Good morning, everyone, and welcome to RMI's annual results for the financial year 2022. This is my ninth time and last time, but I'll keep sentiment low this morning. I wanted to start by welcoming the directors of OUTsurance, and I know many of the other directors will also be dialing in. Welcome to the media, and then thank you to the JSE for hosting us this morning. Today marks the report on a very important and busy year. We had the sale of Hastings. We had the repayment of ZAR 12 billion of debt, and I see a couple of smiling bankers here. Thanks, RMB and Standard Bank, and all the support you gave us. We capitalized OUTsurance to the tune of an extra ZAR 2.5 billion for future expansion and some acquisition of minority interest that Jan can allude to.
We unbundled a total value of ZAR 36 billion to shareholders, and we paid a special dividend of ZAR 2 billion. You also saw that, Alida, the CEO of RMI IMG, is here today. She's working on a transaction in terms of which MMH and Royal Bafokeng Holdings would buy the bulk of our asset management business. The most important one is the transition that we've had to effectively IPO OUTsurance today and in the next couple of months as the name change takes place, without some of the typical costs that you may have for a listing of this nature. We'll go into a bit more detail on that. I wanted to start there today by just giving you an update on the transition process. There we go. So a lot of detail on this page.
I tried to cut it down to say effectively we are ring-fencing our non-OUTsurance assets, and I'll depict it on the next slide for you. You, as shareholders, will receive a circular around the name change, the strategy and business change and all that takes place. That's quite a process that will. You will receive all of that documentation on the eleventh of October, and that will then culminate in a general meeting on the eighth of November, where quite a few resolutions will be taken. The last step in that process will be that RMI's name will be changed to OUTsurance Group. At the moment, that's the slowest moving part in this process. We wanted Marthinus to blow the kudu horn this morning as OUTsurance's ticker changes on the JSE.
That's only possible once we've changed the name of the company, which is still being considered with the regulators. These dates that we summarize at the bottom of the page is how you should think about the corporate diary over the next two months. The circular notice, then the AGM on 8th of November, if nothing changes. Then we will see the name change early December, if not earlier. Everything has gone very well, and I must thank the Prudential Authority and all the other regulators for all their cooperation and hard work in terms of getting this process to the end result that you will see. Okay. Thank you.
It will culminate in this organizational structure, and it's quite important just to focus on a couple of points here. First of all, you see the old RMI, or it still is the RMI, that block. That's where the name change will be to OUTsurance Group. Essentially, OUTsurance Group will have two sets of assets. Everything here on the left, from that line to the left and down, all of this is the OUTsurance Holdings business as it is, which at the moment resides under RMI in any case. Nothing changes as far as OUTsurance Holdings is concerned. As you know, that makes up about 96% of the value of RMI.
We have reached agreement with the Prudential Authority that all other assets will be housed in an entity called RMI TreasuryCo. There's nothing special about the name except that it's existing one. Within that, we have three sets of assets. First of all, AlphaCode, which is the fintech in portfolio. Then we have RMI Investment Managers, and we'll come back to that. And then, Schalk who is here today, he's also looking after ZAR 700 million of cash in there. That is net of the dividend that we are paying today or declaring today. Within this block, the unlisted assets, you have three sets of assets: cash, asset management, and AlphaCode.
The intention is that over the next three to four years, these assets will be monetized so that effectively we'll get a cash pile in this company, which of course can be paid through to the ultimate shareholders in RMI, which then will be called OUTsurance Group. That's the simplest way that we could do it, and the most cost-effective way. As I said, we're very thankful to the Prudential Authority for assisting us in this regard. Turning to our results. This is the set of results which we have published today, and I would like to focus actually on the line on continuing operations. The rest is quite repetitive from the top. You see there's a big block here of discontinued operations for Discovery, Hastings, and Momentum, which as you know, are no longer part of the group.
We think that the appropriate line for this here is continuing operations, which has declined by 4%, which you think is a very, very credible performance in the light of the claims experience, which Marthinus and Jan will speak to more a bit later. You see the two lines for OUTsurance, with and without Hastings, which as you know, form part of OUTsurance until December when we sold it. Then you have the assets that I spoke about, which is RMI Investment Managers and AlphaCode, which had a phenomenal year last year, in terms of extraordinary performance fees, and especially one of the affiliates. We never thought that that would be repeated, so you see a relatively big decline.
In that number of 27 is a very good performance by Alida and her team. It's a young business. It's now the third year of profitability that we have in this business. That 27 is much more representative of the running profitability, obviously growing than the 142, which was a bit of an anomaly as we informed the market last time. The funding and holding company costs that you see, a big decline in, from around ZAR 600 million to ZAR 300 million, and that's a result of repaying the debt at half year and obviously saving more or less half of the funding costs that one would have incurred on that ZAR 12 billion of funding that I spoke about. I'd like to pause here or at least not go into further detail.
Very happy to take questions, but this is really the relevant part of the business for the results for this year. Maybe two more points. The one is that we are declaring as a dividend up 46%. That's the ordinary dividend that's up 46%. I know you're gonna ask Jan to tell you about the dividend policy for the years to come, so I'll leave that to him. The cash on balance sheet. When you think of the assets as we explained them, OUTsurance, Asset Management, AlphaCode, then there's around ZAR 700 million of cash still on the balance sheet. The bulk of that, ZAR 530-odd, is some...
Is a number that we are still finalizing or is allocated to the finalization of all the Hastings sales and processes which are still underway. We believe that in the next 18 months, that amount should be re-returned to shareholders as well. The other ZAR 170-odd is the capitalization of TreasuryCo. Why is that needed? You'd recall that the agreement with the Prudential Authority is that TreasuryCo should be ring-fenced, stand on its own, and not need OUTsurance for anything. There are costs and potential follow-on AlphaCode that we just wanna leave a bit of cash there. We don't think it'll be required.
If not required, that ZAR 170 or at least the net effect after the costs of TreasuryCo have been paid will also be returned to shareholders. We're not going to have lazy capital at TreasuryCo, but because of the ring-fence effect, we wanted to keep it there in the meantime. I want to turn to the portfolio, and we're not doing this in order of size because I want to hand over to Marthinus and Jan at the end. Want to start with investment managers. We spoke about their very credible profitability performance. Third year in a row that we've had a profitable outcome. Now we're at a point where our leader will be scaling this business. Seven of the 10 affiliate op are dividend-paying, which is a very credible.
Some of these slides that I'll quickly look at. You see, in terms of our diversification, in terms of mandate of funds under management, it's still heavily skewed to listed equity. We are very happy to show progression. These are the returns of the funds invested in and the performance reporting. You'll see that we're very fortunate to have quite a few of our funds and our asset managers in the first quartile, which is a very good development that we've seen. Our other businesses from a collective AUM point of view, the affiliates' collective 205, which is a very good number.
I think the best number that we wanna focus, 70% of that increase of 36% is due to net flows rather than mark-to-market appreciation. Now, of course, this has been a hard second six months for the business. A very good. Our sense is that this business is now ready for the scale part of its journey. You would have seen that we started speaking about a potential transaction with MMH and Bafokeng, and I think that they are our partners, as we will see in the next slide. It's a bit complicated, but you will see that to the extent that Alida's business is sitting at that level. We have four types of structures in the group.
There's affiliates one, and we have one affiliate there called PolarStar, the soft commodity hedge fund, in Cape Town. We have affiliates two, where Momentum Metropolitan is our partner. Here are the affiliates sitting in there. Perpetua, Granate, Sentio, Ethos. We have affiliates two B, where Bafokeng joins us in that structure, and there's Truffle and Northstar. The Royal Asset Management business is where RMI has Royal Bafokeng as our partner. You see the affiliates that which are in there. The transaction under consideration excludes PolarStar and maybe sold, or at least just more importantly, that the transaction is done at this level where MMH and potentially Bafokeng will acquire our shares at this level.
