(Bloomberg) – Zurich Insurance Group AG, Switzerland's largest insurer, agreed to acquire Australia & New Zealand Banking Group Ltd.'s life-insurance businesses for A$2.85 billion ($2.2 billion).
The deal for OnePath Life will be earnings-accretive from the beginning and increase the firm's return on equity, Zurich Insurance said in a statement. The acquisition is expected to close by the end of next year and will make the firm the largest retail life insurer in Australia with a market share of about 19%.
Zurich Insurance has been restructuring under Italian Chief Executive Officer Mario Greco who has been selling assets, cutting jobs and lowering the insurer's risk profile after losses in its North American auto business prompted the company to abandon a high-profile takeover bid for RSA Insurance Group Plc. The Zurich-based firm bought Australian travel insurer Cover-More Group Ltd. earlier this year.
Focus on capital-light protection
"ANZ's portfolio of non-traditional and profitable retail products fits well with Zurich's strategy to focus on capital-light protection and unit-linked business," Greco said in the statement. "Furthermore, it strengthens the group's position in Asia Pacific, while building on our strong bank distribution capabilities."
ANZ Bank is the latest of Australia's biggest lenders to exit the life insurance industry, which has been hit by rising claims, anemic investment returns and policy cancellations. National Australia Bank Ltd. sold 80% of its life unit to Nippon Life Insurance Co. for A$2.4 billion in 2015, and Commonwealth Bank of Australia agreed to sell its life insurance arm to AIA Group Ltd. for A$3.8 billion in September.
The Zurich deal also comes after ANZ Bank sold its wealth advisory business to Melbourne-based IOOF Holdings Ltd. in October. The combined transactions are expected to boost ANZ's common equity Tier 1 capital by around 80 basis points, the lender said in a statement Tuesday.
The latest sale means ANZ Bank is now "more than halfway through" its simplification plan, Chief Executive Officer Shayne Elliott said in a company statement. "We'll be a slightly smaller company as a result, so we'll have less capital out there and we'll have slightly less earnings," he said. "But in terms of returns, the returns on that capital really don't change the whole lot."
ANZ Bank's shares rose as much as 0.9% in early Sydney trading. The company was 0.6% higher at A$28.67 at 10:13 a.m.
Zurich will use a mixture of cash and senior debt to fund the purchase, which will have a "modest" effect on the company's capital position, according to its statement. OnePath Life had net earned premiums of $1.1 billion in the 12 months through September and a net profit after tax of $142 million. The strong cash flows will support future dividend growth, according to the statement.
20-year distribution agreement with ANZ
As part of the deal, Zurich will enter into a 20-year distribution agreement with ANZ in Australia to distribute life-insurance products through bank channels. That gives the insurer access to six million potential customers.
"In addition, the existing portfolio provides a highly cash-generative business that will add to our cash remittances, increase our business operating profit after tax return on equity (BOPAT ROE) target by 50 basis points and support dividend growth beyond that implied by our existing plan," Greco said in a statement.
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