Good morning, everyone. Welcome. Thanks for the opportunity to present to you on the Financial Results of the OUTsurance Group for the Six Months Ending 31 December 2024. As usual, I'll be taking you through the operational review, and then I'll hand over to my colleague Jan for the financial review, and then I'll close things off with the outlook and strategic focus areas. To start off with the macroeconomic trends, as always, these do impact on our business to a certain degree. Starting off with CPI inflation, you can see that in all three of our key markets, CPI has been trending downwards.
As we made the point previously, whereas historically CPI and claims, and therefore premium inflation, have been quite correlated, in recent years we've seen some dislocation. The reasons for that is firstly, I mean, frequency. Frequencies have not been stable, especially if you look at something like natural peril claims. Frequencies have been on the rise, and that drives some real growth in claims inflation and therefore premium inflation. Also, on the average claim size, if you look at the car or the vehicle aspect, we have new technology fitted to vehicles, which is driving repair costs to be increasing faster than CPI.
Similar on the home side, I mean, a technology like solar panels is driving big fire claims and big hail claims to be larger than previously. While the general direction of travel for CPI is downwards, and we do expect claims inflation to also moderate, we do expect a portion of real growth to remain there because of these trends, which I highlighted. As we've seen, and we'll speak to it a bit later on, we've had Cyclone Alfred in Australia, and that's also likely to slow the moderation of claims inflation somewhat. That's the overall outlook on CPI inflation and how it is likely to impact on our growth.
If we look at interest rates, that's also moderating, and as such we do expect investment income to moderate somewhat. One important thing to note is if you look at the composition of our earnings, investment income is a much smaller portion of our total earnings than most of our peers. As such, we're a bit more resilient to reduction in interest rates. If we look at exchange rates, we can see there that the rand has been strong over the last year against all three, our sort of other trading major currencies. I mean, in terms of premium growth, that did weigh down on our premium growth somewhat, as we'll illustrate, but these things tend to even out in the long run.
As such, it is not such a major factor in the long run. If we were then to look at the individual business units and we start off with OUTsurance SA Personal, over the reporting period, premium inflation was still elevated, but as we say, it's starting to moderate in some areas. We saw a very satisfactory new business performance, despite the fairly tough economic backdrop, and the claims ratio benefited from favorable weather experience. I mean, premium growth was, gross written premium growth was 9.2%, but I think the more true number is the 10.3%, which is when you exclude the FirstRand arm's length book, which is in runoff.
We achieved 10%, 10.3%, gross written premium growth, which is really strong. In terms of profitability, OUTsurance SA Personal, operating profit, was up 34.7%, which is quite pleasing. I think if you look at our, the whole market, you'll see that most other insurers also reported on the favorable conditions in terms of the claims ratio, that we experienced favorable weather. Most pleasingly for OUTsurance, we were also able to improve the cost ratio, through various gains in efficiencies, both in the back office as well as the operational areas.
If we were then to look at OUTsurance SA Business, rate of new business acquisition was balanced against the profitable scaling of that broker channel. What we mean by that is, as you would have seen, we've reached break even and we're making a small margin there, and we just wanna gradually manage that up to our target until we get to our target margin of 15%. As flagged previously, we're working through an incremental growth of that agency force. OUTsurance business brokers margin expanded, and that was because that cost ratio is coming down as we scale, but also the claims ratio benefiting from the favorable experience.
Overall, gross written premium growth was 10.5% for OUTsurance business and 17.5% for the broker channel. Profitability up 74.9% in operating profit, and that is, as we said, with the brokers coming through that J curve and turning from a loss to a profit, making the, enabling that strong profitability growth. Looking at OUTsurance Life, we've had a strong focus to better align the product and the distribution channel. Since the discontinuation of the face-to-face channel, a lot of simplification in terms of the product and process has taken place, and we're really excited about that.
Also, IFRS 17 is proving to be providing a more stable profitability profile. In terms of growth, we saw the value of new business written increase significantly by 83% on the Back of the Direct segment. VNB margins, excluding the share-based payments, also improved from 9.9% - 18.9%. Overall, rand profitability was up from ZAR 57 million- ZAR 185 million, aided by some favorable yield movements. That is the overview of OUTsurance South Africa operational themes. If we were then to look at Youi, first off, Youi Personal, premium inflation was still elevated, but as we said, it is starting to moderate with the caveat of that, that mentioning of Cyclone Alfred.
Pricing discipline resulted in new business contraction in the Blue Zebra broker channel, and we will elaborate a bit more on that later. Claims ratio and profitability of all channels benefited from the benign weather experience, especially on a year-on-year basis, and we will also highlight that with a graph later on in the presentation. A highlight was the direct channel experience growth of 29% in gross written premium in dollar terms, and profitability was 160% higher operating profit, but as said, coming off quite a low base because of the more severe natural perils in the corresponding period.
