Suncorp Group Limited (SUN) Earnings Call Transcript & Summary

Well, good morning, and welcome, everyone here in Sydney and variously around the world on the line. So let me begin by acknowledging the traditional owners of the lands on which we meet and pay our respects to elders past and present. Today, I'm joined by our CFO, Jeremy Robson, to present the financial results for FY '26. We'll run through the presentation and other members of the leadership team will then join us for the Q&A session that follows. So let me start with some of the highlights of the result and FY '26 highlighted the strong underlying trajectory of the Suncorp business. We grew underlying earnings. We maintained margins at the top end of our target range. We improved our expense ratio, and we grew in almost all of our core portfolios. The strength of the business is also reflected in the balance sheet. And today, we've announced a fully franked special dividend of $0.10 per share and a further buyback of up to $250 million. This brings to over $4.8 billion of total capital that we've returned to shareholders over the past 3 years. Now there are now 238 million fewer shares on issue today than there were 6 years ago. And all along, that improves the EPS and delivers for shareholders. But we've also continued to invest for the future. across our technology platforms, our data systems and our AI capabilities. We are building a simpler, more productive and more scalable organization. And I'll come back to that later in the presentation. And in April this year, we announced the placement of an aggregate reinsurance protection, which will significantly, significantly reduce earnings volatility and strengthen the resilience of our business. Now that cover was the last that was on our to-do list post the sale of the bank and the building of the pure-play insurer. That cover came into effect on 1 July, and will also improve capital efficiency and underpins today's capital return. But finally, this result demonstrates that it's possible to deliver for both shareholders and customers with more than $10 billion of record paid out in claims, $2 billion of which were natural hazard related. That's 120,000 individual natural hazard claims where we have supported our customers in getting back into their homes and back on the road. So turning now to the headline result. The business delivered cash earnings of $1.04 billion and NPAT of $1.03 billion. Now this is a good outcome in a year where natural hazard costs exceeded our allowance by around $250 million. Now as I mentioned at the outset, given weather, asset sales and mark-to-market noise, the best means of understanding the year-on-year performance of a general insurance business is through the underlying earnings. This metric increased by 4.5%, with our underlying insurance trading ratio ending the year at 11.8%. This is now the fifth consecutive period where the margin has been above 11%, which is a significant achievement in its own right, but that level of return now comes with increased resilience in the allowance, less reliance on reserve releases and a transformative investment in the business. Investment yields remained strong, increasing to approximately 5% through the year and slightly higher at an exit point. Turning briefly to the balance sheet, and the Board has determined a final ordinary dividend of $0.52 per share, which is fully franked, bringing the full year ordinary dividend to $0.69 per share. During the year, we also successfully completed our $400 million previously announced on-market buyback, and that resulted in the cancellation of 23 million shares. We've long maintained a disciplined approach to capital management. We didn't raise capital through COVID and we've been progressively paying back to shareholders the proceeds of the simplification of this business. And we've been guided by the principle that capital in excess of the needs of the business should be returned to shareholders in the most efficient manner possible, including the repatriation of franking credits. That's why today, we've announced our intention to further -- for a further $356 million of excess capital through the $0.10 per share fully frank special and the on-market buyback of up to $250 million through the course of FY '27. This capital has been released through the placement of the aggregate reinsurance protection and the receipt of the deferred New Zealand Life proceeds. Now importantly, these returns are being delivered while maintaining a strong capital position and while we continue to invest in the future of the business. So to the next slide, and here, we focus on growth across the business. At an aggregate level, gross written premium increased by 2.7%. However, when you adjust for the foreign exchange impact from the weaker New Zealand economy and the weaker New Zealand dollar, growth was 3.6%. In Consumer, mid-single-digit growth was supported by both pricing and organic unit growth, reflecting the strength of our brands and the value that customers place on our products. Importantly, we have continued to leverage our pricing and risk selection capabilities to improve the portfolio quality, growing in lower risk segments. Commercial & Personal Injury also delivered growth across all portfolios. In CTP, portfolio growth was driven by the pricing increases that were implemented across key schemes, but particularly in Queensland, where we've been talking for many, many periods about the need for reform in that Queensland CTP scheme, and that has come through. And the advocacy position that we've held for many periods is now being played through in the margin. In New Zealand, our direct AA business continues to grow in both units and AWP across the home and motor portfolios. The intermediated business performance reflects the softer commercial market conditions, the exit of a brokered book of business and a weak economic backdrop. Now Jeremy will run through the GWP outcomes in significantly more detail in just a moment. And finally, this slide provides a summary of the support that we provided to our customers over a very active year for natural hazards. While these events impact our financial results, they represent something much more significant for the customers and the communities that have been affected. Across Australia and New Zealand, we responded to 18 declared natural hazard events, which generated more than $2 billion in net natural hazard claims costs but required a significant mobilization of our people and our response capabilities. I've had the opportunity, as all the members of the leadership team had the opportunity, to visit a number of these communities over the course of the year. And every time, we are reminded of the critical role our people play in helping customers recover and to rebuild. Now what always stands out to us isn't just the scale of the event but the commitment that our teams make on the ground to support customers at what is often the most difficult time in their lives. Our ability to respond effectively as a result of years of investment in disaster management capability in technology and claims operations and in community engagement. And with that, let me hand over to Jeremy, and I'll come back after that.

