Business & Finance

Suncorp-Metway Ratings Affirmed on Proposed Acquisition

CreditWire - June 16th, 2001

Standard & Poor's today affirmed its single-'A'-minus long-term and 'A-2' short-term counterparty credit ratings on Suncorp-Metway Ltd. following the announcement of its proposed acquisition of AMP General Insurance Ltd. (AMP General) and GIO General Ltd. The single-'A'-minus insurer financial strength and counterparty credit ratings on Suncorp Life and Superannuation Ltd. and Suncorp Metway Insurance Ltd. (Suncorp General) also have been affirmed. The outlook on all Suncorp-Metway entities is positive.

At the same time, the CreditWatch action on AMP General and GIO General's single-'A' ratings was revised to negative from developing, reflecting the entities' likely acquisition by the lower-rated Suncorp-Metway group. It is expected that following finalisation of the acquisition, the ratings on these entities in respect of future policyholder obligations will be lowered to reflect the credit standing of Suncorp-Metway.

The ratings assigned to AMP General Insurance Ltd. (New Zealand Branch) and GIO General New Zealand Ltd. remain on CreditWatch developing pending the outcome of the AMP group's strategic review of its general insurance operations in New Zealand and their likely sale. The triple-'B'-plus ratings on AA-GIO Insurance Ltd. also were placed on CreditWatch developing, reflecting this likely change in ownership.

"The acquisition provides Suncorp-Metway's general insurance operation with a more diverse geographical spread and a better-balanced product mix, further enhancing Suncorp-Metway as Australia's most diversified regional financial institution," said Gavin Gunning, director, Financial Services Ratings. Post acquisition, the group's capital position will be moderately diluted, however, the dilution remains within the rating tolerances, with synergy benefits of the acquisition expected to be realisable.

"The positive outlook on Suncorp-Metway reflects Standard & Poor's expectation that the group could eventually migrate to a higher credit standing, even considering the patchy domestic economic outlook, and the additional challenges of absorbing a very large company in the context of Suncorp-Metway's business profile. Suncorp-Metway's acquisition of AMP General and GIO General places it in the top-three general insurers in Australia, and enhances their business profile by significantly diversifying the geographic and product mix of Suncorp General. A moderating feature, however, is the relative underperformance of AMP's general insurance operations in recent years. Suncorp-Metway's track record in satisfactorily executing a difficult acquisition, however, affords confidence that sensitivities associated with this acquisition will be addressed, although integration difficulties, should they arise, could result in negative rating implications," added Mr. Gunning.