Nothing really changes in the lives of the affiliates, which is an important point, except that the makeup of their indirect shareholders changes somewhat. We see this as a very natural transaction. We wanted to look after our affiliates. We wanted to look after Alida and her team. We committed long term to these people, and we think that this is the one transaction that probably is least disruptive, but importantly also gives the business the empowerment credentials and the distribution platform to build on. This is the proposed transaction still under consideration, but we are very confident that this is the right solution. We've spoken to all the affiliates. They are excited about this, and I think it also gives certainty to our partners, and it gives us certainty to our management team.
AlphaCode. There are four assets in here. They have been the same for quite a long time now. Prodigy, Merchant Capital, Entersekt, and Guidepost. The businesses are all progressing well. Some of them had a tough time through COVID, especially Prodigy, but survived that well. Merchant Capital is growing strongly, and it's just rebranded and relaunched their website, if you want to have a look at that. You would have maybe seen the transaction between Infamous and Retail Capital. It's a very similar business to Retail Capital that we have here. Entersekt, we recently introduced Zuko and his team as a empowerment partner and investor in Entersekt. We do believe similar to IMG, that it's not the correct time to sell these businesses.
They are quite young, and our investment in them are quite fresh. We're very fortunate that we are able to retain these assets. We're keeping them in RMI TreasuryCo, as I explained earlier. The management of these assets will be outsourced to two of my colleagues, Lisa Twomey and Dominique Collett. They were responsible essentially for establishing this portfolio. RMI TreasuryCo is now on an outsourced basis, contracting with them to continue to run these assets for us with the mandate to monetize them over the foreseeable future. In line with what I explained, that TreasuryCo will be converted into cash over the foreseeable future. That would be the process that Lisa and Dominique will run for us. Under OUTsurance, very, v ery good performance from the company.
The premium growth is very promising. That's something that we have been striving to do for some time now. The claims environment, especially the last six months, has been incredibly difficult, here and in Australia. I think people forget that with the claim frequency as this comes through, it means that there's an extreme amount of pressure on the teams to actually service those clients. We feel that these opportunities are the best marketing for the business in the sense that we can showcase the service and the awesomeness of that to our policyholders. Well done to Dani and Hugo in Australia for looking after these claims and our customers. Climate change is real and especially in Australia. Marthinus will speak about that.
There's a new normal in terms of the risk parameter around short-term insurance. We will see that come through in the new reinsurance treaties, some of which have already started taking action. A very robust underwriting result for OUTsurance. It's still a very profitable business despite what I've just explained on the claims experience over the last while. Before I hand over to Marthinus, I wanna thank my board and my team. It's been a great journey. Thank you.
Thank you, Herman. Thanks for the introduction. I also just wanna make use of this opportunity to thank RMI and their predecessor, RMBH. I mean, time flies. I mean, from backing us as a very young team back in 1997, 25 years ago since RMB approved that business plan. From backing us back then to providing support and conviction for our expansion into Australia, to helping us to navigate stormy waters in the last few years. You think about COVID, riots, climate change, catastrophes. Always having a good sounding board there of experienced and calm people with strong leadership was very good. Herman, to yourself and your predecessors, a big thank you from the OUTsurance team. Thanks. Excellent. If we can then look at the OUTsurance update.
I'm gonna start with a strategic update, just talk you through a few key strategic focus areas for the last year. The first one is sort of our trusted brands and awesome customer service. We always say we succeed when we deliver to clients on price, service, and trust. Those are the things clients care the most about. It's pleasing to report that we were able to achieve 16.7% growth in in-force policies, well supported by our strategy also of selling a wider set of products through a wider set of distribution channels. OUTsurance Brokers, CTP, OUTsurance Life making strong contributions there. We also paid ZAR 550 million in OUTbonus in the last year.
We always say the OUTbonus is a promise, and you build a brand every time you keep a promise. Similar to paying claims, when we pay out bonuses, that supports the brand. We saw that traction when we paid those first OUTbonuses in 2001. To this day, it remains a very significant factor for us. Then the other big promise we make is around paying claims. That's where the ombudsman statistics, which is an objective measurement, where we've been leading the way, in terms of, complaint ratios but also overturned ratios of the big insurers. That is key for us, and we're proud of the team. Again, thanks to Dani and his team, and Hugo and his team who's driving that on a daily basis.
Core systems transformation. This is an important one to flag. Many investors always ask us, "Listen, what is the moat around your business? You have superior margins, strong market share, but aren't the others gonna catch up 'cause other people are copying you? What is the moat?" There's a few things, obviously. People, processes and those all matter. A key thing which people seem to overlook sometimes is just our core systems, which we built ourselves. We built the first systems back in 1997, just after RMB gave us the green light. We built those systems, and many of it is still in force until today. Unfortunately, when you're on such an old platform, over time the support starts to wane from the vendors. You struggle to get new developers to work on that.
It's not as well API-enabled, cloud enablement. Those things all matter, and that's why we're in this process of re-platforming it. It's a multi-year process because you can imagine how much software we wrote over the last 25 years. A key thing of that, why we prefer our own one as opposed to buying an off-the-shelf core system, like a Guidewire or a Duck Creek, is just it gives us. If you execute on it well, it gives you a cost advantage. The second thing is you get customization. Customization is necessary to execute well. Every little thing must be automated as opposed to having manual processes that's flying around everywhere. The third one is just our management information.
The quality and the ease with what we can get information out of that system as opposed to off-the-shelf system. That's critical. We already have large parts of our life and our business OUTsurance running on this new platform, and we foresee this process going on for the next three, four years. We're also in the process of the adoption of a new finance and risk systems, which is well advanced. There we're actually following a buy approach as opposed to a full build approach. The next point, this one also aligns closely with the question: What is the moat around your business? Sophisticated pricing and underwriting. Again, the question comes up, "But what makes you different? Why can you sustain a competitive advantage?" One is the quantity and quality of our data.
I mean, if you insure 4x the number of vehicles than some of your key peers, you just have much more data, where in your analysis, you can go much more granular to understand some of the risk pockets. Quality of the data, that comes back to our own system. Everything is on our own system. You don't have seven different systems floating around and trying to map and consolidate. Those are key elements in the competitive advantage. Pricing discipline, that's obviously a decision we take, but above that, it also speaks to our business model. Being mainly direct and even in the commercial space, with our agents or OUTsurance Brokers, as we call it, we own the client.
We're never in a situation like the current environment where you need to take some pricing action, and someone tells you, "Listen, if you increase this premium or that, we move away our entire book." We own the clients, so we're in a position to execute on pricing discipline. The third one there is just enhancements to support the profitability of our new initiatives. A good example is business insurance. You have this chicken-and-egg situation when you roll out something new. You don't have any data on it yet, but unless you write the business, you're not gonna build up data. You go into certain segments, and you have to learn very, very fast. I mean, you might quickly learn like that transporting cell phones or cigarettes is as dangerous as transporting cash.
You have to adjust for those things and have a very fast feedback loop. But that's the nature of our business. Because of that business model and the systems, we have a very fast feedback loop to learn. Great company to work for. I think in the current environment in South Africa, it's very pleasing to report that we created 805 new employment opportunities in 2022. Many of those were in the new distribution areas that we're participating in. Another important factor there is just staff retention. Yes, the great resignation existed. You had some turnover during COVID when people were working mostly from home.
I think a key point for us is that the turnover at our senior management level has been extremely low, and that allows us to keep that corporate memory and continuity in our business. The international diversification through organic growth. We previously communicated that we've got board approval for this expansion into a third country. We are in the process of preparing for the license application. As soon as we've submitted that license application, we'd be comfortable to announce to the market the country in question. We just don't wanna tell everyone we're going to a certain country, and then the regulator says, "No, but you haven't got a license application yet." That's quite important.
