SUNCORP Group (ASX:SUN) has taken a 16 per cent hit to its half-year profits to $530 million, after recording more natural hazard insurance claims than expected.
The Brisbane-based financial institution recorded a profit of $631 million in the previous period, which was impacted by a decline in its general insurance business from $419 million in HY15 to $297 million.
The insurance business line's return on equity target took a battering last financial year, after responding to claims relating to Cyclone Marcia and severe storm damage.
Suncorp Group CEO Michael Cameron (pictured) says the bank's key objective is to build stability while exploring growth opportunities moving forward.
It's the first time Cameron has announced the group's half year results, after replacing Patrick Snowball last year.
"We recognise the global uncertainty created by financial markets, climate change and other factors such as cyber security," Cameron says.
"My number one priority has been resolving these issues. We have moved quickly with an intervention strategy designed to restore performance.
"Our target is to deliver lower working claim costs, which together with other initiatives, will drive a higher underlying ITR (insurance trading ratio) for the full year."
Banking profit increased 10 per cent to $194 million compared to the previous half year, bolstered by strong credit quality experience and sustainable lending in a competitive market.
The Suncorp Life business was down 38 per cent to $53 million, with actual returns being lower than longer-term assumptions following investment market volatility.
With 9 million customers, Cameron says Suncorp Group's strategy will be to build on those relationships rather than rely on increasing that number.
"Our brands will be rationalised and we will ensure that we realise the project benefits from past and current investments including the $170 million optimisation benefits expected in 2018," he says.
"These benefits will both flow to shareholders and also provide re-investment opportunities. These initiatives will be carefully planned and executed to avoid unintended consequences to the smooth operation of the business.
"This is an exciting time for Suncorp, creating value for our customers, not from our customers."
The board has declared an interim dividend of 30 cents per share to be paid on April 1.
Suncorp Group chairman Ziggy Switkowski says the dividend reflects positive earnings contribution across the group's diversified insurance and banking businesses.
"The half year net profit after tax of $530 million demonstrates the benefits of a financial services conglomerate with the Banking and Life operations delivering improved underlying profits at a time when General Insurance earnings have been impacted by external headwinds and operational issues," Switkowski says.
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