Good morning, everyone. Welcome to the Annual Results Presentation of the OUTsurance Group. Just by way of introduction, I am Marthinus Visser, the Group CEO. On my left, I have Francois van Rooyen, our incoming Group CFO, and to his left, we have Jan Hofmeyr, our outgoing Group CFO. To start off, we will follow the normal agenda, in that I will be taking you through the operational review of the business, and then Francois will be taking you through the financial review, and then we will close things off with the outlook and strategic focus areas. To start with the operational review, in terms of the macroeconomic trends, firstly, CPI inflation. You can see there over the last year, CPI increased in all our markets. Historically, CPI and claims, and therefore premium inflation, tend to be loosely correlated.
But we saw quite a big decoupling in the last year, and some of the drivers were just the reduction in certain claim frequencies, but then also the stronger rand, which caused procurement costs to go down. As a result, we saw that decoupling with premium inflation being quite a bit lower than CPI and not increasing. How did that affect us? Obviously, these claim frequencies have a positive impact on your profitability, but it does cause the growth to be more depressed because of the lower premium inflation. If we were to look then at interest rates, I think the most notable one there is the Australian interest rate, cash rate, where we have seen a 50 basis point increase over the last year.
Given the materiality of Australia inside our business in terms of, by far, being the biggest investable funds sitting in that business, it did provide a bit of a tailwind in terms of investment income. Then in terms of the exchange rates, we saw the rand being quite a fair bit stronger against the Australian dollar. Given the size of Youi, that was a headwind for us in that it depressed both the growth in rand terms as well as the Youi profits in rand terms. A small upside to the strong rand was the fact that the Irish losses were slightly smaller in rand terms. Then if we were to look at the individual business units, starting with OUTsurance South Africa Personal, we can see satisfactory premium growth in the context of that declining premium inflation environment as highlighted.
We saw a very strong claims performance despite the high natural peril losses, and as I alluded to, because of the lower vehicle accident and vehicle theft frequencies. A highlight for us was continued cost efficiency gains realized through disciplined cost management. OUTsurance Personal lines now has got a cost ratio of 18.1%, which is really world-class. In terms of growth, we saw a gross written premium growth for OUTsurance Personal of 7.7% if you exclude the Homeowners book, which is in runoff. Again, in the context of the much lower premium inflation, we think that is a strong result. In terms of profitability, we saw 14.4% growth in operating profit. Then looking at the OUTsurance Business in South Africa, we saw good premium growth achieved by OUTsurance Brokers, but more muted growth in the direct channel.
Favorable claims experience because of similar reasons also supported the claims ratio for both the direct channel and the broker channel. Ongoing economies of scale also enabled that broker cost ratio to improve further, and we do still see some room for further improvement as that channel scales further. In terms of growth for Business OUTsurance , we saw 12.1% gross written premium growth. Profitability, the operating profit grew by 49.8%. That big difference between the premium and the operating profit is really because of OUTsurance broker channel moving from where it just sort of achieved breakeven toward a point where it achieved its target margin. That step up obviously caused this much stronger step up in profitability. Looking at Youi Direct, firstly. We can see Youi continues to deliver good organic premium growth against the simplified distribution strategy.
The significant storm exposure in the first half of the financial year was the key driver in increasing the claims ratio, because otherwise, in terms of our attritional losses, it was still a very strong performance from Youi Australia. In terms of the growth, we saw the direct channel delivering 21.2% gross written premium growth in Australian dollars. In the context of also lowering premium inflation in Australia, that does represent some pretty resilient unit growth. In terms of profitability, we saw that 2.4% decline in Australian dollar terms in operating profit. It was really a tale of two halves, because at half year we were well behind a year-on-year because of the high natural perils, but the second half proved to be quite strong, and we made up a lot of lost ground there. We are fairly pleased with that 2.4% decline for the full year.
In terms of Youi CTP, it experienced a challenging operating environment on the back of adverse claims experience. This adverse claims experience is really driven mainly in New South Wales by more common law claims that we observe following some changes in the scheme. Corrective pricing action has been taken, but we have also observed a general deterioration in market profitability as well. As such, we do expect some general market adjustment and reform to also happen in the near future. In terms of growth, it was also really a tale of two halves, where we achieved 23.1% gross written premium growth, but it was really off the back of a very strong first six months. Following the deterioration in the claims ratio, a much softer second half of the financial year in terms of growth because of the corrective premium action.
If we were to step onto OUTsurance Ireland, 2026 marked the second full year of operations, and OUTsurance Ireland is steadily progressing as a new entrant in the Irish market. It recorded EUR 41 million of gross written premium, which is quite strong growth. The 2026 operating loss, as we explained previously, represented the peak of the expected J-curve. In the second half of the financial year, we did see the monthly loss profile turning. So that is context around the profitability. Breakeven is still expected five years after launch. Important for investors to also realize is just the long-term nature of this investment, because when you do start, you start with no data. As such, you have to follow a fairly cautious ramp-up to balance the desire to gain scale against the need not to have anti-selection and pricing mistakes.
