Outsurance, previously known as RMI Holdings, has been an unexpected hit with investors since it became a standalone listed company in December 2022.
It has a market cap of more than R90bn, which is ahead of Old Mutual’s R62bn and not far behind Discovery’s R115bn.
There was previously only one substantial property and casualty insurer left on the JSE: Santam, the full-service, short-term insurer in which Sanlam is the majority shareholder. Santam competes with Outsurance in the direct-to-consumer market through the MiWay brand. But Santam is primarily a corporate and commercial insurer.
Santam is no slouch on a respectable 13.5 historic earnings multiple, but it still has less than half of Outsurance’s market cap (about R42bn).
Outsurance group CEO Marthinus Visser says 63% of revenues are now derived from the Australian subsidiary, Youi. But because the margin is higher in South Africa, the earnings are split about 50:50. The Australian underwriting margin is also more volatile as natural perils play a bigger role in the results there than in South Africa.
Yet Outsurance has undoubted rand hedge qualities. Visser says it has just 5% of the Australian motor insurance business, giving it considerable runway. Outsurance has a major slice of motor insurance in South Africa, insuring about 900,000 of the 4-million cars on the road.
Visser acknowledges that MiWay, King Price and Telesure (Dialdirect, Budget and other brands) are notable competitors in the direct-to-consumer market. But they have substantially higher cost ratios of more than 35%, while Outsurance South Africa has a cost ratio of about 20%. And Outsurance’s underwriting experience is stable. It has not made an underwriting loss in any financial year since it opened in 1999.
Outsurance is by no means an exclusively direct business. In the commercial/SME sector it has 600 agents who can be a single point of contact for all classes of business, including property and basic liability insurance. But Visser says it has no plans to enter the large corporate market. It will leave the top 40 companies to the likes of Santam and Old Mutual Insure, and it has no plans to set up its own reinsurer.
Visser says that while the “outbonus”, paid to all customers who don’t claim, was an important differentiator in the early years, the value proposition is now built on a combination of price, service and trust. “We are the cheapest option for about one in three of our customers,” he says.
In May the group launched Outsurance Ireland. Visser says it made sense to enter this market as it is English-speaking and well regulated. The country has a small population of about 5-million people, but there is an opportunity to build a brand.
Outsurance has a major slice of motor insurance in South Africa, insuring about 900,000 of the 4-million cars on the road
One difference between South Africa and Ireland is that Irish cover includes bodily injury, which the Road Accident Fund covers in South Africa. Visser says the group has not entered the much larger UK market as it is dominated by four price-comparison websites or aggregators (similar to Hippo locally), which have turned property and casualty insurers into commodity, price-taking businesses.
He says the US market is too complex from a regulatory point of view — each of the 50 states has its own regulations. It is also dominated by two strong national direct underwriters, Geico (owned by Berkshire Hathaway) and Progressive.
Outsurance is a strong cash generator, which pays out about 70% of earnings in dividends. It has also been paying out special dividends on the disposal of noncore businesses. It is in the process of disposing of the remaining RMI businesses, having sold RMI Investment Management to Momentum Metropolitan. It still has a handful of quasi-banking and trading businesses which it is planning to dispose of.
Outsurance has a life business, but Visser says this accounts for barely 3% of revenue. It has pivoted away from traditional life insurance into funeral policies, partnering with retail giant Shoprite as the main channel to distribute these.
The insurer is happy to admit defeat when a business does not work out, rather than pouring good money after bad. For example, last year it sold its direct-to-consumer investment business, Outvest, to Alexforbes, having decided that it was not likely to achieve scale in the self-service investment game. Outvest certainly fits better in a specialist investment management and distribution shop such as Alexforbes.
In that respect, Outsurance has been strong when it comes to deploying capital responsibly, which is one of the reasons it has a higher market cap than businesses with weaker reputations for capital management, such as Old Mutual.
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