Suncorp first-half group net profit has fallen 44.7% to $250 million from a year earlier, with the giant insurer blaming the sharp decline on the Sydney hailstorm and unforeseen regulatory costs linked to the Hayne royal commission.

The company announced today that its Australia general insurance arm suffered a 43.2% drop in after-tax net profit to $133 million as improved margins failed to offset increased natural hazard claims costs and weaker investment results.

Natural hazards cost the group $580 million, exceeding the $360 million allocation Suncorp had earmarked for the December half.

Last December’s Sydney hailstorm was the major culprit, with gross loss of about $370 million from 31,000 claims.

Regulatory project costs doubled to $39 million during the period.

“While the interim result includes natural hazard costs significantly above our allowance, as well as the impact of volatile investment markets, our underlying business remains resilient,” CEO Michael Cameron said.

“The core of our insurance portfolios is performing well.”

Looking ahead, Suncorp expects the same factors, including natural disaster costs and unforseen regulatory costs, to impact the group this financial year, and has taken steps to address the challenges.

The natural hazard allowance has been raised from $720 million to $820 million in 2019/20. Suncorp plans to also purchase an additional $200 million in natural perils reinsurance cover.

The group is also setting aside another $50 million for compliance and regulatory issues, taking its initial provisions for this financial year to $140 million.

“[When] we started the year, we indicated to the market that we expected to spend around $90 million for the year… participation in the royal commission particularly and the increase in legal costs have moved that up slightly to around $110 million,” Mr Cameron told a post-earnings media briefing today.

“And then on the [royal commission’s] recommendations a week ago, we have decided to be very prudent and indicate to the market that we now expect in responding to those recommendations and the referrals, etc, that [it] is likely to cost more.”

For the Australian general insurance arm, gross written premiums went up 2.4% to $4.1 billion. Net earned premium grew 1.3% to $3.7 billion but net incurred claims increased at a faster 4.8% to $2.9 billion.

The combined operating ratio worsened 2.2 percentage points to 98.2%.

In New Zealand, the general insurance business more than doubled its after after-tax profit to $NZ103 million ($99 million), aided in part by benign weather.

“While this is a pleasing result, the reality is that natural hazard events could hit us at any time,” New Zealand CEO Paul Smeaton said.