Suncorp today said it was now on target to achieve annualised synergies of $325 million and incur one-off implementation costs of $375 million as a result of its merger with Promina.
The new synergy target represents a $100 million increase on the pre-merger estimate of $225 million annualised. One-off implementation costs will increase by $20 million on the pre-merger estimate of $355 million.
The synergy upgrade follows a rigorous six month process which saw more than 400 employees from both the Suncorp and Promina businesses design the shape of the new organisation.
Over 300 initiatives underpin the new synergy target. Implementation of priority initiatives commenced prior to Christmas.
Suncorp CEO, John Mulcahy said he was delighted at the progress made towards integration and the level of engagement from employees across the Group.
"We have put in place a robust and discipline integration plan that will ensure our integration targets will be delivered on time. The processes and controls for quantifying synergy targets and the structure of the integration governance program have been independently assessed by KPMG."
My Mulcahy said the company would provide details of the key areas of synergy realisation and how benefits and costs would flow through to the P&L, at its upcoming interim results presentation.
"Given the proximity to our first half results, we have decided to incorporate an integration into our February 28 presentation. This will allow the market to very clearly analyse the benefits of the integration in the context of the organic performance of each of our business lines."
Mr Mulcay said the company had committed to update the market on its revised full-year insurance trading ration (ITR). This would take into account a number of significant weather events in the first half and finalisation of the December 31 mark to market of the technical reserves portfolio.
Mr Mulcahy said the claims cost associated with weather events in the first half were now expected to total $280 million, well ahead of the Group's normal provisioning of $100 million per half year. The events included:
Weather Event A$ Floods in New Zealand, June 2007 20 m Storms in Lismore, Northern NSW, October 2007 60 m Storms in Sydney, December 2007 170 m Earthquakes in New Zealand, December 2007 5 m Storms in Melbourne, 12 & 20 December 2007 25 m Total: $280 m
More recently, there has been floods across much of Queensland and northern New South Wales.
"The most recent flooding in central Queensland has so far resulted in approximately 350 claims at an estimated cost of approximately $2 million."
"These events have been very distressing for all those involved and a serious community issue. Our priority is to work with our customers to ensure that all claims are processed as quickly as possible," Mr Mulcahy said.
Mr Mulcahy also announced that as a result of the incidence of major weather events in the first half, a decision had taken to put in place a retention buy down program which would provide protection through to 30 June 2008 from significantly natural hazard losses below the current catastrophe retention of $200 million.
"The program essentially provides protection against significant hail, storm and bush fire events with the Maximum Event Retention (MER) reducing to $100 million for non-cyclone and non-earthquake losses."
This would drop to $50 million in the event of a further loss"
The program was put in place for a total cost of $15.2 million
Mark to Market - Technical Reserves
Mr Mulcahy said the ITR in the first half had also been impacted by the mark to market impact of widening credit spreads on the Group's approximately $7 billion technical reserves portfolio, where underlying investments are matched to the expected payouts in the outstanding claims provision.
The mark to market is expected to impact the first half P&L by approximately $85 million.
"As we pointed out in December, this is purely an accounting and timing issue which will reverse as the investments redeem or as credit spreads settle. There is no question whatsoever about the quality of these investments, which are largely semi-government and high quality corporate bonds," Mr Mulcahy said.
In commenting on general business matters Mr Mulcahy noted that beyond these items, Suncorp's general insurance brands continued to perform strongly.
Revised Insurance Trading Ratio (ITR)
As a result of these items, Suncorp has revised its insurance trading ratio (ITR) to 9% - 12%* from 13% - 16% for the full year ended June 2008.
The first half ITR, which will be announced at the Group's interim results on February 28 is likely to be approximately 5%. This included realised synergy benefits of approximately $35 million.
Mr Mulcahy said the remainder of the Group's full-year guidance was unchanged.
*excludes synergy benefits and assumes 2H08 weather events remain within company provision and credit markets remains as at December 31, 2007
For more information, analysts/investors should contact: Mark Ley - 0411 139 134 or Nicole Marques on 0437 792 504 Media enquiries should be directed to: Natasha Schmid – 0434 073 045
Teleconference details Suncorp will be hosting a combines analyst, investor and media teleconference at: 10:30 AEST (09:30 Brisbane). Dial in details are as follows:
Conference ID: 33155669 International Dial In: +61 2 8524 6650 Australia: 1800 148 258 Belgium: 080071572 Canada: 18668374489 China North: 108006110127 China South: 108003610079 France: 0800908221 Germany: 08001814827 Hong Kong: 800965808 Indonesia: 0018030612145 Ireland: 1800720011 Italy: 800788772 Japan: 004422062118 Malaysia: 1800180708 Netherlands: 08000229451 New Zealand: 0800667018 Norway: 80010112 Philippines: 180016120005 Singapore: 8006162170 South Korea: 007986121097 Sweden: 020799376 Switzerland: 0800561529 Taiwan: 00801232398 Thailand: 0018006121124 United Kingdom: 08000569662 United States of America: 18665862813
1 February 2008