The Australian life insurance industry could be completely foreign-owned within five years, Mr Wayne Byres, the Chairman of APRA, told the Senate Economics Legislation Committee yesterday.
He said: “Not that long ago, the Australian life insurance industry was largely Australian-owned. Recent transactions have seen it become majority foreign-owned, and it is not impossible to foresee an almost fully foreign owned within the next five years or so. This change in ownership is partly a consequence of the decision by most of the major banks to exit the life industry, in light of the forces which are impacting returns in their own industry.
“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. To the extent there are challenges, they come from managing the comparability of regulatory regimes for the parent companies and 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 – 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.”
Mr Byres said that the Australian financial system remains fundamentally sound, but is not without its challenges. Returns have, overall, been declining in recent years. Many of the largest financial institutions face an environment in which there are significant cost pressures, domestic growth opportunities are limited, but international expansion is viewed with caution by their investors. “This has led to a focus on streamlining business models, and, in some cases, major divestments,” he said.
Examples of acquisitions in the life sector include National Australia Bank last year selling 80% of its life insurance business to Japan’s Nippon Life. In addition, Commonwealth Bank recently reached an agreement with Hong Kong-based AIA Group for the sale of its CommInsure division. ANZ Bank plans to find a buyer for its life insurance unit or float the division.