Sure Insurance (SDF) Earnings Call Transcript & Summary

Thank you, Alexi, and good morning, everybody, and thank you for joining the call. You should all have the pack that we've sent out. So thank you for logging on to the call. Just -- there's a few pages of important notice and disclaimer. So please I'd like you to reflect on those because that's the basis upon which we're giving you this information today. And I guess if we could just go to Page 8 of the slide pack, that will take you into maybe a little upgrade on our FY '24 trading. We started -- the first quarter was started well. Then the next 4 months worked out extremely well for us from that point of view. The acquisition program that's where we told you we're going to do $280 million, excluding Sure, we've done $165 million. We're on line. We've completed the acquisition of ISU in North America. And as the date of this document, Stead has got an unused debt funding capacity $165 million available to fund our further acquisitions. And our gearing sits at that particular time at about 26.2% prior to the completion of the Sure acquisition and the equity raising, which we are discussing today. We previously advised you that our FY '24 unaudited underlying EBITDA was up 22.4% from the third quarter period to period of FY '23. Our unaudited underlying NPAT is up 15.3% for against that quarter-to-quarter. And we've completed the acquisition of ISU in America for USD 55 million. It's one of the largest privately owned independent insurance agency networks in the United States. It's a highly scalable business model. It offers us significant opportunity to grow by increasing its membership and consolidating the production of all the agencies under the ISU master contract. It reminds us very simply of what this Steadfast look like back in the early '90s. We'll roll out our network services and the potential for us to invest in independent agencies within that network is outstandingly appropriate, and we review all the time what we're doing there. U.S. expansion continues to execute on Steadfast strategy of acquisition-led expansion and growth in the international markets, in combination with the home-based, of the domestic Australian and New Zealand [indiscernible] business. If you go to Page 9, this is a reaffirmation about our target $280 million, excluding the Sure Insurance acquisition. So we've completed 18 acquisitions, including ISU in North America. Our estimated EBITDA is $16.2 million on that with an acquisition cost of $165 million. We've still got 15 term sheets and due diligence has commenced on a further $4.9 million in EBITDA and for an acquisition cost of $45.4 million. And then there's another 17 term sheets with $5.7 million in EBITDA and the potential $50.5 million in capital allocation to secure that. And there are another 21 opportunities that are in our pipeline that are moving through a process, which was roughly $16.8 million or another $166.8 million in acquisition cost service. That's our pipeline, excluding Sure and our status quo where we've got up to now. If you just click over the Page 10, it's a little complex when you look at it, but it shows you how we're allocating our acquisitions. It gives you where are $165 million that we've done today, including ISU with this and then it shows how we intend to exceed our $280 million acquisition target. Again, all of these exclude Sure. So if you now look, this shows from FY '13 through to our estimated FY 2023, '24 and the color coding gives you a reference to where we come into and shows you our targets, where we started at our IPO. We're sure we'd come into it and our Trapped Capital program. So if you then flip over to the reason for the meeting today and go to Page 12, a review of what Sure Insurance is. I guess it's -- as the headline states, it's scalable, it's highly efficient, it's data-driven. It delivers excellence in client management and customer experience. It's been operating since 2019, and it's been a rapidly growing underwriting agency of home and content in an area that nobody in Australian wanted to write, which was Regional Queensland. It was dominated by Suncorp up there. And of course, other insurers were a little hesitant to put their capital down in those areas. 100% of Regional Queensland is the focus for the specialist capability and ability of this insurance underwriting agency to understand the special needs in the region and focus particularly on the weather events and how to underwrite in that area. They've got an impressive growth on their GWP over the last 4 years, and they've got significant capacity provided by 3 APRA licensed international insurers. They expanded their property insurance offering to include residential strata, which has been -- which is growing exponentially at the moment, and it's been welcomed by people like the ACCC to see some competition and some capital being deployed in North far-north Queensland. It's a highly recognized brand. It benefits from a high level of an annuity-type income with a track record of maintaining 85% renewal retention. That's at the top end of what any insurer would hope to achieve in any sector that they operate in. The profitable risk selection, which is optimized through the use of their sophisticated algorithms means that they are making money for the insurance capital that they're given to deploy in this area. The success of this business is that it's technically driven. It's multichannel in its distribution strategy via direct and brokers. It's got an incredibly high-quality in-house management team for claims that reduces the average cost of claims, and by its efficiency in how it does its claim, it has a tremendous support from any of the people who make the claims through Sure [indiscernible] has a deeply experienced leadership team. The founders have between-- one has 40 and the other has 30 years' experience in underlying insurance software and an incredibly intimate knowledge of the region that they're deploying their algorithms into. The chart -- the pie chart at the bottom give you the split on home and contents in strata and then the distribution strip between broker, direct and into direct web as well. It's a nice package of well thought-out pricing in an area that needed capacity and has gained great support. So if we go over to Page 13. This is the record of what Sure has done. We've gone back to '21. Started in '19, started to hit the straps in '20 and '21. And now as you can see, is growing greatly across its GWP. Its total revenue growing -- but the 2 bar charts there run on line sequentially. And of course, there EBITDA is jumping along the lines there. And then the EBITDA margin, which is sitting up in the top end of where we'd expect it to be and the unbroken -- the broken lines there will show you the potential of what we're looking forward in FY '24 and '25. So let's just look at what their competitive advantage is on Page 14. It combines an