Suncorp Group Ltd

ASX:SUN

Earnings Call Transcript 2022-Q2

[Operator]

Thank you for standing by, and welcome to the Suncorp Half Year Results Conference Call. [Operator Instructions] I'd like to now hand the conference over to Mr. Steve Johnston, Group CEO. Please go ahead.

[Steve B. Johnston, Group CEO, MD & Director]

Well, good morning, and welcome, everyone. Let me begin, as usual, by acknowledging the Jagera, Turrbal and the Gadigal People who are the traditional owners on the land on which we meet today and of course, to pay our respects to all elders past, present and emerging.So today, I'm joined in Sydney offices with our CFO, Jeremy Robson. Of course, due to the ongoing impact of COVID-19, the other members of our executive leadership team will be joining us from their respective offices or their homes.Now this is the first opportunity we've had to introduce Bridget Messer, who has joined the leadership team in the role of Chief Risk Officer. Bridget joins us from the U.K.-based IG Group, which is a FTSE 250 company, where she was Executive Director and Chief Commercial Officer.She has relocated back to Australia from London, and will be working out of our Brisbane headquarters. Bridget's experience in managing a global high-growth business is impressive, and she is a wealth of experience across regulatory, compliance, legal and governance, which makes her the ideal person to lead our risk function.I'd also like to take this opportunity to publicly thank Stuart Cameron, for his leadership of the CRO function over the past 6 months and for serving as our Chief Risk Officer. Stuart will continue to play a pivotal role at Suncorp.The executive leadership team is now complete, and we're delighted with the group of executives that we have in place to take Suncorp forward.Now before I move to the financials, I want to briefly recap a slide that I first introduced to -- introduced you to in our Investor Series last May. It describes how we believe value is created at Suncorp. At its heart, Suncorp is a purpose-driven organization. Now I could point to many examples over many years to prove that being guided by purpose has always been a big part of working at Suncorp.Our purpose is to build futures and protect what matters. We do this through a capable, engaged, diverse and innovative team, who, in turn, deliver valued outcomes for our customers. The financial outcomes we achieved for our shareholders, which is the primary focus of today's presentation reflects the sum of us getting all of this right.So turning to the results now. And on this slide, we presented the high-level P&L for the half year. while the group's NPAT of $388 million and the cash earnings of $361 million are down when you compare them to the prior period, we do feel this is a creditable result in the context of elevated natural hazard experience and lower investment returns.The 6 months to December 2021 saw the group managing 19 separate events. More than 50,000 natural hazard claims at an estimated cost of $695 million, which is $205 million ahead of our allowance for the first half of the year. This, alongside significantly lower investment income, has had a material impact on profits in our insurance businesses here in Australia and of course, across in New Zealand.But the result does highlight the diversified nature of our revenues and our profits. With the bank reporting a 5% increase in profit after tax of $200 million, contributing over half of the group's profit and underpinning the $0.23 interim dividend.Now as you'll hear in a moment, we have good underlying momentum and with the significant protection that's provided by our reinsurance program, which we beefed up, we ended the second half in good shape.Now on the next 2 slides, I've called out some of the key highlights that are embedded in the result. And they talk directly to the momentum that we have as we move through into the second half of FY '22 and importantly, into FY '23.On the first slide here, I've focused on the growth we are achieving right across the business. That's fundamentally because we're unlocking the value in our brands, and we're focusing on delivering for our customers.At an aggregate level, our Australian insurance business has delivered premium growth of 7.5% when you adjust for the portfolio exits. But below the headline number in consumer, like-for-like premium growth was 8% and driven by both rate and unit count. The Australian Commercial Insurance portfolio grew by 5.6% with high retention and strong rate. And in CTP, we continue to improve customer numbers off the back of our digitization program with written premium increasing by 6.2%. In New Zealand, the GI business has reported premium growth of 14%, with our Vero Insurance, with our AA Insurance joint venture businesses both reporting double-digit increased growth rates. And in the bank, growth has continued to accelerate in the home lending portfolio, up by $1.2 billion or 5.3 annualized for the half. In deposits, our core transaction accounts grew by just under 13%, again off the back of our comprehensive digital program of work.So turning to the next slide, and here, I've captured some of the key P&L and balance sheet measures that I know are important. The group's underlying ITR expanded to 8%, with a strong contribution from the consumer portfolios, putting us on track to deliver a 10% to 12% underlying ITR, as promised by FY '23.Prior year reserve releases at 2.1% of NEP remain above our long-term 1.5% assumption despite some strengthening in the bodily injury portfolios. In the bank, Credit quality continues to be a standout with a $16 million impairment release and 90-day-plus pass loan -- past due loans falling to just 62 basis points of GLAs, the best result in over 10 years.As has been the case for many years, the balance sheet is in great shape with each of the businesses retaining healthy levels of capital in their own right with an additional almost $500 million of excess capital that's held at the group.So with that high-level summary, let me hand over to Jeremy to run through the numbers in more detail, and I'll come back at the end of his presentation and talk about some of the strategy updates.

[Jeremy John Robson, Group Chief Financial Officer]

