RACQ set to sell troubled insurance business to IAG

RACQ is close to selling its troubled insurance business to IAG in a deal worth an expected $500m.

RACQ is close to selling its troubled insurance business to IAG in a deal worth an expected $500m.

It is understood the Queensland motoring club had come to the conclusion that it was no longer viable to operate the insurance unit as a standalone business amid costly increasing weather events.

RACQ has shopped the business around to other potential buyers including to South African insurers Auto & General and Hollard but Sydney-based IAG has emerged as the favoured buyer. IAG already has a major stake in the RACV insurance business, giving it experience working with major motoring bodies.

It is believed that if the RACQ deal goes ahead a similar ownership model would be adopted.

“RACQ insurance is just too small to compete against the likes of Suncorp in Queensland and has been bashed about by recent weather events,” said a person with knowledge of the deal. “IAG has always had ambition to break into the Queensland market and this would give them a red carpet entree.”

RACQ insurance posted an after-tax loss of $236m this year after flooding events and the discovery of several material regulatory breaches.

RACQ announced earlier this year that it will refund half a million of its members a total of up to $220m after they did not get promised discounts on their insurance premiums.

The motoring and insurance group said that it had self-reported a regulatory breach to ASIC after finding some of the wording in its product disclosure statements “was inadequate in describing how several of our discounts were applied to premiums.”

RACQ chief executive David Carter said in August that the total refund to members was estimated to be in the range of $200-$220m, including applicable duties, taxes and interest

RACQ on Friday said it does not comment on market speculation.

“In line with the increased climate risk facing all insurers, we have and continue to take active steps to strengthen our balance sheet including long-term partnerships in reinsurance,” the spokesperson said. “The club has been offering insurance for the past 50 years and we remain committed to continuing to do this for our members and to grow our market share.” IAG declined to comment.

RACQ chair Elizabeth Jameson stepped down from her $414,000 position at the motoring giant in November as the club movd to recover from the costly $220m insurance premium snafu. Ms Jameson, who had served on the board of RACQ for the past 14 years and the last two as chair, was replaced by her deputy Leona Murphy after the annual general meeting. Ms Jameson was only two years into her three-year term but denied her early departure was due to the insurance premium issue.

Originally published as RACQ set to sell troubled insurance business to IAG