SUNCORP GROUP LIMITED — Annual Report 2010

Oct 3, 2010

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Information for Shareholders 2009/10

One Company. Many Brands

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Financial results summary

We have stabilised the business and are now positioned for growth.

Suncorp Group recorded a net profit of $780 million for the year to 30 June 2010, up from $348 million in 2009. This result was achieved despite ongoing market volatility and the Melbourne and Perth hailstorms – two of the more costly weather events in Australian history.

A year of strategy focus and business stabilisation helped the Group recover to make significant operational and financial progress. The sale of assets – the LJ Hooker subsidiary and joint venture interests in RACQ Insurance and RAA Insurance – contributed pre-tax profits of $215 million.

General Insurance

General Insurance recorded an after tax profit of $557 million for the year to 30 June 2010 (2009: $416 million), up 33.9% despite the major weather events.

Gross written premium increased 3.1% to $7.03 billion (2009: $6.81 billion). Underlying premium growth was 6.5% when adjusted for exits from underperforming lines. In personal lines, strong growth in gross written premium was achieved. Premium income growth from commercial insurance lines came through the target market of small-medium enterprise business and through a focus on broker business.

The insurance trading result of $605 million represents an insurance trading ratio of 9.6% (2009: 7.7%). Net claims, at $4.6 billion, were stable.

The New Zealand business produced a strong result with premium growth of 6.5% and an insurance trading result of $70 million (2009: $38 million). The insurance trading ratio was 12.2% (2009: 7.1%).

After actively constraining lending growth in the first half, the Bank grew the core lending portfolio in the second half. Core retail deposits increased by 8.5% to $23.2 billion. The deposit to core lending ratio at 71.1% in June 2010 is ahead of target (June 2009: 64.1%).

Prudent management of the non-core portfolio run-off is ahead of expectations, and reduced by $4.9 billion for the year to $12.6 billion. The Bank has strong levels of liquidity and is well placed to meet any regulator-imposed requirements to strengthen liquidity reserves across the industry.

Suncorp Life

Suncorp Life’s business is showing momentum. A clear strategy, with specific areas of focus, has contributed to a strong result.

In-force premium grew 7% to $784 million. New business sales for life insurance through the Independent Financial Adviser channel increased by 15%. Net profit after tax, including market adjustments, was $222 million (2009: $117 million). Underlying after tax profit was $192 million, up 6.7% on 2009.

Suncorp Life’s embedded value increased to $2,406 million (2009: $2,145 million), while operating expenses fell 5% to $321 million.

Capital and dividend

The Group’s stronger capital position is due in part to improved operational earnings, asset sales and prudent retention of capital buffers. Suncorp will pay a final ordinary dividend of 20 cents per share fully franked, taking the full year ordinary dividend to 35 cents per share fully franked.

General Insurance

$7.03 billion 3.1% Gross written premium

$557 million 33.9% Net profit after tax

Suncorp Bank

$44 million Consolidated Bank net profit after tax

7.03% Adjusted Fundamental Tier 1 ratio

Suncorp Life

$192 million 6.7% Underlying profit $2.4 billion 12.2% Suncorp Life embedded value

Full year net profit after tax from lines of business

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5%
27%
68%
General Insurance
Suncorp Bank
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Suncorp Life (including market adjustments)

Suncorp Bank

In the first full year result since the split of the Bank’s activities into the core and non-core portfolios, the core Bank’s after tax profit was $268 million. Together with the non-core Bank after tax loss of $224 million, total Bank after tax profit was $44 million.

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Suncorp Information for Shareholders 2009/10
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Building confidence and credibility in 2010

In an uncertain global financial environment, we focused on the delivery of five key priorities during the past 12 months.

1. We stabilised the business

We set about restoring confidence in the Bank and took a refreshed Suncorp Bank brand to target markets. In the Bank’s non-core portfolio we matched the funding maturity to the run-off expectation – resulting in a portfolio that is positively funded to maturity, with a significantly reduced refinancing risk. The run-off is progressing ahead of expectations.

2. We simplified the business

We sold joint venture interests and the real estate subsidiary LJ Hooker. We implemented a clear organisational structure, giving operating divisions end-to-end accountability. We introduced a ‘building blocks’ program to streamline our general insurance claims and pricing processes and provide a consistent view of our customers and employees, as well as a consistent approach to financial systems.