Just to give comfort to the market, we don't intend betting the farm. If you look at the size of this investment relative to the size of the OUTsurance Group at the moment, we're certainly not intending to bet the farm. Also, it will be weighted towards personal lines and direct. Again, it speaks to the data, the viability to distribute and the fast feedback loop. That is as close to our core competence as possible. That should give the market some comfort around that. Jan will also speak to the capital requirements and how we think about that. Regulatory compliance.
You would know that on the back of the Royal Commission, there were a lot of new regulations coming through, and it's pleasing to report that at Youi we've achieved a substantial completion of the regulatory transformation project. It's also closely linked to the rollout of the new system there that allows us to better track and execute on all these new requirements. In terms of our ESG picture, I think we have some very positive things to report here. We had a 30% reduction in total tCO2e per year reduction over the last five years. That's mainly because of the rollout of our solar plans. We included in some of the papers an aerial photo of our head office.
You will see with that previously we hit that 1 MW limit. Once that was lifted, we rolled out a third phase. Literally all our parking, shading, everything is solar. We have more than 4,000 panels up there now. That's certainly making a positive contribution there. We have similar plans at Youi around that. We're also looking obviously at more or less traveling with working from home. We gave up some DR sites because working from home is just so effective in that regard. Very committed to this journey. The next point there, even more relevant with all the load shedding, is our Pointsman Project. Everyone asks us, "Can't we double or treble them?" We wish we could, but certainly we're well committed to that.
It's a fantastic initiative, creating jobs, helping people to save time, making people safer. Really a great initiative, and we're still very much committed to it. In terms of our transformation, we achieved over the last four years, we moved from a level four to a level two. It's an ongoing journey. We're making great progress. We're quite confident that we'll be able to reach the level one pretty soon. In terms of the other metrics, I mean, we report on that. Making good, very good progress there. I think also in the context of South Africa, a great story is just a 10% growth in our service provider base. Small businesses are critical for growth and employment, and I think that was a very good outcome there.
Lastly, the strategy of product and distribution channel diversification. You remember when we started the business, it was just a direct business, a call center business. The fact is that products like car insurance, a very large part of the market is comfortable to deal with call centers for car insurance. But when you get to more complex products, commercial insurance, underwritten life insurance, people aren't comfortable with that. By sticking to direct, you remain sort of a niche player, and that's those segments. We took the decision a few years ago to become an omni-channel company, to have digital, call center and face-to-face, give clients those options. But what it also did is it created great runway for us. You'll see in our premium growth, which is now sort of mid-teens for two years in a row.
It's really in these new segments where we're growing. Despite economic circumstances being quite depressed, we unlock new markets and new growth areas in our existing markets through that. If we look at the picture on the left first, that's our gross written premium income for the last 10 years. You can see there's a nice upward trajectory. First few years, quite strong growth, and that was mainly driven by Youi getting to scale there. Then when Youi's growth sort of leveled off sooner and to a greater degree than expected, I think we were sort of caught unaware. We didn't have a proper pipeline of new initiatives.
It took us a bit of time to start to reinvest, develop the new strategy, and now this new strategy is starting to kick in. You can see in the last two years, we did those sort of mid-teens in terms of growth. That's very exciting, but it's also very important context for next slide when we'll talk about how the top line translates into the bottom line. On the right-hand side, you can see the new business premium written per annum. Here you can see we went from ZAR 3 billion in 2017 to ZAR 7 billion in 2022. That's a material step up. And that was where we were operating at that ZAR 3 billion level.
Important to flag here just is that, exchange rates do play a bit of a role because of the materiality of Youi, so we just wanna flag that could either be a tailwind or a headwind, going forward. Also, Blue Zebra was quite significant in this, and they benefited for a period of sort of six months, where they were only one of two providers on the Steadfast platform. There are now three providers again, so we expect the run rate to come down a little bit there. Also, we've now activated all the new channels, so it's not as if we expect this to do that in the next year or so. We expect it to.
Even if we just maintain this run rate there, and we maintain solid lapse ratios, it'll translate to low- to mid-teens growth for the next four-five years. It's important to understand the implication of this sort of run rate. Also just an important point to note there, we previously flagged that in order to secure that face-to-face channel at in Australia at Youi, we acquired a further 30% in the BZI channel. I'm gonna spend a bit of time on this slide because that's the important question that analysts ask us, and they've already been asking us this question last year already. That is the question. How does our top line growth translate into bottom line growth? I mean, aren't you just writing poor quality business?
It's easy to grow if you're compromising on quality. If you look at the solid line here, that is our operating profits. You can see there's a nice upward trend here. It's moving from sort of ZAR 1.5 billion a year to ZAR 2.9 billion in the current year. In the last few years, you didn't quite see what you wanted to see there in terms of the upward trend. That's where this context comes in. There's two very important factors in this picture. The one is the investment in the growth initiatives, and the other one is the role of natural perils.
If you first look at the growth initiatives, we highlighted that period of flat premium growth on the previous slide when we looked at the written premium. That corresponded to a lack. You don't see even in purple here. That's that period where we didn't have adequate investment. Now, in recent years, we have more investment in this, but unfortunately, these new ventures do have J-curves, and that's what we're seeing here. The second important aspect is just the retained natural peril losses. What we did is we went and we analyzed the retained natural peril losses. Retained means after reinsurance recoveries. We sort of calculated the 10-year moving average and adjusted that for the trend. Then you get these blocks.
What that green block is saying to you, telling you is that, 2015, we had more than expected amount of retained natural perils, and that caused that dip in the profits which you saw there. Then in sort of 2017, 2018 and 2019, we had less than expected, and that gave us sort of a tailwind. It inflated that earnings a bit, and it. Even though we know that the revenue growth was flat, earnings growth, the profits, the operating profits, grew quite fast in that period. 2020 and 2021, you'll all remember those bushfires in Australia because you do have weather cycles.
Typically, things look good in a dry cycle like El Niño, but it came to an abrupt end when we had the bushfires and then the rain sort of stopped the fires, and it hasn't stopped raining ever since. Those are the cycles that affect us. In 2020 and 2021 was already fairly wet years. The thing is we had a very favorable retention level on our Youi reinsurance program. The attachment point was only $10 million, which is better than most market players. We were quite well protected there. Unfortunately, the reinsurers made quite big losses, and for them to be sustainable, they moved that retention level up to $50 million. That's resulted. That overlaid with the heavy natural peril experience in 2022 caused this big jump there.
If you sort of standardize for these two factors, then you see a more upward trending line. We do believe if we move through wet cycles, dry cycles, but also move through the J-curves of these new initiatives, we'll see that positive trend continuing. On the right-hand side here, we do have a deeper dive on these growth initiatives. You'll see one significant one here is the OUTsurance Brokers, as we call them, but they're really tied agents. That's where we highlighted previously. We see great opportunity here. OUTsurance Brokers has got less than 4% market share in the commercial space in South Africa. Whereas in personal lines, we're over 50%. That's a great opportunity, but you must crack distribution.
We believe we have done that, because if you look at the strong growth we achieved. However, the profitability signature was weaker than what we would have hoped for. We believe there's very good context for that. 2020, we had the COVID business interruption claims. We didn't wait for court rulings and things. We just paid those claims. We didn't make any reinsurance recoveries on it. It cost us some money, but from a brand perspective, we think it was the right thing to do. That's the context around there. 2021 we had more wet weather, but also the growth, because we couldn't sell throughout the COVID period, that negatively affected the gaining of the scale.
In the last year was just this perfect storm with KZN and the new ventures were more heavily affected. The reason for that is that commercial insurance, you have a bigger non-motor or property component, and that is more affected by weather. I mean, you can't drive your house away when the flood comes. You can drive your car away. That's a key factor to keep in mind here. I don't have to tell you about what COVID meant for life insurance, but I mean, our business was subjected to the same things there. At BZI, being more heavily weighted towards property, it's the same story. Overall, we're still bullish that this is the right strategy.
