in the next couple of years. But the way they operate is you pay a membership fee and you then get the discounted very well-priced products. And they do heavily e-mail and promote their products through monthly newsletters and those types of tools. So we do expect that we would just form a part of that marketing -- the membership marketing program that they already have. It's likely to also include some sort of in-store display. But we think the greater benefit is through their direct membership marketing. But we're the only life insurer in partnering with Costco. So again, we think it will take a little while to sort of kick into gear and learn how the best market to their members, but they do have these relationships overseas as well with life insurers. So they're quite bullish about the opportunity in the medium to long term.

Is the way to think about that it's within the envelope of your normal sub-200% of the year on premiums that you're giving up some margin to Costco [indiscernible] discount to their numbers. Is that sort of the inducement?

Yes , it's sort of a similar type of arrangement to our other partners where it's our direct product so as opposed to our advised product. So we have our direct product margin. And whether we pay a commission or fee or whatever it is, we always make sure our cost of acquisition is under a target level that we have, and this certainly sits within our target cost of acquisition.

Okay. And just in terms of the capital position, I think you've given some indications on what that looks like post some of the accounting standards and other changes. But just a comment on your capital base and excess?

So we -- the presentation included that at 30 June, we have assets above our internal targets of $7.7 million. So that gives us some runway for growth into the future.

And there's still a [ pillar ] two adjustment number in the capital?

Regulatory standards preclude us from talking about those numbers, Nick, so -- but the answer would be yes.

Okay. And then just you haven't provided really an embedded value update since the prospectus. So I was just curious if you've undertaken that work and is it something that you can talk to?

We have commenced a project to begin building that capability on a more regular basis within the business, but we haven't chosen to start using it from a public perspective yet, Nick.

All right. Great. Maybe just on the tech investments that you've made, I guess, that there's a member engagement benefit. I mean, if you think about the investments, can you just quantify it for us? Is it going to be largely through OpEx? Or is there going to be some capital? Is it going to run through the P&L? And what kind of ROI do you think you'll generate on that from a financial perspective?

From -- I think Anthony talked about the strategic objectives achieve that come from it. I think in the accounts, we provide a reference to that we'd spend about $500,000 so far in FY '23 with the overall projected cost for the project to be about $2 million, which we're going to manage tightly through the period. We aren't proposing to be expensing that so our proposal to capitalizing that. We expect to be expensing it, but given its significant nature and long-term benefit, we probably will put it through an underlying adjustment.

Okay. Understood. There was a comment in the outlook around increased profit volatility on the back of AASB 17. As an insurance layman, can you just explain to us what we should think about going forward and we kind of provide some adjustment or underlying representation of profit versus that new standard?

Yes. Nick, actually trying to describe AASB 17 in layman terms is actually probably an oxymoron. But what I will say is that we're obviously well progressed with the project. What we've said to the market to date is that from a balance sheet perspective, we are expecting to see a material reduction in net assets to transition primarily driven by we're expecting to write down in part or in total, our deferred acquisition costs at transition -- of the transition date being 30 June '22, and that material reduction in the assets would actually drive a carryforward tax loss, which will have some sort of value going forward. From a P&L perspective, we haven't actually -- we're still working through that closely and haven't prepared information that we're ready to describe to the market. It's quite clear, though, that the stand will change the timing of profit over time, whilst the profit is not expected. Whilst the underlying economics of our business is not going to change, it's expected to change the timing in which that profit is recognized from year to year. But we will be planning, Nick, information sessions ahead of our half year's results to help people understand those that will play out.

[Operator Instructions] Our next question will be from Matt Harper.

Firstly, congratulations on another strong result. Just wanted to ask how is the pipeline for further alliance partnerships looking at this point in time?

Matt, thanks for the question. Look, it remains strong. We have an active pipeline of partners that we're always working through, and we have a target for each stage of the pipeline, whether they're very early in mid-stage or towards development. And that number is pretty consistent from year-to-year. So it remains strong. But timing is never known for partners who can work hard and you get one, one year and then the next year, three come in. There's always a bit of uncertainty around that. But as long as we're working through, we're really confident that more will definitely grow in the future for us. And as I mentioned, we're really close to another one. We're just waiting to sign the agreement. So we're hoping that, that will come through in the next two months.

Great. Sounds good. I just saw in the annual report, there was a comment that since the new IDII products were launched, there's been sort of less changing activity, which is helping lapse rates, but making it harder to get new business. So the question is, do you expect that to change at any point? Or is that sort of a new normal?

Well, it's actually a mix, to be honest. I think -- because there's two factors that have resulted in the reduced sales volumes. One of it is the reduction in advisers is that the adviser market has been heavily impacted by the Royal Commission in particular. And the other one is the new IDII products, which were launched in October '21, which were more expensive and less featured than the income protection products. So that second one will remain because those products aren't changing. They're going to remain very different to the previous ones, but we are finding that now that we're close to two years after the launch of those IDII products, people are now starting to -- the purchase activity is increasing of those products. We think that will slowly build, but it won't get to the same level as the previous products were because they were lower cost and more featured. And the second one, the adviser impact, the adviser numbers are still very low, but with the Quality of Advice Review, which was launched a couple of months ago, there's strong changes to stimulate adviser growth and their ability to provide lower cost advice in the future. So we think that trend will also improve. Both of them will improve, both of them will be relatively slow, but we do think that's built up demand. And with those two changes, we do see really good medium- to long-term prospects in the industry.

Okay. Great. Just a last one for me. I guess, we've seen across sort of every industry that it's become more costly to acquire customers through Google or better sort of digital acquisition. But in the last few months, I suppose, we've heard that for some players, costs are beginning to ease in some industries. So any comments on that?

I guess the only -- it's a fair point. I think it has -- as you try and grow volume, the way that Google algorithms work, the more volume you want, the higher the cost goes. So you have to manage that really tightly. We probably have seen an increase in natural search traffic over the last few months. But we know from experience that goes up and down. So we don't get too excited about it. We're not seeing any material change in the cost -- the SEM or the search engine marketing costs. But there is no doubt that with the change in the dynamics of ChatGPT and Bing, et cetera, the likelihood is that the cost of Google will go down is much greater likelihood than they're are going up. So we do think that there may be some positive experiences in the future as far as Google search terms go.

There are no further questions at this time. I'll now hand back to Mr. Brown for closing remarks.

I'll just thank you very much for your engagement. I hope you're pleased with the results. It's been a really productive year. And again, I just wanted to thank the team for another really productive event for 2023. We're really excited about '24. We've got a lot of exciting new initiatives. And we really hope that the shareholders are happy with the results so far. So thank you very much for dialing in.

That does conclude our conference today. Thank you for participating. You may now disconnect.