CBA contemplates CommInsure sale

Commonwealth Bank confirmed in its annual results presentation that third parties are discussing an acquisition of the bank's life insurance business.

Describing CommInsure as a "strong business with scale, expertise, competitive products and access to attractive distribution channels," CBA said the outcome of these discussions is currently uncertain.

The discussions could result in a total divestment of the business, but "a full range of alternatives" would also be considered, including retaining CommInsure or implementing reinsurance arrangements. CBA's New Zealand-based life and health insurance arm, Sovereign, was also highlighted for a potential sale.

Although CommInsure was cleared of allegations of medical misconduct and systemic claims handling issues by ASIC and Deloitte in March, CBA's announcement nonetheless follows a troubled year for the insurer.

In August 2016, CareSuper opted to award its life insurance mandate to MetLife after more than a decade with CBA's life insurance arm; NGS Super followed suit in September by transitioning to TAL, as did TWUSUPER in December. In May this year, the largest non-CBA super fund with a CommInsure mandate, HESTA, appointed AIA Australia as its new insurance partner.

Examining CBA's full-year results, CommInsure's insurance income dropped 13% to $438 million over the past 12 months, which the bank said was driven by higher claims. Cash net profit for the division also dropped by 26% to $202 million.

More broadly, though, CBA's results were positive: statutory net profit after tax increased by 7.6% to $9.9 billion, corresponding to a slight increase on earnings per share to $5.74. This was mostly driven by retail banking ($4.4 billion) followed by business and private banking ($1.6 billion) and institutional banking and markets ($1.3 billion).

CBA chief executive Ian Narev commented: "We will continue to strengthen our balance sheet to ensure that we can support our customers through a variety of economic scenarios. We will also maintain our focus on our long-term sources of competitive advantage in our customer base and in technology, while accelerating the focus on productivity that we need to remain competitive."

Despite the positive outlook, the results presentation was marred somewhat by the recent news that AUSTRAC has initiated Federal Court proceedings against the bank, alleging that CBA contravened the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

CBA acknowledged these proceedings in its results, with chair Catherine Livingstone saying CBA's board "recognises the high degree of public interest in this matter, and that this issue impacts the reputation not only of the bank but of the industry more broadly."

Accordingly, she added, CBA has issued an update on its current discussions with AUSTRAC. So far, this has led to several actions, including the immediate fix of a coding error in intelligent deposit machine (IDM) threshold transaction reporting (TTR); changes in senior leadership relevant to the oversight of financial crimes compliance, along with over 50 new staff specialising in this area; a $40 million investment in new financial crime technology; and the upgrade of fraud monitoring technology.

As reported yesterday, CBA also responded to AUSTRAC's allegations by reducing Narev's and other group executives' short-term variable remuneration outcomes to zero for the financial year ended 30 June 2017, and reduced fees for non-executive directors by 20% for the coming financial year.

Read more: CommInsureAUSTRACCommonwealth BankTALAIA AustraliaASICCareSuperCatherine LivingstoneDeloitteIan NarevMetLifeNGS SuperTWUSUPER
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