IAG’s shares (ASX: IAG) have fallen 2.81% on the final trading day of the week, after once again testing the $9 level, and finding it hard to crack. Touching $9.03 early in the session, with more than 1% in gains through the first 15 minutes of the day, IAG then went into reverse in closing at the intra-day low of $8.65. After building up a head of steam over the past month, with the share price gaining 8.94%, a breather could be a healthy sign whilst markets digest the latest news.
The big news of the week came when Western Australian insurer, RACWA announced on Thursday the sale of its entire insurance underwriting business to IAG in a transaction valued at $1.3 billion. This strategic move is encapsulated within a 20-year agreement between the two companies, marking a significant realignment in the Australian insurance landscape.
The comprehensive deal includes a direct acquisition worth $400 million. In addition, IAG will invest $950 million as part of a “distribution and brand licensing agreement” allowing RACWA to continue offering general insurance products under the RAC Insurance brand in Western Australia. While RAC Insurance retains its brand identity, IAG takes over crucial backend operations including underwriting, claims management, product development, and pricing.
RAC Group CEO, Rob Slocombe, has assured policyholders that there will be no immediate changes to existing customer policies. He emphasised that a substantial claims presence will remain in Western Australia, ensuring service continuity for local customers.
The decision to divest the insurance operations came as a result of a thorough strategic review and is influenced by several market dynamics including an evolving regulatory environment, increasing claims volumes and expenses, and rising reinsurance costs. According to veteran business reporter Mark Beyer, this move is consistent with trends among similar insurers across different states, who are adjusting to similar market conditions.
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RACWA has been a stalwart of the Western Australian community for over 120 years, with a proud history of being WA-owned for more than two decades. Despite the sale, RACWA’s commitment to serving the Western Australian community remains steadfast.
Completion of the deal is contingent upon receiving necessary regulatory approvals, a common process for transactions of this nature. This sale represents a strategic pivot for RACWA while enabling them to leverage IAG’s expansive capabilities in the insurance sector.
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