All right. Thanks very much, Steve, and good morning, everyone. I'd like to start by reinforcing a few of the key FY '26 financial highlights for you. As Steve said, the results reflect a strong underlying performance. Underlying earnings were up 4.5%, with underlying ITR of 11.8% at the top end of our range. We delivered mid-single-digit or stronger growth across most portfolios. That's home and motor, fleet, workers' comp, CTP and in AA in New Zealand, all be acknowledging it was partially offset by the weaker commercial cycle and the weaker New Zealand dollar. Our expense ratio reduced 50 basis points, reflecting our ongoing control of costs, at the same time as investing in the business. And then we delivered strong prior year reserve releases of nearly $160 million. We've continued, as Steve said, to demonstrate disciplined capital management. We announced today the fully franked special dividend of $0.10 per share and an FY '27 buyback of up to $250 million. And that, of course, is on top of the $400 million already completed in FY '26. Pro forma for these items, we still retain $162 million of CET1 above the midpoint of our range. And then finally, we've further enhanced our earnings resilience with the purchase of aggregate reinsurance cover for the next 5 years as well as implementing some investment hedges. These add to the existing resilience features, including the buffer in our natural hazard allowance, further protecting against downside risk, while delivering significant upside opportunity in favorable weather periods. And then we continue to expect to deliver margins in the top half of our range. So let's get into the results in more detail and start with underlying margin. The underlying ITR, as I said, was 11.8%, remaining at the top end of the 10% to 12% range. On a portfolio basis, Consumer delivered an underlying ITR of 9.9%, modestly up from FY '25, as our pricing continues to reflect inflation. Commercial & Personal Injury margin increased to 11% and supported by pricing improvements in CTP and workers' comp, offset by some pressure in property as well as the impact of ongoing remediation and elevated fire claims and platforms. New Zealand margins contracted taking into account internal reinsurance, but still remains strong despite moderating towards target levels in the second half as the softer pricing earned through. Now looking ahead to FY '27, as I said, we expect to continue to deliver an underlying margin in the top half of our range. Pricing will continue to reflect claims inflation in Home and Motor, albeit margin is expected to moderate within guide rails. And then the benefit of ongoing remediation in Platforms and pricing in CTP is expected to be partially offset by New Zealand moderating to target levels, as I said. The FY '27 margin outlook includes the additional premium for aggregate cover. Now importantly, this will be broadly offset by a combination of expected profit commissions reinsurance savings on the main cat program, loss ratio initiatives and some pricing response in select portfolios. These dynamics are expected to result in a slight skew of the margin towards the second half. Moving then to the divisional results, and we'll start with Consumer. Motor GWP increased 5.8%, reflecting input cost inflation. GWP growth was similar in both halves, albeit with a slightly different unit AWP mix, mostly in the fourth quarter, reflecting market conditions. Notably, we continue to see strong growth in our Bingle brand with 13% GWP growth in FY '26. In Home, GWP grew by 5.9%, reflecting pricing for claims inflation. We continue to see the benefits of our improved risk selection and pricing capabilities with a continued shift towards lower-risk properties. Mid-single-digit claims inflation in Home was driven by the higher natural hazard allowance and higher claims for water damage and landlord covers, but offset by tight management of the claims repair chain. Similar levels of claims inflation in motor reflected increased credit hire, windscreen and towing costs, but importantly, parts, paint and labor inflation and total loss costs all moderated in the second half. Next then to Commercial & Personal Injury. GWP increased 4.5% for the full year and 6.5% in the second half, demonstrating the strong momentum in that business. It also shows the benefit of portfolio diversification with resilient overall performance, notwithstanding the challenging market conditions. In tailored lines, fleet grew 15% and NTI grew by 6%. We also saw continued momentum from the successful launch of the new Vero Specialty Line products. CTP benefited from pricing increases in both New South Wales and Queensland, with total GWP growth of around 6%. These increases are still earning through, and we continue to engage with the Queensland government on the need for sustainable scheme pricing. Workers grew 4%, reflecting the combination of strong renewals, new business and pricing and the impact of prior period premium adjustments in the first half was mostly reversed as we expected. Growth in platforms was impacted by ongoing remediation actions aimed at restoring profitability to target levels through improved pricing initiatives. Now the softer market cycle did impact growth in both Profin and Property, but I note that both portfolios continued to deliver strong underlying margins as we position these portfolios carefully through the market cycle. I also note that Commercial and Personal Injury recognized $177 million of prior year reserve releases, reflecting better claims development across pretty much the entire portfolio. Turning now to New Zealand. Now notwithstanding the challenging market and economic conditions in New Zealand, the business continues to deliver very attractive returns. GWP was down 2.7% in New Zealand dollars and that's adjusting for the transition of the brokered book of consumer business that we flagged in the first half, but also noting a modest improvement in the GWP position in the second half. In AA Insurance, that's our direct-to-consumer portfolio in New Zealand, GWP was up 3.2%, reflecting the strength of the brand with good unit growth across both Home and Motor and then growth was a little stronger in the second half, reflecting modest single-digit motor claims inflation. The intermediated consumer portfolio was impacted by the brokered book exit that I spoke about, and adjusting for this, growth was a small contraction, reflecting the competitive environment. The commercial portfolio in New Zealand contracted almost 10%, reflecting the softening pricing cycle as well as the weaker New Zealand economy. But again, similar to Australia, we've also maintained strong underwriting discipline in New Zealand portfolio with margins remaining in the target range. And then also similar to Australia, we saw significant prior year reserve releases with AUD $50 million of releases. Now before we leave the divisional results, I'll just make a few comments on our growth outlook. We expect to deliver GWP growth of between 3% and 5% for FY '27. Consumer