Suncorp will sell its 50% stake in RACT Insurance for $83.75 million to mutual motoring body RACT Group, which owns the other half of the Tasmanian joint venture, the insurer announced today.

An investor update from the insurer says the divestment is part an ongoing effort to simply its business portfolio. The simplification program has seen the business dispose of non-core assets such as its life arm to TAL and most recently in May, its wealth unit to LGIASuper.

Under the terms of the binding sale agreement, Suncorp says it will receive the $83.75 million in upfront cash proceeds and that it expects to book a pre-tax profit of $65-70 million from the transaction in this financial year.

The deal is expected to complete later this year, subject to regulatory approvals including from the Australian Prudential Regulation Authority.

“Suncorp and RACT have enjoyed a successful relationship in Tasmania since 2007,” Suncorp Group CEO Steve Johnston said “We have mutually agreed that now is the right time for RACT to take full control of the insurance entity.

“This is consistent with our focus on simplifying the Group and driving improvement in our core insurance and banking businesses.”

He says Tasmania remains an important market for Suncorp and that the business is focused on growing there through its AAMI brand and specialised insurance units, Shannons and Apia.

RACT Insurance CEO Trent Sayers says with full ownership of the business, management is looking forward to a new operating model that will lay the foundation for future growth.

“It’s the right time for RACT to make that further investment in what’s been a very high performing business,” Mr Sayers told insuranceNEWS.com.au today.

“We’ve been close to double-digit premium growth in the market and we continue to see optimism in terms of growth opportunities in the business.

“At the moment RACT Insurance is a standalone end-to-end insurance company in its own right and we will be looking to work out how we reintegrate that back into the broader operating model of the RACT Group.”

Suncorp also said today it has successfully placed its reinsurance program for the current financial year to June 2022.

It says the structure of the main catastrophe program remains unchanged from the last financial year, with an upper limit of $6.5 billion covering the home, motor and commercial property portfolios across Australia and New Zealand.

The Group’s maximum event retention remains at $250 million. In addition to the main catastrophe program, the structure of the Group’s drop-down aggregate protection and Aggregate Excess of Loss (AXL) treaties are also unchanged.

Suncorp says the natural hazard allowance for this financial year is expected to be $980 million and that the cost of the reinsurance program and natural hazard allowance are in-line with the assumptions embedded within the Group’s three–year plan.

Additionally, the business has completed all analysis of its comprehensive review into pay and leave entitlements in Australia. The review was initiated in November 2019 over possible errors in payments of overtime, shift penalties and public loadings.

In May last year, Suncorp self-reported the review to the Fair Work Ombudsman and engaged Deloitte to assist with the matter.

Suncorp says remediation payments to any current and former employees identified by the review will commence from this month, a process that is expected to take a number of months to complete.

It says the $60 million provision that was reported in its 2019/20 results will cover all project and remediation costs.