Youi Business, slower growth rate linked to pricing discipline in the broker channel. The broker component is fairly substantial in terms of Youi's overall business footprint, and as such, that pricing discipline slowed down the growth there. However, profitability was quite a bit stronger with 127% growth in operating profit. Stepping over to Youi CTP, we saw strong gross written premium growth underpinned by the growth in New South Wales. The cost-to-income ratio continued to improve on the back of the improved scale, but also the discontinuation of the quota share reinsurance agreement in New South Wales.
Overall, gross written premium grew by 93.1% in dollar terms. In terms of profitability, a small operating loss was recorded there, and that was on the back of reserve strengthening associated with the increased cost of common law claims. This is an industry-wide phenomenon, and we have also seen that new business prices started to move upwards in recognition of the increased common law claims. It is worth flagging that we are in the process of conducting a strategic review on the Youi broker channel.
Maybe just to provide context, five years ago, at the start of 2020, when we started this broker channel, I mean, things that were top of mind at that point was that our direct business at Youi was growing quite slowly. Also, we were still quite concerned about the potential impact of self-driving cars and that it might result in slower growth in the motor insurance segment. As such, VZI, at that point, looked quite attractive because it's a business that's quite heavily weighted towards home insurance, and it was fast growing. As such, it had the potential to address stronger growth, but also diversification out of car insurance.
However, if we roll back or roll forward five years to now, then clearly self-driving cars is not as big an imminent threat as we were concerned back then. Also, through better execution, we were able to revitalize the growth of our direct business. If we looked at the Blue Zebra performance over the last five years, climate change, reinsurance market reset, and those things affected the home insurance market more than what we anticipated. As such, the VZI business has struggled to make the target 10% underwriting margin through the cycle.
Hence the strategic review, and I mean, clearly, it does appeal to us to potentially allocate more resources to the stronger performing direct business at this point in time. Also, with that in mind, we're providing some additional context just around the materiality of the VZI business. You can see there, in terms of gross written premium, for the six months under review, it contributed 15% to GWP, whereas in the 12 months to end of June, that number was 18%. That shift from 18 to 15 is just because VZI was growing slower than the direct business. In terms of operating profit, it did achieve a positive operating profit for the six months, which was good.
That said, home books benefit disproportionately from favorable weather because the natural perils component is such a large portion of your overall claims component on home insurance. I mean, if we look at the 12 months ending June, it still adds that negative contribution that we reported on end of June. This just gives a bit of context around the strategic review of the Youi broker channel. To speak to OUTsurance Ireland, I mean, I think to many of you, those pictures up there are extracts from some of our advertising there, and I think many South Africans would also look fairly familiar, the advertising.
OUTsurance Ireland officially launched in May, last year, and I mean, so far, new business volumes and the scaling is tracking in line with business plan, which is really pleasing, and it's sort of validating our choice of country, where to expand to. In terms of gross written premium, we had ZAR 80 million gross written premium for the six months, and as we flagged previously, we gradually were ramping that up as we gain more confidence in our pricing and our systems. So far, so good, really happy. In terms of the operating loss of ZAR 246 million, it's probably just worth pointing out that included in there is a ZAR 65 million reserve called an onerous loss reserve.
In terms of IFRS 17, you have to set up that reserve, and we'll unpack it in a bit more detail later on, but the bottom line, that's more a timing effect because as we approach break even, that reserve will unwind again. As flagged before, we expect monthly break even within five years from launch, so it's within five years from May last year. That's OUTsurance Ireland. Speaking to our property and casualty new business premium performance, quite pleased to see that increase of 17.9% for the last year. As mentioned, that was with two headwinds in the form of the stronger rand, but also the slower growth at Youi and OUTsurance Ireland.
In constant currency terms, you can probably add 2.3 percentage points to that 17.99%. Youi was the biggest contributor there, and as we flagged, OUTsurance Ireland's new business volumes did decrease. OUTsurance South Africa delivered pleasingly, and premium inflation still played a role there. OUTsurance Ireland, over time, will become more significant in this picture. We like to show these long-term graphs as they do bring in a lot of consistency, and they tell the story of our progress.
If we were to look at that period there from 2016 - 2018, we had really slow growth, and as we highlighted before, in hindsight, we probably underinvested in growth at that point in time. As such, to revitalize the growth, we had to invest more, not only in our core businesses, but we also invested in a number of new business ventures. I think if we look at the more recent years there, it's really good to see that the five-year CAGR is now 18.2%. I think it's fair to say we well and truly revitalized the growth.
