August 22, 2019 / 11:17 PM / a month ago

Australia's CBA reworks life insurance unit sale deal terms with AIA

(Reuters) - Commonwealth Bank of Australia (CBA.AX) has accepted A$150 million ($101 million) less for the sale of its life-insurance business to Hong-Kong based AIA Group (1299.HK), as it signed revised agreements to fast-track the long-delayed divestment.

FILE PHOTO: An CBA bank logo is pictured in Sydney, Australia May 3, 2018. REUTERS/Edgar Su/File Photo

Australia's top lender struck a deal to sell the unit to AIA Group for A$3.8 billion in September 2017, in what was the biggest Asian buyout of an Australian financial firm at that time. That deal also included its New Zealand operations, which were already transferred in 2018. [bit.ly/2ZanHNr]

However, prolonged regulatory approval processes have led to an extended period of uncertainty for CommInsure Life, the Australian life-insurance unit, the lender said in a statement on Friday.

CBA had initially expected final completion of the full divestment in 2018.

The revised agreements are aimed at speeding up the divestment, with CBA expected to pocket a total of A$2.38 billion in proceeds, while AIA gets an option to extend a previously announced distribution joint venture in Australia and New Zealand to 25 years from 20 years.

“Today’s announcement provides CommInsure Life’s policyholders and staff with more clarity about the future of the business and progresses the simplification of CBA’s portfolio of businesses,” CBA Chief Executive Officer Matt Comyn said.

CBA said the revised deal would allow it to transfer its interest in CommInsure Life to AIA excluding its 37.5% stake in BoCommLife, which the lender is selling to Japan’s Mitsui Sumitomo Insurance Co for 3.2 billion yuan ($451.3 million).

The sale of the Australian life insurance unit was conditional on the sale of CBA’s stake in BoCommLife, which it holds through CommInsure.

The new agreements also come after a government-mandated inquiry last year revealed widespread misconduct in the insurance industry, such as spying on customers, misleading marketing practices, and fee overcharging.

The inquiry recommended sweeping changes including reforms on commission payments, changes in the way automatic insurance is charged to pension accounts, and bans on cold-calling customers to sell them insurance.

“These are one of the areas where they have had huge issues in the cross-selling part of it,” said Mathan Somasundaram, a Blue Ocean Equities market portfolio strategist.

“The lender is flagging that it is selling all these problematic pieces so that they can reduce the risk of further regulation.”

The completion of the deal, expected to happen by the end of fiscal 2020, would also aid the lender in meeting higher capital requirements set by the prudential regulator.

“As a shareholder it releases more cash, capital requirements look better and dividends look safer and they look less riskier,” Somasundaram said.

CBA was slapped with an additional A$1 billion capital requirement last year after it was accused of thousands of breaches of anti-money laundering protocols.

Reporting by Aditya Soni in Bengaluru; editing by Richard Pullin and Stephen Coates

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