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Suncorp Group Limited
Asia Debt Investor Update April 2016 “Creating value for
our customers”
2 07 April 2016 Suncorp Group Limited
Suncorp Debt Investor Update
3 Suncorp Group
6 Group Financial Results
12 Capital
17 Suncorp Bank
31 Economy
Agenda
39 Appendix – Mortgage Origination
44 Appendix – General Insurance
27 Funding & Liquidity
3 07 April 2016 Suncorp Group Limited
Leading financial services brands in Australia and New Zealand
Suncorp Group
Top 20 ASX listed company
$15.4 billion market capitalisation at 07 April 2016
$94 billion in group assets
13,400 employees in Australia and New Zealand
9 million customers
End to end ownership of brands
4 07 April 2016 Suncorp Group Limited
Group Capital Structure
Ordinary dividend – 60-80% of cash earnings
100% of distributable earnings
Maintain capital targets Surplus assets
Suncorp Group
GI Life Bank
General Insurance
Bank (Suncorp Metway Ltd)
Life
Shareholders Surplus returned to shareholders
• Suncorp Metway Ltd is the entity that issues senior debt instruments on behalf of the Bank
• AAI Limited and SIF Limited are the entities that typically issue sub-debt instruments on behalf of General Insurance
• Suncorp Group Limited is typically the entity that issues Basel III compliant CPS and T2 sub-debt
Priorities
07 April 2016 Suncorp Group Limited
1. Maintain stability and momentum
2. Elevate the customer
3. Recalibrate costs
Key Targets
• Broadening of customer relationships
• Improving underlying NPAT
• Sustainable ROE of at least 10%, which implies an underlying ITR of at least 12%
• Maintaining a dividend payout ratio of 60% to 80% of cash earnings
• Returning excess capital
5
Strategic Refinements
Group Financial Results
“Creating value for our customers”
7 07 April 2016 Suncorp Group Limited
Natural hazards and investment income impact on the GI NPAT HY16 Results Overview ($m)
HY16 HY15 % change General Insurance 297 419 (29) Bank 194 176 10 Suncorp Life 53 86 (39) Business lines NPAT 544 681 (20) Other 12 (21) - Cash earnings 556 660 (16) Acquisition amortisation (26) (29) - Reported NPAT 530 631 (16)
External impacts: Pre-tax Post-tax Pre-tax Post-tax Investment returns 133 93 348 244 Natural hazards (362) (253) (470) (329) Reserve releases 137 96 214 150 Suncorp Life market adjustments - (5) - 34
8 07 April 2016 Suncorp Group Limited
Diversification of earnings Suncorp Group Business Line NPAT ($m)
64 -10 -19
34 -5
162 564 470 419
297
156 144
105 176 194
69 61 41 52 58
-54 -140
1H12 1H13 1H14 1H15 1H16
■ Life underlying NPAT ■ Life market adjustments ■ General Insurance
■ Bank ■ Non-core Bank
397 597 681 544
619
HY16 HY15 %change
GWP 4,417 4,357 1.4
Net earned premium 3,992 3,947 1.1 Net incurred claims (2,822) (2,805) 0.6 Operating expenses (892) (902) (1.1) Underwriting result 278 240 15.8
Investment income – insurance funds 99 266 (62.8)
Insurance trading result 377 506 (25.5)
Investment income –shareholder funds 34 82 (58.5) Managed schemes, JVs and funding costs 1 6 (83.3) Income tax (115) (175) (34.3)
NPAT 297 419 (29.1)
9 07 April 2016 Suncorp Group Limited
Claims inflation and lower investment returns reducing profitability General Insurance
Key highlights
• GWP up 1.4% • Return to top-line growth