incredible knowledge of the region, an incredible knowledge of the products that need to be sold into that region. It's data-driven. It has a technology platform that delivers excellent outcomes for both the insurers to deploy the capital and also the customers that avail themselves of the products. For the customers, the policies have been customized for the region and to target decide insurance and optimize pricing, simple and quickly get on board and the claims experience is seamless. For insurers, their algorithmic analysis and data selection and the application of where they insure, give superior risk selection. It's a significant distribution network both via direct and by broker and their claims efficiency is reducing cost of claims to well inside some of their competitors that operate in this area. So FY '23, the Net Promoter Score of plus 46%, retention rate of renewal at 85%. There's 20 dedicated sales and customer service staff and 30% strike rate, which is in the upper end of strike rate, you would expect 18% would be considered a good strike rate. But because of the specific way they analyze what they want to write and their knowledge of how they can price that, their strike rate is higher. They've got 14%, which is amazing conversion rate on their web and they've got access to over 100 brokers and 400 authorized reps. The management team has probably the most extensive industry experience of anybody underwriting in the Australian market. So it's very difficult to compare other people that come in and out of this market with a select team of experts with a great algorithm and knowledge of what they can write and price it for profit. So if you go over to Page 15. They've got -- Queensland is a large and growing market, underpinned by a very strong democratic. Regional Queensland is large and growing, okay? There's 556,000 homes, 23,000 strata companies -- strata properties up there. Population is growing all the time. People are exiting the southern states and going up there. So the dwellings are increasing, the infrastructure spend is increasing and there's a high level of migration and job creation. It's a wealthy state expanding all the time with the need for specific insurance for this demographic that operates up there. Sure is binding over 52,000 policies. It has an 85% retention rate and it's got significant capacity to grow. The insurers who support the algorithmic analysis of risk selection and profitability are very keen to deploy more capital into this area. Unlike most of the other insurers who are operating on the Australia wide band, they know what they want to write, they support what they want to write and the history since 2019 clearly shows and articulates the success of their algorithm, the success of their deployment of the capital and their loss ratio. Underinsurance in this market and pricing in excess of technical pricing is the linchpin of how this business will grow. Most people are underinsured. Sure Insurance partners now have availed themselves of the reinsurance capability of the cyclone reinsurance pool. And that's allowing us to -- in our algorithms to actually become slightly more competitive due to the volatility of named cyclones being taken out of the reinsurance program. So if you have a look at their market on the pie chart on the right, you can see they've got a very small slice of a very big market and ever expanding. And as you can see underneath it, in the bar charts, Queensland homeowners, their annual GWP is growing at 7%. So our opportunity is to leverage our existing underwriting and IT capabilities and to expand their product range and their geographies. This system is highly scalable. The intelligent way that they underwrite is applicable to other geographies all around Australia. It's very suited to the Steadfast client trading platform, and it operates on a pricing mechanism, which allows the benefit of a small, concise team to be able to operate at a more effective level than some major insurer that has hundreds of people doing specific issues. This is a tight technology-driven proposition that produces great GWP growth and profitability for the insurer. So let's go to Page 16. Stephen and I will show this -- we'll share this together. Okay? It is a leading specialist. It is focused on delivering property cover to Regional Queensland. That sounds like a silly statement to make when all we've heard over the past several years is nobody wants to write in Queensland. These people said there's a massive amount of business in Queensland tat an insurer can write, developed an algorithm to do this, put it into practice, got the financial support from great capital providers deployed the capital, made the profit and have created a niche in a market other people turn their back on. It's highly successful. It's got incredibly excellent historical growth, it's consistently increased its market share, and the scope for the future is unlimited, the management team is experienced, their performance record is tracked. They watch and align everything to the way we think about business. We are absolutely sympathetical with one another about how you should remain engaged and meaningful to anything that you do, particularly in providing the services required in that area. It's a highly efficient proprietary pricing and underwriting data-driven algorithm system that allows them to be competitive and efficient in their policy issues and efficient for the capital that's been given to them to make sure that the insurers want to stay writing because of their position. It's interesting that the recent hailstorms that have hit Queensland. We spoke to them about what impact that made to them. They analyzed where the hail has fallen and said, we do not even have writing algorithms for those areas because we think they are too volatile, and we don't write in those areas. That's how specific these people are. Although they've got a broad customer reads through multiple distribution channels, they are very definitive about what they can and will write. In other words, if it fits into what their risk appetite is and their algorithm if allows, then they will write it, if it doesn't, they don't discuss doing it. We don't write in that area. So -- and they've got multiple insurance distribution networks. It's a capital-light business. It's got strong flow. It's underpinned by stable and renewable revenue, potential to expand its product range through other geographies that Steadfast network operate in and access to our contestable platform of the client trading platform is unlimited. Our earn-out and minority stake and minority stake delivers adequate incentives to the founders. We're buying 70% of this business. The founders are staying in for 30% of this business. It's a great slide of what it is. And so the strategic alignment of Sure and Steadfast is amazing. So gist on the acquisition, I'll hand over to Stephen now to just run through that.

