East coast storms hit Suncorp’s bottom line

Suncorp has reported a slide in full-year earnings as June’s east coast storms pushed up natural disaster claims.

Michael Cameron newly appointed CEO at Suncorp, insurance and banking group. (Pic Britta Campion)

Financial services group Suncorp has seen its shares edge lower in midday trade after it reported an 8.4 per cent slide in full-year earnings as increased natural disaster claims weighed on its insurance operations.

The company said its FY2016 net profit after tax dipped to $1.04 billion, from $1.13bn in the year prior.

The figures fell short of the average projection from analysts, which pointed to a more modest reduction to $1.08bn.

At 12pm (AEST), Suncorp shares traded down 0.7 per cent at $13.12, against a broader market rise of 0.4 per cent.

The profit fall could be pinned entirely on a more modest result from its insurance operations, as net profit for the division weakened by $132 million to $624m.

Suncorp’s insurance trading ratio of 10.6 per cent was sharply down on the 14.7 per cent recorded last year and shy of its medium-term target of 12 per cent.

In contrast, earnings at its banking division rose by 11 per cent to $393m and net profit at its life insurance arm lifted 13.6 per cent to $142m.

The insurer’s cash profit weakened to $1.09bn, at the bottom end of the range of analyst expectations.

Suncorp (SUN) said the lacklustre result came as two east coast weather events in June pushed claims above its allowance of $670m for the year.

The group informed investors in mid-June that the high-profile east coast storm damage had delivered a financial impact of $60-$80m, but suggested the claims would not push it over its allowance.

In its official accounts, the group said the weather events ended up tipping it $60m over the allowance, contributing significantly to the dip in earnings for the full-year.

In response Suncorp has bought extra reinsurance protection for natural hazards cover in fiscal 2017 worth $300m.

“The net profit after tax result of $1,038 million comprises improvements in underlying profit from our banking, life and New Zealand operations offset by the margin reduction experienced by our General Insurance business,” Suncorp chairman Ziggy Switkowski said.

The insurer’s chief executive Michael Cameron said a company restructure had been completed on July 4, which will lead to annual savings of $80m after a one-off charge of $55m.

The actions remove “structural constraints” to improving the services offered to its customers, he said.

“The Suncorp strategy focuses the business on elevating the customer to drive growth and increase resilience to volatility,” he said.

“The benefits of this strategy will continue to be seen over the medium term.”

The group offered investors vague guidance for fiscal 2017, saying it would target a flat cost base for the next two years and improvements in underlying earnings in the medium-term.

It also reaffirmed its goal of reaching a return on equity of 10 per cent and a dividend payout ratio of between 60 and 80 per cent.

Suncorp declared a fully franked final dividend of 38c a share, in line with last year’s number but short of expectations.