As we highlight there, 17.4% for the last year, but in constant currency terms, that would have been 19.7%. Also worth noting just the material contribution of Youi now being at the 65% of the overall gross written premium. But then to look at the all-important, how does the top-line growth translate to operating profit or to bottom line? I think looking at those bars there, it's fair to say that there's not a perfect correlation. One thing to highlight though is on a six-month period, I mean, our results can be quite volatile just because of one or two events.
If we were to, for example, look at the December 2023 result, at that point in time, the result was weighted down by the natural perils in Australia, but then once we came to full year, the June 2024 result was still a very strong result. Just noting there that in the six-month period, it can be more volatile. If we were to then look at that same 2016- 2018 period, we see quite strong profitability there. And as flagged, that corresponds to that period of slow growth. Because of lower investment, the cost ratio was better.
We had less first-year business, which makes your claims ratio better. In terms of the weather cycles, El Niño and La Niña, that was also an El Niño period of quite favorable, natural peril claims. If you look at the next three years from 2019 - 2021, you'll recall that December 2019, we had the severe bushfires in Australia, and then we went into a La Niña period, very wet. In the period to December 2021, we had multiple events, and the La Niña was quite active in that period of time.
Also, prevalent over those three years was the J-curves of those new ventures. I think it's fair to say, strategic lesson learned over that period was generally with those new ventures, the further they were from our core being short-term insurance direct, the lower the success. Importantly, we did illustrate the capital discipline, and we discontinued the ventures without potential, and this more focused, simplified strategy has enabled us to trigger stronger organic growth in our core businesses, but also the stronger top-line to bottom line conversion.
I think it's fair to say if you look at those, the last three years, especially on a full-year basis, that is, that top-line to bottom line conversion is stronger. Looking specifically just at December 2024, and that's 60.9%, as we said, we have to recognize that that's a big jump relative to the fairly depressed 2023 result, but even if you consider it relative to the long-term trend, it was a very positive result. It did benefit from low natural perils, as we'll show in a later slide, but also it then still had a headwind in the shape of the much higher share-based payments. Just an issue with the screen.
Thank you, it's back. Important to also illustrate though that, while these headwinds and tailwinds were there, we're very happy with the operational performance overall because the earnings was also supported by very strong performance in terms of our working loss ratios, but also progress made in our cost ratios and especially our back office cost ratios. Obviously the strong premium growth, supported by the organic growth. That is the wrap on the operating profit performance. If we were then to look at the natural perils exposure, you can see there on the left-hand side, the retained natural perils as a percentage of net earned premium.
You can see there, that quite volatile profile. You can also see for Youi, the retained natural perils decreased from 15.1% of premium to 8.6%, and similarly, South Africa decreased from 5.8% to 3.4%, and that caused that sort of tailwind which I referred to. Importantly though, we do believe that this volatility could reduce a little bit going forward for two reasons. The first being, if you consider our reinsurance retention level, that reset in that December 2021 year, and that caused a lot of volatility there.
Subsequently, with renewals, we've been able to keep our retention level flat in nominal terms despite strong growth in exposure, and we even expect to be able to do it again this year. In real terms, our retention level is coming down, which will help to mitigate volatility. The other important point to make is also that we're seeing a bit of a mixing business change at Youi. As we flagged, VZI is very strong on home insurance, whereas Youi Direct has got a much more balanced portfolio. With Youi Direct growing a fair bit faster than VZI , we're also seeing this level of being a bit overweight on home insurance reducing over time.
Those two factors we do believe can also reduce volatility going forward. If we were to look at the graph on the right, first let's look at OUTsurance South Africa. It is really positive to see, yes, natural peril claims is down from 5.8%- 3.4%, but also our working losses was down from 48.7% - 43.9%. Overall, a very, very strong performance by OUTsurance South Africa. If you look at Youi, you can see the natural perils being down from 15.1% - 8.6%, but the working claims ratio being marginally up from 50.3% - 51.9%. Again, important context there, this isn't a deterioration.
As I flagged earlier, we have seen a bit of a mix change there, and car insurance has got a higher working loss ratio, but a lower natural peril loss ratio than home insurance. As you see a bit of a mixed change, you will naturally see a slight increase in your working claims ratio, but you expect a reduction in your natural peril claims ratio. Overall, this gives good context on how natural peril exposure impacted on our financial results, but also how we see it impacting future financial results. If we look at the earnings profile and the impact of our growth initiatives, as we've previously flagged, we have an appetite for new venture losses, which is set at 10% of full-year operating profit.
Importantly, that's full-year operating profit, so over six months, it can be also a bit more volatile. As you can see there, from the December 2024 number, we are inside that 10% appetite, and OUTsurance Ireland is accounting for the bulk of that number. Importantly, as we flagged before though, insight that 246 is 65 million of the onerous loss reserve, which is really just a timing thing. The 35 million, in black there, that relates to CTP, and as I said, because of the reserve strengthening there, that is a factor there. As we noted previously, VZI actually made a profit for the last six months.
