IAG snaps up RACQ insurance in $855m deal

IAG boss Nick Hawkins says the RACQ deal was a ‘true partnership’, noting it’s built on the ‘proven track record of working collaboratively with leading member motoring organisations that share our values’.

IAG CEO Nick Hawkins and RACQ CEO David Carter. Picture: Supplied

Insurance Australia Group will deploy its growing pile of cash by snapping up the insurance operation of RACQ in the first major expansion of the ASX-listed insurer in years.

The deal, expected to add $1.3bn in gross written premium to the national insurer, will see IAG buy 90 per cent of RACQ’s insurance business, with an option to snap up the rest, for $855m.

The transaction will see IAG hand over an upfront $333m payment, signing on to a 25-year exclusive distribution agreement with RACQ, a mutual membership association covering more than 1.7 million people in Queensland.

IAG will then hand over a further $522m at the completion of the deal, expected in the third quarter of 2025, “equivalent to the expected net tangible asset value” of RACQ.

Two years after the completion of the deal, which will require approval from the Australian Competition & Consumer Commission, IAG may acquire the remaining 10 per cent of RACQ’s insurance operation through either a cash or script deal.

IAG boss Nick Hawkins said the RACQ deal was a “true partnership” noting it’s built on the “proven track record of working collaboratively with leading member motoring organisations that share our values”.

IAG also underwrites insurance for the NRMA and RACV brands.

“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,” Mr Hawkins said.

IAG said it would fund the deal through surplus capital, with the insurer noting expectations RACQ would add to its earnings.

RACQ chief executive David Carter said IAG had “made a major commitment to Queensland and RACQ”.

“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,” Mr Carter said.

The insurer told investors the RACQ deal was expected to cost $70m over two years, noting this included software integration costs.

This is despite RACQ’s troubles, with the insurer staring down a court case from the corporate regulator alleging it failed to pass through discounts to customers.

RACAQ refunded customers more than $86m last year after discovering it had overcharged more than 460,000 customers over the years.

IAG is facing similar court action from the Australian Securities & Investments Commission.

IAG said it expected to book $50m in synergies from the deal, which would bolter its reinsurance program, noting the acquisition was consistent with the insurer’s profit plans.

IAG has been investing in its underwriting and claims management platforms, consolidating various insurance brands under core systems,

IAG told investors the RACQ acquisition was “consistent” with its 15 per cent insurance margin target.

Staff at IAG and RACQ were briefed on the deal on Thursday morning.

Citi analyst Nigel Pittaway said the IAG acquisition would help the insurer “finally achieve a decent presence with a strong brand in its hither to weakest state” Queensland.

But Mr Pittaway cautioned there could be downside risks if RACQ’s remediation plans blow out.

“At face value, the deal seems a positive one for IAG shareholders.”

IAG shares closed 3.6 per cent higher at $8.47.

Originally published as IAG snaps up RACQ insurance in $855m deal