across all portfolios • Claims inflation
challenges reducing underlying margin
• Underlying ITR 10.1% • Lower investment returns
and MTM adjustments • Reserve releases of
$137 million or 3.4% of NEP
10 07 April 2016 Suncorp Group Limited
Improving credit quality driving improved profit Suncorp Bank
HY16 HY15 %change
Net interest income 566 553 2.4
Net non-interest income 49 64 (23.4)
Total income 615 617 (0.3)
Total operating expenses (326) (322) 1.2
Profit before impairment losses 289 295 (2.0) Impairment losses on loans and advances (11) (43) (74.4)
Bank profit before tax 278 252 10.3
Income tax (84) (76) 10.5
Suncorp Bank NPAT 194 176 10.2
Key highlights • 5.1% lending growth • Ongoing improvement in
credit quality with non-performing loans down 15.1%
• NIM of 1.85% at the top end of the target range
• Cost to income reducing to 53%
• Good progress with key projects, Ignite and Advanced accreditation
11 07 April 2016 Suncorp Group Limited
Underlying profit increase of 11.5% Suncorp Life Insurance
HY16 HY15 %change
Planned profit margin release 22 17 29.4
Claims experience 3 6 (50.0)
Lapse experience 5 1 400.0
Other experience (6) (5) 20.0
Underlying investment income 16 15 6.7
Superannuation 18 18 -
Suncorp Life underlying profit after tax 58 52 11.5
Market adjustments (5) 34 n/a
Suncorp Life NPAT 53 86 (38.4)
Key highlights • In-force premium
growth of 5.2% • Direct growth via GI
brands up 20% • Embedded Value of
$1,936 million up 4.9% • Value of One Year
Sales up 28% to $23 million
• Third successive half of positive claims and lapse experience
Capital
“Creating value for our customers”
1.25x 1.14x 1.25x
1.73x 1.70x 1.67x
SUN Peer 1 Peer 2
CET1 AT1 Tier 2
* Ratios listed relate to Prescribed Capital Amount (PCA). Source: Latest published company reports.
General Insurance capital ratios* Bank capital ratios*
13 07 April 2016 Suncorp Group Limited
Strong General Insurance and Bank capital ratios against peers Suncorp Capital Ratios
Additional $243 million capital held at Suncorp Group level
Advanced basis Standardised
9.45% 8.91% 8.17% 10.24% 10.24% 9.59% 9.50%
13.97% 12.72% 12.57%
14.15% 14.08% 13.29% 13.26%
SUN Regional 1 Regional 2 Major 1 Major 2 Major 3 Major 4
CET1 AT1 Tier 2
* Peer bank ratios exclude impacts of post balance date capital raisings and transactions. Source: Latest published company reports.
14 07 April 2016 Suncorp Group Limited
Outstanding at 31 December 2015 Capital Instruments
Semi-annual coupon rate / margin above 90 day BBSW
Optional Call / Exchange Date Issue Date
31 DECEMBER 2015 Total Balance
Regulatory Capital
GI Bank Life SGL
$M $M $M $M $M $M
AAIL Subordinated Debt 330 bps Nov 2020 Nov 2015 225 - - - 225 225
AAIL Subordinated Debt 6.75% Oct 2016 Oct 2006 101 - - - 101 108
AAIL Subordinated Debt - June 2017 Oct 2007 265 - - - 265 220
SGL Subordinated Debt 285 bps Nov 2018 May 2013 - 670 100 - 770 770
SML FRCN 75 bps Perpetual Dec 1998 - 72 - - 72 72
Total subordinated debt 591 742 100 - 1,433 1,395
SGL CPS2 465 bps Dec 2017 Nov 2012 110 450 - - 560 560
SGL CPS3 340 bps June 2020 May 2014 400 - - - 400 400
Total Additional Tier 1 Capital 510 450 - - 960 960
Total 1,101 1,192 100 - 2,393 2,355
15 07 April 2016 Suncorp Group Limited
Increased sophistication due to Risk Based Capital modelling
Capital