The climate change and this ongoing upward trajectory just moved the goalpost a bit in terms of where your premiums need to be. As we underlined with the pricing discipline, we've started to increase premiums already. We're putting through quite strong premium increases. As such, we believe we'll be in a much better position in the coming years as a result of that. An important point to flag as well is on this, the OUTsurance Brokers. We made the decision not to scale the broker force any further until we reach breakeven. We're foreseeing monthly breakeven sort of in the next 12-18 months for that venture. In a nutshell, it's a long story.
It shouldn't sound like excuses because it's really, it's very valid context around how the translation from top line to bottom line goes. It's still the same OUTsurance team. We haven't lost our pricing discipline or changed our spots. You have to understand the context and the nature of a startup. I mean, in this startup, I spoke about that fast feedback loop. In this book, you have more than double the amount of first-year business that you have in a normal mature book. That also allows for rapid improvement over time. That's why when we look at the loss ratio here and where we need to be, it doesn't feel to us like we have to defy gravity. We think it's something we can easily achieve over the next few years. Excellent.
This graph just gives you the context of the split in premium. If you look at, you have South Africa here on the left, Australia on the right. If you add the 52 and the 12, you see sort of 64% motor. In the case of Youi personal 64, and you add business, the motor component CTP probably close to 66. We think it's this gives very good context around the resilience of the OUTsurance results. When I mentioned previously our operating profit is down 13.4%. If you compare that to what's been seen elsewhere in the market, underwriting losses much bigger drops, then it is largely because of the large motor books, which is more resilient. As I said, when the flood comes, you can drive the car away. Our motor books are profitable.
Overall, we're quite happy around the 13.4% drop in operating profit given the context of this perfect storm, and I'll elaborate just on all the factors in that perfect storm just now. You might ask, do you still wanna continue with property? I think the important point here made at the bottom is just that property will see real growth. It's not a market we wanna step away from. Because of climate change, if you pay all the claims and you put a markup on top of it is a growing market. You also have other factors like solar. Houses with solar, whenever the big hailstorms come, you have bigger claims, and as such, that provides further real growth in terms of the property market.
While property is a bit more volatile, it is definitely a growing market, and still an important market for us. If we look at the operational themes, here we touch sort of on that perfect storm, the factors that affected the claims and loss ratio. There's a rising claims inflation, and that is obviously driving premium inflation. For OUTsurance Personal, because we're a bit earlier in the market, it also means that our growth is shifting more towards premium inflation as opposed to unit growth. Back in the middle of COVID, all our growth was basically exclusively unit growth because there were no premium inflation. What also affected markets was the normalization of motor claims frequency.
I think because no one really increased premiums when the liquor ban and the curfew were lifted and the claim frequencies normalized so quickly, the rates were just not properly adequate for that level again. That's why that was a contributing factor for many companies. In our case, it was a factor, but not so big. The negative impact of increased load shedding. We've seen some numbers being quoted in the press, and ours is very much aligned with that. It is a very material factor. What we say is at least there is a solution for consumers. People should have a look around. I mean, in terms of surge protection, you can buy plugs or protection which you install on your DB board.
That's quite effective. This is a very negative impact for insurers, and we have to make different plans to contain this and to prevent premiums from escalating unnecessarily. Then the increased natural peril claims, that was well documented. Rising claims, if we look at the themes for business OUTsurance, similar themes, rising claims inflation. One to call out perhaps is that we still have strong unit growth, and that's by virtue of that 4% odd market share I mentioned, and then the agents that's giving us access to a market we didn't have before. Increased natural perils, and we also highlighted that it's got a bigger impact because of the non-motor impact on commercial insurance. Focus on attritional claims ratio.
This is just that fast feedback loop ones which I'm mentioning, entering new segments and making sure you learn as you get the data in. In terms of Outsurance Life, exciting story here in terms of our distribution and how we achieving success, accelerating new business premium contributed by funeral and face-to-face. We've also had a pleasing improvement in new business margins and growth in embedded value. I think a common theme is strong earnings recovery in the second half with COVID dissipating and the favorable impact of yield movements. If we look at Youi, we mentioned the large increase in retained natural perils.
Maybe just to give the market some comfort, that step up from ZAR 10 million to ZAR 50 million moved us much more in line with the rest of the market. With this latest renewal, we only moved from $50 million to $55 million, which is in line with our exposure growth. That speaks to a more sustainable level we're at now. As such, we don't have grave concerns around that. We're seeing in the Australian market a sharp increase in premium inflation because of the hardening reinsurance rates and the general inflationary trend. In Youi Direct, we still have positive unit growth, and it speaks to that 5% market share we have on motor insurance, large runway left, and the unit growth is skewed towards car as opposed to home at the moment.
BZI, strong new business performance. We spoke about the Steadfast platform, and we also rolled out a commercial product, a commercial motor there. We flagged the effect of the number of underwriters there. The attritional claims ratio was also higher than expected. That's also just because it's such a new book. Again, we have the same attritional there. We have very large first-year business component in new territories, and we're learning fast and adjusting rates there. Youi CTP, pleasing acceleration in new business performance since we launched. The key strategic point around our expansion into CTP or really two important points. The one is the diversification that it brings us because it's not correlated to natural perils, like many of the others.
It allows for more stable results, and it can also be, in the long run, positive for our capital requirements. The second important point was that we saw that we were underrepresented in certain states. In certain states, a fair portion of consumers buy their CTP. That's the bodily injury third party insurance, and the normal comprehensive cover from the same insurance company. By virtue of us not having that, we missed out on a portion of the market. Now, the New South Wales market is bigger than South Africa's market. We rolled out there and since that rollout, we've seen much stronger growth in our normal comprehensive cover as well.
Hence also the strategic move to roll out in South Australia, which happened from the beginning of the 2023 financial year. That is the strategic update. I'm gonna hand over to Jan. Thanks.
Wait a bit. More people calling.
I don't know. It's not coming through the sound.
This is mine.
We get Jo Conrodi responded. Maybe you can just confirm whether he can hear you now.
Jo, can you hear us?
Yes. Back to you, Jo.
Are we back in?
Okay.
All right. Should I start from the beginning of the slide?
William, confirm if you can.
Okay.
Start.
Right. Apologies for those in the room. We had a strong gross written premium result of 14.4% for the year. As I mentioned, two interesting milestones here is OUTsurance reaching ZAR 10 billion of gross written premium for the first time, and Youi reaching over AUD 1 billion of premium income. Our new business premium written up 22.5%, with Youi leading the way there, 30% up and OUTsurance 16.5% up. Operating profit was lower by 13.4%. As Marthinus mentioned, the weather being the primary contributing factor to that drop in our operating result. Our normalized earnings result was lower by 16.7% to ZAR 2.316 billion.
Important to note here is in the comparative result, OUTsurance, we included a full year effect of Hastings earnings, compared to the 2022 year, where we only had five months of Hastings earnings accounted into our group consolidated results. If one normalizes for that, then the normalized earnings was lower by 11.3%. Our claims ratio is up to 56.1%, and our insurance cost to income ratio increased by 0.1% to 30.4%. When one considers our group insurance cost to income ratio, it's important to bear in mind that Youi operates at a higher inherent cost to income ratio compared to the South African business.
As Youi grows and becomes a bigger contributor of absolute costs in our business, that cost to income ratio has shown upward mobility over the last couple of years. Our combined ratio was 86.7%, with a 13.3% implied underwriting margin for the group. I'll unpack our normalized ROE result of 22%, in one of the following slides. The dividend declared per share, so not to be confused with the RMI dividend. This is a dividend paid to OUTsurance Holdings shareholders, that's the minority group, but ultimately flows through to RMI Holdings, and that was lower by 17.5%. I'll discuss some of the dynamics around how we think about the dividend and what impacted our dividend profile, in one of the later slides.
