Suncorp hikes home insurance premiums; profit hit on volatile markets, natural hazards

The group, which is selling its banking unit for $4.9bn, has lifted home insurance premiums by a record 9.9 per cent following severe flooding as annual profit slumps.

Homeowners are being slugged with punishing premium rises as the nation’s general insurers look to offset the costs of wild weather and stubborn inflation, with Suncorp pushing through price increases in the “mid teens” and flagging more hikes to come.

As the insurer contends with the prospect of another La Nina year, chief executive Steve Johnston said affordability was a key ongoing concern as premiums rise at the fastest pace in a decade.

“It’s not the first year there’s been significant increases in home insurance premiums and it’s not a Suncorp issue per se, it’s an industry-wide issue.

“We all play in the same reinsurance markets by and large, with reasonably similar risk profiles. And we’ve all been hit by similar levels of event activity. So as an industry we are seeing increased premiums coming through and in this environment we have to reflect that it does put pressure on affordability.”

Mr Johnston said premiums would have been even higher had the insurer not taken action in 2021 to lock in terms with both its motor and home repair network.

“We expect that (industry) inflation in motor is running at 7 to 8 per cent. We’ve got the benefit of our preferred repairer panel, which … has put a lid on inflation (for Suncorp) at between 4 and 5 per cent,” he said

“On the home side, our external benchmarks are running, we think, higher than 10 to 15 per cent. In our working book, the underlying inflation we’re seeing is around 1 to 2 per cent.”

In its Australian insurance business, Suncorp’s gross written premium (GWP) jumped 9.2 per cent for the year, excluding portfolio exits, while in New Zealand, GWP rose 14 per cent over the same period.

Retention and renewal rates held steady in the year even amid the hardening market, Mr Johnston said.

“Insurance is at the non-discretionary end of consumer buying. Everyone tries to pay their mortgage and they try and keep their insurance because it protects their assets.

“As well as that, when you have big events, the value of the product is reinforced. So consumers who are looking at the news every night seeing all these people that are dislocated from their homes, losing their homes... the quality and value of the product is enhanced.”

Governments should step in and scrap insurance taxes and levies to ease cost pressures on policyholders, he argued.

“(Taxes and charges) are increasing and they’re increasing relative to risk. (These) charges can be up to 45 per cent of a home insurance premium … and one of the easiest solutions would be for governments to remove some of those charges. That would improve affordability very quickly,” he told analysts.

State governments charge insurers stamp duty of around 10 per cent on insurance transactions, as well as emergency services levies, with these then passed on to policyholders as part of their premium fees.

Suncorp on Monday said its cash earnings for the year had dropped 37 per cent due to the market downturn and weather events on the east coast.

The company — which is selling its banking operations to ANZ Bank for $4.9bn — posted cash earnings of $673m for the year to June 30, while net profit dropped 34 per cent to $681m, driven by volatile investment markets and higher natural hazard costs.

The insurer lifted its natural hazard allowance for 2023 to $1.16bn after it exceeded its 2022 allowance by $101m due to the east coast floods.

Alongside the premium hikes, the company also saw a return to growth in home lending and improved underlying margins.

“The momentum we have built over the years is evident in the record levels of growth as we unlock the value of our brands and we emphatically deliver for our customers,” Mr Johnston said.

“For a broad based general insurance business of scale like Suncorp to be growing above 10 per cent is a substantial achievement.”

Net loss from investment market volatility was $190m compared to a profit of $453m the prior year, but the majority of these losses would eventually unwind as markets recover, the company said.

The bank, meanwhile, saw second half annualised growth in home lending of 12.4 per cent, bringing its full-year home lending portfolio growth to 9 per cent. But net interest margin (NIM), a key measure of profitability, dipped 14 basis points to 1.93 per cent.

The NIM had improved recently as the cash rate lifted and should improve further in the months ahead, Mr Johnston noted.

Total bank deposits grew by 15.9 per cent over the 12 months, while transaction account growth hit 20.6 per cent.

Jarden analyst Kieren Chidgey said the result was broadly in line with expectations, “though stronger GWP growth and good cost discipline should assist into fiscal 2023”, with risk “skewed to the upside”.

Suncorp in July announced the sale of its banking operations to ANZ Bank for $4.9bn, in the most substantial deal in the banking sector since 2008.

Mr Johnston on Monday said the decision to sell the bank followed a comprehensive strategic review and remained subject to regulatory and government approvals.

“The strategic rationale for the sale is compelling. With the ability to focus exclusively on our insurance businesses, Suncorp will become a leading trans-Tasman insurer and have a louder voice in advocating for greater resilience and mitigation measures to better protect our customers and the community,” he said.

“Our insurance strategy is delivering and once the sale process is complete we will be able to do more, and faster.”

Suncorp shares tumbled 4.6 per cent to $11.11 after the insurer declared a 17c-a-share final dividend, below market expectations of a 20c payout.