• Simplification and de-risking have supported capital returns
• Balance sheet strong
• Risk Based Capital embedded
• Enhancing decision making
*Chart not to scale
Group Total
Group Total
GI
Bank
Life
Diversification Potential*
NOHC
Group Surplus
Regulatory minimum Operating target Surplus to operating target
16 07 April 2016 Suncorp Group Limited
Capital volatility by key risk type
Group Risk Based Capital
Market risk
Counterparty credit risk
Insurance risk
Operational risk
Suncorp Group GI Bank
Life Corporate
73% 3%
21%
3%
65% 27%
8%
36%
57%
7%
14%
86%
62% 11%
24%
3%
Suncorp Bank
“Creating value for our customers”
18 07 April 2016 Suncorp Group Limited
Key ratios Suncorp Bank
4.06% 3.17%
1.37%
6.49%
3.58%
1H14 2H14 1H15 2H15 1H16
Lending growth (annualised)
1.66%
1.78% 1.86% 1.83% 1.85%
1H14 2H14 1H15 2H15 1H16
Net interest margin (interest-earning assets)
59.57%
55.48%
52.19%
54.64% 53.01%
1H14 2H14 1H15 2H15 1H16
Cost to income ratio
0.18%
0.32%
0.17%
0.06% 0.04%
1H14 2H14 1H15 2H15 1H16
Impairment losses to gross loans and advances
(annualised)
7.59% 8.78%
12.13% 12.21% 13.11%
1H14 2H14 1H15 2H15 1H16
Return on Common Equity Tier 1
65.70% 65.80% 66.10%
65.30% 65.60%
1H14 2H14 1H15 2H15 1H16
Deposit to loan ratio
0.3%
19 07 April 2016 Suncorp Group Limited
Total lending assets $52.9 billion Retail banking market share Suncorp Bank
10.0%
0.8%
0.8%
1.8%
0.3%
Source: Roy Morgan
11
1
151
ATM
Branch
Business centre
19 122
9
524
40
3
414 9
1
545
1
1
245
1
48
0.5%
81%
10% 8%
1% Portfolio
54% 25%
10%
7% 4%
Geography
■ Commercial (SME) ■ Housing ■ Agribusiness ■ Consumer
■ NSW ■ QLD ■ VIC ■ SA & Other ■ WA
208 Points of Presence
20 07 April 2016 Suncorp Group Limited
Home lending assets $43 billion
Suncorp Bank
■ New South Wales and ACT
■ Queensland
■ Victoria, South Australia and Other
■ Western Australia
■ Investor ■ Owner occupied
■ Intermediary ■ Direct
51%
28%
13%
8%
Geography
70%
30%
Borrower type
37%
63%
Channel
21 07 April 2016 Suncorp Group Limited
Commercial (SME) assets $5.2 billion Suncorp Bank
■ New South Wales ■ Queensland ■ Other
54%
14%
20%
10%
2% Exposure size
■ Hospitality and accommodation
■ Property investment
■ Construction and development
■ Retail ■ Services ■ Manufacturing and
mining ■ Other
■ < $5 million ■ $5-$10 million ■ $10-$25 million ■ $25-$50 million ■ $50-$100 million
35%
16% 8%
17%
8%
5%
11%
Industry
74%
13%
13%
Geography
22 07 April 2016 Suncorp Group Limited
Agri assets $4.3 billion Suncorp Bank
■ Beef ■ Grain and mixed
farming ■ Sheep and mixed
livestock
■ Sugar ■ Cotton ■ Fruit ■ Other
49%
21%
24%
6%
Exposure size
■ < $5 million ■ $5-$10 million
■ $10-$25 million ■ $25-$50 million
■ Queensland ■ New South Wales ■ Other
30%
30%
10%
8%
3% 3%
16%
Industry
62% 29%
9%
Geography
23 07 April 2016 Suncorp Group Limited
Credit quality – gross impaired and past due loans Suncorp Bank
Gross impaired loans by segment ($m)
34 28 26 33 31 25
139 182 208
162 125 109
51
206 99
67
62 42
2H13 1H14 2H14 1H15 2H15 1H16
Commercial/SME lending Agribusiness lending Retail lending
Past due home loans (% gross home loans)
0.79%
0.98% 0.93%
0.74% 0.78% 0.69%
0.05%
-0.01%
2H13 1H14 2H14 1H15 2H15 1H16
Total home lending Home lending impaired HL Loss Rate
24 07 April 2016 Suncorp Group Limited
Credit quality - impairments Suncorp Bank
