Suncorp - Not Under Water Yet.

By Jason Fittler

QLD has been hit by its worst floods in 50 years over the Christmas period.

SUN noted that the event would be “material” and that it had received 1,415 claims thus far.

SUN’s maximum event loss under its reinsurance programme is A$200m.

The company has said it remains too early to assess the costs with floodwaters still receding. Unlike IAG, SUN offers QLD flood cover through its Suncorp and GIO brands (automatic) and APIA (opt-in).

However, given the rural nature of many claims it is not definite SUN’s MER will be reached.

Further, with a favourable natural hazard environment throughout most of 1H11, SUN should retain some natural peril allowances (A$435m for FY11) to apply against QLD flood loses.

If we assume that the costs of recent flooding is A$100m for SUN (outside allowances), our FY11F EPS forecast falls by c10% and our insurance margin reduces by 1.5%.

However, our valuation falls by just 0.5% given the one-off nature of the event.

We have not adjusted our SUN forecasts at this stage pending a further company update.

For SUN, we continue to believe longer term value remains from its bank turn around and we maintain our Buy call with the stock trading at a 21% discount to our valuation.

For more information on Suncorp please contact us on 07 4771 4577.