remains supported by pricing for input cost inflation across both Home and Motor. Commercial is well positioned to benefit from the price earning through the personal injury business as well as Vero specialty lines growth, and the ongoing remediation and pricing work in the platform business is also expected to contribute to growth. Now while the operating environment remains challenging in New Zealand, we continue to expect growth in the direct-to-consumer AA business and the impact of the brokered book of business that we flagged in the first half is broadly removed. We do, however, continue to expect a softer commercial market cycle and economy in New Zealand, particularly in the first half. Next then to reinsurance. We manage our reinsurance program, as you know, through the lens of long-term shareholder value creation with a focus on fundamental economics. Our FY '27 main cat program is broadly consistent with the prior year. Reinsurance markets were favorable for our renewal and Suncorp continues to present an attractive scale market for reinsurers, and this has been reflected in the pricing achieved on the renewal. As already announced, our program is now supported by a 5-year aggregate cover, providing up to $800 million a year of protection. This cover materially limits natural hazard risk capping downside at $50 million to the natural hazard allowance for FY '27 in approximately 90% of scenarios. The aggregate cover, as we've said before, is expected to be broadly neutral in terms of its fundamental economic cost. Now the new aggregate structure adds to our existing multiyear buy-down arrangement on the main cat and both of these programs include profit share arrangements, offering material upside to reported margins where we see benign weather experience. Overall, the FY '27 program supports a more resilient earnings profile with upside opportunity without compromising long-term shareholder value creation or fundamental economics. Now then to investment performance. The interest rate environment continues to support attractive returns with underlying yield on insurance funds in the Australian business increasing to 5.1%. And I note the exit yield at 30 June was 5.3%. Now as you know, the rising yields result in mark-to-market losses in both insurance funds and shareholders' funds and that drove net investment income for the year. We continue to adjust our investment portfolio in line with our strategic asset allocation. In insurance funds, inflation-linked bonds were reallocated to structured credit and there's still a small rebalancing of the ILB portfolio required which is going to be implemented in the context of our outlook for inflation. And then in shareholders' funds, we've rebalanced cash into infrastructure and property with a final small rebalancing into infrastructure currently underway. We've continued to enhance the resiliency of the investment portfolio with the implementation of a hedge strategy, which effectively partially reduces tail risk in equities with no material earnings drag expected. Turning then to expenses. We continued to deliver strong cost discipline while maintaining investment in our strategic growth initiatives. The expense ratio reduced 50 basis points year-on-year. underlying inflation across wages and technology costs have been offset by productivity benefits and continued management focus on efficiency. Importantly, we've been able to improve our expense ratio, whilst also investing in the modernization of the business, and that includes the digital insurer program, data and AI capabilities as well as technology platform upgrades. These investments are expected to further improve customer outcomes, simplify our business and support sustainable growth over time. We expect the total expense ratio to be broadly flat in FY '27 and noting that this excludes restructuring costs and restructuring costs in FY '27 are expected to be broadly in line with what we've incurred in recent years. And then finally, on the results to capital. Our capital position remains very strong, and we've retained our disciplined approach to capital management, as Steve said. In FY '26, we successfully bought back $400 million of shares, reducing the share count by $23 million. Today, we're announcing a return of a further $356 million of capital to shareholders, with a fully franked special dividend of $0.10 per share and an on-market buyback for FY '27 of up to $250 million. Now this is in addition to a fully franked final dividend of $0.52 per share at a 70% payout. Now after taking into account the special dividend and buyback, pro forma excess CET1 remains $162 million above the midpoint of our target range. Now from the chart there, you can see that we did experience some net usage of organic capital in the second half and there are a couple of items, key items, that contributed to this. The first was the impact of the foreign currency translation reserve from the weaker New Zealand dollar. And then the second was some additional prudent level of risk margin put aside for the current geopolitical uncertainty. Beyond these are the key dynamics on capital during the half with the aggregate cover providing a one-off capital benefit, a target benefit of $107 million as well as providing confidence to reduce the level of excess CET1 we hold above the midpoint. And then, of course, the New Zealand Life sales deferred proceeds of $160 million were received on the 31st of July, making these funds available for return to shareholders. Now before turning back to Steve, I'd like to finish by highlighting our enhanced earnings resilience profile. We introduced the new aggregate reinsurance cover in FY '27, which limits downside to natural hazard risk for the next 5 years. We have a robust natural hazard allowance, which includes specific resiliency buffer. By way of example, and you can see on the chart there, the top left box, average natural hazard experience -- average natural hazard experience would have been between $125 million and $200 million better than the allowance over that 15-year period. And that's with the current allowance, the current reinsurance program, inflation-adjusted and, as I say, average. We've traditionally maintained a conservative investment approach enhanced by further diversification into structured credit, property and infrastructure and the implementation of the equity tail risk hedge strategy. And then we continue to place low reliance on prior reserve releases notwithstanding the material releases experienced in FY '27. Now these actions have provided significantly more resilience to our underlying earnings and all the while maintaining margins in the top half of the range. Importantly, there's also now a meaningful upside opportunity to reported earnings, as you can see from the slide on the right-hand side, including the profit commissions from our 2 structured reinsurance arrangements. This clearly represents a fundamentally improved risk return profile for Suncorp's business. And with that, I'll now hand you back to Steve.

