Suncorp Metway has leapt from seventh to second in Australian insurance rankings with its $1.25 billion purchase of AMP’s Australian general insurance assets.

The one-step promotion fulfills the desire by Suncorp Metway MD Steve Jones to make the Brisbane-based allfinanz company a major national player. Suncorp CFO Daniel Wilkie will become Group GM, General Insurance, and will be replaced as CFO by former Westpac Deputy CFO Chris Skilton. The integration process will be handled by GM Operations Peter Johnstone.

Mr Wilkie and his team have been given a big operation to reshape. Along with potential economic benefits of scale comes a substantial slice of the country’s largest insurance market – NSW – in one big bite.

The sale of the former GIO business will also free up AMP to focus on its global funds management business.

But with the HIH debacle fresh in his memory, Financial Services and Regulation Minister Joe Hockey is taking a very cautious approach to the purchase. Mr Hockey, who has the power to veto the deal, has ordered APRA to check it out.

AMP will get $999 million and Suncorp Metway securities worth an additional $405 million. It will fund the deal through a $1.25 billion capital raising, which includes $250 million shares which will give AMP a 5% stake in the company. An additional $550 million will be placed with fund managers, $200 million in hybrid equity and $250 million in subordinated debt. AMP will also receive 15.2 million Suncorp options which are exercisable in three to five years at $16.38.

The timing of the move is a good one for Suncorp, with the insurance cycle continuing to trend upwards.

It has also secured the right to be AMP’s exclusive distributor of general insurance products. AMP CEO Paul Batchelor indicated several months ago that while general insurance products are important to the company’s distribution strategies, the actual manufacturer of the policies would be less important.

AMP also sold its British general insurance operations to Churchill for $213 million and is still negotiating the sale of its NZ operations.

Mr Batchelor’s sale strategy has been generally praised by analysts, but the $1.25 billion purchase price has been compared with the $3 billion AMP paid for GIO in 1998. The Australian Financial Review suggested the GIO acquisition ended up costing AMP more than $3.6 billion in lost revenue and general distractions from the main game.

For employees, the consequences of being sold to Suncorp Metway are positive. Because the AMP general operations are much larger than the present Suncorp set-up, most of the 3,000 AMP/GIO employees are expected to keep their jobs.

One aspect that will have to be sorted out is AMP’s 50% stake in joint ventures with RACQ and RAA in SA. Mr Jones said on Friday that Suncorp may spin off the joint ventures – which were originally negotiated by GIO – to other insurers. That may be an ideal opening for NRMA, which has been eyeing the motoring organisation “cousins” in Queensland and SA for several years. They could easily fit into the joint NRMA/RACV company, Insurance Manufacturers of Australia.