Suncorp Group Limited (SUN) Earnings Call Transcript

Good morning, and welcome, everyone. And let me begin by acknowledging the traditional owners of the lands on which we meet and, of course, to pay our respects to all elders past, present and emerging. So today, I'm joined in Sydney by the executive leadership team. Our CFO, Jeremy Robson, will join me for the presentation, while the remainder of the team will be available for the Q&A session that will follow the presentation this morning. Now I would like to start with a slide that we've used in our previous results presentation, and it describes how we believe value is created at Suncorp. And after the events of the past year, it feels more relevant than ever. At its heart, Suncorp is a purpose-driven organization. Our purpose is to build futures and to protect what matters. We do this through a capable, diverse and customer-focused team. This year's flooding events have again demonstrated how we deliver on that purpose. In Gympie, Lismore, across Southeast Queensland, all the way down to Sydney and over in Auckland, our people today are standing shoulder to shoulder with our customers and the communities that rely on us. The long-term financial outcomes that we achieve and the value we create for our shareholders reflects the sum of us getting all of this right. So moving to the next slide now, and this slide presents the high-level P&L for the year and some key year-on-year data points. In summary, we feel this is a strong underlying result, highlighted by record GWP growth, a turnaround in the bank, margin improvement in the face of inflation, improving customer and employee metrics and substantial progress against our key strategic initiatives. Given this progress, we can see a clear path to achieving the FY '23 targets that we set for our business and announced to the market back in May 2020. Now while the group's net profit after tax of $681 million and a cash earnings of $673 million are well down on the prior year, the results should be viewed in the context of elevated natural hazard costs and the significant volatility in investment markets. Together, as you can see on the slide, these factors have reduced pretax profits by over $700 million when you compare it to FY '21. During the FY '22 La Niña year, the group managed 35 separate natural hazard events and around 130,000 natural hazard claims at an estimated cost of $1.08 billion, which is $101 million over our allowance for the year. Volatility in global and domestic investment markets impacted investment returns across insurance, the bank and at the group with increasing yields and widening credit spreads being the key drivers. Now of course, the majority of these accounting losses this year will reverse to profit in future periods as the increased yield earns through. Despite these factors and the impact they've had on our capital position, we have set the final dividend at $0.17 per share, meaning our FY '22 payout will be 75% of cash earnings. Having experienced such volatility and grown our business at record levels and then still being able to pay dividends towards the top end of our payout range further underscores the strength of our balance sheet and our prudent capital management approach. So to the next slide. And here, I've called out some of the key highlights that are embedded in the result. The momentum we have built over the year is evident in the record levels of growth as we unlock the value of our brands and we emphatically deliver for our customers. Our Australian insurance business has achieved premium growth of 9.2% when you adjust for the portfolio exits. And importantly, growth has accelerated through the year with 10.7% growth in the second half when you compare it to the prior corresponding period. In New Zealand, the GI business has continued its consistent growth story with GWP increasing by 14%, including a stellar 19% growth in our AA Insurance joint venture. Now for a broad-based GI business of scale like Suncorp's to be growing above 10% is a substantial achievement. In the bank, growth has continued to accelerate in the home lending portfolio, up by $4.1 billion or 9% for the year and $2.9 billion or 12.4% annualized for the second half. I'd make the point that 2 years ago, the bank balance sheet was shrinking, turnaround times were among the worst in the market, and we lost the confidence of brokers. The contrast to today could not be more stark. In deposits, where our digital program is most relevant, at-call transaction accounts grew by more than 20%. We also saw an expansion in our GI underlying ITR with a second half margin of 9.9%, highlighting our pricing discipline and the impact of our claims program at work in offsetting the significant inflationary pressures in the economy. So before I hand to Jeremy, I'd like to briefly touch on the sale of the bank and to restate the strategic rationale for the sale to ANZ. As anticipated, much has been spoken and written about the sale in the few weeks that have followed our announcement. And as I said on July 18, Suncorp has become a simpler and a more focused business over the past 3 years. We've exited businesses and portfolios where we were subscale or where industry dynamics would inevitably divert management focus from areas where we can really deliver for our customers and improve shareholder return. Now extending this simplification agenda to the bank was not a decision that we took lightly, and it followed a comprehensive strategic review. But to move forward, we set a number of key criteria. Firstly, any acquirer needed to share our purpose, our values and our customer ambitions. Secondly, we needed any proposal to align with the growth potential that we envisaged for our bank, positioning our customers and employees for greater success over the medium to longer term. Thirdly, any proposal needed to maximize shareholder value for Suncorp shareholders and fairly reflect the improvements that Clive and the team have orchestrated and delivered. The sale price in our view and in the view of most of the shareholders I've spoken to since the announcement demonstrably reflects this. And finally, we needed to be convinced that any sale was good for our home state of Queensland and was in the national interest, and we feel this agreement that we've reached with ANZ ticks all those boxes. So when this transaction completes, Suncorp will be a simpler, growth-focused, Trans-Tasman insurance company. Every minute of management and Board time will be dedicated to protecting what matters for our customers, and importantly, ensuring we're at the forefront of the sustainable and vibrant insurance industry that Aussies and Kiwis need now more than ever. So with that, let me hand over to Jeremy.