Impairment losses to gross loans Net impaired loans to gross loans
Source: Latest peer financial reports
0.22%
0.27%
0.38%
0.28%
0.16%
0.24%
0.29%
SUN Regional 1
Regional 2
Major 1 Major 2 Major 3 Major 4
0.04%
0.18%
0.14% 0.17%
0.13% 0.13%
0.24%
SUN Regional 1
Regional 2
Major 1 Major 2 Major 3 Major 4
25 07 April 2016 Suncorp Group Limited
Asset growth and credit quality ($m) Suncorp Bank
Commercial (SME) portfolio Agribusiness portfolio
4,039
4,311 4,484
4,624 4,534
4,400 4,258
2.46
%
3.22
%
4.06
%
4.50
%
3.58
%
2.83
%
2.56
%
1H13 2H13 1H14 2H14 1H15 2H15 1H16 Agribusiness portfolio ($m) Gross impaired assets/Total portfolio (%)
5,297 5,531
5,666 5,772 5,593
5,353 5,203
1.56
%
0.88
%
1.00
%
0.88
%
1.20
%
1.16
%
0.81
%
1H13 2H13 1H14 2H14 1H15* 2H15* 1H16* Commercial portfolio ($m) Impaired assets/Total portfolio (%)
61% 62% 64% 66% 69%
22% 23% 24% 23% 22%
17% 15% 12% 12% 9%
1H14 2H14 1H15 2H15 1H16
Home Lending Assets by LVR
26 07 April 2016 Suncorp Group Limited
Home lending assets $43 billion
Suncorp Bank
■ 0 - 80% ■ 80.01 % - 90% ■ 90.01% +
66% 71% 84% 87% 88%
8% 13%
12% 9% 9% 26%
17% 5%
3% 2%
1H14 2H14 1H15 2H15 1H16
Home Lending New Business by LVR
Funding & Liquidity
“Creating value for our customers”
28 07 April 2016 Suncorp Group Limited
Maturity Profile Suncorp Bank
LT funding profile ($m)
0
200
400
600
800
1,000
1,200
1,400
Apr
16
May
16
Aug
16
Sep
16
Dec
16
Jan
17
Feb
17
Mar
17
Apr
17
Oct
17
Nov
17
Dec
17
Apr
19
Aug
19
Nov
19
Apr
20
Oct
20
Apr
21
Covered Bond Domestic Senior Unsecured Offshore Senior Unsecured
29 07 April 2016 Suncorp Group Limited
Ratings and Benchmark Transactions Suncorp Bank
Issue Date Amount Tenor
Covered Bond
Oct 2014 A$950m 5yr FRN/5yr Fixed
Nov 2012 A$600m 5yr Fixed
Jun 2012 A$1.1bn 4.5yr Fixed
Senior Unsecured (Benchmark)
Apr 2016 A$750m 5yr FRN/Fixed
Oct 2015 A$750m 5yr FRN/Fixed
Apr 2015 US$600m 5yr Fixed
Sep 2014 GBP250m 3yr FRN
Apr 2014 A$750m 5yr FRN
Mar 2014 US$850m 3yr FRN/Fixed
RMBS
Mar 2015 A$1.25bn 4yrs Weighted Average
May 2013 A$1.15bn 4yrs Weighted Average
Ratings Agency Short Term Long Term
Standard & Poors A-1 A+ (stable)
Fitch F1 A+ (stable)
Moodys P-1 A1 (stable)
• Strong Bank issuer credit rating of A+/A1/A+ creates genuine competitive advantage to other regional banks
• Suncorp Bank has issued in A$, US$, EUR, GBP, JPY & Asian currencies with all funds swapped into A$
• Modest term funding requirements for FY15/16
30 07 April 2016 Suncorp Group Limited
Liquid Assets Components of Liquid Assets ($bn)
1.2 1.6 1.9 3.6 2.8 3.5
9.7 7.7 6.2
5.3 5.0 3.3
4.2
4.2 4.2
4.0 4.3
4.4
1 2 3 4 5 6
Cash, Govt, Semi-govt Bank, NCD, Bills, RMBS, Supra, Covered Bonds Internal RMBS
Dec 15
15.1
13.5 12.3 12.9
12.1 11.2
Jun 13 Dec 13 Jun 14 Dec 14 Jun 15
Components of LCR ($bn)
LCR defined as Liquidity Coverage Ratio CLF defined as Committed Liquidity Facility HQLA defined as High Quality Liquid Assets
30 Jun 15 31 Dec 15
100% LCR 100% LCR
118% LCR 139% LCR
2.8
6.3
3.5
5.9
4.8
1.3
4.8
2.3
1 2 3 4 5
HQLA assets CLF
Required LCR qualifying liquid assetsBuffer
Economy
“Creating value for our customers”
Favourable Economic Fundamentals
32 07 April 2016 Suncorp Group Limited
• Australia continues to see moderate economic growth despite the impact from the resources sector.