Because if you scale too fast, you just amplify your pricing errors. So really, if you achieve that five-year breakeven profile, it is really good progress, but the real payback is really beyond 10 years. Once your brand becomes established, you get real scale, and your cost ratios and premiums become really competitive. Hopefully that gives you a bit of context around the long-term nature of the Irish investment. Obviously, we have seen the similar pattern in South Africa and at Youi, and that is why we are so optimistic and confident around the progress there. In terms of OUTsurance Life, OUTsurance Life had a really good year, which is a bit masked when you look at the operating profit, and I will explain why. Firstly, the value of new business written grew by 41.5%, reflecting the positive impact of product simplification and accelerated growth in the direct channel.
The VNB margin improved from 22.1% to 23.7%, and that benefited from cost efficiencies and scale benefits. In terms of profitability, strong underlying profit performance with the year-on-year growth rate being distorted by the variability in the yield curve impact in years 2025 and 2026. To put it differently, the 2025 profits were slightly elevated because of yield movements, and that sort of reversed in 2026 to a degree. OUTsurance Life's operating profit declined by 7.1%, but comprehensive equity grew by 22%. Looking at our property and casualty new business premium performance, we can see there in the last year that increased by 15.9%, excluding Blue Zebra, BZI. That is a really pleasing performance considering the much lower premium inflation in both South Africa and Australia, as well as the stronger rand versus Australian dollar exchange rate.
Looking at our 10-year property and casualty gross written premium performance, we always like to show these long-term graphs as they tell a really good story and gives a lot of context. First of all, we can see there that our 10-year compound growth rate is now at 11%. However, the five-year one is at 15.4%. As we previously explained, the resetting of our strategy and the focus on our core and the resulting improved execution enabled this acceleration in organic growth in our core business, which enabled this faster growth over the last five years. Again, you can see the step-up there in 2026 of 15.7%, and that is in the context of the lower premium inflation and the stronger rand. In terms of our overall premium makeup, we can now see that Youi, excluding BZI, accounts for 62.9% of the group's gross written premium.
Ireland is around 2%, and as such, if you add those two, our premium coming from abroad is now roughly around 65%. That also speaks to the diversification of the OUTsurance Group. Getting to the all-important operating profit performance, we can see there the 10-year growth rate is now at 11.3%, and pleasingly that caught up with the premium growth rate, because for a fair period of time, it was actually lagging the premium growth rate. The five-year compound growth rate in operating profit now sits at 17.1%. You can see those first few years were fairly flat there, and that is really a period where we had too much complexity in our business. Following the reset of our strategy, the simplification and the focus on our core, this execution improved.
It not only supported the stronger execution in terms of profitability, but also that organic growth is a higher quality growth, and that has enabled this much, much stronger top line to bottom line conversion. If we look at it there, we can see for the last year, the operating profit increased by 30.3%. A big factor in that year-on-year comparison is the share-based payments, which was lower given the transition from the old share option scheme to the Conditional Share Plan, which we will explain in a bit more detail later on. That really implied that in 2024 and 2025, the OUTsurance SA earnings was a bit depressed because of that old scheme gearing effect. Now in 2026, we are more into a more normal territory in terms of the cost profile of the share-based payments.
Then in terms of Youi, we see a small deterioration there, and as explained, the main factor there was really the natural perils, which was higher in the first half of the financial year. The stronger rand would also depress that a little. Still, ZAR 2.8 billion is a strong and much more resilient performance from Youi compared to prior years where we experienced heavy natural perils. Then if we look there at the bottom, we can see OUTsurance Ireland at the ZAR 489 million loss, and as expressed previously, that represents the peak of the loss profile, and we expect that to reduce in subsequent years. Then this graph here demonstrates the retained natural perils as a percentage of net earned premium. You can see there, if you look at the purple line first at a group level, that increased from 7.5% to 9.1% in 2026.
For Youi, it increased from 9.8% to 11.7%, and for OUTsurance South Africa from 4% to 4.6%. I think what is important to note here is that we actually see less volatility than in some recent periods where we also had heavy natural perils like the Western Cape storms and obviously the storms in Queensland in the first half of the financial year. We believe the business has become more resilient to these with sort of three driving factors. The one is just improved pricing and underwriting as we elevated our execution on that, especially post the KZN 2022 floods and big floods in Australia in 2022. Another factor is also with the softening reinsurance market, we were able to maintain the same reinsurance attachment points in nominal terms for the last three years.