Yes. Thanks, Rob. So key messages here is that the acquisition is valued at a 10.333x multiple of EBITDA. And as Rob mentioned, for 70% of the business to have that 30% retention in a very fast growing business. No surprise that there's an earn-out arrangement, which is hopeful for the retention of those people, but also good risk mitigant for us. So there actually are 3 installments that are payable. There's a first payment which is a fixed price at $148.8 million, and then there's potential for 2 earn-outs based on the '24 trading and then the '25 trading. So under that earn-out arrangements, whatever we pay at the end of '24 is subject to a clawback if '25 were to go backwards. There's also a put and call option in place after all that process has been completed for the following year for potentially a 20% further stake, so 20% of that 30% which would be then priced at the fair market value, and we would do that as a scrip-for-scrip offer. So the transaction is therefore forecast to be immediately EPS accretive, and we'll come to the numbers shortly. Going to Slide 17. This just helps you to understand there's -- we just described in the number format. The first column is the upfront payment. The second and third column shows a potential example based on some of the forecast information that has been presented to us that we've done a DD on. So the first payment is based on an average of FY '23 that has been done and the '24 forecast. That shows you how we get to the $148.8 million payment using those multiples. The '24 payment is an example of if hit $24.5 million, then we would be writing a cheque for the $28.8 million at the end of August -- let's say, August '24 at the conclusion of the '24 year. And if the '25 projection there of $38.7 million was met, you see how we'd be writing a cheque for another $102.5 million, noting, of course, the core back if it was to go backwards in that '25 years. So I'll hand back to Rob to comment on Slide 18.

Okay. Thanks, Stephen. I know it's a bit to absorb, but it's a fantastic business and requires analysis of where it is. So on Page 18, the acquisition strengthens and diversifies our position in our underwriting agency panel. Okay. Sure has an increasing market share. It's growing in its demographic of Regional Queensland and further adds to our capabilities of supporting Queensland in a stake which is affected by weather events adversely all the time. It seeks to add value across all its operations from pricing, underwriting, sales, distribution, customer service and claims management. It's not just a business that seeks to grow as fast as it can. It's a business that seeks to grow and modify and amend all of what it does to be more efficient and make sure that when it binds the customer, that the service that, that customer gets at claims time is the best in the industry and that the loss ratio that they put into their claims is very efficiently done and handled. Their claims cost is amazingly different to some of the claims costs that we can see across other insurers. And it enhances the offering that we can do for brokers to provide capacity in new markets. The ability to be able to say to people, yes, we can do things for you in far North Queensland is amazing plus. Also, as I reiterate, the writing algorithms they've got can be dropped into every geography around Australia, and we can replicate this particularly using the efficacy created by the client trading platform. The client trading platform gives us the ability to stretch this business into other areas using the same discipline, the same algorithms and the client -- the same customer service and client entity that they've developed over the last 4 years in Queensland. Steadfast believes it can support Sure to extract further additional growth by increasing its market share in existing markets and by taking additional products into further geographies as they expand. The acquisition of Sure is consistent with our disciplined approach to strategy. And if you have a look at Page 19, that's basically our current form of MGAs that we run. And we're very proud of that. We're very proud of the success of that. We're very proud that the people that run those businesses all have a similar thought about life the way we do, that the customer comes first, efficiency and claims is prime and expansion comes if you do what you say correctly and you do what you do for the consumer efficiently. So just to get to the number where we go, I'll hand back to Stephen to go through the placement and the equity raising on Page 21.

