Westpac exits life insurance; offloads unit to TAL for $900m

Westpac has boosted prospects of a chunky capital return after offloading its life unit to Japan’s Dai-ichi Life subsidiary TAL for $900m.

Westpac is selling its life insurance unit to TAL for $900m. Picture: NCA NewsWire/Christian Gilles

Westpac’s prospects of returning billions in capital to investors received a boost as it joined peers in a retreat from life insurance, selling its unit to Japan’s Dai-ichi Life subsidiary TAL for $900m.

The deal, which includes unspecified ongoing payments to Westpac, will see the bank take a $1.3bn post-tax accounting loss on the sale and will add about 12 basis points to its level two common equity tier one capital ratio.

Monday’s announcement also said the lender would enter an exclusive 20-year strategic alliance with TAL to provide life insurance products to Westpac’s Australian customers.

TAL muscled aside Resolution Life, which acquired AMP’s life insurance business, to clinch the transaction and was said to have secured exclusive negotiations with Westpac in July.

TAL ruled off the purchase of Suncorp’s life insurance business two years ago and pending deal completion for the Westpac division will account for about a third of Australia’s $16.7bn market for total in-force premiums.

Westpac said it would book a $300m loss – largely reflecting transaction and separation costs – on the life sale in its 2021 results. The balance of the loss will be recognised on completion of the sale, expected in the second half of calendar 2022 if regulators wave the deal through.

The $900m sale price to TAL represented a multiple of 0.96 times 2020 embedded value.

Westpac shares closed almost 1 per cent higher at $25.36 on Monday, as investors cheered the exit from the challenged and capital-intensive life insurance sector.

“The separation costs look high but it‘s a bad idea cauterised,” Velocity Trade analyst Brett Le Mesurier said.

“I expect they‘ll (Westpac) do some sort of structured capital return which will enable the billions of dollars of franking credits to be distributed to shareholders.”

A fund manager said: “There’s the prospect of a larger capital return. But they might also be cautious with these lockdowns.”

Westpac’s executive for specialist businesses and strategy Jason Yetton said the sale was another step in the bank’s simplification drive.

“Life insurance is an important product for many Australians and this sale provides certainty for customers and new opportunities for our people with TAL,” he added.

“TAL already offers insurance products to more than 4.5 million Australians and is well placed to help Westpac’s customers.” TAL chief executive Brett Clark said scale was increasingly important in the life insurance sector.

“We would have the view that scale’s important in the Australian life insurance market. It’s a sophisticated financial services market, it’s mature and we think that to make necessary investments to support our customers and our partners that scale is important,” he said.

“You can also see parallels more broadly in Australia around this strategic theme of scale when you look at the banking sector, general insurance, and even superannuation.”

Mr Clark also said the agreed Westpac life insurance purchase was inked at a “similar multiple” to the Suncorp life deal, and included the requisite indemnities and warranties for any historic customer compensation the bank may need to pay.

“Between Westpac and TAL we’ve been able to reach an appropriate set of agreements, because the important thing to note about this transaction is it’s not just an acquisition we are actually setting up a relationship for the next 20 years.”

The agreed sale by Westpac comes after final bids were lobbed with the bank and its advisers in late June.

Westpac is the last of the major banks to ditch its life insurance arm.

National Australia Bank was the first cab off the rank, divesting an 80 per cent stake in MLC Life to Japan’s Nippon in a $2.4bn deal, followed by ANZ, which sold its life insurance unit to Zurich in mid-2019. Commonwealth Bank has also completed the sale of its Australian and New Zealand life insurance operations to AIA earlier this year.

Mr Clark said TAL would welcome Westpac life insurance staff, but would not rule out future cost synergies when the businesses were integrated.

“There’s actually a lot of work and planning that needs to take place now between TAL and Westpac on the whole separation and integration,” he said.

“All of those details are still yet to come, we haven’t reached absolutely firm views on all of that, that’s still got to be worked through with TAL and with Westpac over this next period of time.”

Mr Clark said the purchase confirmed the Japanese insurer’s commitment to Australia’s life market, which was “a key component” of Dai-ichi’s global strategy.

Westpac will retain responsibility for “certain pre-completion matters and provide protection to TAL through a combination of provisions”, the bank said.

Westpac’s sale is part of a broader simplification path it has been on for the past 12 months.

Other non-core operations it has divested include its New ­Zealand life insurance unit, which it recently sold to Fidelity for $NZ400m ($382m), and its auto loans business, which it handed to Cerberus Capital Management.