With the recent sale of CommInsure to AIA, Australia’s life insurance industry is now majority foreign-owned — a development that could create headaches for APRA.
Appearing before the Senate Standing Committees on Economics on 26 October, APRA chairman Wayne Byres said that cost pressures, limited domestic growth opportunities and an aversion to international expansion are causing the increased divestment of Australian life insurance businesses.
“Not that long ago, the Australian life insurance industry was largely Australian-owned,” Mr Byres said.
The Commonwealth Bank announced the sale of CommInsure to Hong Kong-based insurer AIA in September 2017, and ANZ is also looking to exit life insurance following the divestment of its pension and investments business earlier this month.
NAB announced the sale of 80 per cent of its life insurance business to Japanese insurer Nippon Life in October 2015.
“Recent transactions have seen [the Australian life insurance sector] become majority foreign-owned, and it is not impossible to foresee an almost fully foreign-owned [sector] within the next five years or so,” the chairman said.
From a regulatory point of view, foreign ownership of Australian life insurers comes with both benefits and disadvantages.
Mr Byres said: “The new foreign owners are typically specialist life insurers, with deep sources of capital and longer time horizons aligned to the insurance cycle. They potentially bring benefits in the shape of product innovation, product coverage and related competition.”
However, there are challenges, too, the chairman said — namely, the comparability of regulatory regimes for the parent companies and the “ability to engage with the senior executives and owners of the Australian business”.
“In raising this issue of changing ownership, I don’t want to be seen to suggest such an outcome would necessarily be problematic from a prudential perspective,” Mr Byres said. “I raise it simply as a reminder that, with so much focus on the here and now, the important trends that shape the financial system we’ll have in the future can sometimes go largely unnoticed.”
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