Suncorp (SUN) shares fell more than 3% yesterday after it revealed another tough half year from natural disasters.
The shares ended up at $12.92 and closing near its low for the day of $12.89.
Suncorp says claims from natural disasters will exceed its budget for such payouts by $40 million in the December half year, after last year’s storms in Victoria and South Australia, and the earthquake in Kaikoura in New Zealand.
The company which operates through brands such as AAMI, Suncorp, GIO, Shannons and APIA, said its natural hazard claim costs for the December half would be $350 million, which is $40 million above its “allowance,” or projection for how much it will spend on these claims.
This includes NZ$50 million for the net impact of the Kaikoura earthquake on 14 November 2016, $60 million for South Australian/Victorian storms in November 2016 and $50 million for Victorian/South Australian storms in December 2016.
It also said its financial results next month will include a further NZ$18 million cost for new claims that have emerged from the New Zealand Earthquake Commission relating to the from the 2010-11 Canterbury earthquakes.
"The outstanding claims provision for the 2010/11 events has increased by NZ$112 million primarily due to the notification of new ‘over-cap’ claims from the New Zealand Earthquake Commission. While the majority of these costs will be absorbed by Suncorp’s reinsurance program, the Group expects to incur a net cost of NZ$18 million in the HY17 financial results,“ the company said yesterday.
The added cost is despite Suncorp buying extra reinsurance cover for this financial year last August to provide added protection against natural disasters.
Suncorp said in that announcement that “to reduce the potential volatility of future natural hazards, Suncorp has purchased additional reinsurance protection for the 2017 financial year. The Natural Hazards Aggregate cover will provide Suncorp with $300 million of protection after the retained portion of natural hazard events greater than $5 million reaches a total of $460 million.”
"The upper limit on Suncorp’s main catastrophe program, which covers the Group’s Home, Motor and Commercial Property portfolios for major events will remain unchanged at $6.9 billion. The maximum event retention is $250 million.
"Additional cover has also been purchased to reduce the maximum event retention for a second Australian event to $200 million and, for a third and fourth event, to $50 million. For New Zealand risks, multi-year cover is in place which reduces the first event retention to NZ$50 million and the second and third event retentions to NZ$25 million.
"The enhancements to the reinsurance program have resulted in a net reduction in the natural hazard allowance for the 2017 financial year to $620 million.”
Clearly with the storms and the latest NZ quake, the additional coverage was not enough.