3. We strengthened the balance sheet

Improved earnings, asset sales and the advanced run-off of the non-core Bank portfolio mean the Group’s capital position is considerably stronger. We retained prudent capital buffers, paying a more conservative dividend at the half year and increasing provisions for outstanding insurance claims. Suncorp Bank now has a

higher tier one capital ratio and in General Insurance the minimum capital requirement coverage (at 1.89 times) is higher.

4. We refreshed our senior leadership team

We appointed a new Group Chief Executive Officer and several experienced executives. We strengthened the Board by appointing a director with experience in banking and financial services.

5. We clarified our strategic direction and outlined a plan for growth

In May and June we presented investors with our strategic business plans and clear ‘stretch’ targets for growth which were well received. Presentations can be viewed online at www.suncorpgroup.com.au.

Summary

Our strategic simplification has created five businesses that have robust capital levels, reduced complexity, experienced leaders and clarity of purpose.

The Suncorp Group is now focused on being ‘One Company. Many Brands’. We have the right goals, business model and people, and our businesses are poised for growth in their respective markets. This – along with improving returns to shareholders – is our focus into 2011.

$95.34 billion Total assets

$13.95 billion Net assets

$780 million Group net profit after tax

5.7%

Return on average shareholders’ equity

35 cents per share Total dividend

198,697 Ordinary shareholders at 17 August 2010

Dividend

(cents)

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Final
Interim
2006 2007 2008 2009 2010
55 55
50
20
20
47 52 52 20 15
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Relative share price performance 1 July 2009 – 1 Sep 2010

A $100 investment is assumed on 1 July 2009.

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150
140
130
120
110
SUN
100
S&P/ASX200
90
Jul 2009 Aug Sep Oct Nov Dec Jan 2010 Feb Mar Apr May Jun Jul Aug Sep 2010
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Chairman’s report

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The Suncorp Group today is in a far different place. We are now well on the path towards realising the full extent of our potential.

Dear Shareholder

substantial potential that resides within each of our businesses and the Group.

I am pleased to report that Suncorp has continued to make real and substantial progress for the 2009/10 financial year.

It is this confidence in our future prospects that has enabled the Board to declare a second half dividend of 20 cents per share fully franked, meaning that our full year payout is at the top end of our target ratio.

Net profit after tax for the full year was $780 million, up from $348 million in the previous financial year. While the Board is encouraged by the improved financial outcome, we are acutely aware that this growth was from an unacceptably low base, and that much more is required to regain the ground lost over the past two years. We are, however, confident that the foundations are now in place to see this achieved.

We believe that this ratio, of 50% to 60% of cash profits, remains appropriate having regard to the continuing uncertainties within the external environment that I referred to earlier. The validity of our decision to position our first half dividend slightly below the ratio was confirmed following a succession of severe weather events in Melbourne, Perth and Queensland in March, and this emphasises the importance of a cautious approach in the rebuilding phase.

At the Group level, we have a clearly articulated direction and strategy, driven by a highly experienced management team, skilled in the financial services industries. Our balance sheet and capital position have been strengthened significantly, providing us with stability in an environment where regulatory change and global market volatility remain cause for concern across financial services.

Given continued fair winds, we anticipate the emergence of capital that is surplus to the requirements of the Group, and it is our intention that this be returned to shareholders. I stress that this will be subject to a substantial resolution of the existing uncertainties within the external markets, and only when it is fully prudent to do so having regard to the circumstances within the Group.

Each of our businesses is growing profitably, and earlier this year each presented its growth strategy to the market. These presentations were well received. As is the case at the Group level, the management team within each business has a deep level of experience and expertise within the context of that business. The teams are now fully focused on the execution and delivery of their strategic objectives.

In my conversations with shareholders last year, I received very clear messages concerning the size and composition of the Board. On behalf of the Board, I committed to our addressing these issues, and we have done so.

Securing changes to the State Government legislation setting residency requirements for directors was a lengthy but necessary step in this process.

