Extreme weather events, higher reinsurance costs and claims inflation reduces Suncorp New Zealand profit

09 August 2023

Suncorp New Zealand today announced a profit after tax of $115m for the year to 30 June, a 30% reduction on the previous year.

Significant weather events, a more than 50% increase in natural disaster claims costs, reinsurance increases and claims inflation has led to a general insurance profit of $65m, down 56% on the previous financial year.

The general insurance result includes intermediated Vero Insurance, Vero Liability and direct business AA Insurance (a joint venture between Vero and the New Zealand Automobile Association).

The reduced general insurance profit was partially offset by the strength of the insurer’s life insurance business, Asteron Life making a profit of $50m, up $35m on the previous year, with a 25% increase in new business and in-force premium growth of 6.7%.

The result reflected strong top-line growth and underlying performance in both the general and life insurance businesses, and evidence of the insurer’s strength and resilience in uncertain times.

Suncorp New Zealand CEO, Jimmy Higgins says the diversity of the insurer’s portfolio of businesses enabled the delivery of a good result despite the challenging, uncertain times.

“Suncorp maintains a strong reinsurance program and good capitalisation, which has helped the business support customers, particularly through the events of the past 6 months.”

“This result has been heavily impacted by the recent large scale weather events, in addition to some smaller but impactful rain events throughout the year. So far, we’ve paid out to customers more than 66% of the 32,000 claims from the North Island floods and Cyclone Gabrielle events this year, and all our efforts remain on supporting our customers back into their homes and businesses.”

The significant weather events this year resulted in additional natural disaster claims and the purchase of additional reinsurance cover. Reinsurance is the protection that insurers need to be able to provide protection for customers, and this comes at a cost.

“Prior to 2023, New Zealand was seen by global reinsurers as having earthquake risk, with flood and cyclone risk here not fully understood. Following these events, reinsurers no longer see New Zealand as low risk. The natural hazard models need to be recalibrated to account for the additional risks of flood and cyclone and, until those risks are properly understood, and the models recalibrated, our global reinsurers will price for that risk and uncertainty.”

In July, Suncorp Group made changes to its reinsurance programme, changes which it believes put it in a good place to achieve the optimal balance between the cost of the program and acceptable levels of earnings and capital volatility whilst keeping in mind the cost pressures impacting customers. 

Higgins says the impact of the increased cost of reinsurance and inflationary pressures will flow through to customer premiums. 

He says there remains considerable uncertainty for those in areas that have suffered losses in recent weather events and are looking for greater clarity on land categorisations from local councils. Insurers are working closely with local and central government to better understand the options for customers to be able to move forward, including the potential buyout solutions being proposed. He says without knowledge of the pathways available for customers, it is taking longer to provide customers choices and settle claims. 

“We remain committed to supporting existing customers, getting repair work completed and claims paid to impacted customers as quickly as we can.  

“Lessons learned over the past year reinforce our collective responsibility, with local and central government and service providers, towards improving the resilience of New Zealand communities.

“We need to develop a coordinated and united response to where and how we build; how we protect our communities, what the national community resilience plan is and what is the long-term investment strategy the government has on infrastructure.

“This result demonstrates the resilience of our business, that we have good strong products backed by 100 years of good service and our customers are seeing that. 

“It was great to see the strong result from Life driven by the focus on supporting customers and advisers through these difficult times, which in turn has been rewarded with excellent new business growth and ongoing market leading retention.” 

“Looking forward, there is still some uncertainty on the economic recovery for New Zealand, and the impact of the broader cost of living pressures on our customers remains a key concern as we reset our risk models to address the rising cost of reinsurance. We will remain focussed on supporting our existing customers impacted by the recent weather events, and also ensure broader insurance protection is available to meet the needs of New Zealanders.

“We are constantly looking ahead at New Zealand’s future insurance needs, shaping our insurance offerings to ensure they’re fit for current conditions but also fit for the significant changes taking place in the insurance market. These changes are due to the impact of recent events which have redefined how we view natural disasters and the potential impact of a changing climate.”

Media enquiries: Kimberley Cameron +64 27 208 1268