Suncorp shares have hit a five month low after its first-half profit fell 16 per cent to $452 million, with investors seemingly underwhelmed by the insurance giant’s rosy outlook.
Suncorp said Melbourne’s December 19 hail storm contributed to a blowout in natural hazards costs that was only partially offset by targeted premium increases.
Total insurance premium revenue for the six months to December 31 rose 1.8 per cent, but the elevated claims and investment designed to lift future performance dragged the Australian general insurance segment’s net profit down 35 per cent to $234 million.
The Australia-wide decline was a less dramatic 28.5 per cent when life insurance was included.
Citi analysts said Suncorp’s cash earnings of $472 million were seven per cent below expectations.
“Although the guidance is upbeat, apart from strong bank earnings it largely only formalises what the market was already expecting” Citi said in a note.
“The poor result in the key Australian GI business is thus likely to weigh on investor sentiment.”
Suncorp shares fell as much as 5.3 per cent in morning trade, and ended the session down 32 cents, or 2.4 per cent, at $13.00.
Investment costs also reduced net profit in the company’s banking and wealth business by 5.3 per cent to $197 million, but lending grew by 8.7 per cent.
The investment should pay off across the business in the second half and beyond, chief executive and managing director Michael Cameron said.
“Today’s result provides evidence that our strategy, our team, and our organisation will deliver an improved second half and a significant uplift in performance in FY19 and 20,” Mr Cameron said.
Although natural hazard costs climbed $65 million above allowance to $395 million, Suncorp held its interim dividend at a fully franked 33 cents by raising its payout ratio to 90.1 per cent of cash earnings.
The company has flagged a full-year payout ratio of 60 to 80 per cent, and committed to return any surplus capital to shareholders.
Suncorp said it is well capitalised, with $381 million in common equity tier one capital held above its operating targets.
“Suncorp remains committed to returning excess capital to shareholders,” it said in a statement.
Second-half reserve releases are expected to once again be above 1.5 per cent of net earned premium, thanks to low inflation and long-tail claims management.
SUNCORP’S SOLID FIRST HALF
* Net profit down 15.8pct to $452m
* Revenue down 9.2pct to $7.84b
* Insurance premium income up 1.9pct to $5.27b
* Interim dividend steady at 33 cents, fully franked