(The author is a Reuters Breakingviews columnist. The opinions...

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Jun Yang HONG KONG, Dec 12 (Reuters Breakingviews) - - Banks Down Under would be better off uninsured. Australia and New Zealand Banking Group (ANZ) wants to sell its $3.3 billion life insurance and wealth management unit. Rival National Australia Bank (NAB) has already exited insurance, and the country's other two big banks would benefit from following suit.

As it stands, the lenders are major insurers. ANZ and Commonwealth Bank of Australia (CBA) rank fifth and sixth in the life protection market, with more than 10 percent market share each. Westpac (WBC) is right behind them. Premium income is equivalent to about 5 percent of interest income at ANZ, and nearly 9 percent at CBA.

Yet these earnings are unpredictable – in a bad year, claims can wipe out much of premium income. In Australia, new competition is hurting profitability, while compliance costs are rising because of tougher rules on treating customers fairly. The return on the Australian life insurance sector as a whole is now just above the cost of equity.

Meanwhile, low interest rates are hurting bank earnings. That makes it harder for them to meet stricter bank capital rules while also maintaining dividends, the sector's key attraction for investors. Disposals can help square this circle. If ANZ just sells the life insurance part of its wealth unit, at its book value of about A$2.7 billion ($2 billion), the bank's common equity Tier 1 capital ratio would climb 55 basis points, according to Morgan Stanley. This ratio was 9.6 percent at end-September.

There has been plenty of interest from foreign companies, particularly Japanese insurers desperate for overseas growth. NAB sold 80 percent of its life insurance business to Nippon Life Insurance for A$2.4 billion. Dai-ichi Life Holdings <8750.T> bought Australia's top life insurer, TAL, in 2011. And Reuters says a firm from Tokyo has shown interest in ANZ's wealth business. That means CBA and Westpac probably wouldn't have trouble finding buyers for their insurance arms, if they put them up for sale.

Distribution partnerships with insurers could generate hassle-free fee income. So the banks can keep a toehold in the market anyway.

On Twitter http//twitter.com/JYang_in_HK

CONTEXT NEWS - Australia and New Zealand Banking Group's life insurance and wealth management unit has attracted interest from Japan’s Meiji Yasuda and Hong Kong-based AIA Group, Reuters reported on Nov. 18, citing people familiar with the situation.

- ANZ Chief Executive Shayne Elliott has indicated that the company wants to sell the assets for at least A$4.5 billion ($3.4 billion), Reuters said.

- National Australia Bank in October completed the sale of 80 percent of its life insurance business to Nippon Life Insurance for A$2.4 billion.

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ANZ's sale of insurance unit attracts Meiji Yasuda, AIA 

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