The Commonwealth Bank of Australia (ASX: CBA) share price is on watch today after announcing the sale of its CommInsure General Insurance business.
CBA sells CommInsure General Insurance
The big ASX bank is selling its CommInsure General Insurance business to Hollard Group for $625 million upfront.
CommInsure General Insurance is a provider of home & contents and motor vehicle insurance products, with over 800,000 policies protecting CBA customers.
There are also deferred payments which are payable after achieving certain business milestones.
The two businesses are also going to establish an exclusive 15-year strategic alliance with Hollard for the distribution of home and motor vehicle insurance products to CBA’s retail customers in Australia.
Part of the deal includes additional investment from Hollard throughout the 15-year strategic alliance to drive innovation and enhance the customer experience. CBA will also continue earn income on the distribution of home and motor insurance products.
A pre-completion dividend is also expected to be received by CBA.
How will this affect the balance sheet?
After the deal is completed, the transaction is expected to deliver an increase of approximately $400 million of common equity tier 1 (CET1) capital, resulting in a pro forma (company calculated) uplift of approximately 9 basis points as at 31 March 2021.
This sale is estimated to result in a post-tax gain on sale of approximately $90 million, which includes estimated post-tax separation and transaction costs of approximately $130 million.
Management comments
Richard Enthoven, Managing Director for Hollard Holdings Australia said:
“We are incredibly excited by today’s announcement. The synergies between CBA and Hollard extend well beyond strategy and market segmentation. We have a shared vision for the future of home insurance, the potential for better customer outcomes, and an exciting role for digital innovation along our entire value chain.”
Summary thoughts about CBA and the share price
The CBA share price has performed strongly over the last couple of months. It’s now above $100. CBA continues to improve its balance sheet. I wonder how much divesting it’s going to do? There is a growing reliance on its lending profits.
CBA is valued at almost 20 times the estimated earnings for the 2022 financial year according to CommSec. That’s a bit too high for me to want to buy shares today.
