SUNCORP GROUP LIMITED — Investor Presentation 2011

Aug 23, 2011

Financial results

for the year ended 30 June 2011

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Financial Results presentation
Suncorp Group Limited
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24 August 2011
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Agenda

1. Introduction 2. Achievements: Group transformation 3. Achievements: Group balance sheet

1. CFO Report • General Insurance • FY12 Reinsurance program • Bank • Life • Capital

2. Conclusion

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Financial results

for the year ended 30 June 2011

Achievements: Group transformation

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Stabilise the balance sheet 
Appoint the executive team 
FY10 STABILISATION Commence the simplification process 
Build the business model 
Identify the building blocks 
Establish the NOHC 
Strengthen the balance sheet 
ONE employment agreement 
FY11 STRENGTHENING
ONE pricing engine 
ONE claims process 
ONE view of customer 
The Group is stronger despite an unprecedented series of major events
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Achievements: Group balance sheet

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Strengthen provisioning methodology
Conservative dividend
STABILISE Achieved 70% core deposit to lending target
FY10
THE BALANCE SHEET Match funding non-core bank
Disposals (LJ Hooker, RACQI, RAAI)
Affirm Bank’s status within the Group
Non-core run-off ahead of schedule
Conservative approach to flood overlay
STRENGTHEN
FY11 Disposals (Tyndall, NZGT)
THE BALANCE SHEET
Liquidity well above regulatory requirements
Dividend policy to preserve capital surplus
The balance sheet is stronger despite an unprecedented series of major events
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Financial results

for the year ended 30 June 2011

Result highlights

Result highlights	Result highlights	Result highlights	Result highlights	Result highlights
5	A$m		FY11	FY10
	General Insurance profit after tax		392	557
	Consolidated Bank profit after tax		84	44
	Life profit after tax		149	222
	PROFIT AFTER TAX FROM BUSINESS LINES		625	823
	Disposal of wealth management operations (FY10: LJ Hooker, RACQ, RAAI)		(79)	160
	Intangible amortisation & other		(93)	(203)
	GROUP NPAT		453	780
	FULL YEAR DIVIDEND		35cps	35cps
	5

Result highlights

Achievements

• On track to deliver $235m in annual building blocks benefits

• • On track to increase underlying ITR by at least 3% • GWP growth of 5.2% (excluding product exits) • System lending growth and new branch rollout in Core Bank • RoE 15%+ in Core Bank • Run-off of Non-core Bank ahead of plan • Life Risk New Business sales up 21% with Direct sales up 44% • Capital surplus of $1,245m above operating targets Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Christchurch QLD Brisbane Cyclone Christchurch Christchurch earthquake floods floods Yasi/Vic earthquake earthquake floods

• 100,000+ claims at gross costs of $4bn

• 6

Financial results

for the year ended 30 June 2011

Agenda

1. Introduction

2. Achievements: Group transformation

3. Achievements: Group balance sheet

4. CFO Report

• General Insurance

• FY12 Reinsurance program

• Bank

• Life

• • Capital

• Conclusion

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General Insurance overview

8	A$m	FY11
	General Insurance profit after tax	392

Financial results

for the year ended 30 June 2011

Gross Written Premium

9	Product	FY11	%Δ	Factors
	Motor	2,558	4.4	Solid premium and net written unit growth
	Home	1,924	11.5	Significant premium increases and resilient customer retention
	Commercial	1,641	(4.0)	Rate increases across targeted channels, 2.3% increase excluding portfolio exits
	CTP	864	3.2	Net written unit growth and renewal rates
	Workers’ comp & other	293	(3.9)	Premium reductions in Western Australia
	Total	7,280	3.6

Natural hazards costs

10	Date	Major Events (A$m)	Major Events (A$m)	Gross Costs	Net Costs
	Sept 10	VIC floods		24	24
	Sept 10	Christchurch earthquake		429	45
	Oct 10	Brisbane storms/floods		10	10
	Oct 11	Eastern Australia storms		13	13
	Dec 11	Eastern Australia rain, South Australian storms, QLD-NSW hail/rain		67	67
	Dec 11	Central and Southwest QLD floods		103	103
	Dec 11	Christchurch earthquake		9	9
	Jan 11	Rockhampton floods		20	20
	Jan 11	Toowoomba & Brisbane floods		686	116
	Jan 11	Victorian floods		39	10
	Feb 11	Cyclone Yasi - North QLD		320	10
	Feb 11	FY10/11Update Victorian storms/floods		122	24
	Feb 11			2,024	45
	Mar 11	NSW/VIC storms		13	13
	Jun 11	Christchurch earthquake		78	15
		Major natural hazard events		3,957	524
		Other natural hazard events			261
		Less: allowance for natural hazards			(460)
		Natural hazard costs above allowance			325

