Sovereign for sale but who will buy?

A sale of Sovereign could be good news for customers and advisers, one industry commentator says.

Thursday, August 10th 2017, 12:00PM

by Susan Edmunds

It was revealed yesterday that Commonwealth Bank of Australia is pondering the possible sale of its life insurance businesses in New Zealand and Australia.

Russell Hutchinson, of Chatswood Consulting, said New Zealand had a number of Australian bank-owned insurance companies in the market.

Those banks had been questioning the ownership of their wealth businesses, he said, and that often included insurance.

“There have been well-publicised advice risk issues in Australia... generally they have been about the wealth businesses but some have been about insurance. Other times it’s about could we use this money better – the capital requirements of the bank rather than the performance of the individual unit.”

He said the future of a significant number of insurance companies was up in the air. ANZ is also working through a process which could lead to the eventual sale of OnePath in this country.

Sales were generally good for customers, Hutchinson said. “You get a seller with concerns about a business unit they may have issues and not want to invest but the buyer is usually motivated, has a plan and has ideas how they might do things better.”

But he said the sale of Sovereign would be a “big deal” and it would require a buyer with significant resources.

Former AIA boss David Whyte, who has experience on both sides of the Tasman, said while there would be waiting buyers in Australia, the options in New Zealand were not so obvious.

“With the banks heading in the opposite direction, and other domestic life companies too small to be presenting a credible offer, it's hard to avoid a couple of conclusions - namely, any sale won't happen in the immediate future, and the buyer - if any - will be an overseas entity.”

He said he had been approached over the past year by Asian consulting firms wanting information on the New Zealand life insurance market.

Insurance commentator Michael Naylor said, for the sake of consumers, it needed to be sold to a buyer that was not part of an existing insurer.

"Under corporate shareholders Sovereign has become non-innovative and staid. A dynamic new owner could change that. As per my arguments about the way IT will disrupt the insurance industry, incumbent insurers will need owners prepared to invest time and money into transforming them. Life insurance, though, is in less danger of this than other sectors."

He said the concept of bancassurance seemed to be dying."The main advantage cited by bancassurance advocates of owning an insurer to a bank is that insurance profits are not correlated to banking profits. Therefore combined profit volatility drops. CBA in their statement mention declining profits and make no mention of volatility aspects."

Tags: ANZ banks David Whyte OnePath Russell Hutchinson Sovereign