OUTsurance Group Limited (OUT) Earnings Call Transcript & Summary

Good morning, everyone. Welcome. Thanks for the opportunity to present to you on the financial results of the OUTsurance Group for the 6 months ending 31 December 2024. As usual, I'll be taking you through the operational review, and then I'll hand over to my colleague, Jan for the financial review. And then I'll close things off with the outlook and strategic focus areas. To start off with the macroeconomic trends. As always, these do impact on our business to a certain degree. And starting off with CPI inflation, you can see that in all 3 of our key markets, CPI has been trending downwards. But as we made the point previously, whereas historically, CPI and claims and therefore, premium inflation have been quite correlated. In recent years, we've seen some dislocation. And the reasons for that is, firstly, I mean, frequency. Frequencies haven't been stable, especially if you look at something like natural peril claims, frequencies have been on the rise, and that drives some real growth in claims inflation and therefore, premium inflation. But then also on the average claim size, if you look at the car or the vehicle aspect, we have new technology fitted to vehicles, which is driving repair cost to be increasing faster than CPI. And similar on the home side, I mean, technology like solar panels is driving fire -- big fire claims and big hail claims to be larger than previously. So while the general direction of travel for CPI is downwards, and we do expect claims inflation to also moderate, we do expect a portion of real growth to remain there because of these trends, which I highlighted. And also, as we've seen and we'll speak to it a bit later on, we've had Cyclone Alfred in Australia, and that's also likely to slow the moderation of claims inflation somewhat. So that's the overall outlook on CPI inflation and how it is likely to impact on our growth. If we look at interest rates, that's also moderating. And as such, we do expect investment income to moderate somewhat. But one important thing to note is if you look at the composition of our earnings, investment income is a much smaller portion of our total earnings than most of our peers. As such, we are a bit more resilient to reduction in interest rates. If we look at exchange rates, we can see there that the rand has been strong over the last year against all 3, sort of other trading major currencies. And I mean, in terms of premium growth, that did weigh down on our premium growth somewhat as we'll illustrate, but these things tend to even out in the long run. As such, it is not such a major factor in the long run. If we were then to look at the individual business units, and we start off with OUTsurance SA Personal. Over the reporting period, premium inflation was still elevated. But as we say, it's starting to moderate in some areas. We saw a very satisfactory new business performance despite the fairly tough economic backdrop. And the claims ratio benefited from favorable weather experience. I mean, premium growth was -- gross written premium growth was 9.2%. But I think the more true number is the 10.3%, which is when you exclude the FNB home loans book, which is in runoff, we achieved 10.3% gross written premium growth, which is really strong. In terms of profitability, OUTsurance SA Personal operating profit was up 34.7%, which is quite pleasing. I think if you look at our -- the whole market, you'll see that most other insurers also reported on the favorable conditions in terms of the claims ratio that we experienced favorable weather. But most pleasingly, for OUTsurance, we were also able to improve the cost ratio through various gains in efficiencies, both in the back office as well as the operational areas. If we were then to look at OUTsurance SA business, rate of new business acquisition was balanced against the profitable scaling of that broker channel. And what we mean by that is, as you would have seen, we've reached breakeven and we're making a small margin there. And we just want to gradually manage that up to our target -- until we get to our target margin of 15%. And as such, as flagged previously, we're working through an incremental growth of that agency force. OUTsurance business brokers margin expanded, and that was because that cost ratio is coming down as we scale, but also the claims ratio benefiting from the favorable experience. Overall, gross written premium growth was 10.5% for OUTsurance business and 17.5% for the broker channel. Profitability up 74.9% in operating profit. And that is, as we said, with the brokers coming through that J-curve and turning from a loss to a profit making -- enabling that strong profitability growth. Then looking at OUTsurance Life. We've had a strong focus to better align the