We also declared a special dividend of ZAR 0.82 a share, and that was timed in December 2021, and followed the profit as well as capital release associated with the disposal of Hastings at the time. In looking at the major flows on our income statement to give some visual context to our results, we had net earned premium, so that is after accounting for the cost of reinsurance, and that's also the earned profile of premium where written is the cash profile of premium. Here we have seen 11.9% growth in net earned premium. Our claims cost you can see increased significantly to just under ZAR 2.1 billion for the year, with ZAR 993 million of higher net natural perils claims retained in the period.
This graph gives also a picture to our net natural perils retained losses over the course of the last 10 years. Marthinus gave good context to that earlier. Here you can see the black line represents Youi's profile of net cover utilized, and that applies more to the South African program as it does to the Youi program. Here you can see Youi's net retained natural perils losses increased from 12.4% to 19.6% for the year under review. OUTsurance has also shown a similar increase from 5.7% to 6.9%, and that is a result of the net retained losses from the KZN storms.
When we think about the impact of the KZN storms, we had ZAR 442 million of gross exposure to the KZN storms, but ZAR 149 million of net exposure. There essentially, that net exposure is made up out of two components. One, it's the ZAR 50 million that we retain as our catastrophe limit, and the second one is around ZAR 88 million rand of reinstatement premiums that we paid on the large utilization of reinsurance cover under that program. In looking at the other major components, it's encouraging to see a strong result coming through from OUTsurance Life. In the last quarter of the year, that result was particularly influenced by the movements in the yields. Obviously, as you will be aware, yields increased significantly since the outbreak of the Ukraine-Russian war.
In particular in that May to June period, we saw a steep increase in the yield curve, which impacted the results of OUTsurance Life positively by reducing the policyholder liability. We're also seeing obviously a significant drop in COVID-related claims, which means that we could start releasing some of the additional margins that we are keeping for COVID-related claims. Our operating expense base increased by ZAR 640 million. The key item to call out here is that we have a new large expense category in our operating expenses, and that is the ongoing commission that we are paying to BZI or Blue Zebra Insurance in Australia related to that source of business. That contributed ZAR 172 million out of the ZAR 640 million increase in operational costs.
Investment income was lower than last year by ZAR 102 million. Two factors at play here. On average, we had an effective lower yield being generated on our float in Australia, and that's due to the fact that we invest in a range of fixed deposits in the Australian market. With a profile of the drop in rates in COVID and the subsequent increase in the second half of the year, our effective rate had a bit of a U-shape in terms of the financial year. That contributed to a lower overall effective yield being earned in Australia. Then in the second half, we obviously had the result of the equity markets declining.
Obviously, looking into the next financial year, we do see upward mobility in our investment income following the rising rates in Australia as well as locally. I mentioned the lower normalized earnings result of ZAR 177 million, and that's attributed to the Hastings effect, as I mentioned earlier. On this graph, I would like to call out just how we think about the ROE. So there's two measures of ROE here. We've got the green line, which is our operational ROE. This is a simple aggregation of the ROEs of our operating units, being Youi, OUTsurance Insurance and OUTsurance Life. There you can see that we did drop from 33.4% to 27.8% for the year, and that's on account of the lower generation of operating profit.
We have a second measure of ROE, which is our published ROE, our group normalized ROE. The reason why we have this differential over the last five years is the way that we funded Hastings. Herman mentioned earlier around the capitalization of OUTsurance Holdings at the time when we acquired our interest in Hastings, and that increased the denominator in the ROE calc at a group level. With us releasing that capital, to a large degree, we will see convergence in our group normalized ROE towards our operational ROE, in the coming years. There will still be a lag because we are holding, additional capital at a group level for two reasons. The first is to acquire over the next, 12 or next 18 months, a further 5.3% of Youi from one of our founders.
Secondly, we are retaining ZAR 1 billion for a big component of our international expansion ambition. Looking at OUTsurance, and here we refer to OUTsurance as being the short-term insurance business in South Africa. OUTsurance contributes 44% of our group's gross written premium and 73% of the operating profit of the group. Here we saw a 9% growth in gross written premium, so certainly one of the strongest results coming through from OUTsurance in recent years from a growth perspective. That's obviously also assisted by the increasing trend in premium inflation, which Marthinus mentioned earlier. We had net earned premium growth of 7.9%, and if one excludes the ZAR 88 million of reinstatement premiums we paid to reinsurers, then that net earned premium result was 8.9%.
We divide OUTsurance into two main operating segments, being personal and business. Here you can see that OUTsurance personal reduced its operating profit by 7.9%, and that's on account of the higher claims ratio. Business had a decrease from ZAR 97 million to ZAR 57 million, and that's associated with that increase in OUTsurance Brokers startup loss, as Marthinus mentioned that we had over the course of the 2022 financial year. Our headline earnings result was lower by 10% for OUTsurance at ZAR 1.74 billion. The cost to claims ratio 53%, cost to income ratio 25.3%. I think worth mentioning on the cost to income ratio, here we have a similar effect where OUTsurance Brokers runs at a higher inherent cost ratio to the rest of OUTsurance.
Here we've seen an absolute increase in the cost contribution from that segment, which has resulted in an increase of the cost to income ratio of OUTsurance overall. With us gaining rapid economies of scale in that broker segment, we will start seeing that the cost to income ratio of the OUTsurance combined entity starts trending downward in future years. Then we achieve the combined ratio of 79.7%, implying a 20.3% underwriting margin for OUTsurance in total. I'll spend the next two slides unpacking the personal line segment and the business segment in a bit more detail. When we think about OUTsurance personal, we include in here the historic homeowners cover book. That was a partnership with FirstRand over many years. That book no longer writes new business and essentially is in run off.
It contributes roughly 7.5% of the in-force written premium of OUTsurance personal and less than 2% of the operating profit that's generated by the personal lines business. When one excludes the run off effect of that homeowners cover book, our gross written premiums grew by 6.9%. Also when one considers the reinstatement premium, net earned premium was up by 7.6%. OUTsurance personal incurred ZAR 100 million of that retained ZAR 149 million of losses related to the KZN storms. The upward movement that we see in the cost to income ratio for the personal lines business from 20% to 20.8% is almost exclusively linked to the fact that OUTsurance personal benefits from the distribution efforts of OUTsurance brokers.
This segment compensates the OUTsurance business segment with an ongoing commission that's typically higher than acquiring business direct, as we traditionally do in this segment. On a combined ratio basis, here we achieved a combined ratio of 73.8% with a 26.2% implied underwriting margin. In business, so exciting growth coming through here with an overall gross written premium growth profile of 22.1%, an annualized new business premium increasing by a similar measure. Our operating profit, as I mentioned, was down by 41.2%.
I think one area of context here from a premium growth perspective is that through the pandemic period, we did see that the direct business, which still contributes around 56% of the in-force premium of this book, had quite a tough time with small businesses, in that segment. We have resumed positive premium growth of around 2.5% in that direct segment in this financial year. Then with our OUTsurance broker segment growing its gross written premium by 57% over the course of the financial year. That roughly translates into ZAR 972 million of gross written premium delivered by OUTsurance Brokers in 2022. The claims ratio here increased from 57.4% to 60.1%.
Marthinus mentioned that the business insurance book is more exposed to property-related exposure and therefore also incurred a higher proportion of the KZN related results. Our cost to income ratio has now peaked in this segment at 37.9%. Marthinus mentioned that we are now flattening out the size of our agency force or OUTsurance brokers, and that will see this cost to income ratio starting to decrease into the 2023 financial year. On a combined ratio basis, we achieved 98% or a 2% underwriting margin. In looking at Youi now contributes the lion's share of the group's gross written premium at 53% and 23% of the group's operating profit.
That reduced from 32% in the 2021 financial year on account of that higher relative exposure to natural perils claims. In rand terms, Youi achieved 18.7% growth in gross written premiums. If one looks at that in dollar terms, it was a 22.5% step-up in gross written premiums being achieved for the year, with new business premium written up 30%. The main contributor to this strong growth is a rapid acceleration in our BZI performance, where that business segment wrote AUD 160 million worth of gross written premium for the year under review, which is up by 115% compared to the year before. Our operating profit was lower by 41.7%.
