Outsurance results for the year ending 30 June 2004
OUTsurance, the direct short-term insurance operation in the RMB Holdings and FirstRand stable, posted strong results for the financial year ending 30 June 2004. Net premium income equalled R1.4 billion, a 51% increase compared to the previous financial year. Headline earnings increased by 104% to R203 million (2003: R100 million). Willem Roos, Joint Managing Director, says, "OUTsurance continues to grow and perform extremely well. We are proud to have become an established and trusted brand in a relatively short space of time."
Underwriting profits rose by 93% to R325 million from the R168 million achieved in the previous year. Roos highlights the company’s lower expense ratio as one of the main reasons for the increase in underwriting profit. Expenses (including advertising costs) as a percentage of net premium income, decreased from 20% to 18.2%. The current market average is 27%. Roos says "OUTsurance’s model of dealing directly with clients contributed greatly to its better expense ratio. We do not pay any commission to intermediaries. This enables us to offer our clients better value for money, and still maintain our profitability." Roos also believes that given OUTsurance’s in-house expertise, it can provide sound advice to clients regarding their short-term insurance needs.
During the past financial year OUTsurance paid R25 million in OUTbonuses to clients. Roos says that when the company launched the OUTbonus concept, many industry observers were sceptical about its feasibility. "Since starting the company we have already returned more than R60 million to clients in OUTbonuses and we are the only insurer to have actually paid something back." Roos also points out that the OUTbonus is fully provided for as and when premiums are paid and consequently OUTbonus payments will not skew current or future profitability.
Claims and OUTbonuses, as a percentage of net premium, equalled 58.5% compared to 61.8% for the previous period. "Unusually clement weather conditions, a reduction in replacement cost of electronic goods due to the strong Rand and significantly lower crime related claims all contributed to the improvement", says Roos.
OUTsurance has seen improvements in vehicle hijacking, vehicle theft and house burglary statistics. Roos believes this is a positive development for the country as a whole: "The South African Police Service deserves a lot of credit for these positive trends." As part of OUTsurance’s social responsibility initiatives, the company has sponsored the SAPS’s Gauteng Anti-Hijacking Team.
Roos also dispels the recent notion that Pretoria is the new "hijacking capital" of South Africa. "OUTsurance’s statistics indicate that Pretoria has a lower hijacking frequency than Johannesburg and Durban, although it is higher than Cape Town. Given the fact that OUTsurance utilises individual risk rating, we can offer very competitive premiums for many areas throughout South Africa."
Roos cautions however that the frequency of road accidents in South Africa still remains high: "This is of particular concern as accidents are the major portion of OUTsurance’s claims outflow". The increased sophistication of newer vehicles continues to put upward pressure on repair costs. For example, the replacement of airbags following an accident significantly increases the cost of repairing a vehicle.
Clients can however expect to benefit from the favourable loss experience. OUTsurance plans to revise premiums on average by only 4.8%.
Collaboration with the FirstRand Group during the past financial year has been particularly successful. OUTsurance provides a cell captive facility for WesBank and homeowners cover for the clients of FNB HomeLoans and RMB Private Bank. For the period under review, 35% of OUTsurance’s premium income was sourced from FirstRand. OUTsurance has also achieved success in cross-selling its personal lines product into the FNB client base.
Business OUTsurance provides cover to small and medium sized businesses. During the financial year the new venture gained significant traction, providing 10% of total new business written during the last quarter.
At the year-end the group had total assets of R1.5 billion with a solvency margin of 42% (compared to the regulatory requirement of 25%). OUTsurance will also declare a maiden dividend of R150 million which will reduce the solvency margin to the company’s long-term target of between 30% and 35%. OUTsurance’s healthy financial position, together with the stature of its main shareholders, FirstRand and RMBH, underlines its excellent claims paying ability.
Commenting on prospects for the coming year Roos says, "OUTsurance expects to continue growing by offering awesome service and value for money to clients. We also plan to introduce new innovative products during the next year which could provide further impetus."
For more information, contact Willem Roos on 012 673 3098 or 083 612 0951.