Suncorp’s net profit fell 34% to $681 million in the prior year as the company battled natural disasters and volatile investment markets, while the group recorded record growth in gross written premiums (GWP) in the second half.
According to CEO Steve Johnston, despite the challenging environment, momentum has been maintained, margins have improved in the face of rising inflation and the company is on track to deliver on its plans for this fiscal year.
“We have maintained our focus on executing on our strategic initiatives and this has allowed us to offset rising inflationary pressures, particularly in home and motor vehicle repairs,” he said today.
The second annual La Nina weather pattern in Australia and New Zealand resulted in 35 separate weather events and around 130,000 claims, resulting in natural hazard costs of $1.081 billion, up from $1.01 billion a year earlier. early and above the $101 million allocation.
Suncorp, which last month announced plans to sell its banking business to ANZ for $4.9 billion, has increased its provision for natural hazards this fiscal year to $1.160 billion following recent experience and changes made to the reinsurance program.
Mr Johnston said the experience of the past two years reflects the weather cycles driven by La Nina.
“It’s unusual to have back-to-back La Nina weather cycles, and it’s even more unusual to have three, but we remain quite confident in the robustness of the allocation,” Mr Johnston told the insurance.NEW.com.au.
Suncorp noted that current climate modeling points to a possible third consecutive La Nina, but it also pointed out that impacts from the most recent event were much more severe than the previous one.
Mr Johnston says that despite the increase in reinsurer prices in the Australian market, there is no shortage of risk appetite in the region.
“They like Australia and New Zealand, they like the diversification it gives them, it just reset some of the price momentum, which if you look at their loss rate performance, is not probably not unexpected,” he says.
Mr Johnston said the bank had provided some earnings diversification, but had competed for capital with the insurance industry as the company sought to improve its technology and digitize its processes, and as advantages of owning the business were no longer so clear compared to a sale.
“We think it’s strategically the right thing to do, and there are other ways to reduce some of the earnings volatility,” he said. “Fundamentally improving the quality of our risk selection will also go a long way towards achieving this.”
Suncorp’s Australian Insurance (GWP) grew 9.2%, excluding portfolio outflows, to $9.25 billion, with the pace of premium growth accelerating in the second half to 10.7%. The division’s after-tax profit fell 68.2% to $174 million.
Suncorp says its relationships with repairers in the automotive sector and a panel house reset are helping to contain the impacts of inflation from industry levels, while it sees opportunities for further improvements in claims operations as it leverages its supply chain, scale and technology.
“We are very confident that we will provide some protection for our business from the levels of industry inflation that we are obviously seeing coming right now,” Johnston said in a briefing.
Mr Johnston said a contract entered into after the sale of its smart collision repair business to AMA Group does not expire until June 30 next year.
“There’s a period of time that has to go through before you actually reset this,” he said. “Obviously we expect that to be an increase given some of the inflationary pressures, but we still have a significant volume flowing through there, which will mitigate and offset some of that relative to the industry in general. “
In the house portfolio, Mr Johnston says the insurer is leveraging its size to deliver benefits to customers and shareholders to provide increased flows and certainty to the supplier panel.
Despite rising premiums, he says the company is not under pressure from a retention or cancellation perspective, with recent disasters also highlighting the value of insurance for customers.
New Zealand profit fell 23.3% to NZ$165 million, while the general insurance division’s GWP rose 14.1%.
CEO Jimmy Higgins says the solid top line growth and strong underlying performance was achieved following a disruptive year that impacted customers and its employees.
“This disruption is due to the impacts of Covid-19, including the war for talent in a tight job market, the restrictive environment our employees have had to work in and employees sick from covid,” he said. he declares.
“Multiple weather events throughout the year resulted in the highest number of claims since 2018; and customers experienced longer wait times for home and vehicle repairs due to the delay in obtaining materials.
The Suncorp Group reaffirmed a previous target for an underlying insurance trading ratio of 10-12% by this fiscal year.
GWP growth is expected to be mid to high single digits, with price increases to reflect rising reinsurance and natural hazard costs and the inflationary environment.