Australia & New Zealand Banking Group Ltd.'s planned sale of its New Zealand-based life insurance business is credit positive because it will lift the group's level 2 common equity Tier 1 ratio by approximately 15 basis points, Moody's said June 4.
Under the deal, which was announced May 30, ANZ Bank New Zealand Ltd. agreed to sell its OnePath Life (NZ) Ltd. unit to U.S.-based Cigna Corp. for NZ$700 million. The deal represents a slight premium to embedded value to the bank and is expected to generate a gain on sale of around NZ$50 million. The transaction includes a 20-year strategic alliance between ANZ and Cigna, under which Cigna will manufacture and manage insurance products for ANZ bank customers.
Subject to regulatory approval, the deal is expected to be completed in the fiscal year ending September 2019.
The rating agency said the sale comes as capital requirements for Australian banks are increasing. The Australian Prudential Regulation Authority announced in July 2017 that it is increasing the minimum capital requirements for ANZ and three other major Australian banks to 9.5% by 2021 from 8% currently. While the higher capital requirements will take effect in early 2021, the regulator said it expected banks to exceed the new requirement by Jan. 1, 2020, at the latest.
Moody's noted that ANZ's sale of its Australian and New Zealand life insurance business, as well as the sale of its pensions and investments and aligned dealer groups businesses, will boost its common equity Tier 1 ratio by about 95 basis points and will materially raise its common equity Tier 1 ratio well above the future minimum requirement of 9.5%.
In addition, Moody's expects that ANZ will continue to return surplus capital to shareholders in line with its on-market share buyback worth A$1.5 billion.
As of June 1, US$1 was equivalent to NZ$1.43.
