Commonwealth Bank on Monday said it would sell its Australian general insurance business to South Africa’s biggest privately-owned insurer Hollard Group, marking the completion of a multi-year divestment strategy following a series of scandals.
Australia’s largest lender, which over the past few years has offloaded its life insurance and funds management businesses, will sell CommInsure General Insurance, for an upfront cash consideration of A$625 million ($468 million), plus deferred payments, it said.
The transaction is the latest in a series of sales of underperforming insurance assets by the country’s Big Four banks, as they re-focus on local core operations after a series of scandals ramped up regulatory scrutiny on the sector.
CBA’s life insurance arm was slapped with rare criminal charges in 2019 for unsolicited sales calls, after it was sold to Hong Kong-based AIA Group in 2017.
The lender said it expected the sale would deliver a post-tax gain of A$90 million and further increase its common equity tier 1 capital by about A$400 million, which according to analysts ups the odds that CBA will return extra cash to investors.
Investors already expect the bank to announce higher dividends and an off-market buyback of about A$5 billion at its August results.
CBA also expects to get a pre-completion dividend.
“We expect this is the last of the major transactions that CBA is likely to undertake to deliver on this simplification,” Goldman Sachs analysts said in a note.
CBA will continue to earn income on the distribution of home and motor insurance products through a new 15-year alliance with Hollard for the distribution of home and motor vehicle insurance products to the bank’s retail customers in Australia.
The deal is expected to be completed by mid-2022 and comes just months after smaller peer Westpac sold its general insurance arm to German insurer Allianz for A$725 million.
Shares in CBA, Australia’s most expensive banking stock, were down 4.5% on Monday, underperforming the broader financial sector that was also 3.4% lower, as hawkish comments by the Federal Reserve last week hurt stocks across Asia.
Source: Reuters.com