All right. Thanks, Steve, and good morning, everyone. Well, as you've heard, the result this year was highlighted by strong underlying performance with a record second half GWP growth, a clear turnaround in home lending and an improved underlying ITR. But the FY '22 profit was also impacted by several headwinds and other items. Firstly, volatile investment markets, particularly in the second half, had a very significant impact on investment returns across both GI and Life but also on our balance sheet hedges in the bank. Now it's important to note that the mark-to-market adjustments will drive higher returns going forward. Secondly, natural hazard events reflected normal through-the-cycle volatility as well as the La Niña weather pattern. And finally, we had a number of other unusual items in the result this year, which netted to a largely neutral position, including a tax benefit relating to the sale of Life in 2019, additional reinsurance premiums on top-up main cat and AXL covers and various restructuring costs. So I'll now run through the results in more detail, starting with growth in the Insurance Australia business. As usual, we've adjusted the GWP numbers for portfolio exits to provide a clearer view of the drivers of growth. On this basis, GWP grew by 9.2% with strong growth across all lines and an acceleration in the second half at 10.7%. Motor increased by 8.7% with unit growth reflecting improved customer propositions in AAMI and Suncorp and AWP increases, reflecting underlying inflation and higher sums insured. The home portfolio grew by 9.6%, reflecting AWP growth from higher natural hazard and reinsurance costs. In commercial, we saw strong performances in NTI and property as well as our long-tail liability business. CTP grew by 6.4%, driven by strong unit growth with South Australia performing particularly well. And workers' compensation was up strongly across all states driven by rate increases and higher wages, although this level of growth for workers' comp is not expected to continue into FY '23. Turning next to claims. The improvement in consumer was driven by the home portfolio with ongoing rate increases as well as lower frequency and contained inflation. In motor, particularly in the second half, we saw some increase, including from higher secondhand car prices. Claims inflation across consumer continues to be well managed with the benefits of our repair panel network in motor and the best-in-class claims program at work in Home. Commercial claims improved slightly, reflecting the benefit of ongoing pricing and underwriting actions as well as benign loss experience. CTP was broadly flat, whilst growth in workers' compensation gave rise to a mixed impact. Prior year reserve releases were lower than last year with strengthening in the commercial book, primarily related to bodily injury, the first half strengthening in the exited workers' comp excess of loss portfolio and lower releases in Queensland CTP as a result of claims experience and scheme pricing. But New South Wales CTP continues to perform well, and we also saw a benefit of reinsurance recoveries on prior year natural hazard events. Natural hazards improved from the impact of home pricing as well as lower risk margin and CHE as reinsurance recoveries were triggered in FY '22. Moving now to investment performance. Investment markets have had a significant impact on the full year result across most asset classes and particularly in the second half. We saw net mark-to-market losses on the overall fixed income portfolio of around $325 million as a result of the sharp increase in both risk-free yields and credit spreads. Now I'd like to make a critical point in this regard. And that is, given we generally hold our investments to maturity, these mark-to-market losses are expected to reverse over the average duration of the portfolios. By way of example, the exit yield on insurance funds in June was around 3.5%. We continue to assess the profile of the investment portfolio and are currently maintaining a conservative bias. Approximately 90% of the portfolio is allocated to investment-grade fixed income securities. We are currently overweight our allocation to cash. We maintain a prudent approach to growth assets with our exposure to international equities at a reduced level, and we've maintained our effective exposure to inflation through the ILB portfolio, which has performed very well for us. Turning now to New Zealand. During the year, similar to Australia, the strong top line growth was offset by higher natural hazards and lower investment returns. We're continuing to see very strong growth in New Zealand with GWP up 14% across all lines of business. Natural hazard costs were $45 million above the allowance, driven by 6 material weather events, an unusually high number for New Zealand. Working claims cost reflects unit growth, inflationary pressures and a number of large commercial and home fires, and this was partially offset by lower motor claims frequency following the COVID lockdowns in the first half. Investment income was materially lower with the increase in rates impacting on fixed income portfolios with similar dynamics to the Australian business. And whilst Life saw an increase in planned profit margins and favorable experience, it was also impacted by the significant increase in rates. As with the GI business, these are also expected to reverse over time. On then to natural hazards. With significant weather events in the year, our reinsurance program provided good protection, and the allowance was exceeded by $101 million. Now I do note, our allowance has been increased very materially over the last few years. And it's important to remember that FY '22 reflected the impact of a very significant flooding event in February, which was considered to be a high-severity, low-frequency event, and the impact of a second La Niña weather cycle. Now having said that, not all La Niña weather cycles are the same with the FY '21 La Niña giving rise to quite a different experience to that of FY '22. As previously advised, we've successfully fully placed our FY '23 reinsurance program with a similar structure to last year, including a main cat retention of $250 million. In