What happened to the Suncorp Group Ltd Share Price?
Shares in banking and insurance conglomerate Suncorp Group Ltd [ASX:SUN] fell by nearly 2% today, dragging the broader market down with them. The stock is falling off a six-year high after a sustained two-year rally.
Why did this happen to the Suncorp Group Ltd Share Price?
This morning Suncorp announced a $500 million non-cash writedown of intangible assets associated with its life insurance business. Suncorp is trying to proactively and realistically recognise the problems that the life insurance industry will face over the next few years.
There’s a structural problem in this industry where customers are expected to pay more as they get older, and as a result, Australia’s ageing population is buying less life insurance.
As Australia’s big insurers grapple with this problem, their revenues and earnings are at risk of sliding…hence today’s writedown and the negative reaction by Suncorp investors.
What now for the Suncorp Group?
Sometimes companies have to ‘take their medicine’ and reset investors’ expectations when they rise unreasonably high. Today’s news is a bitter pill and the share price has duly copped a whack.
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But it’s worth noting that the writedown won’t impact Suncorp’s cash earnings or dividend…and industry conditions can turn around sooner than you think.
In the meantime, Suncorp’s general insurance division is performing strongly. The bottom line is that Suncorp investors shouldn’t necessarily view this news as a reason to sell all their shares.
Tim Dohrmann+
Small-Cap Analyst, Australian Small-Cap Investigator
