Fitch Ratings has announced that it still reviewing the ratings of Suncorp Group Limited (SGL) and AAI Limited, its main non-life insurance subsidiary, and put it under Rating Watch Negative (RWN) as more information on the group’s capital position becomes available following the completion of the group’s bank sale the end of July this year. Both firms have been in RWN status since July 22, 2022.
“We placed the ratings of SGL and AAI on RWN on 22 July 2022 following the announcement of the bank sale. This was to reflect the possible drop in SGL's Prism Global score upon the completion of the sale. The score, which was supported by the group's large consolidated capital base, will be affected by the smaller post-sale capital base, but this will be offset to some extent by lower target capital requirements,” stated Fitch in its non-rating commentary released last August 1, 2024.
The rating firm said that they are expecting to have a clearer view of the group’s post-bank sale capital position around the time of its results announcement for the financial year ending June 2024 (FY24) on August 19, 2024.
Based on the available information, Suncorp is about to return the net proceeds above business needs to shareholders, which amounts to AUD1.4 billion. Moreover, according to Fitch Ratings’ commentary, Suncorp is expecting to get the nod for the resolutions regarding the bank sale from its shareholders, including the return of capital to shareholders, during its general annual meeting set in October this year.
“The return of capital will also require approval of the Australian Prudential Regulation Authority and a ruling from the Australian Tax Office,” the Fitch Ratings commentary stated.
Fitch Ratings also explained that SGL's Prism score, which was measured on a group-wide basis, was 'Strong' in FY23, similar to FY22, but lower than the ‘Very Strong’ in FY21.
“The score has been affected in recent years by higher net retentions due to changes to SGL’s reinsurance programme as well as higher risk exposure alongside greater business volume. Still, prescribed capital amount coverage is high, while non-risk-adjusted capital metrics, such as net written premium/capital, remain commensurate with the rating,” Fitch said.
Fitch Ratings also said that the bank sale will allow SGL to focus on its core non-life insurance operation and support the insurer’s business profile over time. It also furthered that the bank’s total assets accounted for 71% of SGL's consolidated assets at FYE23, but the contribution to net profit after tax from group functions, notwithstanding its large asset share, was lower, at 35%.
Last April, the Suncorp Group also announced the sale of its New Zealand life insurance operation, Asteron Life Limited, to Resolution Life NOHC Pty Ltd., which makes SGL a pureplay non-life insurer.
