Suncorp net profit dropped 34% to $681 million last financial year as the company battled natural catastrophes and volatile investment markets, while the group reported record second-half gross written premium (GWP) growth.

CEO Steve Johnston says despite the challenging environment momentum was maintained, margins improved in the face of rising inflation and the company is on track to achieve plans for this financial year.

“We have maintained our focus on executing our strategic initiatives and this has allowed us to offset increasing inflationary pressures, particularly in home and motor vehicle repairs,” he said today.

The second annual La Nina weather pattern across Australia and New Zealand led to 35 separate weather events and around 130,000 claims, resulting in natural hazard costs of $1.081 billion, up from $1.01 billion a year earlier and above the allowance by $101 million.

Suncorp, which last month announced the proposed sale of its banking business to ANZ for $4.9 billion, has increased its natural hazard allowance for this fiscal year to $1.160 billion following the recent experience and changes to the reinsurance program.

Mr Johnston said the experience of the past two years reflects the weather cycles driven by the La Nina.

“It has unusual to have back-to-back La Nina weather cycles, and it is even more unusual to have three but we remain quite confident in the robustness of the allowance,” Mr Johnston told insuranceNEWS.com.au.

Suncorp noted current climate modelling points to a possible third consecutive La Nina, but it also highlighted impacts from the most recent event were much more severe than the one before.

Mr Johnston says despite reinsurers increasing pricing in the Australian market there is no lack of appetite for risk in the region.

“They like Australia and New Zealand, they like the diversification that it provides them, it has just been a reset of some of the pricing dynamics, which if you look at their loss ratio performance is probably not unexpected,” he says.

Mr Johnston says the bank has provided some diversification of earnings but has competed for capital with the insurance business as the company looks to improve its technology and digitise its processes, and the benefits of holding the business were no longer as clear compared with a sale.

“We think it is the strategically the right thing to do, and there are other ways that we can take some of the volatility out of earnings,” he said. “Fundamentally improving the quality of our risk selection will go a long way to doing that as well.”

Suncorp’s Insurance Australia (GWP) rose 9.2%, excluding portfolio exits, to $9.25 billion, with the pace of premium growth accelerating in the second half to 10.7%. The division’s profit after tax fell 68.2% to $174 million.

Suncorp says its repairer relationships in motor and a panel home reset are helping contain inflation impacts relative to industry levels, while it is sees opportunities for further claims operation improvements as it leverages, its supply chain, scale and technology.

“We are very confident we will provide some protection to our business relative to the industry levels of inflation that we obviously see coming through at the moment,” Mr Johnston told a briefing.

Mr Johnston said a contract entered into after the sale of its Smart crash repair business to AMA Group doesn’t expire until June 30 next year.

“There is a period of time that needs to be worked through before we actually reset that,” he said. “Obviously we expect that to be an increase given some of the inflation pressures, but still we have got significant volume going through there, that will mitigate and offset some of that relative to the broader industry.”

In the home portfolio, Mr Johnston says the insurer is leveraging its scale to deliver benefits for customers and shareholders to provide increased flows and certainty to the supplier panel.

Despite rising premiums, he says the company is not seeing pressure from a retention perspective or from cancellations, with recent catastrophes also highlighting the value of insurance to customers.

New Zealand profit fell 23.3% to $NZ165 million, while general insurance division GWP rose 14.1%.

CEO Jimmy Higgins says solid top-line growth and strength in the underlying performance was delivered off the back of a disruptive year that has impacted customers and its people.

“This disruption came from the impacts of Covid-19, including the war on talent in a tight employment market, the restrictive environment our people have had to work in, and employees being off sick with covid,” he said.

“Multiple weather events experienced during the year resulted in the highest volume of claims since 2018; and customers experienced longer waiting times for repairs to their homes and vehicles because of the delay in getting materials.”

Suncorp Group reaffirmed a previous target for an underlying insurance trading ratio of 10-12% by this financial year.

GWP growth is expected to be mid-to-high single digits, with pricing increases to reflect increasing reinsurance and natural hazard costs and the inflationary environment.