In morning trade the Suncorp Group Ltd (ASX: SUN) share price has sunk lower following the release of its half year results.
At the time of writing the insurance and regional banking giant's shares are down almost 4% to $12.99.
What happened in the first half?
In the first half of FY 2019 Suncorp posted a 3.75% increase in revenue to $8,135 million despite a moderating banking environment.
It also achieved improvements in Insurance (Australia)'s underlying margins, underpinned by the ongoing benefits delivered through the Business Improvement Program (BIP) and remediation in the Commercial portfolio.
However, this was more than offset by the impact of natural hazards and volatile investment markets, leading to a disappointing 44.7% decline in net profit to $250 million.
This also includes a $145 million write down of goodwill related to the loss on sale of the Australian Life Insurance business. Management advised that the balance, estimated to be $735 million, will be recognised at the date of completion.
A fully franked interim dividend of 26 cents per share has been declared and will be paid to eligible shareholders on April 2.
How did its businesses perform?
The Insurance segment achieved a net profit after tax of $133 million from continuing operations, down 40% from $222 million in the prior corresponding period. Its result was impacted by an increase in natural hazard claims costs and the negative impact of investment market movements, partly offset by an improvement in underlying margins.
The Banking & Wealth segment delivered a net profit after tax from continuing operations of $183 million, down 3.2% from $189 million a year earlier. This was due to lower net interest income offset by lower impairment losses on loans and advances. Net interest income decreased 2.2% to $585 million.
The Suncorp New Zealand segment was a strong performer, achieving a profit after tax of $111 million. This was an 82% increase on the $61 million it achieved in the prior corresponding period.
This comprises a net profit after tax of $95 million from the New Zealand general insurance business and a net profit after tax of $16 million from the New Zealand life insurance business. The New Zealand general insurance business was the start of the show. It delivered strong top-line growth and favourable natural hazard and working claims experience drove the improved profit result.
Should you invest?
While I thought Suncorp's top line growth during the half was a big positive, it was all undone ultimately by the natural hazards.
It is for this reason that I'm not a fan of insurance companies such as Suncorp, Insurance Australia Group Ltd (ASX: IAG), and QBE Insurance Group Ltd (ASX: QBE). I'd rather invest in companies that are largely in control of their financial performance.
