Australian insurer IAG has struck a deal to acquire 90% of RACQ’s existing insurance business for $855 million (A$1.32 billion), under a 25-year exclusive partnership between the two parties.
IAG also has the option to acquire the remaining 10% within two years on similar terms.
The transaction, financed from IAG’s excess capital, is expected to be accretive to earnings per share in the first full year after the acquisition.
It is in line with IAG’s investment objectives, which include an underwriting margin of 15% and a return on equity of 14-15%.
IAG’s payment for the 90% interest and the distribution agreement includes approximately $522 million for the shares and an upfront payment of approximately $333 million for the distribution rights.
RACQ has the option to receive cash or shares in IAG upon exercise of the remaining 10% takeover option.
The acquisition is expected to add approximately $1.3 billion to IAG’s gross written premiums and will not result in any changes to IAG’s existing insurance operations and brands or the RACQ brand in Queensland.
IAG expects one-time transaction and integration costs of approximately $70 million over a two-year period, including capitalized software integration costs.
Completion of the transaction is subject to regulatory approvals, including approval from the Australian Competition and Consumer Commission and approval under the Financial Sector (Shareholdings) Act.
The deal is expected to close in the third quarter of 2025, subject to the satisfaction of these conditions.
Under the agreement, RACQ will continue to manage marketing, sales and distribution, including stores, digital platforms and a local call center. Meanwhile, IAG will assume responsibility for underwriting, claims management and formulating product and pricing strategies.
RACQ CEO David Carter said: “RACQ is excited to partner with IAG, a leading general insurance company in Australia, to help our 1.7 million members live and move safely, securely and sustainably into the future.
“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 offered locally, to keep them safe in the long term.”
IAG managing director and CEO Nick Hawkins said: “The transaction is a true partnership between IAG and RACQ. It builds on our proven track record of working with leading automotive affiliates who 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-centric claims experience and underwriting expertise.”