Also, as we flagged before, OUTsurance Ireland is expected to reach monthly break even, and that is in five years from launch date, so it's a bit shorter than the next five years. That gives good context around the earnings impact of our growth initiatives. An important note is that we have unlocked so much room and runway for organic growth that there's no other specific initiatives lined up, which we see impacting this graph here materially. I'm gonna hand over to Jan for the financial review, and then I'll be back just for the outlook. Thank you.
Thank you, Marthinus, and good morning everyone. I'm going to start off with just a bit contextual item in our results, which is the increased share-based payments expense. Over the course of the six months, OUTsurance Group's listed share price increased by 43%. As noted before, we are busy sunsetting our ESOP Scheme, and there remains one tranche of this ESOP Scheme that will mature at the end of September this year. This scheme is more geared compared to the conditional share plan, which is replacing the ESOP Scheme, and therefore the mark-to-market effect has driven up the share-based payments expense, significantly in this six-month period.
As illustrated, the ESOP Scheme resulted in ZAR 776 million expense for the group compared to ZAR 443 million in the prior six months, which was also elevated because of share price growth at that point in time. To illustrate, the effect of the share scheme on earnings, we have provided an indicative indication in this slide that if the ESOP was already converted to a CSP and the relative gearing of the scheme was therefore removed, there would have been a ZAR 612 million lower expense for the group, and hopefully that provides some more color as to the rebase effect that will occur once these ESOP Scheme is out of the base at the end of September this year.
Looking at the OUTsurance Group consolidated results, normalized earnings was up 52.9% to ZAR 2.158 billion, with the ROE tracking in line with the earnings performance at 30.8%. The ROE is also benefiting from the structural changes we've made to reduce surplus capital in the group, and noting in particular the special dividends that were paid at the end of the previous financial year. Normalized earnings was up 52% per share at ZAR 1.40 , and diluted normalized earnings up 53% to ZAR 1.386 a share. The dividend, which we have declared, is up by 44.8%, and that is in line with the operational growth of the group, which we will unpack in a bit more detail later on.
The OUTsurance Holdings Group, which is the holding company of the insurance group in the business, that has produced normalized earnings growth of 43.5%. Pleasingly, the RMI Treasury Company, which is the holding company of the group's associate and investee companies, have produced a much stronger result, of ZAR 124 million of earnings for the six months under review, and that is thanks to a very strong contribution from our investment in Polestar. Marthinus touched on the volatility, that is a, comes through in our six-monthly results given the natural perils experience.
The graph on the left illustrates the normalized earnings contribution by geography, and as noted, Youi contributed 51% to the group's normalized earnings result for the six-month period, noting though that the South African business has been impacted by the share-based payments expense, which rolled up into that geography. On the right-hand side, we have the ROE of the OUTsurance Holdings business, so the operating ROE in the business, and as illustrated, the ROE has increased from 26.1% to 34.9% for the six months.
We target a ROE range of 25-35%, and given the strong benefit from natural perils as well as structural benefits in the group to reduce capital, we have seen an increase in the ROE to the upper end of our target range. Marthinus also touched on investment income and its contribution that that makes to our underwrite or operating profit in the group. These graphs illustrate the relative contribution of underwriting profit versus investment income on insurance liabilities to the operating profit profile of the group.
Even though we have seen absolute growth in the investment income on insurance liabilities due to the sustained higher interest rates over the period and also the growth in the business, the contribution from investment income has, however, reduced given the very strong underwriting results that have been experienced, particularly at Youi, where the gearing effect on underwriting results in operating profit is a bigger feature compared to the South African business. To move then to the South African two large segments, which I'll cover next, is OUTsurance SA Personal business. Here we've seen gross written premium growth of 9.2%.
If we exclude the homeowner's cover book, which is in partnership with FirstRand, that book is currently in runoff. If we exclude that book, then gross written premium for this segment has grown by 10.3%. Inflation has remained a big part of the growth story, but also real growth has been achieved in this book, contributed by the growth of the OUTsurance Broker Channel, which is also contributing to OUTsurance Personal growth overall. The operating results was up 34.7%, a very strong performance in the six months under review, driven by the decrease in the claims ratio from 50.9% - 45.4%.
Pleasingly, we have seen a cost reduction in terms of the cost ratio, where the cost ratio has decreased from 20.6% to 19.2%, and that benefit is on account of good cost discipline applied in the South African personal lines business that has operated, opened up positive operating draws. The overall combined ratio for OUTsurance Personal decreased from 73% - 66.3%, largely driven by the lower claims ratio. Moving then to OUTsurance SA Business, we remind investors that there are two big channels that contribute to this result. The one is the OUTsurance Broker Channel, illustrated in purple, and then the direct channel, which is the call center channel.
