OUTsurance Group Limited (OUT) Earnings Call Transcript & Summary

[Audio Gap] results presentation for OUTsurance Group for the 6 months ending 31 December 2022. We'd like to take you through a slide deck. I'm Marthinus Visser, Group CEO; and I've got Jan Hofmeyr, Group CFO, with me. So let's kick off. And we'll start with some of the macroeconomic trends and just how these impacted on our operational performance. So the first one you can see there is CPI, and as you can see, there's been a steep step up over the last 2 years. And that obviously impacted on claims cost and claims inflation in turn as well as on premium growth. So we had some tailwinds as a result of the high claims inflation and premium inflation, but we also had some headwinds that we had to navigate in terms of claims cost. If we then consider interest rates, we can see the -- that the context there is that in the last year, it stepped up significantly. And this provided us with a tailwind, especially so in Australia, where it came off a very low base. And hopefully, it will settle at a new normal, which is more sustainable and that the era of cheap money has come and gone. And then lastly, maybe to just look at the exchange rate there. We've seen some faster deterioration of the rand relative to the Australian dollar in the last year. And that's obviously also provided a bit of a tailwind in terms of the Youi numbers, and we'll provide a bit more context around that later in the presentation. So to look at the key operational themes, we will start with OUTsurance South Africa with OUTsurance Personal. The first one, they've been escalating premium inflation in response to the claims cost pressure. And I think it's fair to say, if you look at our results, they've been quite resilient. And I think we probably reacted slightly faster than most of our peers in response to the escalating claims inflation. In terms of unit growth, I mean, for context, OUTsurance Personal, in terms of units, we do now have estimated around 20% market share. And as such, you're more reliant on economic growth and if you overlay the pricing action, which we've taken, unit growth has slowed down a fair bit. So at the moment, our growth is more weighted towards premium inflation for OUTsurance Personal as opposed to unit growth. But it was pleasing to report that overall growth recovered to close to 8%, which is pretty much in line with where it was pre-COVID. And we think in the long run, this is a sustainable level. And as we move through the inflation cycle, the mix between unit growth and inflation will probably swing back a bit towards unit growth. Then in terms of the claims cost, we did note a number of headwinds over and above the claims cost inflation. We saw a fast normalization of vehicle accident claim frequency. In the corresponding period, we still had some notable vehicle claims savings on the back of the lockdowns, which weren’t present in the current reporting period. And then other headwinds, which still persevered in South Africa was the wet weather, the higher loadshedding, higher vehicle theft of expensive vehicles and then also the higher reinsurance cost which contributed to claims cost overall. So overall, that's the context of the operational themes for OUTsurance Personal. If we were then to look at OUTsurance Business. We previously reported our focus on reaching profitability and target margins for OUTsurance Brokers. It's pleasing to report that we made really good progress in this regard with the operating loss of OUTsurance Brokers reducing from 199 million to 100 million in the reporting period. Premium inflation also played a role here in the OUTsurance Business results. But because of our much lower market share here, we still saw strong unit growth. So we're less reliant on economic growth in this business unit. For context, we estimate our market share in the commercial market in South Africa around 4%. And as such, we still have some very good runway left in this channel. And that improvement in the loss was on the back of improved cost ratio as well as an improved claims ratio and OUTsurance Brokers remain on track for our guided monthly breakeven by middle of calendar 2023. Then if we were to look at OUTsurance Life, this is the one where the result is not so exciting, but we can report that we still saw strong new business growth in the Funeral segment, especially in the Shoprite channel. Unfortunately, the volatile yield environment caused a large policyholder liability movement, which negatively affected the income statement result. We are confident that with IFRS 17, this volatility is likely to be reduced. Then we also saw some continued investment in Funeral and the tied agency although we do this in a measured and incremental way. And lastly, our VNB margins were negatively impacted by our higher policy acquisition costs and the real reason there is that over the COVID period, we saw elevated demand for life insurance products. which now sort of normalized. And as such, we will have to rightsize just the acquisition investment there to make sure we still achieve our VNB margins. So that is the key operational themes for OUTsurance South Africa. Then to look at Youi, first Youi Direct. We saw significant