87MW Suncorp Ins.27

    RNS Number : 6353A
  Suncorp-Metway Limited
  05 August 2008
   

    1 August 2008

    SUNCORP MARKET UPDATE

    Suncorp today updated the market on its expectations for the Group's full year result to 30 June 2008. The update follows a review of
preliminary unaudited financial information and completion of actuarial valuations in the general insurance and life risk businesses.

    The Group now expects to be at the top end of the previous profit forecast for its banking business. Guidance has been confirmed for
general insurance and reduced for the wealth management business. Integration remains firmly on track and the Group is confident in the
projected timing and quantum of synergy benefits.

    Chief executive John Mulcahy said that, despite the external challenges which impacted all financial services companies over the past 12
months, the underlying performance of the Group's businesses provided a strong foundation for the upcoming financial year.  

    "Like all Australian financial services companies, our result for the 2008 financial year has been affected by external factors,
including the global credit crunch, volatile equity markets and a succession of severe weather events," Mr Mulcahy said.

    "Despite this, we will take numerous positives out of last year - our businesses are in good shape, integration is progressing well and
delivering the synergies we targeted, our customer base has grown and satisfaction across all brands continues to improve." 


    Banking Update

    Suncorp's banking business expects to increase full year profits before bad debts, tax and one-off items ($20 million gain from the sale
of the credit card portfolio to Citigroup and $16 million gain from the Visa initial public offering) by approximately 12%, at the top end
of its forecast of 10% to 12%. 

    Although non-performing loans are expected to increase, the Bank's high levels of security and minimal exposure to unsecured lending
means impairment losses, as a proportion of total loans, will continue to be less than the major banks. The full year bad debts expense is
expected to be between $70 million and $75 million.

    Bringing this together, the Bank's contribution after bad debts and before tax for the year to June 2008 is likely to be between $630
million and $635 million.  

    The Bank's funding program remains well on track following the completion of the $1.15 billion three year domestic issuance, private
placements in Australia and Asia, and the establishment of a commercial paper program in the United States.  

    As a result, Suncorp ended the year to June 2008 with average balance sheet duration, including sub-debt and hybrids, of around 0.6 of a
year, the same level as at the end of June 2007.  


    General Insurance Update

    Following completion of an actuarial review of claims provisions and the full year mark to market of the technical reserves portfolio,
as well as the inclusion of additional claims events in the second half of the year, Suncorp expects its insurance trading ratio (ITR) for
the full year ending 30 June 2008 to be approximately 10% including integration synergies.

    Actuarial review of claims' valuations

    The actuarial review of outstanding claims provisions has confirmed that the quantum of central estimate releases has continued to
reduce.  

    The central estimate reserve release for the second half is expected to be approximately $70 million (H1: $171 million).  In addition
there will be a diversification benefit across the portfolio of approximately $75 million. 

    Due to stabilisation of claims valuations, Suncorp has decided to adjust its level of sufficiency from 94% to 90%. This will result in a
benefit of approximately $220 million, which will be taken in full in the 2007/08 year. 

    Mark to Market - Technical Reserves

    During the second half of the financial year, the ITR was affected by the mark to market impact of widening credit spreads on the
Group's approximately $7.7 billion technical reserves portfolio, where underlying investments are matched to the expected payouts in the
outstanding claims provision. The full year impact will be around $140 million. 

    As advised in February 2008, this is purely an accounting and timing issue which will reverse as the investments redeem or as credit
spreads contract. There is no question about the quality of these investments, which are largely semi-government and high quality corporate
bonds.

    Weather Events

    Claims costs associated with severe weather events for the full financial year are expected to total around $415 million, well ahead of
the Group's normal full year provisioning of $200 million.  
      The major events for the 2007/08 year included:

 Date        Event                           A$ Million
 Jul 2007    Floods in New Zealand                   20
 Oct 2007    Storms in Lismore                       60
 Dec 2007    Storms in Sydney                       170
 Dec 2007    Earthquake in New Zealand                5
 Dec 2007    Storms in Melbourne                     25
 Feb 2008    Storms in Mackay                       110
 Apr 2008    Wind Storms in Vic/Tas                  25
             Total                       A$ 415 million

    Mr Mulcahy said that, outside these events, generally wetter weather across eastern Australia contributed to an increase in claims
frequency. Additionally, some supply side constraints created by the succession of major events caused an increase in claim costs. However,
in recent months, the inflationary impacts of the major events on average claim costs have begun to abate. 

