Suncorp’s first-half profit down 45 per cent
Suncorp Group’s first half net profit slumped 44.7 per cent to $250 million on the back of volatile investment markets, Sydney hailstorms in December and higher than expected regulatory costs.
The result was also impacted by a $145 million write-down form the sale of its Australian life insurance business. The impact from the investment markets totalled $140 million with a natural hazard increase of $167 million.
In January, the insurer announced a $178 million upper-limit cost from the Sydney hailstorm, which was declared a catastrophe by the Insurance Council of Australia.
The insurer said it would increase its natural hazard allowance from $720 million to $820 million and purchase an additional $200 million natural perils reinsurance cover to on top of the allowance.
Suncorp CEO Michael Cameron said the challenges will make it difficult for the Queensland-based insurer meet its full-year ROE cash target
In an analyst briefing, Cameron said that Sydney hailstorms in particular generated 31,000 in claims with a gross loss of 370 million.
While the headline figure for gross written premium was 2.4 per cent, GWP for Australian motor was up 3.9 per cent, home up 1.8 per cent and commercial up 2.3 per cent.
Net profit for its New Zealand business was solid at $111 million up 82 per cent from the previous corresponding period.
“The result reflects the benign weather and favourable working claims experience. The outlook for the New Zealand business is positive with market growth expected to moderate over the medium term,” Cameron said.
Banking and wealth delivered net earnings of $183 million for the half - down 1.1 per cent on the year ago same period.
Net interest margin of 1.79 basis points was from 1.86 basis points as a result of slow lending growth and higher funding cots.
Operating expenses fell slightly to 1.7 cent to $341 million.
A fully franked dividend of 26 cents per share was declared with a payout ratio of 81.4 per cent.
The reported insurance margin for the Australian insurance business was 8.0 per cent; the underlying margin was 9.4 per cent.
Cameron said the business will continue to remain focused on digital strategies to drive new business, increasing its technology spend in this area.
Digital users increased 17 per cent in the half with a reported 8 per cent increase in online origination at-call deposits.
Home and motor digital claims increased to 14.3 per cent
Investment will continue in frontline systems.
The insurer will also step up its regulatory spend and projected regulatory projects costs to be $140 million in fiscal 2019 – the original estimate was $9 million – as it begins to respond to implementing changes in the Royal Commission report and legal costs.
Cameron said that the insurer “may or may not spend” all of this budget but felt it was prudent to alert to market to the regulatory challenges ahead of the business and associated costs for the second half.
Cameron expects recommendations from the Royal Commission around bank pay, mortgage broker remuneration and unfair contact terms as the key impacts for the business.
On the point of the broker remuneration, Cameron said that brokers play a crucial role in the industry and acknowledged that it was important to remove any conflicts of interest and improve transparency.
He said Suncorp remained committed to improving customer outcomes.