premium inflation there. If you remember the inflation slide relative to historical norms in Australia, they've seen a much bigger increase in inflation than what South Africa saw and apart from general inflation, they also had the high natural peril losses in recent times [ initiated ] with a wet La Niña cycle, the increase in the cost of reinsurance, higher retention levels. However, in the last 6 months, weather-related claims was significantly better and this definitely provided a tailwind in terms of the results for the last 6 months. That said, we made very good progress in terms of achieving pricing adequacy on the Youi Direct portfolio, especially the home portfolio. And as such, we're also noting the moderated unit growth, which is more weighted towards the home portfolio where we need to get pricing adequacy in light of the more recent natural payroll claims as well as the cost of reinsurance and inflation. Then Youi BZI, we realized an operating profit for Youi BZI. And again, it must be noted 6 months is a short period. And if that benefit from the lower weather-related claims, but great progress has been made on Youi BZI also in achieving pricing adequacy. As such, the attritional loss ratio also improved significantly. And you can note there the improvements in the overall claims ratio. New business growth moderated slightly as guided before. And 2 factors there is really the increased competition in the broker channel but also the strong pricing discipline to get rate adequacy and the fact that BZI is quite heavily home insurance weighted. Then in terms of Youi CTP, the launch into South Australia contributed to a higher operating loss. We continue to see strong premium growth overall, but the claims experience remains volatile because of quite a low claim frequency but high claim severity and we specifically had one very large claim in the reporting period, which over and above your retention also feeds into your profit commission on a book like that. So that is all the operational themes for Youi. If we can then step over to the premium performance. And if we look at the graph with the green bars on the left, I think first thing to note there is the CAGR, the combined -- the compound growth rate over the last 10 years of 13.2%. And that is sort of also in line with our guidance of low to mid-teens. And as noted, the last year, we exceeded that quite a bit with some tailwinds, which is quite pleasing that 17.4% growth for the last year. But yes, as guided, we think the long run -- run rate more likely to be low to mid-teens. Important to also note that the strong growth there sort of from 2012 to 2015 was driven by strong growth at Youi. And then once that growth sort of moderated, we were fairly flat for 3 years or so, and we had to reinvest in our core businesses but also in our new channels and products. And that is really starting to pay dividends and hence, the accelerated growth that you can see there. If we then switch over to the right-hand side, you can see the annualized new business premium that was up 8.6%. But I think the bigger context is also important. So over the 4 years from 2018 to 2022, we literally doubled that. So the new channels and products are now in the base and hence the slower growth from this point. We remain optimistic that we can achieve further growth from that level, especially in OUTsurance Brokers, where we guided we only have 4% market share of the commercial market, but then also at Youi, where we only have 5% market share of the personal lines motor market and 4% of the home market. So still lots of runway there. But the current priority, obviously, to get that OUTsurance Broker book first to breakeven and achieve pricing adequacy in the Youi home books. So that gives good context around the premium growth performance. If we then step over to the operating profit, for OUTsurance Holdings. First thing to note there is over the 10-year period compound growth of 11.2%. That's slightly short of the premium growth, but important to note that we still have a few new ventures, which are coming through the J curves, which should boost earnings over the next few years. And if you take that into account, I think the gap between operating profit growth and premium growth should narrow. Also worth noting here, there's a few long-term trends to understand here. So if you look at the period from 2015 to 2017, '18, you would have remembered there was fairly flat premium growth over that period. That positively impacts your profit, though, as you can see here, because you have less first year business, but also we had less J curves of new ventures. From 2019 onwards, we had the J curve of the new ventures, which negatively affected the operating profit, but also more first year business, which also affects your claims ratio. And then the third important trend to note here is your weather cycles. While you -- we know in the Southern Hemisphere, you have El Niño and La Niña cycles. So the period sort of from 2015 to 2018 was quite a dry period. And as such, that supported the profits. But then 2019, we had the bushfires and subsequent to that, we had quite a wet La Niña cycle. In 2019 and 2020, we had still quite good reinsurance protection, courtesy