Suncorp has flagged a non-cash writedown of around $500 million following a reassessment of the carrying value of intangibles and goodwill associated with its Life business.
Investors responded poorly to the news. At 10.35am (AEST) Suncorp shares were 2.48%lower at $13.35, against a benchmark index lift of 0.18%.
The insurer said it expects a writedown of goodwill and other intangible assets of approximately $350 million after tax, as well as loss recognition on some products and other reserving adjustments to policy liabilities of approximately $150 million after tax.
However, Suncorp said the writedowns would have no impact on the group's cash earnings or dividends and a minimal impact of $27 million on its capital surplus. It will have an impact on reported full-year net profit after tax (NPAT) as a non-cash item.
The insurer has cut its full-year growth target though, revising to between 4% and 6%, from 7% to 9% previously.
Suncorp chief executive Partick Snowball said the revision was the result of the favourable natural hazard environment, the likely reduction in reinsurance costs and Suncorp Bank's cautious approach to credit in the current market.
He said the revised assumptions that caused the writedowns recognise the industry headwinds and deteriorating situation.
He said the changes ensure Suncorp is valuing life insurance assets and planned margins on more forward-looking assumptions rather than the historical average basis that has generally been used by the life insurance industry.
"The structural and cyclical life insurance issues have now been recognised by most life insurance companies and reinsurers, however, we are frustrated that industry change is not occurring at a more rapid pace," he said.
"This is continuing to impact Suncorp Life earnings and the potential for further deterioration needs to be reflected in our assumptions.
"The Suncorp Life business has a clear strategy in place to address the industry challenges and I’m confident in our ability to execute this plan."
Suncorp Life is expected to report an underlying profit after tax of between $75m and $85m in fiscal 2014.
Suncorp will continue to target a return on equity (ROE) of at least 10% for the 2015 financial year.
It also expects to be in a position to announce further capital management initiatives in conjunction with the release of its full-year results in August.
Drought weighs on Suncorp Bank
Simultaneously announcing its update on credit quality and capital for Suncorp Bank the group said growth in the core markets of home, agribusiness and small business lending was 1.1 per cent for the quarter.
Suncorp Bank chief executive John Nesbitt said the bank continued to strengthen risk management with a focus on Basel II Advanced Accreditation and ongoing market conditions.
Mr Nesbitt said impairment losses of $30 million for the quarter reflected the impacts of the prolonged drought across the Agribusiness portfolio.
"The expected wet season failed to eventuate for many of our Agri customers, particularly in North West Queensland," he said.
"With the drier winter months approaching we have decided to take additional provisions in the form of a drought overlay. This prudent approach will provide additional balance sheet protection in the event the drought worsens into next year."
As a result of the drought overlay, the bank expects to report a fourth quarter impairment charge of between $35m and $50m, resulting in impairment losses to gross loans for the full year of between 23 basis points and 27 basis points.
Suncorp Bank expects impairment losses for the 2015 financial year to be within the target range of 10 basis points to 20 basis points of gross loans and advances.