Financial results

for the year ended 30 June 2011

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Natural hazards over the past 40 years
Long term catastrophic loss experience
4,000 Events greater than $100m, gross of all reinsurance
Calendar year
3,500
3,000 AUS NZ
2,500
2,000
1,500
1,000
Long run average
500
0
11 Data supplied by Risk Frontiers (Macquarie University) using the Insurance Council database.
Year to date
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FY12 Reinsurance program
Property Catastrophe Program Aggregate Program
$5.8bn
450
Original Cover 1st Prepaid reinstatement
400
350
Upper Layers
300
250
$500m 200 The aggregate
Layer one program provides
cover of up to $90m
2nd reinstatement (paid as 150 for Australian events
Original Cover 1st Prepaid reinstatement original cover is eroded) over $10m
$250m
100
NZ dropdown NZ dropdown reinstatement
NZ$50m 50
NZ$25m NZ dropdown second event NZ dropdown third event
12 Retention 0
Recoverable amount
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Financial results

for the year ended 30 June 2011

FY12 Reinsurance program

Key differences from FY11

• Main Cat attachment points

• Upper limit: up by $200m to $5.8bn

• Lower limit: up by $50m to $250m

• NZ lower limit: down by NZ$10m to NZ$50m

• Additional subsequent event dropdown to NZ$25m in New Zealand purchased

Recovering additional costs

• Total program costs approx $730m

• Additional costs being recovered across:

• Home (10% in March, and 4% in June)

  • Commercial property

•  - NZ property classes (30%)
  

• Aggregate program

• Retention reduced to $250m

• Cover reduced to $200m

• AAMI flood cover from early 2012

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Underlying ITR

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Significant improvement in underlying ITR to 10.8% from 9%
120000%
100000% ($212m) 1.8% benefit
attributable to pricing
80000% $232m ($55m) $3m and building blocks
60000% $325m
$705m
40000%
9.0%
$412m
$566m
20000% 6.6% 10.8% 9%
0%
FY11 Reported Natural hazards Reinstatement Reserve Investment Other FY11 Underlying FY10 Underlying
ITR above costs releases above income ITR ITR
expectations expectations mismatch
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Financial results

for the year ended 30 June 2011

Core Bank overview

Key performance snapshot

	1H11	2H11	Total
Net profit after tax ($Am)	110	149	259
NIM (%)	1.83	1.97	1.90
Cost to income ratio (%)	53.0	52.0	52.5
Deposit to core loan ratio (%)	70.8	70.4	70.4
Impairment losses to RWA (bps)	42	8	24

• Home lending marginally above system

• Solid Core business lending growth despite contracting system

• Operating expenses up 9% due to investment in bank franchise

• Net interest margin improved 10bps

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Core Bank deposits and lending assets

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Summary Core lending assets ($Abn)
• Total lending up 6.1% Commercial (SME) Agribusiness3.52
• Mortgage growth at 1.02x system 12%4.56 9%
• Retail lending up 6.3% despite slower 2H
Consumer
• Business lending growth up 5.4% due to 0.561%
increased distribution in NSW and WA
Housing
• Active management of lending and deposit mix 30.9978%
preserves deposit to loan ratio at 70%
Mortgage growth vs. RBA system (6 month rolling)
10.00%
RBA system
8.00%
Suncorp
6.00%
4.00%
2.00%
-
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Financial results

for the year ended 30 June 2011

Core Bank credit quality

Summary Core non-performing loans trends ($Am)

• Very low actual loss experience

90 days retail

• Deterioration in retail arrears continues but is slowing

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slowing > 90 days SME & Agribusiness
• Book well secured and has external LMI coverage Impaired assets
• Impaired assets down due to repayments and
assets returning to performing status 250 299
• No write back of $25m flood provision raised 1H 167
182 161
165 175
174
Impairment losses ($Am) 126 114 62
63 76
Q411 FY11 130 75 48 58 65 66 87
Collective provision charge(incl. $25 million flood overlay in the first half) (2) 16 145 153 142 135 150 197 179 175 146
Specific provision charge 2 32 108
Actual net write-offs 3 3
Impairment loss on loans and 3 51
advances Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11
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Non-core Bank overview

Key performance snapshot

A$m	30 Jun 2010	31 Dec 2010	30 Jun 2011
Loans and advances	12,638	9,820	7,744
A$m	1H11	2H11	Total 2011
BDD expense	(170)	(104)	(274)
Net profit after tax	(107)	(68)	(175)

