Suncorp (SUN) is a current holding within the ASX blue chip portfolio, and this morning has issued a new preliminary trading update for 1H2024 with shares -0.21% lower today compared to a 0.3% gain for the ASX200 and 0.54% lift for the financials sector.
The preliminary update has presented a promising outlook despite the impacts of recent weather events in North Queensland. The first half of 2024 (1H24) will be uplifted by positive top-line growth in the general insurance sector, with gross written premium growth surpassing initial forecasts.
For the 2024 financial year underlying margins are projected to align with the midpoint of the 10-12% range. This performance, particularly for the first half, falls at the lower end of the range but remains aligned with initial expectations.
Investment income for both insurance and shareholders’ funds, a crucial component of Suncorp’s financial stability, is set to be in line with previously communicated projections for both yield and mark-to-market aspects. The total investment income for the first half stands at $608 million, with $409 million coming from insurance and $199 million from shareholders’ funds.
The recent Tropical Cyclone Kirrily has resulted in over 500 claims, predominantly home-related, as of the 28th of January. This surge in claims is a testament to the challenges faced by insurers due to a recent uptick in natural disasters. Consequently, the cost of natural hazard events for 1H is anticipated to be $568 million, while the natural hazard allowance for FY24 is set at $1.36 billion.
Suncorp’s comprehensive reinsurance program offers a safety net against major events. The main catastrophe program’s maximum event retention is capped at $350 million for the first incident. Additional safeguards include dropdown aggregate protection for medium-sized events and a 30% quota share arrangement for the Queensland Home portfolio. All reinsurance covers retain their full limits as Suncorp heads into the second half of the financial year. In response to Cyclone Jasper late last year, Suncorp is set to recover approximately $14 million through the Federal government’s Cyclone Reinsurance Pool.
On the strategic front, following a rejection of a proposed merger of Suncorp Bank with ANZ in 2023 by the Australian Competition and Consumer Commission (ACCC), the decision is currently under appeal in Federal Court. The deal was widely regarded by the market as a win for both SUN and ANZ, so the ACCC’s rejection was a big disappointment. From the outset, ANZ and SUN expressed confidence after undoubtedly conducting extensive due diligence on the potential competitive implications of the deal, so both parties will be hoping to see a successful outcome on appeal.
As a reminder, SUN’s inclusion in the ASX Blue Chip portfolio is based on the trailing and forecasted 12-month gross dividend yield and its inclusion will depend on how the stock trades between now and the next rebalance date of February 1st, 2024.
