Overview
- Following the decision of the Australian Competition Tribunal to grant authorization of the proposed sale of Suncorp-Metway Ltd. (SML; A+/Watch Pos/A-1) to Australia and New Zealand Banking Group Ltd. (ANZ), we believe the likelihood the transaction will be completed in the next six months has increased.
- The sale, if completed as expected, would reduce the diversity of Suncorp's cash flow. We may therefore widen the notching between the group's operating companies and the nonoperating holding company to two from currently one.
- We are placing our 'A+' rating on Suncorp, the group's nonoperating holding company, on CreditWatch with negative implications. We are also placing our issue ratings on Suncorp on CreditWatch with negative implications.
- At the same time, we are affirming the 'AA-' ratings on Suncorp's core operating subsidiaries because we do not expect the sale to affect the group's credit strengths. The outlook on the operating companies remains stable.
Rating Action
On April 3, 2024, S&P Global Ratings placed its 'A+' long-term issuer credit rating on Suncorp Group Ltd. on CreditWatch with negative implications.
We also placed the issue ratings on Suncorp on CreditWatch with negative implications.
At the same time, we affirmed our 'AA-' long-term issuer credit and financial strength ratings on Suncorp's core operating entities with a stable outlook.
Rationale
The placement of Suncorp on CreditWatch with negative implications reflects the increased likelihood that the sale of SML to ANZ will proceed in the next six months. This is due to the Australian Competition Tribunal's decision to grant authorization of the proposed sale of SML to ANZ (AA-/Stable/A-1+), and the nearing proximity of the transaction completing.
We may downgrade the nonoperating holding company, Suncorp, by one notch after the completion of the sale of SML to ANZ. This would be due to a widening in the notching between the operating companies and nonoperating holding company to reflect a reduction in the earnings diversity the banking operations provide to the nonoperating holding company.
We currently rate Suncorp one notch below the group credit profile, rather than the standard two notches lower. This reflects the nonoperating holding company's access to more diverse cash flow across the group and, to a lesser extent, its holding of surplus capital, which collectively support its debt-servicing capability.
We do not expect the sale of SML to affect the ratings on Suncorp's core operating subsidiaries because we view SML's stand-alone credit profile as weaker.
If we downgrade Suncorp by one notch, we would also downgrade any instruments issued by the nonoperating holding company by one notch.
We continue to assess SML as strategically important to Suncorp as we expect that Suncorp would provide extraordinary support to it, if needed, up to the point of sale.
Outlook/CreditWatch
Suncorp Group Ltd.
The placement of Suncorp Group Ltd., the group's nonoperating holding company (NOHC), on CreditWatch reflects the increasing likelihood that the sale of SML will be completed within the next six months, and that we may subsequently lower the ratings by one notch. This would reflect a widening in the notching between the operating companies and the NOHC to two notches from one notch. This rating action would likely only come following the completion of the sale of SML due to the inherent reduction in earnings diversity at the NOHC.
We believe a one-notch downgrade with stable outlook to be the most likely outcome if the sale proceeds as planned.
There is a lower likelihood scenario that we affirm the rating on Suncorp at 'A+' if: the sale does not go through; we consider the group's earnings post completion of the sale of SML are sufficiently diverse; or if we expect it to maintain significant unencumbered cash or resources to meet its obligations.
Suncorp core operating subsidiaries
The stable outlook on Suncorp's core operating subsidiaries reflects our expectation that the group will maintain a very strong business and financial position over the next 12-24 months, underpinned by its sound operating performance and excellent capital adequacy.
Downside scenario
We may lower the ratings on Suncorp's core subsidiaries over the next 12-24 months if:
- We assess the competitive position of the property/casualty businesses to be weaker, potentially due to a material impact following poor underwriting or risk selection; or
- We view the group's prospective capital adequacy position has weakened.
Upside scenario
We consider a higher rating on Suncorp's core subsidiaries as unlikely over the next 12-24 months, recognizing the extent of the inherent business diversification.
Ratings Score Snapshot
| To | From | |||||
|---|---|---|---|---|---|---|
| Financial strength rating | AA- | AA- | ||||
| Anchor | aa- | aa- | ||||
| Business risk | Very Strong | Very Strong | ||||
| IICRA | Low | Low | ||||
| Competitive position | Very Strong | Very Strong | ||||
| Financial risk | Very Strong | Very Strong | ||||
| Capital and earnings | Very Strong | Very Strong | ||||
| Risk exposure | Moderately low | Moderately low | ||||
| Funding structure | Neutral | Neutral | ||||
| Modifiers | 0 | 0 | ||||
| Governance | Neutral | Neutral | ||||
| Liquidity | Exceptional | Exceptional | ||||
| Comparable ratings analysis | 0 | 0 | ||||
| Support | 0 | 0 | ||||
| Group support | 0 | 0 | ||||
| Government support | 0 | 0 | ||||
| IICRA--Insurance Industry And Country Risk Assessment. | ||||||
Related Criteria
- Criteria | Insurance | General: Insurer Risk-Based Capital Adequacy--Methodology And Assumptions, Nov. 15, 2023
- General Criteria: Hybrid Capital: Methodology And Assumptions, March 2, 2022
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Insurance | General: Insurers Rating Methodology, July 1, 2019
- General Criteria: Group Rating Methodology, July 1, 2019
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- Tribunal Decision Supports Positive Outlook On Suncorp-Metway Ltd., Feb. 20, 2024
- Suncorp-Metway Ltd. Outlook Revised To Positive On Planned Acquisition By ANZ; 'A+/A-1' Ratings Affirmed, July 19, 2022
- Suncorp-Metway Ltd. Ratings Lowered To 'A+/A-1'; Outlook Negative; Ratings Unchanged On Other Group Entities, June 29, 2022
Ratings List
| Ratings Affirmed; CreditWatch/Outlook Action | ||
|---|---|---|
| To | From | |
|
Suncorp Group Ltd. |
||
| Issuer Credit Rating | A+/Watch Neg/-- | A+/Negative/-- |
|
Suncorp Group Ltd. |
||
| Subordinated | A-/Watch Neg | A- |
| Subordinated | BBB+/Watch Neg | BBB+ |
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Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.spglobal.com/ratings for further information. Complete ratings information is available to RatingsDirect subscribers at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.spglobal.com/ratings.
| Primary Credit Analyst: | Julian X Nikakis, Sydney (61) 2-9255-9818; julian.nikakis@spglobal.com |
| Secondary Contact: | Craig A Bennett, Melbourne + 61 3 9631 2197; craig.bennett@spglobal.com |
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