Suncorp (SUN) has joined the rush to ‘review’ and clean up its underperforming life insurance business as the sector continues to pressure insurers. Suncorp revealed that earnings from its life business halved in the six months to December in reporting a weak 1.3% rise in statutory half-yearly net profit.
The AMP yesterday revealed a multi-million dollar from a clean up of its black hole in its life division, while Tower NZ accepted a takeover offer from a big Canadian investor on Thursday after years of struggling with the rising tide of claims from the Christchurch earthquake in 2011, and now the South Island quake late last year.
They are not the only ones – the ANZ is considering the sale of its life insurance and wealth division, (with a book value of $4.5 billion), while National Australia Bank last year sold 80% of its life insurance unit to Japan’s Nippon Life for $2.5 billion.
Other insurers have taken huge losses (Virgin for one) on their life businesses as claims have outstripped premium growth and investment income.
Now Suncorp says it is was considering “strategic alternatives” for its life insurance division.
The options for the life insurance division could include a sale or partnership arrangement, but no process has been started, a Suncorp spokeswoman said.
Suncorp reported a net profit after tax of $537 million for the six months ended December 31, up from $530 million a year earlier, after revenue grew 4.3% to growth of 4.3. It forecast margins would grow in the second half.
Its cash profit for the six months to December 31 was up 5% from last year to $584 million, but short of the market forecasts of around $642.5 million.
The Brisbane-based company said earnings from its life insurance division, which fell 52% to just $11 million in the December half, from $23 million a year earlier.
For the entire insurance arm net profit after tax rose more than 42% to $369 million on lower claims and what Suncorp calls “disciplined expense management.”
General insurance, the group’s largest division, saw net profit after tax rise 51.7% per cent to $358 million.
Suncorp Bank increased annual net profit after tax slightly from $207 million to $208 million. That is not a very strong result (like the NAB’s first quarter trading update on Monday) Suncorp chief executive Michael Cameron said that its Australian life insurance division was impacted by lapses and an increases in claims.
Australia’s life insurers have faced rising claims rates and more policy cancellations since Australian media in March last year revealed the use of discredited methods to refuse legitimate claims for insurance payouts.
Suncorp’s results were hit by natural hazard claims costs (quakes and storms and floods) in Australia and New Zealand of $319 million for the first half, $19 million above its natural hazard allowance.
That includes the impact of the earthquake in New Zealand’s South Island in November, as well as damage from storms in southern Australia in November and December.
Suncorp, whose brands include AAMI, GIO, Shannons, Vero and Apia, has surpassed its natural disaster budget at every half-year result since 2013.
Despite the weak outcome Suncorp raised its fully-franked interim dividend by 3 cents, or 10% cent to 33 cents a share. That will keep any restive shareholder happy.
But it wasn’t wholly convincing as Suncorp shares only rose 0.9% to $13.15. But that was probably better than if the dividend had not been raised.