• Consensus forecasts expect growth to continue through 2016 and 2017.
• Fundamentals remain positive for both Australia and Queensland.
• Australia has also retained its AAA credit rating. • Population growth continues to support economic
activity while unemployment has declined.
Australia Queensland Data as at:
Population Growth (pa) 1.4% 1.2% Jun-15
Unemployment Rate 5.8% 5.8% Dec-15
Inflation 1.7% 1.7% Dec-15
Budget Position $33bn deficit (2.0% of GDP)
$1bn deficit (0.4% of GSP) 2015/16 forecast
Credit Rating (S&P/Moody’s) AAA / Aaa AA+ / Aa1 Feb-16
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2011a 2012a 2013a 2014a 2015e 2016f 2017f
Source: Consensus Economics Annual % Change
Australian economic growth Other key metrics supportive
Monetary Policy is Supporting Activity
33 07 April 2016 Suncorp Group Limited
• The RBA’s most recent reduction in the cash rate was in May 2015. No further changes are anticipated in the near term with recent RBA commentary noting the strength of the Australian economy.
• Credit growth remains stable. The increase in business loans has been offset with slower growth in residential investor lending following the macro-prudential measures taken by APRA in 2015.
1
2
3
4
5
6
7
8
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Std Var Mortgage Rate RBA Cash Rate Headline Inflation Rate
Source: ABS, RBA, Bloomberg %
Inflation Target Range
-4
-2
0
2
4
6
8
10
12
Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Total Credit Business Total Housing Investor Housing
Source: RBA Annual % Change
Inflation & interest rates Lending growth
Favourable Trends in Building and Labour
34 07 April 2016 Suncorp Group Limited
• Dwelling approvals are at long term highs. However adjusting for population growth, high levels of residential building activity is likely to continue.
• The non-residential building market continues to harden albeit gradually.
• Labour market conditions continue to improve, with employment growth at the strongest levels since 2006.
• The unemployment rate has decreased to 5.8% from 6.0%.
6
7
8
9
10
11
12
120,000
140,000
160,000
180,000
200,000
220,000
240,000
Dec-85 Dec-90 Dec-95 Dec-00 Dec-05 Dec-10 Dec-15
Annual approvals per '000 of population (RHS)
Source: ABS, Bloomberg, Suncorp
Annual approvals (LHS)
Average
Building approvals Labour market
4.9
5.2
5.5
5.8
6.1
6.4
-50
-25
0
25
50
75
100
Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Employment Unemployment Rate (%)
Change Per Month ('000) Source: Bloomberg
Other Indicators are Mixed
35 07 April 2016 Suncorp Group Limited
• Business and consumer confidence indicators improved through 2015 and remain above average despite continued volatility.
• Australia’s exports continue to rebalance due to a more competitive AUD.
• Service exports such as tourism and education performed well in 2015.
-10
-5
0
5
10
15
Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
Sources: NAB, Bloomberg Index
Business Conditions
Business Confidence
Confidence indicators Shifting export trends
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15
Service Exports (RHS)
Mining Exports (LHS)
$m $m Source: ABS
Household Financial Conditions
36 07 April 2016 Suncorp Group Limited
• Notwithstanding the lift in household borrowing, interest payments have fallen, savings have been maintained and unemployment has fallen.
• Meanwhile, the RBA notes that “indicators suggest that household financial stress remains fairly benign” (Financial Stability Review October 2015).
• Increases in house prices have boosted household wealth.
• House prices in Brisbane are now showing a clear affordability advantage.
120
130
140
150
160
170
180
190
200
-2
0
2
4
6
8
10
12
14
Sep-00 Sep-05 Sep-10 Sep-15
Source: RBA
%
Debt to disposable income (LHS)
Interest payments to disposable income (RHS)
%
Household savings rate (RHS)
Debt and debt servicing House prices
200
300
400
500
600
700
800
900
1,000
Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Jun-15
Sydney Melbourne Brisbane
Source: Bloomberg, ABS Median House Price ($ '000)
Queensland Prospects
37 07 April 2016 Suncorp Group Limited
• Queensland is forecast to lead state growth in 2016, assisted by a diversified economic base.
• The pullback in resources has however had an impact on measures of real economic growth.
