SUNCORP GROUP LIMITED — Annual Report 2014

Aug 12, 2014

Suncor Grou Limited p p

Financial results for the Suncorp Group Limited year ended 30 June 2014

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~~Suncorp Group Limited~~ 13 August 2014

Suncorp FY14 results presentation Agenda

1

Results and operational highlights Patrick Snowball

Outlook 3 Patrick Snowball

2

CFO report Business lines | Group capital Steve Johnston

Q&A 4 Suncorp Leadership Team

2

~~Suncorp Group Limited~~ 13 August 2014

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Introduction Patrick Snowball Suncorp Group CEO

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~~Suncorp Group Limited~~ 13 August 2014

FY14 result overview ($m)

	FY14	FY13	%∆
General Insurance NPAT	1,010	883	14.4
Bank NPAT	228	(343)	n/a
Suncorp Life NPAT	92	60	53.3
Business lines NPAT	1,330	600	121.7
Other	(26)	(24)	8.3
**Cash earnings **	1,304	576	126.4
Life intangible asset write-down	(496)	n/a	n/a
Otherprofit and acquisition amortisation	(78)	(85)	(8.2)
NPAT	730	491	48.7

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~~Suncorp Group Limited~~ 13 August 2014

Dividends

7.5% yield based on $14.00 share price

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Special dividend
$1.05
40%
Final dividend
Interim dividend 30
$0.75
20
40
15
30
20
20 20
35
25
20
15 15
FY10 FY11 FY12 FY13 FY14
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~~Suncorp Group Limited~~ 13 August 2014

Continued underwriting discipline

Average GI ROE of 7.8%

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12.1%
GI ROE
11.1%
GWP Growth
8.8%
8.5%
6.8%
6.0%
5.1% 6.4%
5.1%
5.1%
3.7%
2.7%
FY09 FY10 FY11 FY12 FY13 FY14
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*excluding FSL

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~~Suncorp Group Limited~~ 13 August 2014

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Suncorp 5yr Australian CAGR ($m)
A ‘home insurance’ cycle
3,000 June 2009
+3.5%
June 2014
2,500 +8.8%
+2.2%
2,000
1,500
2,597
2,187
1,000 2,106
1,799
1,614
1,382
500
-
Motor Home Commercial
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~~Suncorp Group Limited~~ 13 August 2014

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CFO Report Steve Johnston Suncorp Group CFO

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~~Suncorp Group Limited~~ 13 August 2014

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Suncorp’s shareholder focus Simplified, de-risked financial services group

Yield

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Growth

Dividend payout ratio of 60% to 80% and return of surplus capital

FY15 growth target of between 4% to 6%

Organic strategy, focused exclusively in Australia and New Zealand De-risked and simplified business model

Multi-brand, multi-channel approach leveraging the Group’s 9 million customers Efficiency-led growth

~~Suncorp Group Limited~~ 13 August 2014

10

General Insurance

$m

General Insurance profit after tax

FY14

1,010

% Δ

14.4

Reserve releases of $109 million

GWP up 5.1% (ex FSL)

Underlying ITR of 14.3% exceeding commitment to ‘meet or beat’ 12% Reported ITR of 15.5%

Natural hazard claims $27 million below allowance

GI CET1 1.66x PCA

~~Suncorp Group Limited~~

13 August 2014

Gross Written Premium Up 5.1% excluding Fire Service Levies

Product	FY14 ($m)	%∆	Factors
Motor	2,829	2.6	Strong retention despite increase in competitive activity
Home	2,439	6.3	Increase in average written premiums offset by unit loss
Commercial	2,329	6.8	Maintaining underwriting discipline
CTP	1,050	7.4	Strong retention in NSW and Qld, entry into ACT
Other	78	(16.1)	Withdrawal from NZ travel insurance market
Total	8,725	5.1
Australia	7,585	3.1
New Zealand	1,140	20.8	6.9% in NZD terms

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~~Suncorp Group Limited~~ 13 August 2014

12

Investment assets

Low yields with credit spread gains

Insurance funds ($9+bn)

Shareholder funds ($3+bn)