Thanks, Dave. Good morning, everyone, and welcome. I'd like to start by reinforcing Steve's comments about the underlying momentum evident in today's result with strong growth across each of our businesses and clear progress on the pathway for delivery of our FY '23 plan.Now natural hazard events and investment markets have clearly impacted the bottom line in this half, but we are confident in the comprehensive reinsurance program we have in place for the second half, and our investment portfolio has remained prudently positioned.I'll now run through the results in more detail, starting with growth in the Insurance Australia business. Headline GWP growth includes the Vero consumer and construction portfolio exits. So to help better explain our GWP growth, the numbers in the chart adjust for these impacts. And on this basis, GWP grew by 7.5%, which continues the strong growth we reported last year.The home portfolio grew by 8.3% and reflecting AWP growth from the ongoing response to higher natural hazard and reinsurance costs, along with a pleasing return to unit growth. Motor was up 7.8%, as AWP continued to increase to reflect underlying inflation and higher sums insured, whilst unit growth remains good despite the impact of lockdowns on new business sales.In commercial, we continue to see the portfolio grow with ongoing performance in the NTI business and good rate growth and retention across most portfolios. CTP grew by 6.2%, driven by strong unit growth of nearly 10%, whilst AWP decreased, primarily a result of scheme price reductions in Queensland. Workers' compensation was up strongly across all states, driven by good retention, higher wage growth and rate increases.Turning next to claims. And we've changed the presentation of this slide slightly to focus on net loss ratios, which we think provide a more useful view of the key drivers to our claims performance. And so in Consumer, you see the net loss ratio in motor was broadly flat as pricing increases and close management of claims costs offset the impacts of inflation.The home loss ratio improved due to the natural hazard driven price increases as well as lower frequency and claims costs. And the tight containment of claims costs in both home and motor is clear evidence of the success of our best-in-class claims program of work.The commercial loss ratio remained flat with benign large loss experience in property offset by a slight deterioration in packages with several fires in the half. CTP saw an improvement driven by New South Wales and Queensland, whilst workers' compensation increased off the back of 1 large claim in the excess of loss portfolio.The COVID-related improvement was due to business interruption provisioning in the first half of '21, with a subsequent release in the current period relating to the positive outcome of the Vanilla Lounge case. The net impact of other COVID items was lower this half with a similar level of motor frequency benefits being offset by some expected increase in claims costs and other operating expenses.Prior year reserve releases remained strong, notwithstanding some strengthening in the long-tail commercial portfolio, which were largely offset by improvement in prior year natural hazard estimates. Total reserve releases for the half were 2.1%, excluding the provision for New South Wales Turrbal adjustment, which is ultimately a release back to the scheme rather than the P&L. Natural hazard experience was well above the allowance, and I'll cover that later.Moving now to investment performance. Investment markets have had a significant impact on the first half results, with large shifts across breakeven inflation, credit spreads, the yield curve and equity markets over the past 12 months. The underlying yield on insurance funds was 94 basis points, approximately 53 above risk-free.This reflects the current environment of tight credit spreads, along with improved ILB carry and positive manager performances. We continue to assess the strategic asset allocation of the portfolio and are currently maintaining a conservative bias given the recent market volatility.We are underweight our strategic allocation to growth assets and are maintaining a close watch on the management of our ILB portfolio. I do note that despite a reduction in short-dated physical holdings of ILBs over the half, we've maintained our effective exposure to inflation.Turning then to New Zealand. And during the period, strong top line growth was offset by higher natural hazards and lower investment returns. We are continuing to see very strong growth in New Zealand with GWP up 14% spread across all product classes, growth has been broad-based with the Vero and AA channels recording growth of 12% and 17%, respectively.Natural hazard costs were $41 million above the allowance driven by 3 material weather events in the half. Working claims costs reflect unit growth and a small number of large commercial property claims, although this was partially offset by lower motor claims frequency following the COVID lockdowns.Investment income was lower with the increase in yields, yield curve impacting on the fixed income portfolios. And whilst the Life business saw an increase in planned profit margins, the impact of interest rates and claims experience resulted in a reduction in profit.On then to natural hazard costs, which for the half exceeded our allowance by $205 million with a particularly difficult October month. Now while disappointing, this is in the context of a La Nina weather pattern that has been declared for this year.Our AXL cover and all 3 drop downs remain intact and an additional $75 million of AXL cover was purchased in December and that being a 50% placement of a $150 million layer above the existing AXL. $490 million of the $650 million deductible was eroded in the first half.Natural hazard costs are expected to be significantly less than the allowance in the second half as any continued natural hazard experience will likely result in reinsurance recoveries.Relative to the update in November, the actual experience to the end of October has come in, in line with the bottom of the range we provided, noting the improvement in expected cost for the Adelaide hail/Melbourne storm event. We also saw a relatively benign November and December with January in line with the allowance. And as a result of these factors, we now expect the full year natural hazard costs for FY '22 to be approximately $1.075 billion.Turning then to the all-important group underlying ITR, which is showing a pleasing trend supporting our confidence in delivery of the FY '23 plan. The focus of the chart is on underlying ITR excluding COVID impacts. And I'm very pleased to report that this has now increased to 8% in the first half.You'll see the increase was largely driven by the consumer portfolio, reflecting the benefits of unit growth and rate increases, and improvements from working claims, driven by our best-in-class claims program and lower frequency mostly in home.And the New Zealand underlying ITR does remain very strong levels, but did decrease reflecting the adverse large claims experience in property, along with some volatility in motor frequency. The first half underlying ITR of 8% includes an elevated level of project spend, which we do expect to reduce over FY '23. Allowing for this gives an underlying ITR of around 9%. Additionally, we are still to realize the full run rate benefits of the strategic initiatives, both those already delivered and those still in the pipeline. And we believe this gives a clear indication of the momentum and pathway to our 10% to 12% planned numbers, and we remain confident in our ability to achieve this outcome.Now to banking, which delivered a profit of $200 million, up 5%. This reflects growth in loan balances and a net impairment release offset by a lower NIM. One of the most pleasing elements of the results is the continued momentum and growth in home lending. The portfolio grew at an annualized rate of 5.3% over the half, broadly in line with system, with sustained improvements in processing turnaround times despite the growth in lodgments.In line with market factors, net interest margin decreased 12 basis points from last half, driven from PCP actually, driven by competitive pressures, movements in market rates, higher fixed home lending mix and holding additional liquid assets with some offset from good active management of the deposit portfolio.The NIM of 197 basis points remains above our target range of $1.85 to $1.95, and we now expect it to trend back to within the range in the near future, slightly earlier than previously expected, given the industry funding and pricing dynamics.Banking operating expenses increased 1.1%, largely from the temporary investment in strategic initiatives with the cost-to-income ratio increasing to 57.6%. We continue to target a cost-to-income ratio of around 50% in FY '23, more likely in the second half with momentum in home lending and emerging cost efficiencies being the key drivers. I note that the market outlook for rates and NIM are also key factors.The credit quality of the bank's lending portfolio is also a key feature of this result. It remains strong with 81% of the book in residential mortgages, with a dynamic LVR of just 58%. Past due loans have reduced over the half, driven by customers returning to performing status, following earlier COVID assistance and a buoyant housing market assisting voluntary property sales. Past due loans are now at their lowest level since 2012.We reviewed the key economic assumptions, which underpin our collective provision, and this has led to a release of $15 million. This gives a balance of $180 million at the end of the half, which continues to incorporate a prudent set of assumptions, reflecting the ongoing uncertainty around COVID, and we'll continue to monitor this outlook into the second half.Just before I move off the bank, just correct myself that the NIM movement was compared to the last half, not pcp.Now to group expenses. As expected, project costs increased in the half primarily due to the planned step-up in spending on strategic initiatives. The majority of that spending this half has been on optimizing pricing and risk selection, digital-first experiences and revitalizing growth in insurance.In banking, our investment has been focused on winning in home lending. And we also saw a modest increase in growth-related costs with increased marketing and commissions reflecting the strong growth across each of our portfolios. We've delivered the benefits we expected from our operating model changes, and these have helped to offset core inflation in the cost base.You'll note on the slide that we are delivering improved efficiencies in each of our businesses from our focus on the run the business cost base. Looking ahead, we are continuing to target operating expenses of around $2.7 billion in FY '23.The key dynamics here are, firstly, efficiencies from the delivery of our strategic initiatives, which include the acceleration of digital adoption and self-service, contact center automation and improved productivity. And secondly, project costs are expected to reduce in FY '23 as the recently elevated Royal Commission-related reg spend and our strategic program of work are delivered.So finally, moving on to capital. The chart shows CET1 held at group of $492 million. Key features of capital management over the half have included the successful completion of the $250 million on-market buyback, a first half '22 dividend of $0.23 per share and an 80% payout ratio.Whilst this is higher than our usual first half payout, it reflects the confidence we have in both the momentum in the business as well as the quality of the reinsurance program in place for the second half.Now whilst we would usually see capital usage in the first half from the impact on capital of timing of event season, we actually saw a release of capital this half. This reflects the strong underlying business performance with growth in premium rates and improved loss ratios.You'll also note from the chart, bank capital usage was flat with lending growth being offset by changes to the risk weighting of business withdraw facilities following PDS changes.Going forward, our dividend policy remains unchanged, aiming to pay annual dividends based on a target payout ratio of 60% to 80% of cash earnings. And we're also remaining committed to returning any capital surplus to our needs to our shareholders. I note that we are continuing to maintain a prudent approach to capital management in the current environment, and we'll reassess this for the full year result.And on that, I'd now like to pass back to Steve.

