(Recasts, adds CEO and analyst comments, life insurance...

(Recasts, adds CEO and analyst comments, life insurance valuation)

Australian insurer Suncorp Group Ltd (SUN) said on Thursday it will consider the sale of its A$2 billion ($1.5 billion) life insurance division, becoming the latest firm to look at reducing its exposure to the troubled market.

The Brisbane-based company annunced a review of "strategic alternatives" for the life insurance unit as it reported a 5 percent rise in half-yearly cash profit, below forecasts for about 8 percent growth, according to two analysts.

Australia's life insurers have faced rising claims rates and more policy cancellations since Australian media in March last year revealed the use of discredited methods to refuse legitimate claims for insurance payouts.

Suncorp, Australia's second-largest general insurer by market share, reported a cash profit of A$584 million for the six months ended Dec. 31, up from A$556 million a year earlier, after insurance premium income growth of 4.3 percent.

It forecast margins would grow in the second half and raised its fully-franked interim dividend by 10 percent to A$0.33 a share.

Chief Executive Michael Cameron said options for the life insurance business included reinsurance deals, partnerships and the sale of all or part of the business.

"It is too early to give detailed guidance on what might be the benefits of the alternatives," he told analysts.

Cameron said Suncorp would remain a distributor of life insurance under any scenario as part of its strategy of being a one-stop financial shop for customers.

Suncorp's life insurance unit has an embedded value of A$2 billion. National Australia Bank (NAB) last year sold 80 percent of its life insurance division to Japan's Nippon Life for A$2.4 billion, which represented an estimated 1.4 times embedded value.

"The review is a good thing and it is timely," said CLSA analyst Jan van der Schalk. "Over time why wouldn't (Suncorp) be looking to be merely the owner of that platform and outsourcing the manufacturing to someone else?"

Suncorp shares dipped 0.3 percent in early afternoon trade, in line with the broader market (xjo).

Australia and New Zealand Banking Group (ANZ) is also considering the sale of its life insurance and wealth division, while AMP Ltd (AMP) said on Thursday it would seek a second reinsurance deal covering its life insurance book.

Suncorp said earnings from its life insurance division, which has around a 5 percent share of the Australian market, fell 52 percent to A$11 million in the first half.

Australia is still an attractive market for foreign life insurers because the population and economy are growing more quickly than in most other developed markets and the regulatory regime is more stable than in emerging markets, analysts say. ($1 = 1.3110 Australian dollars)