Given our strong growth, that actually implies a reduction in the attachment points in real terms, which also facilitates a bigger reduction in volatility because of your reinsurance. Lastly, in Australia, we also achieved better diversification, both in terms of product but also in terms of geographical location in Australia with more business being written outside of the higher natural peril areas. So that has certainly made us more resilient. I think what is important for investors to understand, though, is still over sort of a six-month period, it can still be fairly volatile, but as we have seen, once you get to 12 months, it already evens out quite a bit.
An important factor to consider is in the very long run, if you are talking 15, 20 years, we do see self-driving cars potentially reducing the vehicle accident frequency and in turn shrinking the vehicle insurance market somewhat. At the same time, however, we do see property insurance growing in real terms because of things like climate change, urbanization, and expensive tech like solar panels being fitted to homes. As such, we actually do not see the insurance market as a whole shrinking in the long run. We do see property sort of picking up the slack for motor over time. What that does mean is we expect in that 15- 20 year window to really see a bit of a mix change from motor more towards property.
That, again, that might cause the volatility in the insurance industry as a whole, again, to start rising a bit, because property tends to be more affected by natural peril claims, and as such, be a bit more volatile. So that hopefully creates a bit of context around the retained natural perils for the past year, but also near term and very long term. The last slide in the operational update is just to look at the earnings impact of our growth initiatives. As previously expressed, our appetite for new venture losses is set at 10% of full year operating profit. You can see there in the last year, we were at 9.8%, fairly high in the appetite.
Importantly, we expect both of those components to come down in coming years. Ireland, as we said, we expect that ZAR 489 million to be the peak of the losses and CTP, given the strong corrective action being taken there, we also expect that to come down. We do expect to be quite somewhat below that 9.8% in FY 2027. That is the operational update.
I will then hand over to Francois for the financial review.
Thank you, Marthinus. I will start the financial review by providing an overview of some of the key themes that impacted the group's results for FY 2026. Those can be broadly categorized into six buckets. The first is that from a premium perspective, the group delivered strong organic premium growth on account of our direct-to-consumer distribution strategy, despite the impact of lower overall premium inflation observed across the geographies that we operate in. From a claims perspective, we saw elevated natural peril activity in Australia, especially during the first half of the year, but storm activity moderated during H2, which played a part in delivering a stronger earnings outcome for Youi in the second half of the financial year.
OUTsurance South Africa, however, delivered improved working claims outcomes on account of positive claims frequency trends, but also continued underwriting improvements made, whilst the claims performance delivered by OUTsurance Ireland was in line with our expectation for that business considering its stage of development. As a third theme from a reinsurance perspective, and as previously guided, we delivered a favorable 2026 renewal which contributed to net earned premium growing at a rate faster than that of GWP, while also recently concluding a positive 2027 renewal in line with the generally improved reinsurance market conditions. From an investment return perspective, the group reported lower equity returns, which coupled with the large negative impact of the year-on-year movement in the total return swap, which backed the final transfer of ESOP scheme, somewhat dampened the group's reported investment income result.
From an expense perspective, it was pleasing to note positive cost outcomes across all of the group's core operating business units, with OUTsurance South Africa, however, observing a large structural and once-off reset in its cost base considering the conclusion of the ESOP scheme's transition to the CSP scheme. From a currency perspective, the stronger rand relative to the Australian dollar diluted some of Youi's operational gains in how that translated into the group's results. Next up, I'll step you through the OUTsurance Group Limited and OUTsurance Holdings Limited results, with OGL representing the listed entity owning 92.8% of OUTsurance Holdings being the group's regulated insurance entity. Thereafter, I'll step through OUTsurance SA and Youi, followed by Ireland and Life, and conclude the financial review with an overview of our dividend and capital position.
From an OGL perspective, we delivered normalized earnings of ZAR 5.6 billion for the year, up by 18.5%, largely on account of the strong operating result delivered by OUTsurance South Africa. That translated into a normalized return on equity of 38.3% for the year. Normalized earnings per share was up by 18.3% to ZAR 3.622 a share. From a dividend, the total dividend declared for the year from an ordinary perspective amounted to ZAR 2.915 a share or up by 22%, with a total special dividend amounting to ZAR 1.178 a share. I'll provide further context to the drivers of the dividend later on in the presentation. From an OUTsurance Holdings perspective, OUTsurance Holdings delivered normalized earnings of ZAR 6 billion for the year, up by 20.9%.
That differential in OUTsurance Holdings' growth rate of earnings relative to that delivered by the OUTsurance Group is on account of the lower associate earnings income delivered by Polar Star, where Polar Star delivered a strong earnings result in FY 2025, which was not repeated to the same extent in FY 2026. The following slide provides an overview of the earnings outcomes delivered by OUTsurance Holdings, with the bar graph on the left providing a five year history. As a reminder, OUTsurance Holdings delivered normalized earnings of ZAR 6 billion for the year, which was up by 20.9%.