product and the distribution channel. So since the discontinuation of the face-to-face channel, a lot of simplification in terms of the product and process has taken place, and we're really excited about that. Also, IFRS 17 is proving to be providing a more stable profitability profile. In terms of growth, we saw the value of new business written increased significantly by 83% on the back of the direct segment. VNB margins, excluding the share-based payments, also improved from 9.9% to 18.9%. Overall, rand profitability was up from ZAR 57 million to ZAR 185 million, aided by some favorable yield movements. So that's the overview of OUTsurance South Africa operational themes. If we were then to look at Youi. First off, Youi Personal. Premium inflation was still elevated. But as we said, it's starting to moderate with the caveat of that mentioning of Cyclone Alfred. Pricing discipline resulted in new business contraction in the BZI broker channel, and we'll elaborate a bit more on that later. Claims ratio and profitability of all channels benefited from the benign weather experience, especially on a year-on-year basis, and we'll also highlight that with a graph later on in the presentation. A highlight was the direct channel experienced growth of 29% in gross written premium in dollar terms and profitability was 160% higher operating profit. But as said, coming off quite a low base because of the more severe natural perils in the corresponding period. Youi business, slower growth rate linked to pricing discipline in the broker channel. The broker component is fairly substantial in terms of Youi's overall business footprint. And as such, that pricing discipline slowed down the growth there. However, profitability was quite a bit stronger with 127% growth in operating profit. Then stepping over to Youi CTP. We saw strong gross written premium growth underpinned by the growth in New South Wales. The cost-to-income ratio continued to improve on the back of the improved scale, but also the discontinuation of the quota share reinsurance agreement in New South Wales. Overall, gross written premium grew by 93.1% in dollar terms. And in terms of profitability, the small operating loss was recorded there, and that was on the back of reserve strengthening associated with the increased cost of common law claims. And this is an industry-wide phenomenon. We've also seen that new business prices started to move upwards in recognition of the increased common law claims. Then it's worth flagging that we are in the process of conducting a strategic review on the Youi broker channel. And maybe just to provide context. 5 years ago, start of 2020, when we started this broker channel. I mean, things that were top of mind at that point was that our direct business at Youi was growing quite slowly. Also, we were still quite concerned about the potential impact of self-driving cars and that it might result in slower growth in the motor insurance segment. And as such, BZI at that point looked quite attractive because it's a business that is quite heavily weighted towards home insurance, and it was fast growing. And as such, it had the potential to address stronger growth, but also diversification out of car insurance. However, if we roll back or roll forward 5 years to now, then clearly, self-driving cars is not as big an imminent threat as we were concerned back then. Also, through better execution, we were able to revitalize the growth of our direct business. And then if anything, if we looked at the Blue Zebra performance over the last 5 years, climate change, reinsurance market reset and those things affected the home insurance market more than what we anticipated. And as such, the BZI business has struggled to make the target 10% underwriting margin through the cycle. And hence, the strategic review. And I mean, clearly, it does appeal to us to potentially allocate more resources to the stronger performing direct business at this point in time. Also, with that in mind, we're providing some additional context just around the materiality of the BZI business. And you can see there in terms of gross written premium for the 6 months under review, it contributed 15% to GWP, whereas in the 12 months to end of June, that number was 18%. And that shift from 18% to 15% is just because BZI was growing slower than the direct business. In terms of operating profit, it did achieve a positive operating profit for the 6 months, which was good. But that said, home books benefit disproportionately from favorable weather because the natural perils component is such a large portion of your overall claims component on home insurance. So I mean, if we look at the 12 months ending June, it still add that negative contribution that we reported on end of June. So this just gives a bit of context around the