Suncorp passing on inflation with premium hikes

Insurance giant Suncorp has signalled it is passing on higher costs from its supply chain to customers by raising premiums, after costs from natural disasters during its first half remained within its budget.

In a trading update on Monday, Suncorp revealed the total estimated cost of natural hazards in its first half of the 2024 financial year was about $568 million, less than half of the natural hazard “allowance” set aside by the insurer.

Suncorp chief executive Steve Johnston said the insurer continued to face inflationary pressure. Credit: Louie Douvis

Six of these events across the last two months of 2023 accounted for roughly two-thirds of the estimated natural hazard cost. The East Coast holiday storms cost about $212 million and Cyclone Jasper accounted for about $56 million. It said it had received more than 500 claims as a result of ex-Tropical Cyclone Kirrily, which hit North Queensland last week.

Chief executive Steve Johnston said reserves – a certain amount of funding set aside to meet future claims – had been increased because of external challenges facing the insurance industry.

“We have continued to see inflationary pressures from drivers such as supply chain capacity constraints and higher third-party settlements in motor, and water damage and large fires in our home portfolio,” he said, flagging higher repair costs and extended repair times in motor insurance and large fire claims and water damage claims in home insurance.

However, Suncorp said its underlying margins were expected to remain in line with expectations ahead of its first-half results presentation next month.

The insurer’s gross written premiums – a combined measure of premiums and volume of insurance policies – grew faster than previously flagged on the back of higher premiums and higher volumes.

“We continue to closely manage insurance pricing to respond in line with input costs such as reinsurance and inflation on repairing homes and cars, while also being mindful of the affordability challenges facing our customers,” the company said.

Shares in Suncorp fell 0.4 per cent to $14.21 at close on Monday.

White Funds Management managing director Angus Gluskie said the results were broadly in line with expectations, easing concerns that insurance companies would be exposed to claims cost inflation and substantial natural disaster costs.

“Suncorp’s update shows a couple of minor negatives, but it’s been covered by the strong pricing environment for insurers,” he said. “It was another period where natural catastrophes were quite high, but it was a reasonable number and not too different from other insurers. It doesn’t turn the dial for investors.”

Atlas Funds Management chief investment officer Hugh Dive, who holds shares in Suncorp, said he was generally pleased with the results.

“Storm events can dramatically affect insurers, but it was a positive surprise that Suncorp kept within its hazard allowance,” he said. “There was a range of small storms in December, which was a bit different to what was expected, but it enforced the need for insurance.”

Dive said the fact that Suncorp’s natural hazard costs came in at less than half of its allowance provided a buffer for the second half of the financial year. “It’s likely the natural hazard cost can come in under the allowance amount in the full year,” he said.

Dive also said insurance companies, which tend to benefit from higher interest rates, had bolstered their investment incomes. “It’s one of Suncorp’s best investment incomes for more than a decade,” he said.

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