Suncorp Group: Natural hazard update
About the author:
- Author name:
- By Richard Coles
- Job title:
- Senior Analyst
- Date posted:
- 05 November 2021, 9:00 AM
- Sectors Covered:
- Insurance, Diversified Financials
- Suncorp Group (ASX:SUN) has provided another natural hazard update to the market.
- SUN are now guiding to full year natural hazard costs of A$1.10bn – A$1.13bn, which is higher than SUN’s original natural hazard allowance of A$980m by A$125m-A$150m.
- We downgrade our SUN FY22F EPS by 11% with nominal changes to future years. Our target price is lowered to (login to view).
- SUN’s recent FY21 result was solid, and we expect earnings momentum to improve over the next few years as management executes on their clear strategic plan. However, with SUN trading close to our valuation, we retain our HOLD call, seeing better value elsewhere in the sector.
Event
SUN has provided another natural hazard update to the market. It has disclosed total natural hazards YTD of A$597m-A$702m.
SUN are now guiding to full year natural hazard costs of A$1.10bn – A$1.13bn, which is higher than SUN’s original natural hazard allowance of A$980m (equally split between 1H22/2H22) by A$125m-A$150m.
Today’s update follows an earlier update on the 26th of October where SUN disclosed natural hazard claims of A$382m-A$492m. So hazard costs have risen around A$200m in a couple of weeks, driven mainly by the Adelaide hail and the Victorian storm events.
Analysis
SUN’s guidance for FY22 hazard claims above allowances of A$125m-A$150m is lower IAG’s revised expectations for its FY22 hazards to come in around A$280m above its initial budget (A$765m).
We remind that SUN does have a very strong reinsurance program in place for FY22, which should limit further downside. This reinsurance includes catastrophe covers (A$250m first event maximum loss), drop down covers and an Aggregate Excess of Loss (AXL) cover.
The AXL provides $400 million of reinsurance protection when FY22 events (costing above A$5m each) exceed $650 million for the year.
Overall though, it’s another 6 month period affected by weather for SUN, which is becoming a common theme for the general insurers.
Forecast and valuation update
We have downgraded our SUN FY22F EPS by 11% with nominal changes to future years. Our price target is lowered to (login to view).
Investment view
SUN’s recent FY21 result was solid, and we expect earnings momentum to improve over the next few years as management executes on their clear strategic plan.
However, with SUN trading close to our valuation, we retain our HOLD call, seeing better value elsewhere in the sector.
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