SUNCORP METWAY is in line for a profit windfall of up to $125 million from the sale of its holdings in two car insurance joint ventures as the financial services company tries to simplify its sprawling insurance business and boost returns.
Earlier this year Suncorp flagged the sale of its 50 per cent stakes in joint ventures with RACQ in Queensland and RAA in South Australia back to the respective motoring organisations.
The move is part of efforts by the new chief executive, Patrick Snowball, to overhaul the insurance business, which he has described as ''over-engineered and complicated''.
An independent valuation of the two ventures puts the shareholdings at $348 million.
Following the sale Suncorp expects to book a post-tax windfall of between $110 million and $125 million for the 2010 financial year. The valuation of the holdings suggests the two ventures generated about $30 million in annual earnings for Suncorp.
Before Suncorp disclosed the valuation of the business, analysts were tipping the financial services group to deliver a full-year profit of about $570 million. This compares with last year's $348 million, which was hit by disappointing insurance returns and heavy write-downs across its banking arm.
However, the exit from the ventures has raised questions over whether rival players could buy into them, ramping up competitive pressure, particularly in the Queensland market.
RACQ is one of Queensland's largest providers of motor and home insurance, with more than 1.2 million policy holders. The rival Insurance Australia Group is underweight in Queensland and already operates an insurance joint venture with RACV in Victoria.
Suncorp said the sale of the shareholdings, which will also free up capital, will not affect the group's ability to compete in either market through its fully owned insurance brands, including AAMI and GIO.
