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Why the Suncorp Group Ltd share price tumbled lower today

The market may be pushing higher again today, but unfortunately the same cannot be said for the Suncorp Group Ltd (ASX: SUN) share price.

In morning trade the insurance company’s shares are down over 1% to $13.72.

Why are its shares lower today?

This morning Suncorp provided the market with a natural disasters update for the six month period ending December 31.

According to the update, Suncorp’s total natural hazard claim costs from both Australia and New Zealand for the six months is currently estimated to be in the range $406 million to $416 million. This is $60 million to $70 million above its allowance for the period.

The driver of this has largely been a hailstorm in Melbourne on December 19. Approximately 21,000 claims are expected to be made across its AAMI, GIO, Suncorp, Apia, Shannons and Bingle insurance brands.

Management has estimated that the financial impact of the hailstorm event to be between $160 million and $170 million, which equates to an average claim of $7,600 to $8,100.

The second-half allowance for natural hazards is $346 million.

The shares of insurance peers Insurance Australia Group Ltd (ASX: IAG) and QBE Insurance Group Ltd (ASX: QBE) have also fallen slightly today on the news.

What now?

According to the release, Suncorp remains well protected against further natural hazard events. And in addition to the main catastrophe program, the insurer has Natural Hazard Aggregate Protection in place for the 2018 financial year.

This provides $300 million of cover once the retained portion of natural hazard events greater than $10 million exceeds a total of $475 million.

So I wouldn’t necessarily panic over this update. Instead, investors may want to consider the decline as a buying opportunity. I think Suncorp is an attractive option for income investors thanks to its generous dividend and the improvements its new operating model is delivering.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Insurance Australia Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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