OUTsurance South Africa remained the largest contributor to that earnings pool, considering its strong underwriting performance, but also the favorable impact of that share-based payment reset, with Youi's earnings somewhat dampened by the effect of natural perils, as we've highlighted. From a return on equity perspective, OUTsurance Holdings' return on equity improved from 36.4% to 40.4% in FY 2026 on account of the strong earnings result reported by the group. I'll remind listeners that OHL has a normalized return on equity target band of 30%-35%, and we do expect the return on equity to return to within that band looking ahead. Then stepping through the detail for OUTsurance South Africa, where I'll also provide some detail into the operating result of OUTsurance Personal and OUTsurance Business.
OUTsurance South Africa delivered gross written premium, which was up by 7.4% to ZAR 14.3 billion for the year, with net earned premium growing slightly faster at 7.6% on account of the positive impact of the reinsurance renewal, delivering net earned premium of ZAR 14.1 billion for the year. Normalized operating profit, however, grew strongly at 62.4% to deliver ZAR 5.09 billion for the year, and there were effectively three key drivers to that result. The first is that both OUTsurance Personal and OUTsurance Business delivered improved claims outcomes despite the impact of the Eastern and Western Cape storms late in FY 2026. Secondly, both core business units also delivered improved cost outcomes on account of the continued cost discipline employed across OUTsurance South Africa.
Normalized investment income, however, was down by 31% to ZAR 724 million on account of the effect of the total return swap, which saw a negative mark-to-market movement year on year despite playing its role in hedging the economic cost of the ESOP scheme over its lifetime. Just from an operating profit perspective, as is also evident from this slide, is the large reduction in the loss reported by OUTsurance Central, which reduced from ZAR 1.3 billion to ZAR 244 million, which is purely the effect of that lower share-based payment cost following the transition to the CSP scheme. Then stepping through some of the detail for OUTsurance Personal. Gross written premium was up by 6% year on year. But when one normalizes for the effect of the Homeowners Cover book, which is in runoff, gross written premium would have grown by 7.7% year on year.
This lower overall growth rate compared to the prior year result delivered is largely on account of the lower overall premium inflation cycle observed over the course of the year. The combined ratio ever improved from 64.6%- 61.5% on account of improvements in both the cost to income, but also the claims ratio. When focusing on the green bar, the cost to income ratio improved from 18.8%- 18.1% on account of the general cost discipline employed by the group, but also continued operational efficiencies introduced over the course of the year. Looking ahead, however, we expect further improvements from this level to be fairly muted as opposed to further significant improvements. The claims ratio improved from 44%- 42% on account of positive claims frequency trends, but also further underwriting improvements employed over the course of the year.
These factors collectively contributed to operating profit growing strongly by 14.4% to ZAR 4.29 billion for the year. Stepping through the detail for OUTsurance Business. Gross written premium grew by 12.1% to ZAR 3.38 billion for the year, with the bulk of that growth delivered by the OUTsurance Brokers channel, whereas in OUTsurance Business Direct, we observed premium growth more in line with the general premium inflation trend observed over the course of the year. The combined ratio improved significantly from 78.5%- 69.9%, again on the back of improvements in both the cost to income but also the claims ratio. Starting with the claims ratio, that improved from 46.7%- 41.2% on account of the improved scale benefits delivered by OUTsurance Brokers, but also continued underwriting and risk selection benefits obtained over the course of the year.
The cost to income ratio improved from 31.8%- 28.7%, again benefiting from the general cost discipline across the group, but also specifically from the additional scale delivered by the broker channel. These factors supported operating profit growth strongly, which was up by 49.8% year-on-year, reaching ZAR 1 billion in operating profit delivered by this reporting segment. Stepping through the Youi Group result. I'll focus our premium measures on the measures excluding BZI, considering that channel being in runoff with no new business added subsequently to the 1st of July 2025. Gross written premium in Rand terms was up strongly by 18.5% to ZAR 25.68 billion, with net earned premium growing by 24.7% to ZAR 22.26 billion for the year.
Operating profit was, however, down by 6.5% to ZAR 2.8 billion for the year on account of the reduced operating profit delivered by Youi Direct, which was down 4.4% to ZAR 2.78 billion on account of the increased natural perils exposure, as we've highlighted. CTP's loss, however, grew from ZAR 126 million- ZAR 328 million on account of the adverse claims exposure, specifically in relation to common law claims, specifically in the New South Wales scheme. The improved operating profit result delivered by BZI dampened the impact of CTP's loss somewhat, with BZI's operating profit increasing from ZAR 210 million- ZAR 347 million on account of improved natural peril outcomes and positive claims development. BZI's geographical footprint is slightly different to that of Youi Direct and had less exposure to the impact of storm activity over the course of FY 2026.
