SUNCORP GROUP LIMITED — Annual Report 2012

Aug 21, 2012

Financial results for the full year ended 30 June 2012

Presentation

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Suncorp Group Limited
Financial results for the year ended 30 June 2012
1
Financial results for the year to 30 June 2012
22 August 2012
Introduction
Patrick Snowball
Chief Executive Officer Suncorp Group Ltd
2
Financial results for the year to 30 June 2012
22 August 2012
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Financial results for the full year ended 30 June 2012

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Suncorp Results Presentation
Agenda
Results and operational highlights Patrick Snowball
CFO Report
• Group Capital
• Core Business Line results John Nesbitt
(General Insurance, Core Bank, Life)
• Non-core Bank
Outlook Patrick Snowball
Q & A Suncorp Leadership Team
3
Financial results for the year to 30 June 2012
22 August 2012
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FY12 result overview

FY12 result overview	FY12 result overview	FY12 result overview	FY12 result overview	FY12 result overview
		FY12	FY11	%∆
	General Insurance NPAT	493	392	25.8
	Core Bank NPAT	289	259	11.6
	Suncorp Life NPAT	251	149	68.5
	Non-core Bank NPAT	(263)	(175)	50.3
	Business line NPAT	770	625	23.2
	Property consolidation, NOHC earnings & other (after tax)	(46)	(172)	(73.3)
	Net Profit After Tax	724	453	59.8
	22 August 2012 Financial results for the year to 30 June 2012

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Financial results for the full year ended 30 June 2012

Presentation

Top line growth

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Growth across all three business lines ($m)
General Insurance GWP Suncorp Life Individual
in-force business
9.3%
722
7,955
7.9%
623
7,027
FY10 FY11 FY12 FY10 FY11 FY12
Core Bank Lending assets Shareholder returns (cps)
Interim dividend Final dividend Special dividend
43,356 15
57% 20
9.5% 20 20
37,345 15 15 20
FY10 FY11 FY12 FY10 FY11 FY12
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Financial results for the year to 30 June 2012
22 August 2012
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Margins improving or stable
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Strong margins while delivering growth

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General Insurance Underlying ITR (%) Core Bank Net Interest Margin (%)
1.91
14.0% 1.90
13.0% 1.80 1.90%
in 2H12
12.1%
12.0%
FY10 FY11 FY12
11.0% 10.8% Suncorp Life
Planned profit margin release ($m) 99
10.0% 95
9.0%
91
9.0% 13.1% $52m
in 2H12 in 2H12
8.0%
FY10 FY11 FY12 FY10 FY11 FY12
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Financial results for the year to 30 June 2012
22 August 2012
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Financial results for the full year ended 30 June 2012

Presentation

Operating expenses

Ongoing focus on cost control ($m)

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• Expenses have fallen while delivering 2,513 2,490 2,483
top line growth 297 299 271
• Significant transformational change 546 568 597
within the business including the
building block initiatives 1,670 1,623 1,615
• Project costs fully absorbed within the
expense base
• Further simplification projects to drive
further reductions in the expense base
• Head office expenses have been
allocated FY10 FY11 FY12
General Insurance Suncorp Bank Suncorp Life
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Financial results for the year to 30 June 2012 22 August 2012

Core Business are delivering good earnings and have great potential …. Core Business Profitability ($m)

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1,047 1,033
557 493
800
392
251
222 149
268 259 289
FY10 FY11 FY12
Suncorp Core Bank Suncorp Life General Insurance
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Financial results for the year to 30 June 2012
22 August 2012
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Financial results for the full year ended 30 June 2012

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Non-core Bank has significantly reduced....
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Non-core Bank ($bn) Suncorp Bank split by portfolio
14
Non-performing loans
12 Performing loans Non-core
2.1 9%
Agri
10 8%
39%
8 down Commercial
11%
6 2.4 Mortgage
10.2 Consumer 1% 71%
4
1.8
4.9
2
2.7
0
Jun-10 Jun-11 Jun-12 9
Financial results for the year to 30 June 2012
22 August 2012
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FY12 summary Key messages

Controlling what we can control, coping well with everything else Revenue growth, costs under control, stable or improving margins Profits increasing, balance sheet rebuilt Core business delivering $1bn plus profit Improved shareholder returns, higher future payout ratios Positive Momentum 10 Financial results for the year to 30 June 2012 22 August 2012

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Financial results for the full year ended 30 June 2012

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Financial Results
John Nesbitt
Chief Financial Officer
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Financial results for the year to 30 June 2012
22 August 2012
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Dividend and capital

