Suncorp Group Ltd (ASX: SUN) shares are having a poor session on Wednesday.
In afternoon trade, the insurer's shares are down 5% to $15.12.
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Why are Suncorp shares sinking?
Investors have been selling the company's shares today after it released its half-year results.
The market appears disappointed after Suncorp reported a sharp drop in profit for the six months ended 31 December, weighed down by elevated natural hazard costs and weaker investment returns.
According to the release, Suncorp posted a net profit after tax of $263 million for the half, down significantly from $1.1 billion in the prior corresponding period. Cash earnings came in at $270 million, compared to $828 million a year ago.
The key culprit was natural disasters.
Natural hazard costs surge
Management revealed that it dealt with nine declared natural hazard events during the half, resulting in more than 71,000 claims at a net cost of around $1.3 billion.
Natural hazard costs were $453 million above the half-year allowance, driven largely by destructive thunderstorms and widespread hailstorms across Australia's east coast, particularly in south-east Queensland.
Net incurred claims jumped 23.4% to $5.48 billion, reflecting both the severe weather events and ongoing claims inflation in parts of the portfolio.
The key Consumer Insurance division swung to an insurance trading loss of $137 million, compared to a $509 million profit in the prior period, largely due to the elevated natural hazard experience.
Suncorp's CEO, Steve Johnston, said:
While Suncorp's 1H26 reported profits and shareholder returns have been challenged by an elevated level of natural hazard costs and lower investment returns over the half, our underlying business remains resilient as we continue to deliver on our strategic imperatives and drive good momentum leading into the second half of the financial year.
Investment returns and margins
Suncorp also revealed that its net investment income fell to $259 million from $374 million a year ago. It was impacted by negative mark-to-market movements from higher yields.
Despite this, underlying margins held up relatively well. The underlying insurance trading ratio (UITR) came in at 11.7%, towards the top half of the group's 10% to 12% target range.
Gross written premium increased 2.7% to $7.69 billion, supported by strong growth in the Consumer portfolio, particularly in Motor and Home.
Capital and dividend
On a more positive note, Suncorp maintained a strong capital position, with Common Equity Tier 1 capital sitting $700 million above the midpoint of its target range.
The board declared a fully franked interim dividend of 17 cents per share, representing 68% of cash earnings.
The company also completed $168 million of its on-market share buy-back program during the half and continues to target around $400 million in buy-backs over FY26.
Outlook
Looking ahead, management expects gross written premium growth to be around the bottom of the mid-single digit range, given current market conditions in Commercial insurance.
The underlying insurance trading ratio is expected to remain in the top half of the 10% to 12% range, supported by pricing momentum in Consumer and Commercial & Personal Injury portfolios.
