CBA (ASX:CBA) share price on watch after insurance business sale

Selling its insurance arm, the bank’s share price could look interesting when trading resumes.

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The Commonwealth Bank of Australia (ASX: CBA) share price will be one to watch when trading resumes this morning. Australia’s largest retail bank comes into focus after announcing the sale of its general insurance division to Hollard Group.

At close of trade Friday, CBA shares were trading at $103.69 – down 2.1%. The S&P/ASX 200 Index (ASX: XJO) ended the trading day 0.13% higher.

Let’s take a closer look at today’s news.

CBA share price in focus

In a statement to the ASX, Commonwealth Bank confirmed it would be selling its Australian general insurance business to underwriter Hollard Group. CommInsure General Insurance currently has around 800,000 policies on its books.

Hollard Group’s proprietary insurance brands in Australia include Real Insurance among others. It is also the underwriter for many retail insurance products such as those offered by Woolworths Group Ltd (ASX: WOW) and Medibank Private Ltd (ASX: MPL).

CommBank did not disclose the full amount of the transaction – only that $625 million will be paid in upfront considerations, with the rest to be paid “upon achieving certain business milestones.” The deferred amount was not specified.

Hollard Group will also enter a “15-year strategic alliance” with CommBank to sell home and motor insurance policies exclusively to the bank’s customers. CBA says it will continue to earn income from this arrangement.

Subject to APRA approval, CommBank believes the transaction should be finalised sometime in the middle of next year. As well, the company says the sale will deliver a $400 million increase in its CET1 capital, which will improve its capital ratio by “approximately 9 basis points”.

CBA also claims it should see a post-tax gain of $90 million from the sale, “which includes estimated post-tax separation and transaction costs of approximately $130m.”

It will be interesting to see whether the bank’s latest news impacts the performance of the CBA share price today.

Management commentary

Commonwealth Bank CEO Matt Comyn said:

The transaction is consistent with CBA’s strategy to deliver differentiated customer propositions and the best integrated digital experiences. CBA and Hollard will coinvest in innovative, market-leading products and services that anticipate and meet the changing needs of our customers.

Hollard Australia managing director Richard Enthoven added:

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.

CBA share price snapshot

Over the past 12 months, the CBA share price has increased by almost 51%. Last week, the bank reached an all-time high of $106.57, before slightly retreating. CBA shares cracked $100 per unit for the first time at the end of last month.

Commonwealth Bank has a market capitalisation of around $184 billion.

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