Investment income $485 million

MTM gains of $117 million from decreases in risk-free rates

MTM gains of $74 million from narrowing credit spreads Returns of $31 million on inflation linked bonds

Investment income $246 million Interest income of $130 million from $2.6 billion portfolio

International and domestic equities income of $116 million from $600 million portfolio MTM gains of $40 million from narrowing credit spreads

Underlying yield 2.9% impacted by ILBs

78% of fixed interest investments rated ‘AA’ or above

~~Suncorp Group Limited~~ 13 August 2014

Claims

Natural hazards $27 million below allowance; Reserve releases in line

Reserve releases

Total releases of $109 million broadly in line with expectation of 1.5% of NEP, major components:

• Australian long-tail release $162 million

• Strengthening on Christchurch earthquake of $35 million

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Aus $53m favourable
NZ $26m unfavourable
325 278
27
75
165
225
595
500 520 565
460
400
240
FY09 FY10 FY11 FY12 FY13 FY14 FY15
Natural hazard allowance ($m) Above allowance Below allowance
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~~Suncorp Group Limited~~

13 August 2014

Operating expense and loss ratios Underwriting and expense discipline

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28.0% 82.0%
27.5%
79.3% 80.0%
27.0%
26.5%
77.1% 78.0%
25.8%
26.0%
76.0%
25.0% 73.5% 75.7% 24.0% 74.0%
23.7%
24.0% 72.0%
23.0%
23.0% 70.0%
68.0%
22.0% Total operating expense ratio 67.4% 67.8% 66.0%
21.0%
Loss ratio
64.0%
20.0%
62.0%
19.0% 60.0%
FY09 FY10 FY11 FY12 FY13 FY14
including FSL 14
Suncorp Group Limited
13 August 2014
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Underlying ITR
Building Blocks and Simplification delivering
14.7%
14.0%
13.6%
13.4%
13.1%
12.0%
11.2%
11.1%
10.0%
10.5%
8.0%
1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14
15
Suncorp Group Limited
13 August 2014
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Suncorp Bank

$m Bank profit after tax

Bank CET1 8.54% NIM of 1.78% (2H14) Home lending up 5.0% Agribusiness portfolio up 7.3%

% Δ

FY14 % Δ 228 n/a

Cost to income ratio HoH down 4.1% to 55.5% Retail deposit core lending ratio 65.8%

Non-performing loans down 18% Gross impaired assets down 34% Retail impaired assets down 21%

~~Suncorp Group Limited~~ 13 August 2014

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Suncorp Bank lending portfolio

78% mortgage lending

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Lending assets $49.9 billion Summary
Consumer
1%
Com/SME
Housing 12%
78% (up 4.4%)
(up 5%)
Agri 9%
(up 7.3%)
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69% Com/SME & Agri <$10m
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$100m+
$50-$100m
2%
2%
$25-$50m
9%
$10-$25m < $5m
18% 52%
$5-$10m
17%
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~~Suncorp Group Limited~~

13 August 2014

Funding and Liquidity Conservative balance sheet

Deposit to loan ratio

84%

72% 66%[68% ] 67% 59% 56% SUN Regional 1 Regional 2 Major 1 Major 2 Major 3 Major 4 Source: Company reports for half year 2014 Regional bank data is reported group ratios and majors data retail and business division only

LT funding profile ($m)

1,400 1,200

Covered Bonds Senior Unsecured (Domestic) Senior Unsecured (Offshore)

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1,400 Covered Bonds
Senior Unsecured (Domestic)
1,200
Senior Unsecured (Offshore)
1,000
800
600
400
200
0
Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
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~~Suncorp Group Limited~~

13 August 2014

Credit quality Gross impaired and non-performing loans reduced

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Gross impaired loans Gross non-performing loans
CoveCoverage Gross non-performing loans
Retail Agribusiness 26%
Total provision coverage
Commercial (SME) Corporate and property 392
506
(34%)
4416
Coverage
79%
283 3333
149
48 226
Coverage
51
57 178 123%
51
130
Coverage
182 208 103 106 65%
139
48
31
33 28 26
Jun-13 Dec-13 Jun-14 Retail Agri Comm/SME Corp & Prop
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~~Suncorp Group Limited~~

