Insurer Suncorp flags profit margin impact

by IBO 14 Dec 2015

Insurer Suncorp flags profit margin impact

The increased cost of settling claims following a record run of natural hazard events combined with the lower Australian dollar will impact Suncorp’s General Insurance margin for the half year to 31 December 2015, the company has announced.

Suncorp CEO Michael Cameron said the Group had implemented various claims and pricing initiatives to take account of the increased volume and cost of claims.

“While the industry remains very competitive, costs have been increasing as a result of the lower Australian dollar and the impact of the $4 billion of weather events during 2015,” he said.

“These increased costs will have a significant impact on the underlying margin in our Personal Insurance business.”

Recently-appointed Personal Insurance CEO, Gary Dransfield, confirmed that a program of work was underway to further improve claims processes, which involved working closely with the company’s building panel and other suppliers to better manage costs.

The underlying Insurance Trading Ratio (ITR) had also been impacted, the company said.

This was caused by:
  • The $75 million increase in the natural hazards allowance which the Group had previously announced;
  • Higher than anticipated large loss experience in Commercial Insurance;
  • Increased claims frequency in Compulsory Third Party (CTP) insurance in NSW; and
  • Lower investment yields.
As a result, the underlying ITR was expected to be around 10% for the HY to 31 December 2015.

But the underlying ITR for the FY would be supported by increased claims management and pricing initiatives, as well as the Group’s Optimisation program which was on track to deliver $170 million of benefits in the 2018 financial year, Suncorp said.

Commenting on the outlook for premium review, Cameron said the stabilisation of the Australian General Insurance pricing environment and increasing premiums had to date not had any material impact on retention rates.

As a result the Group expected to report positive GWP growth for the six months to 31 December which compared to flat GWP growth and premium reductions across most portfolios during the 2015 financial year.

Cameron also said the Group’s reported profits would continue to benefit from releases from long-tail portfolios during the 2015 financial year.

The continued absence of superimposed inflation and improvements in long-tail claims management were expected to result in prior year net reserve releases of between $120 million and $140 million or approximately 3-3.5% of Net Earned Premium for the six months to 31 December.

“The Group is in good shape other than the short-term operational challenges in General Insurance that we are highlighting today,” Cameron said, adding that he had spent his first 10 weeks as CEO working with the team to gain deeper understanding of all facets of the business, and meeting with employees, regulators, investors and others.

“I’m confident we can address these challenges and continue to drive changes that improve outcomes for our customers, shareholders and other key stakeholders.”

Suncorp’s financial results will be released on 11 February 2016.
  • Perception 14/12/2015 1:36:48 p.m.
    Why does the insurance industry do this to itself ?
    All business owners know that fixed costs of doing business increases every year. Yet we follow these stupid cycles and the clients just keep drilling the industry down for cheaper premiums
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  • Curious George 14/12/2015 1:45:08 p.m.
    Perception - The clients drill the industry down? I think you will find its the lust for market share from both underwriters and brokers that drive the market down and whilst we all know what happens in a soft cycle no one seems to be smart enough to put the brakes on. you can only cut so many costs before things have to change.
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  • Perception 14/12/2015 2:45:58 p.m.
    Curious . Yes you are probably right on every level . But maybe its also up to our industry to have the courage to advise clients that we are not prepared to play the game any more and why do we have to wait for a major disaster for a change in the market. yes its all to do with competition and demand and supply but we are not selling widgets
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