Bank of Queensland is the latest lender to offload is life insurance business, as lenders concentrate on their core business of retail and business banking. The Brisbane-based bank will sell its life business, St Andrew's Insurance, to listed group Freedom Insurance for $65 million, with BOQ agreeing to distribute the insurance policies for three years.
The deal, which came as BOQ delivered 4 per cent growth in first-half profit to $182 million, follows moves by National Australia Bank, Commonwealth Bank and ANZ Bank to slash their exposure to life insurance, an industry that has been dogged by weak returns.
“St Andrew’s has made a strong contribution to the BOQ Group since its acquisition in 2010, but industry and business dynamics have changed dramatically in recent years," BOQ managing director Jon Sutton said. “These changing conditions now mean St Andrew’s is a better long-term strategic fit for Freedom.”
Mr Sutton unveiled the sale as BOQ reported stronger lending growth, lower bad debt charges, and wider profit margins in its first half. Housing loans grew at an annual pace of 3 per cent - half the average pace in the industry - while business loan growth was stronger at 6 per cent a year.
Net interest margins, which compare banks' total funding costs with what they charge for loans, widened by 1 basis point to 1.97 per cent, while its charges for impaired loans slumped 19 per cent, also helping the bottom line. There were "signs of improvement" in the Queensland and Western Australian economies, which have eroded bank profits due to higher defaults caused by the end of the mining boom.
After a softer half six months ago, Mr Sutton said the bank's loan growth had improved, as it sought to target "niche" segments like medical professionals through its BOQ Specialist business. It is also eyeing stronger growth in the lucrative mortgage market through Virgin Money and by using mortgage brokers.
“The first half has traditionally been a lower asset growth period for BOQ, so we are pleased with the steady rates of growth this half compared with 1H17,” Mr Sutton said.
BOQ's common equity tier one capital ratio rose 3 basis points to 9.42 per cent, a level that Mr Sutton said gave the bank "flexibility to consider options". It will pay a fully franked dividend of 38¢ a share on May 17, after last half paying a special dividend.
Life insurance profits have been crunched in recent years, amid rising claim costs from income protection policies, and investors are pushing banks to instead deploy their capital in the more profitable retail and business banking sectors.
Banks are also facing growing regulatory scrutiny over the "vertical integration" business model - where lenders manufacture financial products such as insurance, as well as distributing them through advisers.
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