Suncorp’s Share Price Drops Due to Sale of its Life Insurance Business

Suncorp Group Limited’s [ASX:SUN] share price dropped 0.62% immediately upon opening in today’s trading, after announcing the sale of its Australian life insurance business to TAL Dai-ichi Life Australia Pty Ltd.

TAL is one of Australia’s leading life insurance providers, a part of the Dai-ichi Life Group, a Japanese company and one of the world’s largest publicly traded life insurance groups.

Shares of the bank at time of writing are trading at $15.34, down from its highest price in the last five years of $15.70 on 9 August.

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Details of the sale

Suncorp has revealed that it will sell its Australian life insurance business to TAL for roughly $725 million. This includes the purchase consideration and adjusted net worth.

The bank has arranged the sale so that they will continue to earn an income over the next 20 years…

The Share Sale includes a 20-year distribution agreement with TAL to offer market-leading life insurance solutions through Suncorp’s Australian distribution channels, including its digital channels, contact centres and store network. Under the terms of the alliance, Suncorp will continue to earn income on the distribution of life insurance.

Suncorp CEO & Managing Director Michael Cameron commenting on the alliance said:

The long-term strategic alliance between TAL and Suncorp will allow us to offer excellent value to Suncorp’s Australian customers. The strategic alliance will leverage the strengths of our respective organisations to deliver a superior customer experience.’

Suncorp expects $600 million to be returned to shareholders upon completion of the transaction, which is anticipated to take place by 31 December 2018.

It has been highlighted that the sale of Suncorp’s Australian life insurance business has no effect on the New Zealand life insurance business.

Why is Suncorp selling?

The sale of its life insurance business comes after failed attempts to reach its targets and profitability.

Mr Cameron told The Sydney Morning Herald that it was extremely hard to deliver returns expected from the life insurance sector…

Our target is around that 10 per cent ROE across the group and it would be returning probably half that…The ideal owners of these are probably foreign companies with low cost of capital.

In addition the sale is a part of Suncorp’s commitment to simplify its business model and release a significant amount of capital to shareholders.


Ryan Clarkson-Ledward,
For Money Morning

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