• Successful portfolio run-off experience

• Significant reduction in profile of loss experience over recent quarters

• Construction risk now removed

• Portfolio is demonstrating its lengthy seasoning

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Financial results

for the year ended 30 June 2011

Non-core Bank assets

Summary

• Total non-core portfolio at $7.7bn, less than Core Bank business lending

• $4.9bn run-off for the year, ahead of initial target by $2.5bn

• Opportunities for refinancing and asset sales continue across the portfolio

• 53 accounts at >$50m

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Non-core Portfolio ($Am)
20,000 Lease Finance
18,000 Corporate
16,000
14,000 Development Finance
12,000
10,000 Property Investment
8,000 409 Initial expectations
6,000 1,624
4,000 2,478 Actual run-off
2,000 3,233
0
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Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
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Non-core Bank credit quality
Impaired asset movements ($Am)
(105) 129 (231)
470
2,337
2,235
1,972
Jun-10 Six large Other Dec-10 One large Settlements & Jun-11
exposures exposure other
Impairment losses ($Am) Impairment loss trend ($Am)
Q4 11 FY 11
2nd quarter of half
Collective provision charge (25) (40) 282 219 146 1st quarter of half
Specific provision charge (incl. $40 million IFRS adjustment in Q4) 70 297 73 78
Actual net write-offs 5 17 73 136 126 83 92 5054
Impairment loss on loans and advances 50 274 * Reporting periods prior to core / non-core reporting split. 1H09 2H09 1H10 2H10 1H11 2H11
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Financial results

for the year ended 30 June 2011

Suncorp Life overview

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A$m FY11
Life profit after tax 149
• Underlying NPAT of $147m, impacts: • New business sales of $104m, up 21%
• Disability claims experience • Direct sales of $23m, up 44%
• Lapse experience • S&I new business sales up 17%
• Embedded Value of $2,377m • Individual in-force of $669m, up 7%
Movement in Embedded Value
25 (38)
(82)
190 (12) 27
(94)
(45)
2,471
2,406 2,361 2,377
June 2010 Portfolio EV post Expected Economic Claims, Claims, Disc. Rate, VOYS EV pre Dividends & June 2011
changes portfolio return experience lapses & lapses & economic & transfers franking
changes other other expense credits
experience assumptions assumptions
21 22% of LNB sales from the direct channel
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Capital management under the NOHC
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• Capital targets at the GI and Bank operating level are 1.45x MCR and 12.5% CAR

• • At the Group level, target includes 0.05x GI MCR and 0.5% of Bank CAR • Group capital buffer represents the excess over operational capital targets

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Financial results

for the year ended 30 June 2011

Capital strength

Capital initiatives

• Redeemed $520m in sub debt

• Redeemed $42m in RPS

• NOHC and revised targets

• Reset the dividend target payout ratio from 50% to 70% of cash earnings, ex divestments

• Final dividend at top of revised payout range

• Maintain a zero discount on the DRP and buy DRP shares on-market

Dividend (cents per share)

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40 80.0%
35 70.3% 70.0%
30 58.1% 60.0%
25 20 20 50.0%
20 40.0%
15 30.0%
10 20.0%
15 15
5 10.0%
0 0.0%
FY10 FY11
H1 H2 Payout ratio
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Capital position at 30 June 2011

Strong capital position at Group and LOB levels

A$m	GI	Bank	Life	NOHC and other ~~titi~~	SUN Group
				~~group enes~~
~~Net Tier 1~~	~~2756~~	~~3335~~	~~1763~~	~~713~~	~~8,567~~
	~~,~~	~~,~~	~~,~~
Net Tier 2	769	1,333	-	(15)	2,087
Total Capital	3,525	4,668	1,763	698	10,654
Target capital ratios				~~005x MCR + 05% CAR +~~
	1.45x MCR	12.5% CAR		~~. .~~ circa $100m for service ~~mni~~
				~~copaes~~
Target capital	3,059	4,296	1,686	368	9,409
Surplus Capital	466	372	77	330	$1,245m excess of internal targets
• LOB and Group capital positions strong despite natural catastrophes

• $72m in Reset Preference Shares to be exchanged in September 2011

• $220m in Subordinated Debt with a first call date in October 2011

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Financial results

for the year ended 30 June 2011

Agenda

1. Introduction

2. Achievements: Group transformation

3. Achievements: Group balance sheet

4. CFO Report

   • General Insurance

5. FY12 Reinsurance program

6. • Bank • Life • Capital

7. 5. Conclusion

8. 25

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Delivering value
Life
Bank
Commercial Insurance
Personal Insurance
Plan for growth
Building Blocks Balance Sheet Business
in place strength simplified
Stabilise the business
Capital Costs Customer Culture
26
Top line growth
Building blocks
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Financial results

for the year ended 30 June 2011

Important disclaimer

This presentation contains general information which is current as at 24 August 2011. 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 Group Limited (‘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 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 forwardlooking 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).

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