Commonwealth Bank of Australia has sold its trans-Tasman life insurance businesses CommInsure Life and Sovereign Assurance for A$3.8 billion to global insurer AIA Group.
The sale is a quick turnaround for Australia's biggest lender, which touted the exit of its life insurance businesses last month after the units attracted potential buyers. The deal, which is subject to various regulatory approvals in Australia and New Zealand, includes a 20-year partnership where CBA and its Kiwi subsidiary ASB Bank will continue to sell those products.
The price is at a price-to-earnings multiple of 16.9 times, and CBA said it will book a A$300 million loss on the sale with a A$1.4b writedown in goodwill. The deal will improve the bank's capital ratio, releasing about A$3b of common equity tier 1 capital. Australia's banking regulator has imposed tougher prudential requirements on lenders, prompting them to beef up their balance sheets in recent years.
"The transaction will deliver important strategic benefits to Commonwealth Bank, contributing the group's vision to secure and enhance the financial well-being of customers whilst creating value for shareholders," the lender said in a statement. "Under the terms of the partnership, Commonwealth Bank will continue to earn income on the distribution of life and health insurance products."
The transaction is expected to be completed in calendar 2018, and make AIA the biggest life insurer in both Australia and New Zealand. Customers will keep the current benefits of their existing policies, the lender said.
CBA will continue to make and distribute general insurance products under the CommInsure brand.
The deal excludes CBA's life insurance joint venture in China, where it holds a 37.5 per cent stake in BoComm Life Insurance Co. That equity interest will be transferred out of CommInsure Life, and the bank said it's looking at a "range of strategic alternatives" for that investment.
CBA shares last traded on the ASX at A$76.29 and have declined 7.4 per cent so far this year.