AMA Group says it’s preparing to enter negotiations with Suncorp for a new pricing agreement that will better assist its Capital Smart crash repair business in a rising-cost environment.

The crash repairer acquired 90% of Capital Smart from Suncorp in 2019 in a transaction that included a 15-year service agreement. The purchased business specialises in low-to-medium severity repairs.

AMA Group CEO Carl Bizon told a results briefing last week that previous management had also entered into a three-year pricing standstill agreement ending June 30, but strong inflation had led to Capital Smart reaching a point where it was losing money.

An interim average repair cost (ARC) repricing arrangement was put in place last year for October 1 to June 30 ahead of negotiating new arrangements.

Mr Bizon says the end of the standstill agreement paves the way for annual pricing adjustments and the next negotiations should result in a reset “that rewards Suncorp for the volumes that they give us and also allows Capital Smart to focus on providing high-quality, high-volume repairs” for the insurer.

“The three-year standstill agreement that had previously been executed has now finally come to an end and we revert to the normalised standard 12-month annual price reviews with Capital Smart and Suncorp that was contemplated when the deal was originally struck in 2019,” he said. “I think both Suncorp and AMA look forward to the normalisation of the commercial arrangements.”

It’s expected that the two companies will enter into the negotiation in the next few months, Mr Bizon says.

AMA Group reported a $25.75 million after tax loss for the six months ended December 31 compared to a year-earlier loss of $46.3 million. Normalised earnings before interest, tax, depreciation and amortisation (EBITDA) rose to $25.3 million from $4.2 million.

The group, which describes fiscal 2023 as a transition year, affirmed guidance for normalised EBITDA of $70-90 million this year and $120-140 million next year.

Mr Bizon says the group has seen strong engagement with many of its insurer partners since May and a range of pricing increases came into effect during the fiscal first half.

“While we remain in this high inflation environment ongoing price management is required to ensure that payment for the work we complete keeps pace with inflation, and we continue to actively engage with our insurer partners on a regular basis,” he said.

The company’s repair sites include Capital Smart and AMA Collision operations. It also had nine heavy motor sites and seven supply locations as of December 31.

A Suncorp spokesman said negotiations haven’t yet begun and it’s too early to say what the specific impact of any longer-term changes in the Capital Smart contract will be for Suncorp.

“We expect any new pricing arrangements will continue to reflect a volume-based discount to market pricing given Suncorp’s scale,” he told insuranceNEWS.com.au.