• Queensland saw a buoyant residential building market over 2015.
• However, population growth of >2% per annum over the past decade means that building levels adjusted for population are only back at average levels.
3.0%
3.0%
0.1% 2.5%
3.7%
1.4%
State economic growth QLD building approvals
6
7
8
9
10
11
12
120,000
140,000
160,000
180,000
200,000
220,000
240,000
Dec-85 Dec-00 Dec-15
Annual approvals per '000 of population (RHS)
Source: ABS, Bloomberg, Suncorp
Annual approvals (LHS)
Average
Gross State Product 2016 forecast Source: Deloitte Access Economics, Sep-15
38 07 April 2016 Suncorp Group Limited
Investor Reporting For further information on Treasury Funding please go to http://www.suncorpbank.com.au/financial-services/treasury/wholesale-funding
Contacts David Carter Scott McMullen Simon Lewis Adam Parry Katie Taylor-Groth
Chief Financial Officer Group Head of Treasury Executive Manager Funding and Treasury Sales Institutional Relationship Manager Institutional Relationship Manager
[email protected] [email protected] [email protected] [email protected] [email protected]
+61 7 3167 9619 +61 7 3362 4042 +61 7 3362 4037 +61 7 3362 4031 +61 7 3362 4049
APPENDIX Mortgage Origination
39
40 07 April 2016 Suncorp Group Limited
Home Loan Underwriting Process Suncorp Bank Mortgage Portfolio
Approved
Suncorp Central Processing Area
SUNCORP CENTRES
208 offices nationwide
AGGREGATORS 22 nationwide
Automated Credit Scoring Model
‘Sunloans’
37% 63% Customer
Referred
Delegated Credit Authority ‘DCA’
Declined
57%
30%
13%
Referred Approved
Declined Approved
60%
13%
• Suncorp has a custom built origination system called Sunloans
• This system has an automated decision engine model (scorecard) which reflects the Bank’s risk strategy and underwriting criteria
• Underwriting that is not approved via the scorecard is completed by accredited Suncorp staff under a Delegated Credit Authority approved by the Chief Risk Officer *
• Aggregators/ Brokers have no approval authority
• Post approval, audits are performed regularly by the hindsight review team and QBE LMI for LMI loans
* Delegated by the Chief Risk Officer to Executive Manager Credit Oversight and Assurance for Delegated Credit Authority below Banking Credit.
41 07 April 2016 Suncorp Group Limited
Underwriting criteria & valuation requirements Suncorp Bank Mortgage Portfolio
Underwriting Criteria Valuation Requirements
Overview: • Underwriting criteria is built into Suncorp’s automated Credit Scoring Model – • Credit Bureau reports required for all borrowers. Where report is not satisfactory, loan
is referred via the scorecard to a higher approval authority for decision • Delegated Credit Authorities are held in the Banking Credit team and selected
Lending Staff who are achieving benchmark results in Compliance
Overview: • All valuations are undertaken by Accredited Panel Valuers appointed by Suncorp • Suncorp utilises approx. 120 valuers nationwide • Independent valuations undertaken for approx. 85% of loans on Suncorp’s balance
sheet
Serviceability: • Customer serviceability determined via an assessment of affordability using the
greater of the “floor” rate (5 year BBSW average for the previous quarter + 3% buffer + an overlay of 171bps) or the actual Customer product rate + 2%
• Confirmation and stability of employment investigated and appropriate income details required
• To verify loan affordability, Minimum Household Living Expenses are aligned with income. These allowances are updated quarterly and align with recognised indices
Valuations are required: • Loans with LVR > 70% (subject to the purpose & loan amount) • For metro properties if loan amount > $500,000 ** • For non metro properties if loan amount > $300,000 ** • Suncorp valuations are processed via the valuation management system (VMS),
which is a fully automated system supplied by Core Logic that links the Bank to the Valuation firms – the selection of a valuer is random and controlled by the system.
