(Adds possible wealth management IPO, quotes, management departure)
Sept 21 (Reuters) - Australia's No. 1 lender Commonwealth Bank of Australia CBA.AX said it would sell its life insurance unit to Hong Kong-based AIA Group Ltd 1299.HK for A$3.8 billion ($3.05 billion) and flagged a possible spin-off its asset management unit.
Under the terms of the life insurance sale, CBA would continue to sell life insurance in Australia and New Zealand for the world's second largest life insurer for 20 years, and customers would keep their existing benefits, CBA said in a statement on Thursday.
Separately, CBA said it was considering a possible initial public offering (IPO) of its asset management business Colonial First State Global Asset Management. had said it planned to sell its life insurance unit, CommInsure, after a scandal in which it was accused of using outdated medical definitions to justify withholding payments to policyholders.
"The combination of AIA's leading insurance capability and scale and Commonwealth Bank's broad distribution ... mean that a partnership between us will create an even better experience for our customers, in a more efficient way for our shareholders," CBA Chief Executive Officer Ian Narev said in the statement.
CBA said the CommInsure sale would release about A$3 billion of Tier 1 capital, but due to the carrying value of goodwill the deal would ultimately generate a net loss of about A$300 million. Chief Executive and President Ng Keng Hooi said the purchase would "strengthen AIA's protection market leadership and expand our distribution capabilities" in Australia and New Zealand.
The Australian bank did not give further details about its wealth management review but said its wealth management chief executive, Annabel Spring, would leave the company in December.
CBA, meanwhile, is facing several lawsuits and regulatory investigations over allegations of widespread breaches of anti-money and counter terrorism financing laws leveled against the company in August. = 1.2452 Australian dollars)