Suncorp plans commercial push after bank sale, more price pain ahead for consumers

The insurance group said it was planning to turn the screws on pricing to offset inflation and reinsurance costs, amid a broader goal to amp up returns.

Suncorp is planning to grow its commercial insurance arm as the $4.9bn sale of its bank gathers pace, amid a lofty 14 per cent jump in cash earnings to $660m.

Unveiling its first-half result on Monday, Suncorp said it was planning to turn the screws on pricing to offset inflation and reinsurance costs, amid a broader goal to amp up returns from its insurance arm.

Suncorp said it lifted gross written premium, the measure used by insurers to reflect price growth as well as volume increases, by 16.3 per cent in six months.

The insurer said this was not the last of the increases, with plans to continue to push premium growth in the “low to mid-teens” over the remainder of the year across its insurance arm, in a bid to respond to costs.

Suncorp chief executive Steve Johnston said the insurer was conscious of the ­impact of the price rises, the latest in several years of premium ­increases.

He warned insurance was becoming more expensive, with modern cars and houses more complex and costly to repair and replace.

“It’s demonstrably clear the input costs in insurance have gone up incredibly steeply in the past three to four years,” Mr Johnston said.

“Put simply, the impacts of climate change, a reassessment of Australia and New Zealand risk by global reinsurance partners, the planning mistakes of the past and now inflation have converged to put the upward pressure on insurance pricing that we are currently experiencing.”

Suncorp’s home premiums ­lifted 12 per cent in the six months to December, while motor had an even more marked rise, up 18.2 per cent in the half. The insurer ­pointed to “ongoing inflationary pressures in supply chains, resulting in higher repair costs and extended repair times in the motor portfolio” as driving the price rises.

But Mr Johnston said many customers were sticking with their insurance, in a good indication “of the value our customers continue to see in our products and brands, and the protection they provide”.

Suncorp CEO Steve Johnston. Picture: John Feder

The operator of AAMI, GIO, Bingle, Vero and several other brands, Suncorp is a sprawling insurer across the Australian and New Zealand markets with a banking arm widely expected to be sold to ANZ.

It recorded a slight lift in the underlying insurance ratio to 10.2 per cent, up from 10 per cent, with plans to lift to at least the midpoint of its 10-12 per cent goal.

But Suncorp disappointed analysts with the 5.4 per cent lift in group net profits to $582m for the first half, after a mistake on past claims overshooting internal ­targets.

Suncorp faced a string of revisions of prior year reserves, slicing returns, with the insurer taking a $107m hit at its latest results in what it said was a sign of broad challenges around repair costs and workers compensation claims.

Suncorp is now awaiting final sign-off on the sale of its bank, which saw profits plunge 25 per cent to $192m in the period, after lending margins were crunched amid hot competition in the ­market.

Suncorp Bank’s suitor ANZ, which offered $4.9bn for the bank, has been blamed by many in the industry as feeding the pricing frenzy.

Mr Johnston said Suncorp would now look to grow its commercial insurance arms and invest in upgrading its almost 40-year-old core technology systems after wrapping up the bank sale.

Suncorp is a minnow in the commercial market, with almost 8 per cent of the market, far smaller than Insurance Australia Group or QBE.

Mr Johnston said Suncorp’s commercial brand Vero was “well regarded”, but noted the insurer had failed to invest in the operation over the past five years.

“With the bank moving out of the group, that gives us the opportunity,” he said.

“We started investing two years ago and you can see what impact that has had on the top line.

It will be a growth engine for the group in the absence of the bank.”

Mr Johnston said the bank, which saw its net interest margins plunge from 2.03 per cent to 1.8 per cent, was facing “intense industry-wide competitive pressure in both deposits and lending, which we are carefully balancing”.

The deal to sell the bank will cost $70m. Suncorp slightly ­increased its interim dividend to 34c a share, from 33c a year earlier, reflecting a 65 per cent payout ratio.

Shares in Suncorp climbed 3.5 per cent to close up 53c to $15.66, its highest price in more than a decade.

UBS analyst Scott Russell said Suncorp’s results had been a “significant earnings miss overall” on the back of weak bank and New Zealand insurance earnings, but noted strong guidance for future returns.

Hunter Green Institutional Broking director Charlie Green said investors cheered the result given the lack of surprises, the continued improvement in general insurance margins and proceeds from the sale of the bank to ANZ.

“The dividend of 34c was 4c above our forecast, which following the approval of the bank sale by the Australian Competition Tribunal, we had flagged as being potentially conservative,” said Mr Green. “Franking was at 100 per cent, which was also better than our forecast 70 per cent.”