Pressure On Suncorp Over Gio
Sydney Morning Herald
Wednesday February 21, 2007
SUNCORP-METWAY will come under increasing pressure from investors to install the management of its merger partner, Promina, to run its combined general insurance business, after disclosing that its GIO subsidiary has lost market share in NSW to rivals AAMI and NRMA.
Both Promina, which owns AAMI, and Insurance Australia Group's NRMA operation, have used their greater strength to attack GIO's position with the result that the Suncorp-owned insurer lost 4 per cent of premium business in NSW in the last half year. Competition was fiercest in the motor insurance market and, to a lesser extent, home cover policies, as a combination of local branding and price-cutting ate into GIO's share, according to analysis of Suncorp-Metway's interim results, which were released yesterday. Suncorp's general insurance division realised a 16 per cent increase in earnings to $383 million which helped the group to better-than-expected net profits of $527 million. But analysts were troubled by what one research firm described as a "mediocre" performance in the homes and motor sectors. That compared with Promina's 12 per cent growth in what is called the personal lines market. It revealed on Monday a boom in full year-profits before its $7.9 billion merger with Suncorp, which is due to be consummated later next month. The decline in NSW prompted Deutsche Bank researchers to question whether combining the strong Promina franchise with Suncorp's weaker one would produce two better businesses. In recent days, Suncorp has been pressed to unveil its proposed management structure for the soon-to-be merged operations to counter concerns that Promina's senior executives will lose out to their opposite numbers. But Suncorp's chief executive, John Mulcahy, who will lead the combined group, said yesterday it would be "highly inappropriate" to make such decisions before shareholders in both companies had even voted on the merger. "What I can say is ... that I would expect, as I said in the past, that the management team will be a combination of the best from Promina and the best from Suncorp," he said. The problems at GIO took the gloss of an otherwise good performance at the financial services group, with the banking division beating off competition from its major rivals to record a 13 per cent profit increase to $289 million. Wealth management chipped in $54 million, up 28 per cent. Mr Mulcahy said it was a particularly pleasing result since the intense competition witnessed across the group's operations since mid-2005 was showing no signs of letting up. Suncorp has backed its expectations of a promising second half by increasing interim dividend by 10 per cent from 47c to 52c a share. This helped push its stock up 35c to $22.83 yesterday.
© 2007 Sydney Morning Herald
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