NobleOak Life Limited (NOL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the NobleOak Life Limited FY '26 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Anthony Brown, CEO. Please go ahead.

Thank you, and good morning. Welcome to NobleOak's Financial Year '26 Presentation. I'm joined by our CFO, Scott Pearson. I'll start with the year's highlights, and then Scott will cover some of the financial results, and I'll then return to discuss the strategy and the FY '27 outlook before we open up for questions. NobleOak remains one of Australia's fastest-growing and most awarded direct life insurer. We are an APRA-regulated friendly society with predictable annuity-like revenues. And in August '26, we were named the ANZIIF Life Insurance Company of the Year for the second year running. And as a challenger brand, we're very pleased with that accolade. Just turning to Slide 4. Our purpose is to protect Australian lives and work with integrity. We offer term life, TPD, income protection and trauma and business expenses cover through these 3 channels. Direct is our higher margin channel with around 57,000 policies. Strategic Partners is our high-growth advised portfolio with more than 15,000 policies supported by NEOS, PPS and now Futura Protection. Genus is our smaller administrative business and continues to support portfolios in runoff. It was another year of substantial growth for '26. In-force premiums grew 18% to $549 million. That was supported by the strong new business and lapse rates, which were below industry. New business rose 9% to $69 million. And across Direct and Strategic Partner segments, our new business market share was just over 14%. Underlying NPAT grew 15% to over $21 million, and that was supported by a disciplined insurance and expense management right across business. Before we cover the results in a bit more depth, let me briefly explain what sets NobleOak apart. NobleOak has a clear pathway to $1 billion in in-force premium, and we are on track to achieve it. This path is supported by predictable in-force premium revenue, an experienced team, a scalable digital platform and growing economies of scale. As a high challenger, high-growth challenger with multiple levers to expand and diversify earnings. Our customers-first culture, limited legacy and pragmatic application of AI really support this growth and efficiency. And our move to the life company structure will increase capital efficiency and flexibility while we continue to support long-term growth. Together, these strengths support growing cash flow, disciplined capital management and greater options as we scale. Slide 6 really shows our growth in stark terms, to highlight the strength of our performance across 3 key measures. On the left is the sales market share. In the middle is our in-force premium growth and underlying NPAT is on the right. So together, these metrics really demonstrate the scale of growth we've achieved and the momentum that we've built across the business over the last 10 years. This value has been a result of above market new business growth and the low market lapse rates, which drive market share and in-force premium growth while stable margins and scale support our NPAT growth. In fact, in-force premiums grew from $4 million to $549 million over the last 10 years. Over the same period, underlying NPAT increased from $1.3 million to $21.1 million. And as the book matures, we expect scale and operating leverage to further support this earnings growth. So just turning to Slide 7. I just want to spend a moment on what we believe is one of the most important aspects of the current NobleOak's investment case. Since our IPO, our EV or embedded value per share has grown by 53% from $1.24 -- sorry, $1.53 to the $2.34 while our share price has fallen by around 40% over that same period, reflecting a pattern seen across many micro and small-cap stocks. As a result, NobleOak today trades at more than a 50% discount to embedded value despite continued growth in premiums, profits and market share. We believe good execution, increasing market awareness and continued growth provide a very compelling journey for that gap to narrow materially over time. Turning to Slide 4. Importantly, the team has remained focused on scaling the business for both short and long-term success. Strong sales growth and continued lapse out performance drove momentum across both Direct and Strategic Partners. Market share in total increased from 4.1% to 4.7%, the highest it's ever been, while active policies grew 12% to more than 173,000. We also launched a new direct alliance with nib and introduced a the new Futura Protect product with our NEOS partners. Our capital position remains strong, and Scott will touch on that shortly. And we have continued to embed AI in a practical way that improves efficiency, enhances customer outcomes and supports growth. And we're also making good progress on our transition to life company which remains on track for completion by December '27. Overall, we're really happy with how the year has progressed, and I'll now hand over to Scott to cover some of the financials.

