The impact of COVID-19 across Suncorp’s general insurance portfolio is expected to be broadly neutral for the first half of the 2021 financial year.
Impacts during this period include an assessment for potential business interruption (BI) claims from the second Victorian lockdown.
Additionally, temporary short- term reductions in motor claims frequency, continued relief measures including discounts and three month premium waivers, and ongoing costs incurred as a result of on-shoring a range of critical business processes are all included.
Despite COVID-19, Suncorp Bank’s credit quality remains strong with total impairment losses of $3 million for the September quarter.
Suncorp’s collective provision remained unchanged at 30 September 2020 following a review of the economic assumptions which underpin the Group’s conservative base case economic outlook.
As from 30 September, Suncorp Bank had $3 billion of loans under temporary loan deferral arrangements, representing 4.0% of the housing portfolio and 7.6% of the SME portfolio.
The group’s BI provisioning is sufficient to cover claims costs in 90% of possible outcomes, including in the event of an unfavourable judgement for the Insurance Council of Australia BI industry test case. This is considerably in excess of the expected outcome.
In assessing provisioning for BI, Suncorp has considered its exposure to BI claims including the wide range of industries and geographies affected by COVID-19.
Some allowance has been made for factors that could mitigate BI claims costs, including government stimulus measures, rental reductions, and alternative revenue streams.
Consistent with the insurer’s reserving policy, at the FY20 financial results a provision of $70 million (pretax) was recognised for potential BI claims in relation to COVID-19 up to 30 June 2020.
The insurer has now assessed the potential for BI claims in relation to COVID-19 from the second Victorian lockdown, commencing on 8 July, adopting a consistent prudent valuation approach to the initial provision.
Taking into account the breadth and depth of the Victorian lockdown, the Group now expects to recognise a further $125 million (pre-tax) provision for potential BI claims for the first half of the FY21 financial year, assuming no further material COVID-19 outbreaks.
This will take the Group’s total provision for potential BI claims in relation to COVID-19 to $195 million (pre-tax). Suncorp awaits the NSW Court of Appeal’s judgement on the Insurance Council of Australia’s BI test case.
The test case is considering the issue of policy wordings that refer to the Quarantine Act. Given the Group’s prudent reserving approach, the industry test case outcome is not expected to affect the total BI provision.