[Steve B. Johnston, Group CEO, MD & Director]

Okay. Thank you, Jeremy, for that run through. And as we kick off the second part of the presentation, I just want to make the point that the result that we're presenting today needs to be seen in the context of our 3-year plan, a plan that we first outlined to the market this time last year, which had embedded in it a range of commitments that we expect to deliver in FY '23.Now as a team, we've been clear that our priority -- #1 priority is to align everyone at Suncorp around improving the way we deliver insurance and banking products to our customers in Australia and New Zealand. We started off by doing this by simplifying our portfolio of assets and our products, and that's designed to enable management to focus on driving improved performance across the core.As you know, we previously divested our life and our Capital Smart businesses, and in this result we report the gain on sale of our joint venture with RACT in Tasmania. We're also making good progress in transitioning our wealth business to LGIA Super, and we expect this transaction to complete on schedule in April.At the portfolio level, we've undertaken significant remediation in commercial lines, including in Strata, construction and financial lines, while in personal lines, we have exited unprofitable broker introduced and corporate partner business.Now this slide that's on screen at the moment, recaps our strategy in the 12 key strategic initiatives, 4 of which are in GI Australia, 3 in New Zealand and 5 in the bank. And most of them, if not all of them, will be familiar to you from the investor series that we did in May and June last year.We believe the initiatives are clear. They're simple, easy for the business to understand and we believe the continued top line growth and the momentum that we believe is evident in this result that we're presenting today confirm that we are making good progress against those 12 key priorities.Now let me take a quick moment to highlight some of the key proof points that demonstrate that progress. In the Australian Insurance business, our activities to reinvigorate our brands, to refine our customer value propositions, to improve our marketing and to simplify our product portfolio, continue that growth momentum that's been building since we implemented the strategy.In the key area of pricing and risk selection, we're making good progress with the rollout of our new pricing engine, have now deployed CaPE across our home portfolio. The focus of that program now switches to the motor mass brands.We've also alongside that introduced a number of innovative risk selection enhancements, including geo-spatial mapping and are rolling out modern automated broking platforms across commercial insurance. In GI distribution, we continue to leverage our previous investments in digital and data to meet our customers' increased appetite to interact with us digitally. Digital sales and service grew by 14% in the past year and now account for 38% of all sales and service transactions.In the mass brands, some of the mass brands they're running at higher than 50%. And this means we are well on our way to that long-term target of 70% digital, 30% voice in sales and service and thereby fundamentally transforming our business.A best-in-class claims program has achieved a number of critical milestones in recent months, including the establishment of the new home claims repair panel and the implementation of In4mo and ICBM, tools that are designed to better manage builder allocations and benchmarking costs.Importantly, Motor at Home claims digital lodgement increased from 21% and 18% to 41% and 30% -- 36%, respectively, in the half.But digital lodgment at 50% in hazard claims represents a doubling on the prior year. And what it's done is significantly improved customer experience that sped up our repair processes. And as you can see in these results, helping to bring down the ultimate cost of hazard claims, both in the first half of this financial year, but also events that occurred in the second half of last financial year.In New Zealand, we made very good progress growing our brands and partnerships, and that's evidenced by the top line growth that we're reporting. And importantly, market share increase of 27 basis points in the first quarter of the first half of this financial year, which is the fifth consecutive quarter that we've grown share.In New Zealand, our best-in-class claims program, which is similar to the program in Australia is progressing with the implementation of the natural disaster event response agreement with the EQC and the migration of ClaimCenter ensuring all GI claims are now managed on 1 platform. It's a very big step forward.In the digitize and automate priority, the commencement of Suncorp New Zealand partner digital capability has seen 30% on of new motor business through the ANZ corporate partnership originated through the digital channel.In the bank, you can see very clearly that Clive and the team are making good progress against those 5 key priorities. Of course, winning in home lending is a top priority. And as we have previously said, our success can be defined against 3 targets.Our first priority was to get positive home loan growth. Our second target was to achieve market share growth. And our third target is to -- our ultimate objective is to consistently match best-in-market for home loan origination.Again, in the numbers that we present today, you can see we're well on our way to achieving that second target with growth broadly in line with system in the latter months of the half and there's plenty of gas left in the tank.Digital engagement, the bank has also continued with the proportion of digital account openings increasing by more than 20%. We've rolled out a whole range of additional customer accessibility features, such as translating and interpreting services and Braille functionality at our ATMs. Again, part of that overall program of optimizing our distribution channel network.Growth in everyday banking has continued, up 12.8% in the half, while we continue to increase flexibility for our customers throughout the launch of our pay-later offering. In business banking, we've launched a fast-track lending process for simple SME lending.So across the business, in summary, our priorities are simple and clear, they all align to the core business, and we're all focused on executing the 12 initiatives which together are the cornerstones of our FY '23 aspiration.So before I summarize and go to Q&A, I just want to briefly touch on the important topic of natural hazard resilience and mitigation. Now on this slide, we provided a deeper insight into the profile of first half natural hazard events that have accompanied the second successive La Nina weather pattern and of course, the year before that were the bushfires.It's clear to us that the frequency and severity of natural hazard events has been increasing over recent years and that, that trend is likely to extend into the future. Now in response the Australian government has introduced legislation for the establishment or is about to introduce legislation for the establishment of reinsurance pool for cyclone activity in Northern Australia.Now there remains a lot of work to be done in order to flesh out the specifics of that program, but we continue to actively participate and constructively contribute to the discussion on the structure of the program.Similarly, the New Zealand government has implemented changes to the EQC. Our preliminary view is this will not have a material impact on our New Zealand business. But as we've discussed previously, Suncorp has developed a 4-point plan for a more resilient Australia, and we'll continue to advocate for action in the lead up to the forthcoming federal election. You'll see in our One House program of work, and we've got more to come in that domain.To recap our plan, our 4-point plan argues for improved public infrastructure, subsidies to improve the resilience of private dwellings; addressing inadequate planning laws and approval processes that we see time and time again as we're managing claims, and very importantly, the removal of inefficient taxes and charges from insurance premiums to improve affordability.Now by focusing on these initiatives, the underlying risk and affordability issues can be better addressed alongside the other public policy measures that are being considered. And while natural hazard resilience and climate change are Suncorp's most material ESG issues, our focus also extends into areas, including financial well-being and human rights.In terms of financial well-being, the next iteration of our financial inclusion action plan will be completed in this half, while our modern slavery statement lodged in December outlines the progress we are making in that very important area of human rights.So in summary, while natural hazards and investment markets have clearly impacted this result, there are many proof points to demonstrate progress towards the targets that we've included in our FY '23 plan. This progress has been achieved against the backdrop of COVID, and its associated personal and professional challenges, to have navigated COVID, 50,000 natural hazard claims, big technology deliverables, and what's sometimes forgotten a once-in-a-generation regulatory overhaul is a testament to the resilience of the Suncorp team.Collectively, they've rallied around our purpose and their focus on our customers and on behalf of the leadership team and the Board, I thank them. While the uncertainty from COVID is far from over, our business is strong, our strategy sensible, our team aligned and we're just getting on with it.And at this point, we'll open up to your questions. Thank you.