of our low retention levels. And then 2021 with a reset that actually -- that negatively affected us as we had to reset to the new retention levels. That said, with our pricing discipline and our capital planning, we have allowed for that and priced for that, and we think we're in a more resilient position. So while the lower weather-related claims certainly boosted profits in Australia, we think even if we had a more normal year, we would have been in a much better position courtesy of our pricing discipline and our capital planning. Going forward, as I said, with some of the new ventures coming through their J curves, we also expect some stronger growth going forward. So that is the operating profit result there overall, quite pleasing. But yes, the 65.8% is a bit higher than normal, as you can see, because of the low base we came off the previous year. Then if we look at the net retained natural peril losses, and you overlaid that with the previous slide, you see it's quite closely correlated quite high natural perils there with the hailstorms sort of 2013, '14, dryer patch and then moving into the La Niña cycle. And as I mentioned, 2019 and '20, still good protection from lower retention levels, which then normalized in 2021, but we believe we're in a much better position from a pricing adequacy and capital planning position right now. Maybe also important to note here is just there's a general upward trend here as well. And then that is because of climate change. I mean if you look at South Africa, even the South African one, while it's much lower than Australia, the general trend there is upwards. And that is likely to mean more volatile earnings in the long run, but we do see it as a positive because it means there's real growth, especially in home insurance, and it will increase the share of GDP for insurance as a whole. Then if we look at our investment in growth initiatives. We've previously guided that we aim to keep this at sort of 10% inside, 10% of the operating profit of existing ventures. Last year, it blew out a bit. But that said, it's probably better to measure this over a full year as opposed to a 6-month period where volatility can be quite high. That said, it's pleasing to see that we're back inside the 10% and significant progress there with OUTsurance Brokers. As I said, the loss reducing from 199 million to 100 million, and BZI are actually turning a profit for the 6 months. So significant progress that's been made there. I think a key thing to highlight then is we're also announcing our intention to expand for our international expansion into the Republic of Ireland. And in terms of the investment there, the size of the investment and the burn rate, we plan to stay inside that 10% appetite, inclusive of the Irish investment. And the reason for that is really that the Irish burn rate will only kick up the moment that most of these current ventures have started to turn a profit. So that's important guidance just around the impact of the Irish expansion. And then last one before I hand over to Jan. It's just the premium revenue and earnings diversification. You can see there that there was quite a strong move in that the Youi share of gross written premium increased from 53% to 56%. And as we mentioned, the exchange rate, but also the strong growth of Youi in dollar terms played a role there. Then on -- if we look at the right, the Youi contribution to normalized earnings jumped to 39%, which is significantly stronger. But as we mentioned, the Youi earnings tend to be more volatile, but courtesy of the strong growth at Youi and turning the new ventures to profitability, we do expect a bigger contribution from Youi going forward. So that is the earnings diversification. I'm then going to hand over to Jan.

Thank you, Marthinus, and good morning. I'll be taking you through some of the more detailed financial results for the group as well as the operating entities. So starting off with our consolidated results. So we refer to the OHL Group as the OUTsurance Holdings Group, which is unaffected by the listing transition. And then we have OHL Group, which is the old RMI entity, which was subsequently renamed to OUTsurance Group Limited in December. So when you look at the graph on the right, this provides us with a movement reconciliation of our earnings when you compare our interim results in 2021 to the results we are presenting this morning. And as illustrated, the large numbers to reflect on is the big increase in the Youi Group's normalized earnings result of 523 million, being the main catalyst in driving up our group -- the OUTsurance Holdings Group's normalized earnings result for the 6 months. We'll also reflect on the results of OUTsurance Life, which has generated a loss for the 6-month period. And then also important context to this set of results is that in the comparative period, we still accounted for Hastings, our indirect investment that we had in Hastings at the time, which obviously was disposed of in December 2021. And therefore, there's a nonrepeat on associate earnings. When you look at the graph on the right, this is a reconciliation of the OUTsurance Holdings Group earnings to the listed company earnings. And as you can see, there is an