Prospectus

About The SUNCORP~METWAY Group continuedinvestments. On a year by year basis, net premiumincome grew by 9.8 percent, reflecting good growth inhome and contents, motor and compulsory third party.Competitive pressure constrained commercial insurancegrowth. Comparing the underwriting result on a fullyear basis shows a loss of $90 million compared to a lossof $133.1 million last year. The improved result is both asign of improved performance over a number ofproducts and the discount rate applied to outstandingclaims reducing by a lesser amount than last year.Consequently, the loss ratio improved from 97.8 percentto 91.3 percent. The expense ratio also improved by 7.7percent, to 22.3 percent.While underwriting performance improved in theyear, investment returns - both the Group’s and market’sgenerally - were below those of 1996/97.Life and Superannuation achieved substantialincreases in sales of risk, superannuation and investmentproducts, including unit trusts. While sales grewsignificantly, costs were maintained at prior year levels.This enabled the contribution to profit from lifeinsurance activities to increase by 7.9 percent on anannualised basis to approximately $23 million.Transformation ProgrammeSince the merger a number of performanceimprovements have been made, including eliminatingduplicated functions and using the purchasing power ofthe larger company.In October 1997 the Group launched theTransformation Programme, inviting staff from all partsof the Group to nominate ideas for furtherimprovements. The aim was to improve efficiency whiledelivering competitive products and quality service.Over 16,000 ideas were suggested and then evaluatedfor business risk, customer impact and practicality. Atotal of 1450 ideas were ultimately selected.If all remaining selected ideas are fully implemented,SUNCORP~METWAY has estimated their future fullpotential for improvement to be approximately$100 million per annum. Cost savings are expected toaccount for approximately 75 percent, reduced claimsexpense for 13 percent and revenue improvements forthe balance. Non-recurring implementation costs areexpected to be $60 million.Implementation of the Transformation Programmeideas began in April 1998 and will continue on aquarter-by-quarter schedule through 1998 and 1999and is expected to be completed by December 1999.It is important to understand how theTransformation Programme improvements will improvethe Group’s profits, and how they will not. It would beerroneous to assume that all improvements, if realised,will automatically flow through to the pre-tax profit. Asbusiness conditions change, some improvements may berequired to offset adverse effects of the changes. Forexample, if competition squeezes profit margins, some ofthe improvement may be required just to offset thesqueeze and maintain current profitability. In addition,some of the savings will be re-invested in growthopportunities where the earnings improvement may takea year or two to exceed the original investment.The implementation of the ideas makes theTransformation Programme a major plank in the strategyto grow earnings. The aim of management and theBoard is to strike the right balance between re-investingsavings or taking them directly to profit to give thehighest value to shareholders over the long term.The focus of the Transformation Programme hasbeen on how to do things more efficiently and better,not a target reduction in jobs per se. While theimprovements will reduce the size of the Group’s workforce, natural attrition, re-investment projects and naturalgrowth will help keep redundancies to a minimum.One Brand ProjectThe One Brand project is well under way and willtake the Group from separate brands, products, branchesPAGE12