13 August 2014

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Suncorp Bank

Key targets

NIM 1.75% to 1.85% Retail deposit to lending ratio 60% to 70% Disciplined cost management driving down cost to income ratio Sustainable lending growth of 1 to 1.3 times system

Australia’s leading regional bank

Basel II advanced accreditation New banking platform – Project Ignite A+/A1 credit rating Excellent customer satisfaction

~~Suncorp Group Limited~~ 13 August 2014

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Suncorp Life Improved capital efficiency

$m	FY14	%Δ
Underlying profit after tax	84	(30.0)
Market adjustment after tax	8	n/a
Life profit after tax	92	53.3

$535 million capital return to Group Risk in-force annual premiums up 8.5% Direct sales through GI brands up 11% HoH Super up 43.6% driven by Everyday Super

Claims experience negative $24 million Lapse experience negative $26 million New Zealand business performed strongly

$496 million write-down of non-cash intangible assets based on revised forwardlooking assumptions

~~Suncorp Group Limited~~ 13 August 2014

Suncorp Life Growth in Life risk and superannuation ($m)

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Life risk in-force Life risk new business Superannuation
annual premium by channel new business
IFA Direct NZ
402
20
911 25
14
326
33
30 34 280
840
68
775 62 61
FY12 FY13 FY14 FY12 FY13 FY14 FY12 FY13 FY14
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~~Suncorp Group Limited~~

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13 August 2014

Life rebased assumptions 15% Illustrative lapse example

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Actual experience
14% FY14 assumption
1-1.5%
Revised assumption
13%
0.5-1%
12%
11%
10%
2008 2010 2012 2014 2015 2018 2020
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Suncorp Group Limited

13 August 2014

FY14 CET1 movements ($m) Excess increased to $831 million

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207
59
71
450
1304 515
386
801 831
Excess CET1 FY14 Cash Life Reinsurance Change in Other Interim dividend Final dividend Special dividend Excess CET1
(ex div) Earnings Targets (ex div)
30-Jun-13 30-Jun-14
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• “Other” largely reflects the positive impact of revised strategic asset allocations for Life and GI and improved bank credit quality offset by the business growth and the net effect of the impact of changed assumptions in the Life business (as part of the write-down) and net new business strain.

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~~Suncorp Group Limited~~

13 August 2014

Suncorp capital at 30 June 2014 $831 million excess to CET1 targets post dividend

$m General Insurance Bank Life NOHC and other entities Suncorp Group total	$m General Insurance Bank Life NOHC and other entities Suncorp Group total	$m General Insurance Bank Life NOHC and other entities Suncorp Group total	$m General Insurance Bank Life NOHC and other entities Suncorp Group total	$m General Insurance Bank Life NOHC and other entities Suncorp Group total	$m General Insurance Bank Life NOHC and other entities Suncorp Group total
CET1	3,524	2,648	455	555	7,182
CET1 target	2,342	2,557	358	193	5,450
Excess (pre-div) 1,182 91 97 362 1,732
Dividend (901)
Excess (post-div) 831
CET1 ratios (pre-div)	1.66x	8.54%	1.57x
CET1 target	1.10x	8.25%	Amount equal to sum of PCA plus a target excess

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~~Suncorp Group Limited~~ 13 August 2014

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Conclusion

Patrick Snowball Suncorp Group CEO

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~~Suncorp Group Limited~~ 13 August 2014

Suncorp Group Key commitments

Group growth of 4% to 6% in the 2015 financial year

1

Simplification benefits of $225 2 million in the 2015 financial year

‘Meet or beat’ an underlying 3 ITR of 12% through the cycle

4 60% to 80% dividend payout ratio

5 Continue to return surplus capital

Group ROE of at least 10% 6 in the 2015 financial year

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~~Suncorp Group Limited~~

13 August 2014

Suncorp’s waves of growth

Life

Bank Vero NZ Commercial Insurance Personal Insurance Plan for growth Building Blocks in place Balance Sheet strength Business simplified Stabilise the business Cost Customer Capital Culture