Well, thanks, Jeremy. And before I move to strategy and outlook, I just wanted to again remind you of how we believe long-term value is created at Suncorp. Our purpose delivered through our people in support of our customers and the communities that they live in, when done well, will always deliver superior returns to shareholders. Now this slide is also familiar to you, and it captures our plan on the page. Our 5 portfolios reflect the breadth of our Trans-Tasman business and will provide significantly more detail on the individual portfolio priorities. At our Investor Day in October. Underpinning those priorities are the strategic imperatives that support our business and our strategy. These are focused on transforming how we work through technology, through modern platforms, AI and a culture that's centered on delivering simple, personalized customer experiences. Now this next slide, I think, captures in a fairly simple way, the methodical evolution of Suncorp since 2019. The first phase of our strategy was simplification. And from the outset, we as a team, formed a view that the best way to create long-term value was to focus our organization on the areas where we could build genuine competitive advantage. And that led us through a multiyear program of portfolio simplification, which included, of course, the sale of Life, Wealth, Smart and of course, Suncorp Bank. With the completion of the New Zealand Life transaction in 2025, that simplification chapter largely came to an end, but what emerged was a significantly simpler business. Now the second phase of the strategy was about investing in what we call the pure play insurer or Project Sunshine as we called it internally. Now alongside the simplification program, we invested heavily in the foundations of the insurance business. We began implementing a new policy administration system. We modernized our claims capabilities. We've invested in new telephony platforms, and we built out our data capabilities. We've, of course, also started the journey with AI. And finally, we also strengthened the resilience of the business, as Jeremy has pointed out through the enhancements to our reinsurance program. Now this brings us to the third phase, which is where we are today. We are now entering a period where the focus shifts from building those capabilities to leveraging them to better deliver better outcomes for our customers. And this is fundamentally important because insurance is changing. Customers increasingly expect products and services that reflect their individual circumstances. If a customer invests in making their home more resilient and improving the maintenance of that home or reducing risk they will increasingly expect that will be recognized in the price they pay for their insurance. And the same is true for motor and commercial as it's been in commercial for many, many years. But to deliver that future, insurers need modern infrastructure, modern policy administration systems, strong data capabilities and to utilize AI, decision-making and AI-enabled distribution systems. And that's fundamentally why we've made the investments that we've made. The future is ultimately about reshaping how insurance products are manufactured and distributed. And we see opportunities for highly personalized customer experiences and AI orchestrated customer journeys. Now the structural changes we've announced today will ensure we are able to leverage our new platforms and those AI capabilities to maximum effect. A new function that will be led by Bridget will bring together our customer brand and digital distribution teams, and it will ensure we realize the opportunity that AI provides for faster and more efficient distribution of insurance products through our suite of multi-brand -- of multi-leading brand strategy. Lisa and Michael in the new roles will be responsible for product and claims across consumer and commercial, leveraging our digital insurer investments to deliver personalized products and market-leading claims experiences. Michelle Bain, who would be familiar to many in the room will step into Bridget's role as the CRO. Now I'm more confident than ever that we're on the right path. We have simplified the business, invested in the core insurance franchise, strengthened our resilience, and now we're entering a phase where we can leverage all of that to create value for both customers and for shareholders. and that will be the defining opportunity for Suncorp over the next few years. So before we go to the outlook, I just want to spend a brief moment on the topic of AI and how we're thinking about the opportunity. And we'll have a lot more to say about this at our Investor Day in October. We've spoken about it previously, and it's an area where the pace of change continues to be significant. On the left-hand side of the slide, I've highlighted again our foundational capabilities, which ensure we are well placed to leverage AI and to improve the operational efficiency of our business. As I just touched on, we have invested heavily in the foundations. We built the core technology, established a strong strategic partnerships. We're not going to do this all on our own with embedded governance and safety frameworks. But importantly, we've invested in building AI capability right across the organization, right through to the individual team member level. We're in a point where we're scaling and accelerating these capabilities across the business and increasingly embedding AI across our claims and customer service processes. And we've got a few examples of where AI has been deployed at scale on the right-hand side of the page, which to date has been mainly in productivity-focused use cases. So finally, before Q&A to the outlook. And as Jeremy said, GWP growth is expected to be between 3% and 5%. The underlying ITR expected to be in the top half of the 10% to 12% range. Total operating expense ratio expected to be broadly in line with FY '26. We'll continue to maintain a disciplined approach to the balance sheet, again, targeting a payout ratio around the midpoint of the 60% to 80% range of cash earnings. And finally, as we've covered off a couple of times, we'll be commencing that buyback with a target of up to $250 million over the course of FY '27. So at that point, let's go to your questions.

