The Suncorp Group Ltd (ASX: SUN) share price is rising today despite announcing a 20% fall in first-half profit.
Currently, the Suncorp share price is up 5% to $11.97.
Keep up to date with the February 2022 reporting season calendar.
SUN share price
Profit down, business fundamentals up
Key highlights from the first-half ending 31 December 2021 include:
- Revenue of $5.5 billion, down 1.6% year-on-year (YoY)
- Cash earnings of $361 million, down 29.1% YoY
- Net profit after tax (NPAT) of $388 million, down 20.8% YoY
- Dividend of 23 cents per share, down 11.5% YoY
Profitability fell over half primarily from increased insurance claims and lacklustre investment returns on its insurance float.
Notwithstanding the declining financial result, the Suncorp share price has benefitted from improving divisional performance:
“The work we have done over the last couple of years – digitising, rejuvenating brands, investing in underwriting systems and best in class claims – is starting to pay off and is behind the improvements in the business’ underlying strength”
Insurance division
Gross written premiums – the number of insurance premiums sold during the half – increased 7.5% in Australia and 14.0% in New Zealand.
Motor and home insurance were the standout performers, increasing premiums by 7.8% and 8.3% respectively.
The company’s insurance trading ratio (ITR) increased to 8.0%, up from 7.1% one year ago as a result of rate increases and volume growth from written premiums.
ITR measures the profitability of insurance divisions. It is calculated by taking premiums received divided by net claims.
Suncorp has a goal of reaching an ITR of 10-12% by FY23.
Despite the positive operating performance, negative investment returns from insurance funds and managed schemes led to a 55.8% decline in divisional profit.
Banking division
Somewhat offsetting the fall in Insurance earnings, Banking increased profit by 5.3% over the half.
Home lending increased in line profit while unwinding credit provisions made in past periods provided a one-off bump to earnings.
Bank earnings would have been better if not for a 12 basis point reduction in Suncorp’s net interest margin (NIM) to 1.97%.
Falling NIMs have been a feature of the Australia and New Zealand Banking (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) half year results as competition intensifies and households lock in fixed rates.
New Zealand division
Like Insurance, New Zealand recorded a notable fall in profit, down 34.9% to $84 million.
Poor investment returns in addition to elevated natural disasters weighed on profitability.
Premiums grew at a respectable 14% but were more than offset by a 17.6% jump in claims.
What’s next for the Suncorp share price?
Suncorp will continue to execute its FY23 plan with the aim of achieving its 12 strategic initiatives.
The bank has allocated $980 million towards natural hazard payments, however currently expects that number to come at $1,075 million.
“We have momentum across our three businesses and our focus is on continued execution to ensure we hit our targets”