response to market conditions, we've made some changes to our program, including increases in the deductibles on the AXL cover and an increase in the attachment point for Dropdown 3. We've also increased the natural hazard allowance for FY '23 to $1.16 billion, reflecting changes to the reinsurance program as well as recent elevated experience. I also note that we experienced our first significant event of the new financial year with heavy rain in New South Wales and Queensland in July. The event is expected to cost in the vicinity of $100 million. Turning then to the all-important group underlying ITR, which continues to trend upwards. As usual, our focus is on the underlying ITR, excluding COVID impacts, and I'm very pleased to report that this has now increased to 9% in FY '22 and 9.9% in the second half. As you can see, the increase was largely driven by the consumer portfolio with rate increases, our best-in-class claims program and lower frequency in home. Commercial also improved, largely driven by working claims performance and disciplined underwriting, and personal injury benefited from the impact of rising yields. The New Zealand underlying ITR remains at very strong levels but decreased reflecting the large fires in commercial and home. Now momentum on margin with a second half underlying ITR of just short of 10% shows a clear pathway to delivery of our FY '23 target. But there are a number of important dynamics on the outlook for margin, and I'll quickly run through them now: firstly, the increase in natural hazard allowance and reinsurance costs for FY '23; secondly, the prudent expectation of claims inflation going forward despite our experience to date and the ongoing benefits of our best-in-class claims work. Now these 2 things are expected to be more than offset by ongoing pricing momentum across all portfolios, particularly home, as evidenced by the second half GWP growth numbers, improved underlying yields from higher risk-free and credit spread levels and the benefit of lower expenses largely from the reduction in elevated strategic spend. Now then to banking. And the highlight of the result was again the continued momentum and growth in home lending. The portfolio grew at 9% over the year at an annualized rate of 12.4% in the second half. Net interest margin decreased 14 basis points from FY '21, driven by the rate environment, competitive pressures, higher fixed time lending mix and higher liquid assets but with some offset from good active management of the deposit portfolio. The NIM of 193 basis points remains within our target range of 185 to 195 with improving trends experienced in the latter months of the year. Other operating income was impacted by the mark-to-market losses on balance sheet hedges, the change in reporting of mortgage break fees and lower gains on the liquidity portfolio. Operating expenses increased 0.7%, largely from the temporary investment in strategic initiatives. And importantly, we continue to target a cost-to-income ratio of around 50% by the end of FY '23 with momentum in home lending, the rate environment and emerging cost efficiencies being the key drivers. Now the credit quality of the bank's lending portfolio is also a key feature of this result. It continues to strengthen with 81% of the book in residential mortgages with a dynamic LVR of just 54%. Past due loans have reduced to multiyear loans driven by a buoyant housing market. And both origination LVR and the proportion of the book with an LVR of greater than 80% declined over the year, reflecting the fact that growth in home lending hasn't come at the expense of quality. Now despite this, we've maintained our collective provision balance at $180 million, reflecting the improved credit quality of the portfolio but with a prudent view on the economic outlook. Now then to group expenses. As expected, project costs increased due to the planned spending on strategic initiatives. We also saw an increase in growth-related costs with increased marketing and commissions, additional staff in the bank to process the increase in lodgments and higher costs relating to our growing joint ventures. But pleasingly, we've been able to offset the impact of the inflationary environment with ongoing efficiency savings. And as you can see on the slide, this management of costs has enabled us to deliver improved run-the-business expense efficiency ratios. Looking ahead, we're continuing to target operating expenses of around $2.7 billion in FY '23, but I do note the current inflationary environment and our growth momentum in this context. Finally, moving on to capital. The capital position at 30 June has seen net capital usage of $470 million since 31 December, and I'll run through some of the key dynamics now. Firstly, the investment markets impacts have given rise to a large deferred tax asset, which is a deduction for capital purposes. This impact is expected to reverse over future periods. Secondly, the higher natural hazard allowance and reinsurance costs effective 1st of July impact premium liabilities for capital purposes. This is also expected to reverse in future periods as we put through the appropriate pricing response. Thirdly, the new FY '23 reinsurance program increases retained risk, which results in a higher target capital level as previously advised. But this impact is offset by the benefit on capital of higher yields. And finally, the capital applied to the strong home lending growth. Now whilst the chart shows a CET1 held at group of $248 million, I do note that some of the impact of the items I've just been through has been retained by the GI business. Now we're comfortable with this position given the expectation that many of them will reverse. A final dividend of $0.17 per share at a 75% payout ratio for the year reflects a robust balance sheet withstanding the capital impacts I've just noted as well as recognition of uncertainty over the global economic outlook and the weather cycle ahead for FY '23. We're continuing to maintain a prudent approach to capital management in the current environment and remain committed to returning any capital surplus to our needs to shareholders. And on that, I'd now like to pass back to Steve.