As illustrated, the OUTsurance Broker Channel now far surpasses the direct channel in terms of gross written premium contribution. Overall, we have seen gross written premium growth of 10.5%, with fairly muted growth in the direct segment, which has seen more inflationary growth than real growth. OUTsurance brokers has grown gross written premium by 17.5%. We have applied extreme focus to ensure that the profitability profile of the OUTsurance Broker Channel trends towards our target margins, and therefore headcount growth has also been managed in line with the target of improving profitability in this channel.
When we look at operating profit, the direct business delivered a very strong result, increasing operating profit to ZAR 296 million, and that's an account of favorable claims ratios as well as a reduction in cost, similar to the OUTsurance Personal experience. Pleasingly, OUTsurance Brokers has turned profitable, wiping out loss of ZAR 27 million in a comparative six months and delivering a profit of ZAR 10 million in the six-month period. This business is not deemed, or this channel is not deemed to be sustainably profitable. Overall, the cost-to-income ratio for OUTsurance business has reduced to 31.7%, noting that OUTsurance Brokers is a higher cost operation.
T herefore, as it increases in proportion to the total cost of this segment, the cost ratio is impacted by that mixed change. The claims ratio reduced from 55.7% 49.5%, and as noted, we have seen both an improvement in the OUTsurance broker working claims ratio given a more mature profile of that book, but also the favorable weather conditions playing through. Moving then to Youi, I'll focus on Youi Personal, which contributes 90% of the gross written premium of Youi overall. Here we've seen, in rand terms, very strong growth in gross written premium of 19.5%. Operating profit was up more than 100% given the effect of the favorable natural perils claims.
When we consider the direct book versus the Blue Zebra Insurance book, the Blue Zebra Insurance book contracted by 6.6% in terms of gross written premium, and that implies that the Youi Direct book has grown by 29% for the period under review. From a combined ratio perspective, the combined ratio decreased down to 84.7%, driven by the reduction in the claims ratio to 54.2% on account of the favorable weather experience.
The cost ratio printed at 30.5%, and if one normalizes for a cost allocation change in the business, it would restate the cost of the prior period to 30.8%, and that implies a marginal improvement in the cost ratio for UI under the period, for the period. Moving at OUTsurance Ireland, Marthinus noted, the status of this business. I'll spend a bit more time explaining the onerous loss. The onerous loss is essentially a feature of a startup business where a business operates at a combined ratio of more than 100%. The accounting convention then requires us to hold an allowance over the remaining contract period for the expected loss that will be made on the insurance policies.
The fact that the combined ratio is above 100% is a feature of the subscale nature of the startup business and the high cost-to-income ratio. Over time, this onerous loss will grow slower compared to the premium line or the operating line, and ultimately, as the business approaches break even, we expect the onerous loss to ultimately be removed. The investment income in the OUTsurance Ireland business is attributed to the surplus capital that we are holding to fund the business in Ireland.
As noted to share with us before, a big proportion of the capital that's required to steer this business towards break even has been funded upfront, with the group making incremental capital contributions up to the period of break even over the next four to five years. Moving then to OUTsurance Life. OUTsurance Life delivered a pleasing set of results for the six-month period, with operating profit more than doubling at ZAR 185 million for the six-month period. That's been delivered by two strong performances from the Life Direct segment, which includes our underwritten life and direct funeral operation, and also the partnership that we have with ShopRite.
The direct book benefited particularly from expense discipline that's been applied in this business and various innovations with regards to growing the operational success of this business. The funeral partnership with ShopRite has been growing significantly over the last number of years, and that is playing through in the much stronger operating result delivered, where we've seen an increase from ZAR 19 million -ZAR 49 million in operating profit.
Similar to the short-term insurance business, the central component here houses the share-based payments expense, and as experienced in that business, we have seen a significant increase from ZAR 47 million loss to ZAR 99 million loss, and again, a large proportion of this cost will rebase as we move into future reporting periods. From an operational metrics perspective, we have seen a very strong performance in terms of the CSM replacement ratio, the embedded value performance, the return on embedded value, and also, pleasingly, the VNB margins, which have been achieved.
When we exclude the noise of the share-based payments expense, the VNB margins printed at 18.9%, and that is on account of a favorable mix towards more short-tailed funeral business in the group, which is more profitable, as well as pricing actions that's been taken in the direct business to ensure that our operating margins are achieved. Looking at our capital and dividend position, the capital table that's shown here is before the interim dividend, which was declared today. All our companies in the group are trading with very strong capital positions given the favorable trading results that have been achieved.
As noted with OUTsurance Ireland, we'll see a reduction in that surplus capital as the business steps towards break even and absorbs more capital in future years. The debt facility that the group has applied to fund the Irish business, we recall our conversations in previous result seasons where we noted that a large component of the Irish capital requirement was being funded by a temporary debt facility that will be incrementally reduced in line with the break-even profile of that business. At the end of June, that debt facility was at ZAR 774 million, and pleasingly, that debt facility reduced to ZAR 309 million at the end of December.