[Operator]

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

[Kieren Chidgey, Analyst]

A couple of questions, if I could. Maybe just starting sort of around inflation. We're obviously seeing sort of pressures across the broader economy -- just wondering if you can talk to the trends you're seeing across your consumer, commercial and New Zealand businesses.

[Steve B. Johnston, Group CEO, MD & Director]

Sure, Kieren, I'll kick off, and I'll get Jeremy to jump in and maybe Paul as well. Look, we are obviously keeping a very close eye on inflation, always have and always will. And for the insurance business, it's very critical that you manage inflation across both short tail and long tail. Long tail, we've got the ILBs, over $2 billion of ILBs that are there to offset the impact of inflation across those long-tail portfolios.On the short-tail side, I mean clearly, there is evidence of some pressure in the building supply industry. And you can talk to the construction data. The IBS data is pointing to sort of inflation in building, repair and home around 6% to 7% and may be higher in some cases, but I'm incredibly pleased to report that across our portfolio with the weight of the best-in-class claims program being brought to bear.We actually saw negative inflation in the home portfolio. Obviously, average written premiums have been elevated as we've repriced for those natural hazard events. But that just shows that there's a huge opportunity that's sitting there in claims for us when we manage that program and manage that best-in-class initiatives through to its ultimate conclusion.On the motor side, I think underlying inflation running somewhere around 4% to 6%. Again, the nature of our motor business with the fixed price contracts that we've got on a lot of our drivable repairs and the work we're doing around parts has meant that inflation for motor is running at low single digits. So it's a very good outcome.Across commercial, I think the trends there are pretty much in line with what I've talked about in the short-tail portfolio in the home and motor portfolio somewhere in the 4% to 6% range. Again, we've got good rate going through that book to offset it.So inflation has to be front of mind. It is front of mind. We continue to monitor it very closely. We've got good, early, forward-warning indicators to help us manage it, but we think we've got a good handle on it and got it very much under control at the moment. Paul, do you want to jump in and add anything?

[Paul W. Smeaton, Chief Operating Officer of Insurance]

Steve, I think you've pretty well covered. I think the main point that's coming through is whilst we are seeing inflation in home and you hear a lot about timber, steel and plastic, yes, we are seeing that high single digit inflationary pressures. But all the work practices that we've implemented in home, so the panel, the implementing the informator, allocate work to our high-performing builders, using ICBM to manage costs and benchmark those costs has more than offset those inflationary pressures.And on the motor side, yes, we are seeing inflation in labor and wind screens through technology. And also, everyone would have seen secondhand car prices going up, which increases our average total loss cost. But we've sort of mitigated that through our repair panel. And we've also mitigated that through a really good part strategy where we've got a very high allocation of non-OEM parts when we can. And also we've negotiated a discount in our OEM parts as well. So all in all, under the best-in-class claims, we're pretty happy with how we have negated inflation. So yes, very comfortable at this stage but monitoring inflation, to your point.

[Steve B. Johnston, Group CEO, MD & Director]

Back to you, Kieren.

[Kieren Chidgey, Analyst]

Thanks. Yes, and maybe a second question sort of around the underlying GI margin outlook then for Jeremy. I think when you gave the building blocks around that at your Investor Day, earlier last year, sort of there wasn't much of a reliance on higher bond yields sort of feeding into that 10% to 12% range. But obviously, we've seen quite an uptick there in the 3-year bond since then.Does that give you greater confidence of sort of landing further up in that range? Or is it sort of the way you view it, that's just being sort of compensating for some of these additional pressures like wage inflation coming through?

[Jeremy John Robson, Group Chief Financial Officer]

Thanks, Kieren. I mean the key building blocks for us are the strategic initiatives. There's the best-in-class claims. We've still got run rate benefits, still more to do there. And then the expense saves plus the benefit of growth through in a leverage margin sense as well there, the key building blocks.It is true to say that between putting that expectation together and today that we do have an expectation that yield curve will be higher. But equally, I would say that we will continue to reflect on our hazard allowance and reinsurance costs and inflation in the book.So I don't think that's going to change our outlook, that higher underlying yield. We'll still aim for the 10% to 12% range. But we'd like to see ourselves at the higher end of it rather than the lower end of it.

[Kieren Chidgey, Analyst]

Okay. And maybe just 1 last question, Jeremy. You mentioned that you've purchased some additional aggregate cover, I think, $75 million for the second half. What's sort of the one-off cost of that? And does that flow through in the second half of the financial year? Or has it been booked in first half?

[Jeremy John Robson, Group Chief Financial Officer]

Yes. So we've booked a very small amount in the first half, just amortized in over the period, we've taken that for us. That's a very immaterial amount in the first half. It will come through in the second half.We're obviously not going to talk about dollars, but the closest I could say is it's slightly better than the rate online for the existing AXL cover, as you probably expect, because the attach is slightly higher up in the chain. So slightly better than the rate online for the existing cover.

[Operator]

Your next question comes from Andrew Buncombe from Macquarie.

[Andrew Buncombe, Insurance and Diversified Financials Analyst]

I might just continue where Kieren left off with another question about that reinsurance top-up. Do you think that is more of a reflection of the La Nina weather patterns? Or is that a good starting point for the cover you want to purchase next year?

[Steve B. Johnston, Group CEO, MD & Director]

Andrew, I'll kick off, Jeremy can jump in. Look, I think it was pretty much -- buying that cover was pretty much a reflection of seeing the actual natural hazard costs coming through in October and the proximity that we had to triggering that aggregate cover.I mean it was a discretionary purchase. It was 1 we pondered over for a period of time and ultimately took a view that based on the conservative settings that we have for our business going forward, it was the right thing to do.It doesn't inherently dictate or roll forward from there that that's sort of a strategy that we're going to take into the next renewal. We'll look at how we land at the end of this year and work our way through the preplacement to see what pricing and capacity is available in the market. And as we always do, we'll look to prebind as much of the program as we can.As you know, we don't sort of construct the allowance specifically to take a linear patent into account. We didn't do that last year, and we certainly haven't done it in this financial year. So we would expect in a La Nina year to have an exceedance of the allowance. And again, we'll go about that the same way next year.

[Jeremy John Robson, Group Chief Financial Officer]

Yes. I'll agree, Steve. The reinsurance program we have in place, we think optimizes for our strategy, which just to remind you is about optimizing return on equity, but we also need to have a lens on P&L volatility. And the program we have in place we think does that. We're obviously able to go through the renewal process and look at pricing capacity. But we think the program we have in place does optimize for that, probably more appropriately in a non-La Nina weather pattern year. So I wouldn't necessarily at this stage see why we would be changing our preferred program for next year relative to what we've got this year, excluding that top.

[Steve B. Johnston, Group CEO, MD & Director]

Just to add 1 little point to the discussion of natural hazards. I think 1 of the points that I did make in the presentation is that the best-in-class claims program, while a lot of it is focused around the working book, it also has a big material impact on natural hazards and the digital lodgement that we're seeing now, the high levels of digital lodgment, the variable workforce that Paul's put in place, which allows us to ramp up and ramp down through the weather season and the fact that we're bringing train people into our contact center environment for that first notice of loss.We're getting assesses to repairs quicker. We're getting repairs done quicker in an absolute sense, which we know drives down the cost of claims. So that big piece of work around best-in-class claims also having a material impact on, I think, lower natural hazard costs going forward as well, which will ultimately be recognized by reinsurers as well.

