A punishing run of storms, floods and hail knocked a big hole in Suncorp’s annual profit even as the insurance giant made more money from its core insurance business.
The owner of AAMI, GIO and Shannons booked a $1.03 billion annual profit, down 44 per cent from a year earlier.
Suncorp paid a record $10b-plus in claims, including $2.02b from natural hazards, blowing through its weather budget by $254 million after 18 major events across Australia and New Zealand.
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Chief executive Steve Johnston said Suncorp had still managed to deliver for customers and shareholders despite the claims bill.
“This result demonstrates that it is possible to deliver for both shareholders and customers,” he said.
The headline fall overstates the damage. Last year’s $1.82b profit was padded by the sale of Suncorp Bank and its New Zealand life insurance business. Taking the sold bank out of both years, the fall was 34 per cent.
Investors shrugged off the profit plunge, sending Suncorp shares more than 4 per cent higher to $19.31 in early trade.
On Suncorp’s preferred measure, insurance earnings rose 4.5 per cent to $1.64b as earlier price rises flowed through the business and it kept a lid on costs.
Customers were still paying more. Average motor premiums rose 4.8 per cent while policy numbers grew just one per cent, while home premiums climbed 5.7 per cent as policy numbers barely budged.
Suncorp said pressure on motor repair costs was easing but stubborn building and labour costs were keeping up the price of home cover.
Chief financial officer Jeremy Robson said premiums would continue to follow rising claims costs next year, saying pricing would “continue to reflect claims inflation in home and motor”.
The $2.02b weather bill was no surprise to investors, with Suncorp having warned in July that claims were running about $250m over budget.
“That’s 120,000 individual natural hazard claims, where we have supported our customers in getting back into their homes and back on the road,” Mr Johnston said.
The biggest hits were outside WA, including a $350m hailstorm in south-east Queensland, $234m from severe thunderstorms across the Eastern States and $135m from spring storms and hail in south-east Queensland.
Despite the damage, Suncorp’s insurance profitability landed at 11.8 per cent, near the top of the 10 to 12 per cent range it had promised investors.
Shareholders will pocket a fully franked 10¢ special dividend, while Suncorp will buy back up to another $250m of shares after completing a $400m buyback during the year.
Mr Johnston said that would take the amount returned to shareholders over the past three years beyond $4.8b.
Suncorp has also bought more protection against another ugly weather year, signing a five-year reinsurance deal that shifts more of the cost of extreme weather to its own insurers.
The cover provides up to $800m of protection a year and is designed to hold Suncorp’s weather bill to about $1.85b in nine years out of 10.
Part of the extra cost could find its way into prices, with Mr Robson saying it would be offset through cheaper reinsurance elsewhere, better claims outcomes and “some pricing response in select portfolios”.
Suncorp is targeting an insurance margin of 11 to 13 per cent next year, up from the 10 to 12 per cent range it worked to this year.
It also expects the total value of premiums written across the business to grow 3 to 5 per cent, with higher claims costs still feeding into home and motor pricing.
