Suncorp Group reported NPAT of $1,133 million (FY14: $730 million) for the 12 months to 30 June 2015. Profit after tax from business lines was $1,235 million (FY14: $1,330 million). Further efficiency benefits should flow next year.
The result was achieved despite the financial impact of Suncorp’s worst year of natural hazard events which had a net impact of $1,068 million, well above the allowance of $595 million.
The Group’s strong capital position and improved financial performance has allowed the Board to declare a final ordinary dividend of 38 cents per share and a special dividend of 12 cents per share.
The Building Blocks, Simplification and Optimisation projects are allowing Suncorp to grow its customer base while maintaining strong margins. During the year, margins have increased with the General Insurance UITR at 14.7% and the Bank NIM at 1.85%.
Based on capital levels at 30 June 2015 on an ex-dividend basis, the Suncorp Group will continue to hold $570 million in capital above its operating targets. The General Insurance CET1 is 1.40 times PCA and the Bank CET1 is 9.15%.
Suncorp has made the following market commitments that align with the shareholder promise to build a simple, low risk financial services group that delivers both high yield and above-system growth. In the medium term, Suncorp’s key targets are:
1. ‘above system’ growth in key target markets
2. Optimisation benefits of $170 million in the 2018 financial year
3. ‘meet or beat’ an underlying ITR of 12% through the cycle
4. sustainable return on equity of at least 10%
5. an ordinary dividend payout ratio of 60% to 80% of cash earnings
6. continuing to return surplus capital to shareholders
Looking at the segmentals:
General Insurance
General Insurance NPAT was $756 million, despite the financial impact of over $1 billion in natural hazard events. The result was driven by underwriting discipline in a highly competitive market and a focus on claims and expense management. Improvements in long-tail claims management resulted in reserve releases of $427 million. Personal Insurance gross written premium (GWP) reduced by 2.5%, however customer unit growth was positive over the year as reinvestment of efficiency benefits improved customer retention. Commercial Insurance GWP grew 2.2% impacted by a reduction in Workers’ Compensation GWP in Western Australia. Compulsory Third Party (CTP) GWP grew by 5.9% with Suncorp leveraging the scale of its national CTP model to enter new markets. New Zealand GWP was up 5.7% (in A$ terms) due to strong growth in personal lines and positive customer unit growth in commercial lines. Reported ITR was 11.4% and the UITR increased to 14.7%. Simplification continues to deliver increased efficiency across both claims and support functions. Customers and shareholders are also benefiting from improved claims management following vertical integration initiatives such as SMART, SMARTplus and ACM Parts.
Suncorp Bank
The Bank delivered NPAT of $354 million, up 55.3%. This significant increase was achieved through an improved NIM and lower impairment charges. Home lending growth of 7.1% reflects the success of the Bank’s improved product offering while also maintaining conservative lending standards and focusing on the ‘below 80%’ loan to value ratio (LVR) market.
The NIM improved by 13 bps to 1.85%, benefiting from improvements in funding composition and favourable term deposit pricing.
Suncorp Life
Suncorp Life’s NPAT was $125 million, up 35.9%. Underlying profit was $113 million, up 34.5%. Underlying profit was above target, benefiting from positive claims and lapse experience and a focus on cost control with operating expenses down 7.3%. The NPAT benefited from a reduction in long-term interest rates which will unwind when rates increase.
Annual in-force premium increased to $970 million, with total in-force premiums up 6.5%. Suncorp Life continues to focus on value over volume and this is reflected in the value of one year’s sales (VOYS) which has more than doubled to $25 million.
Reinsurance update and resolution of the 2011 reinsurance issue
At the half-year results announcement on 11 February 2015, Suncorp advised that there was a potential issue relating to recoveries under the 2011 catastrophe reinsurance program. This potential issue had a maximum financial impact of $118 million after tax. Suncorp has now largely finalised commercial negotiations with all stakeholders, the effect of which reduced the impact of this issue to less than $20 million after tax. Negotiated arrangements include one-off ex-gratia payments and other recovery payments from key reinsurance partners. In consideration for this support, Suncorp has provided, and in some cases increased, participation for some reinsurers on key reinsurance protections including adverse development cover and multi-year catastrophe covers. While unrelated to the claims recovery, these support items benefit Suncorp in 2015 and have also contributed to mitigating the impact of this issue. The 2016 financial year catastrophe program and the additional multi-year covers have been purchased on favourable terms relative to the 2015 reinsurance program.
