NobleOak Life Limited (NOL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the NobleOak Life Limited Fiscal Year '24 Results Presentation. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Anthony Brown, CEO. Please go ahead.

Thank you. Good morning, all, and welcome to NobleOak Life's financial results presentation for FY '24. I'm Anthony Brown, CEO of NobleOak, and I'm joined today by our CFO, Scott Pearson. I'll begin with an overview of highlights from the year and then I'll hand over to Scott to cover off the financials. And then I'll take you through an update on the business outlook for FY '25. We'll then open up for questions. So Slide 3, FY '24 has been another successful year for NobleOak, and I'm very proud of the progress the whole team has made as well as the outcomes delivered. We do hope you feel the same way at the end of the presentation. Turning to Slide 4. I'll start with a brief overview of NobleOak and what differentiates us. In short, we're Australia's fastest growing and most awarded direct life insurer and as a leading challenger brand in the $11 billion individual life insurance market. Our market share is growing quickly, and we continue to win business from large incumbents. We've got a diversified growth strategy, including a direct distribution model and this is enabled by our investment in technology and contemporary products, along with our omnichannel customer experience, which blends digital products and phone-based service. One of our core priorities is maintaining really strong financial discipline to ensure that our margin is stable, and we can grow our profit. Our unique culture and genuine customer focus are evident in our high team engagement and customer advocacy scores. And finally, we have a sound capital position that provides a great platform for future growth and shareholder returns. Slide 5 certainly illustrates the impact of these qualities with strong growth in new business sales, boosting the market share in both direct and strategic partner channels and over a number of years. Since financial year '17, our total in-force premium, which is really a key value driver in the business that provides an annuity stream of revenue has increased at a 50% CAGR and reaching $387 million in FY '24, despite the market growing only in low single digits. It really has been quite a journey so far. The financial discipline and margin stability, I mentioned earlier, results in strong profit growth that can be reinvested to drive future growth and deliver returns to shareholders. Turning to the highlights for the year on Slide 6. We're really pleased that this in-force premium growth exceeded our guidance as we capture market share in both direct and advised business. Our team excelled in maintaining focus on customer service, which alongside our great value life insurance products, secured our position as Australia's most awarded direct life insurer for the fifth year running. We're also investing in the foundation for sustainable long-term growth by developing product features and new products, while enhancing our technology platform to really simplify the life insurance purchase process for our customers and increase our scalability. Crucially, we have a sound capital position and have now reached a significant milestone in generating free cash flow, which Scott will touch on shortly. He's very excited about it, Scott, as far as [indiscernible]. Slide 7 offers a clear picture of our robust growth premiums and profits for FY '24. Our in-force premium growth of 22% with new business of $54 million and superior lapse performance relative to the industry. It brings our in-force premium market share to 3.3% and our new business market share at 12.8%, roughly 4x our in-force. So, we're clearly growing market share substantially [ each year ]. Underlying NPAT rose by 19% to $15 million, supported by disciplined underwriting and expense management, along with the advantages of the higher interest rates, resulting in our underlying earnings per share of $0.1697 on a fully diluted basis. Overall, I hope you're pleased with our performance this year, and I'll now pass the presentation to Scott for a more detailed look at financials. Thanks, Scott.

