An update from Suncorp shows it was $40m over its FY21 catastrophe budget run rate at the end of May while the recent floods in Victoria added up to $50m in June.
Nevertheless, Morgan Stanley envisages only modest downside risk to earnings forecasts, having already expected Suncorp would exceed its budget by $50m.
The broker does not expect Suncorp, or competitor Insurance Australia Group ((IAG)), will need to purchase additional reinsurance for the remaining two weeks of FY21.
The broker suspects investors are disappointed by the general insurers consistently exceeding their catastrophe budgets despite no cyclone impact in recent years, and this could lead to a de-rating.
Equal-weight rating. Target is $11. Industry view: In-line.
Target price is $11.00.Current Price is $11.20. Difference: ($0.20) – (brackets indicate current price is over target). If SUN meets the Morgan Stanley target it will return approximately -2% (excluding dividends, fees and charges – negative figures indicate an expected loss).