I would now like to hand the conference over to Mr. Anthony Brown, CEO. Please go ahead.
Thank you, and good morning all. Welcome to NobleOak Life's Financial Results Presentation for the First Half of Financial Year 2025. I'm Anthony Brown, CEO of NobleOak, and I'm joined today by our CFO, Scott Pearson. I'll begin with an overview of the highlights from the half before handing over to Scott to cover off the financials. I will take you through an update on the outlook for the remainder of 2025, and then we'll open up for questions. Going to Slide 4. Before we get into the highlights of the results, I'd just like to start on Slide 4 with a brief overview of NobleOak and what differentiates us in the Australian market, just to provide some hopefully useful context. In short, we're Australia's fastest-growing and most-awarded direct life insurer, and as a leading challenger brand in an AUD 11 billion growing industry, being the individual life insurance market.
Our market share is growing quickly thanks to our diversified strategy with both direct distribution and our strategic partner model, and ongoing investment in technology and product innovation. We really commenced our life insurance business about 13 years ago because we believed Australians really deserved better, and our unique culture and genuine customer focus continues to be reflected in our high team engagement and customer advocacy scores, and we're very proud of those lead indicators. We have a robust capital position that's improving as we organically generate cash now, providing a platform for future growth and shareholder returns. Slide 5 shows the NPAT of these factors with market share gains in both the direct and strategic partner channels on the left side chart. Through very strong growth in in-force premium, shown in the middle chart, which is a key value driver providing annuity stream revenue to NobleOak.
Combined with our financial discipline, we delivered strong and consistent profit growth as well, and that's shown in the chart on the right. The light grey bar represents six months only. Turning to the highlights for the year on Slide 6, the strong in-force premium and profit growth shown on the previous slide was also supported by continued investment to enhance our omnichannel customer experience. By omnichannel, we really mean the mix of both our digital and phone-based service tailored to the customer needs. The types of activities we're investing in to enhance this experience include improving the auto-acceptance rate, which is the percentage of customers that are accepted through our online digital portal from leads right through to sale. We've made use of analytics and AI to deliver better customer insights and underwriting performance, which will be shown in the first half results.
Having reached an important point of organic capital generation, we're able to support accelerated growth and even consider dividends in the future. Late in the year, we acquired the trailing commission and 50Up Club platform business from RevTech Media, and this acquisition is value accretive, delivering annual free cash flow and profit, as well as continued access to 480,000 members of the 50Up Club without any ongoing commissions required from NobleOak. It's in line with our risk appetite and our diversified growth strategy. Now to the numbers. On Slide 7 shows the financial highlights from the half. I'll touch on these and then pass over to Scott. Our strong in-force premium growth of 20% over the 12-month period to AUD 423 million resulted in further market share growth, and our lapse rate remains better than industry.
Underlying NPAT grew by 11% over to AUD 8.7 million, driven by our disciplined underwriting and expense management, delivering underlying earnings per share of AUD 0.097 on a fully diluted basis, and our capital position remains strong with AUD 6.3 million of assets above our target capital. Overall, we're really pleased with our first half-year performance. Hopefully, you are too, and I'll hand over to Scott to look at our financials in more detail.
Thanks, Anthony, and good morning all. Being on Slide 9, I'll start with the financial performance at a group level. As Anthony mentioned, we achieved a 20% growth in in-force premiums as we continue to gain market share, which is now 3.7% of industry in-force premium based on the most recent APRA data. New business sales grew by 15% to over AUD 30 million, benefiting from increased market activity as NobleOak maintained a market share of new sales of 12.9%, well above our long-term target of 10%. With new sales market share of between three and four times our existing enforced market share, we are continuing to capture market share from our competitors. Our lapse rates remain well below industry average, and importantly, our net claims experience is in line with our expectations.
Our disciplined underwriting, conservative risk retention strategy, and limited exposure to the older income protection products continue to deliver stable insurance margins. As the chart on the left shows, our stable net margins drove an 11% increase in Underlying NPAT to AUD 8.7 million. Now looking at our three business segments in more detail, beginning with our direct channel on Slide 10. Direct in-force premium grew by 12% to over AUD 96 million, and we have now over 9% market share of the direct in-force premium in the market.
