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Liberty Specialty Markets

Spotlight on Suncorp as earnings season begins

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Suncorp kicks-off the insurance earnings reporting season tomorrow, with IAG to follow on Thursday and QBE next week as analysts look for updates on company strategies and the impact of rising premiums and falling interest rates.

Interim CEO Steve Johnston will present the Suncorp full-year results, after taking over from Michael Cameron at the end of May when the board decided it was time for change.

Mr Cameron had driven the Marketplace distribution strategy and targeted the removal of costs through a business improvement program.

“We await outlook commentary on Suncorp’s strategic trajectory post the departure of Michael Cameron on issues relating to the bank, BIP and Marketplace,” JP Morgan analyst Siddharth Parameswaran says in a research report.

Macquarie sees “heightened risk” that Suncorp could walk away from the program to take costs out of the business and says the firm could change its return on equity ambition after only achieving its 10% target in one half over the past nine years.

It flags a possible write-down on goodwill and forecasts a $600 million capital return in the first half of the current financial year following the completion of the life business sale.

IAG releases its earnings on Thursday with Macquarie expecting the perils allowance for next year could be increased above the rate of gross written premium growth after exceeding the allowance in the past year.

The company is due to give an update on a costs program that it said in February would deliver $220 million in savings by fiscal 2020, as well as on the future of its Asian businesses.

“We think the Malaysian operations may continue to be held by IAG for some time given regulatory and political uncertainty in Malaysia making divestments difficult, whilst we expect to hear of progress in India,” JP Morgan says.

IAG has forecast 2-4% GWP growth for the past financial year, despite premium rate increases, implying market share losses in commercial in particular.

“We wait to see if the company decides to put a stop to market share losses and seek growth, particularly in commercial insurance,” the analyst’s report says.

QBE delivers half-year results on Thursday next week, with a solid result expected by the market.

Morningstar analyst David Ellis says management has made good progress turning the business around, strengthening the balance sheet and improving operational efficiency, although more needs to be done.

“There is light at the end of the tunnel for long-suffering QBE Insurance shareholders,” he says. “Despite lower global interest rates and slowing economic conditions, the firm’s underlying fundamentals are improving.”

Macquarie forecasts a strong first-half for the company following premium rate rises globally and a lack of severe weather, but says losses from its US crop portfolio are expected in the second half.

JP Morgan flags issues including the impact of lower investment yields going forward, and trends in lenders’ mortgage insurance, with particular focus on increased competition from Arch and impacts from the Federal Government’s new scheme to boost housing affordability.

“The company has historically disappointed versus guidance, so if it manages to hit guidance or show favourable trends versus guidance, it could lead to a re-rate of the stock,” it says.