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Suncorp Group shares higher despite being hit with 24,800 claims from the Sydney hailstorm

The Suncorp Group Ltd (ASX: SUN) share price has pushed higher on Thursday following the release of its natural hazard update.

In afternoon trade the insurance and banking giant’s shares are up 2% to $12.62.

What was in the update?

Today’s update revealed the expected financial impact of natural hazard events for the six-month period to December 31 2018.

According to the release, the significant weather system which resulted in hailstorms across the Sydney, Central Coast, and South East Queensland regions last month has already led to 24,800 claims being made.

Management expects this number to rise in the coming weeks as customers return from holidays.

Total claims costs are now expected to exceed the maximum first event retention within Suncorp’s reinsurance program, which limits the financial impact of this event to $250 million pre-tax.

Management’s current estimate for natural hazard costs across Australia and New Zealand for the six-month period, subject to final actuarial and audit review, is $600 million to $610 million.

This compares to its natural hazard allowance of $360 million, putting the company $240 million to $250 million above the allowance.

In addition to this, management reminded the market that its reinsurance program is further supported by an additional natural hazard aggregate protection cover.

This cover provides $300 million of cover for events greater than $10 million once aggregate costs have reached $504 million. As of December 31, it is estimated that $415 million of the deductible has been eroded.

Should you invest?

Given the unpredictable nature of natural events like these, I’m not a fan of investing in insurance companies like Suncorp and peers Insurance Australia Group Ltd (ASX: IAG) and QBE Insurance Group Ltd (ASX: QBE).

While Suncorp may have a comprehensive reinsurance program that limits the damage of events like this, it is still going to meaningfully hit its profits in FY 2019. That’s a major dent and there’s still six months to go until the end of its financial year.

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 Scott Phillips.

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