Capital initiatives

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Dividend (cps)
• Final dividend of 20cps Interim Final Special
• Special dividend of 15cps 60
• Repaid around $300 million in hybrid 57%
capital 50 15
• Continue to neutralise DRP
40
• Increased dividend target payout ratio
to between 60% and 80% of cash 30 20
earnings 20
20
• $792 million of capital retained above
operating targets
10 20
• 559 million of franking credits 15
• Well placed for LAGIC and Basel III 0 FY11 FY12
12
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Financial results for the year to 30 June 2012 22 August 2012

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Financial results for the full year ended 30 June 2012

Presentation

General Insurance overview

• Underlying ITR of 12.1% $m FY12 %∆ General Insurance profit after tax 493 25.8 • GWP up 9.3% on a reported basis • Delivered 3% improvement in Underlying ITR • Natural hazard claims above allowance by $278 million

• • Negative investment income mismatch of $197 million

• • Reserve releases $64 million above long run expectations

• • Operating expenses down 0.5% 13

Financial results for the year to 30 June 2012 22 August 2012

Gross Written Premium

GWP up 9.3%

GWP up 9.3% Gross Written Premium	GWP up 9.3% Gross Written Premium	GWP up 9.3% Gross Written Premium	GWP up 9.3% Gross Written Premium	GWP up 9.3% Gross Written Premium
	Product	FY12 ($m)	%∆	Factors
	Motor	2,640	3.2	Price leadership and 2.3% unit growth in the second half
	Home	2,262	17.6	Strong premium growth due to increased natural hazards and reinsurance costs
	Commercial	1,833	11.7	Selecting and pricing risks with GIPE, strong retention rates across all channels
	CTP	901	4.3	Net written unit growth in NSW and Qld
	Workers‟ comp & other	319	8.9	Price increases and wage growth
	Total	7,955	9.3
	Australia	7,124	9.1
	New Zealand	831	22.3	19.1% in NZ$
	22 August 2012 Financial results for the year to 30 June 2012

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Financial results for the full year ended 30 June 2012

Presentation

Underlying ITR

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Delivered 3% improvement in underlying ITR
13.1%
FY12
12.1%
11.2%
FY11
10.8%
11.1%
10.0%
10.5%
FY10
9.0%
Movement in 1H
8.0% Movement in 2H
1H10 2H10 1H11 2H11 1H12 2H12
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Financial results for the year to 30 June 2012
22 August 2012
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Core Bank overview

Sustainable growth

$m	FY12	%∆
Core Bank profit after tax	289	11.6

• House lending growth of 9.6%

• Stable NIM 1.91%

• Deposit to Core lending ratio 68.9% at high end of the 60-70% target range

• Cost to income ratio 52.8%

• $1.6 billion covered bond issued in May 2012

• Impaired losses down 19.6% to $41 million

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Financial results for the year to 30 June 2012 22 August 2012

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Financial results for the full year ended 30 June 2012

Presentation

Core Bank lending

Strong growth in core markets

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FY12
Product %∆ Comments
($bn)
Retail
Ability to capture market share and good
(mortgages and 34.4 9.1
growth across channels & regions.
consumer)
Strengthening brand presence through
selective sponsorship in 110 [th] year.
Agribusiness 3.9 10.0
E.g. “Australian Beef Week”, “Year of the
Farmer”.
Broadening market base with focus on
Commercial/SME 5.1 11.2
professional and medical services.
Total 43.4 9.5
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Financial results for the year to 30 June 2012
22 August 2012
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Suncorp Life overview

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$m FY12 %∆
Life profit after tax 251 68.5
Underlying profit after tax 146 11.5
NPAT Underlying PAT
• Individual Inforce up 7.9% 251
• Embedded Value $2.6 billion up 9.5%
• VOYS increased to $49 million up 81.5% 149
146
131
excludes businesses divested in 2011 FY11 FY12 18
Financial results for the year to 30 June 2012
22 August 2012
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Financial results for the full year ended 30 June 2012

Presentation

Life new business by channel

Strong results in major business areas

Channel	FY12 ($m)	%∆	Comments
IFA	62	10.7	Combining continued market leading capabilities with innovative product design
Direct	30	30.4	Increasing penetration of Group customer base
Group	5	(61.5)	Impacted by a decision to pursue only business that delivers an acceptable rate of return
NZ	14	16.7	Strong growth in targeted segments, complementing good growth in Direct
Total	111	6.7%
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Financial results for the year to 30 June 2012
22 August 2012
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Non-core Bank

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Coverage ratio
Run-off continues ahead of expectation (% of impaired )
Lease Finance Write down against provision
20,000
Specific Provision
18,000 Corporate Collective Provision
16,000 Development Finance
14,000 Property Investment
8.0%
12,000
Initial expectations
10,000
Actual run-off
8,000
6,000
4,000 1,132 18.7%
1,473
2,000
0 1,868
3.4%
Jun-12
Includes Lease Finance from June 2012
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Financial results for the year to 30 June 2012
22 August 2012
Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
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Financial Results
John Nesbitt
Chief Financial Officer
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Financial results for the year to 30 June 2012
22 August 2012
Conclusion
Patrick Snowball
Chief Executive Officer Suncorp Group Ltd
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22 August 2012
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Financial results for the full year ended 30 June 2012