Post-December, we've also seen further reductions in the size of the debt facility, and these reductions are attributed to internal capital reorganization that has released surplus capital that has played through in reducing the RCF. From a dividend payment ratio, I'll start off with a graph on the bottom right, where OUTsurance Holdings is delivering a dividend payout ratio of 66.7%. In normal circumstances, our dividend payout ratio at interim stage is lower than the dividend payout ratio at full year and for the year in aggregate.
That's due to the conservatism that's applied at the determination of Youi's Interim Dividends, given the fact that these interim dividends are paid during the more stormy season of the financial year, and therefore, Youi's dividend at final stage will represent a larger proportion of earnings compared to interim. From an OUTsurance Group Limited perspective, the top graph, the dividend payout ratio is 63.5%, and the reason why that's slightly lower than the OHL payout ratio is due to the increase in associated earnings that we discussed before. That wraps up my section of the presentation. I'm going to hand back to Marthinus to talk us through the outlook and strategic focus areas. Thank you.
Thank you, Jan. Now, those of you who've been monitoring the news would have seen Cyclone Alfred has been making headlines in Australia over the last two weeks. It's quite early days in terms of the reporting and the loss assessment, but we can comment and say that this has become largely a flood event. What is important also to understand is that it was classified as an ex-tropical cyclone, and as such, the Cyclone Reinsurance Pool, which is a government pool in Australia, will pick up a fair portion of the losses overall. They are also reconfirming that our reinsurance attachment point is still AUD 40 million per event.
If the retained portion after the Cyclone Reinsurance Pool is therefore in excess of the ZAR 40 million, then our retention will be capped at the ZAR 40 million plus a small reinstatement premium. To date, we have captured just over 2,000 claims, but putting an amount to that at this point in time is still too early and quite difficult. Hopefully, that gives a bit of context around the potential impact of Cyclone Alfred. We can also comment that the premium inflation and interest rates will be on a downward trajectory over the course of the next 12 months, but as we said, with things like Cyclone Alfred, that moderation, especially on our home insurance in Australia, could be a bit slower.
The group's operational focus will remain on executing our exciting organic growth opportunities across the three geographies. As we made the point previously, I mean, we still have a lot of runway for growth. I mean, just considering Youi's got just over 5% of personal lines motor in Australia, significant runway there, less than 1% of the commercial market. OUTsurance South Africa commercial, less than 4% market share, and Ireland, we're growing from a standstill. Significant runway left for organic growth, and we do have momentum.
We also expect a stronger top line to bottom line conversion to persist, and this is on the back of our strategy to simplify and to focus on our core business, and we already see some of the benefit of that playing into our cost ratios. The near-term outlook for, for the geopolitical environment is uncertain, and, and it may be disruptive to the macroeconomy. I mean, should, should our over-the-current monetary policy trends continue, we expect that the lower interest rate environments should stimulate a bit of real growth, but as we mentioned before, again, our model is quite resilient and, and has proven itself through various economic cycles in the past.
We do expect the reinsurance market conditions to remain relatively favorable given the, the clients' experience over the past few years. Obviously, Cyclone Alfred will, will play a bit into that, but we expect the Cyclone Reinsurance Pool to, to play a fairly material part in this event. We continue to focus on actions to simplify our group structure and seek monetization opportunities for non-core, core assets, and we continue to make progress there, and that should also support the ROE profile of the OUTsurance Group Limited and bring it closer to OUTsurance Holdings overall. That's the wrap in terms of the group outlook. We're happy to move over to questions.
Thank you, Marthinus. We have a few questions online. I'm starting with Warwick Bam. Should we expect the magnitude of OUTsurance Ireland losses to increase in the second half of 2025? He's got a few questions. I'll work through them one by one.
Okay. In terms of the loss profile of a startup like that, what we've typically seen is years two and three, your losses normally tend to peak as you do ramp up your distribution and that, and your revenue still has to catch up. Overall, we do think if you exclude the onerous loss reserve, which, as we indicated, that's just a timing thing. If we exclude that, we still think we can remain in 5%-10% of operating profit of our existing units as guided before.
Warwick is asking if Cyclone cover would be covered by the Australian Reinsurance Pool. I think Marthinus confirmed that that would be the case.
Yes. Maybe just for further context, I think the cut-off date and time of that was 6:00 A.M. on Monday morning. All Cyclone-related losses with the last date and time before 6:00 A.M. Monday morning are likely to be picked up by the Cyclone Reinsurance Pool.
