Bank of Cyprus plans break-up of insurance division

* Romania bank sell-off may follow Australia *

With 200 mln euros more needed to be raised by next month in order to meet EU rules on safe liquidity margins, Bank of Cyprus Group is seriously considering whether to dispose of part or all of its insurance operations.
The Financial Mirror believes that the Group is exploring the possibility of spinning off its Eurolife life insurance division and the General Insurance division, both of which contributed some 16 mln euros in first quarter profits this year, down 5% from the same quarter last year.
Profits from insurance in Cyprus dropped 3% in the first quarter to 14 mln euros, while in Greece the division lost 16%, dropping from 3 mln euros to 2 mln.
Though the 2011 total contribution to profits amounted to 61 mln euros, it is the synergies between retail banking and insurance that generates greater revenues for the Group.
Insurance resellers have been concerned by the rumours of a possible selloff and that the Group had not been forthcoming on the matter so far. One expert even cited the Group’s extraordinary campaign to promote motor insurance during the past month, saying that the low profit margin motor sector is considered “accommodation business”, to enhance the sale of other insurance or banking products to existing clients.
However, stringent liquidity requirements imposed on the insurance sector under Solvency II rules may have been the reason why the Group is now considering breaking up its insurance division from banking.
It already announced that it is exploring “prospective strategic cooperation in the insurance sector” similar to successful plans implemented by other international banking groups.
“These measures will help strengthen the Group’s capital, considering the regulatory requirements by the European Banking Authority and the Basel III (liquidity requirements),” the bank said in an announcement.
Meanwhile, following its sales last year of the Bank of Cyprus Australia subsidiary for 80 mln euros, the Group may also be considering selling off its Romanian subsidiary, possibly to Middle Eastern clients who want to enter the East European banking market.
Group profits in the “other” areas outside of Cyprus, Greece and Russia, saw a marginal drop to 4 mln euros in the first quarter of this year, with loans in the U.K. Ukraine and Romania down 2% to 1.89 bln euros and deposits up 2% to 1.44 bln euros.