While no-one at Suncorp underestimates the challenges, we are now well on the path towards realising the full extent of the

Since last year’s Annual General Meeting, five directors have retired from the Board. One new director has been appointed, bringing career experience in banking and the broader financial services industries. We are working on the further strengthening of the Board focus on financial services experience.

With continued evidence of the stabilisation of the operations of the Group and the redevelopment of its momentum, it is appropriate that we complete the renewal of the Board with the transition to a new Chairman.

I have decided, with the support of the Board, that I will retire at the 2011 Annual General Meeting. This timing will enable a planned and orderly process of transition.

In particular, it will ensure continuity as we emerge from the rebuilding phase and appropriate oversight of the complexities involved as we consider moving to a non-operating holding company structure. I retire by rotation in the normal course at this year’s Annual General Meeting. I will stand for re-election but, if re-elected, will serve only one year of the extended term.

The past three years have been extraordinarily challenging for the Group, but I believe that throughout the Board has demonstrated continuity, stability and leadership. In particular, I would like to acknowledge the significant contributions by the non-executive directors who have retired during the year – Leo Tutt, Martin Kriewaldt, Cherrell Hirst and Ian Blackburne – and to thank them most sincerely for their commitment and support.

Sadly, a director who retired during the course of the year died recently. Chris Skilton served with distinction as an executive director, Chief Financial Officer and acting Chief Executive Officer during his long Suncorp career. He is greatly missed by all of us who had the pleasure of working with him.

Finally, I would like to thank our new Group Chief Executive Officer, Patrick Snowball, his senior leadership team and all Suncorp employees. Put simply, the Group today is in a far different place, and that is attributable to contributions throughout the Group. Since his arrival, Patrick has attacked the challenges with enthusiasm, commitment and absolute discipline, and has provided guidance and leadership that has re-invigorated the Group and re-ignited its momentum.

Thank you for your continued support of Suncorp.

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John Story Chairman 25 August 2010

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Suncorp Information for Shareholders 2009/10
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Group Chief Executive Officer’s report

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The past year has been a period of significant change for Suncorp. We have laid the foundation for sustainable growth and profits and look to the future with confidence.

An important step forward

To what do we attribute our progress? To begin the recovery we identified the Group’s broad challenges and immediate needs.

I am pleased to report that Suncorp has made significant progress in meeting the challenges that have affected our profitability over the past two years.

Suncorp’s capital position is much improved. It is especially prudent to maintain capital buffers, given the economic and regulatory uncertainty in today’s business environment.

Our latest financial results confirm the recovery underway across the business. Underlying performance improved in each of our businesses.

Our General Insurance businesses grew premium and profits.

Our core Bank reached its targets – including strong deposit growth – while the non-core Bank continued its orderly run-off ahead of schedule.

The long-term challenges included restoring the Group’s credibility and confidence and unifying the mix of cultures that are a legacy of past integrations. Immediate, pressing needs included strengthening our balance sheet and capital position and appointing a new executive team.

Suncorp Life continued to build momentum around its new strategy, and the New Zealand businesses made a very strong contribution to the overall Group result.

Moreover, Suncorp’s capital position is much improved. It is especially prudent to maintain capital buffers, given the economic and regulatory uncertainty in today’s business environment.

We then moved to clarify our strategic direction, which is summarised by our new tagline ‘One Company. Many Brands’. This aptly describes our aim to combine the scale benefits of a large, unified financial services group with the market strength that comes from having a portfolio of leading brands and nine million customers.

These achievements are noteworthy, considering they occurred in the aftermath of the global financial crisis and during a period in which our people managed two of the costliest weather events in Australian history: the Melbourne and Perth hailstorms.

To achieve the new direction we needed to reshape our management and business structure. In Personal Insurance we implemented the functional model that had been put in place in Commercial Insurance. Suncorp Bank has restructured its operations, positioning itself as a real alternative to the major banks. Meantime Suncorp Life has continued to change the focus of its business to take advantage of the attractive growth potential for life insurance and superannuation in Australia.

Suncorp now has five operating divisions: Personal Insurance, Commercial Insurance, Vero New Zealand, Suncorp Bank and Suncorp Life. These are supported by a leaner corporate centre and specialist areas providing shared services, such as business technology, procurement, real estate and human resource services.

