Finance Ghost: What Australia’s natural perils mean for OUTsurance

OUTsurance Group recently announced the acquisition of the remaining 7.2% in OUTsurance Holdings(1). If it goes through, it gives OUTsurance Group full ownership of its insurance assets and creates better alignment between management and outside shareholders.

It’s a meaningful deal with a value of over R10 billion, but it should be considered alongside a broader development in the group’s operating a risk profile: the growing contribution from Youi and the associated exposure to natural-peril claims.

Over the past decade, the Australian business (Youi) has far outgrown its local counterpart (OUTsurance – a household name in our country). South Africa’s gross written premium grew from R7.4 billion to R14.3 billion. That’s impressive, but Youi jumped from R7 billion to R25.7 billion, making the Australian business 80% larger than South Africa on this metric(2).

OUTsurance has succeeded where many South African corporates have failed in Australia. They are also now expanding in Ireland using a similar playbook.

But what has this meant for the underlying risk profile of the group?

The art of pricing risk

Most of the exposure at OUTsurance sits in the short-term book. To understand the risks, pricing and earnings dynamics of that business, we need to think about how short-term insurance transactions work.

Individuals and businesses don’t want to carry the risk of potentially catastrophic losses, so they pay an insurance premium to transfer that risk to their insurer.

To price this insurance, the insurer uses historical averages and forecast models to estimate how the claims are likely to behave. It’s critically important to achieve sufficient scale to spread the risk across many customers, otherwise the claims experience can vary considerably from what the averages would suggest.

An insurer that prices too cheaply may win market share, but there’s a good chance that underwriting margins will suffer as the claims will be too high relative to the premiums. Conversely, an insurer with expensive premiums may have a strong underwriting margin, but they could be squeezed out of the market by competitors with cheaper premiums. These are the factors that keep the short-term insurance market in balance.

The claims that can be forecast with more accuracy are known as “working claims” — the usual stuff like vehicle theft and accidents. An experienced short-term insurer should have a good idea how to price for this risk in a particular market. This is why OUTsurance is taking it slow in Ireland, as they look to build up their data and get their pricing right before scaling the business.

But while human behaviour might be possible to predict with reasonable accuracy using statistics, the same can’t be said for natural perils.

Mother Nature: a force to be reckoned with

Natural perils claims are driven by the weather and other factors that are extremely difficult to predict accurately. Insurance houses take steps to mitigate their risk (e.g. avoiding too much exposure in one particular area prone to flooding), but much of this risk still sits on the balance sheet.

The balancing act lies in how much risk they keep. Using reinsurance pushes catastrophe risk onto the reinsurer’s balance sheet, but there would be no margin left for the likes of OUTsurance if they reinsured everything.

What does that mean in practice?

OUTsurance reports a metric called net retained natural peril losses as a percentage of net premium. It’s a mouthful, but an important one. This metric gives you an idea of the portion of premium income that ended up being used to cover natural peril claims, net of any reinsurance benefits.

In OUTsurance South Africa, this ratio has been between 3.7% and 4.6% over the past decade. But with Youi in Australia, the ratio has been much higher and far more volatile, ranging between 8.5% and 19.6%.

The nature of Australia is that Mother Nature gets angry far more often (and with greater severity) than in South Africa.

Now consider this against the backdrop of Australia having become the largest part of the group over time. This means that the overall exposure to natural peril claims (vs. working claims) has increased significantly, creating the risk of more volatile earnings.

How volatile are we talking here?

This is where the FY26 results become important.

Despite Youi in Australia achieving 21.2% growth in gross written premium for the full year, that business suffered a 2.4% decline in operating profit. But we need to look at the interim period to get the full story, as the storm exposure was concentrated in the first half of the year. During that period, gross written premium growth was 23.8%, yet operating profit dropped sharply by 43.2%.(3)

This demonstrates how the profit performance can deviate from the underlying growth in premiums. But more importantly, it shows how volatile the Australian business really is.

What about South Africa?

South Africans face risk every day, but OUTsurance appears to have models that can predict the risks fairly well. Our natural perils are a factor as well, but not to the same extent as in Australia.

For example, the personal lines operations at OUTsurance SA achieved a 6% increase in gross written premium for the year, a slowdown from the 7.1% growth in the interim period. But despite an environment with declining premium inflation, the business locked in cost efficiencies that helped operating profit grow 14.4% (an acceleration from 10.8% at the halfway mark in the year).

OUTsurance Business displayed an even more efficient performance, with a 12.1% increase in gross written premium (consistent over the year) achieving a 49.8% jump in full year operating profit.

Overall, the South African business had stronger operating profit growth in FY26 than the operations in Australia.

How does the expansion in Ireland work?

OUTsurance Ireland is in its early days. This is only the second full year of operations, with the intention being to break-even within 5 years of launch. Management believes that FY26 was the peak loss period, with monthly losses declining in the second half of the year.

When a group is incubating something new, it’s important to understand how much risk the new venture is adding to the broader investment story. OUTsurance answers this question by providing a chart in the earnings presentation that shows the operating losses generated by growth initiatives, as a percentage of operating profit from mature business units.

This is another metric that doesn’t exactly roll off the tongue, but it gives us a relevant measure: management targets 10% for this ratio. They are willing to spend roughly 10% of full-year operating profit (from the rest of the group) on losses in new ventures.

The challenge is that operating profit is difficult to predict, particularly because of the natural peril claims in Australia. This means that the ratio can vary, having spiked to 11.6% at the halfway mark before coming back in line at 9.8% for the full year.

OUTsurance Life is another source of complexity

OUTsurance Life is small in the group context, but it can also experience highly volatile earnings based on metrics that aren’t easy for investors to forecast. The yield curve plays a huge role here, as do the actuarial assumptions in the book.

Case in point: despite the value of new business increasing 41.5% and new business margin increasing from 22.1% to 23.7% for the full year, there was a 7.1% drop in operating profit. The shape of the yield curve is a macroeconomic factor that sits outside of management’s control, so even a strong operational performance in this period didn’t translate into an increased in reported operating profit.

Bringing it all together

Insurance is a complex industry. OUTsurance investors have experienced a total return of 17% over 12 months and more than 120% over 3 years. These figures reflect historical performance only and are not indicative of future results. Financial markets may rise or fall, and losses may occur.

OUTsurance is trading on a dividend yield of 3.6% and has demonstrated growth in the underlying business that has driven these returns. The market is currently paying a Price/Earnings multiple of nearly 22x for exposure to this story, putting OUTsurance among a small number of companies on the JSE that trade on multiples in the 20s(4).

As impressive as the track record is, it’s clear that OUTsurance’s risk profile has changed meaningfully over the past decade. This is about far more than just pothole insurance claims in Joburg. The performance of the group can be impacted severely by fires and floods as far away as Australia.

Overall, the growth of Youi has increased OUTsurance Group’s exposure to natural-peril claims and may contribute to greater variability in underwriting and earnings outcomes. Future financial performance and market valuation may therefore remain sensitive to the balance between premium growth, underwriting margins, reinsurance arrangements and the frequency and severity of natural-peril events. These factors are uncertain and should not be interpreted as a forecast or recommendation concerning the OUTsurance ordinary share or any related financial product.

Disclosure: The Finance Ghost does not hold a position in OUTsurance at the time of writing. BROKSTOCK, its employees, representatives or related parties may hold positions in the financial instruments discussed.  

(1)     OUTsurance Group SENS announcement, 6 October 2026

(2)     OUTsurance Group results for the year ended 30 June 2026

(3)     OUTsurance Group results for the six months ended December 2025

(4)     Moneyweb data, accessed on 7 October 2026

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