Suncorp will hike insurance premiums to offset claims costs and lower investment returns after Melbourne’s Christmas Day hailstorms topped off the company’s worst year for natural disasters.
Speaking on the first anniversary of Christchurch’s magnitude 6.3 earthquake which claimed 185 lives, Suncorp’s boss recounted how massive natural disasters in Australasia had escalated claims and reinsurance costs, and driven premiums higher.
“When I went home on the 23rd of December, I thought finally we had a set of clean numbers and a set of decent results,” chief executive Patrick Snowball told analysts.
“Then on the 23rd of December we had the next earthquake in Christchurch followed by a Melbourne hailstorm that lasted 17 minutes and cost us $180 million net.
“Our chins were also on the ground as we went into the new year as a result of that.”
Suncorp on Wednesday unveiled a 74.4 per cent jump in net profit to $389 million for the six months to December 31, 2011, and declared a 20 cent fully franked interim dividend, up from 15 cents a year earlier.
The result included a $63 million gain from the sale of property and equipment, while the previous corresponding period featured a $106 million loss on subsidiary sales.
Despite the profit rise, Suncorp’s stock dropped 18 cents, or 2.14 per cent, to $8.25.
Profit growth was strongly held back by a 44.5 per cent fall in earnings from Suncorp’s general insurance business to $162 million on the back of natural disasters, including flooding in NSW and Victoria, and hailstorms in south-east Queensland.
“We’ve coped with probably the worst set of natural disasters we’ve ever had to cope with,” Mr Snowball said.
Global economic volatility, as well as political uncertainty in Australia and the high Australian dollar added to Suncorp’s woes, crimping investment revenue by 34 per cent on a year earlier.
Policyholders across Australasia’s insurance industry have already suffered premium hikes so insurers could recoup lower investment returns, and more will come in 2012/12 chief financial officer, John Nesbitt, said.
Gross written premium from home insurance policyholders jumped 15.9 per cent on a year earlier thanks largely to higher reinsurance costs.
Global reinsurance companies insure insurance companies, and reinsurance costs and premium hikes for 2012/13 will be decided once discussions between Suncorp and its reinsurers conclude, Mr Snowball said.
In the long-term, the industry should look at how risk could be mitigated, rather than resorting to increased premiums, Mr Snowball said.
“(In Queensland) we’re rebuilding some of these houses for the third time,” he said.
“You can’t expect us to go on doing that and it’s particularly frustrating when there’s a way of stopping that flooding from happening.”
Suncorp’s home borrowers started paying more interest on Monday when its banking unit increased its standard variable home loan rate by 10 basis points to 7.43 per cent.
Suncorp Bank chief David Foster said the rise would probably not cover the unit’s higher funding costs.
Suncorp Bank posted a significant rise in profit, from $3 million in the previous corresponding period to $102 million on lower impairment costs and the sale of a data centre joint venture.
Suncorp’s life insurance business’ $133 million profit was more than double that of the previous corresponding period.
