STRONG FISCAL POSITION CAN BE TAKEN TO THE BANK

Suncorp Group (SUN) has proven that its strong financial position can literally be taken to the bank.

Group net profit after tax (NPAT) totalled $389 million, up 174.4 per cent from the prior corresponding period while revenue rose slightly to $8.1 billion.

Suncorp has increased profit despite market uncertainty, natural disasters and rising reinsurance costs.

Chairman Ziggy Switkowski revealed that SUN achieved the result despite a weak domestic economy, volatile investment markets, natural hazards and climbing reinsurance costs.

“Suncorp’s leadership in product innovation and efficient claims management has enabled local and regional communities to rebuild and return to productive capacity in a shorter timeframe than would otherwise be the case,” he says.

“Importantly, private assets have been replaced and livelihoods restored withoutrecourse to public funds.”

Suncorp improved underlying margins, top-line growth across its businesses, cost control and its balance sheet.

“The group’s strong financial performance in challenging markets has enabled us to pay an increased half-year dividend of 20 cents per share, fully franked.”

General insurance NPAT decreased 43.6 per cent to $162 million in the first-half of fiscal 2012 compared to the previous period. The Melbourne hailstorm, increased reinsurance costs, reduced reserve releases and falling interest rates were blamed.

However, CEO Patrick Snowball (pictured) believes the overall figures still show strength, resilience and progress in transforming and simplifying the business after the impacts of last years flood’s and cyclones.

“Although external challenges mean that our first-half profit is still not what we and our shareholders know this business is capable of, I am proud of what Suncorp has achieved over the last six months and am confident the transformation of our group is on track,” he says.

SUN’s ‘building blocks’ program helped shield the group against the worst impacts of adverse weather and economic conditions, according to Snowball.

“Our building blocks programs, which included the move to single insurance pricing and claims systems, helped the insurance business respond to the worst calendar year for natural hazards claims on record,” he says.

“The group’s surplus capital position means it is well placed should there be any further deterioration in the global economy.”

General insurance’s NPAT of $162 million for the period was impacted by fluctuating interest rates, increased reinsurance costs and natural disaster claims that exceeded allowances by $149 million.

The business increased underlying margins through improved risk selection and pricing and a focus on cost control. The underlying inventory turnover ratio for the half-year was 11.1 per cent. Short-tail insurance classes grew with home up 15.9 per cent and motor rising 1.7 per cent, while the commercial insurance gross written premium jumped by 9.3 per cent.

The core bank generated $156 million in NPAT following increased direct footprint and broker flows driven by customers seeking an alternative to the major banks.

Lending growth rebounded after the Queensland floods and cyclones with above-system volumes expected to continue into 2012. However, its net interest margin declined slightly to 1.91 per cent during the half-year due to intense competition for retail deposits. Deposit-toloan ratios were at the top-end of the 60 to 70 per cent target range.

Suncorp Life’s NPAT was $133 million while underlying profit after tax amounted to $69 million for the period. Direct sales from the Individual Life Risk business were up 11 per cent to 51 million in the half-year.

SUN will pay a fully franked interim dividend of 20 cents a share. Basic cash earnings per share were 34.13 cents.

Switkowski says the board and management will ensure the group is wellplaced to deal with ongoing regulatory and economic uncertainty.

“While capital levels remain well above the group’s targets, we have decided to maintain these surpluses given ongoing global economic uncertainty. We will review this position at the conclusion of the fullyear,” he says.

“Our priority is to specify capital targets that appropriately reflect the evolving regulatory environment and the needs of our businesses.”

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TOP PUBLICLY LISTED COMPANY
1.
Suncorp Group (SUN)
CEO: Patrick Snowball
Market Cap: $10.305b
Revenue ’11: $19b
Profit ’11: $453m
Staff: 15,500 (AUS/NZ)
Established: 1916 (as State Accident Insurance Office)