We have also developed a new three-year plan to ensure we align our activities with strategy and set specific growth and profit targets for our businesses. To help achieve the plan we have launched a series of activities known as Suncorp’s Strategic Building Blocks, designed to reduce the process complexity that impeded our progress in recent years.

The past year has been a period of significant change for Suncorp. We have laid the foundation for sustainable growth and profits and look to the future with confidence. Yet we temper that confidence with the knowledge that we cannot be complacent. We have much more work to do before we can deliver a truly satisfactory result for our shareholders.

Nevertheless it is testimony to the commitment of our people and Suncorp’s resilience that we are able to discuss our future much more confidently than would have been possible a year ago.

I extend my warmest thanks to everyone in the organisation who has contributed to our progress over the last 12 months, and seek shareholders’ ongoing support as we build on these foundations to achieve even greater successes in the year ahead.

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Patrick Snowball Group Chief Executive Officer 25 August 2010

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Contribution to profit by division

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30 Jun-10 30 Jun-09 An insurance
$m $m
trading result or
General Insurance ITR has become the
Gross written premium 7,027 6,815 preferred measure
Net earned premium 6,310 5,981 of profitability in
insurance companies
Net incurred claims (4,637) (4,610)
by investors. During
Operating expenses (1,670) (1,642) the year Suncorp’s
Investment income – insurance funds 602 733 insurance trading
Insurance trading result 605 462 ratio improved to
9.6% (2009: 7.7%).
Managed schemes net income 4 19
Joint venture and other income 53 1
Investment income – shareholder funds 194 130
Profit before tax and capital funding 856 612
Capital funding (82) (39)
Profit before tax 774 573
Income tax (217) (157)
General Insurance profit after tax 557 416
Accounting for the
Banking
split of banking into
Core Bank profit after tax 268 n/a the core and non-core
Non-core Bank loss after tax (224) n/a portfolios began on
Consolidated Bank profit after tax before one-offs 44 37 1 April 2009. As a
One-off non-recurring items after tax – 32 result, profit and loss
data for the full year
Total Bank profit after tax 44 69 to June 2009 is not
split by core and
Life non-core lines.
Underlying profit after tax 192 180
Market adjustments after tax 30 (63) Underlying profit
Life profit after tax 222 117 after tax (PAT) is the
sum of Life Risk PAT,
Superannuation &
Profit after tax from business lines 823 602 Investments PAT, and
Asset Management
PAT. This is a better
Other
reflection of the
Contribution from LJ Hooker 4 8
performance of
Sale of subsidiary and investment in joint ventures 215 – Suncorp Life because
Amortisation of Promina acquisition intangible assets (210) (245) it excludes market
Integration costs (59) (147) impacts over which
Suncorp Life has little
Consolidation adjustments 9 3 control.
Loss before tax (41) (381)
Income tax benefit 7 132
Includes profit before
Loss after tax on other items (34) (249) tax from both the sale
of LJ Hooker of
Profit after tax before non-controlling interests 789 353 $50 million and the
Non-controlling interests (9) (5) sale of RACQI and
RAAI joint ventures
Net profit after tax 780 348 of $165 million.
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Suncorp Information for Shareholders 2009/10
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Statement of financial position

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Consolidated
30 Jun-10 30 Jun-09
$m $m
Assets Total loans have
reduced due to
Cash and cash equivalents 883 2,356
the non-core
Receivables due from other banks 232 118
Bank portfolio
Trading securities 8,233 6,694 run-off.
Derivatives 833 552
Investment securities 21,091 20,330
Loans, advances and other receivables 53,724 56,753
Reinsurance and other recoveries 1,878 1,622
Deferred insurance assets 748 799
Investments in associates and joint ventures 62 201
Property, plant and equipment 358 407
Deferred tax assets 101 260
Investment property 144 160 Goodwill and
Other assets 425 375 intangibles
Goodwill and intangible assets 6,627 6,836 predominantly
Total assets 95,339 97,463 relates to the Promina
acquisition.
Liabilities
Deposits and short-term borrowings 34,098 37,866
Derivatives 2,461 1,556
Payables due to other banks 28 29
Payables and other liabilities 1,874 2,345
Current tax liabilities 1 154
Employee benefit obligations 280 251
Unearned premium liabilities 3,672 3,528
Outstanding claims liabilities 8,028 7,506
Gross policy liabilities 5,583 5,547
Unvested policyowner benefits 404 397
Managed funds units on issue 437 506
Securitisation liabilities 4,710 5,711
Debt issues 16,759 15,661
Total liabilities excluding loan capital 78,335 81,057
Loan capital
Subordinated notes 2,182 2,312
Preference shares 869 865
Total loan capital 3,051 3,177
Total liabilities 81,386 84,234
Net assets 13,953 13,229
Equity The Group’s
Share capital 12,618 12,425 strengthened
Reserves 74 (123) capital position
is reflected in
Retained profits 1,241 921
the stronger
Total equity attributable to owners of the Company 13,933 13,223 equity and net
Non-controlling interests 20 6 asset totals.
Total equity 13,953 13,229
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After the bushfires of 2009 ... a fresh start