element of minorities, and this is due to the fact that the OGL Group owns 90% of the OHL Group. And then secondly, there is a portfolio of remaining assets, which we group together as central and treasury company assets. And those consist of the AlphaCode fintech investments, the RMI investment, managers' investment as well as investment income being generated on surplus assets. We are seeing a declining profile in our head office cost at OGL Group level, and we will see a further declining outcome in the second 6 months of the year. But the rest of the presentation, we'll focus on the OHL Group results. And the first slide here just looks at our group KPIs, with gross written premium up 17.4% and annualized new business premium up 8.6%. And Marthinus did speak to the moderating prospects of new business premium growth and the factors related there too. Operating profit was up 65.8%. And with OUTsurance increasing its operating profit by 13 million and Youi's operating profit increasing more than fivefold for the 6-month period. The normalized earnings result of 36.3% would have been 45.3% if we exclude the contribution from the Hastings investment from the comparative base. The group's claims ratio of 55.3% is lower from the 58.1% we had in the comparative period. And that's on account of the improved claims ratio performance at Youi. The insurance cost-to-income ratio of 29.8% benefited from the strong top line growth as well as good cost containment across the group. Our combined ratio was 85.5%, which implies an underwriting margin of 14.5% across the group. Our normalized earnings also increased significantly from 23.6% to 29.1%, and we'll talk to those dynamics in one of the following slides. The dividend declared by the OUTsurance Holdings Group is up by 3.3%, and that is lagging our normalized earnings growth, and we'll unpack the reasons for that in the following slide. Investment income, as Marthinus mentioned, has been a big delta in our performance for the 6-month period. In South Africa, we did, however, not realize an increasing investment income when you compare us to the December '21 period. And that's due to the fact that we had lower unrealized fair value gains in our equity portfolio, which offset the benefit that we saw in interest income generated. A reminder to our audience, we're mostly exposed to variable rate interest bearing instruments in South Africa with around 15% of our investable assets invested in equities. At the Youi Group, we saw a significant change in our investment income profile, where our investment income increased from ZAR 21 million to ZAR 129 million for the 6-month period. Important to note here is that it also provides us with a shock absorber on our income statement if there is weather volatility. And this is due to the fact that investment income generated on our balance sheet is uncorrelated to weather patterns. And therefore, this is a useful change in the dynamic of our earnings mix at Youi. Then looking at our normalized earnings reconciliation, that follows a fairly similar pattern that Marthinus also highlighted earlier with regards to operating profit. And we also, as mentioned, saw the substantial increase in our normalized return on equity, where we realized 29.1% in group normalized ROE. We also measure operational ROE, and this is the aggregate of the ROE generated by our operating units. The group ROE does vary because of the fact that we're keeping surplus assets on our balance sheet at a group level, and those surplus assets are earmarked to increase our stake in Youi as well as to deploy capital to support the expansion into the Ireland venture. Over time, though, we do expect as the surplus capital converts to actual capital utilization that the gap between operational ROE and normalized ROE would close. Then I'm going to move to OUTsurance results. So OUTsurance here represents our short-term insurance business in South Africa. OUTsurance contributes 40.4% to the group's gross written premium and 59.2% to the group's operating profit. Gross written premium for OUTsurance was 8.7%. As Marthinus mentioned, we did have a big tailwind from inflation playing through into our premium growth with moderating new business growth in our Personal Lines business, albeit that our business OUTsurance Business still continue to add healthy policy count. Net earned premium was up at 8.6%, and our operating profit was higher by 13.1%. When we look at the operating profit, OUTsurance Personal increased its operating profit by 0.8%. And that lower operating growth number is associated with the higher claims performance or higher claims cost that we saw in the 6-month period. OUTsurance Business had a big turnaround, increasing its operating profit from 14 million to 128 million. And pleasingly, when one looks through the channel composition of that result is that OUTsurance, the business broker channel, decreased its operating loss from 199 million to 100 million for the 6-month period. So we are on that path towards achieving monthly profitability as we guided towards midyear this year. Our central costs is elevated in absolute levels due to the fact that we did see higher growth in our share-based payments following the stronger share price