Warwick, our reinsurance renewal season is on the 1st of July. Essentially, that is aligned with our financial years, which is a question from you. We are seeing globally, we've seen favorable trends in the reinsurance market in terms of capacity and pricing, and we hope that that persists for the upcoming renewal season for the group.
Mark Costello has asked what drove the strong Polestar performance this period and what is the outlook going forward.
Mark, the Polestar business, which I remind our investors that it's a commodities hedge fund, which was previously part of the RMI Investment Managers Group, that business was not taken over with the disposal of the Investment Managers Group to Momentum, and therefore we remain a 25% shareholder in that business. It is a business that, that ultimately exploits arbitrage opportunities in, in commodity prices, and therefore its performance can be quite cyclical and volatile.
I have a question from Yazan Resso. Are you able to provide some color on Youi's market share trends? Is Youi Personal GWP growth driven primarily by premium inflation?
If we, we do not get accurate splits in terms of premium inflation and, and unit growth, but I mean, just looking at the 29% GWP growth, I mean, yeah, premium inflation is quite a bit lower than that.
We then have a question from Louis Krier around the ESOP. If the ESOP costs drop, do we see more dilution from extra shares in issue over time?
Louis, no. Our approach with regards to the CSPs is to buy shares on market and to hold those shares as treasury shares to deliver those shares when those conditional shares mature. Therefore, the CSP schemes on itself will not result in any dilution.
Enofamorc has asked if the CSP replacing the ESOP, do you think that the CSP will provide the same level of motivation for participating staff? Is there a risk that a smoother accounting lead to lower internal motivation?
Yeah. I think if we look at the motivation of the ESOP over the years in the unlisted environment, it provided a much more gradual realization of value, and motivation levels have always remained high. I think it's important to note that as a management team, but also our big supportive shareholders, we are very much in the long-term business, long-term thinking. That's why we are willing to engage in these long JCOs because we know the payoff is there. If you consider OUTsurance, turned 27 years old just the other day, and it was started with ZAR 90 million of capital and is worth over ZAR 100 billion now.
That's a thousand times money, sort of 29% compound growth. We've seen bad cycles before, and we've seen better cycles. I think senior management is engaged, and importantly, I think the new scheme will continue to enable more management to become shareholders because that is the ultimate alignment. That also enables long-term thinking, managing the business as if it's your own. I mean, in our business, driving down cost ratios is critical, and if you think about expenses as if it's your own money that you spend, I think that is a structural advantage.
That's also why we have ESOP Schemes in Australia and Youi, at Youi and in Ireland as well in that startup unlisted environment because it's a key part of our incentivization. We don't see the new scheme particularly diluting senior management's incentive to perform. I think it's still strong and relevant. I mean, as you'll see later on when we try, the plan is still to move the minorities at the OUTsurance Holdings level up to the OUTsurance Group level, and you'll see the participation of management and the alignment of management is strong.
Tobler Machapodi has asked what is the cash conversion of the Life business.
What I can say there is that the dividend calibration is currently around 40% of earnings. We expect over time that given the mix effect in that business towards the funeral business, that we will see a higher cash conversion ratio emerge in the life insurance business.
A question from Yanel. Can we get an update on the WeBuyCars relationship, and how's that going?
Yes. The WeBuyCars relationship is a good one for us. We have been in that relationship for quite a while. It must be pointed out that WeBuyCars is selling into a slightly lower market than your conventional dealers. The proportion of cars that's insured in that segment is a bit lower than with conventional dealers, but it's still a very good segment to be in. As such, we're quite keen on that relationship, and we'd love to preserve that going forward.
A question from Maurice Stratum. Could you please provide more context on your SA policy plan growth relative to the industry? Are you gaining market share, and where is that focus? What is your outlook for industry volume growth in a more optimistic economic environment?
Yeah. We are seeing unit growth, but I mean, one has to be realistic about it because we have quite big market share. We are growing off a high base, and we've always been more interested in share of bottom line than share of top line. If you look at the personal lines market in South Africa, it's still roughly 50/50 between direct and face-to-face. There's a fair portion of the market who still prefer to rather do face-to-face, and that's where our OUTsurance brokers is really seeing a strong opportunity as well to further boost the growth of the group in person lines. If we think about the broader market, at the moment, unfortunately, there's not much unit growth going around.
In fact, you see quite a bit of down buying where clients are buying older, cheaper cars. You see more Chinese cars being bought. The growth is not strong, but in the car market and the insurance market, there is a bit of a multiplier effect, and we saw that sort of from 2002 to 2007, where once the economy starts growing, you're talking 3%, 4%, 5%, then the car and the insurance market grows quite a bit faster than the economy. If we are able to unlock that, it'll definitely be very positive for the whole market.
Thank you. We then have a question with regards to our early learnings from Vanessa Linfun Fearon around our early learnings so far about in the Irish market and what the dynamics are like on the ground.