I'll start, Andrei?

Andrei Stadnik here from Royal Bank of Canada. Can I ask my first question around pricing and volume trends in the personal book. So just reflecting back on what happened in the first half in unit growth. It seems at home and more in particular, were flat in the second half. And price appreciate was actually pretty robust, but units really slowed in the second half. So how are you thinking about price and maybe marketing strategy going forward? Because I mean, you we outright have been very aggressive with marketing some of the other competitors. How do you think about price and market and other initiatives going forward?

Yes. I might just quickly start off and then Jeremy can go through the detail. Look, I think the first point to make is that there continues to be elevated levels of inflation across the insurance value chain. And I'd make the point again, as we've made many times that the insurance inflation is different to CPI, and it's running at a different clip. So our estimation of insurance inflation is around 6% or maybe slightly higher relative to CPI just above 3%. Now that's going to be the first fundamental priority as we look at pricing the business. And I think what that does sometimes is create disparity between the pricing that we see and the rest of the market, and you will see that unit count move around a little bit over the period of time. The other point I'd make about the multi-brand strategy, which again, I believe, to be a very effective part of our arsenal. And I know there's been questions about brands in an AI world, but we're seeing this multi-brand strategy play out very effectively for us. through this period of time. The 2 pillars of our multi-brand strategy in Australia AAMI and in New Zealand AAI. And if you recall back 5 or 6 years ago, AAMI was struggling. It's now performing incredibly well in our brand portfolio as is AI in New Zealand. Jeremy went through some of the niche brands which are growing. And I'd make the point about Bingle, which is growing at around 13%. And that's the brand we put up against some of the price challenges and it picks up that opportunity for us on the way through. So the multi-brand strategy continues to be one of the most effective parts of our arsenal in this environment. Pricing to inflation is also a key part of the story and making sure that we've got the discipline around that so that we're always going to be ahead of inflation, not behind it, which is a big differential. But to some extent, that may see unit count drop or move around a little bit, and you saw that between the first half and the second half. The only other comment I hand to Jeremy with a bit of a top-up is it's very hard to get a sense of what the market is doing. And so yes, while our unit count in an absolute sense might have come down. We also see new car sales and various other elements of system growth, both for Home and Motor falling away a little bit in the second half as well, which will put our unit count number in more perspective relative to our competitors.

I'd just add, Steve, Andrei, Motor and Home was, give or take, flattish on both apps and unit growth numbers. We obviously flat in Motor in the second half. Most of that was in Q4. So Q1 was actually okay. So most of it was Q4. As Steve said, system, we think system came off a little bit in that quarter, maybe connected to the Middle East conflict. We certainly saw competitors increase some of their activity around new business discounts, increased marketing, et cetera. Maybe that's to lead into a 30 June type dynamic. And then for us, we kept price on in the motor portfolio because we are constantly tweaking the portfolio across Home and Motor in terms of a growth margin outcome. So we manage those portfolios around those 2 factors. In an outlook sense, the price we're putting through motor today. So the renewal prices increased in the second half in motor. Those prices that we're currently putting through should see us get to our outlook for FY '27, so the current AWP that we're seeing with a little bit of an improvement in retention ratios into FY '27 through some of what Steve spoke around that brand portfolio.

For my second question, can I ask just us around kind of balance sheet management and the new multiyear aggregate reinsurance cover? Given you highlighted your what protected on the downside with upside optionality in earnings. Does that mean investors should think that you will be -- you may be in a position to continue to deliver special dividends if you do have good years going forward?

Yes. Look, I mean I have a couple of comments, and again, then JR can top up. I mean, I think we've always had a disciplined approach to it. We've been managing the mechanisms through which we get capital back to shareholders in what we believe to be a very efficient way. We recognized credit the franking credit balance is of limited value to us as an organization, but of great value to our shareholders. So the mix of capital return, we favor on market buybacks for the reasons that very clear around EPS performance, return on capital, all the various metrics that sit in the business and will create that long-term sustainable shareholder value. But we do recognize that from time to time, there will be an opportunity for us to repatriate some capital utilizing a special dividend and then releasing the franking credits to our shareholders. So the form of capital, I think, might change substantially over time, buybacks will remain our preferred course conservative management of the balance sheet, I think, will -- has served us well and will continue to serve us well. And we continue to take a reasonably prudent approach to that at the moment.

I'd just say that I think we've said this before that with a 70% dividend payout ratio, we sort of ordinarily expect something like 10% organic generation out of that, so 20% to fund the growth in the business. depending on where growth is at, but something around that sort of level. And so if we do have more profit through those profit margins or improved natural hazard experience relative to our expected then that should generate obviously more capital, which should actually improve that ratio in the years where we get that and lead to more opportunity for capital management in those years, yes.

And if I can ask a third and final question from me. Just can you remind us of your initiatives in terms of helping customers and communities deal with client impact? And are you offering incentives to help with fund the transition of the risk management.

Lisa, would you like to come up and talk about some of the initiatives that we I mean, obviously, we've got -- we've invested heavily in our disaster management capabilities. And what that allows us to do from a customer perspective is very much get on the front foot -- so we've got metrological capability now embedded in the organization, both short, medium and long term. And so typically, we will see good line of sight from our meteorologists around what's going to be happening in terms of the weather and then we can deploy that disaster management capability through our management center out into the field in terms of making sure that we've got our resources appropriately set.

Yes. So in terms of -- from a consumer perspective, prevention has been a core part of our strategy. And as Steve touched on a lot of work in terms of disaster management, proactive alerts to customers and then responding. But equally, we launched Haven probably about 18 months ago. And anyone across the country can type in their address and really understand the types of risks that they might be subject to and importantly, actions that they can take to make their homes more resilient. At the same time for Suncorp, we've got the MyHome offering as well. That actually gives rebates on some everyday items. If you take some of those actions, customer feedback of those using those Haven and MyHome has been really positive, and we'll continue to look to scale that. And then I know many people know I talk about this often, but in the motor space, we did a lot around prevention. So AAMI safe driver tells you in terms of every drive, how you're driving, how to be a better driver, stop speeding, stop your braking. And again, there's pretty significant cash rebates on Ampol, Myer, et cetera. So really pleased with the prevention work and it is making a difference. And over time, we'll look to continue to scale there.

Okay. I gave you 3 questions there, Andrei. You're good enough to come into the office. Tomlins?