Our strategy is delivering results with our targeted investment in digital marketing, alliance partnerships, and our customer experience continues to drive growth in our market share. The underlying insurance margin has remained at a stable level, with expense ratios relatively stable after increased investment to maintain our market-leading customer experience. Thanks to this margin stability, Underlying NPAT was up 7% to AUD 3.2 million.
Now looking at the strategic partner channel on Slide 11, in-force premiums grew by 23% to nearly AUD 327 million, driven by a 19% increase in new business sales. This is reflecting 12.5% of market share of sales in an improving market, which is an important factor today. NobleOak's contemporary products, high-quality service, and strong partnerships with NEOS and PPS are continuing to drive market share gains. We maintained a strong underwriting performance with overall net claims in line with expectations with our conservative risk retention strategy and the advised business providing margin stability. Expense ratio remains attractive and continues to benefit from operating leverage and financial discipline. This resulted in NPAT growing by 11% to AUD 5.0 million. On Slide 12, we'll see the performance of our administration business, Genus, which manages run-off portfolios.
in-force premium under management actually reduced less than expected to just under AUD 24 million, delivering a AUD 0.4 million in Underlying NPAT. Moving forward, we expect returns to be more normal run-off pattern of between 5% and 10% per annum. Turning to Slide 13 and looking at capital, we can see here that we've continued to generate capital after reaching an important inflection point in FY2024, where we became cash flow generative for the first time since becoming NobleOak back in 2011. This is an important milestone for NobleOak. As of 31 December 2024, our capital base was AUD 46.0 million, reflecting a capital adequacy multiple of 194%, with a healthy surplus of AUD 6.3 million above our internal targets. Assets above target were NPATed by the AUD 2.7 million used for the RevTech acquisition, and importantly, underlying business delivered positive capital generation during the half on an underlying basis.
This marks an exciting phase for our business, with the expectations of ongoing capital generation opening up future strategic options. Our main priority remains driving organic growth in our business through investments in our brand, our marketing, product innovation, and distribution channels. We will, of course, also consider opportunities for organic and inorganic growth, ensuring they meet our target return benchmarks. We are entering an exciting phase where we can even evaluate the potential for future dividends. Overall, a very pleasing set of results to present to the market today, and with that, I'll hand back to Anthony.
Thank you, Scott. Before I cover business highlights, I just want to talk a bit about how we continue to invest for our long-term success on Slide 15. You can see at the bottom at the heart of NobleOak is our distinctive culture, challenger culture, dedicated to prioritizing our customers. Of course, we continue to invest in building and maintaining this culture. It really forms the platform for our ongoing success. Integral to this culture and our capabilities is, of course, our business and operational discipline. Since we commenced our direct strategy 13 years ago with just six people, we've really maintained this discipline. This covers our management of expenses and capital, how we write and oversee our business, and how we meet our customer and regulatory expectations. We believe the disciplined approach is crucial for a life insurance company, given the long-term policies that we write.
We remain committed to ongoing investment in our business, client experience, technology, and product offerings to maintain our competitive edge. This allows us to adapt and change to meet and exceed customer needs. Finally, this we believe results in growth. These efforts collectively help drive continued growth in market share and in-force premium, which in turn generates steady ongoing revenue and supports both profit and capital growth. It is a simple way of looking at how we build long-term business value and improve short-term annual results. Just turning to Slide 16, you can see we further progress key priorities in the half focused around our three strategic pillars, being to further lead in direct, drive growth in strategic partner channel, and capture scale advantages.
This half, we focused on investments to build and maintain our leading position in the direct market, including we launched a new direct life insurance and income protection product with a 10-year benefit product, which is unique in the market, plus other enhanced features and pricing. Onboarded five new life partners and continued our award-winning streak, including winning the Canstar Income Protection Award for the 10th year in a row, which was a huge milestone for the business and is clearly unprecedented. The team was also excited to launch a refresh brand campaign, and I'll touch on that in a moment. In our strategic partners channel, we implemented new pricing, onboarded a new reinsurer for PPS, and continued to manage our regulatory capital. We also progressed well in developing a new life insurance product, which will support the growth in the strategic partner segment at a later date.