Thank you, Rob. So Page 21, we've got set out a timetable there for the later. And the key points here for the equity raise, both the placement component and the share purchase plan. We'll, of course, announce the final placement issue price tomorrow on the stock exchange. But the book build happens today, the floor price is $5.06, which is a 6.5% discount to the close of trade last night. All the new shares that are issued rank equally with the existing shares on issue. And this new issue for the placement is fully underwritten. The share purchase plan, which is not underwritten will commence following completion of the institutional book build with that $30,000 cap per shareholder. Those SPP shares will be issued at the lower of the issue price of the placement or the 1% discount to the volume weighted average price of our stock in the 5-day trading at the end of the SPP of the period. And of course, the SPP booklet will be issued to contain further details for our eligible shareholders. Slide 22. We've shown here on this slide, the source and the use of the funds for the institutional placement. The $280 million equity raise will provide funds for the first tranche of the Sure acquisition, namely that fixed $148.8 million amount. We've also raised sufficient funding here to cover the forecasted second payment of $28.8 million at the conclusion of this FY '24 year. That amount is variable, of course, depending on the financial performance of the business. For this amount, we'll apply that initially to our debt facility to reduce interest costs and then, of course, have it ready for any earn-out. When you deduct the $5.2 million transaction costs, that balance of $97.2 million will be applied initially again, to reduce our debt facilities, but able to be withdrawn for further acquisition opportunities or earn-out payments. Rob's previously outlined that current pipeline of opportunities, and you have seen our continued appetite to acquire insurance intermediary assets over our listed history. We're also mindful that, that acquisition of Sure does have an earn-out payment referable to that FY '25 year. What we have not shown here yet is the additional proceeds that we raised from the non-underwritten SPP, which of course, is not known at this stage. Slide 23. How does this equity raise and the Sure acquisition and then gearing ratio. So the first table here sits to show you how our gearing ratio develops. At June '23, we reported 19% gearing. At the AGM a few weeks ago, we were at 25.6%. That was after completing the ISU transaction in America. And with a few more acquisitions since that time, we now sit at 26.2%, as you see in the second column there. We then show the outflow of funds from the first tranche of Sure and the full equity raise from the institutional placement net of transaction costs. So at the conclusion of those transactions, we expect to be 20.9% geared, well, of course, within our Board mandated 30% gearing position. The second table there on that slide shows you the funding capacity within our corporate debt facilities. So we have $165 million available today. But you can see with the $148.8 million, it pretty much eats up most of that. But after the equity raise, we then have that $291 million capacity. Now in addition to the $291 million, the other sources of cash available to us is really threefold. One is any cash that we do raise on the non-underwritten SPP. Secondly, the free cash flow circa $100 million per annum. And then thirdly, the additional debt capacity that gets opened up that alongside this equity raise so that if we were to utilize the $291 million, that would get us to 30% gearing normally, but this extra $280 million of equity raise that allows us to borrow a further $120 million and still stay within the 30% gearing ratio, and we could do that either through the accordion facility or further enhanced debt facilities. So going to Slide 24, going to the impact on our profit and loss and the EPS accretion. So if you combine both the acquisition, the equity rise, we're talking about a 1% annualized accretion here, made up of 4% from the acquisition itself. 2% where we initially applied the excess protege into -- against our debt facilities and then a 5% dilution from the capital raise. We've shown in the first table here the earnings forecasted for Sure, both for the remainder of this FY '24 year and in the far column, what's the annualized full year impact. We've shown the EBITDA we expect here. Remembering, of course, EBITDA has to get reported at 100% rather than the 70%. The non-controlling interest comes out below the line. So we've also then shown you the NPAT that is attributable to Steadfast and the NPATA attributable Steadfast bearing effective 70% stake. We've then also shown the after-tax impact of the finance cost that we would save. That, of course, doesn't impact EBITDA by banking that initial overrides, what you might call the overrides into the debt facilities. These numbers assume that the proceeds are not utilized on any further acquisitions for the year. So if I go to Slide 25. This next slide seeks to show investors, I guess the impact that we have on FY '24 guidance where we're now upgrading to reflect the combination of: one, our strong start to the year on organic growth; two, the actual acquisition of Sure and three, the equity raise. Note that our original guidance assumed $280 million of acquisitions. And if you just exclude Sure for a moment, then that assumption still holds. We expect to meet that target of $280 million. The Sure acquisition is really on top of that $280 million. So you can see we've uplifted the guidance range for underlying EBITDA by circa $20 million and lifted the NPAT range by $10 million and the NPATA range by $13 million. The underlying EPS referable to NPAT is up 1% from the original range up to now 11% to 16%. If you wanted to reconcile the componentry of the buildup of the upgraded guidance, that I'm referring back to the previous slide, that shows you the impact of Sure, shows you the impact of the equity raise and the balance, of course, is the stronger start for the first 4 months of the year. We've kept our original assumptions for the next 8 months as they were originally. I'd also draw your attention to the box on the right-hand side here, where the acquisitions that we expect to now be done in FY '24, including Sure, a lot of that can flow through into FY '25. So if you are looking at the FY '25, we can see already that the acquisition growth rate can contribute 4% to NPAT into the next financial year. So Slide 26 is the key dates for the equity raise. And without going through every key date, let me just say that the placement book, of course, is today, the SPP process is complete just before Christmas. And that really concludes our presentation. Other than to say that, of course, there are the key risks in the international offer restrictions follow for the investors to consider. And we will hand back to Alexi, our moderator for question and answers.

