New business plan: Are Suncorp (ASX:SUN) shares a buy?


Companies and indices mentioned:


Suncorp (ASX: SUN) has announced a new operating model for its business. Are Suncorp shares a buy?

What is Suncorp?

Suncorp is a $12 billion insurance and banking company. It has its own brand of products but also operates under names like AAMI, GIO, Apia and Shannons. It also operates a regional banking division called Suncorp Bank.

Here’s Suncorp’s new plan

Suncorp is going to turn to a new operating model and organisational structure to drive improvement in the performance of core businesses.

Accountability for the performance of the insurance division will be assumed by two executives. One will be focused on underwriting, distribution, brands, marketing, product design and innovation. The other will be responsible for claims management and operations. Current insurance CEO Gary Dransfield will leave Suncorp.

The company is going to combine a number of insurance and group functions to create a more streamlined and efficient organisation.

Suncorp also said there will be greater end-to-end operational accountability within the banking & wealth and Suncorp New Zealand divisions to drive improved performance.

The final key operating change will be aligning its group strategy and technology to fast-track digital and automation capabilities and opportunities.

Other announcements

Suncorp has appointed Clive van Horen as the new banking and wealth CEO. The company said this brings significant retail and business banking experience in Australia and internationally.

The FY21 main catastrophe reinsurance program has been finalised with a similar structure as previous years, with new aggregate excess of loss cover purchased for FY21 providing $400 million of cover for events in excess of $5 million once the retained cost of these events reaches $650 million.

The FY21 natural hazard allowance is expected to increase by $90 million to $130 million (in FY20 it was $820 million).

Excluding investment market movements and bank impairment losses, COVID-19 impacts on the FY20 profit are expected to be broadly neutral.

Suncorp management comments

Suncorp CEO Steve Johnston said: “The work we have done over the past 12 months puts us in a strong position to deal with the dual challenges of increasing natural hazard costs and a global pandemic. We entered COVID-19 with a significantly de-risked business and a strong balance sheet and through this period further strengthened our funding, liquidity and capital buffers.

At the same time, COVID-19 has resulted in changes such as the faster adoption of digital channels by customers and new, more innovative and agile internal ways of working. It has changed out perspective on what is possible.”

Summary

Improving the business is always a good choice. But it’s a shame that Suncorp hasn’t made much overall progress since the GFC. Suncorp isn’t the type of business I’d invest in. It’s cyclical and isn’t growing internationally. For growth and dividends from a financial share I’d rather buy Magellan (ASX: MFG) or Macquarie (ASX: MQG).

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Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned. 

Jaz Harrison

Jaz Harrison

Jaz is a keen investor who loves to thoroughly poke holes in an investment idea before it has a chance of making it into her portfolio. Jaz invests for the long-term and doesn't sweat the small stuff. She strongly believes that empowering people with knowledge is the best way for them to take charge of their finances, which is exactly the approach she takes with her own money and investments.