Insurance Australia Group to Acquire New Zealand Insurer AMI

Insurance Australia Group Limited (IAG) announced it had entered into an agreement to purchase the AMI insurance business for NZ$380 million (approximately A$288 million [US$287.96 million), enhancing its position as New Zealand’s leading general insurer.

IAG’s bulletin noted that the “acquisition excludes all liabilities relating to the earthquakes which have affected the Canterbury region. It will be funded from internal resources.”

It also described the acquisition as “an important further step in the Group’s stated strategy to accelerate profitable growth in its home markets of Australia and New Zealand and is expected to be earnings per share accretive in the first full year of ownership, excluding integration costs and amortization of identified intangibles.

IAG’s Managing Director and CEO, Mike Wilkins, indicated that the acquisition is a unique opportunity that delivers on IAG’s strategic priorities both at a Group and local business level, and would bring together “New Zealand’s top two direct personal lines insurers – IAG-owned State Insurance and AMI. It adds nearly 30 percent to our existing New Zealand premium base, in a market which we know well and believe will continue to offer attractive returns in the future.

“AMI is one of New Zealand’s most iconic brands, with a proud heritage and strong customer loyalty and retention rates. It has approximately NZ$360 million [US$274 million] in annual gross written premium (GWP), more than half of which is motor insurance, and has demonstrated sound underlying profitability in recent years. The transaction enhances our position in New Zealand and demonstrates our commitment to that market.”

He also explained that reinsurance cover will remain in place providing significant protection up to NZ$1.4 billion [US$1.066 billion] with a retention level of NZ$10 million [US$7.62 million]. Combining IAG and AMI in New Zealand is expected to generate at least NZ$30 million [US$22.85 million] per annum in net synergies within two years. Related integration costs of NZ$40 million [US$30.46 million] are expected to be recognized.

Jacki Johnson, CEO of IAG’s New Zealand business, added: “AMI and State share similar cultures with deep community roots and a strong customer focus. We are delighted to be taking guardianship of such a valuable brand and providing certainty to AMI’s customers and people.”

She also indicated that the integration process would involve leveraging the best of each insurer’s product and service capabilities, while realizing the benefits of greater scale.

IAG explained that “as part of the sale process, all of AMI’s liabilities relating to current and future claims from the earthquakes which have affected the Canterbury region will be retained by a new company owned and backed by the New Zealand Government. IAG has agreed to provide people and IT support services in respect of those liabilities.

Ms Johnson also indicated that “while IAG is not on risk for AMI’s claims resulting from the Canterbury earthquakes, we’re pleased to have reached an agreement which ensures AMI’s affected customers will receive continuity of service. We have been providing insurance to people in Christchurch and the Canterbury region for many years and look forward to maintaining a positive and sustainable commitment to the region.”

The bulletin noted: “The transaction remains subject to regulatory approvals and is expected to be completed in February 2012.” In addition it explained that IAG is “acquiring a newly incorporated company that has had transferred to it the existing AMI business, with the exception of all the AMI Canterbury earthquake claims. These will remain with the current company, which will be owned and backed by the Government and given a new name.”

Source: Insurance Australia Group

Topics Mergers & Acquisitions USA Carriers Australia Earthquake