Zurich Buys ANZ for $2.1B

Swiss insurer Zurich agreed to pay A$2.85 billion ($2.1 billion) for Australia and New Zealand Banking Group’s life insurance arm.

Zurich name and symbol on top of building

The purchase is considered to be Zurich’s biggest venture in Australia. This is also its third acquisition within the last two years. ANZ was also provided with the opportunity to proceed with its long-planned exit from non-core operations.

The insurer bought Macquarie’s life insurance business for an undisclosed sum in March last year. It then paid $551 million for travel insurance business Cover-More in April.

This makes Zurich into Australia’s biggest life insurer with approximately 19 percent share of the local market.

“ANZ’s portfolio of non-traditional and profitable retail products fits well with Zurich’s strategy to focus on capital-light protection and unit-linked business,” said Zurich’s chief executive Mario Greco. “Furthermore, it strengthens the group’s position in Asia-Pacific, while building on our strong bank distribution capabilities.”

This is the largest acquisition of Zurich since Greco took the reins last year.

“As ever with Zurich, the focus will be on the impact on the dividend,” stated analyst Paul De’Ath. “The potential to grow the ordinary dividend is only enhanced by this transaction. There could be scope to fund this transaction and also leave room for special dividends, should Zurich decide this is the best use of capital.”

The agreement also included Zurich having access to ANZ’s Six million customers. This will be done through a 20 year distribution agreement to sell life insurance.

Zurich’s Dividend

The decision made by Zurich should help fulfill the ambition of Switzerland’s biggest insurer of increasing its dividend.

Greco said in a statement that the deal will provide “a highly cash-generative business that will add to our cash remittances….and support dividend growth beyond that implied by our existing plan.”

Zurich is already famous as a dividend stock and it has signaled last month that it aims to boost investor payouts.

Analyst Charles Graham pointed out that Zurich’s acquisition show positive signs for expanding its life business. “The deal builds on their strength in bancassurance and is consistent with the group’s focus,” Graham said.

The deal will be increasing cash flows by approximately $225 million over the course of 2017-2019 planning period. The insurer added that the deal will be paid through existing cash and senior debt.

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