Suncorp posts a $560m profit on back of insurance price rises and warns there are more to come

Suncorp has delivered a 44 per cent profit turnaround on the back of price increases across its insurance book and a surge in home loan values.

Suncorp chief executive Steve Johnston. Picture: John Feder

Suncorp will push through double-digit price rises to offset rising costs after the Brisbane-based group warned the latest disasters in New Zealand would impact its full-year results.

The Brisbane-based group unveiled a $560m profit for the first half of the 2023 financial year on Wednesday, after the insurance business and bank turned around a profit slump.

But Suncorp’s first-half profit results missed analyst expectations of as much as $636m.

Suncorp revealed a 44.3 per cent turnaround in profit after tax in its latest set of results. It was up from the $338m Suncorp posted in the first half of the 2022 financial year.

The results revealed insurance was its earnings drivers as the Australian and New Zealand business yielded two thirds of the overall profit.

The Australian insurance business, which covers AAMI, GIO, Apia, Shannon’s Terri Scheer, Bingle, Vero and CIL, booked $276m in profit for the year. This was up 142 per cent on the year prior.

The NZ business, which covers the AA Insurance and Vero, delivered a $83m profit in the half.

The Suncorp Bank, which is slated to be sold to ANZ in a $4.9bn deal, added to the tally with $256m in profits on the back of a lift in lending.

Suncorp chief executive Steve Johnston said the insurance business was suffering from inflation, delays, and repeated natural disasters.

Mr Johnston said Suncorp was prioritising its margin over growth “to ensure pricing adequately reflects the natural hazard-related costs and inflationary pressures that we have”.

“What we’re doing is unfortunately putting the prices up, because the cost of reinsurance is increasing,” he said.

Topping off Suncorp’s insurance results were $150m in pandemic provisions which were unwound after the insurer dodged a wave of Covid-19 claims, after court wins.

Suncorp lifted returns across its general insurance business to a trading ratio of 10 per cent, up from 8 per cent.

This followed a 12.1 per cent lift in gross written premium across Suncorp’s Australian insurance business and a 12.2 per cent lift in New Zealand

However, the insurance business was stung by a $99m blowout in natural catastrophe losses in the half, and the total natural catastrophe budget expanded to $1.16bn.

Suncorp has blown its natural catastrophe budgets by a combined $260m over the past three years

Mr Johnston said this was due to three consecutive La Nina weather events.

“If we do revert back to, as we assume the weather scientists are right, more neutral weather then the allowance is very much fit for purpose,” he said.

Flash floods which hit New Zealand in late January cost Suncorp $45m and may complicate reinsurance negotiations set to be finalised in June.

Mr Johnston said Suncorp would be looking hard at its pricing as it approached the reinsurance renewal.

“Our disposition on those matters is always to get ahead of the game as best we can,” he said.

“So if we are seeing the dynamics and that reinsurance market evolve as we come through the game into the next calendar next financial year, we’ll make some necessary adjustments to the pricing data.”

Lending across the home book surged by $2.6bn in the first half. Picture: Chris Pavlich

Suncorp reported a 9.3 per cent lift in net incurred claims across the Australian business in the first half to $3.1bn, in a move attributed to a normalisation of claims worsened by inflation which makes repairs and replacement more expensive.

Suncorp said it was targeting growth in premiums across its insurance business across the second half of 2023 to recoup the costs of increasing reinsurance and natural hazard bills, as well as supply chain inflation.

Suncorp warned it was concerned about natural hazards and reinsurance costs in the medium term which would require higher pricing to offset.

Suncorp Bank, which recorded $256m in profit, lifted returns thanks to a growing lending book and the run up in the cash rate.

Net interest margins increased by 13 basis points in the period to 2.03 per cent in what Suncorp flagged as driven by the higher cash rate and “strategic deposit pricing” on savings accounts.

Lending across the home book surged by $2.6bn in the first half.

Mr Johnston said although the bank had thrown off solid earnings, the sale would allow Suncorp to focus on its insurance business.

“The best outcome from a public interest benefit is Suncorp to focus exclusively on the big challenges in front of the insurance industry more broadly,” he said.

Bank growth is expected to remain slightly above system, which is expected to moderate.

ANZ is yet to scoop up the bank in a deal that will yield $4.1bn to Suncorp, which Mr Johnston flagged as likely to complete in the second half of the financial year.

Investment market yields are expected to remain in Suncorp’s 10-12 per cent target.

UBS analyst Scott Russell said Suncorp’s general insurance business were “the main disappointments”.

“Overall, core trends look reasonable to us, a stepping stone to further GI margin expansion in 2H23 and beyond. SUN stock has been strong lately and today‘s result may trigger a breather,” he said.

Suncorp declared a 33c fully franked dividend, a 71 per cent payout of cash earnings across the group.

Shares in Suncorp closed 4.6 per cent higher at $13.04.