[Andrew Buncombe, Insurance and Diversified Financials Analyst]

That makes sense. Just my other questions are on the bank and in particular the NIMs. Are you able to give us a bit of an idea of the exit rate or maybe where the NIMs were tracking at the start of February, just so we can understand what that curvature of that line looks like?

[Jeremy John Robson, Group Chief Financial Officer]

Yes, Andrew, thanks for the question. Look, it's fair to say, I think, that the -- those building blocks we put out there for NIM around competitive environment and fixed rates and high liquid assets, yield curve, et cetera, that they have played through and continue to play through the half, and they're continuing to play through.So the exit rate will be lower than the average for the first half, but we're not at this stage commenting what that number is, but it's certainly lower than the average for the half.

[Andrew Buncombe, Insurance and Diversified Financials Analyst]

Got it. And then the final one again on the bank was in relation to the 50% cost-to-income ratio. I know that it was addressed a number of times in the slide deck and also at the Investor Day last year. But with all of the just general inflationary pressure that you're seeing at the moment? Are you still comfortable that that's an achievable number? Or is it aspirational?

[Steve B. Johnston, Group CEO, MD & Director]

I might kick off and then I'll ask Clive to jump in as well. Look, we do believe it's achievable. It continues to be a target. It's fair to say it's the -- probably the more challenging target of the suite of targets that we've got out there at the moment. Obviously, we don't have the same control over the scale that we have in our insurance business is far greater than it is in the bank.But having said that, the building blocks of how we get from the reported cost-income ratio today to around 50 are the same, which is about 1/3 contribution from revenue and 2/3 from cost. That means fundamentally that we've got to continue to bring down the bank's direct cost, but also the allocated costs that the bank takes from the group. And we have to continue to grow our revenues.Yes, NIMs are down, but balance sheet growth is up, and we still believe there's this huge opportunity for us around consistently delivering that home lending portfolio turnaround time, settlement times and leveraging our position with the brokers and leveraging our position in Queensland, particularly given we expect Queensland to see strong levels of net interstate migration post COVID and right through to the Olympics.So Clive, do you want to put additional color around that?

[Clive van Horen, CEO of Banking & Wealth]

Yes. Sure. So yes, just affirming what Steve said, it is still our target to that 50%. Clearly, when things like margins get squeezed the way they have, that's something that's a little less easy to control. And that's why we've said we're more likely to reach that level in the second half of FY '23.The second half of this financial year, we don't expect a material change from where we are today, but the changes that we're making around our cost base, the asset growth, all of those will flow through quite materially in FY '23. And a lot of these changes we're making are very much within our control.So we have been optimizing our physical branch footprint. We're continuing to do that. We are closing a number of branches now as well as customer behavior shifts to digital. So all of those factors will play out in the underlying cost-to-income ratio.

[Operator]

Your next question comes from Siddharth Parameswaran from JPMorgan.

[Siddharth Parameswaran, Research Analyst]

A couple of questions, if I can. Hopefully, just Jeremy, a question on the COVID impact this period and the impact you expected going forward. I was just hoping you could give us some clarity on what was made up of that 1.9% boost in the underlying margin from COVID. So I mean, could you give us some idea was it by between Motor, Home and CTP and also just how do you actually calculate that number?

[Jeremy John Robson, Group Chief Financial Officer]

Yes. Look, the first thing I'd say is that to the first part of the question around outlook, it's obviously very hard to pick outlook, and we certainly look forward to the day when we don't have to do a COVID adjustment in the underlying ITR walk. We think it's the right thing to do because at some point, that frequency component is going to go away. And so we don't want to be -- want to be transparent around that.In terms of the 190 basis points, there are -- the key driver to it is motor frequency -- lower motor frequency here in Australia, particularly obviously Sydney and Melbourne and in Auckland as well. Aukland had some lockdowns in the half. So improved motor frequency offset the Australian component of that, not a dissimilar amount of frequency benefit relative to previous halves, actually.But what we have seen this half then is some offsets to that in terms of some expectation of some -- we have seen some cost increases and some expectations of some cost increases from a claims perspective. We've seen higher secondhand car prices impacting through. We've seen some of the development pattern of motor claims has slowed down through COVID.We've seen -- we're seeing some impacts on home through, again, the inability to get into people's times and make the assessments on time, extending claims assessment, which then extends the cost. We've provided some support to some of our repair network through to things like costs, annual leave, for example, the back end of last year. During the lockdown, it's been very difficult to get people to take annual leave.And so that's been a higher cost than we would ordinarily expect. So there's been a range of -- quite a range of offsets to that mode of frequency that we've called out. We feel pretty confident that they are absolutely related to COVID, and we're not putting things in there that aren't.In terms of a mix, most of the benefit sits in motor, in the motor portfolio. There is probably a net cost -- modest, very modest net cost that sits in the home portfolio from that claims patent I spoke about. There's a little bit in commercial. And I'm pretty sure that CTP doesn't have a lot in there.The other element of COVID-related impact that's not in the 190 basis points, not in the underlying ITR of course, is the prior year reserve release on the business interruption provision. So that's a COVID-related provision with the successful judgment on the Vanilla Lounge case. We released $25 million of that provision as well. That's not in the 190 basis points.

[Siddharth Parameswaran, Research Analyst]

Okay. Just, I mean, on a go-forward basis, if I could just ask what you are expecting in terms of -- and maybe you could just give us some idea of what's happening with frequency at the moment, particularly on motor because that sounds like that's the main delta.And also, if I could just touch on CTP as well, though I would have thought there should have been some benefits over the last while, but you're saying that there's been no impact. I'm just wondering, is there some conservatism built into what you're doing? Are you just holding everything back in case there is a pot of claims.

[Jeremy John Robson, Group Chief Financial Officer]

Yes. Just maybe just on the CTP one. Look, it's possible -- it's a little bit harder to unpick in CTP in terms of those current year, prior year claims impact. So what we've done consistently is not included anything on CTP in that COVID adjustment. So that's a like-for-like approach in each of the halves where we're making that COVID adjustment. But it is possible that there is some COVID frequency benefit that sits in that COVID -- sorry, in that CTP number. So that is correct.In terms of outlook, very hard to predict, obviously. But what we're seeing -- what we're expecting is frequency to get back to where it was pre-COVID. And we're expecting to see increased usage in terms of people driving more, in terms of less public transport, et cetera, but we're also expecting to see less usage offsetting that in terms of people working from home more.So on balance, we're expecting about a reversion to pre-COVID levels. January, for example, we're seeing still some reduced motor frequency. But January is a pretty hard month to extrapolate because of the volatility to get around leave periods anyway.So look, we are expecting it to revert back to pre-COVID levels. We're probably not quite there yet. Although having said that, it's different across jurisdictions. So we've seen pretty high frequency levels in Queensland, more non-metro Queensland. So we're seeing lower frequency in Victoria than in New South Wales. So it is a little bit of a geographic mix of outcomes as well.

[Siddharth Parameswaran, Research Analyst]

Yes. And sorry, just to be clear about this, average claim size inflation that you're expecting and you touched on past inflation, but it sounds like I mean, from what you're saying, it seems like you're not too worried about it that you have it under controlled. So just the aging fleet part of your expectations around average claim size.

