SYDNEY • AIA Group agreed to buy Commonwealth Bank of Australia's (CBA) life insurance business for A$3.8 billion (S$4.08 billion) in its most ambitious foray beyond the Hong Kong-based company's core markets in Asia.
AIA will team up with Commonwealth Bank for 20 years under the deal, to provide life insurance products to customers in Australia and New Zealand, Sydney-based CBA said in a statement yesterday.
The deal would make AIA the biggest life insurer in Australia and New Zealand, giving it access to 13 million customers of the largest retail bank in Australia and second-largest retail bank in New Zealand.
The number is equal to more than 40 per cent of the combined population of the two countries, the insurer said.
For AIA, the deal represents the largest on an absolute basis, bigger than its 2012 purchase of ING Group's Malaysian insurance business, according to data compiled by Bloomberg.
On a net cash basis, AIA said it expects to pay US$1.5 billion (S$2.03 billion), less than the US$1.7 billion it paid for the Malaysian business.
The deal is the first announced under chief executive officer Ng Keng Hooi and represents a move beyond Hong Kong, China and South-east Asia into markets where earnings growth has been volatile in recent years.
Number of years AIA is teaming up with Commonwealth Bank to provide life insurance products.
In a note published on research service Smartkarma, Mr Thomas Monaco, a researcher, cited the CBA business' flat premiums and declining insurance operations.
"In addition to this deal not making much financial sense, AIA is now stretching beyond its core markets of East Asia and heading into two markets that have limited growth potential," Mr Monaco wrote. "This deal is further evidence that the days of the thrifty former CEO, Mark Tucker, are well behind AIA."
AIA shares were little changed at HK$60.10 in Hong Kong trading yesterday, with year-to-date gains of more than 37 per cent.
Flush with cash, AIA has faced investor and analyst pressure to put its surplus capital to use.
In 2013, it agreed on a 15-year deal to sell insurance in 11 regional markets through Citibank branches.
The purchase will "significantly expand AIA's access to potential new customers and enable us to engage them in a new way", AIA's Mr Ng said, pointing to the bank's extensive branch network.
AIA said in a separate statement its final net cash outflow would be US$1.5 billion, after taking into account the proceeds from reinsurance agreements and the free surplus within CommInsure Life and Sovereign.