strategic review of the Youi broker channel. Then to speak to OUTsurance Ireland. I mean, I think to many of you, those pictures up there is extracts from some of our advertising there. And I think many South Africans that would also look fairly familiar, the advertising. So OUTsurance Ireland officially launched in May last year. And I mean, so far, new business volumes and the scaling is tracking in line with business plan, which is really pleasing and it's sort of validating our choice of country where to expand to. In terms of gross written premium, we had ZAR 80 million gross written premium for the 6 months. And as we flagged previously, we're gradually ramping that up as we gain more confidence in our pricing and our systems. But so far, so good, really happy. In terms of the operating loss of ZAR 246 million, it's probably just worth pointing out that included in there is a ZAR 65 million reserve called an onerous loss reserve. So in terms of IFRS 17, you have to set up that reserve. And we'll unpack it in a bit more detail later on, but the bottom line, that's more a timing effect because as we approach breakeven, that reserve will unwind again. And as flagged before, we expect monthly breakeven within 5 years from launch. So it's within 5 years from last year. So that's OUTsurance Ireland. Then speaking to our property and casualty new business premium performance, quite pleased to see that increase of 17.9% for the last year. And as mentioned, that was with 2 headwinds in the form of the stronger rand, but also the slower growth at Youi BZI. In constant currency terms, you can probably add 2.3 percentage points to that 17.9%. Youi was the biggest contributor there. And as we flagged BZI, this new business volumes did decrease. OUTsurance South Africa delivered pleasingly and premium inflation still played a role there. And then OUTsurance Ireland over time, it will become more significant in this picture. Then we like to show these long-term graphs as they do bring in a lot of consistency and they tell the story of our progress. So if we were to look at that period there from 2016 to 2018, we had really slow growth. And as we highlighted before, in our insight, we probably underinvested in growth at that point in time. And as such, to revitalize the growth, we had to invest more not only in our core businesses, but we also invested in a number of new business ventures. I think if we look at the more recent years there, it's really good to see that the 5-year CAGR is now 18.2%. I think it's fair to say we will and truly revitalize the growth. And as we highlight there, 17.4% for the last year, but in constant currency terms, that would have been 19.7%. And also worth noting just the material contribution of Youi now being at 65% of the overall gross written premium. But then to look at the all important, how does the top line growth translate to operating profit or to bottom line. And I think looking at those bars there, it's fair to say that there's not a perfect correlation. One thing to highlight, though, is on a 6-month period, I mean, our results can be quite volatile just because of 1 or 2 events. So if we were to, for example, look at the December '23 result, at that point in time, the result was weighted down by the natural perils in Australia. But then once we came to full year, the June '24 result was still a very strong result. So just noting there that in the 6-month period, it can be more volatile. If we were to then look at that same 2016 to 2018 period, we see quite strong profitability there. And as flagged, that corresponds to that period of slow growth. So because of lower investment, the cost ratio was better. We had less first year business, which makes your claims ratio better. And in terms of the weather cycles, El Nino and La Nina, and that was also an El Nino period of quite favorable natural peril clients. But then if you look at the next 3 years from 2019 to 2021, you'll recall that December 2019, we had severe bushfires in Australia. And then we went into a La Nina period, very wet. And in the period to December '21, we had multiple events and the La Nina was quite active in that period of time. Also prevalent over those 3 years was the J-curves of those new ventures. And I think it's fair to say a strategic lesson learned over that period was generally with those new ventures, the further they were from our core being short-term insurance direct, the lower the success. But importantly, we did illustrate capital discipline, and we discontinued the ventures without potential. And this more focused simplified strategy has enabled us to trigger stronger organic growth in our core businesses, but also the stronger top line to bottom line conversion. So I think it's fair to say, if you look at the last 3 years, especially on a full