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Following the 2009 bushfires,
Peter and Carol Driscoll have
enjoyed a fresh start in their
lovely new home.
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Stoical Peter Driscoll is an ardent advocate for Apia, one of Suncorp’s Personal Insurance brands.

The former firefighter told Suncorp in our 2008/09 Shareholder Review how he, his wife Carol and their two dogs survived the bushfires that devastated their Flowerdale home in Victoria in February 2009. The fires didn’t leave much behind ... Peter’s fire truck and two James Bond numberplates from his collection were all he was able to retrieve.

One year on, we caught up with Peter again and asked him how he was rebuilding his life.

“Yes, it’s been a difficult couple of years for Carol and me with so many challenges. But I would never have dreamed back in February last year that I’d have such a wonderful new home.

Apia settled Peter’s home insurance claim in full within 14 days. Peter says this gave him the ability to plan his rebuild straight away and, despite his significant losses, it gave his family a fresh start.

Absolutely, I have gone with Apia to insure my home again. I pump Apia to everyone. I wouldn’t go near anyone else as an insurer,” Peter said.

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Shareholder Review 2009/10 Annual Report 2009/10
One Company. Many Brands One Company. Many Brands
Shareholder Review 2009/10 Annual Report 2009/10
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Annual Reports 2009/10

If you wish to receive a printed copy of Suncorp’s Shareholder Review and Annual Report contact Link on 1300 882 012, or email: suncorp@linkmarketservices.com.au.

Alternatively you can view the Shareholder Review and Annual Report on the Suncorp website: www.suncorpgroup.com.au.

This item is manufactured on Evolve – a 100% recycled paper made entirely from post-consumer waste.

Shareholder information

2010 Suncorp Annual General Meeting – 4 November 2010 2.30pm at the Sofitel Brisbane, 249 Turbot Street, Brisbane Qld 4000

Registered office

Suncorp-Metway Ltd Suncorp Centre Level 18, 36 Wickham Terrace Brisbane Qld 4000 Australia Ph 07 3362 1222 Fax 07 3836 1190 www.suncorpgroup.com.au

Share registry

Shareholders can obtain information about their shareholding by contacting Suncorp’s share registry:

Link Market Services Limited (Link) Level 15, 324 Queen Street Brisbane Qld 4000

Mailing address PO Box A50 Sydney South NSW 1235

Telephone 1300 882 012 (inside Australia) +61 2 8280 7450 (outside Australia) Fax 02 9287 0303 email: suncorp@linkmarketservices.com.au www.linkmarketservices.com.au

Listed securities

Suncorp securities listed on the Australian Securities Exchange (and their codes) are:

	Ordinaryshares	SUN
	Resetpreference shares	SUNPA
	Convertiblepreference shares	SUNPB
	Floatingrate capital notes	SUNHB

Key dates[1]

	Key dates1
	1 October 2010	fnal dividendpayment
	23 February2011	half-year results
	1 April 2011 24 August 2011	interim dividend payment fullyear results

1 Dates may be subject to change

Special offers

From time to time Suncorp will make special offers available to shareholders.

Details of these offers will be published on www.suncorpgroup.com.au.

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Suncorp-Metway Ltd ABN 66 010 831 722 14304 01/09/10A