Selling off 80 per cent of its life insurance business may provide NAB with an early-mover advantage over other banks, ahead of the Life Insurance Framework (LIF) and Financial System Inquiry (FSI) reforms.
“This will be the first bank that does it. They had a real focus on insurance for a while, and that sort of got lost.
“I think MLC itself has been a bit starved of money over the last couple of years, and so its super has suffered, its insurance has suffered,” says Alastair Adamson, consultant – head of insurance market insights, Rice Warner.
NAB announced on Wednesday its plan for a $2.4 billion deal with Japanese insurance company Nippon Life, which would acquire an 80 per cent stake in the bank’s life insurance operations.
Under the terms of the deal, which will be finalised in the second half of 2016, subject to regulatory and other approvals, NAB’s MLC life insurance products will be created, run and administered inside the partnership.
“We’ll be doing constant business planning to make sure that the product set is continuing to meet the future needs of our clients and advisers,” says Greg Miller, executive general manager wealth advice, NAB.
Focusing on distribution
The move marks something of a shift away from retail life product development for the bank, enabling it to leverage the core expertise of Nippon Life in this area and focus more on its distribution channels.
“There’s nothing but positives out of this for NAB. I’m not sure insurance has really fitted into their return on capital.
“To see a proper insurance company running the insurance business, I think it’ll be really positive for them,” Adamson says.
In announcing the bank’s full year results earlier this week, NAB’s chief executive officer Andrew Thorburn indicated he was happy with the wealth division’s improving results, but said its returns on capital investment in some areas were too low. The deal is expected to address some of these concerns.
Of the $2.4 billion in capital it frees up, $300 million is earmarked for NAB’s wealth business. “This investment will deliver an even better customer and adviser experience through digital innovation, product and platform enhancements, improved customer engagement and experience and simplification.
“This is the largest amount of investment we have exclusively set aside for wealth product development, platform efficiency, customer experience and simplification over the last 15 years,” Miller says.
Regulatory reforms
While he says that pending life insurance advice regulatory reforms did not influence NAB’s decision to proceed with the deal, Adamson believes this changing environment would have played a part.
Under the LIF reforms, which are due to take effect from July 2016, restrictive life insurance approved product lists must be expanded to include around three-quarters of the available insurance products.
“All the banks are going to have to go to that at some point anyway, so maybe NAB are being smart and saying ‘we’re going to lose market share anyway from our aligned dealerships [so are pre-empting that].
“There are all these advice issues that NAB, CBA, Macquarie et cetera have had, so to be able to say ‘well, we have an open [approved product list] and our planners can advise on any of these insurance products’ will help with that [scrutiny],” Adamson says.
While other Australian banks continue to run their own retail risk operations, he points to TAL’s deal with another Japanese insurer, Dai-ichi Life, as another recent example that has paid off. “It has been a very positive move for TAL. Dai-ichi is much less focused on return on equity than many companies are. They’re more than happy with the performance.”
