Suncorp (SUN), the Brisbane based financial services group, has become yet another company to separate bad news from a formal investor day presentation or annual meeting.
It’s a trend that has become increasingly obvious in the past year and more and more companies separate good and bad news to try and simplify their messages to shareholders.
Woodside (WPL) did it last week with a statement on its now aborted move into gas in Israel, ahead of its investor day last Thursday.
Now Suncorp has followed with the surprise news yesterday of a half a billion dollar write down in its life insurance business.
That came two days ahead of an investor day tomorrow.
But the company had good news as well in yesterday’s statement to try and soften the blow from the shocking news of the half a billion dollar write down.
It held out prospects for a capital return when the 2013-14 results are announced in August.
And directors made clear the write down would not impact the final dividend for the current financial year.
But the company also cut its profit growth target for the 2014-15 financial year, which could see the shares reassessed as the year goes on.
Suncorp’s surprise is the latest bad news from the struggling life insurance sector in this country.
The AMP is another insurer with problems in its life business and revealed big losses and falling profits in its life arm in late 2012 and throughout 2013.
The problems relate to badly priced group life cover for some industry super funds, or clients making higher than expected claims under policies covering income and unemployment.
Claims are running at higher rates than the companies estimated.
The news saw Suncorp shares fall more than 3% at one stage, they recovered slightly to end off 2% at $13.42.
Helping stabilise the shares yesterday was the strong suggestion in yesterday’s statement that Suncorp would be in a position to announce capital management options for shareholders after the June 30 balance date because the company had more than $1.1 billion in surplus capital.
Group chief executive Patrick Snowball said in yesterday’s statement the impairments reflected industry headwinds and a deteriorating situation.
"The structural and cyclical life insurance issues have now been recognised by most life insurance companies and reinsurers, however, we are frustrated that industry change is not occurring at a more rapid pace," he said in a statement.
"This is continuing to impact Suncorp Life earnings and the potential for further deterioration needs to be reflected in our assumptions. We believe our revised approach to setting forward-looking assumptions acknowledges the structural challenges appropriately," he said.
But while the write down will impact this year’s full year financial result, it won’t have a major impact on cash earnings and will only cut the company’s capital by $27 million, according to directors.
Suncorp said it would "materially revise claims and lapse assumptions" in its life business as part of its profit results for the year to June.
The company said it would write down goodwill and other intangible assets by approximately $350 million after tax and increase loss recognition on some products and other reserving adjustments to policy liabilities of around $150 million after tax. The pre tax cost will be close to $650 million.
Suncorp also said its biggest division – its general insurance business (AAMI, GIO, Suncorp, APIA brands – had benefited from benign weather in the past year.
Directors said natural disaster related claims were $75 million, below the group’s allowance for the first four months of 2014, which is traditionally the busy period for claims in Australia due to the cyclone and flood seasons. And the company said it could see a reserves release from prior years of 1% to 2% of net earned premiums.
The group’s Metaway Bank saw its home, agribusiness and small business lending grow 1.1% for the quarter, which is in line with the rest of the industry.
Mr Snowball said in yesterday’s statement, “The Suncorp Investor Day will again demonstrate the value of the diversified operating model which maximises the benefits of the Group’s strategic assets of Cost, Customer, Capital and Culture. These ‘4C’ strategic assets are key to the Group delivering its FY15 targets.
"Given the favourable natural hazard environment, the likely reduction in reinsurance costs and the Bank’s cautious approach to credit in the current market, the Group has revised its growth target for the 2015 financial year to between 4% to 6% (from 7% to 9% previously).
"The Group will continue to target an ROE of at least 10% for the 2015 financial year.
"Simplification benefits (in the general insurance business) continue to be realised in line with the Group’s previous expectation of $225 million in the 2015 financial year and $265 million in the 2016 financial year," the CEO said.
Suncorp also reaffirmed its commitment to target a dividend payout ratio of 60% to 80% of cash earnings.
"The write-down of Suncorp Life intangible assets is a non-cash item that will not impact Suncorp’s capacity to pay its final 2014 dividend," directors said.
"Suncorp’s pro-forma capital position at 31 December 2013, after making adjustments for the Suncorp Life write-down, is $1,112 million above targets.
"Therefore, subject to appropriate regulatory approvals, the Group expects to be in a position to announce further capital management initiatives in conjunction with the release of its 2014 financial results on 13 August 2014," Suncorp added.
But if the AMP’s experience is any guide, this might not be the only bit of bad news from Suncorp regarding its life business.
AMP, the country’s biggest life insurer, issued two profit warnings in 2013 after the combination of bigger and more frequent claims hit the company’s bottom line.
That was after weak returns were revealed in the second half of the company’s 2012 financial year, which surprised analysts.
Now the market will focus on AMP which could update the market in the next three weeks on its interim (June 30) guidance, so there could be more bad news coming up.
The AMP is considered to be more advanced in tackling the problems in its life business.
