Ladies and gentlemen, thank you for standing by, and welcome to the Clearview Wealth Limited's FY 'twenty one Results Conference Call. At this time, all participants are in a listen only mode. I must advise you that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Emerging Director of Clearview, Simon Swanson. Thank you.
Please go ahead.
Thank you for dialing in today. I'm joined this morning by Athol Chirtt, ClearView's Chief Financial Officer. In a moment, Athol will take you through ClearView's half year 'twenty one result, but first I'll provide an overview and business update. There will be time for questions at the end. Page 2 provides a results snapshot.
Despite challenging market conditions, the business performed strongly due largely to improved claims management outcomes. For the half year, operating earnings increased 39 percent to CAD13.1 million and reported net profit after tax remained flat at CAD9.7 million. Dollars Life insurance in force premiums rose 8% and gross premium income increased 7% to $133,300,000 Life insurance accounts for 95% of the group's operating earnings. Overall, the business has proven very resilient to COVID-nineteen impacts, leading to the Board's intention to reinstate the financial year 2021 final dividend, subject of course to second half performance. FY 2021 is an important transitional year for Clearview with key transformational projects underway, including the development of a new life insurance policy administration system, underwriting rules engine and life insurance product series.
I'll provide an update on Clearview's multiyear transformation program in a moment. Turning to Page 3, group underlying net profit after tax increased 29% to $13,000,000 in the first half 'twenty one, buoyed by 55% increase in life insurance operating earnings. Amidst ongoing structural regulatory change, Clearview's strong first half twenty twenty one performance was driven by improved claims management outcomes and limited COVID-nineteen related claims. That said, ultra low interest rates continue to adversely impact earnings on physical cash. The implementation of income protection price increases during the half also contributed to a lapse experience loss.
The positive half year 'twenty one life insurance result should also be viewed in the context of overall industry performance amidst extremely difficult market conditions. For the year ending the 30 September 2020, the life insurance risk industry products lost just over $1,500,000,000 largely attributable to a $1,300,000,000 loss on income protection. This extended 5 year industry IP losses to over $3,300,000,000 In response to this deteriorating overall industry performance, APRA has intervened to start forcing structural change in the industry. Following APRA's letter to insurers in late 2019, ClearView was the first to cease the sale of agreed value contracts and subsequently implemented price changes in the region of 15% on average across the portfolio commencing in April 2020. Improved rationality in the industry is starting to take effect across the market.
Pages 45 outline Clearview's strategic priorities and our progress towards these objectives. The next 12 to 18 months are critically important for ClearView as we work to deliver key milestones across our three segments of life insurance, wealth management and financial advice. These projects will enable ClearView to deliver simple, effective products and services that are fit for purpose and provide greater certainty for customers and advisers. They will also ensure that ClearView remains easy to do business with for both customers and advisors. Importantly, our transformation program will lay a strong foundation for ClearView's future growth and success, and our transformation program is on track.
We have commenced the build of a new contemporary policy administration system, underwriting rules engine and life insurance product series to meet the 1st October deadline for APRA's sustainability measures. In Wealth Management, the focus is on transitioning our RAP platform to Hub 24 to deliver greater choice, functionality and flexibility for both customers and advisers. Repositioning our Wealth business to scale is a key strategic priority as the integration with our Life Insurance business is an important strategic imperative. In Financial Advice, ongoing investment in technology and governance to attract high quality financial advisors to our dealer group and our dealer services business, Lavista Licensing Solutions, is a key priority as the group builds towards scale. To date, 28 AFSLs have joined Lavista since its inception in late 2018,
and we
have a strong pipeline given the structural shifts that are occurring in the market. As articulated on Page 6, demand for the products and services offered by Clearview remains strong. This demand is underpinned by Australia's unique compulsory superannuation system, complex tax and social security rules, aging populations and rising levels of both wealth and debt. The rapid onset of COVID-nineteen only reinforced the importance of value of financial products like life insurance. Pleasingly, ClearView was ranked number 1 by advisers for supporting customers suffering financial hardship due to the impact of COVID-nineteen.