• Credit Policy and valuation rules are applied via the valuation decision maker (VDM), which determines the type of valuation to be used for a particular scenario
• Lenders / Banking Credit can override the system and request a full valuation. ** If the LVR is <= 80% and the loan amount is < $1M, a valuation may not be required if the contract of sale is acceptable and the Bank can validate same**
Acceptable loan security: • Parameters establish acceptable security types, acceptable geographic locations,
maximum LVR and maximum loan amounts for particular locations • For fully verified loans, maximum LVR (inclusive of LMI fee) is capped at 95% LVR,
with maximum LVR for Interest Only and Investor loans capped at 90% • All loans are supported by registered 1st mortgage with full recourse to the borrower
Panel valuers are individually accredited based on: • Industry qualifications • Current professional development certificates • Minimum $1m professional indemnity insurance cover • Approval by Suncorp Banking Credit and LMI sign off
42 07 April 2016 Suncorp Group Limited
Mortgage brokers Suncorp Bank Mortgage Portfolio
Broker Accreditation Requirements Overview of Mortgage Brokers
Formal accreditation process: • Must have ASIC issued Australian Credit License or be appointed as a Credit
Representative by a license holder
• be a member of an approved Aggregator group
• Must be a member of the Mortgage and Finance Association of Australia or Finance Brokers Association of Australia (MFAA or FBAA)
• Cannot be registered without full industry accreditation (e.g. National Consumer Credit Protection (NCCP) training)
• Ongoing training requirements also need to be achieved
Broker responsibilities: • Act as intermediaries between the borrower and Suncorp in the initial phase of
mortgage origination
• Act solely as originators of loan applications and have no authority to perform any part of the loan assessment, approval or servicing
• Validation of employment and income data conducted by Suncorp staff
Experience and training (administered by Aggregators): • Must have a minimum of 2 years industry experience
• Must be a member of the Mortgage and Finance Association of Australia or Finance Brokers Association of Australia (MFAA or FBAA) and be personally identified (e.g. 100-point check)
• Have a Certificate IV in Mortgage Lending
• Subject to clear Australian Federal Police checks
• Must hold Professional Indemnity Insurance
An annual review process is performed by Channel Management on Aggregator relationships and includes: • The quality/quantity of mortgage applications
• Percentage of Suncorp business and arrears
• Portfolio trends compared to industry averages
• Changes in ownership
• Fraudulent and suspicious activity
43 07 April 2016 Suncorp Group Limited
Comprehensive arrears management Suncorp Bank Mortgage Portfolio
Customer Contact Strategy (Collections)
Mitigation Strategy (Recoveries)
Legal Process and Asset Realisation (Repossessions) Day 1 – Day 60 Day 60 – Day 90 90 + Days
• System generated arrears notice sent on Day 7
• After Day 7 continuous contact via predictive dialler
• Aim to elicit “Promise to Pay”
• 14 full-time Officers dedicated to covering outbound calls
• 5 full-time Officers dedicated to covering inbound calls
• Default Notice / Notice to Exercise Power of Sale 30 days
• Staff target 80-85 contacts per person per day
• Customer transferred to Late Collections Team (5 staff)
• Notice to Quit issued
• Strict adherence to NCC Guidelines
• Approval of Hardship Cases on application basis
• QBE LMI send arrears report at 60 days
• Lodge Statement of Claim with Supreme Court
• File Writ of Possession
• Judgement and execute warrant for vacant possession
• Obtain valuation, recommend real estate agent and complete any capital works as required
• Repossessions Team focus on loss mitigation strategy (5 staff)
• Auction and sale of property
• LMI claim made for any shortfall
APPENDIX General Insurance
44
45 07 April 2016 Suncorp Group Limited
Top-line positive in a very competitive market Gross Written Premium
Product HY16 ($m) %change Factors
