Steadfast aims to launch two more underwriting agencies after last week’s announcement that it will acquire Calliden’s eight agency businesses.

MD and CEO Robert Kelly says there are still “one or two areas we would like to be involved in”, but Steadfast expects to start agencies to fill these gaps, rather than acquire them.

He says the Calliden deal will make Steadfast one of Australia’s largest underwriting agency groups, earning gross written premium (GWP) of $310 million, with Calliden contributing $104 million.

Calliden’s directors have recommended the scheme but it will require an independent expert’s report, plus regulatory, shareholder and court approvals. Steadfast hopes to complete the transactions by December.

Steadfast will sell Calliden’s general insurance operations to Munich Re, retaining the insurer’s agency businesses for accident and health, ARGIS Farmpack, builders’ warranty, Calliden Home, Dawesmotor, IUA business interruption, Mansions and 50% of QUS Strata.

The agencies have combined earnings before interest, tax and amortisation of $8.3 million.

Munich Re will acquire the Calliden agency portfolio for business package and middle-market products already underwritten by its Great Lakes subsidiary.

The deal values Calliden at $105.4 million, including a special dividend to shareholders. Munich Re will pay about $40 million for the businesses it acquires, leaving Steadfast with a net outlay of about $55 million.

The cluster group will raise its debt to equity ratio to 20% to fund the purchase.

Mr Kelly says Steadfast brokers will forge a stronger partnership between Steadfast, Munich Re and Great Lakes.

“By acquiring the general insurance operations of Calliden, Great Lakes can provide the 306 Steadfast network brokers access to products backed by Munich Re, one of the world’s leading reinsurance companies.”

Steadfast last week reported a net profit of $32.4 million for the year to June 30, up 15.5%, topping prospectus forecasts of a $30.1 million profit.

Its brokers placed gross written premium of $4.1 billion, up 5%.

Fees and commissions grew 14% to $118.5 million and marketing and administration income gained 7% to $26.4 million.

The group earned revenue of $173.4 million, up 11%, and incurred expenses of $172.5 million, up 10%.

It paid $305.44 million in cash and shares for acquisitions in the year, and those assets contributed revenue of $123.31 million and net profit of $18.76 million.

Mr Kelly says the “acquisition pipeline” remains strong and the group has plenty of balance sheet capacity.

He says Calliden was not looking to sell and has done an “incredibly good job” of building its underwriting agencies.

Steadfast approached it with the pitch that underwriting and distribution are intrinsically linked and agencies are better off owned by distributors. “Underwriting agencies are a fixed-margin business,” Mr Kelly said. “We make money out of them without risking capital.”

The Calliden agencies are expected to add 10% to earnings per share in their first full year.