Suncorp posts $1.19bn full year profit, as insurer worries about dodgy construction costs for future customers

The insurer has warned its premiums will rise more than inflation, with CEO Steve Johnston naming lithium battery fires and burst water pipes as growing risk areas.

Suncorp has posted a $1.19bn full year profit. Picture: Dan Peled/NCA NewsWire

ASX-listed insurer Suncorp has warned the rush to meet Australia’s housing shortage risks baking in the potential for property damage and disasters, as it also flagged premiums were set to continue rising to meet surging inflationary costs.

Ruling off a $1.19bn full-year profit on Monday, Suncorp revealed it was enjoying a bumper 11.7 per cent lift in returns, and detailed plans to shower investors with cash from its $4.1bn sale of Suncorp Bank to ANZ, in the coming year.

But chief executive Steve Johnston said the insurer was seeing an increasing number of claims tied to poor property design and building materials, warning Australia risked baking in future problems amid the construction sector crunch.

Mr Johnston noted many new builds had more bathrooms or built-in appliances that often led to water leaks causing more damage.

He called out open plan homes as making the issue worse, along with many homeowners now returning to the office leading to the damage to go unattended for hours.

“My concern is the pace at which everyone is providing urgency around getting more housing stock into the market,” Mr Johnston said.

“We’re going to cut corners both in the construction of the homes and where the homes are placed and continue to repeat the issue about building homes where they shouldn’t be.”

Mr Johnston said it was important to focus on building homes to a standard “down the track where they’re going to hold up”.

He also pointed to lithium battery fires as causing significant home damage “at a far greater rate than they’ve ever been”.

“Houses are being built closer together, as blocks get split and house eaves are pretty close together,” he said.

“There is the ability for damage in one home to impact damage on a number of houses in the street.”

Suncorp said it had benefited from a benign second half of the financial year, with subdued natural catastrophe losses coupled with surging price rises across insurance policies in a bid to outrun inflation.

Suncorp revealed its premiums had lifted 13.9 per cent across the year to the end of June, topping $14.1bn.

This came as natural catastrophe losses finished the year $125m below Suncorp’s $1.23bn claims budget.

Despite this Suncorp warned investors it would further increase its natural catastrophe budget for the coming year to $1.56bn, despite placing a comprehensive reinsurance program “at a cost broadly in line with the prior year”.

Suncorp chief executive Steve Johnston said the insurer was feeling the sting of surging inflation across its home and motor portfolios, with repair costs charging ahead.

But Mr Johnston, who has led the insurer for the past five years, said the results lift came after three years marred by disasters and inflation.

Suncorp Group Chief Executive Officer and Managing Director Steve Johnston. Picture: Brendan Radke

Mr Johnston warned Suncorp was moving to price in ahead of inflation across both its new and existing policies, despite expectations price rises will moderate in the second half of this year.

Suncorp told investors it would continue pushing through premium increase, topping “mid to high single digits” in the year ahead, with Mr Johnston noting many customers were staying with the insurer despite the price rises.

He said it was notable how few had sought to scale back their policy excess, or the amount they were required to pay before the insurance kicked in.

“They have increased nowhere near the rate of premiums,” he said.

“People are adjusting them, but they’re not adjusting substantially. I think there’s some more room to move in that.”

Mr Johnston called out Suncorp’s cost per policy, which has surged in recent years, rising 7 per cent in the home portfolio and 13 per cent across motor policies.

Mr Johnston also singled out the insurer’s Queensland Compulsory Third Party policies, which saw it book a $39m onerous contract provision.

Rival insurers NRMA and RACQ have pulled out of the scheme, with Mr Johnston noting the CTP program had become dysfunctional.

Despite the inflationary hit Suncorp reported an improvement in the margins on its general insurance business across the second half of the financial year, climbing to 12 per cent.

This was above the 10.6 per cent margin posted at the half year, taking the full-year margin to 11.1 per cent.

Suncorp said the climbing margin reflected its revenue growth and responses to higher input costs and efficiency gains.

Investment returns also lifted to $661m, up on the $451m posted by Suncorp a year earlier.

Suncorp said this reflected stronger underlying yields on interest earning assets and stronger equity markets.

However, Suncorp still faced a 8.5 per cent increase in operating costs across the year to $2.5bn, reflecting inflationary pressures on wages and technology costs and growth related expenses.

Suncorp also flagged it would keep expenses “broadly flat”, with the insurer targeting a 10-12 per cent underlying insurance margin.

It reported $203m in common equity tier 1 capital “with appropriate levels of capital maintained across the business units”.

The insurer said it will continue to be disciplined in managing capital and remains committed to returning capital in excess of the needs of the business to shareholders.

Suncorp said it would bank almost $4.1bn from the sale of its banking arm to ANZ, with the majority of the returns expected to be handed to shareholders “around the first quarter of calendar year 2025”.

Mr Johnston said Suncorp would have more to reveal on how it would handle the cash in November, with plans to create a perpetual buyback facility to support the insurer’s share price and boost returns to investors.

IML portfolio manager Michael O’Neill said Suncorp had showed “the underlying momentum of the business” after a number of years noting it was likely to see “a good 12 months ahead”.

The fund manager said Suncorp’s shift to digital sales and claims management and sale of the bank positioned it well to deliver better earnings in future.

UBS analyst Scott Russell said Suncorp had offered “relatively upbeat” guidance for the year ahead but noted there was “scope here for disappointment” in its general insurance margin.

Suncorp declared a 44c final dividend, taking full-year returns to 78c after a 34c interim dividend.

Shares in Suncorp closed up 1.37 per cent or 22c to $17.40, its highest level since October 2007.