Rating cut for Suncorp's life insurance arm

Standard and Poor's has cut the credit rating of Suncorp’s Group’s life insurance business amidst market speculation that the business will be sold.

The ratings firm said yesterday that it had cut its credit ratings on Suncorp Life one notch to A, from A+, and put it on credit watch for a further downgrade after the Group said it is exploring strategic alternatives for its Australian life operations, including divestment.

S&P confirmed it had lowered its credit ratings on the insurance giant’s life insurance business on the basis that a previously core business will likely be offloaded. 

In light of this, S&P explained that the strategic importance of the Australian life business to the whole banacassurance group has diminished, which means the ratings lift from being a core part of Suncorp will go too. 

“A weak operating performance of the Australian life insurance unit relative to group expectations has triggered the strategic review. This weaker performance also contributes to our assessment of slightly lower Group support for that unit,” said S&P analyst, Craig Bennett.

“As such, we no longer consider life Insurance as being highly unlikely to be sold. As a result, we no longer equalise its rating owith the Group credit profile.”

S&P also said the rating will be reviewed once the agency completes a detailed review of the division's stand-alone creditworthiness but believes a confirmation of A is the most likely outcome.

New Zealand business

At the same time, Asteron Life - Suncorp’s New Zealand life business - has also been put on credit watch because of the uncertainty that it will remain fully integrated with the Group following its recent operational split from the Australian life insurance operations.

In contrast to Australia’s weaker operating performance, Asteron’s in-force premiums, operating experience and profit margin look strong so it may avoid a downgrade.

According to Bennett, while yesterday’s ratings downgrade is to do with the importance of Suncorp’s life insurance arm to the Group, S&P is also concerned about the manufacture of life products, their performance and how the insurer manages reserve risk.

Suncorp this week reported cash earnings of $584 million, which was somewhat below consensus forecasts. But the life insurer saw its cash profit halved to just $11 million. New business was written down 13 per cent after being hit by a deterioration in lapse and claims trends.

Suncorp’s life insurance business has an embedded value of $2 billion, which some analysts think too expensive given that its in-force book is running at $1 billion. 

“We do recognise the potential for variability in the amounts life insurer’s book on policies and what they actually receive,” said Bennett. 

Insurance, New Zealand,
Suncorp, insurance, S&P
Elizabeth Fry, online@financialpublications.com.au
Article Posted:
February 17, 2017

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