Presentation

Conclusion

Growth and strength despite global and domestic challenges

• Quota-share arrangement has reshaped the risk profile of General Insurance

• Underlying ITR target to „meet or beat‟ 12%

• Price increases in long-tail classes to offset lower investment yields

• Suncorp Bank to deliver 1 to 1.3 times system

• Margin pressure from deposit competition

• Suncorp Life business to focus on Direct and IFA channels

• Non-core will continue to run-down and expected to be under $3 billion at June 2013

• Capital position remains well in excess of targets

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Financial results for the year to 30 June 2012
22 August 2012
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Q&A Session
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22 August 2012
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Financial results for the full year ended 30 June 2012

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The Suncorp journey
FY13 - FY15
Reset targets and
drive for growth
FY12 - FY14
Improve Life EV
Identify further
Core Banking
opportunities to Commercial Insurance
FY12 - FY13 drive value
Accelerate &
embed
simplification Supply chain
efficiencies
FY10-FY12 program Improve Group ROE
Realising the
benefits of
Building Blocks
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Financial results for the year to 30 June 2012
22 August 2012
Contacts
Steve Johnston steve.johnston@suncorp.com.au 07 3135 3988
Mark Ley mark.ley@suncorp.com.au 07 3135 3991
Nicole McGinn nicole.mcginn@suncorp.com.au 07 3135 3993
Sam Miller samantha.miller@suncorp.com.au 07 3135 2415
Nick Perchey nick.perchey@suncorp.com.au 02 8121 9206
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Financial results for the year to 30 June 2012
22 August 2012
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Financial results for the full year ended 30 June 2012

Presentation

Important disclaimer

This presentation contains general information about Suncorp Group Limited („Suncorp‟) which is current as at 22[nd] of August 2012. It is information given in summary form and does not purport to be complete.

It is not a recommendation or advice in relation to Suncorp or any product or service offered by Suncorp or any of its subsidiaries. It is not intended to be relied upon as advice to investors or potential investors, and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice, when deciding if an investment is appropriate.

This report should be read in conjunction with all other information concerning Suncorp filed with the Australian Securities Exchange.

The information in this report is for general information only. To the extent that the information may constitute forward-looking statements, the information reflects Suncorp‟s intent, belief or current expectations with respect to its business and operations, market conditions, results of operations and financial condition, capital adequacy, specific provisions and risk management practices at the date of this report. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties, many of which are beyond Suncorp‟s control, which may cause actual results to differ materially from those expressed or implied.

Suncorp undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this report (subject to stock exchange disclosure requirements).

27 Financial results for the year to 30 June 2012 22 August 2012

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Supplementary slides
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Presentation

Building blocks delivering

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Contributing to 3%+ improvement in underlying GI margin
FY12 benefits delivered FY13 estimate
250 $200m $235m
200
Pricing Benefits
150
100
50 Claims Benefits
0
Project costs
(50)
2009/10 2010/11 2011/12 2012/13
Annualised benefits of $200m for FY12.
On track to deliver $235m in annualised savings.
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Financial results for the year to 30 June 2012
22 August 2012
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Simplification costs and benefits
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Financial impacts of simplification program
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200
Simplification benefits
150
100
50
FY12 FY13 FY14 FY15 FY16
0
(50)
(100) One-off project costs
Net financial impact
Annualised benefits of $200m from FY16
One-off total project costs of $275m
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Financial results for the year to 30 June 2012
22 August 2012
$m
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Presentation

Dividend and capital

Capital update

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Movement in capital excess to operating targets
($m)
• Strong capital position
supports growth in core
businesses
266
• Payout ratio of 62.4% results 476
in $210 million of retained 112
capital
1,245
• Non-core Bank run-off 440
• contributes $476 million Impact of discount rates on 210 1,225 293 164 192
Suncorp Life increases target 792
by $266 million
• Equities investment increases
capital target by $112 million
• $293 million in subdebt/hybrid
repaid
• NOHC target reduced by
0.5% of Bank CAR in
December 2011
• Special dividend of 15cps
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Financial results for the year to 30 June 2012 22 August 2012

Natural hazards over the past 45 years

Suncorp long-term catastrophic loss experience Events greater than $100m, gross of all reinsurance