Okay. Thank you, Jeremy. And today's results should be seen in the context of the group's 3-year plan that we first outlined to the market in May last year and the commitments we expect to deliver in FY '23. As a team, we've been very clear that our priority has been to align everyone at Suncorp around improving the way we deliver insurance and banking products to our customers here in Australia and across in New Zealand. Now this slide recaps our strategy in the 12 key strategic initiatives: 4 in GI Australia, 3 in New Zealand and 5 in the bank. Now given we've previously covered the bank's strategy and progress, I'll now run you through what you can expect from our GI business over the coming year and into the future. In Australia GI, our priorities have revolved around enhancing our brands, improving our underwriting, moving distribution to digital and becoming best-in-class in claims. This slide summarizes our progress and gives you a sense of what you can expect. Our efforts to reinvigorate our brands to refine our customer value propositions, to improve our marketing and simplify our product portfolio will continue the growth momentum that has been building since the day we implemented the strategy. In pricing and risk selection, which is very important, we've made good progress with the rollout of our new pricing engine, which is known as CaPE, across, firstly, the home portfolio and the focus now turning to motor. Alongside CaPE, we've introduced a number of innovative risk selection enhancements, including geospatial mapping. And we're now rolling out modern, automated broking platforms across the commercial insurance business. In distribution, we continue to invest in digital and data to meet our customers' increased appetite to interact with us online. The proportion of digital sales and service grew by 6 percentage points in the past year and now account for 42% of total sales and service transactions. This means we are well on our way to our long-term target of 70% digital, 30% voice in sales and service in GI. And what one seemed a pipe dream is now well within reach. Our best-in-class claims program has achieved a number of critical milestones during the year, including the establishment of new repair panels and the implementation of systems to better manage builder allocations and costs. All of this has allowed us to keep on top of the current inflationary pressures. Motor and Home claims digital lodgments have increased in both working and event claims as we meet customers in their channel of choice. Digital lodgment at 58% in hazard claims has more than doubled in the year and reached 70% for home customers during the flood events in February and March. Now all of this has significantly improved customer experience, speeding up the repair process and bringing down the ultimate cost of hazard claims. In New Zealand, you can see on this slide, we have made good progress growing our brands and partnerships, and that's evidenced by a GI market share increase of 22 basis points in the third quarter, the seventh consecutive quarter we've grown share in the New Zealand market. Our best-in-class claims program across New Zealand is also progressing well with the migration to Claims Centre, which is our technology platform, now ensuring all GI claims activity is managed on the one platform, and that's a very big step forward. So to the next slide. And one of the key strategic pillars for Suncorp is advocacy and, in particular, ensuring our arguments around resilience and mitigation are heard and actioned. On the slide, we provided a deeper insight into the profile of the natural hazard events that have accompanied the second successive La Niña weather pattern. And whether you believe in climate change, as we do, where you put more recent events down to the normal cycle of weather or just bad luck, it's abundantly clear that more needs to be done. While we're working constructively with the Australian and New Zealand governments around their cyclone pool and their EQC proposals, these initiatives, we believe, are Band-Aid solutions that don't address the fundamental issues. As we previously pointed out, Suncorp has developed a 4-point plan for a more resilient Australia. It includes improved public infrastructure, subsidies to improve private dwellings and the overhaul of planning laws and the removal of inefficient taxes and charges from insurance products. We believe that by focusing on these initiatives, the underlying risk and affordability issues will be better addressed, the cost of repair and recovery that are currently borne by taxpayers will be reduced, and we'll have a more -- we'll have a viable insurance industry now and well into the future. So before moving to questions, I'll conclude with our targets and, importantly, the outlook for FY '23, starting with the business lines. And in GI, our underlying ITR has been improving steadily over recent periods and, for all the reasons Jeremy went through in his presentation, remains on track to achieve the targeted 10% to 12%. You'll note that we previously stated that this margin outcome would be achieved alongside unit count and market share improvements. In the face of such steep input cost increases, we will prioritize margin improvement and ensure pricing adequately reflects underwriting risk and returns on capital. In the bank, lending growth, the rising rate environment and the operational efficiencies are forecast to improve the cost-to-income ratio to an exit point of around 50% by the end of FY '23. Alongside working constructively with ANZ to achieve the key regulatory approvals associated with the sale process, we will continue to execute the bank's strategy with the full focus and attention of the team each and every day through to completion. At the group level, we remain committed to improving shareholder value by delivering a cash return on equity above the through-the-cycle cost of equity. We expect the capital position to materially improve as the DTA position unwinds and as pricing reflects the recent increases in reinsurance and hazard allowances. Our dividend policy remains unchanged with a target payout ratio of 60% to 80% of cash earnings, and we will continue to return any capital to shareholders that is in excess of the needs of the business, and that's a policy that will also apply to the net proceeds we receive from the sale of the bank. So with that, let's move to questions.

