Fitch Ratings has downgraded Suncorp Group Limited’s long-term issuer default rating (IDR) to “A” from “A+,” and the insurer financial strength (IFS) rating of its primary non-life insurance subsidiary, AAI Limited, to “A+” from “AA-.”
The outlook on both ratings is stable.
Alongside these downgrades, Fitch removed the rating watch negative (RWN) previously applied and affirmed Suncorp’s short-term IDR at “F1.”
The credit rating agency also withdrew all ratings for Suncorp and AAI Limited, citing commercial reasons for ending analytical coverage.
The ratings downgrade reflects a change in Suncorp’s overall capital profile following the recent sale of its banking subsidiary, finalised in July 2024.
The sale reduced Suncorp’s capital base, which led to a downgrade in its prism global capital model score to “adequate” on a group level, falling below Fitch’s criteria for the “AA” rating tier.
While the insurance giant continues to maintain strong non-risk-adjusted capital metrics, changes to its reinsurance structure and higher retained risks also contributed to the downgrade.
Suncorp’s financial performance showed improvement in the fiscal year ending June 2024, with a combined ratio of 92.7%, up from 93.4% in the previous year, according to Fitch calculations. This improvement was primarily driven by adjustments in premium pricing to offset increased claims inflation and the rising costs associated with natural hazards and reinsurance.
The group reported a net profit after tax of $1.23 billion in FY24, a rise from $1.08 billion in FY23.
Although extreme weather risks remain a key factor due to the insurer’s significant presence in the home and motor markets, Suncorp has managed this exposure through a structured reinsurance program, which has provided resilience despite escalating costs.
Suncorp’s divestment of its banking operations aligns with a strategic shift to concentrate on its non-life insurance business.
As of June 2023, the company’s banking assets made up 71% of its total consolidated assets, yet their contribution to net profit after tax was 35%.
In April 2024, Suncorp announced an additional strategic move to sell its New Zealand life insurance subsidiary, Asteron Life Limited, to Resolution Life NOHC Pty Ltd. With these changes, the company is set to operate solely as a non-life insurance provider in both Australia and New Zealand.
Suncorp is the second-largest non-life insurer by premium volume in Australia and New Zealand.
Fitch attributes a “favourable” business profile and a “neutral” governance assessment to Suncorp when compared with other regional insurers, highlighting the insurer’s well-established brand portfolio.
No further rating adjustments are expected as Fitch has withdrawn Suncorp’s ratings.
Environmental, social, and governance (ESG) factors were assessed with an impact score of “3,” indicating that ESG issues were neutral or minimally impactful in Fitch’s assessment.