performance of the OGL group in the 6-month period. And therefore, that excess growth is allocated to central costs. Investment income was lower by 26.9%. And as I mentioned in the previous slide, that is on account of the lower unrealized fair value gains that we saw on the equity portfolio. Headline earnings result was up by 1.5%, and that differential between the headline earnings result and the operating performance is explained by the lower investment income, particularly the investment income achieved on shareholder funds. Our claims ratio was 53.4%. Cost-to-income ratio slightly down at 24.8%. And the improvement in the cost-to-income ratio is associated with us achieving more economies of scale in the OUTsurance Business broker channel on account of having a static head count with regards to the sales force and with our focus on driving that business towards profitability. The combined ratio for OUTsurance is a strong 80%, which implies an underwriting margin of 20% for the 6-month period. OUTsurance Personal, we'll focus on these results as being the biggest contributor to the group's earnings. Here, we saw gross written premium growth of 6.6%. If one ignores the FirstRand Homeowners book, which is in run-off, then the gross written premium grew by 7.9% for OUTsurance Personal, and that's mostly associated with inflationary growth. Our net earned premium was up by 6.2%. And again, if one ignores the homeowners cover book that result would have been 7.5%. Our claims ratio for OUTsurance Personal, as mentioned before, is up due to the factors of normalizing claims patterns on motor vehicle accidents, the effects of loadshedding as well as increased vehicle theft. And here, we saw an increase of -- from 51.6% to 52.4% for the 6-month period. The cost-to-income ratio for OUTsurance Personal is on an upward trend, and that's increased from 20.1% to 20.8%. And the reason for this upward trend in the Personal Lines cost ratio is due to the fact that an increasing mix of new business is being written in the OUTsurance Broker channel, which has a high inherent acquisition cost ratio compared to the direct channel. The combined ratio for OUTsurance Personal was 75.3%, implying an underwriting margin of north of 25%. Right. Then we'll move to the Youi results. So for Youi contributes 56.2% of our group's gross written premium and for the 6-month period under review, 47% in operating profit. But when you look at Youi's gross written premium, in rand terms, very strong growth of 24.4%. And when we consider that in Australian dollar terms, the growth in gross written premium was 18.4% for the period. Net earned premium of 28.5% up. And here, we're seeing a strong earn-through of the strong growth we had in the previous financial year as well as reinsurance costs reducing as a percentage of premium, albeit still increasing in absolute terms. The operating profit for Youi Australia was 887 million. And as illustrated here, the big catalyst is the increase in Youi Direct operating profit from 295 million to 930 million. BZI pleasingly realized a loss profit of 37 million compared to the loss of 96 million in the year before and no doubt assisted by the relatively benign weather claims that we experienced in Youi for the 6-month period. The increase in the loss in the CTP book from 50 million to 80 million, that's associated with the team at Youi incepting its business -- its CTP business in South Australia as well as a high claim that we saw in New South Wales, which is a tragic event with multiple lives affecting that claim. Investment income generated 122 million. And as I mentioned before, that's on the back of the significant rise in the market interest rates that we saw over the 6-month period. Headline earnings results of 651 million, also up more than fivefold for Youi in the period. The claims ratio at Youi is the big driver, and that's down from 62% to 55.9%. And the cost-to-income ratio of 31.1% benefited from the improved top line growth and higher premium inflation over the course of the last year. The combined ratio for Youi was 86.6%, implying a 13.7% underwriting margin for the period. OUTsurance Life results were challenging for the 6-month period, and that's on account of the fact that we had a big change in the long-term yield movements in the 6-month period, which affected our operating results negatively and particularly so in the underwritten life book. OUTsurance Life does have a relatively immature book compared to our peers. And therefore, that business is more susceptible on the longer duration changes in the yield environment. As Marthinus mentioned, we do expect a lower earnings volatility in terms of IFRS 17 deals with changing yields and how that plays through on our income statement. As a policy, we do hedge the interest rate risk in our portfolio and we measure that on an economic basis with a high degree of effectiveness required. Unfortunately, in the accounting results that flow through from economic effectiveness versus reporting effectiveness is not always clear and somewhat uncorrelated. And therefore, we have seen somewhat of a big change in our investment income or our change in our policy of the liability for the 6-month period. Our operating loss position