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The owner of NRMA Insurance is making a splash in Queensland as Insurance Australia Group (ASX: IAG) enters a 25-year exclusive strategic alliance with RACQ at a cost of $855 million to acquire its insurance underwriting business.
If approved by the competition watchdog, the deal will allow IAG to provide RACQ general insurance products and services for RACQ members, in a move that is expected to boost its gross written premiums by $1.3 billion.
IAG will also have the option to acquire the remaining 10 per cent in two years on consistent terms.
The $855 million consideration comprises a $333 million upfront payment to enter the 25-year distribution agreement, and a $522 million payment for the shares, all funded by surplus capital. The buyer expects the transaction will be earnings per share (EPS) accretive in the first full year of ownership.
IAG asserts there will be no change to its existing insurance business and brands, or RACQ’s brand, as a result of the alliance.
IAG managing director and CEO Nick Hawkins says the new alliance with RACQ builds on IAG’s ability to provide leading insurance products to Queenslanders.
“IAG has a well-established presence in Queensland through our trusted insurance brands, and we are excited to now help protect and serve RACQ’s members," Hawkins says.
“The transaction is a true partnership between IAG and RACQ. It builds on our proven track record of working collaboratively with leading member motoring organisations that share our values.
“RACQ will maintain brand and customer relationships, while leveraging IAG’s scale and financial strength, best-in-class technology for claims, policies and pricing, customer orientated claims experience and underwriting expertise."
RACQ chief executive officer David Carter says the association is pleased to partner with IAG to help RACQ's 1.7 million members "live and move safely, securely and sustainably into the future".
"IAG has made a major commitment to Queensland and RACQ and brings a deep understanding of member-focused organisations. I am delighted to announce the beginning of our long-term strategic partnership today," Carter says.
"The partnership with IAG contributes to our goal of building a truly resilient state, leaving no Queenslander behind.
"And we will invest together to ensure RACQ members, employees and all Queenslanders continue to have access to leading insurance products serviced locally, to keep them safe in the long term."
IAG CEO of retail insurance Australia, Julie Batch, looks forward to "welcoming all RACQ people and members into this exciting new partnership".
Synergies, predominantly by adopting IAG's reinsurance strategy for the RACQ portfolio, are expected to exceed $50 million annually.
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