Commonwealth Bank of Australia [ASX:CBA] has announced the sale of its 37.5% equity interest in BoCommLife, with the CBA share price trading at $83.14, up 1.63%, at the time of writing.
What made CBA sell?
The banks are continuing their mass exodus from the insurance sector.
Nippon Life took over 80% of National Australia Bank Ltd’s [ASX:NAB] life insurance business.
Macquarie offloaded its insurance business to Zurich, while CBA sold CommInsure to AIA.
Now Commonwealth Bank is pulling back further by selling its 37.5% stake in BoCommLife to Japan-based Mitsui Sumitomo Insurance for $668 million.
In 2019, the Banking Royal Commission took a dim view of some of the practices that it uncovered.
As such, changes were to be made that would impact the commissions on life insurance products.
As of January 2020, upfront commissions paid to advisers have been phased down to a maximum of 60% of the premium paid on the policy to the insurer and 20% for ongoing commissions.
Depending on the outcome of a review set to be done by ASIC in 2022, those commissions could fall back to zero.
Commissioner Kenneth Hayne said at the time:
‘Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero.’
As such, a lot of Australian banks are offloading their insurance arms.
On the announcement of the sale of BoCommLife, CBA CEO Matt Comyn said:
‘This transaction represents a further step in simplifying and focusing our portfolio and follows the announcement of the proposed sale of the Group’s life insurance businesses in Australia and New Zealand to AIA Group.’
The CBA share price
Commonwealth Bank took a 41.31% hit to its share price in February as the COVID-19 pandemic gripped the country.
Since the low in March, the company has bounced back, gaining 55.54%.
At the time of writing, the CBA share price is sitting below the resistance level of $83.92.
If the move up continues, then the level of $87.71 may become the focus. It’s worth noting that the move up is taking place on decreasing volume.
Should the price fall back, then the level of $76.88 may be enough to halt the fall.
CBA is the largest bank in the country. Although 2020 hasn’t been an easy year (to say the least), it has proven its ability to overcome challenges and bounce back strong.
In the short term, the current run-up looks to be out of steam, so it may be best to put CBA on a watch list and watch for the next rise.
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