May 27 (Bloomberg) -- Suncorp Group Ltd., Australia’s largest general insurer by market value, plans a A$500 million ($462 million) writedown at its life insurance unit and cut its growth target for the year to June 2015.
The writedown will reduce net profit and cut capital by A$27 million without affecting dividends, Suncorp said in a statement today. The Brisbane-based insurer’s shares fell the most in three months.
Suncorp’s writedown follows similar difficulties faced by its competitors, including AMP Ltd., which saw its net profit drop 2.5 percent in the year ended Dec. 31. Life insurers in the country are facing higher-than-expected policy lapses and claims.
“It is time Suncorp confronts reality in its life business,” Brett Le Mesurier, a Sydney-based analyst at BBY Ltd. said by phone. “Australian life insurers need to come to grips with the fact the situation isn’t going to change soon enough. They need to price and set their assumptions accordingly.”
Suncorp shares dropped 2.3 percent to A$13.375, at 10:31 a.m. in Sydney, the biggest fall since Feb. 24. The benchmark S&P/ASX200 index was 0.3 percent higher.
The insurer will reduce goodwill and intangible assets by A$350 million and recognize a A$150 million loss on some products after a review of the life insurance operation, it said in the statement. The life insurance business is expected to report an underlying profit of as much as A$85 million in the year ended June 2014 compared with A$120 million reported a year earlier. The writedown will reduce excess capital by A$27 million, it said in today’s statement.
“Suncorp Life earnings and the potential for further deterioration needs to be reflected in our assumptions,” Chief Executive Officer Patrick Snowball said in the statement. “We believe our revised approach to setting forward-looking assumptions acknowledges the structural challenges appropriately.”
The insurer cut its fiscal year 2015 growth target to 4 percent to 6 percent from 7 percent to 9 percent. The company reiterated its plan to pay a dividend of 60 percent to 80 percent of cash earnings.
The lower growth target takes into account a benign natural hazard claims environment and lower reinsurance costs, which mean Suncorp won’t need to increase premiums, Brisbane-based spokeswoman Michelle Barry said by phone.
Suncorp’s will have excess capital of A$1.1 billion as at Dec. 31 after providing for the writedown. The company expects to announce further “capital management initiatives” when it releases full-year earnings on Aug. 13, it said.
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