Thanks, Anthony, and good morning, all. Before I start, I'd just like to remind you that this is the first year that we presented results under the new accounting standard AASB 17 Insurance Contracts. And if needed here, you can refer to the materials filed of the information session in February this year in relation to those changes. So to begin, though, on Slide 9, I'll start by speaking to the performance of at a group level. We're very pleased that NobleOak continues to really grow successfully. And in FY '24, we increased our active policies count by 14% to over 137,000 policies. This led to a 22% growth in in-force premium, exceeding our guidance range of 15% to 20% we set at the AGM last year. NobleOak has expanded its market share from 2.6% to 3.3% of the industry's in-force premiums and this success is due to consistently capturing a significant share of new business well above our long-term target of 10%. New business rose by 18% to $54.4 million in the year, aligning with increased market activity as NobleOak maintained a new sales market share of 12.8%. While lapse rates have risen as our portfolio matures, they remain significantly below the industry average across both direct and strategic partner segments. Our claims experience has aligned with industry norms, yet we have achieved our strong underwriting performance. As depicted in the chart, our stable net margins has driven a 19% increase in underlying profit to $15 million, which is particularly pleasing. What I'll do now is turn and discuss to the results by operating segment to give a clearer insight into our performance drivers. In our Direct Channel, our target investment in digital marketing and optimizing our customer experience is continuing to drive growth in market share. Our direct policy count increased by 10% to almost 50,000 policies with in-force premium growing 14% to $91.6 million. We continue to expand our market share in the direct market, achieving a 17% share of new sales. These sales, coupled with lapse rates that stay well below industry average has propelled our growth in in-force premium market share, which now stands at 8.7% of the direct market. The underlying insurance margin remains strong, improving to a sustainable level with a non-recurrence of prior year reserve strengthening. The expense ratio was impacted by investment to maintain market-leading customer experience with both the current and prior year benefiting from claims handling expenses being transferred to the claims expense line, bringing NobleOak in line with its peers. Pleasingly, in-force premium growth and the margin recovery has resulted in underlying profit growth of 48% to $5.8 million in the segment. Turning now to the Strategic Partner Channel on Slide 11. Our strategic partners continue to deliver strong growth with active policies up 16% to 87,000 policies. In-force premium rose by 25% to $295 million, fueled by a 23% increase in new business sales, which aligns with the growth in the advised market and favorable lapse experience that remains well below industry average. NobleOak's growth and in-force premium market share in the advised market, which now stands at 2.7% was propelled by the modern products, high quality service and our strong partnerships with both NEOS and PPS. Our strategic partners maintained a market share of new sales of 12% in a market that expanded by 24%. A strong underwriting performance delivered an insurance margin that was impacted by net claims experience increasing towards the industry average experience. The expense ratio remains attractive and continues to benefit from operating leverage and financial discipline. In-force growth and the underwriting margin moving towards industry average has resulted in underlying profit increase by 6% to $8.3 million. On Slide 12, you can see the performance of our administration service business, Genus. In-force premium under management stabilized following the conclusion of the Freedom remediation program with lapses in the period offset by stepped premiums. This, combined with improved expense controls contributed to underlying profit, which has slightly increased from the prior year. So, we're quite pleased that each of our segments continues to deliver good results in FY '24. Just turning to capital on Slide 13. At 30 June 24, our capital base stood at $42.2 million, reflecting a capital adequacy of 193% with a surplus of $8.7 million above our internal targets. So importantly, assets above target actually increased over the period. The financing did include a number of significant offsetting items with costs below the line, particularly those associated with the AASB 17 compliance implementation balanced out by a one-time adjustments to prudential standards and lower tax payments following the recognition of deferred tax loss assets upon the transition to AASB 17. Importantly, however, FY '24 did see the underlying business drivers result in net capital generation for the first time in NobleOak's recent history. As illustrated in the chart, NobleOak has reached a significant inflection point in our path to generating free cash flows. As Anthony mentioned, this is an achievement. This is a real milestone for the business in our growth journey and does really mark an exciting phase for our business as it opens up future strategic options. Our main priority will continue to drive organic growth through investment in marketing, product innovation and expanded distribution channels, but we will also consider opportunities for inorganic growth, ensuring that they meet our return targets. And we'll, of course, evaluate potential future dividends as required. Naturally, capital levels of a life insurer fluctuate due to various factors, such as claims experience and change in capital assumptions. But nevertheless, this development is positive news and the beginning of a new and exciting phase for NobleOak. With that, I'll hand back to Anthony to provide a business update and outlook.

