The ANZ bank completed the simplification of its wealth division with the $2.85 billion sale of its life insurance business to the local arm of global financial services company Zurich.
The deal, which includes $1 billion of upfront reinsurance commission from Zurich, won’t have an impact on the bank’s profit. On the balance sheet, the asset is replaced with cash.
“We’ll be a slightly smaller company as a result, so we’ll have less capital out there and we’ll have slightly less earnings,” says the ANZ’s CEO Shayne Elliott. “But in terms of returns, the returns on that capital really don’t change the whole lot.”
A decision won’t be made on what to do with the capital until later next year. However, extra dividends and buybacks are on the table.
“Depending on where we are at the time, we’ll have to have a look at how much capital we need to run the bank; how much capital we need to satisfy our regulatory responsibilities,” says Elliott.
“And if we have excess then there are options to return it. Generally those things would be through either dividends, although our ability there would be constrained by franking or potentially through buybacks of some description.”
The bank’s 300 ANZ financial planners will stay.
The latest deal follows the sale of ANZ’s OnePath pensions and investments and aligned dealer groups business to wealth manager IOOF in October for $975 million.
The bank has now raised $3.83 billion by getting out of the insurance business. However, it will continue to offer life insurance products to its customers.
Zurich will become Australia’s largest retail life insurer as measured by in-force premiums with more than 1.5 million customers. IOOF will have a top-five superannuation platform with the second largest aligned financial advice network.
The bank says the latest sale is another step in ANZ’s strategy to create a bank focused on retail and business banking in Australia and New Zealand, and Institutional Banking across the region.
Elliott, who in January 2016 replaced former CEO Mike Smith who was big on building an Asia business, has pulled the bank away from retail banking in the region to focus on institutional customers.
He says it now feels like the back of the simplification process has been broken.
“We’re more than halfway through, we have simplified by selling some partnership stakes in Asia,” he says.
“We’ve sold quite a number of businesses in fact I think at last count up to about 17 disposals some big and obviously a lot quite small.
“So I think we’ve really got momentum on that. We’ve reduced the number of products that are available in our branches which is again another important part of simplification.”
ANZ and Zurich will enter into a 20–year strategic alliance to offer life insurance solutions through ANZ’s distribution channels.
“Partnering with Zurich is the best outcome for ANZ customers given it will become Australia’s leading life insurer with the scale to invest in product and digital innovation,” says ANZ Group Executive Wealth Australia Alexis George.
“This transaction will complete the simplification of ANZ’s Australian wealth business, however we will continue to work hard to minimise any disruption to our customers during the transition.”
ANZ expects to complete the Zurich deal in late 2018.
The bank in October posted a 18% rise in annual cash profit to $6.94 billion as the bank restructures its business to be more agile, bringing down costs for the first time since 1999.