year basis, that top line to bottom line conversion is stronger. Then looking specifically just at December '24, that 60.9% as we said, we have to recognize that, that's a big jump relative to the fairly depressed 2023 result. But even if you consider it relative to the long-term trend, it was a very positive result. It did benefit from low natural perils as we'll show in a later slide. But also it then still had a headwind in the shape of the much higher share-based payments. Just an issue with the screen. Thank you, it's back. Important to also illustrate though that while these headwinds and tailwinds were there, we're very happy with our operational performance overall because the earnings was also supported by a very strong performance in terms of our working loss ratios, but also progress made in our cost ratios and especially our back office cost ratios. And then obviously, the strong premium growth supported by the organic growth. So that is the wrap on the operating profit performance. If we were then to look at the natural perils exposure, you can see there on the left-hand side, the retained natural perils as a percentage of net earned premium, you can see there that quite volatile profile. You can also see for Youi, the retained natural perils decreased from 15.1% of premium to 8.6%. And similarly, South Africa decreased from 5.8% to 3.4% and that caused that sort of tailwind, which I referred to. Importantly, though, we do believe that this volatility could reduce a little bit going forward for 2 reasons. The first being, if you consider our reinsurance retention level, that reset in the December '21 year, and that caused a lot of volatility there. Subsequently, with renewals, we've been able to keep our retention level flat in nominal terms despite strong growth in exposure, and we even expect to be able to do it again this year. So in real terms, our retention level is coming down, which will help to mitigate volatility. The other important point to make is also that we're seeing a bit of a mix in business change at Youi. As we flagged, BZI is very strong on home insurance and whereas Youi Direct has got a much more balanced portfolio. And with Youi Direct growing a fair bit faster than Youi BZI, we're also seeing this level of being a bit overweight on home insurance reducing over time. And those 2 factors, we do believe can also reduce volatility going forward. If we were to look at the graph on the right. First, let's look at OUTsurance South Africa. Then it's really positive to see. Yes, natural peril claims is down from 5.8% to 3.4%, but also our working losses was down from 48.7% to 43.9%. So overall, a very, very strong performance by OUTsurance South Africa. Then if you look at Youi, you can see the natural peril has been down from 15.1% to 8.6%. But the working claims ratio being marginally up from 50.3% to 51.9%. And again, important context there. This isn't a deterioration. As I flagged earlier, we have seen a bit of a mix change there. And car insurance has got a higher working loss ratio, but a lower natural peril loss ratio than home insurance. And as you see a bit of a mix change, you will naturally see a slight increase in your working claims ratio, but you expect a reduction in your natural peril claims ratio. So overall, this gives good context on how natural peril exposure impacted on our financial results, but also how we see it impacting future financial results. Then if we look at the earnings profile and the impact of our growth initiatives. As we've previously flagged, we have an appetite for new venture losses, which is set at 10% of full year operating profit. Importantly, that's full year operating profit. So over 6 months, it can be also a bit more volatile. And as you can see there from the December '24 number, we're inside that 10% appetite and OUTsurance Ireland is accounting for the bulk of that number. Importantly, as we flagged before, though, inside that ZAR 246 million is ZAR 65 million of the onerous loss reserve, which is really just a timing thing. The ZAR 35 million in black there, that relates to CTP. And as I said, because of the reserve strengthening there, that is a factor there. And as we noted previously, BZI actually made a profit for the last 6 months. Also, as we flagged before, OUTsurance Ireland is expected to reach monthly breakeven. And that is in 5 years from launch date. So it's a bit shorter than the next 5 years. That gives good context around the earnings impact of our growth initiatives. And important to note that we have unlocked so much room and runway for organic growth that there's no other specific initiatives lined up, which we see impacting this graph here materially. So I'm going to hand over to Jan for the financial review, and then I'll be back just for the outlook. Thank you.

