Suncorp profit slumps after natural disasters impact

Suncorp first-half earnings slumped 21% after higher natural disaster claims costs and lower investment market returns hit the insurance operations.

The company experienced 19 separate natural hazard events in the half triggering more than 50,000 claims, impacting both the Australian and New Zealand businesses. The number of declared events, defined as those costing more than $5 million, was up by seven compared to a year earlier.

Group CEO Steve Johnston says positives from the result include “very strong” gross written premium growth, the performance of the underlying business and progress the company is making toward goals set in its three-year plan.

“While we have been challenged by the La Nina climate pattern and the operational impacts of COVID-19, we continue to deliver against our strategic priorities and have good momentum as we move into the second half,” he said.

Mr Johnston told insuranceNEWS.com.au that the company was delivering on its organic growth plan, while declining to comment on media reports that Suncorp had considered, but decided against, a potential acquisition of Zurich insurance interests said to be up for sale.

“I would never rule out inorganic activity. It would have to reach a number of different thresholds to make it sensible, so you would never rule it out,” he said. “But our focus is simplifying the group and driving organic performance.”

Net profit for the six months to December 31 fell to $388 million from $490 million.

Insurance Australia profit after tax fell 55.8% to $114 million, New Zealand earnings dropped 32.5% to $81 million while the bank’s results improved 5.3% to $200 million.

Australian gross written premium rose 7.5% excluding portfolio exits, while its investment income fell 98.7% to $4 million.

Mr Johnston says home premium increases continue to be driven by natural hazard and reinsurance costs, while the commercial insurance cycle remains in a hardening phase following a period of insurers repairing margins.

“As margins become repaired the challenge will be to see if global capital flows in and starts to make a more competitive environment, and the margins start to fall away,” he told insuranceNEWS.com.au. “We don’t see that at the moment.”

The group underlying insurance trading ratio expanded to 8%, excluding covid impacts, with a strong contribution from the consumer portfolios. Mr Johnston says the result put the group on track to deliver a 10-12% target next financial year.

Suncorp says the operating environment has continued to improve but the outlook remains uncertain with emerging impacts and supply chain issues associated with the Omicron covid variant.

The company, and the wider insurance industry continues to await the Federal Court appeal outcome from the second business interruption test case, with the possibility that further leave to appeal could be sought from the High Court.

“My expectation is you would have to assume that is going to happen, but much of it will depend on the nature of the findings of the Full Bench appeal,” Mr Johnston said.

Suncorp was “very adequately reserved” whatever the outcome may be of the test case process, he said.