Stepping through the detail of Youi Direct. In Rand terms, gross written premium grew strongly by 18.4% to ZAR 23.85 billion for the year. When accounting for the impact of currency, GWP would have been up by 21.2% and net earned premium by 25.7%, despite the impact of a moderating premium inflation environment over the course of the year. The combined ratio, however, was up from 84.8%- 88.3% on account of the increased claims ratio, which stepped up from 55.2%- 58.8% on account of the increased natural peril experience. The cost to income ratio improved marginally from 29.6%- 29.5%, reflecting our continued investment in our operating capacity to support the growth in Youi Direct. Next, stepping through the detail of OUTsurance Ireland.
OUTsurance Ireland continued to make steady progress as a new entrant into the Irish insurance market and grew gross written premium strongly up from EUR 14 million in 2025 to EUR 41 million reported for FY 2026, or ZAR 801 million . From an operating loss perspective, the operating loss increased from ZAR 448 million to ZAR 489 million in FY 2026, and we expect this operating loss to represent the peak of the annual loss from a J-curve perspective. It was also pleasing to note the net onerous loss allowance reducing in the year on account of the improved scale and claims ratio outcomes. We also expect the net operating loss allowance to gradually step down as the business continues on its path toward break even, which we expect monthly break even to still occur five years post-launch in 2029.
Investment income reduced to ZAR 37 million for the year on account of the softer interest rate environment observed in Europe. The net claims ratio for the year reached 78%, and there's effectively two components to that. Our core underlying claims ratio of 73.5%, together with the onerous loss component of 4.5%. We consider the claims performance delivered by Ireland to be in line with our expectations for the business. Stepping through the detail of OUTsurance Life, it is important to distinguish this result by considering the impact of the yield movements separate to the strength of the underlying operating result. OUTsurance Life's operating profit decreased by 7.1% to ZAR 407 million for the year, with the bulk of that decrease sitting in Life Direct, which decreased from ZAR 546 million to ZAR 372 million for the year.
When considering the impact of yields in the prior year, Life Direct observed a yield gain of ZAR 43 million relative to a yield loss in the current year of ZAR 58 million, thereby representing ZAR 101 million swing in operating profit year on year, purely on account of the impact of yields. The funeral partnership, however, saw profit growing strongly up from ZAR 52 million in the prior year to ZAR 98 million in the current year on account of the continued strong operational execution. Similarly to OUTsurance Life also benefited from the transition of the ESOP scheme to the CSP share scheme, which played its part in reducing the loss reported in the central segment, which reduced from ZAR 160 million to ZAR 63 million for FY 2026. Looking at the value metrics, which better represent the strength of the underlying result delivered by OUTsurance Life over the course of the year.
The contractual service margin or CSM, which is an IFRS 17 measure reflecting the value of future profit locked into our balance sheet, improved strongly by 19.7% to ZAR 1.9 billion for the year on account of the strong profitable new business growth delivered by OUTsurance Life. The comprehensive equity, which is our value-based metric, replacing embedded value measures and effectively representing the sum of OUTsurance Life's net asset value coupled with the post-tax CSM, improved strongly by 22%, also benefiting from the strong new business volumes added over the course of the year. Our value of new business improved strongly by 41.5% to ZAR 457 million for the year, with the bulk of that value of new business growth being delivered by the strong momentum in OUTsurance Life Direct. Our VNB margins remain healthy and improved from 21.1% in the year to 23.7% for FY 2026.
Then concluding the financial review by providing an overview of our balance sheet position and the dividend context, it is pleasing to note that all the group's operating entities are operating from healthy solvency positions well in excess of their internal target solvency bands. Stepping into the dividend, I would like to draw attention to the increasing dividend payout ratio for OGL, which stepped up from 77.6%- 80.5%. The key drivers of that increase in the payout ratio is the shift in the group's profit mix over the course of FY 2026, with OUTsurance South Africa forming a larger part of the group's profit pool, considering its strong earnings performance over the course of the year relative to Youi's exposure to natural perils which dampened its earnings profile.
That, coupled with the fact that OUTsurance South Africa operates at a higher inherent dividend target payout ratio, contributed to ordinary dividends growing faster than normalized earnings per share and shifted that dividend payout ratio slightly higher. Looking ahead, however, we expect the target payout ratio to moderate to the mid-70s, depending on the exact variability in the profit mix for the group in any particular reporting period. Our special dividend remains reserved for the impact of any surplus capital being released from balance sheet actions taken, as well as the monetization of RMI Treasury Company assets.
