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Insurance Australia Group (ASX: IAG) is acquiring the RAC Insurance business from The Royal Automobile Club of Western Australia (RAC) in a deal worth $1.35 billion.
Under the terms of the deal, IAG is paying $400 million for control of RAC Insurance and $950 million for an exclusive 20-year distribution and brand licensing agreement as part of a strategic alliance with the RAC to provide general insurance products and services for RAC members and Western Australians.
RAC has 1.3 million members across Western Australia and the exclusive agreement will give IAG access to a network distributing RAC-branded home, motor and niche insurance products.
Once the deal is completed, the RAC Insurance portfolio is expected to add $1.5 billion to IAG’s gross written premium which stood at $8.4 billion at the end of December last year.
RAC group CEO Rob Slocombe says the partnership will strengthen the value being delivered to members.
“IAG brings national scale, global reinsurance capability and industry-leading technology to support RAC members, along with a deep understanding of member focused organisations,” says Slocombe.
“The partnership will contribute to our organisation’s purpose, vision and mission of being the driving force for a better Western Australia, providing a safer, sustainable and connected future.
“The partnership will support RAC to deliver for our members, employees, and all Western Australians through continued access to innovative insurance products and services provided locally under the RAC brand, to safeguard their future for years to come.”
IAG’s CEO Nick Hawkins says the alliance builds on his group’s “successful track record of partnering with leading member motoring organisations which share its purpose and values”.
“RAC is a highly trusted institution with a quality insurance business and strong member relationships. This partnership lays a solid foundation for continued commitment to Western Australia, the nation’s top performing economy,” says Hawkins.
"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.
“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.”
IAG plans to fund the acquisition from existing surplus capital and debt with the deal expected to be earnings-per-share (EPS) accretive in the first full year of ownership.
The company expects “mid-single-digit EPS accretive on a full synergy run-rate basis”, adding that the deal is consistent with its “through the cycle” 15 per cent insurance margin target. The acquisition also contributes to the group's upgraded return on equity target of 15 per cent.
While the acquisition remains subject to regulatory approvals, it is expected to be completed in the first half of 2026.
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