Thank you, Marthinus, and good morning, everyone. I'm going to start off with the -- just a big contextual item in our results, which is the increased share-based payments expense. Over the course of the 6 months, OUTsurance Group's listed share price increased by 43%. As noted before, we are busy sunsetting our ESOP scheme, and there remains one tranche of this ESOP scheme that will mature at the end of September this year. This scheme is more geared compared to the conditional share plan, which is replacing the ESOP scheme. And therefore, the mark-to-market effect has driven up the share-based payments expense significantly in the 6-month period. As illustrated, the ESOP scheme resulted in ZAR 776 million expense for the group compared to ZAR 443 million in the prior 6 months, which was also elevated because of share price growth at that point in time. To illustrate the effect of the share scheme on earnings, we have provided an indicative indication in this slide that if the ESOP was already converted to a CSP and the relative gearing of the scheme was therefore removed, there would have been a ZAR 612 million lower expense for the group. And hopefully, that provides some more color as to the rebase effect that will occur once this ESOP scheme is out of the base at the end of September this year. Then looking at the OGL Group consolidated results, normalized earnings was up 52.9% to ZAR 2.158 billion, with the ROE tracking in line with the earnings performance at 30.8%. The ROE is also benefiting from the structural changes we've made to reduce surplus capital in the group and noting in particularly the special dividends that was paid at the end of the previous financial year. Normalized earnings was up 52% per share at 140 cents and diluted normalized earnings up 53% to 138.6 cents a share. The dividend which we have declared is up by 44.8%, and that is in line with the operational growth of the group, which we'll unpack in a bit more detail later on. The OUTsurance Holdings Group, which is the holding company of the insurance group in the business, that has produced normalized earnings growth of 43.5%. Pleasingly, the RMI Treasury Company, which is the holding company of the group's associate and investee companies have produced a much stronger result of ZAR 124 million of earnings for the 6 months under review. And that is thanks to a very strong contribution from our investment in [indiscernible]. Marthinus touched on the volatility that comes through in our 6 monthly results given the natural perils experience, the graph on the left illustrates the normalized earnings contribution by geography. And as noted, Youi contributed 51% to the group's normalized earnings result for the 6-month period. Noting though that the South African business has been impacted by the share-based payment expense, which rolls up into that geography. On the right-hand side, we have the ROE of the OUTsurance Holdings business, so the operating ROE in the business. And as illustrated, the ROE has increased from 26.1% to 34.9% for the 6 months. We target an ROE range of 25% to 35%. And given the strong benefit from natural perils as well as structural benefits in the group to reduce capital, we have seen an increase in the ROE to the upper end of our target range. Marthinus also touched on investment income and its contribution that, that makes to our operating profit in the group. These graphs illustrate the relative contribution of underwriting profit versus investment income on insurance liabilities to the operating profit profile of the group. Even though we have seen absolute growth in the investment income on insurance liabilities due to the sustained higher interest rates over the period and also the growth in the business, the contribution from investment income has, however, reduced given the very strong underwriting results that has been experienced, particularly at Youi, where the gearing effect on underwriting results and operating profit is a bigger feature compared to the South African business. To move then to the South African 2 large segments, which I'll cover next, is the OUTsurance SA Personal business. Here, we've seen gross written premium growth of 9.2%. If we exclude the homeowners cover book, which is in partnership with FirstRand, that book is currently in runoff. If we exclude that book, then gross written premium for this segment has grown by 10.3%. Inflation has remained a big part of the growth story, but also real growth has been achieved in this book contributed by the growth of the OUTsurance broker channel, which is also contributing to OUTsurance Personal growth overall. The operating result was up 34.7%, a very strong performance in the 6 months under review, driven by the decrease in the claims ratio from 50.9% to 45.4%. Pleasingly, we have seen a cost reduction in terms of the cost ratio, where the cost ratio has decreased from 20.6% to 19.2%. And that benefit is in account of good cost discipline applied in South African Personal Lines business that has opened up positive operating jaws. The overall combined ratio for OUTsurance Personal decreased from 73% to 66.3%, largely driven by the lower claims ratio. Moving then to OUTsurance SA business. We remind investors that there are 2 big channels that contribute to this result. The one is the OUTsurance broker channel illustrated in purple and then the direct channel, which is the call center channel. As illustrated, the OUTsurance Broker channel now far surpasses the direct channel in terms of gross written premium contribution. Overall, we have seen gross written premium growth of 10.5% with fairly muted growth in the direct segment, which has seen more inflationary growth than real growth. OUTsurance Brokers has grown gross written premium by 17.5%. We have applied extreme focus to ensure that the profitability profile of the OUTsurance Broker channel trends towards our target margins. And therefore, headcount growth has also been managed in line with the target of improving profitability in this channel. When you look at operating profit, the direct business delivered a very strong result, increasing operating profit to ZAR 296 million, and that's on account of favorable claims ratios as well as a reduction in cost similar to the OUTsurance Personal experience. Pleasingly, OUTsurance Brokers has turned profitable, reducing -- wiping out its loss of ZAR 27 million in the comparative 6 months and delivering a profit of ZAR 10 million in the 6-month period. This business is not deemed or this channel is not