Thank you, Scott. Now turning to our business highlights on Slide 15. So, in the Direct Channel, our brand service and distribution continues to drive the growth. While remaining Australia's most awarded direct life insurer over the last 12 months for the fifth consecutive year, we continue to achieve good performance from our network of alliance partners and in the Strategic Partner Channel, our partners continue to outperform the advised market and gain market share. We recently partnered with a new global reinsurer to support the ongoing growth of the PPS portfolio, which has gone very smoothly and our partnership with NEOS deliver strong growth and benefit from our high-quality service. Turning to Slide 16, where you can see our very good progress against our key strategic priorities for FY '24. This year, we really focused investments on building and maintaining our leading position as a -- in the direct life market. To stay ahead of the curve, we launched new features on our platform, including a streamlined express digital application and a new online portal where clients can access their policy details through the website. We accelerated growth from white label partnerships through targeted marketing campaigns and we also onboarded another 6 new alliance partnerships to grow this channel. With the strategic partners, we continue to build and support our network of partners with the advised market remaining a really important growth opportunity. In FY '24, we enhanced the competitive positioning by refocused and repriced some of the products in the portfolio. NEOS continued to invest in their technology to remain market-leading, which now includes a real-time quoting tool, and our PPS reinsurance tender was completed as mentioned. As we scale, we continue to explore ways to optimize our business efficiency for future growth. We implemented a major upgrade to our administration system, which is now cloud-based and our investments in our online journey and scalable technology platform has enhanced the omnichannel customer experience. We have upgraded our data management capabilities with new analytical skills, and we continue to invest in innovative growth and new products to secure our position as a high-growth challenger in the future. In short, we continue to invest in sustainable growth. Turning to Slide 18. NobleOak remains committed to supporting a sustainable and ethical community as well, in line with our environmental, social and governance strategy. And we recognize the importance of achieving the sustainable growth. You can see the highlights from the year on this slide and there is more about our ESG performance in our 2024 annual report. The Slide 20, in FY '25, NobleOak, we're really going to continue to focus on executing our growth strategy. And this includes the following priorities. With Direct Life, continue to build on our position as Australia's leading direct life insurer where we will further invest in our omnichannel experience to make sure it remains leading and streamlining our operations as well as driving growth through our marketing campaigns to strengthen the brand and increase customer retention. In the Strategic Partner Channel, we will continue to build and support our network of adviser partners, including helping them improve their new products and their pricing. And as we grow, we aim to optimize the business to achieve economies of scale, including leveraging our analytics and AI for better customer insights and optimized underwriting and marketing. Turning to the outlook for FY '25 on Slide 21. In an environment where we're finally seeing improved industry sales volumes, we do expect to outperform again and achieve above-market in-force premium growth. We naturally remain committed to our financial disciplines and with higher interest rates remaining as a tailwind through benefiting through the investment returns and investment in our innovation, including the next phase of our IT and digital evolution, we intend to continue to improve customer outcomes and growth. Our sound capital position, as Scott mentioned, enables us to deliver growth plans as we have reached that important inflection point towards free cash flow generation. This milestone in our journey marks an exciting phase for us and does open future strategic options. We'll continue to invest in developing in a world-class team, including building our actuarial capability and hiring roles to focus on driving customer acquisition. So, after a very strong financial '24, I am excited and we're all optimistic on the outlook for the business for the coming year. I know the whole team shares this. In closing, I'm very proud of our performance in 2024. I'd like to thank the team for once again delivering a strong result in a highly regulated industry that can be very challenging at times and it's been through -- in a low-growth environment. So, it's lovely to see that, that growth is starting to improve now. Special thanks goes to Scott and his team for their efforts in navigating the implementation of AASB 17. This was a significant undertaking right across the whole industry and a huge investment for the business and has been a major success. With a committed team, award-winning product portfolio and trusted brands, we really do expect another successful year of growth. And finally, thanks to our shareholders for your ongoing support. It is greatly appreciated. So with that, we'll open up for Q&A. Thank you very much.

Thank you. [Operator Instructions] And today's first question comes from Max Moser-Finch with Barrenjoey.