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$6,000 AUS NZ Long run average Christchurch
earthquakes,
$5,500 Brisbane floods,
Cyclone Yasi,
$5,000 Melbourne
hailstorm
$4,500 Brisbane flood,
Cyclone Tracy Newcastle
$4,000 earthquake
Hunter Valley Melbourne &
$3,500 storm Perth hailstorms, Christchurch
$3,000 earthquakes
$2,500 Brisbane hailstorm Sydney
hailstorm
$2,000
$1,500
$1,000
$500
$-
Source: Data supplied by the Insurance Council database. 32
Financial results for the year to 30 June 2012
22 August 2012
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Presentation

Natural hazards FY12

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Fewer catastrophes, but the rain kept falling
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Financial results for the year to 30 June 2012 22 August 2012

Natural hazards allowances

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6.74%
600 NH allowance NH % of GWP 6.32% 6.29%
$40 m
5.65% 6%
500
5%
400
3.52%
4%
300
3%
200
2%
100 1%
240 400 460 500 520
0 0%
FY09 FY10 FY11 FY12 FY13
FY13 - 12% increase in natural hazard allowance on like-for-like basis
Based on FY13 GWP consensus 34
Financial results for the year to 30 June 2012
22 August 2012
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FY13 Reinsurance program

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Property catastrophe program
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AUD
6.1bn
Reduction in upper limit of catastrophe program
due to quota share
5.3bn
2.5bn
500m
2nd Reinstatement
Original cover 1st Reinstatement (paid as previous
250m tower is eroded)
200m
150m NZ Dropdown NZ Dropdown
50m
NZD 50m
NZD 25m NZ Dropdown NZ Dropdown
Retention
Event 1st 2nd 3rd 35
Financial results for the year to 30 June 2012
22 August 2012
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FY13 Reinsurance program

Dropdown aggregate reinsurance program for Australian risks

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250m 50m xs
200m xs 50m
100m xs 100m xs
150m xs 200m 150m xs 300m
200m
150m
Erosion contributes to
aggregate dropdown 100m xs 100m xs
50m xs 200m 50m xs 300m
50m
Retention
36
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22 August 2012
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Core Bank - credit quality
Non-performing loans ($Am)
Impaired assets
> 90 days past due SME & Agribusiness
> 90 days past due retail
269 236
250 299
230
167
161 231
165 175
174
126 114 65 57
62
63 76
75 48 58 65 66 87 93 69
145 153 142 135 150 197 179 175 146 148 141 220 241
Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
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Core Bank - credit quality
Past due loans (90 days) to gross loans
Home lending (QLD)
Total home lending
0.96%
0.81% 0.82%
0.72%
0.83% 0.69%
0.74%
0.60% 0.58%
0.55% 0.77% 0.66%
0.50% 0.63%
0.39%
0.50% 0.46%
0.42%
0.34%
0.28%
Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12
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Non-core Bank

Impaired asset portfolio has exhibited significant turnover since inception

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Portfolio run-off & impaired turnover [(1) ]
$bn 1.3 Impaired
2.1 Performing
2.0 2.3 Impaireds turnover
16.2 13.6 10.7 2.2 2.2 1.8
7.2 5.1 3.5 2.7
584 536
$m 271 348 305 160
Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12
(1) Impaired asset turnover represents assets written off, sold, repaid, or returned to performing status over the year.
Non-core bank has actively written down / written off impaired
Historical analysis shows composition of Non-core
balances and added to the impaired portfolio as risks have
impaired portfolio has changed significantly over time
emerged
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Financial results for the year to 30 June 2012
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Non-core Bank

Impaired portfolio by industry sub-segment and by geography

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Impaired asset balances Impaired asset balances
by segment by geography
Impaired Impaired 1,063
Performing 993 Performing
765 793
687 708
506 480 525
453
325 316
269
139 66 125 187 117 96 159 169
31
Retail Office Land Other Dev. Other Prop. Other Corp. Gold Coast QLD (ex. GC) NSW VIC WA
Finance Invest.
Development finance Under-performing Retail property impaired Limited geographic
remains volatile exposures written off or written down concentration
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Non-Core Bank

Provision coverage and impaired asset turnover in under-performing market segments

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Coverage & coverage gross up [(1) ] Impaired asset turnover [(2)]
Provision coverage
32% 33% 35% Coverage Gross-up
25% 26% 27%
21% 20% 21%
19% 19% 19%
12% 239
127
4% 87
10 51
21
Retail Office Land Other Dev. Other Other Non-core Retail Office Land Other Dev. Other Prop. Other Corp.
Finance Prop. Corp. Finance Invest.
(1) denominator (impaired assets) for amounts that have been partially written off.Coverage gross up adjusts the numerator (specific provisions) and Invest. (2) to performing status over the year.Impaired asset turnover represents assets written off, sold, repaid, or returned
Grossing up both provisions and impaired balances for
Impaired asset turnover in FY12 shows the impact of actions
partial write downs shows coverage under a less aggressive
taken in under-performing segments
write-down strategy would be higher than reported
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Financial results for the year to 30 June 2012
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