Westpac sells general insurance unit to Allianz for US$535mil

SYDNEY: Australia’s Westpac Banking Corp will sell its general insurance arm to German insurer Allianz for A$725mil (US$535mil), it said yesterday, further trimming its portfolio to beef up capital and focus on local business.

The transaction is the latest in a series of sales of underperforming insurance assets by the country’s Big Four banks, as lenders re-focus on local core operations, after a series of scandals ramped up regulatory scrutiny on the sector.

For Allianz, the deal – which includes a 20-year distribution agreement to sell motor, travel, home contents and other insurance products to Westpac customers –will boost its presence in Australia’s general insurance market, where it is among the top-five players.

The price is equivalent to about eight to 12 times its earnings according to Credit Suisse.

Further, it would mean a small post-tax gain in fiscal 2021 from the sale, which Westpac says will boost its core capital by around 0.12%.

“The sale is entirely consistent with Westpac’s strategy of reviewing and now exiting non-core activities, ” Goldman Sachs analysts said in a note.

Westpac shares were 0.55% lower following the announcement, broadly in line with the financial sector which was 0.65% lower.

Westpac’s capital was diluted this year by large Covid-19 provisions for potential bad debts and a record fine in September for enabling millions of improper payments, including to people exploiting children.

The lender had to raise capital to fund some shareholder payouts and is still seeking buyers for its other non-core businesses, including its wealth management platform and banking units in Fiji and Papua New Guinea.

The sale also comes a day after the banking regulator forced Westpac to increase the amount of cash it keeps on hand for liquidity purposes until an independent review of its risk management is finished.

In a separate statement, Allianz said the companies would seek regulatory approval to then “welcome Westpac’s general insurance employees after the transaction has been finalised, ” which is expected in the second half of 2021.

Founded in 1817, Westpac is Australia’s first bank and first company. It provides consumer, business and institutional banking services along with wealth management, wealth administration and insurance services to customers across numerous regions. — Reuters