Rate increases and a clampdown on expenses helped Suncorp raise annual profit by 60% to $725 million for the year to June 30 – despite banking operations dragging down the result.

Suncorp General Insurance increased after-tax profit by 26% to $493 million and Suncorp Life’s profit rose 68.5% to $251 million (see Suncorp Life seeing benefits of ‘clean-up’).

The banking division’s profit fell 69% to $26 million.

CEO Patrick Snowball says the transformation process that started three years ago “has really kicked in across the organisation”.

He says the general insurance division acted early to increase rates and its retentions improved in the second half after competitors began raising their prices.

Gross written premium (GWP) rose 9.3% to $7.96 billion, which he attributes to a hardening market and improved pricing for risk.

GWP from commercial insurance rose 11.7% to $1.83 billion on double-digit rate increases in property, with Suncorp saying its General Insurance Pricing Engine has allowed underwriters to select risks more effectively and improve the profitability of the portfolio.

Commercial Insurance CEO Anthony Day says there is strong growth momentum in commercial lines, which have improved underlying performance by removing complexity, demonstrating expertise in pricing, disciplined expense control and strong claims performance.

He says measures of broker satisfaction have improved considerably for Vero and GIO.

“Our distribution strategy is working,” Mr Day told insuranceNEWS.com.au.

Suncorp’s general insurance combined ratio increased to 103% from 101.5%, which CFO John Nesbitt says is due to another year of extreme weather events and the impact of lower interest rates on the market value of investments.

He says if Suncorp has “a more reasonable experience” with weather and investment markets, the improvement in underlying performance will deliver a significant increase in reported profit.

Mr Snowball says the strength of insurance operations is shown by Suncorp’s underlying insurance trading ratio, which removes accounting adjustments for interest rate movements and which rose to 12.1% from 10.8%.

He says the reinsurance quota share arrangement, under which Suncorp’s reinsurer takes a 30% share of net earned premiums on the Queensland residential book and 30% of the book’s claims, has enabled Suncorp to reduce its reinsurance program to $5.3 billion from a potential $6.1 billion.

Suncorp received more than 146,000 natural hazard claims in the year, incurring net costs of $250 million from the Melbourne hailstorm, $189 million from floods in NSW, Queensland and Victoria between January and March, and $10 million from the Victorian earthquake.

Natural hazard costs were $278 million above budget. Mr Snowball says even though the year’s events were smaller than last year’s Brisbane floods and Cyclone Yasi, net claims were probably higher than in that period.

Home insurance GWP grew by 17.6% to $2.26 billion. Motor GWP rose 3.2% to $2.6 billion and compulsory third party GWP rose 4.3% to $901 million.

Workers’ compensation, written by GIO, grew by 11.6% on price increases, wages growth and the strong resources sector. GWP from New Zealand grew 21.7% to $831 million on higher rates after the earthquakes there.

Mr Snowball says Suncorp’s operating expenses fell, even though there was significant investment in the business, and the group’s simplification program will deliver $200 million in annual benefits in the 2016 financial year, at a one-off cost of $275 million.

“This business is in really great shape with costs under control,” he said. “We have strengthened the group and we are positioning for sustainable growth but we should not underestimate the headwinds we continue to face.”

He says these come from economic and regulatory factors and weather events.