Will Wesfarmers sell its insurance division?

Reports are suggesting a sale is imminent, which could lead to a shake-up of the Australian insurance sector.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A report in the Australia Financial Review has cited a source suggesting that conglomerate Wesfarmers (ASX: WES) is in advanced talks with insurance giant Zurich Insurance Group about a sale of its insurance division.

In the financial year ending 30 June 2013, Wesfarmers reported revenues from its insurance division of just over $2 billion and earnings before interest and tax of $205 million. The 8.8% growth in revenue was helped along by strong growth in personal insurance premiums written by Coles Insurance.

Certainly compared to the revenues of the majors, Wesfarmers' insurance division is a small player. QBE Insurance's (ASX: QBE) Australian and New Zealand operations wrote nearly US$4 billion in premiums in 2012, while Insurance Australia Group (ASX: IAG) and Suncorp (ASX: SUN) both wrote approximately $7.6 billion within their respective Australian divisions in financial year 2013.

The report of a potential sale will come as a shock to many followers of Wesfarmers who had been expecting the conglomerate to increasing try to cross-sell Wesfarmers-generated insurance products to its significant customer base. However the substantial market share of its competitors perhaps makes the task of building scale too daunting for management.

At the same time, the aim of cross-selling products and services to its customer base can be done under both 'white label' products or in partnership with suppliers. Should a sale occur, Wesfarmers will likely follow in the footsteps of Woolworths (ASX: WOW), which uses third parties to underwrite the Woolworths' branded insurance products it sells. Under this model, the retailer can still make a margin without taking on the actual insurance risk. 

Foolish takeaway

Both Wesfarmers and Woolworths are actively looking for ways to expand their retailing operations, which already boast significant size and market share. Further expansion into the financial services space is seen as an exciting opportunity that will make a divestment of Wesfarmers' insurance division – should it occur – closely scrutinised by investors.

Motley Fool contributor Tim McArthur owns shares in QBE Insurance.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »