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6. Operating and fnancial review (continued)

6.4 Review of principal businesses

General Insurance recorded proft after tax of $392 million for the year.

The Insurance Trading Result (ITR) was $412 million, representing an ITR ratio of 6.6%. The headline ITR has reduced due to adverse natural hazard claims experience and additional reinsurance reinstatement costs, partially offset by long‑tail claims reserve releases.

Gross Written Premium (GWP) increased by 3.6% on the prior year to $7.3 billion. Personal lines experienced solid premium growth in Home (11.5%) and Motor (4.4%). The Home premium rates have increased due to ongoing adverse natural hazard experience and higher reinsurance costs. Retention rates have remained strong despite these premium increases. Commercial Insurance GWP reduced 4% on a headline basis. After excluding exited product lines, GWP increased by 2.3%. Compulsory Third Party (CTP) GWP increased 3.2% despite a headline ceiling rate reduction in the Queensland scheme.

Net incurred claims totalled $4.75 billion. Short‑tail claims expenses were impacted by a signifcant number of major weather events, resulting in net natural hazard claims being $325 million above the Suncorp Group’s allowance. In long‑tail claims, reserve releases of $296 million were primarily attributable to improved claims management and favourable claims experience.

Total operating expenses reduced, with acquisition expenses reduced by $51 million and other underwriting expenses increased $6 million. Investment income on insurance funds was $508 million. This included a beneft of $63 million from the narrowing of credit spreads and investment management performance. Investment returns on shareholder funds was $206 million.

The Suncorp Group’s New Zealand operations were

signifcantly impacted by multiple earthquakes in Christchurch during the year, however, the Suncorp Group’s reinsurance program mitigated the impact of the earthquakes. Banking recorded a proft after tax of $84 million.

The Bank continues to maintain separate core and non‑core lending portfolios. The Bank’s core lending portfolio is focused on relationship‑based lending and deposit gathering in personal, small to medium enterprises and agribusiness banking. The focus of the non‑core lending portfolio remains on responsible run‑off of the portfolio to maximise the value of distributable capital that can be returned to the Suncorp Group. In 2011 the non‑core portfolio continued to exceed run‑off targets.

Gross banking loans, advances and other receivables reduced by 4.9% to $49.3 billion. In the personal lending customer segment, growth in housing loan receivables was strong in the frst half but momentum slowed signifcantly following the impact of major weather events. The Bank’s strong brand presence supported renewed growth towards the end of the year, however the Queensland mortgage market continues to be subdued.

During the year, housing loan receivables (including securitised assets), increased by 6.5% to $31.0 billion. Consumer lending decreased 1.9% over the year to $558 million as customers continued to focus on repaying existing debt. Business lending decreased 23.3% to $15.4 billion, with the run‑off of the non‑core portfolio partially offset by a 5.4% increase in the core business portfolio.

The Bank has maintained its strategy of match funding the non‑core portfolio, taking a conservative approach to refnancing risk through to portfolio maturity. The Bank currently holds excess liquid assets over prudential requirements which have enabled the comfortable repayment of signifcant funding maturities during the year. The Bank is also well positioned to meet the impending regulatory changes being imposed on the industry to strengthen liquidity reserves.

Net interest income was $910 million, representing a decrease of 1.94%. The market competition for both deposits and lending remains strong and volatile wholesale funding markets provide a degree of caution in the outlook.

Operating expenses were $568 million, up from $546 million, refecting continued investment in building the core franchise, and stimulating growth through branch expansion and increasing customer‑facing staff. The cost‑to‑income ratio was 54.72%.

Bad debts expense for the fnancial year was $325 million, a reduction of 32.15%. Total provisions at 30 June 2011 were $564 million, representing a decrease of 16.07%. Improvement in market conditions across the sectors has allowed some resolution of accounts.

Life reported proft after tax of $149 million for the fnancial year, down 33%.

Life Risk proft after tax was $92 million down 30.8%. Challenging economic conditions and weakening consumer sentiment have had an impact on both lapse experience and claims. The impact on lapses has been partially mitigated through tighter management and implementation of a range of initiatives. Disability claims experience was unfavourable for both number of new claims and duration of claims, and the business continues to focus on claims duration management. Individual Life Risk new business is up 12.3% to $91 million, refecting the strong momentum in the Independent Financial Advisor and direct distribution channels. New business sales were up 14.3% in the advisor channel to $56 million and up 43.8% to $23 million in the direct channels.

In Superannuation & Investments, funds under administration decreased by 37.5% on the prior year to $7.7 billion, following the divestment of the asset management businesses in Australia and New Zealand. Net proft after tax was $44 million, up 7.3% refecting a stable underlying result. Operating expenses decreased by 7.35% to $391 million, impacted by divested businesses offset by investment in growing the business and realising its strategic goals.

Directors’ Report (continued)