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Financial sector company, Suncorp Group Limited (ASX:SUN) announced the completion of its Australian Life Insurance Business sale to TAL Dai-ichi Life Australia Pty Ltd (TAL) for the expected consideration of around $725 million.
The Insurance Group intends to return approximately $600 million of capital to its shareholders following the adjustments to account separation and transaction costs, hybrid capital and other provisions. As per the companyâs information, the means to implement this distribution of capital would continue to be through seeking shareholder approval for a pro-rata return of share capital and share consolidation, however, the Group also plans to club it with a marginal fully-franked special dividend.
But the sale of Suncorpâs Australian Life Insurance division comes at the loss as the company has informed that sale is expected to result in an after-tax non-cash loss of approximately $880 million and pre-tax $910 million.
The Sale deed includes Suncorpâs 20-year strategic alliance with the subsidiary of Japanâs leading life insurance company Dai-ichi Life Holdings, TAL, that is aimed at delivering above the industry standard life insurance solutions through the Australian distribution channels of Suncorp.
Suncorp CEO & Managing Director, Michael Cameron, said: âPartnering with TAL allows Suncorp to offer a compelling life insurance solution to Suncorp customers, supported by the scale and innovation of a market leading Life Insurer.â
As per the terms of the strategic alliance, Suncorp will continue to generate income on life insuranceâs distribution. The company believes that this transaction frees-up capital for Suncorp to return to shareholders, and also leverages the strengths of the respective organisations to offer value to Suncorp customers.
In the recently released interim results, Suncorp reported a 1HFY19 net profit after tax of $250 million, down 44.7% from $452 million in 1HFY18. It reflects write-down of life goodwill of $145 million, investment market impact and doubling of regulatory project costs to $39 million.
The company eyes the unforeseen regulatory costs combined with natural hazards and investment performance will impact the Suncorpâs full-year cash ROE. It estimates its FY19 regulatory costs to exceed from its previous guidance of approximately $90 million by $50 million on the back of more extensive investment in regulatory projects and system enhancements to meet community and customer expectations. This is expected to result in a medium-term impact to underlying ITR from FY20.
Looking forward, Suncorp intends to increase its natural hazard allowance from $720m to $820m in FY20 and purchase an additional $200m natural perils reinsurance cover to sit on top of the allowance providing a further level of cover that will work in conjunction with Suncorpâs main catastrophe program and natural hazard aggregate protection program.
In todayâs trading session, Suncorpâs stock price surged up by 1.402% to close at $13.740 on 1 March 2019. SUN last traded at a Price to Earnings multiple of 20.410x with a market capitalisation of $17.59 billion.
Over the past 12 months, SUN has edged up by 0.44% including the positive price change of 3.83% in just last month.
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