In the first week of August 2022, the Suncorp Group Ltd (ASX: SUN) share price actually went up by 4%. But, since then, Suncorp shares have fallen by 6.7% at the time of writing. It's down 3% for the month.
It has been a much more consistent performance by the S&P/ASX 200 Index (ASX: XJO). Before today's trading, the ASX 200 had risen by 0.8%.
What happened after the first week in August?
Suncorp reported its result for the 12 months to 30 June 2022. The half-year and full-year results are one of the few times in the year that investors get to react to the actual performance of the business and commentary about the outlook, rather than guessing how things are going (or going to go) for the business.
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FY22 earnings recap
The insurance company reported that the gross written premium (excluding emergency services levies and portfolio exits) of the Australian insurance business rose 9.2%.
Suncorp New Zealand saw the gross written premium jump by 14.1%.
The banking division of Suncorp experienced 9% home lending growth.
Despite that reported growth, the insurance giant told investors that its group net profit after tax (NPAT) sank 34.1% to $681 million because of volatile investment markets and elevated natural hazard costs.
Why is an insurance business affected by investment markets? When insurance companies receive an insurance premium, they usually invest that money into a pool of investments such as shares. That pool of investment money hopefully grows and the insurer can use some of it to pay people or businesses when they make a claim. When asset values fall, it hurts the profit of insurers. But, when asset values go up it can help it.
The biggest hit to Suncorp's profit was the Australian insurance NPAT sinking 68.2% to $174 million. It said there was an "intense" natural hazard season and the net investment loss was $133 million.
Outlook commentary
Suncorp also said that the operating environment remains "challenging". It's possible that the outlook has dampened market sentiment about the Suncorp share price.
It noted that extensive modelling of catastrophe risk indicated only a minor upward trend of the frequency of natural hazard related events, but more recent years have been hurt by La Nina related weather patterns. Suncorp's current modelling suggests a third consecutive La Nina year.
It's expecting gross written premium growth as it responds to increased input costs. Suncorp increased its natural hazard allowance in FY23 to $1.16 billion. The company also said that it maintains its commitment to a dividend payout ratio of between 60% to 80%.
Suncorp is also in the process of trying to sell its banking division to Australia and New Zealand Banking Group Ltd (ASX: ANZ) for $4.9 billion.
Is the Suncorp share price a buy?
Brokers are largely positive on the business.
For example, UBS rates it as a buy, with a price target of $14.80. This implies a possible rise of more than 30% over the next year. It thinks that Suncorp can grow profit in the shorter term, despite the challenges.
Credit Suisse also thinks that Suncorp is a buy, with a price target of $13.70. That suggests a possible rise of more than 20%. It thinks that insurance premium rises will help make up for the increase in costs.
