IAG will acquire the insurance business of the Royal Automobile Club of Queensland for $855 million, giving the company a 25-year exclusive distribution agreement to sell home and car insurance policies in what it claims is a sound bet on the state’s growth.

Australia’s largest general insurer said on Thursday that it would buy 90 per cent of RACQ’s insurance underwriting business, with an option to acquire the rest in two years. The Australian Financial Review’s Street Talk column reported RACQ was for sale in May, and IAG was the most likely buyer.