    Despite these external factors, Suncorp's general insurance brands continued to perform strongly, with recent personal insurance premium
increases flowing through in current and future reporting periods.

    Reinsurance

    Suncorp has confirmed its reinsurance program for the 2008/09 year. As a result of the frequency of major weather events in 2007/08, the
Maximum Event Retention (MER) has been reduced to $150 million, from $200 million.  

    Additionally, aggregate cover has been purchased. This provides protection for multiple events that individually may be below the $150
million level, but collectively total over $250 million.  


    Wealth Management Update

    Suncorp announced that its Wealth Management business had been significantly impacted by the downturn in investment markets and the
increase in discount rates. This will result in underlying profit for 2007/08 being between $130 million and $135 million compared to the
2006/07 pro-forma after tax result of $150 million.  
      

    Mr Mulcahy said the primary cause of this disappointing result was the negative investment markets impacting on funds under
administration, funds under management and the value of the assets backing the annuity book. New Zealand investment and superannuation
returns have also been impacted. 

    Mr Mulcahy said a simplification of the wealth management business model, processes and products, will position the business to ride out
tough market conditions as well as take advantage of any improvement in the industry cycle.  


    Further investment market impacts 

    The downturn in equities and fixed interest markets has significantly impacted the Group's result for the year to 30 June 2008. 

    The loss in the General Insurance Shareholders Funds, a portfolio of around $2.8 billion, will be around $235 million for the year to 30
June 2008.  

    Additionally, the Group's defined benefit superannuation schemes have been negatively impacted by investment markets, and, in accordance
with accounting standards, this will result in an expense of around $35 million for the year to 30 June 2008. This expense will be
separately disclosed in the 'Other' heading of the Income Statement. 


    NPAT/Dividend

    Based on all of the above, the unaudited preliminary financial net profit after tax (NPAT) is now expected to be between $525 million
and $550 million. This includes the impact of Promina acquisition items.

    Given the impact of external events on the Group's full year results, the Board has decided that Suncorp's final dividend would remain
at 55 cents per share fully franked, taking the full year dividend to 107 cents per share.

    Mr Mulcahy also confirmed the dividend reinvestment plan would be fully underwritten to support the Group's capital position and provide
it with strategic flexibility in the current financial year.  


    Outlook

    Mr Mulcahy said the outlook for the Group's three businesses for the year ending 30 June 2009 remained positive despite the challenging
economic environment.

    In the Bank, Mr Mulcahy forecast high single digit growth in profit before tax and bad debts compared to the 2007/08 result (excluding
one-off items). While it is likely the level of non-performing loans will continue to increase in 2008/09, it is anticipated the impairment
loss expense will remain within the historical range compared to the major Bank peer group.

    In General Insurance, Mr Mulcahy forecast an ITR in the 10% to 12% range, including the benefits of integration. This assumes weather
events remain within the Group's normal provisioning and there is no further widening of credit spreads across the Group's technical
reserves portfolio. The guidance also assumes no material structural reserve releases.

    In Wealth Management, conditions are expected to remain challenging, with the Group forecasting a flat underlying profit result compared
to 2007/08.

    Based on the Group's outlook, the excellent progress on integration and continuing confidence in the underlying performance of the
business, the Board anticipates that the Group's ordinary dividend for the full year to June 2009 will be maintained at 107 cents per
share.

    ENDS

    For further information please contact:

    Investors/analysts:        Karen Cush         07 3836 1960
         Mark Ley              07 3835 5639 

    Media:                            Jamin Smith          07 3835 5185
                                            Natasha Schmid   07 3836 1219

    Teleconference details

    Suncorp will be hosting a combined analyst, investor and media teleconference at 10:00am today. 

    All Participants will be asked for their full name & Conference ID when joining the Call. 

    CONFERENCE ID: 57669920 
Australia: 1800 148 258
International Dial In: +61 2 8524 6650



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This information is provided by RNS
The company news service from the London Stock Exchange
 
  END 
 
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