Westpac life insurance suitors prepare to lob final bids on June 25

Final offers for Westpac’s life insurance division are due in 10 days, as the bank steps up the business end of its asset sale program.

Westpac is offloading its life insurance arm as part of a retreat to its core businesses. Picture: NCA NewsWire/Bianca De Marchi

Final bids for Westpac’s $1.78bn life insurance division are due on June 25 as the bank approaches the business end of its broad asset sale program.

Sources said Westpac’s board would make a decision on the successful suitor after final offers were lobbed on June 25 for the life unit, if they met the bank’s expectations. The division’s shareholders’ equity was $1.78bn as at September 30 last year, but calculating a valuation is more problematic given Westpac’s writedowns and declining life insurance premium income.

This month also marks the final furlong of Westpac’s sale of its auto loans arm, before it ramps up auctions for its investment platforms and superannuation businesses.

Westpac’s sale process for the life insurance division is being run by JPMorgan. But it is understood boutique adviser Luminis Partners also has a sweeping role with Westpac, helping to manage, oversee and advise on divestments from the bank’s specialist arm, where units are earmarked for sale.

A Westpac spokeswoman declined to comment on the life insurance auction.

In 2019, Westpac was in talks to sell it life insurance arm to American International Group, before negotiations collapsed.

In the running for the Westpac life business this time are said to be TAL, owned by Japan’s ­Dai-ichi, while global group Resolution Life is also around the hoop, although the firm’s level of interest is being questioned.

Complicating matters in the life insurance auction is that the other three major banks have already exited the industry, meaning Westpac is last to sell.

“It’s clear Westpac should have sold this (life insurance unit) years ago,” Velocity Trade analyst Brett Le Mesurier said.

ANZ completed its life insurance divestment to Zurich in mid-2019 and Commonwealth Bank finalised the protracted sale of its life operations in Australia and New Zealand to AIA earlier this year.

National Australia Bank got in first in 2015, when it divested an 80 per cent stake in MLC life to Japan’s Nippon in a $2.4bn transaction.

Suncorp ruled off the sale of its life insurance business to TAL in 2019, and AMP completed the ­divestment of its life insurance arm to Resolution in July last year.

Against the backdrop of tough conditions in the life insurance sector, the performance of Westpac’s arm has deteriorated as it pulled back from parts of the market and shifted the division to the specialist arm. Westpac’s total in-force life insurance premiums fell to $943m in the six months to March 31, from $1.2bn in the same period a year earlier.

The bank’s financial accounts also showed that life insurance premium income was $529m in the March half, a drop of 23 per cent on the year-earlier period.

However, policy lapse rates were improved in the latest half at a negative $67m, from $71m.

In the second half of Westpac’s 2020 financial year, the bank outlined writedowns of intangibles reflecting a reduction in goodwill in the life insurance and auto businesses and writedowns and impairments of capitalised software. Some $406m of that related to the writedown of the life unit. The bank also identified a $260m reduction in non-interest income due to liabilities on disability insurance.

Separate accounts for Westpac Life Insurance Services show the entity swung to a net loss of $178.4m for the 12 months to September 30, compared to a profit of $156.8m in the prior year.

Over the past nine months, Westpac, led by chief executive Peter King, has ruled off divestments for a number of its divisions. That includes agreeing to sell its general insurance operations to Allianz, and offloading its Pacific businesses to Kina Securities.

Those deliberations are occurring while Westpac’s board ponders whether to spin off its New Zealand operations.