Mark Tomlins, Hunter Green. With your new aggregate policy for 5 years, how should we be thinking about reinsurance and how that impacts it?

Yes. It shouldn't -- that shouldn't have any particular impact on the intergroup reinsurance. So we did reduce the level of intergroup between Australia and New Zealand last year, but that's remained consistent for this year, and that's what we'd expect going forward.

And you reduced your exposure to insurance-linked bonds during the half, and then we had sort of an increase in inflation expectations and rising interest rates. -- you sort of regret doing it when you did or you sort of mentioned that you're planning on further reducing your interest with funds exposure.

Let me just start the question because I was involved in buying those things back in 2013. I've always said the minute you're going to sell them. to kick up. So that's obviously the lore of the jungle.

Yes. Look, we've done a lot of work on inflationary bonds and that position to reduce the exposure to them has been there for probably 2 years now on the strategic asset allocation basis. We don't need as many as we used to have to manage the inflation in the claims portfolio and anything above that is really -- it's unnecessary bet from our perspective on inflation. We try to pick the right time to do it, but sometimes it's hard to do that. But as I say, we've got a small residual rebalancing to do, and we'll try and pick the right time from an inflationary perspective to do that rebalancing.

You mentioned that you've exited a broker portfolio in New Zealand and expect to have broadly removed impact for FY '27. But how much should we expect the impact to be in first half '27?

As small as 1 month.

And then ASIC was out yesterday talking about motor insurance premium renewals and the poor job that was done in explaining the increases. You do a great job for us here in explaining what's going on. Is it just a case of poor communication?

Well, I think it's -- obviously, we'd like to communicate better. We'd like customers to understand in more granular detail the components of the premium. I mean it is very -- it's not an easy thing. It's a lot of insurance is very difficult to understand, particularly on the reinsurance side and getting customers to understand the impact of -- on their premium of things like reinsurance adjustments. But we do -- we have been obviously engaged with ASIC, and I've certainly had many discussions with the Minister Mulino. It's premium transparency is one of his top rating issues sit around the ICA table. The industry is aware of the challenge that the Minister has put to the industry around improving transparency, and I think that's going to be an inevitable improvement that we'll see. It's just not easy to do. And -- but it will need to get better. And we -- in terms of our strategy at Suncorp, we are -- with the new policy administration designing pathways that will allow our customers to have more understanding of the inputs into an insurance premium, but critically for them, what they can do to reduce the risk and bring the premium down.

And finally, just on the management shakeup, does your new divisional heads got any plans for each of the divisions?

Well, I think what we might do, Tomlins, with due regard is give them a bit of time to get their feet under the desk, and we'll come back to that in Investor Day with a portfolio rundown. I'd make the point. When we did the last organizational redesign and compressed a number of direct reports from 8 to 7, which is probably lower than most other ASX 100 companies. So that give a bit of flexibility. I think that this is very much aligned to the strategy, very much aligned to leveraging the value that we see post the investments that we've made. But the important thing is these -- all the executives that are in the team are very familiar to the new portfolios as they were to the old. And particularly, Michael has been the CFO for Consumer Insurance. He's run claims. He run most of the parts of the engine there of consumer. And Lisa similarly has run most of the parts of the commercial business. So I think the breadth and the strength and the quality of the team will mean that the transition will be reasonably seamless and Bridget has got some great ideas and opportunities to drive that brand portfolio forward. And use AI and distribution as an adjunct to our demonstrable digital transactional distribution capabilities. I gave you 4 questions. So anything else in the room? Might go to the phone.

[Operator Instructions] Your first question comes from Julian Braganza with Goldman Sachs.

Just the first one on the 80 basis points of profit commissions that you're seeing is upside to your underlying margin. So that implies about close to $500 million to $600 million kind of over the 5-year period of the contract. I just want to understand, one, how is that calculated? Is there any -- is it on the best estimate basis is any level of conservatism? I just want to understand -- and also the formula kind of how you -- what are you accounting for that in that number?

We'll leave out the spreadsheet to you, Julian, if it makes easy.

Good try on the formula, Julian. But Look, obviously, the profit commission arrangements themselves are commercially sensitive, so we won't be talking about those. But the way that upside is presented on the chart is it's an annual number, obviously. And the way we've done it is we include in the underlying ITR calculation, the expected profit commission. So on an expected basis, there's a certain level of profit commission that we would expect to get with the -- with those -- both of those arrangements in terms of the main CAT 1 and the aggregate one, there is opportunity to earn well above the expected profit commissions. And it's that number then appears into that 80 basis points. And the calculations are simply, what is the what is the maximum amount of profit commission that we're able to achieve on those -- both of those programs, less what we have included in the underlying ITR.

And is it fair to say that it's broadly equally split between the aggregate and the structured solution?

No. The upside is heavily skewed towards the aggregate cover. Because the way we've done the structured main cat 1 is reflected on the FY '26 experience. So obviously, we had the hail in FY '26 that did attach to that part of the program. which then impacts on the profit commissions there. So we reflected that into it as the new aggregate 1 it's a maiden program. It doesn't have any losses attached to it, to date.

Okay. No, that's clear. And then just a second question. So there's a fair bit of discussion on unit trends over second half '26, which is a bit weak. But a lot of the discussion as well now is about upside to margins, well above the sort of 10% to 12% threshold. So I want to understand here is the pricing versus volume dynamic or the margin versus volume dynamic is more skewed in terms of margins. So I just want to understand, what does it mean for pricing going forward? And -- is there a greater focus on volumes from here?