[Jeremy John Robson, Group Chief Financial Officer]

Yes. I mean, we would expect that the average claim size would probably continue on the trend of what we've seen in the first half. So we'll still see that underlying inflation coming through the portfolio, but we would still expect the best-in-class claims initiatives. The run rate of those, the new initiatives we've got to provide ongoing cover to offset some of that inflation. In home, I'm not sure that we'll continue to see that negative inflation. But we'd expect maybe that to moderate a bit, but still modest levels relative to where some of the headline inflation is, given those best-in-class claims initiatives that we've got.The other thing in home that we are seeing is lower frequency. So we're seeing that across all categories. We haven't necessarily pulled that out as a COVID item, but maybe some of that is COVID related, but we would have thought at 1 stage the theft-related claims from people being at home more often might be a COVID-related impact. But we probably think that lower frequency in home is to continue because that working from home, people being in the house is more -- is likely to continue anyway.

[Siddharth Parameswaran, Research Analyst]

I know you spent a lot on COVID. So just 1 last question. Just on interest in M&A. I was just wondering, perhaps, Steve, if you could just comment on how your thoughts are around potential acquisitions, where there's obviously been a lot of articles in the press around potential acquisitions in the GI space. Just your thoughts on where Suncorp's view sit on this?

[Steve B. Johnston, Group CEO, MD & Director]

It's a good try, Sid. I'm just not going to comment on the speculation that flows around, it's all I'd ever end up doing if I was providing a running commentary on it. I mean, we've articulated our plan. We've articulated the strategy. We're getting on with the job. It's probably the best way to describe it and speculation will always be around. I just don't have a running commentary on it.

[Operator]

Your next question comes from Matt Dunger from Bank of America.

[Matthew Dunger, Director in Equity Research & Research Analyst]

Just firstly, if I could please ask on the New Zealand claims ratio. What's driving the large commercial claims? Do you expect that to normalize, and can this be fixed with pricing?

[Steve B. Johnston, Group CEO, MD & Director]

Look, I'll hand to Jimmy in a second. I mean it is the vagaries of insurance, sometimes you have large losses, sometimes you have benign periods. And what we saw in the particular period was a significant uplift in large losses.We think it is an aberration in a sense. It happens from time to time in insurance and probably doesn't necessarily require a pricing response at the minute. We'll watch it pretty closely. But it is a particular element of the first half that we expect to normalize. But over to you, Jim.

[James J. Higgins, Chief Executive Officer of New Zealand]

Yes, excuse me. Look, we've looked at those. It's a bunch of larger commercial claims. So clients have been with us anywhere between 10 to 30 years in 1 case. It's just one of those things where you do get hit over a period for large losses in commercial, but it's not something that we're particularly concerned about.They are reviewed each year in terms of ensuring that the right price is being set and the right risk is there, but we're pretty confident that -- and certainly, what we're seeing is that it is, as Steve said, a bit of an aberration in the book, but there -- it's a good book of risks that we've got.

[Jeremy John Robson, Group Chief Financial Officer]

On the New Zealand claims ratio question, Matt, that there is also probably on the claims ratio itself, also some probably motor frequency volatility in there. So we've tried in New Zealand to pull out the COVID because those are all COVID adjusted obviously.So we've tried to pull out the COVID impact, but there's a level of imprecision around that. So we think there's probably a degree of volatility in motor around the half-on-half, year-on-year claims ratios in New Zealand as well.But I'll just reiterate that the ITRs -- underlying ITRs ROEs on New Zealand are at phenomenal levels. And having seen the underlying ITR go backwards this half. We don't expect that to continue. We don't necessarily expect all of that reduction to come back, but we would expect most of it or much of it to come back in the next half.

[Matthew Dunger, Director in Equity Research & Research Analyst]

Excellent. And if I could just ask a follow-up question on the bank net interest margin. Are you able to talk to the outlook a little bit, given the 9 basis point drag you've called out on pricing. With the bank near moving back the target. Should we expect some moderation in NIM compression. Can you wind back some of those, that sharp pricing that you've put out there?

[Steve B. Johnston, Group CEO, MD & Director]

I'll hand over to Clive, but I'd just reiterate, not that it's a firm target, it's a directional view of how we see net interest margin, 185 to 195 now. We've been at 207 and 209. And that, again, is an aberration in a sense, given some of the tailwinds on the funding side of the book that we're never going to be sustainable.So as we report here, we're above the top of our range. We expect to be back in our range pretty soon, and that range still remains a relevant reference point for the way we're thinking about the management of the bank and the book. Clive, do you want to add?

[Clive van Horen, CEO of Banking & Wealth]

Yes, sure. Thanks, Steve. Yes, absolutely, those margin pressures, as you've seen widely across the industry, are pretty significant. And as Steve says, the trend in our NIM is certainly back to within that range, and that's happening fairly quickly.Clearly, we and other banks, and we're not a price maker, we're a price taker, but we've been moving pretty quickly on both the lending and the deposit side of the balance sheet to respond to the higher swap rates. Fixed rates, for example, are up 60 to 100 basis points across the key terms in our case and in competitors.We've seen a very big swing back to more normal levels, I would call them, around the mix of fixed rate versus variable back to around 20% of new flows are now in fixed, which is around the long-term average.So a lot of measures being taken to respond to a very different pricing outlook, and we would expect that to continue not just with us, but the whole industry. And that will then obviously flow through to what the overall NIMs are.

[Operator]

Your next question comes from Nigel Pittaway from Citi.

[Nigel Pittaway, MD & Head of Pan]

Just first of all, a question on the reinsurance expense. Obviously, given all the chatter about increased reinsurance pricing, et cetera, it's perhaps a bit surprising that your reinsurance expense was down very slightly in Australia and up only very slightly in New Zealand. Is there a reason why that sort of pricing isn't flowing through, are there sort of additional covers last year that haven't been bought or just what's going on with the reinsurance expense line?

[Jeremy John Robson, Group Chief Financial Officer]

Nigel, you're right in the sense that our reinsurance cost was reasonably flat, FY '22 on FY '21 despite some of the earlier narrative and rhetoric in the market around that FY '22 renewal. So the renewal was relatively flat. Not to say each of the covers was flat, of course, there's a reasonable mix across the full program of property covers and casualty covers and main cat and drop-downs and AXLs and so on. So in aggregate, relatively flat.We have seen, of course, as well as some reduction in exposure. So we've seen reduced exposures in the portfolio exits in both consumer and commercial. And unit growth in home, whilst positive, hasn't changed the dial too much on the overall level of exposure. So it's probably, in terms of reinsurance pricing, a very modest increase in reinsurance pricing being offset by some reduced exposure.

[Nigel Pittaway, MD & Head of Pan]

Okay. And then just a question on the sort of commercial portfolio. Obviously, you're saying the commercial loss ratio remained flat despite obviously price increases. So can you just maybe make some comments on where you think rate adequacy is in that portfolio as we currently stand.

[Steve B. Johnston, Group CEO, MD & Director]

I might ask Lisa to step in there and answer that question, Lisa.

