Suncorp Group, the Australian primary insurer, has announced that it plans to purchase an additional AUD $200 million (US $142 million) of natural perils reinsurance cover in FY 2020 after catastrophe losses of $580 million dented the Group’s profits in 1H 2019.
The insurer reported net profit after tax of $250 million in 1H 2019, which was down 44.7% from the $452 million recorded over the same period in the previous year.
Results were impacted by $167 million increase in natural hazard losses, as well as a $140 million decrease in investment yields.
In addition to the extra reinsurance coverage, which will work in conjunction with Suncorp’s main catastrophe program and natural hazard aggregate protection program, the insurer intends to increase its natural hazard allowance from $720 million to $820 million in FY 2020.
Catastrophe losses in H1 2019 exceeded Suncorp’s budgeted allowance of $360 million for the period by approximately $220 million.
Nevertheless, the Group said that it “remains well placed to mitigate the impact of further natural hazard events in 2H19 through a combination of its main catastrophe program, dropdown aggregate protection and natural hazard aggregate protection.”
Despite the losses due to natural catastrophes and volatile investment market conditions, Suncorp did manage to achieve top-line growth of 3.2%.
This included gross written premium growth of 3.0% in AU Home and Motor Insurance, 2.4% in bank lending, and 9.2% in New Zealand General Insurance.
Suncorp reported net profit after tax of $133 million in its Insurance (Australia) segment, $183 million in Banking & Wealth, and $111 in New Zealand.
Michael Cameron, Chief Executive Officer (CEO) & Managing Director at Suncorp, commented on the Group’s results: “While the interim result includes natural hazard costs significantly above our allowance, as well as the impact of volatile investment markets, our underlying business remains resilient.
“We have achieved solid top-line growth, operating expenses are well controlled and the Business Improvement Program has again exceeded targets,” he continued.
“The core of our insurance portfolios are performing well and in Banking, strong deposit growth and very low losses helped to counter the slow down in lending across the industry.”
Suncorp’s Business Improvement Program resulted in estimated net benefits to the company of around $95 million, although this was offset by $140 million spend on regulatory projects and system enhancements, which was $50 million higher than anticipated.
“Natural hazards, investment performance and unforeseen regulatory costs will impact our full year Cash ROE,” Cameron explained. “However the business is well-placed on an underlying basis to perform in-line with our original expectations.”
“The financial services industry today faces a great deal of change,” he added. “This includes future policy settings, shifts in regulation, and material impacts on business and distribution models. I acknowledge the importance of the Royal Commission process, and accept that Suncorp has, at times, fallen short of community expectations.”
“The work we’ve done on our business model and strategy, will allow us to navigate the changes ahead. I believe we have the right foundations for sustainable growth.”
