The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch on Thursday after the release of an update after the market close.
What did Commonwealth Bank announce?
Late on Wednesday Commonwealth Bank released an update on the divestment of its Australian life insurance business CommInsure Life to AIA Group.
According to the release, Australia's largest bank has received further proceeds of approximately $865 million for the divestment of the CommInsure Life business. This is in addition to the $740 million of proceeds that were received in the first half of FY 2020.
This brings the aggregate proceeds received to date to $1.6 billion, which will give its balance sheet a much-needed boost during these tough trading conditions.
The release explains that the proceeds result in a pro forma increase to its Common Equity Tier 1 ratio of approximately 19 basis points on an APRA basis.
The aggregate proceeds from the transaction are expected to be $2,375 million when everything is complete. The sale agreement also includes a 20-year partnership with AIA for the provision of life insurance products to customers in Australia and New Zealand.
Why is Commonwealth Bank offloading the business?
The bank has previously advised that it made the decision to offload the business after looking at other models for life insurance distribution.
The company's chief executive at the time, Ian Narev, explained: "Providing our customers with access to high quality products and services for all their financial needs is core to our vision of securing and enhancing financial wellbeing."
"We have said for some time that while distributing life insurance is a fundamental part of that strategy, we were open to different models for doing so. The combination of AIA's leading insurance capability and scale and Commonwealth Bank's broad distribution, and our complementary values and commitment to customer focus and innovation, mean that a partnership between us will create an even better experience for our customers, in a more efficient way for our shareholders."