deemed to be sustainably profitable. Overall, the cost-to-income ratio for OUTsurance Business has reduced to 31.7% noting that OUTsurance Brokers is a higher cost operation. And therefore, as it increases in proportion to the total cost of this segment, the cost ratio is impacted by that mix change. The claims ratio reduced from 55.7% to 49.5%. And as noted, we have seen both an improvement in OUTsurance Broker working claims ratio given the more mature profile of that book, but also the favorable weather conditions playing through. Moving into Youi. I'll focus on Youi Personal, which contributes 90% of the gross written premium of Youi overall. Here, we've seen in rand terms, very strong growth in gross written premium of 19.5%. Operating profit was up more than 100% given the effect of the favorable natural perils claims. When we consider the direct book versus the BZI book, the BZI book contracted by 6.6% in terms of gross written premium, and that implies that the Youi direct book has grown by 29% for the period under review. From a combined ratio perspective, the combined ratio decreased down to 84.7%, driven by the reduction in the claims ratio to 54.2% on account of the favorable weather experience. The cost ratio printed at 30.5%. And if one normalizes for a cost allocation change in the business, it would restate the cost of the prior period to 30.8%, and that implies a marginal improvement in the cost ratio for Youi under the -- for the period. Moving to OUTsurance Ireland. Marthinus noted the status of this business. I'll spend a bit more time explaining the onerous loss. The onerous loss is essentially a feature of a start-up business where a business operates at a combined ratio of more than 100%. The accounting convention then requires us to hold an allowance over the remaining contract period for the expected loss that will be made on the insurance policies. The fact that the combined ratio is above 100% is a feature of the subscale nature of the start-up business and the high cost-to-income ratio. Over time, this onerous loss will grow slower compared to the premium line or the operating line. And ultimately, as the business approaches breakeven, we expect the onerous loss to ultimately be removed. The investment income in the OUTsurance Ireland business is attributed to the surplus capital that we are holding to fund the business in Ireland. As noted to shareholders before, a big proportion of the capital that's required to steer this business towards breakeven has been funded upfront with the group making incremental capital contributions up to the period of breakeven over the next 4 to 5 years. Moving then to OUTsurance Life. OUTsurance Life delivered a pleasing set of results for the 6-month period with operating profit more than doubling at ZAR 185 million for the 6-month period. That's been delivered by 2 strong performances from the Life Direct segment, which includes our underwritten life and direct funeral operation and also the partnership that we have with Shoprite. The direct book benefited particularly from expense discipline that's been applied in this business and various innovations with regards to growing the operational success of this business. The Funeral partnership with Shoprite has been growing significantly over the last number of years, and that is playing through in the much stronger operating result delivered where we've seen an increase from ZAR 19 million to ZAR 49 million in operating profit. Similar to the short-term insurance business, the central component here houses the share-based payments expense. And as experienced in that business, we have seen a significant increase from ZAR 47 million loss to a ZAR 99 million loss. And again, a large proportion of this cost will rebase as we move into future reporting periods. From an operational metrics perspective, we have seen a very strong performance in terms of the CSM replacement ratio, the embedded value performance, the return on embedded value and also pleasingly, the VNB margins, which have been achieved. When we exclude the noise of the share-based payments expense, the VNB margins printed at 18.9%. And that is on account of a favorable mix towards more shorter-tailed funeral business in the group, which is more profitable as well as pricing actions that's been taken in the direct business to ensure that our operating margins are achieved. Then looking at our capital and dividend position. The capital table that's shown here is before the interim dividend, which was declared today. All our companies in the group are trading of very strong capital positions given the favorable trading results that has been achieved. As noted, with OUTsurance Ireland, we'll see a reduction in that surplus capital as the business steps towards breakeven and absorbs more capital in future years. The debt facility that the group has applied to fund the Irish business. We recall our conversations in previous results seasons where we noted that a large component of the Irish capital requirement was being funded by a temporary debt facility that will be incrementally reduced in line with the breakeven profile of that business. At the end of June, that debt facility was ZAR 774 million. And pleasingly, that debt facility reduced to ZAR 309 million at the end of December. Post December, we've also seen further reductions in the size of the debt facility. And these reductions are attributed to internal capital reorganization that has released surplus capital that has played through in reducing the RCF. From a dividend payment ratio, I'll start off with the graph on the bottom right, where OUTsurance Holdings is delivering a dividend payout ratio of 66.7%. In normal circumstances, our dividend payout ratio at interim stage is lower than the dividend payout ratio at full year and for the year in aggregate. And that's due to the conservatism that's applied at the determination of Youi's interim dividends given the fact that these interim dividends are paid during the more stormy season of the financial year. And therefore, Youi's dividend at final stage will represent a larger proportion of earnings compared to interim. From the OUTsurance Group Limited perspective, the top graph, the dividend payout ratio was 63.5%. And the reason why that's slightly lower than the OHL payout ratio is due to the increase in the associate earnings that we discussed before. That wraps up my section of the presentation. I'm going to hand back to Marthinus to talk us through the outlook and strategic focus areas. Thank you.

