IAG targets Western Australia growth with A$1.35 billion RAC WA acquisition

By Ryan Hewlett

May 19 - (The Insurer) - IAG has agreed a A$1.35 billion ($870 million) deal to acquire the underwriting business of the Royal Automobile Club of Western Australia (RAC), as well as entering into a 20-year distribution agreement for RAC branded home, motor and niche insurance products.

IAG said the consideration of A$1.35 billion comprises A$400 million for 100% acquisition of RAC Insurance (RACI) and A$950 million for the distribution and brand licensing agreement.

On completion, the RACI portfolio is expected to add around A$1.5 billion to IAG’s gross written premium (GWP).

The transaction is expected to result in around A$100 million pre-tax annual synergies comprised of reinsurance, operating efficiencies and other benefits. IAG said it expects to incur customary one-off transaction costs of circa A$20 million and annual integration costs of between A$15 million and A$25 million over the next three years.

Managing director and CEO Nick Hawkins said the new alliance with RAC builds on IAG’s successful track record of partnering with leading member motoring organisations which share its purpose and values.

The deal follows a similar A$855 million transaction announced by IAG last November with RACQ in Queensland.

The two transactions are expected to add approximately A$3 billion in GWP, approximately A$2 billion in net earned premium, increase insurance profit by at least A$300 million and deliver double-digit EPS accretion on a full synergy run-rate basis.

This, in addition to the positive financial outlook on the existing franchise, results in an improved return on equity target of 15% on a ‘through the cycle’ basis.

“Our alliance with RAC will draw on our proven track record with successful motoring club partnerships and help us keep more Western Australians safe through competitive, accessible and high-value insurance products and services,” Hawkins said.

“RAC and its members will benefit from our financial stability, advanced technology platforms, global reinsurance arrangements, and customer-centric claims processes. Together, we will continue to invest in initiatives that support local communities and provide value to RAC, its members, and Western Australia.”