Suncorp CEO Resigns
On Monday morning, Suncorp Group CEO Michael Cameron announced his resignation after almost four years in the role and seven years as a Board member. Chairman Christine McLoughlin believed the change would provide the “opportunity for the Company to enhance its performance in a highly competitive and challenging external environment as Suncorp seeks to strengthen its core businesses by focusing on its customers, products and brands.” Mr Cameron was proud of his achievements and will remain as an advisor for the firm until the release of Suncorp’s full-year results in August. The company appreciated Mr Cameron’s contribution to the significant digital transformation and his leadership during a period of unprecedented regulatory change.
In the interim, the Group’s CFO Steve Johnston was appointed as CEO until a more suitable candidate is found. Ms McLoughlin mentioned that Mr Johnston has a strong knowledge in the insurance and banking businesses and is “best placed to lead Suncorp and build on the Group’s multi-channel capability.” The company hopes to appoint the new CEO in the second half of the year. Suncorp Bank’s financial performance had been weak, made up nearly 25% of the Group’s total profit after tax in 2018, compared to their insurance subsidiary which contributed 60% to the profit after tax. Analysts have been wondering if Suncorp should choose the new CEO with a strong insurance background to focus on the insurance industry.
Suncorp under Michael Cameron
Under Mr Cameron’s leadership, the One Suncorp operating model combined the Group’s businesses together with a common goal to put customers at the centre. To support the model, the company adopted the Customer Marketplace strategy. This approach utilised digital technology to offer transparency on the wide range of financial brands Suncorp owns by consolidating its products into a single application. Given the rapid change in the technological environment, the strategy appeared appropriate, but it was not reflected in the company’s recent financial performance.
The fiscal year 2019 had been a rough year for Suncorp. One of the major struggles was the mispricing of catastrophe risk. After the hail storm in Sydney at the end of last year, $673.9 million worth of vehicles and infrastructures were affected. More than 100,000 vehicles were damaged and more than 10,000 claims were assessed. The natural catastrophe costed Suncorp $220 million more than their allowance and the net incurred claims amounted to $178 million. The half-year results for 2019 were disappointing for the company. Suncorp’s profit after tax in the insurance industry was down to $133 million from $234 million in the previous corresponding period. Total net profit after tax for the Group was reduced by almost 50% to $250 million.
The financial services conglomerate did not live up to investors’ hopes as the financial performance in recent years had been sluggish. Suncorp Bank’s performance was steady across the half-year results for 2019, earning $183 million compared to the previous $185 million. However, in light of the Royal Commission outbreak in February, the criticisms had affected the financial industry in Australia. Suncorp Group culled its earnings as the regulatory costs were $50 million higher than the projected figure. The company assessed the regulatory outcome and planned to spend a total of $140 million in the current fiscal year to respond and continue with regulatory compliances. On April, Suncorp announced a dividend cut from 0.81 cents in 2018 to 0.34 cents.
Since Mr Cameron’s role as CEO, Suncorp’s shares rose by around 15%. Following the announcement of the CEO’s resignation on Monday, however, Suncorp’s stock closed more than 2% lower at $13.59. Investors continued to fear the prospect of the company as Suncorp’s shares dropped further by more than 1.5% to $13.38 in the first hour of today’s trade.
Financial industry amid economic setback
The financial service industry has been challenging amid interventions by the Australian regulators and the global economic struggle. In response to the economic slowdown, the Reserve Bank Governor Philip Lowe indicated an interest rate cut in the coming meet on June 4. The decision came after an increase of the unemployment rate to 5.2% in April. A lower cash rate would encourage consumer loans. For the banks, the housing component of the portfolio may increase as a result of more borrowers. This would translate to higher profit in the banking industry.
Given the recent turmoil Suncorp had experienced, it is important for the company to have accurate analysis and appropriate margins in their projection. Regulatory requirements and natural hazards can be highly unpredictable. While there are fitting measures that can mitigate these risks, the company needs a leader that is able to consider all the options and achieve a balanced strategy to secure Suncorp Group’s future.
By Jack Lee
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