Youi’s profits lift, but some insurer costs become prohibitive

afr.com:

Youi says rising costs meant it dumped a specialised type of disaster insurance protecting its book from cumulative losses, while customer satisfaction fell amid its own premiums rising.

The two events mirror pressures for some Australian insurers, even as their profitability improves.

Costs of some reinsurance protection for insurers is becoming prohibitive, following disasters such as last year’s east coast floods.  Elise Derwin

Macquarie analysts also see smaller brands such as Sunshine Coast-based Youi potentially able to snaffle more market share from big players such as Suncorp and IAG amid an affordability squeeze from rising premiums.

But Youi chief executive Nathaniel Simpson said the insurer was yet to see a material change in such churn. Customers were also retaining insurance cover and not yet making major changes in purchasing patterns, he said.

“It’s more a steady state for us,” he told The Australian Financial Review on Monday. The steadiness in customer behaviour was linked partly to the whole sector lifting pricing.

In results released this month from Youi’s parent, South Africa-based Outsurance, the Australian operation said underlying earnings rebounded to $117 million in the year ended June 30 from the year-earlier $37 million.

“Strong premium growth continued and favourable weather conditions supported the significant increase,” the accounts said.

Youi, which came to Australia in 2008, uses reinsurance, which is insurance for insurers for protection in big disasters.

But the accounts noted a hardening reinsurance market – where prices become higher and conditions tougher – was “particularly prominent in Australia” following “higher frequency and severity of natural perils events”. East coast flooding