Suncorp's NZ insurance posts 57% drop in annual profit on mounting disaster claims

Suncorp NZ's reinsurance and recoveries soared 331% to $1.1 billion.

Suncorp Group's New Zealand insurance business posted a 57 percent drop in annual profit as a series of natural disasters, including last year's Kaikoura earthquake, pushed the value of claims beyond the firm's reinsurance claims.

Net profit dropped to $87 million in the 12 months ended June 30 from $200 million a year earlier, due largely to a 20 percent jump in net incurred claims to $735 million, Suncorp said in a statement to the ASX. Total claims more than doubled to $1.9 billion in the year as the cost of covering the Kaikoura quake, widespread flooding in the North Island, and Cyclone Debbie added to a rise in motor vehicle claims and several large commercial claims.

Suncorp NZ's reinsurance and recoveries soared 331 percent to $1.1 billion, although net costs for natural hazards of $56 million was $21 million above the insurer's allowance, which it said "significantly impacted" the general insurance arm, being Vero New Zealand and the AA Insurance joint venture.

Still, gross written premiums climbed 9.5 percent to $1.35 billion, led by an 11 percent gain in home GWP to $473 million and a 7.3 percent increase in motor GWP to $340 million. Commercial business rose 4.4 percent to $571 million as international providers compete more aggressively on price, Suncorp said. The general unit's insurance trading profit dropped 69 percent to $55 million.

"The general insurance business continued to outperform the New Zealand market in relation to GWP growth, and we're making good progress settling claims from the Kaikoura earthquake and the Edgecumbe floods," Suncorp NZ chief executive Paul Smeaton said in a statement.

Suncorp's attempt to grab more New Zealand market share with the acquisition of NZX-listed general insurer Tower was rejected by the Commerce Commission last week, and reasons released this week showed the antitrust regulator saw the remaining rival insurers as too small to effectively constrain the merged entity. Vero offered to pay $1.40 a share after building up a 19.99 percent stake, but the shares have since dropped to 93 cents.

Smeaton said the insurer is still reviewing the decision before commenting, although the accounts show due diligence for the deal contributed to a 4.9 percent increase in operating costs to $387 million, while its investment income more than halved to $10 million due largely to a $9 million fair value loss of which $3 million came from the Tower shareholding.

Suncorp's New Zealand life insurance business Asteron Life and AA Life joint venture posted flat underlying earnings of $42 million, which excludes market adjustments. Including those adjustments, profit fell 25 percent to $40 million due to actuarial revaluations on policy liabilities.

The Brisbane-based group's profit rose 3.6 percent to A$1.08 billion in the year and the board declared a fully franked final dividend of 40 Australian cents per share, taking the annual return to 73 cents, an increase of 5 cents per share from 2016.

The ASX-listed shares last traded at A$14.50, and have gained 7.3 percent so far this year.