[Operator Instructions] Your first question comes from Kieren Chidgey from Jarden.

A couple of questions, if I could. Maybe just starting on the ITR waterfall you've given for '23. I noticed looking at that, I think it's Slide 14, the most significant component is the pricing and expense sort of delta going into the '23 year. You've given a bit of an update in the pack on pricing trends. But presumably, obviously, the pricing expense bucket is net of inflation. So just wondering what sort of trends you're currently seeing on claims inflation, operating expense inflation and what expectations sort of you're building into that outlook for the '23 year.

Thanks, Kieren. I sort of anticipate this question almost #1 or 2. So let's go through all the portfolios and bring it all together. In the motor book, I guess we're looking at -- and get a good handle on industry-wide inflation through the prism of recoveries and settlements, we expect that inflation in motor sort of running at 7% to 8%, and Jeremy has outlined some of the key contributing factors. That's industry inflation. Obviously, we've got the benefit of our preferred repair panel, which continue to provide a benefit to us relative to the rest of the market, which has, in our assessment of things, put a lid on inflation to between 4% and 5%. Now obviously, pricing is going through well in advance of that. A lot of that's to do with the higher price of secondhand vehicles that everyone is experiencing across the industry at the moment. So that's sort of running at the moment, sort of high single-digit price increases through the motor book. On the home side, the dynamics there are slightly different. Obviously, the external benchmarks that we see for inflation, our external benchmarks and sort of running, we think, higher than 10%, in the 10% to 15% category and depending on different input costs, whether that be timber roofing, other repair inputs, availability of trades, et cetera, driving those sorts of levels of increase. A point to make here is that in our working book, the underlying inflation that we're seeing is sort of 1% to 2%, which really reflects the work that we've got underway in the best-in-class claims program, which is multifaceted. And the proximity that we had to this inflationary event by having reset our builder panel start of the FY '22 financial year put us in a really strong position. And also, the rollout of the technology around In4mo and ICBM that Paul and the team have put in place has really improved our working book in terms of home claims. Obviously, the dynamics on hazard claims are slightly different. And we've been putting through quite material price increases to offset the increased costs of reinsurance, which sort of start of our development of our FY '23 plan and we'll continue ongoing given the increase in input costs that we saw in the most recent renewal. So increases in home on an offered basis of mid-teens obviously works back from there to an absolute GWP number, an AWP number based on excess adjustments and other mitigating factors. So that's the Home and Motor story. In terms of commercial, it's a bit of a mixed bag there. Obviously, it picks up some of the dynamics around our fleet book in motor and also property benefits that we've been able to achieve. But predominantly, the overarching factor has been in Australia, at least, an absence of large losses in the working book, which is -- could be quite volatile over time, different dynamic in New Zealand as well. So that's a sort of a run-through of the key portfolios. Jeremy, in terms of input costs on the OpEx side?

Yes. Kieren, you'll notice that we've cunningly shaded those FY '23 margin waterfall boxes. I'll just pick up on a couple of things there. One is it's pricing and expenses. And as we've called out reasonably consistently for the last few years, we do expect the expense base to go down in FY '23, partly driven through the lower strategic investment spend that we've been flagging. We do expect that to reduce and partly because a number of those strategic initiatives do impact on the expense line or expenses and CHE line, particularly around digitalization and automation. So there is an element of that pricing and expense category that is driven by just pure expenses. Obviously, higher premiums and lower expenses then extrapolate that benefit out in a ratio sense. And then the other one I'll just call out in that bucket in outlook terms is, as Steve spoke about with the commercial portfolios in FY '22, we had pretty benign experience across the board there. We're not expecting that to continue in FY '23 in that outlook.

Okay. Can I just circle back on some of those comments, Steve? You're obviously talking about below system inflation in motor and particularly in home. Part of that is sort of, I guess, your relationship with AMA on the motor side. So just wondering -- and you said you've reset the builder panel for home. So how sustainable are both those advantages? Or are those things that naturally could dissipate into '24, just given those people providing those services are obviously experiencing quite elevated levels of inflation that you've outlined at an industry level?

Yes. Look, I think in terms of the arrangements with AMA around SMART, that contract that we entered into upon sale of that business doesn't expire until 30 June next year. So there's a period of time that needs to be worked through before we actually reset that. And obviously, we expect that to be an increase given some of the inflationary pressures. But still, we've got significant volume going through there that we'll mitigate and offset some of that relative to the broader industry. On the home panel side, I think we remain pretty comfortable with the new reset panel approach. It's the right way to look at it in terms of the benefit that we're getting relative to the rest of the industry. Again, it's -- we're applying our scale and leveraging our scale, which is something that a big insurance company should always be doing, aggregate up its supply chain and drive its scale to deliver benefits for both our customers, our shareholders, but also to provide increased flows and certainty to our supplier panel. The only other point I'd make, there are 2 dynamics that need to be rolled forward, Kieren, in that commentary. The first one is how long we think the inflationary factors are going to continue through. And obviously, that's a subject of much debate. Some of them are very much reflective of the supply chain dislocation, which potentially improve over time and seeing some evidence of that at the moment. Some of it's embedded economic inflation, which may take a little bit longer to be addressed. And the other point to make is, we certainly don't think, particularly in best-in-class claims, that we've run out of gas. We do see and we've already been to our Board in our May planning process with what we're describing as a best-in-class claims mark 2, which is picking up some of the things that we couldn't do in best-in-class claims mark 1 and looking at other opportunities to leverage the supply chain that we've got, the scale that we've got, new technologies that are becoming available to us so that we can continue to drive this outperformance relative to industry inflation. So those 2 dynamics, I think, will play through probably the latter part of '23 and into '24. And we're very confident it will provide some protection to our business relative to the industry levels of inflation that we're obviously seeing coming through at the moment.

