Westpac Group announced today its lenders’ mortgage insurance (LMI) unit will be sold to Bermuda-based specialty lines insurer Arch Capital Group at book value, further accelerating the bank’s exit from non-core lending activities.

The sale of Westpac Lenders' Mortgage Insurance Limited, which is expected to close by the end of August, comes more than three months after Allianz acquired the lending group’s general insurance division for $725 million.

Westpac had said in May last year it was undertaking a strategic review of its non-banking businesses to decide the best way forward as it looks to focus more on its lending operations.

As part of the deal with Arch, Westpac will also enter into a 10-year exclusive supply agreement for the Bermuda-based business to provide LMI to the bank’s customers. The new supply agreement builds on the bank’s existing relationship with Arch, which has provided reinsurance services to the LMI unit since 2011.

The transaction also includes small, fixed annual payments to Westpac over the next 10 years.

Westpac says the sale price will be at book value, which will be determined at completion of the transaction. The bank will record the divestment as “a loss on sale” from separation and transaction costs in its financial results for this current financial year. This is on top of the $84 million write down in goodwill that was announced last month when Westpac provided an update for the December quarter.

“Westpac is pleased to be entering into a long-term partnership with Arch as LMI is an important product that helps the group make home ownership more accessible for more Australians,” Westpac Group Chief Executive Specialist Businesses & Group Strategy Jason Yetton said.

“The sale continues the simplification of our business and builds on our progress in becoming a simpler, stronger bank focused on consumer, business and institutional banking.”

Completion of the transaction is subject to various regulatory approvals.

An insurance analyst, who did not want to be named, says the Westpac divestment means Commonwealth Bank (CBA) is the only major lender remaining that still owns a general insurance business. CBA announced a strategic review of the business in 2018 and has yet to make a decision although many analysts believe it will be sold eventually.

“It may be only a matter of time before CBA looks to follow its peers and divests this business,” the analyst told insuranceNEWS.com.au today.

He says the move by Arch to buy the Westpac business will move the Bermuda-based insurance group “from an LMI reinsurer to a direct participant in the Australian market”.

“And time will tell if it looks to target other lenders for providing LMI,” he said, adding “it seems to be a reasonable assumption that it would look to do this”.

“We suspect the sale will not face many competition issues… as it is likely pro-competition, increasing the number of providers of LMI insurance in the Australian market from two to three.”

QBE and Genworth are the two dominant LMI providers in Australia.