As expected shares in Suncorp fell sharply yesterday as the market reacted to the near $1 billion capital raising, and the unexpected news of the terrible bushfires in Victoria.
Shares in the other major local general insurer, Insurance Australia Group, also fell on news of a rising death toll and destroyed homes and other property during yesterday. IAG shares fell 34c, or 9.5% to $3.24 and Suncorp was off $1.82 to $5.31, a drop of 25%. QBE shares were slightly firmer.
Both insurers said they were doing all they could for their customers in the region and would update the market when they had more information available. The focus was expediting claims and other assistance.
Suncorp also has the latest serious floods in North Queensland, around Ingham, to contend with and is helping customers in the flood stricken region.
The costs of the two events will be capped at $250 million under Suncorp’s recent change to its aggregate catastrophe reinsurance cover for multiple separate claims events costing over $10 million.
Analysts said IAG could face a similar total. Other, smaller, unlisted insurers would also face fire bills.
Suncorp said its changed reinsurance plan had been in place since last month and means Suncorp’s aggregate cover for multiple events stands at $250 million over the course of the year.
The driving force for the slump in Suncorp shares though was the impact of the discounted capital issue which has raised $855 million from big shareholders and a hoped for $100 million-plus from retail shareholders.
The Brisbane-based financier’s shares slumped $2.09, or 31% to a low of $4.60, 10c above the issue price of $4.50.
Suncorp told the market on Friday that will sell up to $1.3 billion in new shares and cut its dividend 20c a share from 54c after profits tumbled and bad debts soared in the banking arm.
Pre-tax banking earnings from fell by up to 68%, thanks to the jump in bad debts in property and in lending to companies like the insolvent Babcock & Brown.
The earnings lump in banking was as much the reason why CEO John Mulcahy is departing, once a replacement is found, as any other factor.
Suncorp’s insurance earnings fell by up to 47% as storms in Suncorp’s home state of Queensland led to an increase in claims. $73 million remains contested from a reinsurance contract the company has.
Should the claims be accepted (one reinsurer won’t accept the claim) then the profit from insurance will rise by $73 million.
In its statement yesterday Suncorp said:
"Suncorp today expressed its sympathy for those people who have been impacted by the fires in Victoria over the weekend, as well as ongoing flooding in areas of Far North Queensland.
"Chief executive John Mulcahy said the Group’s priority was on supporting its customers who have been affected by these natural disasters.
"On behalf of the Suncorp Group, I would like to offer my deepest sympathies to anyone who has been impacted by these devastating events in Victoria and Far North Queensland," he said. "Suncorp has deployed significant additional resources to both regions to assist customers and ensure the recovery process proceeds as quickly as possible."
Suncorp will update the market as soon as cost estimates for both events are available.
"Under its reinsurance arrangements, the Group’s catastrophe reinsurance cover applies to events costing greater than $150 million, as well as cover for multiple separate claims events (in excess of $10 million) costing more than $250 million in aggregate during the 2008/09 financial year.
"The Group provided a full update of its reinsurance position in its 5 February 2009 market update. It expects to be able to provide a further update by the time the Group presents its half year results on 24 February 2009."
And IAG said:
"Insurance Australia Group Limited (IAG) today said that following the devastating fires which have swept through Victoria over the weekend, IAG is not yet in a position to provide an estimate of the cost of the fires as customers continue to lodge claims.
"IAG Managing Director and CEO, Mr Michael Wilkins said, "IAG extends its deepest sympathy to those people in Victoria who have been tragically affected by the bushfires.
"The priority of the Group’s companies is to assist customers with their immediate needs such as temporary accommodation and emergency financial assistance. Our teams are mobilising in Victoria from across other states to provide our customers support."
"IAG will update the market as soon as it is in a position to provide an estimate of the cost."
