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Asset Management / Treasury & Capital Markets
Zurich to acquire ANZ’s life insurance businesses in Australia
Zurich Insurance Group to acquire ANZ's life insurance business, OnePath Life, for A$2.85 billion (US$2.14 billion)
The Asset 12 Dec 2017

ZURICH Insurance Group on December 11 announced that it has entered into an agreement to acquire 100% of ANZ’s life insurance businesses, OnePath Life, in Australia for A$2.85 billion (US$2.14 billion). Both parties expect the transaction, which is subject to regulatory approval, to be completed by the end of 2018.

The acquisition will make Zurich the leading retail life insurer in Australia and reinforces its strategy of focusing on capital-light protection and unit-linked business, expanding bancassurance capabilities and reducing volatility. The deal includes long-term distribution arrangements with ANZ.

The transaction price comprises A$1 billion of upfront reinsurance commissions, expected to be paid subject to regulatory approval in May 2018, with the remaining balance paid on completion.

“ANZ’s portfolio of non-traditional and profitable retail products fits well with Zurich’s strategy to focus on capital-light protection and unit-linked business,” says Zurich group CEO Mario Greco. “Furthermore, it strengthens the group’s position in Asia-Pacific, while building on our strong bank distribution capabilities.”

He adds: “The existing portfolio provides a highly cash-generative business that will add to our cash remittances, increase our business operating profit after tax return on equity (BOPAT ROE) target by 50bp and support dividend growth beyond that implied by our existing plan.”

The acquisition is expected to contribute to the group’s profitability from day one, generating strong cash flows which will support future dividend growth. The transaction will also increase the proportion of stable life protection-based earnings, reducing overall group earnings volatility and increasing the proportion of life earnings remitted as cash back to the group.

In view of these earnings benefits, Zurich expects to raise its current BOPAT ROE target by 50bp by 2019. The transaction is also expected to increase the level of overall cash remittances over the 2017-2019 planning period by A$300 million.

As part of the transaction, Zurich will enter into a 20-year distribution agreement with ANZ in Australia to distribute life insurance products through bank channels. Under this agreement, Zurich will have access to ANZ’s six million customers which are served through the bank’s more than 680 branches and over 2,300 ATMs, as well as digital distribution channels.

As a result of the transaction, Zurich will have about 19% share of the Australian retail life insurance market, positioning it as the market’s largest retail life insurer. It will also have around 6% of the group life market. The agreement complements Zurich’s existing independent financial adviser (IFA) and bank distribution channels in Australia.

Zurich’s CEO for Asia-Pacific Jack Howell says the company has earmarked the Asia-Pacific region to be a major engine of growth in distribution and service capabilities, building on its recent acquisitions of Macquarie’s retail life insurance business and the Cover-More Group. “Importantly, we are acquiring a profitable business with loyal customers and a track record of strong, stable cash flows,” he points out

On a pro-forma basis, the operations to be acquired reported net earned premiums for the 12 months ended September 30 2017 of US$1.1 billion and a net profit after tax of US$142 million. The acquisition is expected to be funded through a mixture of Zurich’s internal cash resources and senior debt, and is expected to reduce Zurich’s capital position only modestly. The group’s overall capital position will continue to be very strong.

Credit Suisse is the exclusive financial adviser to Zurich in the transaction.

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