Suncorp Group: An active 1Q22 for claims

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
27 October 2021, 11:00 AM
Sectors Covered:
Insurance, Diversified Financials

  • Suncorp Group (ASX:SUN) has provided a claims update for the first four months of FY22.
  • So far, the company has seen A$382m to A$492m in natural hazard claims versus a full year hazard allowance of A$980m.
  • In our view, SUN’s reinsurance program provides good protection against SUN exceeding its FY22 natural hazard budget, but certainly the level of 1Q22 events seemingly limits any FY22 claims upside, in our view.
  • We leave our SUN FY22 forecasts unchanged at this stage. We do factor in claims A$40m above allowances now in 1H22, but offset by lower claims in the second half (owing to reinsurance protections). Our target price is (login to view).
  • We remain optimistic on further SUN earnings improvement over the next few years, but with SUN trading close to our valuation we maintain our HOLD call.

Event

Suncorp Group (ASX:SUN) has provided a claims update for the first four months of FY22.

So far, the company has seen A$382m to A$492m in natural hazard claims versus a full year hazard allowance of A$980m (this allowance is equally divided between first and second halves).

Analysis

SUN’s update is in-line with IAG’s recent commentary that it had been an active first four months of the year for natural hazards (SUN noting there were five storm events in October alone).

Typically the first quarter of the year is a quieter one for the general insurers, so it’s not an ideal start to FY22. However, we are mindful not to extrapolate recent activity into future quarters, with a fair chunk of the year still to go.

We do remind that SUN has a very strong reinsurance program in place for FY22, which includes catastrophe covers (A$250m first event maximum loss), drop down covers and an Aggregate Excess of Loss (AXL) cover, the latter providing $400 million of reinsurance protection when FY22 events (costing above A$5m each) exceed $650 million for the year.

In our view, SUN’s reinsurance program provides good protection against SUN exceeding its FY22 natural hazard budget, but certainly the level of 1Q22 events seemingly limits any FY22 claims upside, in our view.

Changes to forecasts

We leave our SUN FY22 forecasts unchanged at this stage. We do factor in claims A$40m above allowances now in 1H22, but offset by lower claims in the second half (owing to reinsurance protections). Our target price is (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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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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