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After Commonwealth Bank (CBA) flagged the potential divestment of its general insurance unit, analysts have tipped the big domestic insurers could be buyers, with CBA potentially raking in $1bn.
The possible industry exit came as the banking giant announced that it was planning an $8bn demerger of its scandal-plagued wealth management assets, as CEO Matt Comyn narrows CBA's focus down to its core loans business in Australia and New Zealand.
In a statement, CBA, the eighth largest player in the general insurance market on PwC Australia's numbers, said it “intends to explore the opportunity to further enhance its product and service offering to customers through a potential sale and partnership with a specialist insurance provider" as part of the strategic review of its general insurance business, The Australian Financial Review reported.
Brett Le Mesurier, a senior banking and insurance analyst at Shaw and Partners, said the CBA unit could be worth about $1bn, while Morningstar senior analyst David Ellis placed its value at $1.2bn.
In the six months to December, CBA's in-force general insurance premium was worth $801m, up from $768m the previous year. Latest accounts revealed, however, decreased general insurance income due to higher weather-related claims. For the half-year to December, CBA said its general insurance income dropped 24% to $82m compared with the same time in the prior year.
Le Mesurier said there was "no need" for CBA to own a general insurance business, as it “doesn't fit with banking." Meanwhile, analysts at Macquarie said "given CBA's current strategy of focusing on core banking activities, we ultimately expect the divestment of the insurance business."
September last year, CBA sold its life insurance business to pan-Asian insurer AIA Group for $3.8bn, but said at that time that it was keeping its general insurance unit.
"Inevitably there's been a lot of speculation over the last 12 months since we announced the divestment of our life insurance business, so I think for a lot of people, they appreciate the clarity and the certainty of the future," Comyn told AFR.
Mesurier said "the usual suspects would line up for a look” including local-listed companies.
IAG would be a likely interested party, with a strategic partnership being 10% accretive, analysts at Credit Suisse said.
Street Talk revealed in January that CBA was mulling the divestment or outsourcing of its general insurance operations and that a number of global suitors were circling, including US giant AIG, the report said.
