JAKARTA (TheInsiderStories) – Australia’s Commonwealth Bank (CB) today announced the sale of its 80 percent interest in its Indonesian life insurance business, PT Commonwealth Life (CL), to Hong Kong-based FWD Group for US$426 million, with potential additional payments payable over time, subject to the performance of the distribution partnership.
Under the terms of the partnership, its Indonesian banking business, PT Bank Commonwealth (BC) will continue to earn income on the distribution of life insurance products. As part of the Transaction, BC will enter into a 15-year life insurance distribution partnership with FWD.
The company said, the total amount for the transaction represents a multiple of 3.0x CL’s book value at first half (1H) 2018 and 16.6x CL’s normalised net profit after tax for the twelve months to end of June. Upon completion, the transaction is expected to result in a post-tax gain on sale of approximately $140 million and an increase of 7 basis points to CBA’s Common Equity Tier 1 ratio as at 1H 2018.
The Transaction aligns with CBA’s strategy to focus on its core banking businesses and to create a simpler and better bank and is expected to complete in the 1H of 2019, subject to regulatory approvals in Indonesia.
The company said, today’s announcement follows the completion of the divestment of Sovereign in New Zealand to AIA Group in July 2018. The announced divestments of CommInsure Life in Australia to AIA Group and CB’s 37.5 percent interest in BoComm Life in China to Japan’s Mitsui Sumitomo Insurance are still pending regulatory approvals. These divestments are now expected to complete in the 1H 2019.
BC’s President Director and Executive General Manager Indonesia, Lauren Sulistiawati, said in a written statement: “FWD is a leading pan-Asian insurance group and we are excited to work together to further enhance our life insurance product offerings and service to our customers.”
Established in 1992, CL has a presence in 20 major cities in Indonesia and serves over 400,000 individual and group policyholders. While, FWD Group is the pan-Asian insurance business of investment group, Pacific Century Group and was established in 2013 through the acquisition of ING Groep N.V.’s Hong Kong and Thailand business.
FWD has grown rapidly across Asia, including Indonesia, and is an innovative and dynamic insurer across its key markets.
Currently, the government has enacted regulation a maximum threshold for foreign ownership of an Indonesian insurance company of 80 percent. Insurance companies that are currently subject to foreign ownership in excess of the 80 percent limit will be exempt from this requirement, provided that their respective existing foreign ownership percentages will amount to the maximum individual cap on foreign ownership of each of the relevant insurers.
If insurance companies fail to comply with the rules, they will be subject to administrative sanctions by Financial Service Agency (FSA) ranging from written warnings to business license revocation.
In practice, since the Asian Financial Crisis of 1998-1999, a number of foreign insurers had assumed ownership positions in domestic insurers in excess of the 80 percent cap under the 1992 Law, as where emergency capital was required to keep their investee companies afloat, they had diluted local partners who had been unable to fund their equity proportions.
This non-compliance with the 1992 law was tolerated and had continued until very recently, with the FSA turning a blind eye to dilutive capital increases by foreign insurers in order to support capital requirements.