Suncorp drops -4% following muted FY FY22 result: Natural hazards blow-out

After rallying by around 5% mid-July, following revelations it was selling its banking operations to ANZ Bank (ASX: ANZ) for $4.9bn, Suncorp (ASX: SUN) was down by a corresponding amount today following a disappointing full year FY22 result.

While Suncorp saw revenue grow 14% to $14.17bn, the insurance and banking conglomerate - which operates well-known brands like AAMI and Apia - missed both analyst and consensus expectations ($694m) with a $681m net profit (NPAT) for the full year, down -34% on the previous period.

Standouts

Buried within Suncorp’s mixed-blessings result today was a noteworthy lift in average written premiums of 9.9% [as of June for homes] which is the largest jump in at least nine years.

Suncorp’s gross written premium, a measure of changes in customer numbers and pricing, had also risen 9.2% in Australia.

Then there was a $190m loss in its investment markets division, down from $453m in the previous year.

Other highlights at the full year included:

• Full-year cash profits fell -36.7% to $673m

• Home insurance prices have jumped almost 10% on average

• Net home loans were up 9% in the year

• Net interest margins (NIM) were at 1.93% in June, down from 1.97%

• Premiums on cars and other vehicles had risen 4.9% on average

• Overall, operating expenses grew 3.2% to $2.78bn due to a temporary increase in strategic investment and growth-related costs

The final dividend payout of 17 cents was less than half the previous corresponding period’s payout of 40 cents, and well under the 46 cents consensus analyst expected.

La Niñas no es grande

Over 30 separate weather events during the year led to a $101m blowout to the group’s provision for natural hazards.

While the operating environment remains challenging, with Suncorp’s current modelling pointing to the likelihood of a third consecutive La Niña year, CEO Steve Johnston said the company remains focussed on executing its strategic initiatives.

“… and this has allowed us to offset increasing inflationary pressures, particularly in home and motor vehicle repairs,” Johnston noted.

The group has increased its natural hazard allowance for FY23 to $1,160m, reflecting net exposure growth in the underlying portfolio, recent natural hazard experience and changes to the reinsurance program in FY23.

FY23 plan

Suncorp’s FY23 plan aims to deliver a growing business with a sustainable return on equity (ROE) above the through-the-cycle cost of equity.

In General Insurance, gross written premium (GWP) growth is expected to be primarily driven by increases in Average Written Premium (AWP) as the business responds to increased input costs, including from reinsurance, natural hazards and supply chain inflation.

The group reaffirmed its 10% to 12% underlying insurance trading ratio (ITR) target in FY23, with higher pricing, and the benefits from rising yields and strategic initiatives offsetting higher reinsurance and natural hazard costs.

Buoyed by favourable trends in the interest rate cycle, the group also reaffirmed its cost-to-income ratio target of 50% by the end of FY23.

Suncorp share price: A 12 month snapshot.