No. I think at the settings within the business, I think I went through them in the earlier question. I mean, inflation is the biggest driver of our pricing position. And you've got to recognize that many in the industry will have different means of predicting what inflation might look like prospectively. But of course, in insurance, if you get behind, it takes a long time to catch up. So we'd like to be there or thereabouts or slightly ahead in terms of our assessment of inflation, not only underlying CPI, but insurance inflation and particularly as it flows through the supply chain. And I expect that will remain elevated over the medium term. Some of the scarcity and pinch points that we're seeing in terms of housing trade availability. I think it's going to continue to play out into elevated levels of inflation. So what that means is that if you've got a more precise predictive capability as we believe we have, then we may get ahead of volume trends or slightly below volume trends. So that's the general approach to pricing, and it will see some variability in claims. I'd make the point that we've delivered those 5 -- at least 5 periods above 11% and most recently towards the top end of that range. We do have to fund the aggregate cover now. and we're committing to continue to have those margins at the top end of the range, with an aggregate cover with the cyclone reinsurance pool. And so the risk sort of profile of this business has changed materially, and we're continuing to maintain that discipline around top end of the range in terms of margin with appropriate growth. And why do we believe we can do that? Because we see continued opportunity. We see continued opportunity around loss ratios. If you look at our loss ratio versus some of our competitors is slightly elevated. Now there's some good reasons for that, that are portfolio-related geography-related, customer-related, but we believe we can bridge that gap. And we still believe there's opportunity in the expense base using AI as a productivity tool. Our workforce is significantly more productive than it's been, and we'll continue to go that way. So opportunity, I think, to keep that margin towards the top end of the range. But don't forget, we are funding an aggregate cover. We've got a premium to pay there. There are some offsets, but we still have to pay that cover.

Okay. Got it. And then just to round up the last part of that answer. You're not really guiding to any expense ratio benefits from here on into FY '27. Just want to understand why and all the productivity efficiency benefits with AI, I guess, is there more of an opportunity that could come through? Or is it more of an out-year conversation?

Yes. Look, I think that's a fair question, Julian. So we have guided to a flattish, broadly flat operating expense ratio for FY '27. And the drivers around it are we're still expecting to have some inflation in the cost base, wages, technology costs. Technology costs run at a fair clip. We're still investing in the business. So we still expect to be investing through '27 as well. And the profile of the productivity, operational efficiency benefits from some of these programs takes us a little bit of time to get up and spinning in terms of full run rate benefit. And so those dynamics together, we are expecting to see operational efficiency and improvements in FY '27, but we're also expecting to see some underlying inflation and continued investment in the business, which keeps it flat for 27%. But to Steve's point, there is a longer-term opportunity here for us on that expense ratio, without a doubt.

Got it. And just last question for me. Just on reserving in the consumer business. So I understand any differences in inflation that you're calling out was the system given the reserving trends just for consumer Home and Motor. And is that going to necessitate more of a pricing response? Or not really? I just want to understand how you're kind of interplaying that into pricing.

Yes. Look, I mean on reserving, prior year reserve releases, we had some strengthening in -- particularly in Motor, a little bit in Home. That was all in the first half. We went through that in the first half results. It was around some of the timing around total loss and third-party claims way back in July. So that's not really a feature in the results beyond that. In terms of working claims inflation, I said in the presentation that work in claims inflation in Motor and Home around the mid-single digit mark, which we have no reason to think it's different to the rest of industry. That's driven by, in Home, some scope of liquids water damage landlord covers as we've seen rent coverage increase and some liability claims increase. And then in Motor, it's largely been with some moderation in the parts and paint and labor and total loss for that matter. It's largely been in the windscreen and towage some of that in response to the Middle East fuel crisis. So we don't have any reason to believe that those would be significantly different to industry, except to say that when we look at our claims performance relative to industry, there's some stats you can look out there that we tend to run slightly better than the rest of industry.

And Julian, just finally on that point, one of the sleepers initiatives in the business is what we call home repair. It's our proprietary home repair business doing claims-related activity. We've taken some steps recently given what we see in terms of the outlook for claims inflation and supply chain challenges. We own that business. And we've extended both its geographical footprint, so it's now covering the whole of Australia and the sort of eligibility of claims that it will address. So we now have it doing escape of liquids type claims very successfully. This is going to be a very big part of our toolkit for this claims environment going forward, give us access to more secure access to trades. We're working constructively with it alongside the rest of the panel but it's going to be a very important initiative for us and doing very well over the last 12 months. Okay, let's go to the next question.

Your next question comes from Siddharth Parameswaran with JPMorgan.

Just a couple of questions, if I can. Firstly, just on inflation versus what we're seeing in terms of GWP growth. Steve, you made some comments that you saw underlying inflation around 6%. I think you gave a little bit of detail around Motor and Home being around 5%. I think that's how interpreting your numbers. But GWP growth ex the currency moves was 3.7% in FY '26 and was consistent first half and second half. So I just want to understand, your guidance is also seems to be sub inflation going forward on GWP growth. I just want to make sure there's some consistency between your comments that you're basically pricing for inflation and just what we're guiding to on GWP growth. So maybe if you could break down where there might be consistencies in the numbers that I've just highlighted?

