Suncorp has backed its business and insurance model in the wake of an announcement made yesterday that could see profit margins impacted, as one executive sees the end of the soft cycle in commercial on the horizon.
The increased cost of settling claims, a record run of natural disasters and a weaker Australian dollar will all impact Suncorp’s business which led the company to issue a note to investors and the market yesterday which saw shares take a 9% dip.
Newly appointed CEO of the Group, Michael Cameron, took a conference call yesterday with investors to allay fears that this note signals a bad spell on the horizon for the insurer.
“I’ve been the CEO for around 10 weeks and I’ve been working with the team to get a much deeper understanding of all facets of the business and I’m pleased to say the group is in really good shape,” Cameron said.
“The individual businesses are prudently provisioned and they’ve also got conservative assumptions in those provisions. The major issue that we are dealing with is a combination of internal and external challenges in relation to managing the claims cost in the home portfolio.
“At the start of the financial year we expected some claims inflation following last year’s weather events, particularly given the shortage of builders that was occurring at that stage, and also the high level of construction volumes in the market generally.
“We also expected that the claims costs would return to normal levels after the first quarter but that hasn’t happened. This combined with an increase in parts costs in motor, increased frequency in CTP and increased large commercial losses, will have a material impact on the underlying ITR in the first half.”
CEO of Commercial Insurance at the Group, Anthony Day, said that while the commercial space remains competitive there is light at the end of the tunnel.
“Commercial market pricing remains competitive but we are seeing price reductions decrease at the top end, which for me indicates that we are approaching the bottom of the cycle,” Day said.
“Pricing at the SME level remains stable and, overall, we are growing across commercial insurance.”
Day noted that, whilst the commercial business has performed well, the portfolio has some work to do with its claims practices as some price increases may also be on the way.
“We have had some patchy claims experience over the last six months,” Day continued.
“Our portfolio managers have put in place plans to address. These include price increases in specific sectors and also corrective claims management techniques to address the claims increases.”
Cameron told investors on the call who questioned the model of the general insurance business that the company is well placed for future growth.
“The model certainly isn’t broken,” Cameron said.
“I think strategically I am very comfortable; structurally I am very comfortable, with where we are positioned.
“I think we are well placed to continue to grow and to compete.
“Today, we are talking about a single issue in relation to claims which we now have a program in place to rectify and we are confident that we are going to be able to deliver that so there is no reason why there needs to be any revision at all to our approach to general insurance.
“We’ve got a good team and a good team and a good outlook for the future.”