[Operator Instructions] Your first question comes from Kieren Chidgey from Jarden.

Maybe just starting on some of the numbers around Sure, just to sort of understand the P&L a little bit better the revenue margin there. I'm just surprised by sort of the -- on a $200 million GWP base, I think in '25 sort of that's generating revenue of $65 million, so around a 30% revenue margin, which is about double in your existing agency business. So can you just talk to sort of why the margins here are so much high?

That relates to the gross revenue, if you like, that they receive. And often, we report into our agency numbers, the pay away for the broker. Now in this case, because a lot of their business is not done through the broking channel, we thought it might be more appropriate to show you the growth on...

[indiscernible] just on difference basis.

different basis?

Yes. Okay. And then the assumptions underpinning sort of the growth into '25. I'm just hoping you could unpack those little bit more detail around sort of what you're assuming around the pricing cycle in those products relative to sort of the build-out of additional products like the Strata or sort of market share?

The pricing cycle is going to probably show between 2.5% and 6%, possibly on existing pricing reductions due to the impact of all of the insurers participating in the cyclone pool. So you might find that an average of 3% will come off the renewal pricing of government. The fact that there is a demand increase across that area that this company fulfills and that other companies that could operate in that area do not fulfill means that our growth trajectory is getting stronger, and Queensland is incredibly patriotic people towards anybody who supports them in terms of difficulty. So yes, it will continue to grow because basically word of mouth has spread dramatically through Queensland about a local Queensland company that's set up specifically with a desire to write business in areas when many people that they talk to are saying, we don't want to write up in that area. So the growth trajectory is very solid. It's very strong, and it's based on the last 4 years of exponential expansion due to delivery of service and efficiency of pricing and more particularly, the ability to control their claims costs well in advance of some of their competitors. And the fact that they can now write Strata in an area where most companies, including some that we actually own and control are restricting the capital they put in that area means that there is a growth strategy in Strata, which has not been realized at this particular time.

It's fair to say that standing Strata in FY '18 from literally a standing Strata to get to not quite 10% market share. I just don't think they're saying that that's the end of the market share that the forecast is for continued penetration in the market.

And people in Queensland have got a long memory about being robust and told they couldn't get placed and that they can't ensure particular area. So the social impact of servicing an area which has been black labeled by the insurance industry is one of the best selling points these guys have got.

And Rob, you touched on Strata, is there any sort of overlap or competition with CHU between these businesses?

In certain sectors, yes, there is. And that's the DNA of how we operate all of our businesses. We never restrict any of our businesses from competing against one another. We believe that competition is the DNA of getting efficiency in anything that you do. So yes, there would be some. So there might be -- they may impact that we may lose on the swings, but we're certainly going on the round about.

Okay. And my second question, just on the guidance -- the revised guidance of '24, it seems you're going to own this business for about 7 months the year, so a bit over 0.5% accretion if it's 1% on a full year basis. So there doesn't seem to be much revision, if any, on the underlying existing business in '24. I just wanted to confirm, Stephen, I think you said you haven't changed anything for the remaining 8 months, you've only taken into account what's occurred for the first 4 months of the year. Is that correct?

That's correct. There's around about -- if you look at Page 24, I've said just short of $6 million of NPAT coming from Sure and then not quite $3 million, $2.7 million coming from the financing cost. You'll see there's just sub $2 million, which is really represents the uplift that we've already got for the first 4 months. And you're right. I repeat, I haven't changed any of the assumptions for the next 8 months at this point in time, even though it does feel like positive momentum. It does feel like -- that what we're seeing is the rate hardening is a little bit ahead of the original forecast assumption, but we haven't yet said we expect to see that through the next 8 months. We're going to hold fire on that one and continue to think that by the time we get to the half year and address it in February as to where we think we'll be for the rest of the financial year. So just a little bit too early for us to -- as you know, we'd rather...

We'd rather give you something in bank rather than something that's up in the sky that you may not get. So Kieren we've been -- for the decade, we've been publicly listed, we've been conservative so that if we give you numbers, you can rely upon those numbers.

Sure. And just on the rate momentum demand, just giving us a feel for where that is averaging. I know it's a lot of different classes and commercial and retail, but maybe just broadly on commercial.

We're not seeing any drop-off or any indications from any of the insurers we work with in the Australian market and internationally, where SME business in Australia is not going to have to go up between 7.5% and 15%.

Our guidance was 7.5% to 10%. And overall, we're ahead of that at this point. We're slightly ahead of that to double digits.