Thank you, Jan. Now those of you who have been monitoring the news would have seen Cyclone Alfred has been making headlines in Australia over the last 2 weeks. So it's quite early days in terms of the reporting and the loss assessment, but we can comment and say that this has become largely a flood event. And what is important also to understand that it was classified as an ex-tropical cyclone. And as such, the cycle reinsurance pool, which is a government pool in Australia will pick up a fair portion of the losses overall. So, there also reconfirming that our reinsurance attachment point is still $40 million per event. So if the retained portion after the cyclone reinsurance pool is, therefore in excess of the $40 million, then our retention will be capped at the $40 million plus a small restatement premium. To date, we have captured just over 2,000 claims, but putting an amount to that at this point in time is still too early and quite difficult. Hopefully, that gives a bit of context around the potential impact of Cyclone Alfred. Then we can also comment that the premium inflation and interest rates will be in a downward trajectory over the course of the next 12 months. But as we said, with things like Cyclone Alfred, that moderation, especially on home insurance in Australia could be a bit slower. The Group's operational focus will remain on executing our exciting organic growth opportunities across the 3 geographies. And as we made the point previously, I mean, we still have a lot of runway for growth. I mean, just considering Youi's got just over 5% of Personal lines, motor in Australia, significant runway there, less than 1% of the commercial market. OUTsurance South Africa commercial, less than 4% market share and Ireland, we're growing from a standstill. So significant runway left for organic growth, and we do have momentum. We also expect a stronger top line to bottom line conversion to persist. And this is on the back of our strategy to simplify and to focus on our core business, and we already seeing some of the benefit of that playing into our cost ratios. The near-term outlook for the geopolitical environment is uncertain, and it may be disruptive to the macro economy. I mean, should however the current monetary policy trends continue, we expect that lower interest rate environment should stimulate a bit of real growth. But as we mentioned before, again, our model is quite resilient and has proven itself through various economic cycles in the past. We do expect the reinsurance market conditions to remain relatively favorable given the claims experience over the past few years. Obviously, Cyclone Alfred will play a bit into that. But we expect the cyclone reinsurance pool to play a fairly material part in this event. Then we continue to focus on actions to simplify our group structure and seek monetization opportunities for noncore assets, and we continue to make progress there. And that should also support the ROE profile of the OUTsurance Group Limited and bring that closer to OUTsurance Holdings overall. So that's the wrap in terms of the group outlook. And we're happy to move over to questions.

Thank you, Marthinus, we have a few questions online. I'm starting with Warwick Bam. Should we expect the magnitude of Ireland losses to increase in the second half of 2025? He's got a few questions. I'll work through them one by one.

Okay. So in terms of the loss profile of the start-up like that, what we've typically seen is years 2 and 3, your losses normally tend to peak as you do ramp up your distribution and that and your revenue still has to catch up. Overall, we do think if you exclude the onerous loss reserve, as we indicated, that's just a timing thing. If we exclude that, we still think we can remain inside the 10% of operating profit of our existing businesses as guided before.