Youi Direct is the profitable component of Youi and also by far the largest component. Here we saw a decrease of 31.3% associated with that impact of weather. BZI accelerated to ZAR 137 million loss, and CTP also increased its loss from ZAR 61 million to ZAR 73 million. That ZAR 73 million result also includes the initial cost of setting up our new CTP channel in South Australia, which went live in July this year. Headline earnings for Youi was lower by 46%. You can see the main reason there being the impact of the step-up in the claims ratio from 53.9% to 60.8%.
Now, when one considers that increase in the claims ratio, we did also benefit from positive, liability run-off or reserve run-off from prior years, and that helped to absorb some of the effect of the increasing natural perils claims that we retained. Our cost-to-income ratio for Youi decreased from 33.7% to 33.5%. Encouraging in the year, we have seen a leveling out of absolute cost growth in the business in the second half of the financial year as some of our initiatives around IT strategy, as well as regulatory reform, started to mature from a cost investment perspective. Our combined ratio for Youi was 93.8%, implying a 6.2% underwriting margin. On our life insurance results.
OUTsurance Life remains small in the context of the overall group, with a 3% contribution to gross written premium. As Marthinus mentioned earlier, a very exciting period of growth that this business is undergoing at this point in time. Here we've seen a 22.8% step-up in gross written premium, with annualized new business premium increasing by a strong 46%. That new business premium growth is largely skewed to our funeral segment, where we have seen a step-up in growth in our Shoprite channel in particular. Operating profit for the life business improved from a loss of ZAR 25 million in 2021 to ZAR 107 million in 2022. The funeral segment, including Shoprite and that Shoprite channel, has achieved profitability.
That channel was established in March 2022, and one of our thesis around that channel and partnership was to achieve low acquisition costs, which meant quite a shallow J-curve for that Shoprite channel. If one combines that with our efforts around direct funeral, which is a traditional call center-based model, we've decreased that operating loss from ZAR 39 million to ZAR 1 million in 2022. Our underwritten life business, here the benefits of the profile of the pandemic, as well as the yields improved our operating profit from ZAR 14 million to ZAR 108 million.
That result also includes the strain of starting our face-to-face initiative for OUTsurance Life, which is primarily focused on underwritten life products, and that we established in July 2021 as a new growth initiative and one which will require fairly heavy investment over the next three-four years. Our headline earnings result was ZAR 100 million, and encouraging to see a step-up in our embedded value by 17.7%, which is aligned to our growth in our premium and the size of our in-force book over the period. Our VNB margins, important health measure for this business. This measure that I'm showing here, 15.1%, excludes the strain from that launching that face-to-face initiative in the year. If one adds that back into the VNB margin, then the result was 8.5%.
The reason why we're showing it like this is just to have a comparable reference to the prior year where we did not have that, investment strain. Here you can see a shift in our VNB margin to 15.1%, and that is illustrative of also writing a higher proportion of new business in the funeral segment, which is showing us a higher level of profitability. I'll conclude on two slides around our capital and balance sheet. The entities in our group remain very well capitalized relative to their target operating multiples. These multiples shown here are before the payment of our year-end dividend. OUTsurance at 1.7x compared to a target of 1.25x.
The life insurance business benefited from a refinement in our asset liability matching strategy over the course of the year, and that stepped up to a 3x multiple. Now, you'll ask that is a very high multiple for the life business, especially compared against a target of 1.5x. Important to note here, given the heavy investment going into OUTsurance Life, the balance sheet here is more managed around liquidity profile at this point in time, rather than the capital, regulatory capital profile of the balance sheet. At Youi, we needed to invest some of our surplus capital back into Youi Australia, the operating entity.
In short-term insurance, your capital requirement is very highly correlated to the profile of your premium growth in the business, and given that strong premium growth at Youi, which is not yet contributing to increasing capital production or earnings, we did need to support that balance sheet to continue to deliver the strong growth that we are seeing in the year. The second component of why we needed to reinvest that surplus capital is also associated with the higher retention implied from our reinsurance programs, which has an impact on your capital calculation. Youi's capital requirement in the year increased by 31% compared to the 22% growth of dollar growth in the gross written premium of the Youi business. Our group capital multiple was unchanged at 2.2 x.
Although that surplus capital re-reduced at Youi, by removing the Hastings investment from our group calculation, we carried quite a heavy capital charge against that investment being an equity investment, and therefore that played off the effect of surplus capital reducing at the Youi Group level. Looking at our dividends, I think a couple of principles around our dividend philosophy. I did mention, first of all, Capital in the business is highly correlated to premium growth. I think that is important dimension to how we think about dividend and how we also forecast dividends going into the next financial year. We do have an increasing volatility signature to our earnings, as we've illustrated with the retained natural perils losses, and we do believe that our dividends should follow our earnings volatility over time.
We also prefer funding organic growth in our group from new channels, new products, and in future, also international expansion through earnings retention. We may use debt as a measure to bridge the funding requirement of larger new initiatives, but fundamentally, we do believe that debt does not play a value-adding role in our capital structure. Therefore, it is important to note that largely, we expect our dividend profile to follow our earnings profile over time. We have seen a 17.5% reduction in our final dividend. That reduction is a bigger reduction than what we've seen in our normalized earnings.
Important to note here that Youi did not pay a final dividend for the 2022 financial year, given the fact that we need to support that balance sheet in this period of strong growth, as well as the lower earnings produced by Youi in the 2022 financial year. I think important, you know, we all think about capital discipline quite actively in our business. When we think about new ventures, we set a hurdle of a minimum of 20% that needs to be achieved by new products and new channels. Historically, if you look at our dividend payout ratio in the group, we've been around the 80% mark, as a track record in terms of distributing earnings to shareholders, in the form of dividends.
With the new structure that Herman illustrated earlier, the RMI TreasuryCompany is sufficiently capitalized for operational expenditure for the foreseeable future. With the OUTsurance Holdings dividend, we believe that will mostly flow through without any cost, you know, material cost friction going through to the listed company shareholders from after the listing transition. That's it. I'm gonna hand back to Marthinus to talk us through the outlook for next year and beyond. Thanks, Marthinus.
Thanks, Jan, for that comprehensive update. Let me just check that everyone can hear me again with the transition. Okay. All good. I'm gonna be relatively brief. We're close to the end, but I'm just gonna give you a bit of a forward-looking update here, for OUTsurance. First of all, we expect the global and local economic backdrop to remain volatile for the foreseeable future. We don't see inflation disappearing very quickly or large economic growth. Important to note, though, is just the comments we made earlier around low market share in certain segments.
Even despite a slow economy, we still believe by virtue of that 5% market share at Youi, the less than 4% market share in OUTsurance Commercial, we still have very good runway in our existing markets, and then we have the plan of the international expansion that's providing us that pipeline so that we can sustain that run rate. We are targeting a run rate of low- to mid-teens% in terms of gross written premium growth over the next five years. Obviously over time, you see different business units being growing a bit faster and others growing a bit slower, and that speaks to price discipline. That's why we don't really wanna give guidance on a business unit level.
Don't wanna paint ourselves into a corner 'cause pricing discipline remains key. When you put all these things together, that's where we believe that low to mid-teens is sustainable as a long-term target. If we look at the major strategic focus, as we mentioned, it's just the translation of that top line growth into bottom line, and it is to get the new growth initiatives to profitability. We mentioned the pricing discipline, the fact that we were earlier in the market with pricing action, but also the fact that in the OUTsurance Brokers space, we'll keep the headcount stable until we reach monthly profitability.