As we grow, we continue to explore ways to optimize our business efficiency and maximize the benefits of scale. This half, we generated further cash flow and improved capital position, which enabled us to fund our organic growth plans, and we also completed the RevTech acquisition and have commenced discussions with advisors to further look at other potential inorganic opportunities. Next slide. As touched on earlier on Slide 16, you can see in more detail how our investment in brand and distribution continues to drive growth in our direct channel. We're delighted to have remained Australia's most awarded direct insurer for the sixth consecutive year and winning the Canstar Direct Income Protection Award, as I mentioned. We are very excited to have launched our brand campaign featuring the familiar NobleMan character.
After a few years out of the market, we do expect that this campaign will drive more brand awareness and sales in our direct channel, which it did when it was previously launched, both with prospective direct online customers and through our alliance partners. Turning to Slide 19, looking ahead to the second half of 2025, we will continue to focus on executing our diversified growth strategy across all three strategic pillars. In direct life, we'll build on our position as Australia's leading direct life insurer and invest further in our omnichannel experience and streamlining our operations, as well as driving growth through brand and partnerships to strengthen the brand, while also focusing on customer retention. In the strategic partner channel, we'll continue to build and support our network of advisor partners, including through improved pricing and new products.
As far as scale goes, we will also continue to leverage the RevTech 50Up Club members and focus on driving capital generation while leveraging our new analytics capability and AI for better customer insights and optimized underwriting and marketing. We'll continue to streamline our compliance and risk management processes also. Turning to the outlook for financial year 2025 on Slide 20, in an environment where we are now seeing improved industry sales volumes, we do expect to continue to outperform, achieving above-market in-force premium growth. This, we believe, will be driven by a high share of new business sales and better-than-market lapse rates, and we remain committed to maintaining our strong financial disciplines while we invest in growth.
I believe we've got the best team at NobleOak we've ever had, and we'll continue to invest in developing our world-class team, including further building our actuarial capability as we reduce some outsourcing to external firms and hiring roles to support growth. We'll also maintain focus on enhancing our customer experience and streamlining the digital journey to drive better customer outcomes. We're focused on executing our diversified strategy to drive organic growth through innovation, while also selectively evaluating inorganic opportunities where they make sense. Our sound capital position enables us to deliver our growth plans as we've reached our cash flow generation, as mentioned. After such a strong half, I'm really excited about the outlook for the second half and look forward to updating you further on our progress at the full-year results in August.
Before opening to questions, I just wanted to say a huge thanks to the NobleOak team for their enormous efforts over the last six months. Thank you to our board for their sound governance and counsel over the period, and of course, to all our shareholders for your ongoing support. It is greatly appreciated. Thank you very much, and we'll open up for Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question is from Nick McGarrigle from Barrenjoey. Please go ahead.
Hey, guys. Thanks for taking questions. I just wanted to ask about sales in the direct channel. I think there was a comment around redeploying capital to M&A and other initiatives and not into growing that book. I guess with that pivot into the second half, what should we expect in terms of margins in the direct channel and what are your expectations around growth rates on new business sales in direct?
Yeah. Hi, Nick. It's Anthony here. Yeah, we decided to divert about AUD 1 million from the direct channel to support the purchase of the 50Up Club, as you mentioned. We did expect that to have an NPAT on the first six months' sales. We do see that more of a timing because we are investing in the direct channel in the second half, and we're hoping to kind of recoup that sales volume. We are still really optimistic about hitting similar levels to what we were originally planning for for the year.
Sorry, what was that? I guess you did. You were kind of five in the first half, which was flattish on last year. The expectation was a full-year growth of 5% or 10%. What's the kind of what does that imply for the second?
Thanks. This is Scott. We haven't sort of quoted trajectories, but as you say, it was down to 4%. We do expect it to recover and exceed last year's numbers by the end of the year. As Anthony mentioned, as we were sort of at December, our proposition actually has been proved to be strong, which, so we're actually reinvesting. The second comment to make is that we're also launching that or relaunching that brand campaign. We're expecting to actually have just give us some great strides in the second half to actually see that growth that we look for.