Cost ~~Suncorp Group Limited~~ 13 August 2014

Suncorp’s Strategic Assets Our focus

• Deliver scale cost benefits on third party procured goods / services

Cost

• Share scale on infrastructure (real estate, enterprise technology) and non-unique business services

Customer

• Enhancing the value of 9 million customer connections by deepening their relationships with Group brands

Capital

• Demonstrating a diversification benefit through improved risk-based capital modelling

• A+/A1 credit rating

Culture

• Operating as ‘ One Company. Many Brands. One Team ’

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~~Suncorp Group Limited~~ 13 August 2014

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Q&A

Financial results for the year ended 30 June 2014

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~~Suncorp Group Limited~~ 13 August 2014

Supplementary slides

Financial results for the year ended 30 June 2014

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~~Suncorp Group Limited~~ 13 August 2014

FY15 Reinsurance program

6.1b
5.8b
2.5b
500m
250m	Original cover	Original cover reinstatement		Third cover		Third cover reinstatement
200m	NZ dropdown	Dropdown aggregate		Dropdown aggregate
50m		NZ dropdown
NZD 54m
NZD 25m		NZ dropdown		NZ dropdown
		Retention

~~Suncorp Group Limited~~ 13 August 2014

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FY15 Reinsurance program Drop-down aggregate program

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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
100m xs 100m xs
aggregate dropdown 50m xs 200m 50m xs 300m
50m
Retention
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~~Suncorp Group Limited~~ 13 August 2014

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Christchurch
earthquakes,
Natural hazards since 1967
Brisbane floods,
Suncorp long-term catastrophic loss experience Cyclone Yasi,
Events greater than $100m, gross of all reinsurance Melbourne
hailstorm
5,000
4,500 NZ AUS Long run average
4,000
3,500 Brisbane flood, Hunter Valley
Cyclone Tracy storm
3,000
Newcastle Melbourne &
2,500 earthquake Perth hailstorms,
Sydney Christchurch
hailstorm
2,000 Brisbane earthquakes
hailstorm
1,500
1,000
500
-
1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
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~~Suncorp Group Limited~~

13 August 2014

Simplification benefits $225 million in FY15, $265 million in FY16

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300
Original net impact Revised
Revised net impact Simplification
250
Benefits
200
150
100
Original
Simplification
50
benefits
0
Original one-off
(50) project costs
FY16
FY15
(100)
Revised FY14
(150) Project Costs
FY13
$m
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~~Suncorp Group Limited~~

13 August 2014

Underlying and Reported ITR Building Blocks and Simplification delivering

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18.6%
Underlying ITR
17.0%
Reported ITR 14.0%
14.7%
13.4% 13.6%
13.1%
12.8%
10.9% 11.1%
11.2% 13.9%
12.0%
10.0%
11.1%
8.0%
10.5%
7.8%
6.4% 3.8%
1.9%
1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14
36
Suncorp Group Limited
13 August 2014
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Credit quality Past due loans impacted by methodology change

Past Due Home Loans (% of gross home loans)

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1.03%
0.98%
0.92% 0.93%
0.79%
0.69%
0.65%
0.59%
0.51%
Start of hardship
treatment change
0.06%
Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
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Total home lending Home lending impaired

~~Suncorp Group Limited~~ 13 August 2014

37

Important disclaimer

This report contains general information which is current as at 13 August 2014. It is information given in summary form and does not purport to be complete.

It is not a recommendation or advice in relation to the Group 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 (ASX).

The information in this report is for general information only. To the extent that the information may constitute forwardlooking statements, the information reflects Suncorp’s intent, belief or current expectations with respect to our 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 ASX disclosure requirements).

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Suncorp Group Limited 13 August 2014

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In 2014, Suncorp launched an Investor Relations application for tablets to enable easy access to a suite of investor materials.

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For all the latest news, updates and share price
movements download the Suncorp Group investor
relations app now. Search “Suncorp IR" on the app
store or scan the QR code below.
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