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SUN is shining, though weather not so sweet

Higher premiums, a timely release of $150 million in reserves and improved returns from investments saw Brisbane-based Suncorp’s (ASX:SUN) net profit jump 44% to $560 million for the six months to December with cash earnings up 63% to $588 million.

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Suncorp said the result was due to continued strong top-line growth across the Group, improved underlying margins and positive investment returns.

But the reserves release and more than $220 million extra from higher yields and investment returns certainly didn’t go astray either.

“The result also benefitted from the release of $150 million of the provision for potential business interruption claims, following the resolution of the second industry test case,” directors said.

“Volatility continued in investment markets in the half, although the impact of higher running yields more than offset any mark-to- market losses across the Group’s $15.0 billion investment portfolio. The net gain from yields and investment markets was $287 million compared to $61 million in 1H22,” the company revealed.

Directors declared a full franked interim dividend of 33 cents a share, representing a payout ratio of 71 per cent of cash earnings – in the middle of the target payout range of 60% to 80% of net profit.

Suncorp said its Australian insurance business saw a 9% rise in gross written premium to $4.8 billion, “driven by the pricing response to inflation and increased natural hazard and reinsurance costs. Suncorp’s New Zealand gross written premium of $NZ1.2 billion, up 12.2% “benefitting from price momentum.”

Profits in Australian insurance – jumped 142% to $276 million because of a smaller impact of natural disasters in the period (Remember the Brisbane floods and other La Nina-related weather events happened predominantly in the June half year in Queensland)

Suncorp Bank (which is being sold to ANZ, if the regulators approve) saw annualised growth in home lending of 10.4% “provided further evidence of the continued turnaround in performance.” The Bank’s cost-to-income ratio fell to 49.9% from 57.6%, driven by revenue growth and cost management.

While the underlying business demonstrated strong momentum, the Group’s results were impacted by elevated natural hazard activity, Suncorp directors said in Wednesday’s statement.

“The prevailing La Nina weather pattern across Australia and New Zealand led to eight separate weather events and around 53,000 natural hazard claims for 1H23. This resulted in the Group exceeding its natural hazard allowance by $99 million.

“The Group’s full year natural hazard allowance is $1,160 million and the Group retains strong protection through its comprehensive reinsurance program.

Group operating expenses fell by 3.1% to $1,349 million, largely reflecting efficiency benefits from the strategic program of work, as well as a decrease in project investment relative to the prior period, more than offsetting the impact of the inflationary environment.

Suncorp Group CEO Steve Johnston said in the statement the Group had delivered a strong set of results for the half despite ongoing economy- wide inflationary pressures and the impacts of eight natural hazard events, largely due to the La Nina climate pattern.

“Suncorp’s priority has been supporting our customers impacted by these severe weather events, while also continuing to work hard to return customers to their homes following the Australian East Coast floods almost one year ago,” Mr Johnston said.

“In addition, through a dedicated focus on executing our strategic initiatives as outlined to the market two years ago, our three businesses have continued to build on the good momentum achieved over this time to deliver top-line growth with improved margins and productivity,” he said.

“Our Australian and New Zealand businesses have achieved strong growth in premiums, while unit growth across our consumer portfolio demonstrates the value of our products and brands, particularly in an inflationary environment.

“Our Best-in-Class claims program has allowed us to be more disciplined in leveraging scale to deliver lower aggregate inflation outcomes. The Bank continued to grow its home and business lending portfolios and customer deposits.

“Pleasingly, we remain on track to achieve our FY23 targets, which is testament to the strength and resilience of our business amid significant headwinds, and demonstrates our ability to create long-term shareholder value while meeting the evolving needs of our customers and other stakeholders.”

Suncorp shares rose 4.6% to $13.04 as investors liked the non-news of no disruption – yet- to plans to sell the Suncorp bank to ANZ. The outcome won’t be known till mid-June.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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