While the numbers of Australians who have succumbed to COVID-nineteen has been relatively low compared to other parts of the world, it has reminded us all that sickness, disease and possibly death can strike anybody at any time. It has highlighted the tangible benefits and enduring relevance of life insurance for individuals, households and society. Staying on the subject of life insurance for a moment, the industry is undergoing significant change. The table on Slide 7 outlines APRA's IDII sustainability measures and ClearView's response. It also reinforces our deliberate decision to participate only in the advised life insurance segment.
I'll now hand over to Athol to talk about our half year 'twenty one results in further detail.
Thank you, Sam. Turning to Page 8, Our operating earnings for life insurance increased 55 percent to $12,400,000 Life insurance contributes 95% to group operating earnings. Material improvement in life insurance profitability in half year 'twenty one is driven by the strong underlying claims performance that is measured relative to the material changes that were made to the assumptions at 30 June 2020, including an allowance for potential COVID-nineteen impacts. The key performance drivers included our strong claims performance in half year 'twenty one compared to assumptions, less performance adverse to expected overall with some variances in performance between products, the impacts of the reduction in interest earned on physical cash backing and the impact on expenses from the investment in key projects, claims management and the retention focus adopted in half year 'twenty one. In the second half of FY 'twenty one, ClearView's focus remains on retention initiatives, considering the repricing and COVID-nineteen impacts, claims management, continuing to review our pricing profile and addressing the fundamental issues with RP products offered in the market.
Is anticipated that structural change, the return of rational pricing, the implementation of the new contemporary platform and the launch of new products will see new business volumes increase over time. Turning to Wealth Management. Funds under management increased to $3,000,000,000 However, funds management fees declined to $15,500,000 due to margin compression and a change in business mix. The segment's cost base has also increased due to the higher cost of shared services, technology and regulatory costs. Our sweet spot remains in the advanced mill market looking for unitized super and non super solutions.
Our broad range of implemented model portfolios giving Vestas the flexibility to make manager and asset allocation decisions based on their needs, objectives and risk profile. On the next slide, financial advice operating earnings before tax increased to $800,000 during the half, up 60%. Net financial planning fees decreased by $1,700,000 or 19 percent to $7,100,000 Membership fees increased from the implementation of the new pricing model and the transition of older franchise agreement to the new pricing model. Changes to remuneration and fee model in the dealer groups were introduced on 1 November 2019, representing a fair and more sustainable revenue base. The launch of Lavista also allows Clearbit to provide business support services to advisers who have obtained their own ASSL with recruitment now gaining traction.
The fee income generated from membership fees as a result of these changes increased by $900,000 including a contribution of $600,000 from LaVista. The increase in sustainable revenue was offset by a reduction in grandfathered revenue streams and a material decline in the financial support received from other Clearby entities. Operating expenses reduced by 30%, driven by decreased overhead costs and completion of the advanced remediation programs. These outstanding remediation programs have now been completed. On Slide 14, the balance sheet reflects net assets as of 31 December 2020, which increased to $462,200,000 and the net asset value per share of $0.72.6 per share.
We have a strong balance sheet that now includes the $75,000,000 raised by the Tier 2 capital raising. We have an embedded value of $635,700,000 or $0.94 per share that reflects the recurring revenue nature of the in force portfolio and is in effect a discounted cash flow without taking into account new business flows. We have $25,900,000 surplus capital above internal benchmarks at 31 December with the buildup of the tax credit issue resolved and the asset concentration risk addressed in the medium term. Our capital base is backed by net cash and investments of $350,000,000 or $0.52 per share, and the capital base is resilient to various stress scenarios. I'll now pass back to Simon to talk about the business outlook and wrap up.
Thank you, Athol. FY 2021 is a base transitional year as the industry shifts over time to rational pricing, increasing life insurance sales and sustainable product features. In light of the group's first half performance, the Board has provided updated FY 2021 guidance of underlying net profit after tax in the range of CAD21 1,000,000 to CAD25 1,000,000 The Board has indicated plans to reinstate the FY 2021 dividend subject of course to second half performance. This includes the $1,000,000 impact on underlying net profit after tax in the second half from interest costs associated with the subordinated debt that was raised in November 2020. Dividends are now based on the operating earnings after tax metric to better reflect the impact on earnings of the ultra low interest rate environment and changes in capital structure of the business for the successful issuance of Tier 2 notes.