What does that imply for margins in the direct channel? I guess you've had NPAT margins improve versus where they were in the second half, I think, presumably partly because of claims expense moderating. What does it imply for margins? I guess wrapping that up with the 50Up Club acquisition as well.
I think we've noted that the acquisition happened on the 15th of December, so there was not a lot of benefit in the first half, but we will see, I think we've noted in our presentations, that we should see an annualized improvement in our margins by about $1.5 million per year due to the acquisition of the RevTech acquisition. You'll soon see half of that in the second half, and that will come through at an improved margin as a lower commission expense.
Okay, cool. I guess in terms of lapses, it looks like we saw that moderate a little bit into the first half versus the second half of last year. Is that what you're seeing? Less pressure and less kind of partial reductions and other things?
There still is a cost of living pressure in the marketplace, and actually lapse rates across the industry have continued to increase. We have seen our lapse rates continue to go up, actually, Nick, in both segments, but they still remain well below the industry average. We obviously, our strategy is to continue to invest in our retention opportunities and customer experience to keep them below the industry average.
Okay. I guess there's been new alliance partners. I mean, presumably that feeds into your expectations around sales growth in the second half in the direct channel.
Yeah, that's right. Our key channels for direct, Nick, are really the alliance partners and our digital direct marketing channel. We are investing further in both of those channels. We still think that they've both got a lot of opportunity in them, both with our existing alliance partners and new ones. We certainly see those as the two growth channels going forward.
Maybe just onto the strategic partners channel, that growth there seems to have rebounded nicely in terms of new business. It feels like it's back to almost peak levels in terms of where you were pre the IDII changes. Any kind of color you can provide us around end markets? Is it presumably predominantly growth in NEOS that's helping improve that direct, sorry, that strategic partner sales number?
Yeah, I mean, both channels are going well. PPS and NEOS are both travelling very well for us and growing nicely. We're sort of back to where we thought we would be, so there's no great surprises from our side. They have both got unique propositions in the market, which seems to be connecting well. They have also got the tailwinds now where the retail market is actually finally growing at quite a reasonable rate. That is really helping. As you said, they have kept their market share back to where they used to be, which is probably we're not expecting that to change a lot.
They are also finally enjoying a kind of a growing market as well. I think the advisor market sales grew by about 22% in the 12 months, in last 12 months in the aggregated, which was quite a healthy growth after five years of reductions. They are maintaining their market share, seeing the sales growth in that segment.
Right. I don't know if you can provide a comment on claims experience and how you've seen that track, particularly in the last six months.
Yeah. Nick, it's Anthony here. Look, I suppose we're not immune to some of the claims experience that we've seen in the industry around some of the older products, particularly with income protection. I suppose there's three main aspects of NobleOak's business model, which reduces our volatility to those pressures. One is, as you know, we have much lower retention than the average insurer. Our direct portfolio, we only retain 30% or so of risk, depending on the product. Our strategic partners is closer to the 10%. The second factor is being a smaller challenger brand. We're able to tighten our underwriting. We've got very focused teams, one in NobleOak, one in NEOS, and one in PPS. We manage our underwriting discipline very tightly, so we're very confident in the risks that we're writing.
The third one is we're actually just not that exposed to the older income protection stock products, mainly because we haven't been around for that long. NobleOak Direct, in particular, only has quite a small portfolio of income protection. We don't expect to see the same level of volatility as some other insurers, and our model is really focused on maintaining very stable margins.
Cool. Maybe a final question from me on investment income. It looked like it was about a 3% rate over the financial assets on the balance sheet. I mean, with the rate cut the other week, is it how much of it is kind of shorter duration? What should we think about in terms of investment income moving forward?
Yeah, thanks, Nick. Scott again. Of our investment portfolio, there's about AUD 100 million or so that actually has returns that go through to our bottom line. It is all pretty much short duration. The 25 basis point reduction is going to be proceeded by about AUD 250,000 per annum.
Okay. Great. Thanks for taking those questions.
Thanks, Nick.
Thank you. The next question is from Philip Pepe from Shaw & Partners. Please go ahead.
Hi, guys. Thanks for taking the question. And well done on a good first half result. Look, Nick's asked 105% of my questions, so I might just ask one elaboration question. You mentioned M&A a few times. What segments, what's on your wish list? What segments might be appealing to sort of add to the offering?