Steve, I'll just add...

I did have a second question just on reserving. The commentary around sort of the long-held 1.5% reserve release within your underlying insurance margin still being achievable for '23, but you seem to be flagging that will moderate over time, I guess, beyond '23. So just wondering over what time frame does that become a number that can't be repeated. And whether or not you can offer up any thoughts as to what sort of a longer-term normalized assumption might look like, particularly post the New South Wales scheme reforms and with the current inflationary backdrop.

Yes. Thanks, Kieren. I might start, and then I'll ask Jeremy to sort of pick up. I think he had a follow-up on your previous question that he might want to address as well. One of the benefits of being here for 17 years, I can remember the day that we established the 1.5% of NEP reserve release guidance post the tort law reforms, early 2000 or thereabouts. At that time, Suncorp was an 80-20 -- sorry, 70-30 long tail, short tail business, 30% in long tail, 70% in short tail. 5 years ago, we were 75-25. And today, we're 80-20. So that just gives you a sense of the different composition of the book between short and long tail, which sort of puts obviously some pressure on just the absolute level of the reserve releases relative to NEP. So that's one factor that we build into our thinking there. The other thing is scheme reform. Premiums in CTP have been down by over 20% over the past 5 years, which really reflects the scheme reform that's gone through almost all the CTP schemes ex Queensland to date. And what that does is it brings the GWP down, but it provides a more -- reflective of the short-tail type book experience for customers, and it leads to better customer outcomes. And we're very supportive of the scheme reform for that nature. So one of the key things we're looking at around that 1.5%, and it doesn't apply to '23 because we remain committed to that being the '23 guidance, is just the composition of the book going forward through the dynamics that I talked through. Jeremy?

Yes. And just in terms of outlook, Kieren, I think that's something that we're continuing to work through. And we've consistently called out that with scheme reform, we would expect to see some impact on that percentage of NEP, notwithstanding the dynamics Steve spoke around the mix as well. So we'll continue to watch that. And obviously, a large element depends on where the inflationary environment goes. We still got pretty conservative assumptions set around our reserving across the CTP, workers' comp portfolios. I was just going to add to your -- the back end of your last question, Kieren, on inflation and just to reiterate that we have assumed in our outlook on margin for FY '23 that we're not going to stand apart from inflation forever. So we have made some, I think, prudent assumption that notwithstanding the experience we've had and the programs of work that we've got, that we are expecting to see some inflation in that FY '23 outlook that we're then seeing offset through pricing.

Your next question comes from Andrei Stadnik from Morgan Stanley.

My first question, I wanted to ask around the capital. So in terms of -- how much should be unwinding over the next 6 to 12 months? Because it looks like you've called out about $400 million of impacts that will unwind. So in terms of when some investors can expect to see that capital flexibility come back, how will that unwind over the next 6 to 12 months?

Yes. Andrei, thanks for the question. You're right in calling out -- I mean, there were 2 big buckets there of capital impact that we've experienced. One is the deferred tax asset, which is on our investment portfolio. And just to remind that for us at Suncorp, we have the mark-to-market on the liabilities go through current tax. And through TOFA, the mark-to-market on the investment portfolio, the full investment portfolio goes through unrealized and, therefore, through deferred tax asset. The average duration of the portfolios is around 2.5 years for investment funds and around just a bit longer than 1.5 years on shareholders' funds. So it sort of gives you an indication over the time period over which that deferred tax asset reverses. And then the other big callout is then on the impact on effectively day 1, 1st of July, from the increase in reinsurance costs and natural hazard allowances ahead of getting the repricing through. So look, we would expect that to reverse over a couple of years. Obviously, as you do the maths around the reinsurance and natural hazard costs, there are some reasonably sizable increases there that will take probably a couple of years to price through. So I think that gives you some indication over the time frame of those expected reversals.

And second question, can I ask around the New Zealand EQC changes? So you mentioned they're not material at a group level. And appreciate that maybe they're not material from an earnings point of view. But surely, they're having some sort of impact in terms of the top line GWP guidance. So at the moment, it's going from mid to high single digits. But it sounds like it would actually be somewhat higher were it not for the EQC reforms.

Yes. I mean, so you're right, there would be some impact on GWP for New Zealand. But as you said, look, I think the important thing for us with EQC is that we're not expecting it to have a material impact on the bottom line. There will be some impact on the bottom line, but not a material impact.

