Why the Suncorp (ASX:SUN) share price is on the rise today

The insurance giant has announced an $85 million pay day after selling one of its businesses.

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The Suncorp Group Ltd (ASX: SUN) share price is lifting after the company announced the sale of its Tasmania general insurance business for nearly $85 million this morning.

After reaching an intraday high of $11.11 this morning, shares in the insurance giant are currently trading for $11.01 – up 0.27%. By comparison, the S&P/ASX 200 Index (ASX: XJO) is 0.42% higher at 7,295 points.

Let’s take a closer look at today’s news.

Suncorp sells out

In a statement to the ASX, Suncorp announced the sale of its 50% interest in RACT Insurance (RACTI) to its joint venture partner, the Royal Automobile Club of Tasmania Ltd (RACT).

The sale is worth $83.75 million and the RACT will be paying upfront in cash. Suncorp says the price-to-earnings ratio for the sale is approximately 18:1. Suncorp expects a pre-tax profit of $65 million to $70 million.

Subject to regulatory approval, the sale should be finalised at the end of this calendar year.

The Suncorp share price is moving today after the news.

Suncorp CEO Steve Johnson said:

Suncorp and RACT have enjoyed a successful relationship in Tasmania since 2007. 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.

Tasmania remains an important market for Suncorp Group. We are now focused on driving growth in the region through our wholly owned brands. This includes our leading national mass market brand AAMI, as well as our more specialised brands Shannons and APIA.

Other company news

Suncorp also announced its reinsurance placement for FY22 and a review of its pay and leave entitlements.

On the first matter, the upper limit it is budgeting for home, motor, and commercial claims is $6.5 billion. This is the same as FY21. Its allowance for natural disaster payments is $980 million for FY22.

Regarding pay and leave entitlements, Suncorp advised it will begin payments to employees who have not been granted their lawful pay and/or leave entitlements.

In May 2020, Suncorp self-reported this issue to the Fair Work Ombudsman and has been working to rectify it since, according to the statement.

The group expects the total cost of remediation to be about $60 million.

Suncorp share price snapshot

Over the past 12 months, the Suncorp share price has increased 23.3%.

On the first trading day of 2020 back in pre-COVID times, the Suncorp share price was $12.94.

Over the past 52 weeks, the highest share price reached has been $11.94.

Suncorp has a market capitalisation of about $14 billion.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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