Thank you, Anthony, and good morning, everyone. FY '26 was a strong year again for NobleOak and it's clearly reflected in the financial highlights on this slide. We are pleased to report our in-force premium and underlying NPAT both exceeded guidance, driven by our disciplined execution and strong retention rates. In-force premium grew 18% to $549 million, while new business increased 9% to $69 million. Lapse rate was 12.5% about 2.7 percentage points better than the industry average. Looking at the profit, underlying NPAT rose 15% and to $21.1 million, and reported NPAT increased by 98% to $14.1 million, mainly because the prior year included a number of one-off costs. Looking at profit per share, underlying diluted EPS increased by 11% to $0.22, and reported diluted earnings per share increased by 91% to $0.1477. Embedded value rose 9% to $2.34 per share or 13% if you exclude the one-off impact of the Victorian stamp duty provision. This growth underscores the long-term value we're continuing to build for shareholders. Our regulatory capital multiple was 183% at the top end of our target range as our capital base continues to grow. This strong capital position will support both growth and provides a prudent buffer ahead of our life company transition. At this stage, we continue to retain capital to support growth, but we plan to review our capital management framework, including the potential for distributions upon the completion of the life company transition. I'll now cover our group financial performance in a little more detail. In-force premium rose 18% to $549 million, supported by strong sales and policy retention rates. New business grew by 9% to $69 million, ahead of the market, which grew by about 4%, helped by new nib alliance and the new Futura product launch. Lapse rates increased slightly to 12.5% as the portfolio matured but remained better than the industry average. Underlying gross insurance margin reduced by 1 percentage point to 10.6% due to higher TPD claims in the Strategic Partner segment. We are managing this industry-wide trend through conservative risk retention and market pricing actions. Importantly, increase in the direct margins partly offset this impact which was helped by the RevTech trail commission purchase and favorable claims in the Direct segment also. The underlying administration ratio improved 0.6 percentage points to 6.6% as we benefit from economies of scale. This improvement and the strong direct margin helped offset the claims pressures in the Strategic Partner segment. Underlying NPAT rose 15% as mentioned to $21.1 million. And again, reported NPAT increased by 98% to $14.1 million. Importantly, stable margins and better operating leverage continue to support our business going forward. Turning to Slide 13 in the Direct segment. Direct in-force premium rose 8% to $108 million, while active policies increased 7% to more than 57,000. As flagged at the half year, we made some changes in the Direct sales function to improve performance and with new business remaining at $10 million in FY '26. Pleasingly, momentum recovered in the second half of FY '26, and we have started FY '27 in a strong position with sales up over 10% in the month of July compared to the prior year. Lapse rates improved in the direct segment to 12.7% from 14.6%, about 2.5 percentage points better than the industry average. Again, noting the RevTech Trail Commission repurchase has reduced commissions by about $3.7 million since acquisition in December '24. Together with favorable claims experience, this has uplifted our underlying gross insurance margin by 1.2% to 32.4%. The administrative expense ratio held at 19.8% despite the half year brand boost campaign costs. And as a result of all these factors, the direct underlying NPAT rose 20% to $10.8 million. In the Strategic Partner segment, in-force premium grew 21% to $440 million and new business increased 10% to $59 million, again, ahead of the market growth, which was about 4%. All partners, NEOS, PPS and Futura drove this growth. Lapse rates in this segment was 12.5%, which remains better than the industry average of about 15.2%. In this segment is where higher TPD claims reduced our margins. As you know, this is a market-wide trend, the conservative risk retention and pricing actions have limited the impact and we'll also be reviewing TPD product designs in FY '27. The administration expense ratio improved 1.3 percentage points to 2.3%, benefiting from scaling. And pleasingly, underlying NPAT in the Strategic Partner segment increased 11% to $9.7 million, including the TPD experience. Turning to Slide 15. NobleOak remains well capitalized with a capital adequacy ratio of 183% at the top of our target range. Capital benefited from the RevTech trail commission repurchase and the use of tax losses and it was partially offset by Victorian stamp duty provision. It's important to note that the stamp duty exposure has now been capped with an in-principle ex-gratia relief received, which has reduced the final impact of this transition. Our strong capital position gives us flexibility for future growth, invest in the business and progress the life company transition. As noted earlier, we plan to review our capital management framework including the potential for distributions upon completion of that life company transition. Results are very pleasing. And with that, I'll hand back to Anthony.

