The Suncorp takeover saga may not have gone quiet after all.
Four weeks after Insurance Business reported that Tokio Marine was closing in on an Australian acquisition target, the Japanese insurer is back in the headlines. According to weekend reporting in The Australian's DataRoom column, deal advisers are getting ready for the possibility of a formal offer for Suncorp, which is worth about $20 billion on the ASX.
The column's source believes Tokio Marine has looked through the local sector and now has Suncorp firmly in its sights. The banking line-up appears to be taking shape as well. JPMorgan is tipped to advise Suncorp if an offer arrives, and Goldman Sachs is reportedly in Tokio Marine's corner. As far as anyone knows, there has been no formal offer yet, but DataRoom said some market watchers think one may not be far off.
That is a more information than we had in late August. Back then, the Financial Times named Suncorp as the frontrunner, but plenty of market chatter had IAG as an equally likely target, and Goldman was reported to be advising IAG, not Tokio Marine. None of the three companies has confirmed any talks, and there is still no certainty a bid will be tabled.
Read next: This giant insurer has $15 billion to spend
Suncorp's appeal is largely about how uncomplicated it has become. The 2024 sale of Suncorp Bank to ANZ left behind a pure Trans-Tasman general insurer, running brands including AAMI, GIO, Apia and Vero, with no big corporate loose ends to tidy up. One market expert told The Australian that Suncorp was the more realistic deal to get done.
IAG would be a messier proposition. Its long-running partnership with RACV, which sells IAG-underwritten home and motor cover in Victoria under the motoring club's own brand, reportedly gives RACV rights of refusal over the business if IAG gets a new owner. Some analysts see that as a possible deterrent to bidders. Tokio Marine could almost certainly afford to outpay RACV, but it would be one more hurdle to clear.
IAG has also had a busy week. On Wednesday, the ACCC knocked back its $1.35 billion bid for RAC Insurance in Western Australia for a second time. The regulator said the merged group would hold somewhere between 55% and 65% of the state's motor insurance. IAG plans to argue its case again through a public benefit application.
Read next: ACCC blocks IAG's RAC Insurance acquisition
Two days later, IAG told the ASX it had reached a confidential deal to end the Credit Suisse litigation over trade credit policies tied to Greensill's collapse. Those claims had a combined face value of about $2.8 billion plus interest, and IAG expects no material hit to its FY27 results. It comes months after a separate settlement with Greensill Bank's administrator in May over claims of roughly $4 billion. A smaller White Oak claim, worth about $170 million, is still before the court.
There is a curious wrinkle here. Tokio Marine is itself a party to the Greensill litigation, having bought IAG's 50% stake in underwriting agency BCC Trade Credit, formerly Bond & Credit, in 2019.
Read next: IAG dodges $3 billion Federal Court showdown as Credit Suisse settles Greensill claim
Suncorp's FY26 results, released on 12 August, would give any suitor plenty to study. Net profit after tax came in at $1.027 billion and cash earnings at $1.042 billion. The headline fall on FY25 largely reflects last year's one-off gains from the bank and New Zealand Life sales.
The underlying insurance trading ratio held at 11.8%, near the top of its 10% to 12% target range, even though natural hazard costs of $2.024 billion blew through the $1.77 billion allowance by $254 million.
For a buyer worried about catastrophe swings, the bigger draw may be the multi-year aggregate reinsurance cover that kicked in on 30 June. Suncorp expects its FY27 programme to cap any natural hazard overrun at $50 million in nine out of ten scenarios. That makes the earnings stream considerably easier to price.
The balance sheet is also being trimmed back. Suncorp is paying a 10-cent special dividend and plans a buy-back of up to $250 million in FY27. Together they will take its capital surplus above the midpoint of its target range from $518 million to a pro forma $162 million.
Investors are hedging their bets. Suncorp shares jumped almost 8% on the day the FT story broke in August but have since slipped almost 4% over the past month.
Read next: Suncorp profit falls 40% as it reshuffles top team
The Japanese group has made no secret of its ambitions. Insurance Business reported last October that it was preparing to spend more than US$10 billion on overseas deals, funded partly by unwinding its cross-shareholdings in Japanese companies. Brad Irick, co-head of international business, called that "a generational opportunity". In March, Berkshire Hathaway bought 2.5% of Tokio Marine, and the two groups agreed to work together on sizeable overseas acquisitions.
Tokio Marine's biggest acquisition to date was its US$7.5 billion purchase of American specialty insurer HCC in 2015. A Suncorp deal would be roughly double that. The group was founded in 1879 and now operates in more than 50 countries and regions.
Japanese money has been here before. Dai-ichi Life struck a $725 million deal for Suncorp's life insurance arm in 2018, and Nippon Life now owns what used to be MLC's life business.
Any bid would face a long regulatory road. A foreign buyer would need approval from the Treasurer through the Foreign Investment Review Board. A stake of more than 20% in a licensed insurer also requires sign-off under the Financial Sector (Shareholdings) Act, with APRA advising. Politics could come into it too, given Suncorp's long history and head office in Queensland.
Brokers will want answers to more immediate questions. Suncorp's commercial and personal injury arm, which Lisa Harrison took over in August's executive reshuffle, writes much of its business through intermediaries under the Vero brand.
A new owner could change which risks Vero chases, how its agency and distribution deals are set up, and how smoothly day-to-day servicing runs during what would be a lengthy handover. For now, the market is waiting to see whether the bankers' preparations turn into a real offer.
