The Suncorp (ASX:SUN) Share Price Is Dropping, Is It Time To Buy?

The Suncorp Group Ltd (ASX: SUN) share price has dropped 3.8% since the announcement of the expected financial impact of recent weather events. Is now the time to buy?

Suncorp Group is a $17 billion insurance and banking company. It has its own brand of products but also operates under names like AAMI, GIO, Apia and Shannons.

The Damage To Suncorp’s Profit

Suncorp’s announcement covered the financial impact of natural hazard events for the six month period ending 31 December 2018. In particular, Suncorp highlighted the financial damage caused by hailstorms across NSW and QLD during December.

Suncorp received some 24,800 claims so far relating to the hailstorms and expects further claims to be made over the upcoming weeks as people return from holidays.

The company said that the total claims costs are now expected to exceed the maximum first event retention within Suncorp’s reinsurance program. This limits the financial impact of the event to $250 million pre-tax.

Suncorp has set up additional motor vehicle assessment and repair centres and an additional large scale hail assessment centre to assist with processing the large number of claims. Suncorp expects this to increase productivity by up to 900 cars per day.

However, current total estimates for Suncorp’s natural hazard costs in both Australia and New Zealand for the six months ending 31 December 2018 are $600 million to $610 million, this figure is $240 million to $250 million higher than Suncorp had budgeted for the period.

Are Suncorp Shares A Buy?

Insurance premiums are a fairly defensive way to generate revenue, most people consider it a necessity to have car and home insurances.

However, turning that revenue into profit can be a fickle game for any insurance company. The risk of profit growth being blown out of the water with claims from a natural event like the recent hailstorms is unpredictable.

The only thing attractive about Suncorp to me is the 6% fully franked dividend yield, but this alone is not enough of a reason to sway me towards buying shares.

I would prefer to go with companies with reliable profits and growth, such as the three outlined in our free report below.

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