The special dividend declared for the final in FY 2026 of ZAR 0.875 a share is on account of capital released from the OUTsurance balance sheet that backed the final tranche of the ESOP scheme, which was settled in September of 2025, together with capital released from Youi's balance sheet as the BZI channel continues its runoff. Then there was also an impact of continued monetization of RMI Treasury Company assets, which played a part in the special dividend. Looking ahead, though, our capital allocation strategy remains consistent, and we will continue to fund the group's internal organic growth opportunities and return surplus capital to shareholders after solving for the internal operational, regulatory, and strategic needs.
I will now hand over to Marthinus to conclude the presentation with the outlook and strategic focus areas. Thank you, Marthinus.
Thank you, Francois. Looking at our group outlook and strategic focus areas, to start with the first focus area being the organic growth. As we reiterated previously, we still have large runway for growth in our core direct markets, given our low market shares and strong momentum in these key markets. What we also have to call out is that we are in a period of low premium inflationary environment, and that can naturally change fairly quickly. Many of us, we do not price on it, but many of us see the long-term weather predictions of El Niño being called out. While it is not perfectly correlated, what we typically see in an El Niño is you see the stronger short-term profitability, but then weaker growth just because your natural perils on a net basis tend to be lower.
Stressing that at OUTsurance we do not do crop insurance, and in past experience, the losses because of higher fire risk associated with, say, an El Niño is much less than the losses related to high storm and flood activity, which is more the norm for a La Niña. Typically, a La Niña will depress your short term earnings, but it will be more positive for long term growth. That is maybe just a way to think about that current premium inflationary environment. As mentioned, it can turn around. The correlation is not perfect, but that is what we are currently seeing. OUTsurance SA and Youi's operating model is quite well insulated from macroeconomic factors. We have seen previously, if inflation were to spike for some reason, political or whatever, we have quite good pricing power and are quite resilient to that.
Also, when that happens, typically you see shopping activity pick up again, and given our model of organic growth, typically we actually can benefit quite a bit if people shop around more. In terms of the organic growth strategy, we have also seen how that drives strong top line to bottom line conversion because it implies a high quality of growth. In terms of delivering on OUTsurance Ireland's business plan, OUTsurance Ireland is a core component of our long term growth and diversification strategy. As I explained earlier, it is really that long term beyond the 10 years that it really drives more significant incomes as we have seen with the existing two more mature business units. FY 2027 will see further incremental scaling of that business. As highlighted, we expect monthly break even still sort of five years from launch.
In terms of our systems modernization, maybe just to refresh the memories a bit there. At OUTsurance, we write our own core systems, and we have written some very competitive systems back in 1997, 1998 and evolved them over time. We embarked on a systems modernization strategy really for two big reasons. One is to continue to be able to attract top talent, because your top talent wants to work on modern platforms, but also to enable us and make us more ready for API integration, AI integration and things like that. Also what that brings up is the decision between build versus buy, and we firmly in the build camp. The reasons we are in the build rather than buy camp is we see that by building our own systems, we are able to customize and automate a lot more than what is possible with off-the-shelf systems.
We also see a notable cost benefit as we are not paying in dollars for our system cost. The last one is it does give us a data advantage in that we design our systems with the back end in mind, and as such, it produces and makes available a very detailed and high quality management information. That is why the system modernization is very important to us. We have seen some operational gains, and we expect some future gains as well on the back of the system modernization, but also some of the units simply still scaling up further. As I mentioned previously, the modernized system platform also positions us well for further AI adoption.
Maybe worth noting is that Ireland is running 100% on the new platform, and that is also a benefit of the Irish business to give us an environment to have some of the new modules first being rolled out. In terms of cost efficiency, that is a key focus area for us. We have seen notable efficiency gains over the last two financial years. Even if you exclude the share-based payments, there has been notable efficiency gains across our business units. It remains a core strategic objective. As mentioned, we still see some room for further improvement in that space. The next item to call out or focus area is just earnings volatility. With our reinsurance attachment points remaining unchanged into FY 2027, the profile of the group's earnings volatility should further improve.
I also mentioned the other two drivers which could contribute to improvement in the volatility in the near term. It is also worth highlighting just with Youi's growing contribution, we mentioned that 62.9% of revenue, that volatility in rand terms might remain a feature of our earnings just because of the exchange rate volatility. The last one, investment income may also be volatile given some of the current macroeconomic factors. In terms of structural simplification, we have been on this journey with the reset of the strategy, but also with the listing transition, and significant progress has been made to simplify the structure and to optimize capital efficiency. It is not just a case of the strong top line to bottom line conversion, but also the underlying capital base being optimized.
Subsequent to 30 June, terms have been reached to dispose of the group's interest in Polar Star, and we are in discussions with the OUTsurance Holdings Limited minority shareholders in connection with a potential roll-up transaction to commence in due course. That should further simplify the group's structure and make it an even easier to understand business than what is currently the case. That is the group outlook and the strategic focus areas. I think we can move into the question and answer session.
