APRA life data out of step with industry change

At first sight, the life insurance industry data released yesterday by the Australia Prudential Regulation Authority looks like bad news for the banks.

APRA's latest Life Office Market Report, covering the year to June, shows the share of total assets backing Australian policyholders held by bank-owned life insurance companies falling for the third year in a row. Bank-owned life company share was 37 per cent, down from 38 per cent in the year to June 2006 and 40 per cent in 2005.

These numbers are at odds with the very bullish commentaries banks have been issuing about their life company and wealth management operations (90 per cent of the business of life companies these days is superannuation).

The answer lies in the changing structure of the banks' wealth management businesses. The banks' financial planners write superannuation, ordinary investment and risk insurance business to administration platforms (wrap accounts and mastertrusts) and allocate the money to a variety of life insurers and investment managers.

During the 2006/07 year Commonwealth Bank's FirstChoice platform increased funds under administration 51 per cent from $26.2 billion to $39.5 billion. More than half of the $17.2 billion of inflow (55 per cent) went to external fund managers and 45 per cent went to investment funds owned by the bank's subsidiary Colonial First State.

During the same period the old Colonial Life funds, these days classified as legacy products, had net outflow of $4.6 billion.

The net effect of this is that the APRA data shows Commonwealth-Colonial falling five per cent over the course of the 2007 financial year.

For the record, AMP is Australia's biggest life insurer, with a 30 per cent share. National Australia Bank-MLC is second, with a 22 per cent share, ING-ANZ is third (12 per cent), Commonwealth-Colonial fourth (eight per cent), Axa fifth (seven per cent) and Westpac sixth (six per cent).

Another anomaly in the data is that ING Australia is not counted as a bank-owned life insurer because ANZ holds only 49 per cent of the company.