[Lisa Harrison]

Yes. Thanks, Nigel. Look, in terms of the commercial portfolio, just a bit of a reminder how our portfolio looks. We're about 25% in the packages class, about 15% in the long tail and the rest sort of in that short tail. And certainly, what we can see in the market, there's still reasonable rate going through sort of in the property more so at the top end as well as in the longer-tail classes as well.And so for us, as Jeremy and Steve outlined, we're very focused in making sure that we've got great pricing, underwriting fundamentals in place with some new systems that will roll out in 2022 as well as better integration, especially for that packages class, which is highly competitive into those broker platforms.

[Jeremy John Robson, Group Chief Financial Officer]

And Nigel, just to add that, I did point out in the discussion that there was quite an elevated number of -- like in New Zealand, actually, property fires particularly through the packages portfolio. And I know it's insurance, you can't adjust for those. But if we hadn't had that volatility, we would have seen some claims ratio reduction and margin improvement in commercial.

[Nigel Pittaway, MD & Head of Pan]

Okay. And then just while we're still on commercial. I mean, obviously, you did flag those small, but nonetheless, top-ups in the body injury classes, they seem to be in the runoff workers' portfolio and professional indemnity for the most part. I mean everyone gets worried when you see that, that's the first of said rule. Is there anything you can say to sort of put that in a bit of context as to where you think you are with those would that strengthening?

[Steve B. Johnston, Group CEO, MD & Director]

Yes. I mean I'll give to Jeremy in a minute. But on the excess of loss portfolio in the workers' compensation space, obviously, we are out of that product now. So one of the things that obviously occurs when you do exit a product as you bring forward some claims that have not yet been reported. And I think that's largely the catalyst for the strengthening that we saw. We're pretty confident that, that's a one-off and that won't be a feature. Again, we're continuing to work with all of the customers there to make sure that we have brought to the table any claims that may be sitting out there.In terms of bodily injury, we have had a couple of incremental strengthenings over time. I think this is an industry dynamic. It's got an element of COVID sitting over the top of it. We've got good management sitting around it. I wouldn't expect any strengthening to be -- I wouldn't rule it out, but going forward, but I wouldn't expect it to be overly material equally. So we remain pretty confident with it, but it is under close watch as you would expect. Jeremy?

[Jeremy John Robson, Group Chief Financial Officer]

Yes, not much to add to that, Steve, other than with the bodily injury one. It is the fourth strengthening we've seen over the last couple of years. And as you can imagine, with this valuation, we've gone through a reasonably fine toothed comb with quite a degree of diligence.So as Steve said, not out of bounds that the numbers change, but the number we've now got is a result of a pretty thorough and diligent process. The other one was on Profin and Profin has really been a -- more into that volatility category, we're not seeing anything particularly sinister in those -- in that strengthening this half.

[Nigel Pittaway, MD & Head of Pan]

Okay. And maybe just finally, just on the business interruption and where that currently stands. I mean, obviously, we're all sort of waiting with bated breath for the result. But I mean what's the current thinking on whether or not that might go to the high court for a further appeal? Is that likely -- do you think that's likely at the current time?

[Steve B. Johnston, Group CEO, MD & Director]

Look, it's very difficult to predict. Nigel, I guess I wouldn't want to get in or presuppose what the judgment might be from the appeal, Federal Court appeal that will come in, in its own time. There is a appeal mechanism true to the high court, relies on adequate prospects being able to be determined.My expectation is you'd have to assume that that's going to happen. But again, much of it will depend upon the nature of the findings of the appeal for venture appeal. So I guess we just wait that and reiterate that we're very adequately reserved, continue to be adequately reserved for the outcome, whatever that may be.

[Operator]

[Operator Instructions] Next question comes from Doron Kur from Credit Suisse.

[Doron Kur, Research Analyst]

Just the first one on the reinsurance margin. I mentioned at the last result that expected most of the margin improvement in FY '22 to be in the second half. Given the very strong improvement we've seen in the first half, what are your current expectations around that comment from the last result?

[Jeremy John Robson, Group Chief Financial Officer]

Yes, Doron, we would still expect to see improvement in the second half. So what we've seen in the first half is not a bring forward of the progression in the second half. We still expect to see a similar level of expansion to what we previously thought in the second half.What's -- you're right though to call out that we had the last result been talking about an underlying ITR consistent with last half of 7.4%. We've ended up at 8%, obviously. What's changed there is across a whole range of things have gone better than we had expected. A key one to point out, I think, really is in our motor pricing area where previously with COVID lockdowns, we haven't been able to necessarily put through the price increases we needed in the portfolio, this time through the cycle feels a little bit or a little better for that pricing. So been a range of things that have helped to deliver that outcome, but we still expect to see expansion in the second half.

[Steve B. Johnston, Group CEO, MD & Director]

Just to sort of pull all the bits and pieces of the insurance business together and give you a sense of the momentum that we've got and our level of comfort around what we're doing. If you start at the front of the business and you look at unit count, we've obviously got positive unit count now across Home and Motor, stronger in motor, obviously, than home, and we continue to rebuild that unit count number in home.We've got high average written premium coming through the book, both in motor and in home. Home getting close to high single digits. As we reported before, all the work we're doing in best-in-class claims is driving negative inflation in home and low single-digit inflation in motor.And if you take it all the way through to the balance sheet, which is always the way you think about an insurance business and you look at this period of time and go back through the records and understand how many years, there have been very few over time that we've been able to generate a positive contribution to capital from a general insurance business because in 31 December, that unearned premium book is obviously impacted by the proximity of the natural hazard allowance waiting for November, December, January and February.And that's a headwind to capital of between $50 million and $60 million. Not only have we offset that headwind, but we've actually grown the capital balance in the insurance business. And the only way you really do that is to be significantly improving your loss ratios.So I think if you sort of track it from the front to the back, there's much more we can do. There's plenty more things we need to do and can do, but that's the sort of story that gives us some comfort that we're on the right track.

[Doron Kur, Research Analyst]

That's great color. And also on the Home side, looks like you're able to keep pushing rates given the natural payrolls. Previously you were thinking the messaging was that, that might moderate going forward. Has that changed now, given the last half?

[Steve B. Johnston, Group CEO, MD & Director]

I'll get Lisa to jump in. But I mean, I'd like to point that this is the second La Nina weather cycle. We've had 50,000 claims in the first half of '19 separate events. And that follows those bushfires. So no one likes pushing rates through home insurance. But it is an incredibly valuable product.And I think what we're seeing from our customers, particularly the way that we're focusing on that purpose and getting out and getting people back into their homes is the value of the product has never been greater in terms of their thinking. I mean if you've struggling with COVID and you've got issues around Cove, et cetera, et cetera.The last thing you need is to be sort of materially disrupted by an elongated process and cost around repairing a home after a weather event. So while the costs are going up, we've got to be very conscious of affordability. The value of the product, I don't think has ever been better understood by customers more broadly. That's an industry perspective, but it's also very much what we see.Lisa, do you want to add to that?

[Lisa Harrison]

Yes. As you've outlined, we have had a big half in terms of natural hazard events. So we have seen that. We've accounted for that with our natural hazard allowance, and we're putting pricing through as appropriately.And then the other point I would add is from a Suncorp perspective, we have now deployed a pricing engine for our home mass brands as well. So that gives us a great level of confidence in terms of applying rate where we know it needs to be applied based on the risk. So equally, I think we're well positioned to manage that and manage the balance well.

