Suncorp Group has reported a net profit of $530 million for the six months to December 31, down 16% on the previous corresponding period.

The general insurance division took an even bigger hit – with net profit down 29% to $297 million.

A spike in working claims costs in the home and motor segments – with a combined impact of $95 million – and large claims in commercial insurance ($22 million) took a heavy toll.

Rising natural hazard claims and poor investment returns also had “material impacts” on performance.

Natural hazard costs were $362 million, $28 million above the allowance, and total investment income of $133 million represented an annualised return of only 2.2%.

These and other constraints on the bottom line – such as the falling dollar – resulted in a substantially weakened underlying insurance trading ratio for the general insurance division: 10.1% in the half-year, down from 14.8% in the previous corresponding period.

CEO Michael Cameron says operational issues also contributed to the cost of claims, including changes in technology and operational structures.

He says reversing the rising cost of personal insurance claims is a “code red” priority.

“We have moved quickly with an intervention strategy to restore performance. We are using data intelligence to better understand the causes of the increased costs and to design solutions.

“We have also reviewed our pricing and our policy coverage.”

Mr Cameron says despite “aggressive market competition”, personal insurance gross written premium (GWP) returned to growth (up 0.6%) and commercial insurance GWP gained 2.2%.

Australian Commercial Insurance CEO Anthony Day says the division is maintaining profitability in a competitive market, despite “numerous natural hazards and recurring investment volatility”.

“We have a positive outlook for future profitable growth, particularly by leveraging our strong position in the statutory business,” he said.

“We continue to place strong focus on maintaining underwriting discipline in a competitive market.”

“We are delivering on our growth commitment through improvements in customer service, distribution and simplification. All these will drive better customer retention and new business growth.

The compulsory third party (CTP) area remains consistently profitable, and Mr Day says he expects Suncorp’s processes and expertise to give it a “tangible competitive advantage” when it enters the privatised CTP scheme in SA from July 1.

“We aim to help our customers prosper, providing them with protection for their assets and livelihoods,” he said. “This is most evident following major weather events, such as those we’ve experienced recently.

“These events continue to highlight the importance of our broker relationships and ensuring we’ve got local knowledge on the ground.”

Chairman Ziggy Switkowski agrees that given a difficult market, Suncorp has reason to be optimistic.

He believes the result “demonstrates the benefits of [being] a financial services conglomerate”.

While general insurance earnings took a hit from “external headwinds and operational issues”, Dr Switkowski says banking and life insurance delivered improved underlying profits.

Across the Tasman, Suncorp’s New Zealand general insurance business – which consists of Vero New Zealand and AA Insurance – contributed an insurance trading result of $NZ83 million ($78 million) for the half-year. GWP grew 2.7%.

Ratings agency Standard & Poor’s says Suncorp’s A+ stable rating is unaffected by the weaker half-year result, noting it is “broadly in line with our medium-term expectations”.