Thanks, Scott. While we understand AI remains a developing technology and many companies are yet to benefit from it. We are pleased that we've seen some measurable benefits from pretty modest investments in AI plus NobleOak. And we thought it would be better to provide an example of how we're creating value from AI and automation. So we'll focus this update really on one particular area of the business, Direct sales. We consolidated our sales and customer data into one single platform, Microsoft Fabric. And we've made several improvements across our CRM platform, our analytics and our automated phone system called the Dialer. This has improved customer insights and has automated quite a lot of manual processes. We're also starting to use predictive models to improve how we manage our leads as well as workforce planning and the customer journeys. So the results are very clear so far. Every call through the sales team is quality checked through an AI platform. Contact rates are up more than 15% through 2026 and our conversion rates have also improved. So with less agents and lower COA cost of acquisition, we have maintained sales levels and this is helping us grow without substantial increase in headcount, making it a real driver of efficiency, scale and future earnings for the business. Just turning to Slide 18 and then 19. For FY '27, we target in-force premium growth above 12% and underlying NPAT growth above 10%. This is supported by the full year contribution from nib and Futura and some automation gains. Our path to $1 billion supported by a few key priorities, total growth and embedded value growth, AI and technology, capital discipline and, of course, the life company transition that we spoke about, which remains on track. Overall, we're really pleased with the year. We hope you are as well. I'd like to thank the NobleOak team for their work this year, and thank you very much for your continued interest and support. And I'll hand back to the operator for questions. Thanks very much.

[Operator Instructions] Your first question comes from Nick McGarrigle with Barrenjoey.

Just a quick question around the lapse rates. They look like they've come down a bit from where they were in the previous year. Just any observations around that? And maybe do you think that's sustainable? Or is there something kind of transitory going on that might see that increase into the next year?

Yes. Thanks, Nick. In aggregate across the portfolio, they've gone up a bit, but the key reduction we've seen by 2 points is in the direct segment, where we have seen, I guess, the industry pressures and the economic factors sort of flatten out and actually see the lapse rates dial back in the direct segment. So that is very pleasing. We'll be monitoring that again as we see TPD prices change in the marketplace over the next 12 months. But that -- we definitely have seen the lapse rates sort of peaking the market and start to come back.

That's helpful to understand. And I think new policy sales in the direct business has kind of averaged $10 million a year now for quite a while. Is that kind of the natural run rate that you think exists in the market? Obviously, you're pedaling hard with new partnerships and alliances to get that. Is that the kind of number that you think is sustainable? Or is there upside to that over time?

Nick, it's Anthony here. Yes, it's a good question. As I mentioned, we did put a bit of time and resource into kind of readjusting the sales team and some of the tools and systems that they use, including the dialer and we've actually rebuilt the team, so we could actually move above that $10 million level. And I'm pleased that we are actually tracking around 10% above this time last year. So we're starting to see the benefits of that work come through. And that's really coming through better conversion rates and better contact rates. So in short, we are expecting some uplift, Nick, and we've got a couple of new partners that we talked about as well. But we've always got the cost of acquisition that we have to manage. We're very disciplined about keeping that at bay as well.

Yes. Okay. And then with some of the proposals that the government made last week around what advice within Super could look like. My understanding is potentially life is included in that. How do you think about your ability to provide, I don't know, you call it general or maybe mildly more specific advice to the people that you are speaking to in that direct channel.

Yes, we've really supportive of those proposed changes, Nick, and we think we'd be really well positioned. If there is this sort of new type of advisers introduced that would allow us to provide advice more in-depth advice in relation to life insurance. And a lot of people do ask questions that would help them take out policies that we're unable to answer in a general advice capacity, but these changes would actually help our direct business, we believe, quite substantially.

And do you think that the people that you've got in the team are kind of equipped with the right skill set to provide "advice" or there's a small amount of training to get them to the point where they could improve the conversion for people that maybe are asking questions that you can't answer at the moment.

Yes. I think both of those things are true. We've got some good quality people in there that when you look at the new class of adviser, we believe a number of those would be capable of delivering that. But of course, there would perhaps be training, quite substantial training because it still would sit within in our license. So we have to make sure the quality of what we deliver is 100% with what we do now. So we don't think it's a huge transition. We're certainly seeing more and more opportunity. And we've been looking forward to these reforms. So we really hope that they do kind of go through as planned.

[Operator Instructions] Next question comes from Philip Pepe with Shaw and Partners.

Well done on strong result. Just on the margin trajectory, I might start with Slide 13, strong improvement over the last 2 years. I just focus on the NPAT margin 10.6%. This is as good as it gets? Or can you squeeze a little bit further. If you go out 5 years, what's the potential figure you can target?