The Suncorp Group Ltd (ASX: SUN) share price is up in early reaction to the HY23 result showing strong profit growth.
Suncorp is a large insurer, with brands like Suncorp, AAMI, Terri Scheer, Bingle and more. It also owns Suncorp Bank, though it is in the process of selling that division to ANZ Group Holdings Ltd (ASX: ANZ).
Suncorp HY23 result highlights
Here are some of the main numbers:
- Insurance Australia gross written premium of $4.8 billion, up 9%, driven by price increases and increased natural hazard and reinsurance costs
- Suncorp New Zealand gross written premium of NZ$1.2 billion increased 12.2% with price increases
- Suncorp Bank home lending increased $2.6 billion, with a net interest margin of 2.03% (up 13 basis points / 0.13%)
- Group net profit after tax up 44.3% to $560 million
- Cash earnings up 62.9% to $588 million
- Interim dividend of $0.33 per share
Suncorp said that it’s benefiting from strong revenue growth across the group, with improved underlying margins and positive investment returns. Higher running yields more than offset investment declines across its $15 billion investment portfolio. The net gain from yields and investment markets was $287 million, up from $61 million.
The result also benefited from the release of $150 million of the provision for potential business interruption claims during the pandemic, after the resolution of the second industry test case.
Management said that the sale of Suncorp Bank is on track, subject to regulatory and government approvals. The bank’s cost to income ratio decreased to 49.9%, down from 57.6%, driven by revenue growth and cost management.
While profit did grow, the result was impacted by elevated natural hazard activity. There were eight separate weather events and around 53,000 natural hazard claims in the first half of FY23. This led to Suncorp exceeding its natural hazard allowance by $99 million. The full year allowance is $1.16 billion.
Suncorp said it “retains strong protection through its comprehensive reinsurance program.”
Outlook for the Suncorp share price
On the one hand, Suncorp is benefiting from inflation and higher interest rates with higher revenue and better investment returns. It’s seeing better margins. But, a changing climate is hurting the business as well.
While things are looking up for Suncorp, I don’t think it’s a buy. For me, I think there is too much danger of a hit to earnings when there are bad weather events or when investment markets are rough. I prefer businesses that have a better chance of compounding their earnings.