Yes. So I think one of the points is that the whole market has a different predictive capability around inflation. And again, to the point of our pricing discipline, it is to get ahead of inflation as best we can and be prospective around our pricing as best we can. And so that will obviously have 2 components. One will be it will lift the -- if we're pricing to a higher level of inflation, we'll lift the AWP, but it may have some short-term detrimental impact on units if the rest of the market doesn't have that same predictive capability.

Yes. Look, it's a very broad spectrum of inflation. So you've got to break it down. Inflation in Home and Motor has been around the mid-single digits. So probably around that 5%, maybe pushing into 6%, 5%. AWP in Home has been ahead of that. over the course of the year. In motor, it was a little bit behind that. But we do that to over the course of the year to manage the portfolio over the course of the 2 halves, that's reversed a little bit. So there is dynamism in the way that inflation, pricing works across the portfolio. But we are quite confident that as we sit here today, we're covering inflation in both Home and Motor, particularly on working claims. The bigger challenge in home is the aggregate cover, of course, because most of that goes into the home portfolio. And we're seeking to -- with the other initiatives I spoke about seeking to get that price through. We will see Home and Motor moderate to in terms of underlying ITR back into the guidance the guide rates. But we're confident we're pricing for underlying working claims inflation in Home and Motor today in terms of the AWP that we're seeing going through relative to that inflation. And then the concept of inflation in some of the other portfolios around commercial and workers' comp and the like is a little different because it tends to be more around large loss dynamics. But again, we're quite comfortable that we're pricing for inflation in those, and we can see margin expansion coming through in CTP as we earn more premium through. And that's to get those products back to Guidera target underlying ITRs. We can see expansion coming through in packages, platforms as we remediate that business. And in New Zealand, commercial is similar dynamics to Australia. And then the other thing we've seen in New Zealand is in motor, motor claims costs and frequency really fell away last year, and they've come back a little bit in a modest way in the second half of '26. And so you can particularly see that in AA in New Zealand, where we expect to continue to get growth in AWP in New Zealand, albeit probably with a little bit more AWP over unit growth. We had 3% odd unit growth in AA Motor over FY '26.

Anything more, Sid?

I do, yes. Just one question around just the increase in margins in commercial. I think you had underlying ITRs at 2.6% in the second half, up from 9.2% in the first half. I thought there may be some pressure there just given some of the comments that we hear in the market around what's happening with commercial pricing in aggregate. And I think you flagged in your commentary, I think rates were flat in largest segment within commercial. I mean, I know that there were increases in some of the personal injury classes. But maybe you could just comment on either margins by portfolio versus your targets? Or what -- where is the improvement coming through? And should we not be concerned around some of the softness in the markets for the outlook?

So I said the -- again, you've got to break Commercial and Personal Injury down because it's quite a broad church of portfolios. We saw the margin expansion in both halves coming through CTP and workers' comp off the back of the pricing changes that we've been putting through those portfolios. We've put significant price to both Queensland, New South Wales and to some extent, some rate in workers' comp in WA. That's what drove most of the margin increase in commercial. We've seen across property, for example, which is a relatively small part of the overall Commercial and Personal Injury portfolio. But we have seen rate reduction there. We've seen rates down into the double digits, maybe 10%, but the market is probably down closer to 20%. So we've done better than market. We've seen rates down in Profin. But again, we're a lot tighter than the rest of market. fleet has been a little bit of a change half-on-half. But the key driver to the growth in margins in commercial has been the personal injury and we would still expect that to continue into FY '27, as I said. Some of that rate still needs to earn through those portfolios. We still expect to see ongoing pressure in commercial into FY '27. And we expect to see a little bit of margin expansion in platforms in FY '27 as we remediate that business. They're probably the key drivers.

Okay. Just one final quick question, just competition. Just you did flag increasing competition in the second half in personal loans. I think you were singling out motor. Just -- is it broad-based? Is it the challenger brands and ever comments, where -- is that -- maybe you could just provide some color?

Mike, it lease very quickly to -- but you just got to watch the TV. The marketing from some of the competitors has lifted materially through the last 12 months. I mentioned the brand portfolio, which we believe is in fantastic shape. The growth that we've seen in Bingle, the strength of AAMI and Shannon, our 2 key brands there. I mean it's clear that some of the premium brands, Suncorp [ Australia ] have been doing it a bit tougher in this environment, which is what you would expect. And we continue to look at options opportunities there for us, but the competitive environment.

Yes. Look, I think Steve summarized it well. I'm sure any of us watching sport on the TV would see it is competitive. It is broad-based, whether it's challenges or some of the more established brands in terms of in that market. And obviously, we've started to see the dynamics with some of the motoring clubs start to change. But to Steve's point, we feel really well positioned for the competitive environment -- we have a strong multi-brand portfolios. Each brand is very specific to customer segments, so we can meet customers where they want to be met, which is something that is unique to Suncorp and you see in terms of some of the performance of those brands over the last year and years. Equally in terms of -- we've got great capabilities around pricing, underwriting and claims management. And claims management, I'll touch on in terms of we've got great scale. And many of you remember when we spoke about the half for the consumer results, obviously, natural hazards played a bit of a role there. and we go back to November last year, we're probably close to 15,000 or 20,000 claims, and we were able to use our scale, our expertise of our people to assess 500 cars each and every day through our mass assessments, and that's -- that's something that matters for consumer insurance to be great at claims and something we're putting some big instruments through. So whilst it is a very competitive environment, and you'll see strong margins in the consumer portfolio, feels that we're very well positioned to compete in this environment.

Your next question comes from Kieren Chidgey with UBS.