Just a quick one on lapse rates. Do those include partial lapse rates? Can you sort of talk to the proportion there? And also, was this a case of trading down?

I'll speak to -- I'm not quite sure I caught the last piece of the question, Max. But the lapse rates do include partial lapse rates. They have gone up slightly, but they're only about -- I think it's about 10% to 15% of the total lapse rate, but -- and they have been an area of expansion post COVID. They're actually are tailed off for, as I say, matured in the last 12 months.

Okay. And also, how do you see lapse rates into FY '25? Do you see them sort of running at a 2H level or increasing further?

I think our lapse rates whilst still well below industry average in aggregate, you need to look at it by segment. And whilst we perceive that the Direct segment to be at a more mature level from a lapse perspective, we would expect our lapse rates in the strategic partners to continue to mature as those portfolios, I guess, age.

Yes. Just sort of on the strategic partners claims expense sort of up to around 1/4 of net insurance revenue from around 16% last year. Where should we see claims, expense falling as a percentage of net insurance premium going forward? And how should we think about the margins in this segment in general?

Thanks. I think it's an important point to understand in this year's results. In the strategic partners, which is the most youngest portfolio in the book, it's where we are seeing claims experience that we've seen in prior periods being more favorable to industry averages, is now seeing our claims experience revert to the mean, revert to as industry averages over time. So, what you are seeing is those net margins growing in the period and you would expect that those margins you're seeing in FY '24 to continue into the future.

Okay. I'll let someone else ask some questions.

[Operator Instructions] Our next question today comes from Philip Pepe with Shaw and Partners.

Congratulations on the good result. Nice and clean too. Thank you for putting out early. Great result in the Direct Channel, so I'd assume that's business as usual. With the strategic partners with underlying -- with the gross margin slightly [ backwards ] on PCP, can you reprice, or can you squeeze that back to last year's [ 5.7% ]? I think you reprice it or you redirect capital more towards the Direct Channel going forward.

I think, Phil, you're breaking up a bit, but I'm pretty sure you had question about looking at the margins in strategic partners in the [indiscernible]. I think the key is that the margins that have developed during FY '24 have been driven by claims experience sort of moving towards industry averages. As an insurer, we continue to monitor at the portfolios that actually do reprice with each of our strategic partners on an annual basis to ensure we're maintaining stability. And we would hope to do that in the years ahead as well. So, I hope that's answering your question.

No. It did. And if I could sneak in another one, just on the investment portfolio benefit from rising interest rates. Are you still short on the curve? Or are you starting to extend now that people, I don't know, really want to say, but people are talking interest rate cuts sometime in the future? Are you starting to lock in higher rates for longer? Or are you still at the short end?

We are still at short end, Phil. We've recently implemented a new investment manager and we're looking at alternative options in the year ahead.

And our next question today comes from Matthew Harper at Taylor Collison.

Anthony, apologies for that. Congratulations firstly on a great result. Alliance partner growth was really strong this year, another 30% growth and growing overall within the Direct segment. Just a 2-part question. Firstly, is there any of those you want to call out as contributing particularly strongly this year? And secondly, how does the pipeline look for FY '25?

Yes. Thanks, Matt. It's Anthony here. Yes. Look, the partners have gone really well. Some of the newer partners have been particularly successful. Without sort of calling out too many names, you see Costco is on the slide there and that they have been a really good recent partner for us. So, we're seeing strength there. But really, across most of that portfolio of alliance partners has been good. And as far as pipeline goes here, we've always got a strong pipeline. We continue to have a very strong one now. So, some of them have businesses that we target, and we look to bring on and others are ones that we pitch for. So, we expect to continue to write new alliances over the next 12 months.

Thank you. As there are no further questions at this time, so I'd like to turn the call back over to Mr. Brown for any closing remarks.

Excellent. Well, thank you all very much for attending. I really hope you're pleased with the results, and I look forward to seeing many of you over the next few days. Thank you very much.

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