was ZAR 100 million, and that compares to ZAR 51 million in 2021. And that comparative period, we also had the effects of COVID and the Delta wave playing through in our financial results. The Funeral business is profitable overall when one considers the Shoprite book together with the Funeral direct book. The Funeral direct book is still loss generating, and we are planning to move that business towards monthly profitability over the course of the next 12 months. The Underwritten Life business, as mentioned, mostly impacted by the yields generated a loss of 102 million. Included in this loss is also our strain from starting the tied agency force. And there, a loss of 57 million was generated in the 6 months under review. The headline earnings result for OUTsurance Life was 68 million for the year or 6 months compared to 21 million in the period before. The embedded value results for OUTsurance Life was up 4.6%. And here, the yield environment also weighed on the adjusted net worth component of the OUTsurance Life embedded value, whilst we are still seeing good positive growth in our value in force. And that's on account of the strong premium growth that we are seeing and strong policyholder count growth that we are seeing in the Funeral business, where particularly the expansion of the Shoprite channel has provided pleasing new business volumes in this 6-month period. The VNB margin for OUTsurance Life, we have a mix target of 10% for OUTsurance Life on VNB margins and higher per policy acquisition costs due to a slowdown in new business sales across the Underwritten Life as well as the Funeral direct business did weigh on the VNB margin in this 6 months compared to the comparative period, which was much higher than our 10% mark. All right. We then move to capital and balance sheet. Pleasingly, all our entities as well as the group is trading well above its target multiples. And these multiples are presented before the interim dividend payment. There are big capital commitments for the group. And as a result, we are keeping a surplus of ZAR 1.7 billion for two main drivers. And the one is a planned acquisition of a further 5.3% stake in Youi from a founder shareholder, and we expect this transaction to be completed by October 2023. We currently do have optionality to acquire that interest and that is being executed on. We also then have set aside a substantial amount of capital for our entry into the OUTsurance Ireland market. And this capital provides a good support for the initial capital requirement. But this business will be further incrementally funded in the group. So we're following the principle in terms of funding the Ireland venture that to the extent that we build up a J-curve as well as the capital required for OUTsurance Ireland will be funded from retained earnings over time. But there is somewhat of a mismatch in terms of the upfront support that's required for a licensing application and how capital is actually consumed in the Irish venture over the course of the next 5 to 6 years. And therefore, the funding differential, the funding mismatch will be funded through a temporary debt on the balance sheet. We have stated before that we don't believe permanent debt on our balance sheet makes sense due to the fact that we are a high ROE generative business and our earnings are well correlated to cash earnings. And therefore -- but we do have appetite to have temporary debt on our balance sheet to fund the mismatch between the funding profile and the capital consumption profile of the Irish start-up. And that also explains these factors why we are holding back some of our interim dividend and while the interim dividend is growing slower compared to our earnings growth is a pattern of earnings retention required and to support this business. We also saw that from retaining our surplus capital initially that the exchange rates have deteriorated markedly in terms of also pushing up the rand requirement for our two commitments in Youi and OUTsurance Ireland. The 2 graphs here illustrate the interim dividend for the OGL Group, the listed entity. And here, due to the structural changes related to the listing transition. The interim dividend for OGL is increasing by 66.7% to ZAR 0.568 per OGL ordinary share. We then look at the graph on the right, which is the OHL interim dividend. As I mentioned, this dividend is illustrated in absolute terms. And this dividend is increasing by 3.3% with a reduction in the dividend payout ratio from 85.1% to 64.5%. When we consider the dividend payout ratio, the factors that I mentioned in terms of how we'll be funding the Ireland venture through ultimately through capital retention has an impact on this dividend payout ratio. We do believe that the dividend payout ratio can be sustained at least 60% over the course of funding the Irish entity. We're also managing the Youi balance sheet with a high degree of prudence at this point in time. As we are entering the midyear reinsurance renewal for Youi, we are cautious given the observed hardening reinsurance markets and how that may impact Youi's catastrophe retention level in that business. Right. I'm going to hand over back to Marthinus, who will talk around the ambitions to expand into Ireland.

