CBA offloads home and motor insurance business

The Commonwealth Bank is selling its home and motor insurance business in a deal that could ultimately be worth $1 billion, further adding to the bank’s surplus capital amid predictions of a share buyback.

CBA on Monday announced the sale to privately-owned Hollard Group, which will pay the bank $625 million upfront, and also make unspecified deferred payments if the business hits certain milestones.

CBA sources say the deal will be worth more than worth more than $1b when you include deferred payments they will receive.Credit:Michael Clayton-Jones

Hollard is also set to invest in the business over a 15-year strategic alliance, under which CBA will sell the policies through its vast branch network and its banking app. The bank, which has dumped non-core businesses including wealth management, life insurance, superannuation and financial advice in recent years, will receive a cut for distributing the insurance policies to customers.

Sources within the bank said the deal was likely to be worth about $1 billion over time.

CBA chief executive Matt Comyn, who has increasingly focused CBA on retail and business banking in his stint leading the company, said CBA and Hollard would co-invest in insurance products to meet the changing needs of customers.

“The transaction is consistent with CBA’s strategy to deliver differentiated customer propositions and the best integrated digital experiences,” Mr Comyn said.

CBA said the sale would result in a $400 million increase in its common equity tier 1 capital, and it would deliver the bank a post-tax gain of $90 million.

CBA was already holding more than $10 billion in surplus capital in May, and some analysts have predicted it will launch a multi-billion share buyback at its full year results in August.

CBA shares were down 4.1 per cent to $99.40 by mid-morning, as other major bank shares were more than 2 per cent lower.

Evans and Partners analyst Matthew Wilson said banks’ management teams had always struggled with the climatic volatility that comes with insurance, so it made sense to shift the underwriting risk to a specialist.

The bank would continue to pocket some of the profit from distributing the product, he noted, as it was often sold alongside car and home loans.

Morningstar analyst Nathan Zaia backed some sort of capital management from the bank, but he was unsure of the timing of any such move, noting the board had been “very cautious” during COVID-19.

“I think retail shareholders are getting pretty excited about the prospect of an off-market buyback or higher dividends,” Mr Zaia said.

CBA’s group executive for retail banking services Angus Sullivan said the strategic alliance with Hollard would bring together CBA’s mobile banking app and branch network and Hollard’s insurance-focused technology.

Hollard Holding Australia managing director Richard Enthoven highlighted the “synergies” between CBA and Hollard, which he said went beyond strategy.

“We have a shared vision for the future of home insurance, the potential for better customer outcomes, and an exciting role for digital innovation along our entire value chain,” Mr Enthoven said.

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