Insurance Australia Group (IAG) has entered a strategic alliance with The Royal Automobile Club of Western Australia (RAC) to provide general insurance products and services for RAC members and Western Australians.
The transaction includes IAG’s purchase of the RAC Insurance (RACI) business and a 20-year exclusive distribution agreement for RAC branded home, motor and niche insurance products.
The total consideration of $1.350 billion comprises $400 million for IAG’s acquisition of 100% of the RACI shares equivalent to the expected net tangible asset value at time of completion and upfront payment of $950 million for the aforementioned exclusive distribution and brand licensing agreement.
RAC Group CEO Rob Slocombe said: “RAC is pleased to partner with IAG, a leading Australian general insurance company, in a long-term partnership that will strengthen the value we deliver to our 1.3 million members across Western Australia.
“IAG brings national scale, global reinsurance capability and industry-leading technology to support RAC members, along with a deep understanding of member focused organisations.”
Slocombe added: “The partnership will contribute to our organisation’s purpose, vision and mission of being the driving force for a better Western Australia, providing a safer, sustainable and connected future.
“The partnership will support RAC to deliver for our members, employees, and all Western Australians through continued access to innovative insurance products and services provided locally under the RAC brand, to safeguard their future for years to come.”
IAG Managing Director and CEO Nick Hawkins said the new alliance with RAC builds on IAG’s successful track record of partnering with leading member motoring organisations which share its purpose and values.
“We’re excited to partner with RAC to help protect and serve more Western Australians. RAC is a highly trusted institution with a quality insurance business and strong member relationships. This partnership lays a solid foundation for continued commitment to Western Australia, the nation’s top performing economy.
Hawkins also pointed to IAG’s successful track record with similar motoring club partnerships, stating: “Our alliance with RAC will draw on our proven track record with successful motoring club partnerships and help us keep more Western Australians safe through competitive, accessible and high-value insurance products and services.”
He assured that: “RAC and its members will benefit from our financial stability, advanced technology platforms, global reinsurance arrangements, and customer-centric claims processes. Together, we will continue to invest in initiatives that support local communities and provide value to RAC, its members, and Western Australia.”
On completion, the RACI portfolio is expected to add $1.5 billion to IAG’s Gross Written Premium (GWP). It was noted that both IAG’s existing insurance businesses and brands in Western Australia, and the RAC brand itself, will remain unchanged as a result of this alliance.
IAG anticipates significant financial benefits from the partnership, projecting approximately $100 million pre-tax annual synergies comprising reinsurance, operating efficiencies and other benefits.
The company also expects to incur one-off transaction costs of $20 million and annual integration costs ranging between $15 million and $25 million over the next three years.
According to the announcement, the transaction will be funded through AIG’s existing surplus capital, debt and strong, stable organic capital generation. Its completion is subject to customary conditions, including Australian Competition and Consumer Commission clearance and approval under the Financial Sector (Shareholdings) Act 1998.
Subject to these regulatory approvals and other conditions, the deal is expected to be completed in the first half of calendar year 2026.
This alliance with RAC, coupled with the previously announced alliance with RACQ, is expected to significantly bolster IAG’s financial performance.
Combined, these transactions are projected to add approximately $3 billion in GWP, approximately $2 billion in NEP, increase insurance profit by at least $300 million and deliver double-digit EPS accretion on a full synergy run-rate basis.
This, in addition to the positive financial outlook on the existing franchise, results in an improved ROE target of 15% on a ‘through the cycle’ basis.
