As Commonwealth Bank of Australia has promised a strategic review of its general insurance unit, rumors are that it will look to sell the division. What company would provide the best fit?
The general insurance unit of Commonwealth Bank of Australia’s (CBA) may fetch as much as A$1 billion ($734 million) if the company comes to the conclusion that a divestment is the best option, according to industry experts. A sale would allow CBA to focus on its core banking business in Australia and New Zealand, the bank said in a media statement on June 25.
The announcement that it was looking into the future of the general insurance unit came at the same time as the bank said it would get rid of the wealth management units and create an independent wealth management company – CFS Group. CBA won't retain a stake in that company after the demerger. And it will be certain to have alerted potential suitors from across the world.
Change of Heart
When CBA in September 2017 sold its life insurance division to AIA Group for A$3.8 billion, the company had made a point of saying that it was keeping its general insurance operations. That, however, was before the Sydney-based bank agreed to pay A$700 million to settle a probe into money laundering and terrorism financing charges. The settlement was made public on June 4.
In May of 2018, CBA offloaded its 37.5 percent stake in Chinese life insurer BoComm Life Insurance for $668 million to Mitsui Sumitomo Insurance. CBA is also in the final throes of a strategic review into its Indonesian life insurance business, PT Commonwealth Life.
Australian Shift of Focus
Aussie insurers and banks have been withdrawing from Asia over the past two years to focus more on their domestic market. The latest to announce such a move was Insurance Australia Group (AIG), which earlier in June said it would sell its majority-controlled businesses in Thailand, Indonesia and Vietnam to Tokio Marine for $550 million.
Inversely, Australia is proving to be a popular and attractive market for overseas insurers. The regulatory regime is more stable than in emerging markets while the economy and population are growing quicker than in most other developed markets.
Foreign Suitors
Faced with a saturated local market and a declining population, Japanese insurers have been eagerly investing overseas with Australia an important target market. Japan's Nippon Life snapped up National Australia Bank’s MLC life insurance subsidiary for $2.4 billion in 2016. That deal was quickly followed by a subsidiary of Sony Corporation, Sony Life Insurance, acquiring almost 15 percent in Clearview Wealth, an Australian llife insurer.
Three other Asian companies were in the running to buy ANZ's life insurance last year – Dai-Ichi Life, MS&AD Insurance and Meiji Yasuda Life. The were however pipped by Switzerland's Zurich Insurance, which prevailed in the bidding war by agreement to pay A$2.85 billion for the business. As global insurers continue their hunt for scale in Asia Pacific, Zurich, Allianz and pan-Asian life insurer AIA will be monitoring the CBA review closely.
