Soaring Suncorp profits

Suncorp reported a 74 per cent rise in first-half net profit, after raising premiums in the aftermath of 2011's unprecedented disaster claims says a story in the Sydney Morning Herald on February 22.

Suncorp said first-half net profit was $389 million compared with $223 million a year ago and $366 million according to the average forecast from Thomson Reuters I/B/E/S.

The firm announced an interim dividend of 20 cents, up from 15 cents a year earlier.

Suncorp said earlier this year that the damage bill from a hailstorm in Melbourne on Christmas day was expected to cost as much as $250 million, more than its allowance for natural hazards in the six month to December.

The company’s result included a $63 million in gains from the sale of property and equipment, while the previous corresponding period included a $106 million loss on disposal of interests in various subsidiaries.

First-half revenue of $8.107 billion was up just 0.53 per cent from the previous corresponding period.

‘‘Although external challenges mean that our first-half profit is still not what we, and our shareholders, know this business is capable of, I’m proud of what Suncorp has achieved over the last six months and am confident the transformation of our group is on track,’’ chief executive Patrick Snowball said in a statement.

The first-half profit included a $63 million gain on the sale of property, plant and equipment, Suncorp said.

“Natural hazards in the first half have again not been kind to Suncorp,” Nigel Pittaway, an analyst at Citigroup in Sydney, said in a note to investors before today’s results. Still, it has a “reasonable level of surplus capital which is likely, in time, to result in capital returns in the form of special dividends providing current market volatility dies down.”

A follow up story on 23 February titled 'Suncorp warns more pain ahead'. reports that Suncopr Group chief executive, Patrick Snowball warned consumers could face further increases to insurance premiums as well as interest rises on their home loans.

Announcing a 74 per cent jump in first-half profit to $389 million for the banking and insurance group, Mr Snowball said 2011 was ''the worst year that any of us can experience''.

''That worst year has been the global economy, natural hazards, the Melbourne [Christmas day hail] storm and, of course, the domestic political situation probably not helping as well.''

Mr Snowball said the Suncorp result ''is still not what we, and our shareholders, know this business is capable of''. He lowered margin guidance for the insurance business in the second half. The shares fell 18¢ to $8.25.

The Deutsche Bank analyst Kieren Chidgey, who rates the stock a ''buy'', said the result was ''messy''.

''While net profit was 6 per cent above consensus, there was greater variability by division with general insurance lower and the bank/life higher,'' he said.

Gains in Suncorp's banking and life insurance divisions more than erased the impact on the general insurance division. The banking division posted a 42 per cent jump in first-half profit to $156 million despite reporting a drop in net margin to 1.91 per cent from 1.97 per cent. Suncorp blamed this on ''intense competition for retail deposits''.

Asked if insurance premiums were likely to rise again this year, Mr Snowball said ''tension'' remained in negotiations between insurers and reinsurers.

''The cost of the Christchurch earthquake has increased across the whole industry since last renewal cycle,'' he said. ''Our price increases are really a factor of our increased cost of reinsurance. We've always said we have to pass them on.''

The group is aware that insurance affordability is an issue for consumers, and is already seeing some of them opting for higher excess levels on their cover in order to keep premiums down. Home insurance cover fell in response to the 17 per cent rise in premiums.