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IAG to take $240m hit on UK sale

Nicholas Grove  |  14 Dec 2012Text size  Decrease  Increase  |  

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Nicholas Grove is a Morningstar journalist.

 

Insurance Australia Group (IAG) on Friday said it had finalised the sale of all its UK operations, concluding a strategic review process announced back in May 2012.

The sale will take place via two separate transactions, Australia's largest domestic general insurer said.

Under the first transaction, the Equity Red Star (ERS) business will be sold to private equity firm Aquiline Capital Partners for around $130 million.

The sale is subject to regulatory approval and is expected to complete in the second half of the financial year ending 30 June 2013, IAG said.

Under the second transaction, a consortium led by the existing management team has agreed to buy the significantly smaller specialist commercial broking business Independent Commercial Brokers (ICB).

A further announcement will be made in relation to ICB in due course, IAG said in a statement.

IAG said it expects to incur a loss of approximately $240 million in respect of the UK business in fiscal 2013.

It also said there will be a "modest positive impact" on its regulatory capital position from the combined transactions.

"We believe the sale option delivers the best available outcome for IAG shareholders, particularly in light of the continuing challenging economic and industry conditions in the UK market," IAG chief executive Mike Wilkins said.

"It also allows us to concentrate on our strategic priorities of accelerating profitable growth in our home territories of Australia and New Zealand, which in the 2012 financial year represented over 90 per cent of the group's gross written premium, and on increasing our Asian footprint.

"It remains our target for Asia to represent 10 per cent of the group's gross written premium, on a proportional basis, by 2016."

Morningstar equities analyst Ravi Reddy said IAG's exit from the UK market is a good outcome that is long overdue.

"Our preferred option has long been for IAG to completely exit the UK market. The UK strategy has been a massive failure and destroyed shareholder value," Reddy said.

"IAG entered the UK market in late 2006, outlaying $1.75 billion on acquisitions. While the loss on the sale is disappointing, these businesses will have been a distraction for management.

"IAG can now focus on its core business in Australia and New Zealand."