The Suncorp Group Ltd (ASX: SUN) share price will be on watch today after the banking and insurance giant released a trading update.
How is Suncorp performing?
This morning Suncorp released a comprehensive update on how the coronavirus pandemic is impacting its businesses.
According to the release, the significant market volatility seen over recent months has resulted in $205 million mark-to-market losses on its investments portfolio to March 31.
It would have been worse had the company not had hedging strategies put in place.
In addition to this, the company's Insurance business has been impacted both positively and negatively by the pandemic. It has been negatively impacted by landlord loss of rent claims, but positively impacted by motor claims frequency.
In respect to landlord claims, Suncorp expects there to be an increase in claims frequency and severity for loss of rent claims.
However, it advised that the precise impact is hard to predict given the legislative responses at Federal and State levels. The company is hopeful that many landlords and tenants will reach amicable arrangements, which would not trigger their policies.
Whereas with motor claims, the company notes that the introduction of restrictions in March has led to a reduction in claims lodgements in the consumer motor portfolio. This dynamic is also evident in commercial motor, albeit to a lesser extent.
However, with restrictions easing, it has already observed a discernible rise in lodgements over the last two weeks.
Finally, the company is expecting a modest drag on its gross written premium (GWP) growth in FY 2020. This is a result of take-up of hardship relief options, and the weaker operating environment.
Suncorp Bank.
In response to the pandemic, Suncorp Bank has included a $133 million management overlay within the third quarter collective provision. This also includes appropriate amounts for its exposure to commercial segments.
This takes the total collective provision balance to $234 million, more than double the equivalent number in the first half.
Management advised that this is underpinned by its view of unemployment reaching 11.5% and an 11% reduction in house prices, with property prices remaining depressed for a prolonged period of time.
Positively, management notes that the company is currently well capitalised, with capital levels in excess of what is required to cover the expected deterioration due to the pandemic.
What about dividends?
Suncorp advised that it will consider any final dividend in its normal year end process.
Though, consistent with maintaining a robust balance sheet, management and the board will adopt a conservative mindset when making decisions about any final dividend. This will involve consideration of its capital position, the outlook for the economy, and APRA's guidance on dividends.
