Disasters take toll on Suncorp

MICHAEL EVANS February 23, 2012

CONSUMERS could face further increases to insurance premiums and interest rate rises on their home loans above official Reserve Bank moves this year, Suncorp Group boss Patrick Snowball says.

Announcing a 74 per cent increase in first-half profit to $389 million for the banking and insurance group, Mr Snowball described 2011 as ''the worst year that any of us can experience''.

''That worst year has been the global economy, natural hazards, the Melbourne [Christmas Day hail] storm and, of course, the domestic political situation probably not helping as well.''

Suncorp customers were hit with a 17 per cent rise in home insurance premiums last year as the company's general insurance division saw its profit slump after claims from the Christchurch earthquakes, Queensland floods and Melbourne's hailstorm. Commercial premiums rose 9 per cent and cars rose 3 per cent. The Melbourne hailstorm alone cost Suncorp $234 million.

Mr Snowball said the Suncorp result ''is still not what we, and our shareholders, know this business is capable of''. He cut margin guidance for the insurance business in the second half. Its shares fell 18¢ to $8.25.

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Deutsche Bank analyst Kieren Chidgey, who rates the stock as ''buy'', said the result was ''messy''.

''While net profit was 6 per cent above consensus, there was greater variability by division with general insurance lower and the bank/life higher,'' he said.

Gains in Suncorp's banking and life insurance divisions more than erased the impact on the general insurance division. The banking division posted a 42 per cent increase in first-half profit to $156 million, despite a drop in net margin to 1.91 per cent from 1.97 per cent. Suncorp blamed ''intense competition for retail deposits''.

Mr Snowball said the recent 10-basis-point hike to standard variable home loan interest rates independent of a Reserve Bank move was not enough to cover increased costs of funding.

''Certainly with global markets in the state they are we don't see any easing for pressure on cost of credit,'' he said. Suncorp would be forced to follow the lead of larger players in adjusting interest rates, he said.

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Asked if insurance premiums were likely to rise again this year, Mr Snowball said ''tension'' remained between insurers and reinsurers in negotiations.

''The cost of the Christchurch earthquake has increased across the whole industry since last renewal cycle,'' Mr Snowball said. ''Our price increases are really a factor of our increase cost of reinsurance. We've always said we have to pass them on.''

He said insurance affordability for consumers was an issue, saying the company was already seeing customers accepting higher excess levels on their cover to keep premiums down. Home insurance cover fell after the 17 per cent premium hike.

Return on equity ''remains too low'', he said.

Mr Snowball took a thinly veiled swipe at the federal government, saying ''a clear mandate and a clear set of policies'' were needed for the business and community to shape strategy.