After banking, insurance is another big industry that almost every person has some business with. Whether it's for your life, house, vehicles or income protection, an overwhelming majority of adults pay premiums for coverage on a regular basis.
One of the leading insurance companies is Suncorp Group Ltd (ASX: SUN). It is an $18 billion company that provides general and life insurance as well as operating the fifth largest bank after the big four banks. It has around 9 million customers and is one of the top 15 ASX-listed companies.
Performance trends
Since FY 2009, earnings have roughly doubled, although in between it- as well as other insurers- saw huge claims payouts due to above average natural disaster damage in 2011 – 2012. It has recovered from that with a stronger balance thanks to the company building up surplus capital and implementing a business simplification program to reduce operating costs.
With more benign average weather, less natural disasters and adequate loss provisions, its insurance business has increased its operating earnings. Bank earnings have improved in the past year as well.
The stock is up a compound annual 18% over the last two years and hit a high of $14.97 in November. Currently, it is paying a big 6.0% fully franked yield.
Strengths
Suncorp is the second largest ASX-listed general insurer after Insurance Australia Group Ltd (ASX: IAG) and is the market leader for insurance in QLD, its headquartered state. It has a number of well-known and established brands as AAMI, GIO, Apia, Vero and Shannons
Management is reorganising the business to drive further cost savings and is strengthening its balance sheet with increased capital levels. It did have to write down its life insurance business by $496 million in intangible assets in FY 2014, yet life insurance only accounts for about 13% of its total revenue, so its earnings outlook is still strong.
What I like about the company
– It's further streamlining the business, which should create $265 million in annual cost savings in 2016. This can help the company keep its insurance products cost effective and competitive and increase the bottom line.
– It is updating its business systems to operate more with cloud computing, giving it a tech competitive advantage over its rivals.
– Lastly, the company has rewarded shareholders with increased dividends over the past three years and intends to return more capital in the near future as the simplification program generates more cost cutting. That makes the stock popular among dividend investors who buy for the long-term.
