Hollard calls on Macquarie Capital for help buying CBA general insurance unit

Macquarie Capital was tapped by Hollard for the CBA deal. Picture: AAP

Hollard Australia has tapped Macquarie Capital for its acquisition of Commonwealth Bank’s general insurance unit, which will see the bank reap at least $1 billion over time.

Hollard, which is owned by Hollard Investments in the Netherlands, fought off competition from Allianz, IAG, QBE and earlier Suncorp to win the Goldman Sachs-advised competition.

The Australian’s DataRoom first revealed Hollard’s involvement in the contest on May 26.

Hollard is also a shareholder in the Australian insurance business Greenstone, which in the past has been earmarked for an initial public offering, and some question whether there could be a stronger tie-up between the company and the newly purchased CBA business.

One theory is that Hollard could look to list Greenstone, which is close to Goldman Sachs and counts Woolworths as a major client, with the CBA general insurance operations.

Paul Fahey, who is the new Australian boss of Hollard Insurance, used to run CBA’s general insurance arm so is familiar with the operation.

Hollard, which has Japan’s Tokio Marine as a sizable shareholder of its South African arm, has a reputation for paying top dollar when it comes to acquisitions and some had earlier suspected it would be a tough competitor to beat.

Earlier, IAG was considered the frontrunner for the contest, but some market analysts believe that once its fierce competitor Suncorp, advised by UBS, dropped out of the auction earlier on, it may have been unprepared to pay up for the unit.

IAG also would have faced heavy scrutiny from the Australian Competition and Consumer Commission.

In the Australian general insurance market, IAG, which was being advised by Bank of America in the auction, has a 21.7 per cent market share, ahead of Suncorp with 12.4 per cent, Allianz with 7.8 per cent and QBE with 7.3 per cent, according to IBISWorld.

As part of the Hollard deal, CBA will establish a 15-year alliance under which CBA’s retail customers will be sold home and car insurance products produced by Hollard.

The transaction includes a $625m upfront payment, with deferred payments made once certain business milestones are reached, and the deal is understood to value the unit at more than $1bn.

The agreement also involves additional investment from Hollard throughout the 15-year partnership, with CBA to continue to earn revenue from the sale of insurance products.

The completion of the transaction is subject to APRA approval and is expected to occur in the middle of the 2022 calendar year.

CBA has opted to sell its insurance operations as it faces greater regulatory scrutiny over selling its own financial products to customers.

The distribution agreement reached with Hollard enables its customers to still receive insurance products while having enough of an arms’ length involvement to appease regulators.

CBA sold its insurance businesses CommInsure Life and Sovereign to AIA for $3.8bn in 2018, along with TymeDigital and Count Financial.

It sold the bulk of Colonial First State Global Asset Management wealth business to Mitsubishi UFJ for $4.2bn.

Other banks have also narrowed their focus to core business on the back of stronger regulation.

Last year, Westpac sold its general insurance division to Allianz for $700m, but the CBA unit was always seen as a superior rival.