Suncorp NZ stars with 76% profit growth as group earnings plunge

Premium growth and fewer claims helped boost local profit 76 per cent. Photo / Getty Images

Suncorp Group's New Zealand unit was a standout for the Australasian bank and insurer, as premium growth and fewer claims helped boost local profit 76 per cent while earnings plummeted across the Tasman.

The Brisbane-based financial services firm is a major Kiwi player in general and life insurance, with a suite of New Zealand brands including Vero Insurance, the AA Insurance joint venture, Asteron Life and AA Life joint venture.

Those combined businesses delivered a net profit of $261 million in the 12 months ended June 30, up from $148m a year earlier. Suncorp's group profit sank 84 per cent to A$175m ($181.1m), which included a A$910m loss on the sale the Australian life insurance unit and weaker earnings across the Australian general insurance and banking divisions.

Within the local performance, New Zealand general insurance profit almost doubled to $217m, with gross written premium up 8.4 per cent at $1.67 billion and net incurred claims down 5.7 per cent at $697m.

"The NZ result was a stand out with premium growth, claims improvements and benign natural hazards contributing to a record profit," acting group chief executive Steve Johnston said.

The higher local gross written premium - GWP - was evenly spread across all segments, with motor GWP growth achieved largely through corporate partners and direct selling, home GWP gains from higher prices, and commercial GWP driven largely by strong performances in commercial property and liability.

At the same time, favourable weather meant there were fewer natural hazard claims than in the previous couple of years.

Suncorp limited the amount it had to pay in motor claims through new policy terms and conditions and keeping a lid on costs.

Suncorp's New Zealand life insurance unit delivered a more modest 13 per cent increase in profit to $44m, with a 3.9 per cent increase in in-force premium to $267m, saying its retention and new business beat the rest of the market.

The local insurer had expected gross written premium growth to slow in the June year because it raised prices in response to higher reinsurance costs in the June 2018 year. It said it expects lower single-digit GWP growth in the 2020 financial year and raised its allowance for major natural hazard events.

Suncorp's New Zealand general division ramped up commission payments in the year as a consequence of the rapid premium growth and increased profit sharing. Acquisition costs of $322m compared to $282m a year earlier, and drove a 9.9 per cent increase in operating costs to $444m.

Soft commissions are effectively being banned by the government after a joint Reserve Bank-Financial Markets Authority inquiry found the life insurance sector was vulnerable to misconduct and often ignored whether products were suitable for customers. The industry was also too slow to change.

Suncorp noted in its annual report that New Zealand general insurers have to report to their boards on the same matters by the end of October.

In the upcoming year, the trans-Tasman group said it will focus on aligning the business to improve its core divisions, adapt to a new regulatory environment, and extend its digital strategy.

The sale of the Australian life business was part of that wider shift, and underpinned a proposed 39 Australian cents per share capital return and associated share consolidation. That's on top of a special dividend paid in May of 8 cents per share.

Suncorp's board declared a final dividend of 44 cents, taking the annual ordinary payout to 70 cents.

The ASX-listed shares closed at A$12.71 yesterday, up 1.2 per cent so far this year.