Suncorp-Metway’s outlook isn’t about banking and insurance, it’s really about the Promina merger, should it be approved.
Promina Monday revealed a stronger than expected net profit of $525 million, which will please Suncorp shareholders.
After all, the deal is valued at $8 billion and even if the PMN result was helped by reserve releases in its insurance business, it still showed quality.
Or to look at it another way, SUN’s outlook is still about its basic banking and insurance business, but its all about the execution of the merger without damaging its own operations and those of Promina.
Promina’s insurance brands are valuable (AAMI and Vero and Shannons and the Over 55 Pensioners Insurance Agency) and are the reason for the expensive merger happening.
Suncorp can’t get the sort of returns from its existing GIO brand and needs to find growth through acquisition, or it would have been acquired by someone else a little way down the track.
The latest result confirmed that with GIO losing market share in NSW to the more aggressive AAMI and IAG: which has put SUN management under pressure about who will lead the insurance side if the merger goes through.
Suncorp-Metway yesterday revealed a 16 per cent rise in first half profit, to $527 million, and says full year earnings are still on track.
The company said underlying profit, which excludes investment returns and non-recurring items, was up 19.7 per cent to $589 million.
“This means that for the year to June 2007 we would expect to increase profit before tax and bad debts in the bank by approximately 10 per cent, achieve an ITR (insurance trading result) in the general insurer in the 16 to 19 per cent range, excluding any major weather events,” it said.
Suncorp’s 2007 first half profit was boosted by a reserve release of $120 million following favourable claims experience in its long tail insurance book linked to tort law reforms on compensation claims.
Promina’s result saw around $149 million release from its reserves for the same reason.
The general insurance division posted a 16.1 per cent lift in first half net profit to $383 million.
“This was underpinned by strong profitability across all classes of business due to the continuing benefits of tort law reforms on personal injury and liability claims,” Suncorp said.
Earnings from the insurance operation were also lifted by claim cost reduction projects, Suncorp said.
Gross written premiums for the half decreased by 1.2 per cent to $1.3 billion.
Suncorp said the fall was expected and came amid a highly competitive operating environment and continued pressure on premium rates, which was also a comment shared by Promina, which however did say that its AAMI business wrote more home and motor vehicle insurance in the second half..
Suncorp’s banking business saw a 13.3 per cent rise in first half pretax profit to $383 million with its net interest margin shedding “nine basis points” from December 2005.
Suncorp’s wealth management business posted a 28.6 per cent jump in pretax profit to $54 million driven by strong growth in funds under administration.
Suncorp declared an interim dividend of 52 cents per share fully franked, up from 47 cents in the previous corresponding period.
The issue of reserves release will be something to be watched in the interim later today from Insurance Australia group and from QBE on Friday.
