What: On 27 November, Brisbane was belted with a sudden major storm. High winds, flash flooding and hail the size of golf balls and oranges pelted residences, cars and commercial buildings.
Quickly, insurance claims flooded in and the latest damage estimate is about $150 million. However, many more claims are expected to add to the total damage value.
So what: The insurers have had a couple of years of relatively benign weather, so natural catastrophic damage payouts have been low on the average. Still, the long-term average is about $500 million, so how will this first storm of the season and any following ones impact Suncorp Group Ltd (ASX: SUN)?
As the largest insurer in Queensland with its brands like Suncorp, AAMI, GIO and Vero, its potential damage claims could be proportionately higher than other insurers. It has $595 million in natural hazard provisions in FY 2015, more than the long-term average.
Also, it has reinsurance (insurance for insurance companies) to limit the impact of natural hazard events and cap them to a maximum pre-tax $250 million, according to a company ASX announcement.
The company has raised extra capital in the recent past and is going through a business simplification program to cut costs. This should keep the insurer's finances strong. The company has paid special dividends in the last three years as well as raising dividends during that time.
Now what: Since the day before the storm, Suncorp's shares are down about 2%, only slightly more than the 1.5% decline of the S&P/ASX 200 Index (ASX: XJO) (Index: ^AXJO), so the market hasn't been too spooked about the storm damage as of yet.
Below is a chart of damage from natural hazards since 1967. The red line is the long-term average. Recent heavy damage in 2010 and 2011 well exceeded the average. 2013 was slightly lower than the average.
Source: Suncorp company introduction presentation Aug 2013
This storm had more damage in commercial properties and assets, so the total damage claims could well rise on top of the home and vehicle claims. Although people's homes, workplaces and property have been damaged, Suncorp has adequate protection.
For investors, this one event shouldn't keep them from buying shares. This is part of the insurance business and Suncorp is a responsible company with a good reputation for insurance claims coverage.
The company has improved its financial strength and is streamlining its business for better margins. With a huge 5.9% fully franked yield and the potential for further special dividends in the near future, I think Suncorp is still an attractive income stock for long-term investors.
