Insurance giant Suncorp Group Ltd (ASX: SUN) has seen its shares edge higher in morning trade after the release of a solid but unspectacular half-year report.
Highlights from the half include:
- Revenue from ordinary activities increased 10.8% to $8,638 million over the prior corresponding period.
- Cash earnings of $584 million, up 5% on the first half of FY 2016.
- Half-year Cash Return on Equity increased to 8.5% from 8.3%.
- Underlying Insurance Trading Ratio (ITR) of 11%, compared to 10.1% in the first half of FY 2016.
- Fully franked interim dividend of 33 cents per share, compared to 30 cents per share a year earlier.
I think today's result is an indication that the One Suncorp strategy is working and particularly in its General Insurance segment.
Thanks to a combination of increasing gross written premiums and lower net incurred claims, half-year net profit after tax in the segment increased 42.5% to $369 million.
A key driver in its gross written premium increase was its compulsory third party (CTP) insurance product. Half-year sales of CTP grew 27.3% to $722 million thanks to launching into South Australia and price increases in New South Wales.
Remediating Home and Motor claims cost issues was a top priority for Suncorp and it duly delivered during the half.
Whilst this improvement helped take the ITR from 10.1% to 11%, CEO Michael Cameron doesn't expect it to stop there. He's confident that the ITR is on a path to a strong 12%.
Elsewhere its Banking & Wealth business delivered half-year net profit after tax of $208 million, up slightly on the first half of FY 2016. It finished the half with a net interest margin of 1.78%, comfortably within the target range of 1.75% to 1.85%.
The only real disappointment was its New Zealand segment which saw net profit after tax fall 53.8% to $36 million. Whilst the segment's life insurance portfolio performed well, earthquakes in the country had a negative impact on its Home and Motor segment.
Is it a buy?
I feel confident that this result justifies my belief that Suncorp is a superior investment option to QBE Insurance Group Ltd (ASX: QBE) and Insurance Australia Group Ltd (ASX: IAG).
Not only is it the cheapest of the lot, but its dividend is easily the most lucrative. Following its half-year increase, Suncorp now provides a trailing fully franked 5.4% dividend. I think this and its turnaround strategy make it one of the best dividend shares on the ASX today.