Insurance Australia Group Limited (IAG) announced that it has agreed to sell its mass market distribution businesses in the UK for a total value of £73.5 million (approximately A$165 million – US$113.74 million).
The bulletin explained that the move is “in line with its strategy to concentrate on its profitable specialist motor [auto] underwriting business in that market.”
The sale will be effected through two separate transactions:
— IAG’s UK insurance branch network will be sold to Swinton Group for £50 million (approximately A$112 million – US$77.4 million); and
— IAG’s Hastings and Advantage businesses will be sold via a management buyout for £23.5 million (approximately A$53 million – US$36.4 million).
IAG said the two sales, combined with the costs relating to the recent closure of its specialist Lloyd’s syndicate Alba and associated underwriter Diagonal, “will result in IAG recognizing a pre-tax loss of approximately £40 million (approximately A$90 million – US$62 million) in fiscal year 2009.”
IAG added that following completion of the transactions, its capital position will improve slightly. Managing Director and CEO Michael Wilkins indicated he was pleased to have finalized these transactions, which complete IAG’s major restructuring initiatives under its refined corporate strategy announced in July 2008.
“Since we stated our intention to sell the mass market distribution businesses of our UK operations, we have considered a number of divestment options,” Wilkins stated. “We believe the transactions announced today represent the best outcome available to IAG shareholders, particularly in light of the deterioration in market conditions which has occurred since July.”
He added that the “divestment of these businesses means we can now focus on our profitable specialist motor underwriter, Equity Red Star. In FY08, Equity Red Star reported an insurance margin of 10.6 percent and contributed around 71 percent of the UK operations’ gross written premium.” He also noted that under the ongoing leadership of UK CEO, Neil Utley, “we will continue to focus on Equity Red Star’s underwriting and cost discipline to build on its impressive 37 year track record of profitability.”
IAG explained: “The branch network of Equity Insurance Brokers consists of 91 high street branches across England and Northern Ireland which are branded Equity Insurance and Open+Direct. Equity Red Star will continue to benefit from its existing relationship with Swinton Group, with the branch network remaining a distribution channel for Equity Red Star’s specialist insurance products.
“IAG’s remaining mass market distribution businesses, Hastings Direct and its associated underwriter Advantage, together with the internet-based operations which trade under the Insure brands, will be bought by a small team of management and private investors. During FY08, these businesses generated 29 percent of IAG’s UK operations’ gross written premium.
“The management buy out will be led by Edward Fitzmaurice, Chief Executive of Hastings, and Keith Charlton, Chief Executive of Advantage. Neil Utley will be a minority shareholder in the management buy out vehicle and will become non-executive Chairman of the separated business, while continuing in his executive role as CEO of IAG UK.
“The transactions remain subject to regulatory approvals, and are expected to complete in early calendar 2009.”
Source: Insurance Australia Group – www.iag.com.au
Topics USA
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