And look, just my final question, if I can ask around the resilience investments into natural catastrophes. So you mentioned the 4-point plan, and you mentioned the need for governments to accelerate their support. Now in terms of what investors should be thinking about, like how many years will it take for this resilience investment to make a meaningful impact to the underlying risks that you insure?

Yes. Andrei, look, it's going to take substantial period of time, I think, in terms of creating this resilient Australia that we talk about. And that's understandable, I think, in the context of some of the bad planning decisions being undertaken over 100 years or more. So you can't unwind some of those things in a very short period of time. There's certainly some areas that we are working with the government in an intensive way around, and you know what they probably are. That's the Northern New South Wales region, obviously some areas of Southeast Queensland and up through into North of Sunshine Coast, Gympie area and those sorts of areas. But that's just the start. There's a whole range of resilience measures that are sort of sitting on the shelf in various regional centers around Australia that could be dusted off pretty quickly with some very active government support. And I think my only point to make is that while it feels sometimes like we're singing in the breeze here, there has been some progress. So Queensland, after the flooding event, alongside the Commonwealth, $0.75 billion program, obviously, some similar infrastructure relocation initiatives in New South Wales. It's a bit of a drop in the bucket at the moment, and we need significantly more. And the one thing I think that can really make a huge difference very quickly is the imposition of taxes and charges on insurance premiums. And they are increasing, and they're increasing relative to risk. And so the governments that sit alongside those insurance premiums and taxes and charges can be up to 45% of the home insurance premium, that would be a very quick way of improving affordability and allowing more Australians to have access to insurance products. And that's something, I think, can be done pretty quickly, albeit it is quite challenging when some of these taxes are charged by different levels of government.

Steve, the other thing I'd add, Andrei, to the question around the risk profile of the portfolio and the time period over which that changes, the other important thing to remember around the risk profile is underwriting. And one of the most important things that we've done in the past 12 months is roll out our new pricing engine, CaPE, and rolling it out through the home portfolio, which has given us the ability to be a lot more granular and introduce more rating factors into the way we price for home, which is also going to give us a benefit on the front end of the risk profile through underwriting.

Your next question comes from Andrew Buncombe from Macquarie.

Just two from me. The first one is in relation to Slide 13. So it says there that the FY '22 hazards experience was in line with your modeling for a La Niña year. My question is, what does your modeling show for a La Niña year for FY '23 against your updated hazards allowance and reinsurance cover?

I might hand to Jeremy, who's got a quite -- a deep scientific knowledge of weather cycles these days.

Thanks very much, Andrew. Look, as you know, when we set our natural hazard allowance, we set it at what we call as an expected outcome, which is a 1 and 2 level of probability. And we obviously increased it this year, reflecting the change to the reinsurance program. But we also increased it this year, reflecting the fact that the model picks up some more recency in recent natural hazard experience. So it's increased because of the change to the program but also increased because we have had that more elevated experience in FY '22. In terms of what would the number be, yes, in that context, I think it's fair to say that the -- having set the allowance at a 1- and 2-type basis, a La Niña weather event that we saw in FY '22 was certainly not a 1- and 2-type level of experience. So whilst we're not -- I was not talking about detailed numbers there, it is fair to say that the -- if we had the same experience in FY '22 as what we had in -- sorry, in FY '23 as what we had in FY '22, then the natural hazard allowance would be exceeded.

Sure. And then my second question is in relation to Slide 17. Maybe I'm going crazy here, but has there been a change to the definition on the group $2.7 billion cost base to now exclude wealth and restructuring costs?

Andrew, no. I mean, it's one that we have been reasonably clear on, I think, over time. So when we first put those expense numbers out in 2021 at the front end of the FY '23 commitment, the expense base obviously included wealth at that point in time and included restructuring costs. Now what's happened between times is if you add in the wealth costs and where we originally expected the restructuring cost to be, you'll get back to -- we said around $2.8 billion, we'll get back to around $2.8 billion. It's obviously higher than exactly $2.8 billion, but we always said around. And what we've seen this year is the -- there's been more opportunity for us to think about restructuring. And as we've also said reasonably consistently that whilst we put out some estimates, forward estimates for what we thought restructuring costs would be across FY '22, FY '23, we always said that if we came across opportunities to restructure that made sense for us, we would take those opportunities, which is what we've done this year. So it is a little bit more than the $2.8 billion number we put the guidance out on, but that's because we identified more opportunities for future benefit through that restructuring charge in FY '22.

Your next question comes from Matt Dunger from BofA.

I'm just wondering if I could touch on the guidance for mid- to high single-digit GWP growth. Are you able to talk to your price versus volume expectations here, particularly in light of the CaPE engine launch next year?