The business has proved resilient to both the health and economic impacts of COVID-nineteen to date. The Afra individual disability income protection sustainability measures are likely to improve industry performance in the medium term with underlying margins and return on capital improving. Clearview has a strong balance sheet and capital base resilient to various stress scenarios. There are early signs of traction from key actions including the shift to a line of business structure, improved capability and capacity. The business is on track to meet its full year 2021 goals and our view to launching new products on a modern technology platform, thereby accelerating new business growth.
That said, we continue to keep a close eye on COVID-nineteen developments, prioritizing the health and safety of our staff and customers. While roughly 90% of staff are back in the office 2 to 3 days per week, we will quickly adapt our responses if required. In closing, I'd like to thank you for dialing in today. I'll pass back to the operator to open up for questions.
Thank you, Simon. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Glenn Welham from MST Financial. Please ask your question.
Yes, good day, guys. Just a couple of questions from me. First of all, well done on a great result. As part of the Life company, there's been considerable improvement in the experience. I'm just wondering what the outlook, as you said, going forward for that experience would be?
I think, Glenn, from a perspective, like I think we've been pretty pleased around the claims outcomes and the processes that have been put in place. I think we've tried to encapsulate that into the guidance. I think what we will reassess at June is the COVID overlays or the COVID assumptions. We have said through the documents that at this point in time, given the potential effects of JobKeeper, whilst the economic data is a lot better than initially anticipated, at the same time, the effects of government assistance programs and the like are yet to come off. And once we've got a few a bit of flow through, through that, we'll be in a better position at June to reassess that assumption as well as the shift to the new RDR tables as part of the APRA DI action plans.
So I hope that answers the question, but that's
Yes. I might add a bit to that too, Glenn. The I think for COVID, when we did the assumption changes, we expected a bit of a spike in claims. I think a couple of things have played out differently apart from the economic impact. There's also been the rise of telehealth.
And I think telehealth has helped people have conversations a lot earlier than they normally would have done. And therefore, the interventions happened earlier, therefore, the outcomes improved. So all in all, it's been an interesting year as far as managing claims go. So and I agree with Athol totally that we'll revisit assumptions in June and take it from there.
And just on the quantum of the COVID provisioning, what were we talking? How much were we provisioned?
I think we had talked about a lot of detail in the June annual report in terms of what we allowed for in RP was both an increase in incidence of claims as well as then a change in the termination rate, which was an allowance around how long people would be on claim for. And the reserve change for that off the top of my head at June was around $1,800,000 that was in the numbers that affected the overall June result because that affected the balance. So I think it's something that just you still assume for the 2nd 6 months in terms of the same assumptions as we outlined at June, and we'll reassess it at June for the further outlook that we come out with at the full year.
Yes, we had a, I think, 2.5% increase in suicide allowances on lump sums and for this financial year and 1.5% for next financial year.
Okay, great. Thanks for that detail. And just on that new policy administration system for the life company, what kind of benefits can we expect longer term from that?
I think there's a host of benefits around efficiency service, ease of doing business, data, new product and sort of having a modern contemporary technology platform. So everything that you'd expect from a normal business case, like in terms of a spend of that quantum.
But that will be the benefits will flow next year or
the year after 3 years? Yes. It's a multiyear program that the first phase is really new product and new system and off that then the existing flying onto the new system over time.
Yes. Okay. Cool. And just one final question from me. Just in terms of that preference for buybacks versus dividend, What's your thinking around that at this stage?
I think the Board was quite explicit in terms of their intention to reinstate the dividend subject to second half performance and capital position. So I think that and the outlook, I think, we've been quite explicit around that.
Yes. So the house view is we prefer to pay a dividend than do a buyback at this stage.
Your next question comes from Philippe Pepe from Blue Ocean Equity. Please ask your question.
Thanks, guys, and well done on a good first half result. Just curious on the pattern of new business sales as we come out of lockdown and head back to CBDs and how perhaps Melbourne may be performing versus the rest of the country? And was January any different to Q2 of last calendar year?
I'll just speak to the Victorian, if I can just call it Victorian sales, Pelop. Obviously, during the lockdown process, Victoria performed worse than the other states during the half year. As for January, we'll comment on that after everything comes down.
Understand. Okay. Thank you.
There are no further questions at this time. I would now like to hand the conference back to Simon. Please continue.
Look, thank you all very much for joining the call this morning, and we look forward to keeping you updated during the year. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.