Given that context and the context Jan provided around the capital discipline and our hurdle rate of 20% for new initiatives, we are still very confident that on these new initiatives, we can achieve our long-term target margins. We have previously communicated those long-term target margins, but just as a refresher, in the OUTsurance broker space, that's our commercial business mainly. We think on that broker book, we can achieve a 15% underwriting margin in the long run. That is stronger than most of our peers in that segment, and that speaks to the fact that we own the client, we operate on our own systems. That's where we see the benefit coming through.
As we mentioned, if we look at the current loss ratio there and where we need to get to that 15% margin, it doesn't feel like defying gravity. At Youi, we're targeting a margin of 10%. That's more reflective of the lower pricing power and competitive advantage in that segment. For CTP, we're targeting an 8% margin. Those margins we've calculated translates to the required return on capital, and we're still bullish that we can achieve those margins in the long run. We spoke about the current environment, the hardening reinsurance and inflation and the pricing discipline, and that's causing this temporary shift of growth away from units more towards premium inflation.
The good news is that by virtue of being earlier in the market with the pricing adjustments, you can also capitalize, and towards the end of the cycle, have smaller increases and faster unit growth than most peers. We highlighted the systems transformation journey being a key part of the moat around our business. Given the 25 years of software we developed, this is an ongoing process. But we already have significant parts of our business running on the new platform. We spoke about the international expansion. We're very excited about that, and we'll make an announcement as to the country, by the end of 2022, early 2023, when we do that license application. Just to assure the market, we're not betting the farm.
We've learned very good lessons from our success at Youi in Australia, but also our failure in New Zealand. We have a very specific list of criteria when selecting a country that will allow us to distribute and risk select accurately. The listing transition, it's a big deal in our lives. We're quite excited about that. As Herman explained, we matured as a business. We think it's the right point in time for the business. From an investor point of view, if you look at the business with strong growth, pricing discipline, and good cash generation, hopefully that is a prospect that investors will see as an attractive one to invest in directly into.
Jan mentioned the agreement to acquire a further 5.2% in total from of Youi. Given those growth prospects we mentioned, the 5% market share, the runway and the new ventures coming through their J-curves, we do think it's a good use of the capital. Then as always, we'll keep on focusing on improving customer service outcomes and we'll focus on incremental improvement. As we mentioned before, price, service and trust, those are the things clients demand from us, and we must just keep on out-executing on those three measures in the market. That's the wrap. That's the outlook. Thank you very much, everyone. We'll catch up soon.
The question is an interesting one.
Okay. The question is an interesting one. If one starts with the fact that the history of the group is to add shareholder value, the answer must be that this is in line with what we've been doing. I don't know the stats from the start of RMH and RMI, but over the last eight years, the return for shareholders from RMI is 118%, and that's compared to the 20 15 of 6%. We've outperformed the market by 20 x. I think if you start with that and you say, how has this been the case for almost 40 years since the founders started the group? If enduring value is what we're all about, we've broken it up into three component parts thereof.
The first one is that the founders and we always refer to the three, GT, Paul and Laurie, but we also have to include Pat Goss in that they have created a culture that has been enduring for us. Culture of innovation, trust, integrity, management, ownership. The culture is something that's endured. The second element is that we've had wonderful partners in the group, and we've had sets of partners. There's the fundamental partners, the Remgro Group. You may know that Johann Rupert was a partner of the founders back in the 1970's and 1980's, and again then in 2000 when they swapped their mining assets for Anglo American's financial services assets, which was in fact the stake in FirstRand. We had fundamental partners. I guess the partnership between the founders are fundamental in itself.
You had the Remgro relationship, and then later, from 2010, we've had the fundamental partnership with Warren Buffett. Those have been very formative in what we've done. We've also had entrepreneurial partners, Marthinus, Howard, Willem. We see them as fundamentally entrepreneurial partners that joined the group. Adrian and Barry at Discovery are similar. Alida, Brian at Alida at IMG, and Brian at Property. These are our entrepreneurial partners. Somehow the group also was able to foster a culture that inherently welcomed professional partners, the likes of Aseseving Fazana, Johan Burger, Jan, Dani. Some of the businesses and most of the businesses have actually been able to go from an entrepreneurial culture into a professionally managed one, but still with those cultural hallmarks that I explained.
The third element, my predecessor, Peter Cooper, was the architect of this. You have to assume that if you have a group of competing and diverse businesses, you have to have the optimal structure in which they operate. Access to capital markets, access to listed markets. We changed the scope of the business quite some time. You'd remember that RMH was split RMI, RMH. Then we had the FirstRand unbundling, and now we have this unbundling. Between the culture that has stood the test of time for forty years and our wonderful partners, and then the optimal structure in which this can operate, I think this is very much in line. We're now liberating Alida and Brian on their side and, of course, Marthinus and his team to carry the baton forward.
I think that's answer to that question. Thank you.
We have a question on the chat around the reference to OUTsurance's international expansion strategy. Is the focus on organic growth or acquisitions? What is your criteria for selecting international markets to enter? Is the focus on developed markets or emerging markets? The fourth component to the question is, what sort of scale do we envisage in our international expansion strategy? Marthinus, would you like to take that?
Thanks, Jan. I'll give it a go. Yes, I mean, when we look at our international expansion, it's certainly focused on organic growth. I mean, if you analyze the return on capital, and the growth being provided by OUTsurance, it was mainly driven by the successful startup of OUTsurance in South Africa and Youi Australia. Even if you look at different insurance companies in terms of return, that is certainly where you generate the return if you're successful. We focused on that. We have a specific list of criteria when selecting a country. I mean, one of them is quite simple, just that you need to have a middle class. Many people ask us, "Why not this country?
Why not that country?" An interesting stat is the Australian market is more than four times larger than the South African insurance market, despite them having 26 million population, we're having 60. But it's all related to the size of the middle class. If you look at South Africa, our middle class is more towards 7 million-8 million people. That tells you you need that middle class, and you need a banking sector and finance vehicles. We sort of follow us into markets like that. Other important criteria is just a stable regulatory environment. You don't wanna go to a country, make a big investment. The moment you make life difficult for local players, the rules of the game changes, or there's some special tax on you.
That is critical, that stable regulatory environment. The success of foreign players in a country. We at some point had a look, for example, at Texas as a state. I mean, I think it ranks as the probably the
Sixteenth or seventeenth biggest country in terms of insurance in the world. If you look at that state, there's more than 50 insurance players registered there and not one foreign player. Sometimes it's not legislated, it's just structural in terms of distribution relationships and things like that. To think you can just walk into a market like that and compete, you'd be making a big mistake. I think it's like walking into the ring with Mike Tyson. You must know what you're in for. I think that is quite critical. Essentially it boils down to two factors for us, and that speaks to where we have been successful. You need to be able to distribute, and you need to be able to price accurately and do risk selection.
In some countries, in many of the eastern countries, you have tariffs where the state will prescribe the premiums that you can charge. If all insurers charge all clients the same premiums, what's the incentive to shop around? You're gonna go in there, and you're not gonna grow organically because people don't shop around. That shopping activity is driven by the opportunity to achieve savings and because premiums differ a lot from one insurer to the other. That's what's driving that. Being allowed to use different factors to calculate your premiums. The next one is really distribution. You see many countries in the world still being fully face-to-face, even in personal lines, not like South Africa or Australia. Entering a market through a face-to-face distribution channel is much tougher.
Warren Buffett had the saying that if you misprice risk, a broker will find you 4:00 A.M. in the morning in the middle of the ocean. That's why if you wanna deal with a face-to-face market, your pricing models need to be in order. As a startup, they aren't perfect from day one. That's why we're certainly thinking to rather start with a direct distribution channel in a market that allows a direct distribution channel and then later on bring the other channels on board as you develop your pricing models and get your ducks in a row. That's certainly how we're thinking around that. In terms of relative size to our business, I think many companies look at international expansion, and then they just pick the biggest markets.
