Outsurance’s share price has increased by 15% over the past 12 months. With the world painting a bleak geopolitical and macroeconomic picture, Outsurance has been a solid choice for investors.
Insurance houses are all about managing risk, something that the group clearly did well in the year ended June 2026. An 18.5% increase in normalised earnings helps justify the share price move.
If you dig one level deeper, you’ll find that Outsurance South Africa delivered an excellent 43.3% increase in normalised earnings. Directing traffic at broken Joburg robots in your spare time is clearly good business.
Jokes aside, a jump like this in earnings isn’t because of a leap in policy sales, particularly for a leading player in the market. The variability of short-term insurance earnings is largely driven by natural perils in any given period, with favourable weather outcomes in South Africa an important driver of the latest increase in earnings.
Outsurance distinguishes natural perils from the working claims ratio, which reflects the “normal” risks in any period (such as vehicle accidents and theft). Pricing for working claims is all about having rich data and decades of experience in a market. As for Mother Nature, though, her natural perils are much harder to price accurately.
Insurance houses will use reinsurance products to move some of that risk off their balance sheet, but they can’t get rid of all of it. If you aren’t taking any risk, you won’t be able to earn economic profit. Managing an insurance company is both art and science, with a careful balance needed between premium growth and retained premiums.
This means that insurance companies are typically required to absorb the pain in a period of significant natural disasters, with the hope that subsequent years will give them time to recover before the next major peril arrives.
Now, as anyone who watches nature documentaries knows, Australia is filled with natural perils. If the spiders don’t get you, the weather will. Outsurance has built an excellent business in Australia in the form of Youi Group, but in this period normalised earnings declined by 6.7% due to higher natural perils claims in that market.
Does this mean that the Australian business is suddenly a failure? No. It just means that Outsurance absorbed more losses on behalf of its clients. In truth, the Youi business is as rare as a Joburg road without potholes: an example of a South African group successfully expanding to Australia.
How has it succeeded where so many companies have failed? Unlike retailers who love acquiring existing businesses, Outsurance prefers to build from scratch. This means it recognises start-up losses on the income statement instead of goodwill on the balance sheet. This is why the operating loss in Ireland has worsened by 15.9% to R466m.
When I discussed the latest results with Outsurance Group CEO Marthinus Visser, he noted that it takes around 10 years to achieve the really juicy returns in a new market. It takes about five years just to reach breakeven.
It seems reasonable to question why Outsurance doesn’t just go faster in the form of additional marketing spend. Surely it has enough experience by now to justify taking on more risk?
The patient approach at Outsurance is based on its global growth playbook, which focuses on building a proprietary data set from scratch. Instead of trying to chase premium growth in the early years, potentially breaking the underwriting ratio in years to come, Outsurance prefers to learn from the data and adjust the offering and its pricing as required.
In Visser’s words, Outsurance would rather be a podium player in a few markets than have a small share across many markets. This speaks to placing value on having a deep understanding of each market in which it operates, something I wish more executives of JSE-listed companies would learn from.
As for the choice of Ireland after Australia, this has nothing to do with rugby culture and everything to do with identifying markets where Outsurance believes it can win on two fronts: the ability to price accurately and the opportunity to implement its tried-and-tested distribution model.
By their very nature, short-term insurance houses cannot do well in every single financial period. In this financial year, it just so happened that the Australian business suffered higher natural perils claims at the same time that Ireland saw an increase in start-up losses. This doesn’t mean that the global growth strategy at Outsurance is broken. It just means Outsurance investors need to believe that the Australian expansion wasn’t a fluke.