Thank you, Jan. So yes, I mean, as a group, when thinking about our sustained growth in the long run, from time to time, I mean, you have to ask yourself, do we believe we need to stick to our knitting and focus on short-term insurance? Or do we also want to become like a platform player and do banking and health and all the other financial services. And we have clearly decided that we need to stick to our knitting, and that was also the intention behind the wider set of products and channels that we started to activate sort of 4 years ago. This expansion into the Republic of Ireland is then just an extension of this process of seeking out markets where we can apply our core skills and therefore, stick to our knitting. And when it comes to our core skills, nothing is probably closer to that than personal lines, short-term insurance. And that's why one of the reasons why the Republic of Ireland was identified. So a key part of the objective is also just when looking at our current runway, we do believe we still have a strong runway in OUTsurance Business as well as in Youi over the next 5 years. And this expansion is really more to drive the growth and diversification over the 5- to 10-year period, where we want to sustain that low to mid-teen growth rate. Important, as I mentioned, the diversification also with Ireland in Northern Hemisphere, less correlated to your normal weather cycles that affect both South Africa and Australia. Then looking at the sort of the reasons why Ireland. I mean, through our previous international expansion learnings, we've developed quite a good set of criteria for international expansion. We literally looked at all the potential markets. And Ireland really stood out as ticking all the boxes that we deem to be important. Some of the key attributes to consider is, firstly, the market size. We believe the market is big enough to move the dial relative to our existing operations. Maybe just for a bit of further context, the Republic of Ireland has 5.1 million people. When you compare that to, say, South Africa, it's important to note that, I mean, our product is really a middle class product. And as such, in terms of a more apples-for-apples comparison, our middle class is probably around 7 million people. Then another factor to take into consideration is that bodily injury is covered by the private sector. So that's part of your standard motor comprehensive premium. And that makes the average premium in Ireland a fair bit higher than, for example, South Africa, where bodily injuries covered by the road accident fund. A further bit of context is just that the largest competitor in Ireland has a larger motor book than OUTsurance South Africa. So that gives you a bit of context about the size of the opportunity. Obviously, it's also not so big that we would be betting the farm. And as we guided previously, we aim to stay inside that 10% of operating profit being invested into our aggregate losses in new ventures. So that's good context around the market size. Then also important for us is the direct channel is well established, and that's sort of where our core distribution skills lie. But certainly, the intermediated market presents a longer-term opportunity. Importantly, the Irish market also has a good record of shopping behavior because if you aim to grow organically like we do, it is important that clients have to have a behavior of shopping around for the insurance. Then also the market has a history of profitability. I think that is key. I mean, if everyone else in the market are making losses, it would be arrogant to think that we can go in there and make profits. And then a critical factor is also the success of foreign entrants in that market. In some markets, you see no successful foreign entrants. And even if it's not legislated that might point to structural limitations. We have verified this in Ireland. And as such, the success of foreign entrants there is a key factor for us. Also to note, Ireland's economy is growing well, and there's definitely prospects for real growth with Ireland as a sort of the English entry point into the EU now, it's certainly well positioned going forward. A key factor for us is also a stable and familiar regulatory environment. You don't want to go to a country, make a major investment. And then once you start to have success, the rules of the game change and that's why the stable regulatory environment is such a key consideration for us. And then as I mentioned previously, the size of the financial commitment, we won't be betting the farm and it's well within the group's appetite for growth. And certainly, our previous success in Australia played a key role here, and that's why we believe it presents a real opportunity to apply our key skills in terms of pricing and distribution in that market. So an insurance license is in process, is underway, and we are planning for a market entry in the first quarter of 2024. So that is the details on the planned international expansion, then to briefly look at the operational outlook for the remainder of financial year 2023. We certainly expect the global economic uncertainty and challenging conditions to prevail. That obviously provides a headwind in terms of unit growth, especially for OUTsurance Personal, where we have such large market share. But as mentioned, courtesy of some of our new channels and products where we have low market share, we remain optimistic for growth even in these challenging economic environments. Inflation, we also expect to persist and not blow over quickly. And as such, key to that is pricing discipline to ensure ongoing rate adequacy. As Jan also mentioned before, the higher interest rate environment is positive for our group's earnings base, and it provides us with earnings that's not correlated to natural peril claims. Pricing discipline remains key. And I think we've demonstrated it well with the resilient performance of our core businesses in light of the headwinds, but also the progress being made in bringing our new ventures to profitability. And we will continue to drive for scale and profitability in those. And as we come through those J curves, it should definitely allow the earnings base to grow faster than premium. Then a key watch item, as Jan flagged, is the hardening reinsurance market. And while we already have taken our round of medicine at the previous, renewal market conditions still seem very hard because of some international considerations over and above even our fairly good claims experience on our catastrophe treaties. So that's a key watch item and that's a key reason for the prudent management of the balance sheet. Then we'll continue to focus on matters inside our control. While as we said, it's a difficult operating environment. We'll continue to focus on delivering better on price, service and trust because ultimately, that's what our clients and prospective clients expect of us. And then lastly, I think we've demonstrated good capital discipline and simplification in our structures. In the reporting period, we managed to dispose of OUTsurance in Namibia as well as core shares. And our long-term view is certainly to prevent a very simple structure with our operating entities in South Africa, Australia and Ireland, simple businesses, strong cash generation and strong growth prospects. That's the group outlook in a nutshell. I think we can move on to questions then.