The biggest market's not always the best because when you look at the distribution of profits in insurance, you often see the top players taking the lion's share and the bottom players, although they play along, they're not very profitable. For example, for that reason, a 1% market share in China might be the same as a 10% market share in another country. That 10% market share in terms of size could be much more profitable because you might be a top three or four player, whereas in China, you're probably gonna be a number 20 or 30. The risk that you're gonna write is mostly gonna be those ones that the other top guys weren't able to help. That is a key factor.
If you look at the success of top companies we follow in the world, I mean, like an Admiral or a Direct Line, they expanded outside their own countries, and they didn't have much success because they went for the big countries because they needed to move the dial relative to their own size. Distribution in those countries worked differently to their own countries, and they assumed that the whole world's just gonna become direct or even aggregated, and it doesn't work like that. I think in some things like Uber, something spreads across the world, and everyone works the same. Distribution relies heavily on legislation, human behavior, culture, and that's why you must make sure that when you go to a country, you can make it work with how distribution works in that country.
Those are the sort of key factors that played a role in the selection of the country. Jan, is there a second or third part which I missed there?
There's a question around the size of the out year and retention. Well, sorry, retention.
Yeah. Yeah. Okay.
The further question is on the size of the out-year and catastrophe retention, confirming that it was ZAR 50 million for the 2022 financial year. For 2023, that goes up to ZAR 100 million, obviously given the repricing that we've seen there on the reinsurance market. There's a further question around the margins that we expect for CTP and BZI. Youi has retained a roughly 13% underwriting margin for the last five years. How do we see CTP and BZI impacting the margin of Youi overall once we reach profitability there?
Thanks. Thanks, Jan. As per my comments made earlier in that outlook, our long-term target margin for BZI is 10% and for CTP is 8%. For Youi direct, that long-term target margin is 13%. The overall Youi target margin will be the weighted average of those three, and it'll depend on the relative size of those three components.
I think importantly, all those margins for BZI and CTP also comfortably clears our marginal return on equity hurdles of 20%, that we've set for new initiatives.
Thanks, Jan.
That concludes the questions on the channel. Are there any questions in the room?
Thanks for the presentation. Just a quick question from my side around personal lines business, where you're seeing sort of inflation and rising interest rates actually have an adverse impact on the disposable income. In the short term, when you don't see salaries actually sort of matching that. Is it reasonable to assume that you can price sort of pass on the pressure to the consumers in terms of pricing and also taking into account the sort of hardening rates from a reinsurance point of view? So that's the first one. Secondly, just on the life business, you mentioned growth, quite rapid growth on the funeral insurance space.
If you look at sort of the likes of your homeowners cover, sort of Massmart and sort of other smaller players, through their self-captive model, what sort of differentiates our insurance given the makeup of that the market there?
Thanks. I'll take the first half of the question, and Jan, you can take the second half of the question. We're very cognizant of affordability of insurance. That's why I mean, when COVID came and people were negatively affected, we sort of reduced premium increases, and we went sort of into negative territory for a period of time. Now in this environment. During that period, we had the fortune that vehicle accidents were fewer. Now we have this upward claim cost pressure, and we have to pass that on to consumers, as you say. We're trying to mitigate it as far as possible, looking obviously at our procurement and other places where we can make up the lost ground.
We also very carefully manage, monitor our lapse ratios and our renewal rates to make sure we find an optimal balance. In the cost space, the catch-up which is needed is quite small, so we don't really have to deviate much from CPI inflation overall. In the home space, the catch-up is bigger, and there we've taken a view on many of the increases to take a multi-year approach. You basically subsidize it and just accept the thinner margin for a period of time just to spread the pain over more years. Hopefully, we're not hoping for a big drought for the country, but just as the cycle turns, things moderate a bit and then the required step up from the reinsurance market and the inflation is hopefully a bit less.
Certainly spreading some of it over multiple years is a key component. Then also just advising our clients on how they can mitigate certain costs. We've mentioned on the load shedding that there's very effective, cost-effective mitigation to protect yourself against surge and those things. If we can all work together to keep claims lower, we can also keep the affordability in check. We're acutely aware of the concern you raised.
On the funeral market, I mean, the funeral market is a significant component of the life insurance market in South Africa, and we obviously identified in 2017, 2018 that we can leverage our brand into this marketplace. Ultimately, funeral is a fairly simplistic product, a well-understood product by the market and a market that also has inherently higher churn. Although it's very competitive and well penetrated, we believe those churn rates in the funeral market does give us the option to penetrate that market. I think excitingly, the Shoprite channel has also given us a large footprint to create a unique channel for funeral distribution in South Africa that has a low acquisition cost associated with that.
In time, that also implies good customer value from a product sold into that channel.
Got a question here for Alida. The proposed transaction with MMH regarding IMG, how is that going to impact the current model or potentially the daily activities, I presume investment activities of the affiliates? Could we maybe have a mic here, please? Thank you. While I have a second, thank you to Schalk and Zoe and Chiara and Lisa, all the people who've worked tirelessly to get this set of results out. I know you've had many late nights, Schalk, and I know I'm forgetting people behind the scenes, but to all the teams, well done, and thank you.
It's working, yes. I think the answer to that question is actually quite short and simple, and that is that we expect nothing to change. The conversation that we are having with Momentum is that the genesis of our business model was built on a standalone independent business, and that remains the operating model for the business going forward. We don't practically see any changes in the way that we run our business or engage with our affiliates. I think it's important to highlight that we remain minority investors into our asset management businesses, and therefore, you know, our operating model of being a non-interfering but supportive long-term shareholder is one that we want to uphold.
Therefore, practically, we don't really see any big impact, and we certainly have never gotten involved in any investment-related decisions of our affiliates, and we certainly will not do so in the future either. I think that was the.
Thank you. Yes. Thank you.
Yeah.
On that note, anything else then? Sorry.
There is a further question around the capital allocation framework as well as the expected funding and holding company costs. I'll deal with that one. I think to reiterate, I think we have a strong record of having a high dividend payout ratio in the group. We only retain capital for known organic growth support initiatives in the group. That that's the principles that will guide us. As I mentioned before, our earnings profile will determine our dividend profile over time, and we believe that those should be inherently linked to also give investors predictability around our dividend flows. There's a question from Warwick.
Sorry to interrupt. It goes without saying that once the dividend is now passed up from OUTsurance, there's no further funding and holding company costs at RMI. Even the ZAR 300 on the income statement, which we said reduced from ZAR 600 to ZAR 300 will be out. The full OUTsurance dividend will now become net of minorities, will now become available for dividend at RMI level. You would have seen a relatively flat dividend at OUTsurance, but remember, there was still some funding costs that had to be net off at RMI level, which have now disappeared.
Correct. Marthinus, there's a question on what percentage of the Australian market do you serve with your current footprint? Do you plan to expand to all regions?
Yes. We currently serve basically the entire Australian footprint, all states including Tasmania. Importantly, that in Australia obviously, flood, cyclone risk is a significant factor. In some of the northern and the higher, lower lying areas, obviously we assess each risk individually. The bottom line is there's massive runway left in the Australian market, and that's giving us great excitement. The fact that we're seeing accelerated growth in states where we were sort of underrepresented before, is also fueling that excitement.
Thank you. There's a question from Warwick on a specific target market for underwritten life products. Warwick, our face-to-face expansion initiative here plays into, I guess, the current segments of underwritten life in South Africa. Our natural target for starting is the OUTsurance customer base, which, as we know in South Africa, is a middle and upper type of product segment. We're starting in terms of targeting with our third agency capabilities into that customer base. Then in time, we'll expand into the IFA broker space to launch our product. Our underwritten life product is a high quality underwritten life product that can be, you know, very similar to our peers with some innovative product features that we hope can penetrate the market.
We've got nothing else.
Yep. Also done here. Yep.
Good. Thank you, everyone. Thanks for attending. Thanks again to the JSE and for everyone attending, including the media. Thank you.
Thanks, everyone.
Thank you.