Yeah, thanks, Philip. It's Anthony here. I suppose the segments we're looking at haven't really changed from what we've talked a bit about before. If there's any potential M&A opportunity that opens up distribution for us or has a complementary product that we might be able to market to our existing customers, then we'd be open to it. Plus a smaller rundown books that we can put into the Genus portfolio. 50-up sort of matches that because it's both got an ongoing revenue stream and there is a distribution channel.
That's why that sort of fitted into those criteria. We keep looking around. We do have quite hefty return targets, and obviously our share price isn't quite where we want it to be. We're kind of aware that we'd be looking at targets that we can fund or find other kind of financing arrangements for, that we wouldn't be looking to raise a lot of money to fund something at this stage.
Understood. Thank you. Yeah, well done again. Thank you, Nick.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question is from Fred Woollard from Samuel Terry Asset Management. Please go ahead.
Hi, there. Good morning. That's a good-looking result. One that did surprise me was Genus. As you said, I've gotten used to that dropping at 5-10% per annum for obvious reasons. Why did that hold up so well?
Thanks, Nick. Thanks, Fred. This is Scott. Essentially, the portfolio has sort of stabilized post the remediation activity happening a couple of years ago. Through that remediation activity, we've seen most of the people who wanted to drop their policies sort of leave at once. It has been quite healthy and stable over the last 6- 12 months or so. We do expect that to return to more normal levels in the future, but it certainly did hold up nicely in the last 12 months.
Okay, thank you.
Thank you. The next question is a follow-up from Nick McGarrigle from Barrenjoey. Please go ahead.
Thanks. I'm back to ask 110% of my questions. I was going to just touch on you mentioned that the cash flow position of the book now means that you can self-fund growth in terms of new policies. I think there was some maybe there was a perspective in the market, given the messaging around the IPO, that you'd have to potentially raise money on a three-year view out from the IPO. I guess I just wanted to clarify that as the inforce book grows and hopefully new sales increase, the expectation is you don't need to raise capital to fund that organic growth. Just wanted to clarify that and get that out there.
Yeah, that's a good and correct summary, Nick. We are really pleased to have reached that inflection point where we're seeing underlying capital generation. We do believe that we will be able to fund organic growth. Obviously, as Anthony mentioned, inorganic might require alternative strategies. Yes, capital generation means that we should be able to fund our organic growth without raising.
Maybe you can answer this question for me, given I don't have a great understanding, less of an understanding around capital requirements. If you were to raise debt or use that capital to buy back shares, does that have an NPAT on your capital position? Is it inefficient for you to be buying back shares?
I'll answer the regulatory piece around if you raise debt. Debt is an option, but it's not necessarily a particularly efficient option for insurers. The debt has to be very long-term to be actually accounted as regulatory capital. If it actually has less than a five-year horizon, you actually have to discount it heavily. Debt's not really an option and therefore not something we would probably consider to support capital returns.
Nick, the second part of your question, I think I know where that's coming from, by the way. Look, we are positive cash flow generative, as mentioned, and that does open up options for us. Organic growth is definitely a high-value, accretive strategy for us. Potentially inorganic growth opportunities could be good as well. As we mentioned, we are looking at the potential of also in the future passing back capital to shareholders, which could be through dividends or other mechanisms.
At the moment, we've got so many opportunities in the business and we are a growth stock. The board has decided to talk about the capital at the end-of-year results and looking at other options such as dividends at that point. The important thing is we're in the best position capital-wise that we've been in for the 13 years that I've been in at NobleOak and for all of us have been at NobleOak. To have those options later on is fantastic.
Great. Thanks.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Brown for closing remarks.
Thank you very much. Thanks for those questions too. They're really appreciated. In conclusion, I just want to say a massive thanks to the NobleOak team for their passion and dedication during the last six months. I'm really proud of what they've achieved. Also, of course, extend our thanks to the shareholders for their support. I'm personally deeply committed to NobleOak. I love the business. While I personally believe it's significantly undervalued, I'm confident that if we just focus on ongoing performance, continued success, we'll see some value accretion in the future. Thank you very much for dialing in, and we look forward to seeing some of you soon.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.