There's a couple of factors, Kieren. I mean, D&O is dropping as I've said in the past, our D&O went from just under $700,000 to $5 million and it's come back to just under $3 million. So on one hand, you could say, well, it's collapsed, on the other hand, you might say $3 million in [ global and powers ] for something you used to pay nearly $700,000. And that's a small sector of the market from that point of view. But I mean, the impact of the hail that just Queensland, which is allegedly going to cost somewhere between $4 billion and $5 billion. Still, we keep insured, still keep getting hit with weather events in Australia that doesn't allow them to firstly get buy their insurance any cheaper and secondly, allow their attritional claims to drop off. So it's not an easy market to operate risk profiling in at the moment.

Your next question comes from Andrei Stadnik from MS.

Just wanted to ask around the in-house claims team, you mentioned that show run -- how do they go about pricing that? Because the EBITDA margin that the business seems to be achieving is actually in line with your existing agencies. So how do they manage to run that in-house claims team and still achieve about 50% EBITDA margin?

Very efficiently. And with systems that allow expedition of claims rather than the ability to be held up. So most issues in clients are the systems are antiquated and the systems are obvious in terms of how you process. So their client systems, firstly, their efficacy and how they can get contractors. They're aligned with contractors that are in local areas that are willing to act quickly. And secondly, the digital analysis of how they're actually going to put process into a claim is far ahead of lots of things that we've seen, plus they have a delegated authority to work on behalf of the insurers. So they're not going backwards to an insurer, backwards to a loss assessors, backwards to a subcontractor. The efficiency is just absolutely amazing. In fact, we have that efficiency in a couple of our underwriting agencies, and this one is as efficient if not much more efficient than what we've got. So when you see we have high margins, it's usually because we actually handle the claims, and we handle them more efficiently than what a standard insurer would be able to do that.

And how should we think about the interaction with the Queensland cyclone pool in terms of premium growth outlook from here. Like for example, if there were any changes to make the Queensland cyclone pool smaller or bigger, how would that interact or impact the growth in Sure?

Firstly, I don't think that's a consideration at the moment because the pool is in its first year of operating. And I don't think -- the only way you would expand it it's a sovereign fund. So it's back. It doesn't have capital allocated per se. It's got the backing of the sovereign balance sheet of the Australian government behind it. So if you think about that, the only thing that could happen to the pool is it could become restrictive, more restrictive in the cover of give or, in fact, the reserve may be expanding the cover but beyond. And I wouldn't want to speak for government. So Stevens Jane would be very unhappy if he heard me say things like this. But the government might say that, hey, the pool has been so effective, maybe we need to expend that [indiscernible] cyclone and put it into maybe catastrophic events, maybe along the lines of what the [ EQS ] is and if you see over is in New Zealand. So I think any effect like that is it's infiltrated for the pool. I think it's in its initial iteration, I'm sure that we'll have various iterations over the life as it develops itself. But what we're seeing across portfolio, as we've got in Queensland is, we're seeing some jurisdictions are being -- are able to get an 8% reduction, which might seem like a lot. But when you understand the loading that's been going on to those areas, then 8% is conservative. Other areas get down as low as 2% or 2.5%. So overall, we think that there could be about 2.5% to 3% reduction in renewal pricing in some areas as Queensland.

Making last third question. You mentioned that I think there are 3 insurance capital partners backing Sure.

Yes, we actually have 7 participants who want to write that business. So we've got 3 at the moment, and we are reaching that to give a more -- a bigger range of people that want to write in that area. They've looked at our algorithmic approach to it. They looked at the efficiency of the claims, the heritage of the business over the last 4 years, and we're getting capital that wants to be deployed along the lines of the underwriting discipline that we've got and the claims efficiency we've got. So we have more participants that want to participate in that than what we have capacity for to place at the moment, which gives us the ability to be able to expand the GWP when we want by bringing further capacity providers into the equation.

Yes, that was going to be my question. So you're broadening the backing.

Yes, yes.

Your next question comes from Julian Braganza from Goldman Sachs.

Just a first question just on the multiple. It feels like you're effectively paying 10.333x FY '25, which is -- which includes much of the growth there. Can you just comment briefly on how you got comfortable with the multiple that is used and how it compares with market multiples modeling?

I think the first thing to say is that through high-growth business and a high good-sized EBITDA business, we have seen us pay recently 12.5, 13.5 type times. So it's obviously a step back from that. And that really reflects the fact that it is an agency as opposed to a broker. So it's -- I think it's basically what I call a fair price for the asset done under standard tender conditions. It's -- the real reason for FY '25 is because it is a high-growth business, and obviously, vendor would want to continue to see that if they can keep growing the business, they get more out of it with that to be a sale condition, but it actually gives us the risk mitigant if the FY '25 doesn't come through. So we thought it was in the end of a fair price for purchaser and seller.

We're happy with the product.

