Suncorp says bank sale costs are growing, but insurance price rises willsupport its results

The banking and insurance group has hinted about costs concerns involving its bank transaction, leaving investor returns at their low end.

Suncorp declared a 27c dividend, taking the full-year payout to 60c.

Suncorp has withheld more of its full-year profits than expected from investors, amid concerns about the spiralling costs of reinsurance and doubts over the planned sale of its banking arm to ANZ.

Unveiling its results on Wednesday, its surge in cash earnings, up 86.4 per cent, marked a turnaround after a run of years blighted by natural catastrophe losses.

It came on the back of double-digit premium price rises across the insurance arm.

But Suncorp decided to hand out only 60 per cent of its $1.2bn cash earnings – at the low end of its targeted 60-80 per cent payout ratio.

Analysts called Suncorp’s result a near miss, with the bank and the New Zealand business falling below expectations.

The insurance division, which operates in Australia and New Zealand, delivered a $755m underlying profit as it bounced back from recent years marred by natural catastrophe losses.

This was coupled with a near miss on natural catastrophe losses in New Zealand and comparably favourable weather in Australia.

Premiums rose 10.9 per cent across Suncorp’s insurance arm during the year, driving revenue growth across the business.

Suncorp Bank – which is on the block to be sold to ANZ for $4.9bn despite the competition regulator rejecting the deal last week – also reported a lift in loans and profits after fighting other lenders for market share.

Lending at the bank rose 9.1 per cent in the period, with the net interest margin settling to close the year at 1.96 per cent. Suncorp Bank posted a $470m profit, up on the $368m last year.

Suncorp chief executive Steve Johnston said the results showed the increasing capital demands of an insurer, with the latest reinsurance renewal imposing a further $450m in capital requirements on the business. This explained the decision to hold profit distributions at the low end of the range.

“We’ve still got a strong balance sheet, but we didn’t want to put our balance through any peril in the next six months,” he said.

Suncorp chief executive Steve Johnston. Picture: John Feder

Suncorp declared a 27c dividend, taking the full-year payout to 60c, at the low end of Suncorp’s 60-80 per cent payout ratio.

Mr Johnston recommitted to selling its bank to ANZ, which will be appealed to the Australian Competition Tribunal after the competition regulator knocked it back last week.

However, Suncorp said the transaction costs around the bank would grow from $500m to between $575m and $600m.

Suncorp said the accounts showed it had “improved stakeholder returns, setting strong foundations for the business going forward”. The results showed Suncorp pushed double-digit premiums rises across its motor and home portfolios, the largest parts of the business. Australian motor premiums were up 13.5 per cent in the second half, but policy numbers only increase 2.1 per cent. The home portfolio saw premiums rise 12 per cent but customer numbers slid 0.6 per cent.

Mr Johnston said Suncorp didn’t “like having to put prices up like this”, but noted the burden of premium price increases was being felt at the most exposed end of the portfolio.

The massive losses Suncorp and other insurers have faced in recent years from natural catastrophes has also seen reinsurers raise their prices. Suncorp reported almost 15 separate weather events accounted for 130,000 claims in the period, worsening its total liability by $97m to $1.257bn.

The group expects claims to be worse in the year ahead, dialling in a natural hazard allowance of $1.36bn. In its guidance to the market, Suncorp said it expected insurance premiums would continue to grow at circa 10 per cent in the year ahead.

The bank’s net interest margins are expected to slide to around the bottom of the 1.85-1.95 per cent margin range.

UBS analyst Scott Russell said the bank’s guidance was “disappointing”. But Moody’s vice president Frank Mirenzi said it was a “very strong full-year” result.

However, Mr Mirenzi said “inflation remains a risk for both businesses, potentially increasing claims costs in the insurance business or leading indirectly to higher loan arrears in the banking business. At this stage, these risks appear to be well managed.”

Atlas Funds Management analyst Michael Haynes said it was “a good result” showing Suncorp was focusing “more on the margin side” rather than growing its volumes. “We’re holding Suncorp, no change in our allocation,” he said.

Suncorp shares closed down 1.82 per cent at $13.50.