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Suncorp Group Ltd (ASX:SUN) to offload Australian life insurance business and return $600m to shareholders

In morning trade the Suncorp Group Ltd (ASX: SUN) share price has drifted lower despite the insurance giant announcing the planned sale of its Australian life insurance business.

According to the release, the company has signed a share sale deed with TAL Dai-ichi Life Australia to sell its Australian life insurance business for approximately $725 million.

The sale includes a 20-year distribution agreement with TAL to offer life insurance products through Suncorp’s Australian distribution channels, including its digital channels, contact centres, and store network.

Under the terms of the alliance, Suncorp will continue to earn income on the distribution of life insurance.

The sale is subject to the satisfaction of certain conditions and regulatory approvals in Australia and Japan. It will have no impact on Suncorp’s life insurance business in New Zealand.

What will Suncorp do with the funds?

Management has stated that it plans to return the bulk of these funds to shareholders following the competition of the transaction.

After allowing for separation and transaction costs, provisions, and hybrid capital, it expects to return approximately $600 million to shareholders after the transaction completes at the end of the year.

Should you invest?

Considering the recent Australian Securities and Investment Commission (ASIC) investigation into direct life insurance sales in Australia that has rocked the Freedom Insurance Group Ltd (ASX: FIG) share price, this seems like an opportune time for Suncorp to offload the business. However, I’m not a big fan of insurance companies due to their reasonably inconsistent performances, so I won’t be investing.

Though, one broker that does think Suncorp is a buy is Goldman Sachs. This morning it reiterated its buy rating and $16.05 price target on the insurer’s shares.

Goldman isn’t bullish on all insurers, though. It rates fellow insurer Medibank Private Ltd (ASX: MPL) as a sell with a $2.70 price target.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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