Yes. Matt, look, I don't think that the CaPE launch in and of itself is a big driver here. And one of the things that I emphasized in my presentation was that with the magnitude of the input costs that we have experienced in the past 12 months that we are going to prioritize margin over volume to a large degree. That doesn't mean that we want to see significant market share through the cycle. I mean, we have established this business on a footing now. And you can see in this result, we have established a position where we're improving our underwriting performance, making our business more resilient, getting our loss ratio performance back in line with market. And over time, we sort of established ourselves with a view, different portfolios respond differently but certainly sort of maintaining market share in large -- the consumer portfolios and getting the appropriate margin through. So I guess that's the key dynamic that we're looking to follow over the medium to longer term. But the point that we made in the short term, particularly in the face of such large increases in input costs, is that we will make sure that we're pricing risk appropriately and that we're managing margin as a priority through to '23 and into '24.

Okay. And just on the net earned premium growth on the back of this mid- to high single-digit target, are you able to talk to what sort of level of NEP growth we should be looking at, obviously, in light of higher reinsurance costs and some pretty subdued NEP growth in your commercial, CTP, workers' comp business?

Yes. I mean, that will convert back to a sort of mid-single-digit NEP growth number. And as you pointed out, one of the key drivers there is the change in the reinsurance premium profile from the FY '23 program. Obviously, there's differences as well between GWP and AWP from mix in home where the new business in home tends to be lower margin and the new business in motor tends to be a higher margin. So you get a bit of a mix impact coming through that difference as well.

And just one more, if I could push it, Steve and Jeremy, please. Is there any update on ACCC with the bank and how far they're through their review?

No. Matt, no update. Again, the commitments that we've made alongside ANZ is to work constructively through that process with the ACCC. And we expect that process to start to gather momentum over the coming weeks and months. And we expect and are fully appreciative of the process that we need to go through. And we'll be engaging constructively with them.

Your next question comes from Nigel Pittaway from Citi.

Steve, you touched briefly on affordability already. But it just strikes me with its high single-digit rate rises in motor, mid-teens in home, at least some risk you're only partway through, a major reinsurance reset, that affordability could become a fairly significant issue. Can you make some further comments on how you're thinking about that currently?

Yes. Look, I think this is not the first year of quite significant increases in home insurance premiums particularly, and I think it's not a Suncorp issue per se. It's an industry-wide issue. We all play in the same reinsurance markets. By and large, we've got reasonably similar risk profiles. And we've all been hit by similar levels of event activity. So as an industry, we are seeing obviously increased premiums coming through. And in this environment, we have to reflect that, that does put pressure on affordability. The point I'd make in reverse is that one of the things we have seen historically is that insurance purchases at the nondiscretionary end of consumer buying patterns, down there with the mortgages, in mortgage payments, they've sat in that bucket for a particular reason relative to risk. And what we also see in the face of big event seasons as we've had in the past 12 months, it just underscores the value of having home insurance and why it's important to have, particularly in an environment where affordability is challenged. So the product becomes -- the perception of the product and the reality of the product becomes enhanced. As we've come through the full year, we haven't seen our retention levels fall away in the face of some of these increased -- increases in premiums that are going through. They're holding firm. And cancellations, which is another variable we watch very closely, haven't kicked up in this environment. We do obviously reflect on affordability, both in terms of the pricing that we set but also the construct of our products, the coverage that we provide, the excesses that we include, et cetera. So, so far, haven't seen any pressure on either retention or cancellations, but we keep a very close eye on it obviously, and similar dynamics on motor. Obviously, motor books haven't seen this level of pricing go through for many years, and a lot of that reflects the cost of secondhand motor vehicles and also the increased technology that's going into repair processes. So very close eye on it. And one of the easiest solutions, I think, early on would be for governments to remove some of those taxes and charges and improve affordability very quickly.

Okay. Maybe just changing tact slightly, I mean, just obviously, you talk about once it's -- if we do get to a stand-alone insurer, it will be a simpler growth-focused business. But obviously, you have got sort of fairly mature market shares in personal lines. And I know you're sort of talking about continued investment in commercial underwriting tools, et cetera. So the question is, how are you thinking about your risk appetite in commercial moving forward? Does that expand somewhat in order to fulfill those growth ambitions?

Yes. I mean, obviously, if you look at the -- as you point out, the market shares that we have in each of the key portfolios, both here and in New Zealand, and we've got a very established commercial insurance market share in New Zealand but are underweight relative to our key competitors in Australia and to some extent, we see a huge opportunity. We see it through the prism of 2 things. One is more investment into commercial insurance, obviously, to improve our underwriting capability and improve the way we interact with brokers, to create more premium flows into our underwritten business. Obviously, opportunities that present themselves, we think the commercial insurance market will grow. Some elements of the consumer market will move into commercial lines as sort of some of the horizon 2/horizon 3 trends start to manifest themselves. So we are very supportive of our current commercial insurance business. We've got a very strong brand in that market and 2 brands, obviously, in the direct market, which gives us good coverage. More investment, more focus, more opportunity, bigger profit pools, I think, goes to an untapped opportunity for us in the prism of our organic plans that we've got today.

Okay. And maybe just a final sort of slightly more granular question. But just, obviously, in the first half, you were talking about those large NZ commercial claims. They did get mentioned as a full year comment. But was there any improvement in the second half in respect to those large claims in New Zealand?