Overview
Suncorp, the Australian general insurer, has announced a significant increase in its annual net profit, which rose by 69% for the 12 months through June. This growth is attributed to improved margins and a turnaround in investment returns. Suncorp’s cash earnings also saw a notable increase, reaching A$1.25 billion from A$673 million in the previous year.
Positive Financial Performance
Suncorp’s strong financial performance is largely credited to the completion of its three-year plan to FY 2023, achieving all key financial and operational targets. The company’s Australian and New Zealand businesses experienced considerable growth in premiums, highlighting the value of their products and brand. Chief Executive Steven Johnston emphasized the resilience of Suncorp’s underlying business, stating that it is significantly stronger today than when the three-year plan was established in 2020.
Future Outlook
While Suncorp recognizes that the operating environment remains challenging, it anticipates a gross written premium growth of approximately 10% in fiscal 2024. This projection is driven by various factors, including increased input costs from reinsurance, natural hazards, and supply chain inflation.
Segment Performance
Suncorp’s Australian insurance unit witnessed an 11% rise in gross written premiums for fiscal 2023, reaching A$10.16 billion compared to the previous year. Similarly, the New Zealand unit saw a 14% increase, amounting to 2.44 billion New Zealand dollars (US$1.48 billion). These upward trends can be attributed to targeted price adjustments that were necessary to address significant rises in reinsurance and natural hazard costs, as well as overall economy-wide inflation.
Suncorp’s impressive financial results highlight its ability to adapt to challenging market conditions and further solidify its position as a leader in the insurance industry.
Australian Insurers Facing Challenges but Potential Benefits Await
Australian insurers have been grappling with rising premiums due to factors such as higher reinsurance prices and increased claims costs involving larger repair expenses. Industry analysts expect that it will take some time for the recent premium rate hikes to fully impact insurers’ earnings. However, once these adjustments have taken effect, companies may benefit from a potential decrease in claims inflation.
Suncorp’s Banking Unit Reports Solid Annual Profit Growth
Suncorp’s banking unit recorded a notable increase in its annual after-tax profit, reaching A$470 million compared to A$368 million in the previous year. Additionally, the net interest margin rose by 3 basis points to 1.96%. According to Johnston, the growth in home lending showcases the advantages of enhanced broker and customer experiences.
ANZ’s Planned Acquisition of Suncorp’s Banking Unit Rejected
Australia’s competition regulator recently rejected ANZ’s proposed acquisition of Suncorp’s banking unit, which was valued at A$4.9 billion. The decision was based on concerns regarding competition. ANZ had anticipated that this acquisition would expedite the expansion of its retail and commercial businesses.
Suncorp Remains Committed to Supporting ANZ
Suncorp has reiterated its commitment to supporting ANZ in its efforts to challenge the decision by referring it to the Australian Competition Tribunal. While there are no expected changes to the net proceeds from the transaction, Suncorp has noted some adjustments in the component parts. The group highlighted that the delay in completion and additional clarity on the program requirements have resulted in an increase of separation and other costs from A$500 million to between A$575 million and A$600 million.
Dividend Increase Declared by Suncorp Directors
Despite the challenges faced, Suncorp’s directors have declared a final dividend of A$0.27 per share, representing an increase from A$0.17 per share the previous year. However, the company emphasized that the full-year dividend payout ratio of 60% of cash earnings falls at the lower end of the target range of 60% to 80%. Suncorp remains committed to maintaining a dividend payout ratio within this range. The lower payout for fiscal 2023 is attributed to significant shifts in capital and the ongoing tribunal process relating to the bank’s sale.