Australia’s Suncorp Profit Falls 42%; Hints at Capital Return

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Australian insurer and bank Suncorp reported a 42 percent fall in annual profit on Wednesday, but still beat forecasts and hinted at a capital return once markets stabilized, sending its shares nearly 7 percent higher.

But Suncorp, whose reinsurance cost estimates for 2011/12 came in below analysts’ expectations, still gave a cautious outlook, saying one of its key businesses was unlikely to see a material premium increase this year due to tough competition.

Commercial lines, which includes workers compensation and fleet insurance, represent almost a quarter of Suncorp’s portfolio. However, it said its New Zealand operations will see significant price increases to offset higher reinsurance costs.

Its shares rose 6.5 percent, trimming losses for the year to date to 11.3 percent and were on course for the sharpest daily rise in nearly two years.

“The numbers were stronger than expected across insurance and banking. But the bigger plus was a possibility of capital return to shareholders soon,” said Simon Burge, chief investment officer at ATI Asset management.

Suncorp said it had A$1.245 billion (US$1.3 billion) of surplus capital and had considered returning it, but had refrained from doing so to protect itself against short-term market volatility.

“We originally anticipated a return of capital to shareholders at this result, but given the recent upheavals on global financial markets, the board has decided to retain the full amount,” the company’s chairman, John Story, said in a statement.

Suncorp said reserve releases came in at A$310 million [US$325 million], well above normal expectations due to improvements in management of claims and reduced claims-handling costs.

Suncorp, which has been ravaged by natural disasters that sent claims soaring to a gross cost of around A$4 billion [US$4.195 billion], made a net profit of A$453 million [US$475 million] for the year to June, down from A$780 million [US$818 million] a year earlier. Analysts had forecast a result of around A$420 million [US$440.5 million].

Last week, bigger rival QBE cut its full-year insurance profit margin target, citing record catastrophe losses in the first half for insurers worldwide.

Suncorp last month said it expected a 12 percent underlying insurance margin for 2011/12, despite higher reinsurance costs and greater allowances for natural hazard claims.

It saw reinsurance costs for the year 2011/12 at A$730 million [US$765.67 million] well below the A$806 million [US$845.38 million] for the year ended June 2011 and analyst expectations for well over A$800 million [US$839.14 million].

(Reporting by Narayanan Somasundaram; Editing by Mark Bendeich and Matt Driskill)