The Suncorp Group Ltd (ASX: SUN) share price could be on the move on Tuesday after the insurance and banking giant released its half year results.
How did Suncorp perform in the first half?
In the first half of FY 2020, Suncorp delivered group net profit after tax of $642 million, which was up 156.8% on the prior corresponding period. This was due largely to the $293 million after-tax profit on sale of the Capital SMART and ACM Parts businesses.
Profit from its continuing operations came in at $396 million, down 6.2% on the prior corresponding period.
At the end of the half the company's General Insurance underlying insurance trading ratio was 9.3%. This was impacted by the increase in the natural hazard allowance, an increase in reinsurance costs, and the impact of lower yields and higher regulatory costs.
Suncorp's group net reserve releases were $58 million, down 66.3% on the same period last year. This reflects lower releases from the Personal Injury portfolio, one-off strains in the Commercial Australia book, and natural volatility in the short-tail book.
This led to Suncorp declaring a fully franked interim dividend of 26 cents per share.
Segment performance.
The Insurance (Australia) business posted a 3.9% decline in profit after tax to $123 million. Although the business recorded a 1.8% increase in General Insurance gross written premium (GWP) to $4.18 billion, its net earned premium fell slightly to $3.68 billion. It also experienced a small increase in operating expenses due to higher regulatory costs.
The Banking & Wealth business recorded a 6.6% decline in profit after tax to $171 million. Although the business benefitted from a stable net interest margin and low credit impairment losses, it was offset by a contraction in lending growth, one-off fee impacts, and elevated operating expenses
Across the pond, the New Zealand business was a disappointing performer. It recorded a 10% decline in profit after tax to $108 million. This was despite a 5.4% increase in GWP to $876 million. Management advised that the result demonstrates a return to normalised natural hazard experience following the benign conditions in the prior corresponding period.
Outlook.
Suncorp's CEO, Steve Johnston, appears optimistic on the future.
He said: "Each of our core businesses are positioned well in their respective markets and are operationally strong. We will continue to build our portfolio of brands while focusing on adding value through our digital platforms and shaping the business to better drive operational excellence and efficiency."
He advised that Suncorp's reinsurance program, including the $200 million aggregate stop loss cover acquired for FY 2020, provides strong protection for its earnings this year. This cover is aiming to limit the full year natural hazard costs to the $820 million allowance. Group reserve releases are expected to be above 1.5% of NEP.
The company is also targeting at least flat unit growth in Australian Consumer Insurance, as well as impairment losses at the bottom end of the range of 5 -15 bps of gross loans and advances.
