After seven natural catastrophes across Australia and NZ in 1H20 and three subsequent Australian events in January, Suncorp group CEO Steve Johnson has urged governments, communities and the industry to work together to tackle climate change effects.
During 1H20, the group received 45, 479 claims from the seven natural catastrophes and so far, had completed 90% of bush fire assessments.
Before presenting Suncorp’s 1H20 results, Johnson said: “We have just witnessed an unprecedented start to the storm and bushfire season and are again reminded of the importance of community resilience and mitigation.
“As natural disaster become more frequent and severe, it’s more important than ever for governments, communities and insurers to work together to address the impact of our climate change.”
He said it was any government’s “fundamental obligation” to protect its citizens and ensure communities were resilient and safe. “Against a scorecard of lives lost, properties destroyed and saved and communities torn apart, it continues to be abundantly clear that more needs to be done.”
Johnson said Suncorp had been arguing for a national response to improve the robustness of private infrastructure. “We’ve been arguing it’s wiser to mitigate risk than pay out the substantial and increasing cost of repair and rebuild. We know that 97% of disaster funding is spent on repairs and only 3% … on prevention.
“Let’s not allow the passage of time to distract us from acting on an issue that has, for too long, been placed in the too hard basket. We believe it’s now time for a well-funded, multi-year resilience building program.
As part of its response to natural catastrophes, Suncorp aims to assume an advocacy role to push for increased support from “all levels of government” to build resilience initiatives and incentivise natural disaster mitigation in vulnerable communities.
Natural hazard costs $109m above allowance
Suncorp CFO Jeremy Robson reported overall natural hazard costs in the half year totalling $519m, $109m above allowance. Expected net costs of events from January 1, including VIC/NSW/TAS bushfires, south-east Australia’s hail and south-east Qld/NSW’s rain storms, was $155m.
It was still early to quantify the gross costs of the January events, but Suncorp expected them to be capped at $300m
Suncorp’s reinsurance program, including the $200m aggregate stop loss cover acquired for FY20, provided “strong protection” for earnings and was aimed at limiting FY20 natural hazard costs to the $820m allowance. Net reserve releases were down to $58m from $172m.
Suncorp’s interim report showed an overall net profit after tax (NPAT) of $642m – up from $250m, including $294m profit from sale of Capital SMART and ACM Parts to AMA Group. Profit from continued operations were down 6.2% to $396m.
Consolidated revenue was down 6%, to $7.05bn, of which insurance premium income contributed $5.08m – up 1.5%.
Australian insurance operations contributed $123m to NPAT, down 3.9%, struck on $4.1bn in gross written premium (GWP), up 1.9%.
The group returned to growth in Australian consumer insurance, recording 3.1% GWP growth in home and motor; 2.5%, commercial; and 20%, workers’ compensation and other portfolios. That was offset by an 8.9% decline in CTP revenue driven by continued effects from scheme reforms and market pricing dynamics. Loss ratio was 77.8% up 40bp.
Contingent liabilities from regulatory reform
In the half year, Suncorp recorded a $71m increase in regulatory project costs. The interim report said the cost of contingent liabilities from regulatory reform, customer remediation and class action remained “uncertain” for FY20.
Reviews and inquiries from regulators “might result in investigation costs, administrative costs, legal costs and compensation and/or remediation payments (including interest) or fines”. Moreover, Suncorp’s internal reviews of its regulatory compliance, which had resulted in disclosures to the regulators, might “result in similar costs”.
During the half year, several regulators, including ASIC, APRA, AUSTRAC and the ATO had conducted reviews and enquiries with Suncorp, which identified and disclosed several non-compliance instances.
Instances included breaches reported to ASIC in relation to given financial advice, product pricing, failure to provide disclosure documents, fees for no service and other matters.
In November 2019, the Senate had referred an inquiry to the Economic Reference Committee into the causes, extent and effects of unlawful underpayment of employees’ remuneration.
The interim report said it had initiated an internal review of its processes but any potential financial effect could not be “reliably estimated at this time”.
The group was responding to the financial services royal commission’s (FSRC) 78 policy recommendations with a “comprehensive program of work” to implement the reforms.
The government response to the FSRC continued to evolve and Suncorp would monitor and respond to any additional legislation and regulatory activity that might arise.
The group also faced class action filed against Suncorp Portfolio Services Ltd (SPSL). The financial services royal commissioner had referred two specific SPSL matters to regulators, ie use of a tax surplus to fund administration costs and the transfer timing of the accrued default amounts.
Provisions had been recognised for the investigation costs but the result and total costs remained uncertain.
“It remains uncertain whether any other inquiries or claims may arise following the case studies and observations in the (FSRC) report,” the interim report said.
The group said it was targeting “at least” flat unit growth in Australian consumer insurance for FY20. The FY20 group reserve release program was expected to be above 1.5% of net earned premium.