Suncorp’s (ASX: SUN) fiscal 2025 cash profit increased 8.3% to $1.5 billion, aided by premium rate increases, lower reinsurance costs, and higher investment income. Fiscal 2026 guidance is for mid-single-digit gross written premium growth, and for broadly flat underlying insurance margins.

Why it matters: The result exceeded our forecast by 5%, with beats across premiums, claims, and investment income. After materially increasing premium rates in recent years, and with claims not as high as expected, returns are now strong, though competition appears to be intensifying.

  • The underlying trading insurance margin of 11.9% is at the top end of management’s 10%-12% target range, but including natural hazard costs $205 million below allowances, the actual margin is 13.4%. The insurer made much better returns than policies were priced for.
  • Premium rate increases are moderating, and we understand Suncorp began losing market share in home and motor during the third quarter of 2025, responding with price cuts. Competition for volumes is likely to push premiums lower or see them trail claims inflation, given strong industry returns.

The bottom line: We increase our fair value estimate for no-moat Suncorp 2% to $16 per share on the time value of money. Shares trade at a material premium to our updated fair value estimate.

  • On a forward P/E of 17 times, the market appears to be extrapolating a continuation of strong earnings growth. Our forecasts assume earnings weaken around 20% by fiscal 2027 on a higher claims ratio and lower investment income.
  • Return on equity of 14% in fiscal 2025 is a huge lift from 9% in fiscal 2024 and the 10-year average of 8%. In our view, either claims costs begin to exceed current expectations, or competitors begin to price more aggressively to win market share, pushing returns closer to 12% over the medium term.

Business strategy and outlook

Suncorp is a well-capitalized financial services business with a dominant market position in the Australian and New Zealand general insurance industry. In addition to offering insurance under the parent name, key brands in Australia include AAMI, GIO, Bingle, Apia, Shannons, and Terri Scheer. In New Zealand, key brands include Vero, AA Insurance, and Asteron Life. The insurer carries concentrated weather and earthquake risk in Australia and New Zealand and in particular Queensland, which makes up around 25% of gross written premiums in Australia.

The group’s exposure to the Queensland market, where large natural peril events have been larger and more frequent, heightens the risks. Reinsurance protection mitigates risks to some extent, but can be expensive, particularly following large events.

After years of rising natural hazard costs, higher reinsurance costs, and claims inflation, profits are finally benefiting from price increases and higher investment income thanks to higher cash rates.

While there are potential benefits to the bancassurance model, such as better customer insights versus stand-alone insurance peers, and better cross-selling opportunities, they did not deliver a material tangible improvement in earnings, returns, or switching costs over a long period of time. With this in mind, Suncorp sold its banking business to ANZ Bank in July 2024.

Similar to its peers, Suncorp is focused on enhancing the digital offering to ensure simpler and faster quotes and claims processing, and to ensure the large insurer remains competitive on price. Productivity improvements remain a priority as the insurer looks to grow premiums.

Bulls say

  • Premium increases stick without an equal rise in claims, and cash rates are not cut as markets expect—a positive for investment income, together lifting underlying profitability and dividends.
  • A benign claims environment with a lower incidence of major catastrophes would considerably boost underwriting profits.
  • Risk management has improved, and productivity initiatives are expected to deliver greater cost efficiencies.

Bears say

  • In personal and commercial insurance, popular Australian brands and competitors from overseas enter the general insurance distribution and underwriting markets. This puts pressure on premiums and winning market share.
  • A return to a low interest-rate environment, which looks increasingly likely as inflation cools, could pressure investment income.
  • A higher incidence of large claims events from major catastrophes would crimp profitability

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Terms used in this article

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.