Suncorp revives its interest in buying Zurich’s Australian insurance arm

Suncorp has made informal overtures to Zurich to gauge whether it could buy the Swiss group’s local general insurance arm.

Suncorp has informally approached Zurich to gauge whether the company would revisit a sale of its local general insurance arm, as the financial services group considers bulking up despite the divestment of its bank hanging in the balance, sources said.

Those close to the moves told The Australian on Wednesday that Suncorp sought preliminary discussions about making an offer for Zurich’s Australian general insurance arm to pry the unit loose. The Australian is not suggesting a bid was made, only that Suncorp had initiated an informal approach.

A Suncorp spokesman declined to comment, while a Zurich spokesman said the company had a policy to not comment on any potential deal activity.

Suncorp’s renewed interest in the Zurich Australia unit follows the Swiss parent entity shelving an auction of the division in 2022 and committing to retaining it, after limited buyer interest.

Suncorp’s approach comes as the competition regulator and federal and state governments assess ANZ’s agreed $4.9bn acquisition of Suncorp’s banking division, as it retreats from operating as both an insurer and a bank.

The Australian Competition and Consumer Commission is using its powers to compel rival banks to provide reams of data on market dynamics, while also calling for submissions on the proposed deal and its impact on competition in the sector.

The ACCC has previously said it aims to make a determination on the acquisition of Suncorp Bank in June.

Suncorp chief executive Steve Johnston. Picture: Jane Dempster

The Australian last month revealed Suncorp had Boston Consulting Group conducting work delving into how the company should be structured as just an insurance player, if a deal to offload its bank were to get the go ahead.

In scoping out Zurich’s appetite to sell its local general insurance unit, Suncorp chief executive Steve Johnston appears to want to pounce on any bolt-on acquisition opportunities that may emerge.

Last year, Suncorp used adviser Barrenjoey for its tilt at Zurich’s division and The Australian also reported that global firm Chubb was a participant in the latter stages of the sale process. QBE Insurance was among other potential suitors that fell away from the auction in earlier stages.

At the time, industry participants thought Zurich’s general insurance division could fetch $400m to $600m, excluding its travel insurance arm. Zurich acquired ASX-listed travel insurance firm Cover-More in a deal that was completed in 2017.

This time round Suncorp may find it receives a frostier reception from Zurich, after the company’s global chief executive Mario Greco told the German press in 2022 that he wanted to retain the Australian general insurance operations. He said Zurich intended to “stay in the Australian property and casualty insurance business”.

According to the latest accounts lodged with the corporate regulator, the Zurich Australian Insurance entity returned to profitability in 2021. The entity reported a net profit of $84.6m for the 12 months ended December 31, 2021, following a loss of $47.3m in the prior corresponding period. A profit of $61m was booked in 2019.

The 2021 accounts also signalled that flooding in NSW and Queensland in the early months of 2022 would impact Zurich’s operating performance.

The document noted Zurich’s current – but early estimate – was that gross claims would amount to about $105m. After reinsurance, net claims cost from that series of weather events were expected to be in the range of $10m to $20m.

ANZ’s acquisition of Suncorp’s banking division is under regulator scrutiny.

Reinsurance is used so that insurance companies spread their risk by buying cover that sees reinsurers taking responsibility for an agreed portion of losses and claims.

The Zurich local accounts also noted the corporate regulator’s probe in late 2021 into whether insurers were adequately passing on promised customer discounts and price rewards. While Zurich wasn’t selected to participate, the firm said it had conducted a “comprehensive review” but any exposures were uncertain.

Zurich is a large player in the domestic life insurance market after it acquired ANZ’s business. That purchase triggered regulatory action when the Australian Securities and Investments Commission started civil proceedings against the former ANZ business over claims handling. Suncorp’s shares rallied 1.9 per cent – or 22c – to $12.04 on Wednesday, outpacing a 1.6 per cent rise in the S&P/ASX200.

The potential Suncorp-Zurich general insurance deal deliberations come as industry players also closely watch a strategic review at Queensland motoring club RACQ, given talk it may sell its troubled insurance business in a deal worth about $500m.

Industry giant IAG has been touted as a potential suitor.

The weeks ahead mark an important period for the domestic insurance sector. Suncorp reports interim profits on February 8 and investors may use that opportunity to ask Mr Johnston about the company’s appetite for acquisitions in the sector.

Suncorp has said it will return the majority of “net proceeds” to shareholders if the divestment of its bank to ANZ proceeds. That statement was given with a caveat that the capital return was subject to the needs of the business.

Analysts will also look out for any announcements from IAG on reinsurance arrangements, amid concerns globally of swelling costs due to factors including more extreme weather events.

Premiums have been on the march at IAG, with gross written premium up 6 per cent in the past financial year to $13.3bn.

Originally published as Suncorp revives its interest in buying Zurich’s Australian insurance arm