[Doron Kur, Research Analyst]

And maybe just the last one on the investment portfolio, I recognize there that yields have gone up. Could you give us any color on what the run rate is there and expectations for the next half?

[Jeremy John Robson, Group Chief Financial Officer]

Look, I think the -- it's true that the underlying ITR will improve in the second half from yield, but it's pretty modest in the scheme of things, Doron. It's -- we expect it to add something as we get into FY '23 in particular, but the improvement in FY -- improvement in the second half is pretty modest.And whilst we're expecting yields to increase, what goes through the underlying ITR is the PV adjustment on claims and then the unearned premium yield component. But the bigger one is credit spreads and credit spreads thus far have remained relatively flat and long may that last. So I think credit spreads is also one to watch. And at this stage, we think the outlook for those is still relatively benign.

[Steve B. Johnston, Group CEO, MD & Director]

I'll just add to that in terms of picking up some of your commentary in the presentation, Jeremy, we have got a very conservatively set investment portfolio. And that's not presupposing there's anything particularly in front of us that we're seeing that the concern turns us greatly. We overweight cash. We're certainly underweight growth assets more broadly across both by the shareholders and the -- and obviously, no growth assets in the tech reserves. And we have got that linker ILB portfolio that's been there. I think we're -- I'm not sure, but I think we're the only insurer domestically that has got an ILB portfolio sitting within the assets of the balance sheet.We did that 7 or 8 years ago because we knew that inflation was one of the biggest risk an insurance company could steer into. And it's still the case. So while we have moderated that somewhat, the sensitivity to inflation through those ILBs remains in place. So it's a conservatively set portfolio, which we think is appropriate as we come into this calendar year.

[Jeremy John Robson, Group Chief Financial Officer]

And Steve, I'll just add to the back of that as well, that we're still targeting a 60 to 80 basis point underlying yield on our tech reserves. But with credit spreads where they are, that's pretty tough with 70-odd percent of our effective exposure in tech reserves to credit with credit spreads where they are, that's probably unlikely. So to get back to the 60 to 80 basis point underlying yield on tech reserves, we do need to see credit spreads widen a little bit.

[Operator]

Your next question comes from Andrei Stadnik from MS.

[Andrei Stadnik, Vice President]

Can I ask a first question around the GWP growth. It again, looked quite strong. And so do you think you're taking some market share? And do you think some of the changes around the brand in the market and of your portfolio of brands, do you think that has helped here?

[Steve B. Johnston, Group CEO, MD & Director]

Again, I'll get Lisa to jump in. Yes, so the first thing that we did as a team when we came together was we understood that we're a multi-brand manager. And I've always believed that the key to the success of Suncorp is to have those brands operating as effectively and as powerfully as they can.If you're a multi-brand manager and you haven't got your portfolio positioned against the right customer segmentation, if you're under-investing in those brands or if your marketing is ineffective, it's a lead weight in a multi-brand sense.And so we spend a lot of time pretty manually upfront. We put virtual brand teams together until we are very comfortable that we had the customer segmentation right, that we had the right investment sitting behind the brands, and we've got our marketing working better.And so I think now that the multi-brand strategy and the way we've positioned the brands, while we've still got some work to do, is operating far better than it was and can be a differentiated to -- a positive differentiator to our written premium performance. But Lisa, you might want to comment on how each of the brands are placed and where we are relative to market share growth.

[Lisa Harrison]

Yes. Look, I think when we set out the strategy a little while ago, our first goal was to stop unit loss and then start growing units and then move into growing market share. And as we've seen, we've been on that trajectory with some good GWP growth flowing through, especially in this half.So as Steve said, the building blocks we've put down, reinvigorate the brand, invest in the brands. We've started and invested a lot in brands like AAMI, and we're seeing really strong returns across all the portfolios from that investment in AAMI, both in terms of Home and Motor, motor in particular and -- as well as our niche brands, investing in those. Again, we're seeing some really good growth coming from Shannons, especially in motor and Terri Scheer for our home portfolio.Still a little bit of work for us to do on our GIO and APIA brands. The team is very focused on delivering that. So I still think there's gas in the tank in terms of what we can do, in terms of reinvigorating brands, and we've got some good building blocks in place now.

[Andrei Stadnik, Vice President]

If I can ask just a second question. Can you talk a little bit about like what specific -- on climate action and catastrophe costs. Can you talk a little bit about what specifically can the government do to help you? For example, in North Queensland [ sycamore ] like what specific financial benefits can it provide? And what further government -- the further government actions you outlined in your -- the packages initiatives you wanted to see, like what could that translate in terms of financial benefits of Suncorp?

[Steve B. Johnston, Group CEO, MD & Director]

Yes. I mean I sort of don't think of it through the financial benefits for Suncorp, particularly, I think about it through the prism of Australian citizens, people, consumers, customers as the fundamental prism here.And it's a blight on our country that we spend in every dollar that's been in the domain of resilience and mitigation, we spent $0.97 cleaning up and $0.03 preparing for and mitigating the impacts of disasters.So we've got that balance completely wrong. We have for many years. We've been talking about it for a number of years. I recognize we probably had limited success, but we are incrementally finding people are starting to listen to that story.So what can they do? Firstly, you can start to invest in public infrastructure, and things like levies. We've seen them work. We saw Roma, where we actually stopped writing insurance until they put a levy around that community. And since they put the levy around the community, it hasn't funded since and insurance premiums have come down by more than half. So we know those sorts of initiatives work, and that's just one of many initiatives that can be done in the mitigation of public infrastructure domain.In terms of personal support and protection, well, firstly, subsidies. I mean, you can get a subsidy you put a solar panel on your roof, but you can't get a subsidy in North Queensland, [ betting ] your roof down so that you can handle a category 4 or 5 cyclone.So it seems to me that there's some benefits that we can apply through the taxation system, whether we do that geographically or broader base to provide incentives to people who do invest in making their private homes more resilient. I've talked about planning and development laws. We fundamentally, as a country, put people in the face of these disasters through our inadequate planning and development laws.And then taxes. It's ridiculous at 45% of a premium in New South Wales and 29% of a premium in Queensland is in GST and stamp duty and levies. I mean that is the most punitive form of taxation, where you're effectively levering a tax on an insurance product when we're trying to encourage people to take insurance because that keeps them in the private market, not pushes them out into the taxpayer bill.So there's 4 things I recognize and support the Labor Party and the federal campaign who have actually put in place or identified some initiatives. I expect there'll be more coming through the course of the campaign. There's some embedded in the government's budget as well, which we acknowledge and recognize and some going on at the state level.Simple things will make a huge difference. They will potentially benefit insurance companies. Yes, I acknowledge that. But fundamentally, they'll improve the outcomes for Australians and New Zealanders and our customers and consumers more broadly. I'll get off my high horse now.

[Operator]

Your next question comes from Siddharth from JPMorgan.There are no further questions at this time. I'll now hand back to Mr. Johnston for closing remarks.

[Steve B. Johnston, Group CEO, MD & Director]

Well, thank you very much, everyone, and again, just to reiterate, we're very comfortable with the results we're presenting today. We've got a lot more work to do. I look forward to keeping you updated at the full year, if not earlier. And again, just wishing everyone an opportunity to stay safe and for you and your families to keep working through these challenging times. Thank you very much.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now disconnect.