The Commonwealth Bank of Australia has accepted A$150 million ($101 million) less for sale of its life insurance division to Hong-Kong based AIA Group, as it signed revised terms to speed up the long-delayed divestment.
Australia’s leading bank 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 company at the time.
Part of the deal included CBA’s Newzeland operations, which were already transferred in 2018. However, lengthy regulatory approval processes have led to an extended period of uncertainty for CommInsure Life, the Australian life-insurance division, according to a statement by the lender on Friday.
CBA had previously expected final completion of the full divestment last year.
The reworked agreements are aimed at fast-tracking the divestment, with the Australian firm expected to get a sum of A$2.38 billion in proceeds, while AIA gets an option to prolong a formerly announced distribution joint venture in Australia and New Zealand from 20 years to 25 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 redrafted deal would allow it to transfer its interest in CommInsure Life to AIA except its 37.5% ownership oin BoCommLife, which the bank is selling to Japan’s Mitsui Sumitomo Insurance Co for 3.2 billion yuan ($451.3 million).
The sale of CBA’s life-insurance unit was contingent on the sale of the lender’s stake in BoCommLife, which it holds through CommInsure.
The revised agreements also come in the wake of a government-mandated inquiry in 2018, which revealed widespread wrongdoing in the insurance industry, such as overcharging customers, misleading marketing practices, and spying on consumers.
The inquiry recommended wide-ranging changes including reforms on commission payments, adjustments in the way automatic insurance is charged to pension accounts, and prohibitions on cold-calling consumers 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 deal is expected to be complete by the end of fiscal 2020 and would help CBA meet 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 added.
The lender was slapped with an extra A$1 billion capital requirement in 2018 following accusations of thousands of violations of anti-money laundering protocols.