The Suncorp Group Ltd (ASX: SUN) share price is down 4% after the ASX 200 (ASX: XJO) insurer announced its FY22 result.
Suncorp operates an insurance business which includes brands like AAMI, Bingle and Apia.
Suncorp’s FY22 result
Here are some of the highlights from the result:
- Insurance Australia gross written premium (GWP) up 9.2%
- Suncorp New Zealand GWP up 14.1%
- Suncorp home lending up 9%
- Insurance Australia net profit down 6.2% to $174 million
- Banking net profit down 12.2% to $368 million
- New Zealand net profit down 22.5% to $155 million
- Total cash earnings down 36.7% to $673 million
- Group net profit after tax down 34.1% to $681 million
Suncorp explained that there was an intense natural hazard season and volatile financial markets impacted net profit after tax.
Australia Insurance
In Australia, the insurance trading result showed a 28% decline to $464 million.
In Australia Insurance saw a net investment loss of $133 million which was affected by “significant market volatility”. The home portfolio grew GWP, reflecting price increases reflecting the ongoing pricing response to higher natural hazard and reinsurance costs. Motor increased 7.5%, reflecting underlying inflation and higher sums insured.
Suncorp Bank
The banking operations saw “strong’ volume growth, but this was offset by a higher level of spending on strategic investment, profit margin reduction and other impacts.
A bank’s net interest margin (NIM) describes how much profit a bank makes on its lending (the loan rate compared to the cost of using that money, like savings accounts). Suncorp said that its NIM dropped 14 basis points to 1.93% due to “ongoing competitive pressure, compression in fixed rate margins, higher fixed rate lending mix and increased liquid assets”.
Suncorp said that its result included a net impairment release of $14 million, reflecting a $15 million reduction in the collective provision for bad loans. However, the provision remains “prudently calibrated” at $180 million.
This division is going to be sold to Australia and New Zealand Banking Group Ltd (ASX: ANZ) for $4.9 billion.
Suncorp New Zealand
The business was impacted by “adverse investment market impacts and elevated natural hazard experience”.
GWP increased 14.1% drive by “strong growth” across all product classes, which included price increases.
Suncorp dividend
The board declared a final dividend of 17 cents per share, bringing the full year dividend to 40 cents per share.
That means the full year dividend payout ratio was 75% of cash earnings, which was at the top end of its target payout ratio of between 60% to 80%.
Outlook for the Suncorp share price
The insurer said that the operating environment remains “challenging”. Economic growth is forecast to slow in line with upward movements in interest rates and inflation, and supply chain issues.
Suncorp is expecting GWP growth in FY23, primarily driven by price increases.
It also affirmed its cost to income ratio target of around 50% by the end of FY23, as it experiences the benefits of increased growth and the strategic program. Associated strategic spending is expected to decrease.
Suncorp has increased its natural hazard allowance for FY23 to $1.16 billion, reflecting net exposure growth in the underlying portfolio, recent natural hazard experience and changes to the reinsurance program in FY23.
While NIMs and insurance prices may increase, I’m not looking buy shares. Insurers seem to have a tough year every time investment markets fall and each year there are painful storms. I think there are better ASX dividend shares as opportunities which can be more consistent.