Yes. There's a lot of excitement around our Irish business, and as we guided, new business volumes are tracking in line with business plan, and that is validating our choice of country. If you think about our experience in New Zealand, one of the concerns we had and what contributed to us struggling in New Zealand was a lack of shopping behavior because you had too much consolidation, just amongst two very large insurers in that market. The Irish market's more fragmented. We're seeing more shopping behavior, and this enables organic growth for a new player, which is really positive. That part of the thesis has been validated, and we're still quite excited about that.
Also, the team is performing well. What is exciting? We are in a system modernization process, because a key part of our competitive advantage is that we write our own systems. It gives us a data quality advantage as well as a cost advantage. The important thing was that OUTsurance Ireland entirely launched on the new platform, and sort of testing certain new aspects of the platform. So far, it's been really delivering well. That's also exciting. We have a very strong team on the ground in Ireland, again, boosting our confidence. Overall, still very excited about OUTsurance Ireland.
Warren Riley has asked, are you able to provide a sensitivity of the investment income to interest rates in both Australia and South Africa?
I think Warren, in Australia, the interest rate's obviously inherently higher compared to South Africa. Twenty-five basis points there has a larger impact compared to what it has locally. This Australian business is more sensitive to interest rate changes. Noting in our slide earlier that investment income also represents a larger proportion of the total operating result for Youi. That said, it is important to note that the size of the float to the extent of the CTP book, which is bodily injury and therefore longer-tailed liabilities, grows faster compared to the direct book. That will see the size of our float relative to premium increases over time.
Also, we need to consider the strong organic growth in the business and how the insurance liabilities in absolute terms are also growing. Those factors will offset to some extent, marginal changes in the interest rates over the course of the next 12 months.
Sefiri has asked, what is Youi's market share in the industry, in the motor industry given potential moderations in premium growth? What is the approach to scale in that segment?
Market share in person lines motor is just over 5%, and yes, we have very strong momentum in that space. While premium inflation might moderate, unit growth is robust, and as such, we still see an opportunity in that segment of the market. I think it's also important to note, I see some commentary where some people expect premium inflation to moderate right back to CPI, and as flagged in my presentation, there's some real effects there in terms of repair cost, climate change, urbanization, why premium inflation is not expected to come right down to CPI inflation. It is expected to moderate but not right down to CPI.
I think that's also likely to ensure slightly stronger growth than what one would see if you were to assume CPI premium inflation.
Chris Logan has commented that, a request with regards to disclosing our in-force policies at interims similar to what we do at, at, at full year. Yeah. Our, our disclosure is more limited, Chris, at a, at an interim stage, but we will take your, your comments into consideration. I think that takes us that completes all the online question submissions. We just see if there are any other questions on the call.
We have a question on the conference call. The question is from Thapelo Mokonyane of Investec. Please go ahead.
Hi guys. Can you hear me clearly? Hello?
Yes, you can go ahead.
Oh, okay. Thank you for taking my question. Just two questions, weather related. In Australia, I get your point around the ARPC. If in case, you know, I guess you get to consider the reinsurance, what size of reinstatement fees, you know, can we expect? Just a bit of color on that. The second question, still weather related, but I guess in SA, we've had a lot of rain lately. Should we expect, I guess, an increase in claims? How should we think about that impact?
Yes.
Potential impact, let me say.
If you look at the reinsurance arrangement there, for our core program, we have a buy-down layer which is $20 million in excess of $40 million. That has some reinstatement premium on it. The core program from 60 upwards is all prepaid. There is only reinstatement premium on that ZAR 20 million. I would estimate that that will not be more than ZAR 10 million. Even after reinstatement premium, we are likely to be below ZAR 50 million. As I flagged earlier, we do expect a fair portion of this event to be picked up by the cyclone reinsurance pool. In terms of flood losses in South Africa, generally those tend to be smaller than Australia.
I think for a few reasons, one being that, I mean, South Africa has more elevation, so water just more naturally and more easily runs off. Australia's got very big flat plains. Also, rainfall is not as severe as they, as I mentioned. I mean, you get areas there where you might get a meter of rain over a weekend or 500 millimeters in a day. We do not get as severe here. Also, the construction cost is really, really high, and that's why you see those bigger impacts. If you think about the wetter weather we've experienced here, the impact is likely to be quite a bit less than what we see in Australia. Overall, we're not too concerned about that.
Unfortunately, sometimes, yes, there is loss of life, and people lose their properties, but many of those properties are not uninsured, unfortunately. That is the lay of the land in South Africa.
Very good. Thanks.
Other questions?
We have no other questions on the conference call.
No further questions on mine.
Excellent. Thank you, everybody. Thanks for listening in and participating, and we appreciate the interest. As always, you can contact Investor Relations there if there's anything specific, and we'll catch up again. Thanks.