Insurer Suncorp has confirmed it is selling its troubled life insurance business as it reported a slightly lower profits, but handed out a special 8 cents a share dividend to shareholders.
Suncorp says it will receive $725 million to Japan’s TALTAL Dai-ichi Life, making it the latest local financial institution to exit the sector amid a crunch on profits and heightened scrutiny from regulators.
It joins the Commonwealth Bank, ANZ Bank, National Australia Bank and Bank of Queensland in selling their life businesses – mostly to foreigners buyers, led by Japanese life houses.
The news of the sale and a special 8 cents a share dividend sent the company’s shares up 4.74% to $15.70 on the ASX yesterday.
Suncorp revealed it had reached a non-binding heads of agreement over the deal in a statement accompanying its 2017-18 results. The company expects to sign binding sale documents by the end of the month and complete the deal by late 2018.
It plans to return about $600 million to shareholders after the sale meaning an announcement in late December or early January next year and then confirmation with the interim results next February.
As part of the life insurance sale, Suncorp will sign a 20-year agreement to distribute the TAL policies to its customers, a similar structure to that used by other banks quitting the sector.
“The long-term strategic alliance between TAL and Suncorp will allow us to offer excellent value to Suncorp’s Australian customers. The strategic alliance will leverage the strengths of our respective organisations to deliver a superior customer experience,” chief executive Michael Cameron said.
Suncorp said it would make a non-cash loss of about $880 million by selling its life business. The company had looked at various options including taking out extra reinsurance or entering a partnership, but Mr Cameron said selling the life company would release capital to shareholders, simplify the group’s business, and bolster return on equity.
In its profit release, Suncorp said its cash earnings fell 4% to $1.1 billion, but still gave shareholders a special dividend of 8c a share in response to holding excess capital.
Suncorp kept the final dividend flat at 40c a share for a total for the year of an unchanged 73 cents, which is a far better indicator of what was an average year for the financial conglomerate.
Including the 8 cents a share special, total dividends account for 95.2% of profit, an indication the company wants to keep its shareholders happy.
Suncorp’s financial result included a 2.2% rise in profit from its flagship Australian general insurance division, which reported a net profit of $739 million.
Its banking (Mostly Metway Bank) and wealth arm saw a near 3% decline in profits, to $389 million for the year to June, amid higher loan impairment expenses and operating costs.
The company’s return on equity (ROE), a key measure of profitability, was 8%, and Mr Cameron affirmed the group’s target for 2019 was to drive ROE higher to 10%.
The Commonwealth’s ROE fell 160 points in the year to June to a still solid 14.1%, so Suncorp will still be a long way behind even if it manages to achieve a 10% ROE.
The insurer said it expected “strong" growth in the year ahead, with revenue increasing 3 to 5%, as it claimed further "efficiencies" in its claims handling costs.