Okay. Great. And then just on the cost synergies you haven't alluded to any targets there, but I would be interested in anything that can be achieved with integrating this into the broader Steadfast franchise. Has anything been reflected in the EPS accretion talks?

I mean there would be no cost out on their current operating structure. It's very efficient, and it produces great numbers. So you wouldn't rely-- you wouldn't be wanting to, in any way, interfere with the very successful product that's been developed over the last 4 years and we've gone through. What it does give us is that without having to extend a huge amount of extra FTE we can pick up that system and we can put it into other geographies. And by integrating it into our client trading platform, it opens up to the entire Australian market on a digital platform that requires nothing more than digital interaction between the broker, their clients and the ultimate capital provider, the insurers.

Okay. Great. And then just a -- I got a quick one here, just on profit shares. Is there any profit share element in terms of...

Yes, typically all agencies have profit share arrangements contained within their binders, and this is no different.

So if you think about the profit share. Okay. The profit shares are predicated upon a ratio, which gives a profit back to the insurer for the deployed capital they've got and an incentive for the deployment of that capital to share in any excesses that come through. So yes, it is a profit share business as are all our agencies. In most instances, the loss ratios over the past few years because of the weather events has made it very difficult to get profit shares. But if you look at the definitive way of this business and how it's disciplinedly underwritten and how its algorithmic analysis of risk protocols deployed to give a profit back to the insurer, then it's a factor. That means that there's chances of getting a profit share are also quite high because of the way the risk profile is put together about what they write.

Okay. And I just squeeze in one last one in the interest of time. Just in terms of understanding the client mix, obviously, you mentioned home and content. I presume it's high net worth vis-a-vis SME. I'm just interested just trying to triangulate it that as well in relation to the comment you made around retention being 85% and an appropriate measure just for that. So I'd just be interested in understanding the client mix.

Yes, it's not really necessarily based on the value of the home or anything like that. It's really more what you call geographical and thinking through what are the areas that they really are prepared to write risk on versus not write risk on and then go from there. So they can -- they'll take inquiries through the direct call center that they've got, their website or through the broker channel, it's all about that the risk selection for them. That's the key.

Your next question comes from Scott Hudson from MST.

Just a couple of quick questions. Firstly, can you remind me how much sort of home and content GWP you've currently wrote across the broader network?

Okay. We write about 7% of the GWP is house and -- is home and contents, maybe about 8% or so.

Okay. And then I guess, the geographic expansion is just about replicating the algorithm in different markets.

We'll probably come to boring markets like Adelaide and people like you can take advantage of that sound there by getting a better price for your things or stuff like that.

He's in Sydney.

You're in Sydney now, but don't know I've forgotten that. If you think about it, there will be parts of Sydney that will benefit from it. But it's -- we're able to uplift it to any geography, overlay our writing structure and decide what areas we want to write in that and be competitive and get a good strike rate in those areas.

Okay. And then I guess, lastly, any particular factors behind, I guess, management choosing you as the preferred bidder in the tender? Or is it all down to pricing?

I think that they looked -- I can't -- I wouldn't hope to speak on their behalf, but I think they looked for somebody that understood certainly MGA distribution in Australia that had a track record of success in that area and that had the ability to be able to move into other geographies around Australia without having to reinvent the wheel. I mean we're all over Australia. We've got a digital platform that has tentacles over Australia and New Zealand. So if you're looking to say, well, we want to stay in this business and they do, they want to have 30% of the equity in it, then you would have to look at us as a potential acquirer based on our status in the industry and the way we conduct ourselves and the way we've gone about building our distribution network. So if you were then to look at some others in the industry, they would probably be buying this business to get hold of their, I guess, expertise and then looking how they would deploy it. What we believe that the ability to deploy their expertise is firstly cost negative for us in many ways.

I think the fact that the [indiscernible] call option has been to be executed as a share for share while I think gives you the indication of the alignment that both Steadfast and Sure management have or been comfortable one with the other that we're willing to be -- wanting to be partners in that way. They're excited about the Steadfast journey and we're excited about what they can bring to Steadfast.

Your next question comes from Olivier Coulon from E&P Financial Group.

Just first one on Regional Queensland. You mentioned that there are some areas that you don't write. So obviously, Lockyer Valley is interesting one on the website, tried to do it and it wouldn't write. That's a clear demonstration of that. But how much of the regional Queensland market doesn't the business write risk in?

