Suncorp has pledged to focus on improving its insurance arm after agreeing to sell its bank – a division in the gunsight of investors since the financial conglomerate’s birth in 1996 – to ANZ Banking Group.
The bid from ANZ for $4.9 billion follows a series of asset sales from Brisbane-based Suncorp in the past three years, including a life-wealth management division and smash repair venture.
The remaining main engine is Suncorp’s insurance arm, whose brands include AAMI and Apia. It competes as the top home and motor insurer with IAG, whose brands include NRMA.
“It will … allow us to really focus in on our insurance business and the challenges and opportunities that are there in insurance at the moment around climate change, frequency and severity of weather, making sure that we get all those people back into their homes,” Suncorp chief executive Steve Johnston said on Monday of the bank sale.
“We’ll be able to focus exclusively on this.”
The financial conglomerate was created through the merger in 1996 of Queensland state-owned entities QIDC and insurer Suncorp with the listed Metway Bank. Even that was controversial because the deal torpedoed an attempt that year by St George Bank to take over Metway Bank in a $790 million deal.
Since then, investors and investment bankers have often focused on whether owning a bank and insurance business together is effective and whether cross-selling of such products – known as “bancassurance” – really works.
The cross-selling experiment never gripped customers or investors in the 2000s. Industry sources point out that simple differences hamstrung this notion: the products were too different; consumers did not want to buy them together; and bankers selling large products such as loans might not have wanted to sell smaller insurance offerings.
Under previous chief executive Michael Cameron, Suncorp had tried to create a product called “Marketplace” – likened to an iTunes store of financial services where people can check on their personal finances while looking at insurance, for instance. Mr Cameron insisted this was not a reanimation of the cross-selling idea but investors and staff just never warmed to it.
In 2019, Mr Johnston was elevated from chief financial officer to chief executive. At the time, he talked up the benefits of keeping the divisions together.
Still, sale murmurs never stopped and he said on Monday that Suncorp had routinely tested a plan of looking at expanding businesses naturally against other options such as mergers and acquisitions.
“This time the particular circumstances meant that we had potential counterparty interest, which meant that we took it a step further,” he said.
Analysts from Jarden, led by Kieren Chidgey, said that with the financial services inquiry in 2019 “reducing cross-sell opportunities underpinning bancassurance models, Suncorp’s exit from banking is not overly surprising in our view”.
The analysts said Suncorp shares had traded at a historical gap to rival insurer IAG but this might close with the bank sale – albeit without fully closing given “IAG’s superior personal lines franchise”.
The reason for the gap to close was due to a “simpler group structure” and potential change in Suncorp’s appetite for greater group-wide reinsurance arrangements through quota share agreements, the Jarden analysts said.
Reinsurance is insurance for insurers in big disasters, and quota share arrangements involve other big entities splitting the premiums and the risk with an insurer – for instance, IAG has used Berkshire Hathaway.
Suncorp already uses a quota share arrangement in Queensland. The issue of expanding the quota share was raised because the bank, forecast to have earned $368 million last year, had been flagged as providing a source of comparatively stable earnings compared to the insurance arm.
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