SUNCORP Group (SUN) posted NPAT of $223 million for the December half, a $364 million decrease in the prior corresponding period due to natural disasters in Australia and New Zealand and goodwill write downs following asset sales.
CEO Patrick Snowball (pictured) says the business has performed well on an underlying basis and is making good progress on its strategic building blocks and simplification programs.
“This result should be seen from two perspectives – firstly, the progress made with the key priorities identified 12 months ago and secondly, the impact of natural disasters on our first half profit,” he says.
“The company is stronger than it was last year, but the half-year results from our insurance and banking operations have been adversely impacted by claims costs as a result of two massive insurance events – the Queensland floods and Christchurch earthquake, as well as a string of smaller weather events.”
While disappointing, Snowball says the impact of these weather events would have been greater if it weren’t for the progress made with the overall group transformation and simplification program.
“The building blocks program is progressing ahead of schedule, with a single enterprise employee agreement approved and single systems for managing the group’s finances and customer base already in place,” he says.
“In general insurance, we’re at an advanced stage of transitioning of all our brands to single pricing and claims systems. Simplification has also been achieved through the successful implementation of the non-operating holding company structure approved by shareholders in December and sale of non-core Tyndall investments and New Zealand Guardian Trust businesses.”
Improvement in Suncorp’s core banking business and the continued run-off of the non-core portfolio had resulted in Standard and Poor’s credit rating for the company being upgraded to A+, with a stable outlook during the half.
The company is handling 40,000 claims as a result of natural hazard events in Queensland and Victoria and has engaged additional resources to assist in the processing and assessment of claims and the management of repair activity.
“The group’s comprehensive reinsurance program, including a property catastrophe treaty and aggregate cover has significantly limited the net financial costs associated with these events with $1.5 billion of reinsurance protection provided,” says Snowball.
“Given the frequency and severity of recent natural hazard events, the group has purchased additional reinsurance coverage for the full year. Following the purchase of this additional reinsurance cover, the group’s property catastrophe treaty will be restored to provide a similar level of coverage in place at the beginning of the financial year.”
As a consequence, the group has fully utilised $400 million of capacity under its aggregate reinsurance cover.
“We’ve estimated the potential financial impact of all weather events on the company’s balance sheet and the credit quality of the book and an allowance of $35 million has been included in the first half collective provision to cover potential impacts on credit quality,” says Snowball.
Chairman John Story has confirmed his intention to retire at the company’s AGM in October and advised that director Dr Ziggy Switkowski has been endorsed by the board to be the next chairman.
Top Companies 2011: Suncorp-Metway
CEO: Patrick Snowball
Market Cap: $10.8 billion
Revenue ’10: $12.48 billion
Profit ’10: $789 million
Staff: 16,000 (Australia and New Zealand)
Established: 1916 as state accident insurance office and merged with metway in 1996.
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