About 18%. And they mostly the areas that should be fixed by mitigation rather than risk transfer that if mitigation was to take place and correctly install, then you'd be able to ensure those areas as well. So I think you're hearing greatly, and the Federal Financial Services suggested a trip with the major insurers in Australia to the reinsurance markets of the world and came back with the same philosophy that we cannot expense insurers to insure in areas where there are going to definitely be claims, we have to be grown up about that. And as I admit that we have to do risk mitigation in those areas to allow a probability factor of it may not have a disastrous claims, but it could have a disastrous claims. Where you've got in the Lockyer Valley as an example, where you've got -- this will happen if this occurs, it's very difficult to insure because insurance is a probability factor, not a definitive factor. So if you tell me you want to insure your car, but next Wednesday, you're going to burn it to the ground, I can't insure it. But if you tell me you want to insure your car, and I've got 10,000 cars insured, the probability factors allows me to insure those 10,000 cars. So it's very similar to far North Queensland. There are some areas of far North Queensland that are uninsurable because of the probability factor being not -- maybe we'll have a claim, but you will have a claim. And that's where mitigation will come into play. And businesses like this support the fact that, that if mitigation is put in place, then we'll come in and we'll insure the areas.

Yes. Okay. Perfect. And just I may have missed it, so apologies if you've already answered this question. But the thinking on the timing of entry into areas outside of Regional Queensland by Sure insurance. And does the FY '24 and '25 forecast include any geographic expansion? Or is that only the current area proportions?

It doesn't include anything for that whatsoever. And that program is something that we'll develop with them over the course of the next 12 months. But yes, no, nothing is predicated in those turnovers. It is just prima facie the current exposure that we expect to deploy into Queensland.

Okay. Perfect. And sorry, just a last question for me, just to clarify. You mentioned 7 underwriters. Was that in addition to the 3 that are already writing risk? Or is that inclusive of that 3?

That's an expansion from 3 to 7.

Okay. So an additional 4.

Yes.

Your next question comes from Jason Palmer from Taylor Collison.

Sorry Jason, I've got you and Scott confused a minute ago. I was talking about you. We might even be able to insure properties down in Adelaide at a good price.

Wonderful, look forward to it. Thanks for your time. Just one question because a lot of them have been answered. So just in respect of the EBITDA margin expansion in 2025. I'm just trying to understand, I mean, there was a bit of investment that might have gone into the business in 2023, possibly or maybe profit shares weren't paid. Just trying to understand where the cost base is now set for a certain turnover level and when the next level of reinvestment will be needed in this business?

Yes. There's certainly some leverage that you are getting, Jason, on the current cost base that flows through to that expanding margin. Like most agencies to think that you set your IT and never deal with ever again is probably a false assumption. So there will always be increased capability. And of course, we'll want to spend some money on connecting it through to our SCTP for instance, as well. So there will be some spend that you got to factor in for that. But it is really like all our agencies, there is a point at which you can get that increased margin that comes from leveraging that base infrastructure that you give up and that's what you're saying here.

Yes. Okay. I just put in one more question, if I can. Just around the distribution of this business across your network and just understanding the capabilities that Steadfast can offer there. I mean if it's 7% of the GWPs home and content and it's probably attached to business coverage that you're doing already on behalf of a client, I'm trying to understand sort of how you distribute this product across your network?

The best way to distribute is by the client trading platform without a doubt because this is a digital solution. It's a solution that needs to be either be modified all the time. So they're monitoring what they're doing and the efficiencies they're getting out of doing it. So it will definitely be a programmed analysis of jurisdictions, testing it electronically and then running it out into the client trading platform.

[Operator Instructions] Your next question comes from Andrew Buncombe from Macquarie.

Just a couple from me, please. The first one, given that North Queensland has similar natural catastrophe risks to different parts of the U.S., is there actually a U.S. rollout angle here from this acquisition?

Not at the moment.

Okay. Perfect. The next one is in relation to Strata. Obviously, Strata is part of the new appetite for this agency. Is this acquisition in any way pre-empting any changes to CHU's appetite under CBA's new arrangement next year?

No.

Perfect. And then just finally, in terms of Slide 13. Just can you give us a bit of color what did this agency actually earn any profit share revenue in FY '23, please?

Yes, they did. That's powerful for the fact that they've got this really great risk selection and underlying results. But obviously, the quantum and the calculation process, it's commercially sensitive, as you can imagine. So we don't particularly disclose that component.

Of course, that makes sense. And then just maybe a very quick final one just in relation to Slide 23. In relation to the additional $120 million debt ceiling, can you give us some color on what additional charges you will need to pay for having that sitting there?

So at the moment that accordion facility sits there, there is no actual fee for having that accordion facility there. So it's only a structure that I start paying anything on if I were to activate it. So it's a lovely buffer to have there at the right time, if I needed it.

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

Okay. Thanks, everybody, for participating. We're very excited about this particular move. It's something we've been watching for some time, and we think it's going to be fantastic for the consumers in North Queensland and ultimately, the consumers around Australia. It allows another provider in the house market to actually come in at a cost structure to operate considerably less than the major insurers operate under. So thanks for your time. I appreciate your interest in what we've done today. Thanks very much.