Moody's said the A$2.85 billion sale of Australia & New Zealand Banking Group Ltd.'s life insurance unit, OnePath Life Ltd., to Zurich Insurance Group AG is credit positive for both companies.
The rating agency said Dec. 14 that the move would raise ANZ's common equity Tier 1 ratio by approximately 65 basis points, comprising 25 basis points from the reinsurance transaction worth A$1 billion and 40 basis points from the sale of the life insurance business worth A$1.85 billion. The bank's sale of its pensions and investments and aligned dealer groups businesses to IOOF Holdings Ltd. for A$975 million would also add approximately 15 basis points to its common equity Tier 1 ratio, which brings the total increase to 80 basis points.
ANZ's sale of its businesses would result in a common equity Tier 1 ratio of 12.1%, which is significantly above Australia's future regulatory requirement of 9.5%, the agency noted.
In addition, the bank is estimated to see an accounting loss on sale of about A$520 million, with additional separation and transaction costs of A$75 million after tax. While the sale would reduce the bank's full-year 2017 cash profit after tax by A$143 million, the agency said ANZ's earnings profile remains strong, thanks to the stable earnings of its Australia and New Zealand divisions.
Moody's separately said the transaction would add about US$170 million to Zurich Insurance's net profit before goodwill and intangibles amortization, or a year-over-year increase of about 5%, enabling the insurer to raise its target of operating profit after tax on equity by 50 basis points to 12.5%. The insurer's return on capital on a pro forma basis would also edge up by approximately 20 basis points to about 6.4%.
Further, the deal would improve Zurich Insurance's geographic and business diversification, as well as its business profile. The insurer is set to become the leading life insurer in Australia, with a market share of 19% in the individual life segment, up from the current 7%.