Thanks, Marthinus. We have a few questions online. The first from Thapelo. What do you attribute the lower vehicle theft frequency to? Should we expect further improvements?
Yes, that's a hard one to point out, because it's a very volatile thing, the vehicle theft frequency. Because a lot of the time you have syndicates operating, and when there's a well-established sort of program to move vehicles out of the country, it can be very elevated. Then if there's some breakthroughs in sort of arresting some of these syndicates, then you see a drop. I think there has been one or two wins in reducing that. But again, it's very hard to predict vehicle theft going forward. But it was pleasing to see it improve in FY 2026, but that is from a very elevated base, it must be said.
Michael Christelis asked, what is the rationale for staying in the CTP market where it doesn't appear you can differentiate yourselves?
Again, we are about the long term, and if you look at the market returns of CTP, the 10-year window and the 15-year window, you can see that market has been very profitable if you look at it through the cycle. We ended at a point where market reform happened and premiums came down, and some of the claims cost escalated. We expect these cycles to return. The whole market is now down on profitability, and it has to turn again. Yeah, we're not short term focused, and that's why we still think there's scope for it. We clearly have an ambition to be one of the big insurers in Australia, and all the big insurers are in CTP. For us, it is strategic, and at the right target margin, it does provide diversification and growth at an acceptable rate.
Francois, you asked for a split of the contribution to OUTsurance Personal GWP from direct and broker. Unfortunately, we don't provide that split, but as we have mentioned before, OUTsurance Brokers is making a meaningful contribution to the growth rate in OUTsurance Personal. There are a few questions around the ROE band and the guidance that Francois gave that the ROE could return to its Target band over the longer term. I think to answer those questions, there's a few important factors to consider. One is Youi operates at a lower ROE compared to the South African organization. If we are successful to further grow the Youi business over time, that will be dilutive to the group's ROE profile.
Then also important to take into consideration is the fact that South African business is operating above its long-term target margin. Over time, as we progress back to our target margins, we also expect that to be dilutive in the overall ROE profile.
Stating the obvious, the overseas businesses grow faster than the South African business coming off a lower base in terms of market share.
Barron has asked, for OUTsurance Business, what is your plan to grow profitably while maintaining underwriting quality?
Yeah. It's the same as the plan has always been. Underwriting discipline, we are bottom line focused, and as such, we grow as fast as the circumstances allow us to do. That all boils down to strong execution. We'll execute as well as we can. Given our lower market shares in both the face-to-face and the business segments, we certainly do think there's still some good runway for growth there.
Marthinus, there is a few questions on El Niño, which I believe you have covered. There is a question specifically to OUTsurance Australia's expectation for El Niño compared to SA, in terms of historic observations.
Yeah, the historic observations are similar. Yes, they have big exposure to bushfire, but then they have even bigger exposure to storm and flood. On a net basis, based on historical experience, we have seen El Niño to be more pro short-term profits, but negative for growth in the short term. Whereas La Niña, it is the inverse. It is negative for your short-term profits, but it is pro long-term growth.
Marthinus, then a question from Jaco Visser. Youi is now much larger than OUTsurance SA by premium, but South Africa still produces the largest pool of the profit. What would need to change in Australia for Youi to close this gap?
Yeah, we do expect Youi to overtake South Africa because South Africa is likely to normalize, and Youi was below its target margin. We saw in the second half of the year, that we did the target margin. We do expect it at some point to overtake it. But structurally, we do not see Youi achieving quite the same target margin as South Africa. That depends on a various number of factors in the market, and that is why we have different target margins for the different markets there.
Francois Du Toit requested a split in policy growth versus premium growth. Francois, we unfortunately don't provide the split between inflation and policy count. Jarred Houston asked if there's further capital to be released from the BZI runoff, and how much of the treasury company NAV is represented by Polar Star. Jarred , the expected proceeds from Polar Star is not disclosed separately, and that is embedded already in the special dividend that we have declared. With regards to BZI, that surplus capital has been substantially run off.
Then a question from Warwick. Do you see improvement in working claims for OUTsurance SA changing into FY 2027?
Warwick, it's very difficult. We don't know what claim frequency trends do. But in terms of our own action, we just gradually manage back to our long-term target levels. At the moment, the loss ratio is better than the long-term target, and that's why you see that low premium inflation there. But if the frequencies were to change, for example, at the moment, we do think a contributing factor to the low accident frequency could be the high fuel prices. If that were to normalize and accident frequencies pick up again, then obviously that could change things around.
A question from Warwick. How much of the future cost efficiencies will you pass on to customers through pricing?
