Unlike the ANZ and the National Australia Bank, Suncorp Metway’s profit problems have come from its insurance business, and it only has itself to blame for that.

So stretched is Suncorp that it will have to raid its own retained profits to pay an unchanged 55 cents a year final dividend, so as to maintain an unchanged $1.07 full year dividend. That could cost around $525 million, depending on how many shares are taken in the dividend reinvestment program, instead of cash.

Suncorp’s 2009 dividend of $1.07 will mean shareholders will have had no growth in payout for three years.

A look at its update statement raises the question with at least $461 million “released” from reserves in its insurance business, and a further $75 million benefit from what it termed a “diversification benefit” across its insurance portfolio. That’s a total of $536 million, which is in the middle of the lowered range for 2008 profit of $525 million to $550 million.

Insurance companies make these sorts of releases and claims all the time, but the releases do raise questions about their appropriateness at a time of rising claims and rising costs in the building and car industry (and falling values for cars). These reserves are released gradually over a period of quarters, not at once.

Suncorp took $241 million from the reserves release in the financial year and has now decided to lower its insurance sufficiency margin from 94% to 90% because of what it claims is a stabilisation in claims valuations. This means the company reckons it won’t be surprised by bigger insurance claims and has reduced the overall amount of money it needs to hold to meet them (it now has to find roughly 10% of all claims). That can be covered from re-insurance or earnings.

It couldn’t avoided the spate of bad storms and floods in NSW, Queensland, Melbourne and Tasmania over the past 14 months, nor could it avoided the impact of the credit crunch, but the board and management of the company took a decision in 2006-07 which effectively concentrated the group’s risks in insurance when it paid $7.9 billion for the Promina insurance group.

Suncorp clearly paid too much for Promina and further exposed itself to the vagaries of the insurance industry.

Suncorp shares were around $16.80 when it completed the Promina buy early last year and despite claims synergies of more than $300 million, the losses from the bad weather in Queensland, NSW and New Zealand over the past 14 months has been more than enough to shatter the company’s profit and loss account.

They closed at $11.53 on Friday after the shares plunged more than 16% last week (and around 19% at one stage on Friday) when it revealed a halving in 2008 profit to between $525 million and $550 million from the 1.01 billion of 2007. Suncorp also claimed a so-called “diversification benefit” across the portfolio of $75 million.

Suncorp has sought more reinsurance cover to protect itself in the coming year. That will cost more, even though there’s a lot of rate cutting in this sector and the loss in the General Insurance Shareholders Funds, a portfolio of around $2.8 billion, will be around $235 million for the year to 30 June 2008.

Investment analysts were mixed. Goldman Sachs JBWere were clearly disappointed, and cut their target price, Credit Suisse has the stock down as an outperform, but UBS cut Suncorp to a sell ahead of more detailed information with the complete result later this month.