Motor 1,413 1.7 Increase in average written premium rates partly offset by a small loss of units
Home 1,287 1.3 Increase in average written premium rates partly offset by a small loss of units
Commercial 1,115 (1.3) Growth in most commercial lines offset by a 33% reduction in the Workers Compensation segment
CTP 567 6.8 Growth across NSW, Qld and ACT portfolios
Other 35 (5.4)
Total 4,417 1.4
Australia 3,796 1.2
New Zealand 621 2.6 2.7% in NZ$ terms
46 07 April 2016 Suncorp Group Limited
Key ratios General Insurance
9.8% 8.7% 8.6% 8.1% 8.0%
1H14 2H14 1H15 2H15 1H16
Other underwriting expenses ratio
13.5% 14.0% 14.3% 14.4% 14.4%
1H14 2H14 1H15 2H15 1H16
Acquisition expenses ratio
67.5% 68.2% 71.1% 71.0% 70.7%
1H14 2H14 1H15 2H15 1H16
Loss ratio
23.3% 22.7% 22.9%
22.5% 22.4%
1H14 2H14 1H15 2H15 1H16
Total operating expense ratio
47 07 April 2016 Suncorp Group Limited
By product Gross Written Premium
■ Home ■ Motor ■ Commercial
■ Other ■ CTP
23%
30%
43%
4%
New Zealand $1.2b
34%
29%
22%
15%
<1%
Australia $7.6b $8.8b
32%
28%
27%
12%
1%
Total
48 07 April 2016 Suncorp Group Limited
Total GWP of $8.8 billion Gross Written Premium
■ New South Wales ■ Queensland ■ Victoria ■ South Australia
■ Western Australia ■ Tasmania ■ New Zealand ■ Other
■ Home ■ Motor ■ Commercial ■ CTP ■ Other
25%
28%
19%
6% 3% 2%
14%
3%
Geography
34%
29%
22%
15% <1%
Product
49 07 April 2016 Suncorp Group Limited
Impacted by claims inflation and lower investment yields Underlying and Reported ITR
8.0% 10.0%
10.5%
11.2% 11.1%
13.1% 13.4% 13.6% 14.0% 14.7%
14.8% 14.6%
10.1% 12.8%
6.4%
10.9%
1.9% 3.8%
11.1%
18.6%
7.8%
13.9%
17.0%
12.8%
9.9% 9.4%
1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16
12% 12%
Underlying ITR Reported ITR
50 07 April 2016 Suncorp Group Limited
Conservative assumptions and world leading long-tail claims management Reserve Releases
1.1%
1.7% 1.4% 1.4%
5.4% 5.4%
3.4%
1H13 2H13 1H14 2H14 1H15 2H15 1H16
1.5%
51 07 April 2016 Suncorp Group Limited
Six months to 31 December 2015 General Insurance – Natural hazards
Date Event Net costs ($m) Aug 2015 South Coast NSW and Sydney Storms 29
Sep 2015 NSW Central Coast Hail 21
Oct 2015 Fernvale Chinchilla Hail 44
Nov 2015 Sunnybank Hail 16
Nov 2015 Pinery Bushfire 15
Nov 2015 Darling Downs Storms 25
Dec 2015 Kurnell Tornado 63
Dec 2015 Great Ocean Road Bushfire 31
Other natural hazards attritional claims (Australia) 114
Other natural hazards attritional claims (New Zealand) 4
Total 362 Less: allowance for natural hazards (334)
Natural hazards costs above allowance 28
-
1,000
2,000
3,000
4,000
5,000
6,000
1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
NZ AUS Long run average
52 07 April 2016 Suncorp Group Limited
45 years of natural hazards* General Insurance – Natural hazards
Retention
Christchurch earthquakes, Brisbane floods, Cyclone
Yasi, Melbourne Hailstorm
Newcastle earthquake
Melbourne & Perth Hailstorms,
Christchurch earthquakes Sydney
Hailstorm
Hunter Valley storm
Cyclone Marcia and NSW Low
Storms
Brisbane Hailstorm
* Adjusted for inflation, population growth and market share
Brisbane Hailstorm
Brisbane flood, Cyclone Tracy
53 07 April 2016 Suncorp Group Limited
Conservative balance sheet protection against catastrophes General Insurance – FY16 Reinsurance Program
6.9b
6.1b 2.5b 500m
Original cover Reinstatement Reinstatement Reinstatement 250m
200m Dropdown aggregate Dropdown aggregate
50m
Retention
54 07 April 2016 Suncorp Group Limited
Drop-down aggregate program fully placed General Insurance – FY16 Reinsurance Program
250m 50m xs 200m xs 50m
100m xs 150m xs 200m
100m xs 150m xs 300m
200m
150m
100m xs 50m xs 200m
100m xs 50m xs 300m
50m Retention
Important disclaimer
55 07 April 2016 Suncorp Group Limited
This report contains general information which is current as at 07 April 2016. It is information given in summary form and does not purport to be complete.
Please note all references are in Australian Dollars ($) unless otherwise disclosed.
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 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 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)