IAG strikes $1.35bn deal with Royal Automobile Club of Western Australia

The latest deal is IAG’s biggest since its $855m acquisition of Royal Automobile Club of Queensland last year.

IAG CEO Nick Hawkins has forked out $1.35bn to expand into Western Australia. Picture: Nikki Short/NewsWire

Insurance Australia Group has all but sewn up Australia’s general insurance market, with a $1.35bn expansion into Western Australia, snapping up the underwriting arm of the Royal Automobile Club of Western Australia in an all-cash deal.

Announcing the acquisition on Thursday, after months of speculation over the future suitor of RAC, IAG said it had secured nearly $1.5bn in new business which was expected to be immediately earnings accretive. This will be bolted on to IAG’s $8.4bn insurance book, already swollen after its acquisition of RACQ late last year.

RAC will get $400m for its insurance arm, plus a further $950m for the rights to use its brand and distribution arms under a 20-year exclusive “partnership”.

IAG chief executive Nick Hawkins, a Perth native, was up early to announce the deal, noting the benefits the insurer would bank from carrying over the West Australian business to its new technology platforms.

He said IAG was looking to continue building out its retail business, noting new claims and underwriting platforms made scaling simple.

“We are under-represented in that market and what we’re able to do is offer that capability together with capital and reinsurance,” Mr Hawkins said.

RAC Group CFO Geoff Mather, RAC Group CEO Rob Slocombe, IAG CEO Nick Hawkins and IAG CEO Retail Insurance Australia, Julie Batch in Perth. Picture: Ross Swanborough

IAG said there would be no change to its existing brands and businesses in WA, after launching the NRMA brand into the local market in November 2021.

The deal is expected to deliver IAG circa $100m in synergies largely from reinsurance and operating efficiencies, with the acquisition expected to be earnings accretive in its first full year.

Mr Hawkins noted his father had been an RAC WA member since at least 1977, pointing to the strength of the association brands in driving and retaining business. “We’re a multibrand business,” he said.

RAC boss Rob Slocombe said the partnership with IAG would be a boon to the group’s nearly 1.3 million members.

“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,” he said.

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

The RAC acquisition is the latest deal to grow IAG since its purchase of 90 per cent of shares in RACQ in November last year in a $855m deal.

This 25-year deal saw RACQ enter into an exclusive distribution agreement with IAG, with options for the insurer to secure the remaining shares in two years “on consistent terms”.

IAG will fund the acquisition from its existing capital, with hopes to bank the nearly $150m in profits generated by RAC WA in the coming year.

The deal, subject to regulatory approval, is hoped to be sealed by the first half of 2026, with plans to then roll out IAG’s enterprise platform across the business in its wake.

Separately, IAG also provided an update on its natural perils losses.

IAG said it expected to book nearly $900m in losses through to the end of April 2025, around $250m lower than expectations.

This includes nearly 10,000 claims resulting from ex-Tropical Cyclone Alfred, which cost IAG nearly $50m.

IAG said it was continuing to guide nearly $1.28bn for its perils budget this year, noting if favourable conditions continue its reported insurance profit would surge to circa $1.65 to $1.85bn.

Its insurance margin would also lift towards the top end of a 16 to 18 per cent range.

IAG said it had grown its gross written premium by circa 5 per cent over the 10 months to April.

Originally published as IAG strikes $1.35bn deal with Royal Automobile Club of Western Australia