Warwick is asking cyclone cover to be covered by the Australian reinsurance pool. I think Marthinus confirmed that, that would be the case.

Yes. So maybe just for further context, I think the cutoff date and time of that was 6:00 on Monday morning. So all cyclone-related losses with the loss date and time before 6:00 Monday morning is likely to be picked up by the cyclone reinsurance pool.

Warwick, our reinsurance renewal season is on the 1st of July. Essentially, that is aligned with our financial years, which is a question from you. We are seeing globally, we've seen favorable trends in the reinsurance market in terms of capacity and pricing. And we hope that, that persists for the upcoming renewal season for the group. Mike Christelis has asked what drove the strong Polestar performance this period? And what is the outlook going forward? Mike, the Polestar business, which I remind our investors that it's a commodities hedge fund, which was previously part of the RMI Investment Managers Group. That business was not taken over with the disposal of the Investment Managers Group to Momentum. And therefore, we remain a 25% shareholder in that business. It is a business that ultimately exploits arbitrage opportunities in commodity prices, and therefore, its performance can be quite cyclical and volatile. We have a question from [indiscernible]. Are you able to provide some color on Youi's market share trends? Is Youi personal GWP growth driven primarily by premium inflation?

Yes. We don't give accurate splits in terms of premium inflation and unit growth. But I mean, just looking at the 29% GWP growth, I mean, yes, premium inflation is sort of quite a bit lower than that.

We then have a question from Louis [indiscernible] around the ESOP. So if the ESOP costs drop, do we see more dilution from extra shares in issue over time? Louis, no, our approach with regards to the CSPs is to buy shares on market and to hold those shares as treasury shares to deliver those shares when those conditional shares mature. So therefore, the CSP schemes on itself will not result in any dilution. Mark has asked if the CSP replacing the ESOP, do you think that the CSP will provide the same level of motivation for participating staff? Is there a risk that a smoother accounting lead to lower internal motivation?

Yes. I think if we look at the motivation of the ESOP over the years in the unlisted environment. It provided a much more gradual realization of value and motivation levels have always remained high. I think it's important to note that as a management team, we also our big support to shareholders. We're very much in the long-term business, long-term thinking. That's why we're willing to engage in these long J-curves because we know the payoff is there. If you consider OUTsurance turned 27 years old just the other day. And it was started with ZAR 19 million of capital and is worth over ZAR 100 billion now. That's 1,000x money, sort of 29% compound growth. We've seen bad cycles before, and we've seeing better cycles. I think senior management is engaged. And importantly, I think the new scheme, will continue to enable more management to become shareholders because that is the ultimate alignment that also enables long-term thinking, managing the business as if it's your own. I mean in our business, driving down cost ratios is critical. And if you think about expenses as if it's your own money that you spend I think that is a structural advantage. And that's also why we have ESOP schemes in Australia, at Youi and in Ireland as well in the start-up unlisted environment because it's a key part of our incentivization. But we don't see the new scheme particularly diluting senior management's incentive to perform. I think it's still strong and relevant. And I mean, as you'll see later on when we try -- the plan is still to move the minorities at the OUTsurance Holdings level up to the OUTsurance Group level, and you'll see the participation of management and the alignment of management is strong.

[indiscernible] has asked what is the cash conversion of the Life business? What I can say there is that the dividend calibration is currently around 40% of earnings. We expect over time that given the mix effect in that business towards the Funeral business, that we will see a higher cash conversion ratio emerge in the life insurance business. A question from [indiscernible]. Can we get an update on the WeBuyCars relationship? And how is that going?

The WeBuyCars relationship is a good one for us. We have been in that relationship for quite a while. It must be pointed out that WeBuyCars selling into a slightly lower market than your conventional dealers. So the proportion of cars that's insured in that segment is a bit lower than with conventional dealers, but it's still a very good segment to be in. And as such, we're quite keen on that relationship, and we'd love to preserve that going forward.