We'll take questions from the audience first, and then we'll move to submitted questions. Just reminding the audience that you can also submit questions for us to view on the site. Thank you. Let's open for questions. Any questions on...

At this stage, we have no questions on the line.

We'll then move to submitted questions. So the first question by [ Warwick ]. To what extent has the hardening reinsurance market affected these results in both South Africa and Australia and how material do you expect the reinsurance rate increases to be in the next financial year? [ Warwick ], in terms of guiding on the impact that the hardening markets had on our results. So first of all, pricing for higher reinsurance cost is a big part of the inflationary story and more so at Youi terms of needing to pass on higher reinsurance costs onto our premium line. We did not see any major natural perils event. So the reinsurance markets present itself the hardening market in 2 forms. The one is higher expenses in terms of premium. And the second is higher retention if there are catastrophes. And in these 6 months, we did not have any large catastrophe events. And therefore, that higher retention was not realized in either South Africa or Australia. In South Africa, we did see that our reinsurance cost as a percentage of premium has increased by around 0.5%, and that is one of the net impacts of the hardening reinsurance market on the OUTsurance South Africa result. But I would say, in short, it has been fairly muted due to the fact that we did not have any major catastrophes. When you look at we -- as Marthinus just mentioned, we do expect the reinsurance markets to continue to be quite hard. If we observe the global challenges currently and also where the 1st of January renewals came out globally and as well as in Australia. And -- but we don't know yet, we are going through that process. We're not quite sure yet in terms of where exactly our reinsurance program and rates will land for this next renewal.

Can I just add on what Jan said. The -- in Australia, we've seen that material increase in our retention from sort of a $10 million level to $35 million level. And that mitigated the actual rate increase. But as Jan implied, I mean, you retained so much more of the risk yourself and what the reinsurance market is really telling the direct market out there is that they want us to retain a much larger portion of the natural peril losses, and they will only be there for the really big events. And that's why it's so important to take this into account in your capital planning and your pricing.

Then we have a second question around the Shoprite partnership in terms of what the expectations of future growth in that channel. [ Warwick ], we do -- part of the success in terms of achieving higher premium growth in that channel is having more in-store sales agents, and we still see opportunity to ramp up our footprint of the number of in-store sales agents over the next while. So we do still expect strong growth coming through on the Shoprite channel. There's a question from [ Zahim ] in terms of how many tied agents do we have currently? And how do we expect to forecast those. Essentially, we've kept the sales -- the number of sales agents in OUTsurance Broker unchanged, [ Zahim ]. And that is in line with our focus to bring the business to scale and profitability. And expanding the size of that agency force is very much dependent on incremental justification to do so and ensuring that we can expand profitability going forward. But we are -- do have -- certainly have an appetite to grow that channel and reinvest profitability into growth going forward.

Currently, that channel is around 600 agents. And once we reached breakeven, we'll obviously assess the ongoing prospects. And we certainly believe there's prospects to increase that further. But it was important for us to achieve that breakeven point as guided.

And the question from [ Warren Riley ] on the expected earnings trend from our entry into the Irish market and what this looks like in the next couple of years. You recall that Youi took 3 years to reach after-tax profitability.