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Steadfast emerges strongly after COVID uncertainty

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Steadfast says it has emerged from the uncertainty created by the coronavirus pandemic in a strong position and expects the full-year result to be at the top of a previously released guidance range.

CEO Robert Kelly says the company pulled guidance last March as the extent of the threat posed by the COVID-19 pandemic became clear, but much had changed over the past year.

“When we pulled guidance, we went to quarterly updates and throughout the whole of 2020 our business thrived, and we are pleased to report the position we are in today,” he told a first-half results briefing with analysts.

Steadfast underlying net profit rose 19.3% to $60.4 million in the six months to December 31, while earnings before interest, tax and amortisation (EBITA) gained by the same percentage to $125.4 million. Revenue increased 6.6% to $437.8 million as premiums strengthened.

Morningstar says its full-year net profit forecast for the company is now $128 million, slightly above the guidance range of $120-127 million.

“Insurance brokers continue to outshine the general insurers,” analyst Nathan Zaia says. “With insurers generating poor returns on capital, they are driving through premium rate increases which Steadfast say averaged around 6%-7% (double-digit in some lines) across its business. This is a direct benefit to Steadfast as commissions are tied to premiums.”

Mr Kelly says the pandemic has accelerated robotics automation to boost efficiency in routine tasks in underwriting agencies, while costs will likely remain lower as the pandemic and technology “shatters” previous ideas about the level of travel required for business.

Premium rates are expected to continue rising given pressures on insurers to improve loss ratios in a number of lines of business, while compulsory third party is also not “the money spinner” it has been in the past, Mr Kelly says.

Steadfast is seeking to expand its equity holdings in brokerage businesses within its network and has launched Project Trapped Capital to highlight the advantages of partial sales.

Broking underlying EBITA rose 22.9% to $106.7 million in the half, with Steadfast Network gross written premium (GWP) growing 13.9% to $4.5 billion.

Steadfast Underwriting Agencies EBITA increased 15.6% to $56.8 million and GWP rose 8.9% to $733 million on rate rises and higher volume in existing operations.

Statutory net profit was $73.4 million for the first-half compared to a year-earlier loss of $71.9 million, which included accounting actions related to an acquisition and rebate offer.