Yes, we're quite disciplined in that we don't intend to change our target margins. So where we have bigger cost efficiency gains in the longer run, we want to pass all of it onto customers and be as competitive as we can be. Just in terms of claims, there's obviously more uncertainty, and you need to gradually manage because you don't know exactly what the new norm is. Whereas in the expenses, it's easier to pass that on because once you've reached a certain level and you execute there, you can have a fairly good level of certainty in terms of its repeatability.
Harry Botha has asked what claims ratio and pricing milestones must Youi CTP achieve to return to plan, and when should the corrective pricing actions become visible in reported results?
We certainly expect FY 2027 to be materially better. There's probably two stages to it. You have pricing action first kicking in, but we also expect claims reform to happen at some point. That has a longer window, a window that you measure in years. If you really, as I said, take that 15, 20 year window, you see that pattern sort of in markets where you have bodily injury. We do expect ourselves and the whole market to return to profitability. It just has to, otherwise it's simply not sustainable. The government will ensure that it is sustainable.
Roger Williams has asked what RMI assets are still owned beside Polar Star, and what is your valuation and realization timeframe? Roger, the only assets remaining is an earn-out related to the historic disposal of the investment managers group that crystallizes in value next year. Then there's a holding in Prodigy Finance, which is currently not held at any substantial book value. So those are very small assets in the context of the base that we've moved from over time. As Marthinus has guided, it does set the scene to commence a discussion with OHL minorities with regards to rolling or exchanging their interest for an interest in the listed entity.
Roger, you've also asked how material is the FirstRand Homeowners book as a percentage of the SA personal lines. If you look at our historic disclosures with regards to premium growth, you'll see that we provide growth both inclusive and exclusive of the runoff of that homeowners book. From a profitability perspective, it would represent less than 2% of the profitability of OUTsurance Personal in total. It has become significantly smaller over the years.
A question from Marius Strydom: What risk do you see from AI adoption and growth in industry digital sales to the proliferation of PCWs and pressure on premium rates for digital distributed products and by extension, in other product areas? Can margin compression be avoided over the long term?
This is a topic that we often discuss. AI aggregation is just another form of aggregation in our minds. We have seen aggregation going through various phases. If you think about an independent intermediary, that is already a form of aggregation. Then we saw the whole wave of aggregation in the U.K. Those similar sort of disruptors tried in other markets. Given the different action and the incumbents observing the results of the U.K., we have not seen the same results in other markets as in the U.K. So in the end, it is just another form of aggregation and as such, I think strategically, trying to navigate it or even benefit from it, I think the strategy would be similar to the previous waves caused by other forms of technology.
There is a question from Jarred for you, Francois. Given the higher rate of interest in Aussie strong premium growth, why was investment income in Youi only up 4%?
Thank you, Jan. Jarred, that is largely a result of the base effect and the timing of the interest rates and how that played through into Youi's investment income for the year. Considering we saw those rate increases to the latter part of FY 2026.
Thank you, Francois. Question from Roger. The entire South African short-term insurance sector is experiencing record profits. Is pricing becoming more competitive across players in South Africa?
Yes, I certainly think that pricing will be more competitive just because of that profitability. But if I look at the latest round of results, then I have already seen some loss ratios go up following the Western Cape storms. We have also observed some fairly high expense ratios. I do think the scope there for highly competitive action is fairly limited.
Roger also had a question with regards to the continued runoff of the BZI book. Currently, what will still run off in the BZI book is just the claims liabilities of open liabilities, and we expect most of that to run off over the course of the next financial year. In this case, there might be a small tail of claims remaining after that, but that should also run off fairly quickly. Thapelo, you have asked about the benefits of collapsing the OHL structure and the timing thereof. We are not guiding on timing. As we mentioned, discussions have commenced in that regard. The benefits is reduced head office cost. Also, I think what you will appreciate as analysts, just simpler reporting across the group where we essentially only have to report on the OGL level going forward. But essentially that simplification will consume less costs from a shareholder perspective.
Francois du Toit has asked what is the cost of your new CSP remuneration arrangement reflected at long term expected level in FY 2026? Francois, if you look at our results presentation on the website, you will see that we did provide a comparison between the ESOP exposure historically as well as the CSP remuneration. The key message is that the CSP is considerably less geared to the share price, compared to what the ESOP was, and therefore the expense base is going to be stable in the long run. There is also a detailed disclosure in our financials with regards to the open exposures of our different CSP vintages, which you can also refer to.
As a final question from Sonam Naidoo. For CTP Youi segment, do you know when the common law losses will end? Sonam, common law claims is a feature, and it is a permanent feature of your experience in the CTP segments. What Marthinus has called out earlier is just the elevated frequency of common law claims. Generally, common law claims also have higher severity, compared to claims which are otherwise settled. That takes us to the completion of all the open questions. Thank you very much.
Thank you everyone.
Thanks for joining.
Thank you.