February 14, 2018 / 10:09 PM / a year ago

UPDATE 2-Australia's Suncorp H1 profit hit by hailstorm, surprise spike in costs

* Net profit falls short of estimates, lowest in 3.5 years

* Review of life insurance unit progressing well

* CEO upbeat about prospects for next financial year (Recasts, adds analyst and CEO comment)

By Paulina Duran

SYDNEY, Feb 15 (Reuters) - Australian insurer Suncorp Group Ltd said first-half profit slid by a sixth on a jump in claims after a powerful hailstorm in the city of Melbourne and a spike in costs, but predicted better earnings next year.

Suncorp, whose brands include AAMI and GIO, said it expects revenue to grow between 3 percent and 5 percent in the next financial year on higher home and car insurance sales, and it was confident that efforts to cut costs, partly through developing its online offerings, would bear fruit.

Although the hailstorm hit had been previously flagged, a 6 percent rise in operational costs was a surprise, prompting some analysts to wonder whether the country’s second-largest general insurer would be able to deliver on its turnaround programme.

“The market will view this result as poor and will question the likelihood of achieving those targets,” analysts at JPMorgan said in a note to clients.

Net profit for the Brisbane-based company fell 16 percent to A$452 million ($359 million) for the six months to Dec. 31 - its weakest half-year profit in three and a half years and short of a consensus estimate of A$486 million, according to Thomson Reuters I/B/E/S.

Its shares were down 2 percent in afternoon trade on Thursday, giving the company a market value of some A$17 billion.

Chief Executive Michael Cameron was, however, upbeat about the company’s ability to deliver A$2.7 billion in cost cuts for the next year.

“We are going to now see a continuation of growth on the top line that would put pressure on expenses, which drives the need for the business improvement program to pull it back,” he said during a call with analysts.

Suncorp said its efforts to find a buyer, a partner or a reinsurance deal for its life insurance unit were progressing well - a move which would see it follow companies like Commonwealth Bank of Australia and National Australia Bank Ltd in cutting exposure to a sector under pressure from offshore competitors.

Suncorp’s life insurance business, which according to Goldman Sachs analysts has a book valuation of about A$1.5 billion ($1.1 billion), saw underlying net profit climb 56 percent to A$39 million on higher prices and lower costs.

The company says it will update the market on the outcome of the strategic review of its life insurance unit by the end of June.

It kept its interim dividend at 33 Australian cents per share. ($1 = 1.2593 Australian dollars) (Reporting by Paulina Duran in Sydney. Additional reporting by Aaron Saldanha in Bengaluru; Editing by Byron Kaye and Edwina Gibbs)

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