IAG says the RACQ Insurance acquisition, announced today, builds on its history with motoring organisations and will open the door to opportunities in the fast-growing Queensland market. 

The $855 million deal will see IAG acquire 90% of RACQ Insurance, which ranks second in the Queensland motor and home market. There is an option two years after completion to buy the remaining 10% equity. 

The deal includes a long-term partnership that gives IAG 25 years’ exclusive access to the Brisbane-based group’s network for distribution of RACQ-branded general insurance products. 

“This is an iconic brand, RACQ, that has 1.7 million members in a fast-growing, exciting part of Australia,” IAG CEO Nick Hawkins told a media conference. 

“We see this as a great opportunity for us to engage more with Queensland.” 

RACQ will maintain its brand and customer relationships, with products underwritten by IAG, while there will be no change to IAG’s brands in Queensland. 

The RACQ portfolio is expected to add about $1.3 billion to IAG’s gross written premium. 

Mr Hawkins said IAG started as a member-led mutual in NSW and the organisations are a cultural fit. The Sydney-based insurer owns the NRMA Insurance brand and has a joint venture with motoring group RACV in Victoria 

Mr Hawkins said IAG brings scale benefits through capital and reinsurance, and there may be an opportunity for the RACQ brand to re-enter the Queensland compulsory third party market. 

Speculation over a potential sale has swirled for several years and the Australian Financial Review reported in May that RACQ had appointed Bank of America to prepare for a possible deal. 

RACQ Insurance reported an after-tax profit of $52.7 million last financial year, after two years ago recording a $236 million loss, including a $149 million provision. 

RACQ group CEO David Carter said insurance will remain an important part of the business, under a different model. 

“We bring our very good capabilities around brand, marketing and distribution, the most trusted brand in the state, and we are partnering with an organisation that brings great capabilities around products, pricing, underwriting and claims handling, as well as its very strong balance sheet and reinsurance capabilities,” he said. 

“We wanted to reduce the volatility in our earnings that comes with being in insurance and we wanted to reduce the demands on capital that would come from continuing to grow our insurance business. They’re two things that IAG is very, very good at managing.” 

More than 800 RACQ staff will move to IAG in Brisbane on deal completion, which is expected in the third quarter of next year subject to conditions including Australian Competition and Consumer Commission approval. 

Mr Hawkins said general insurers have endured high levels of natural catastrophes, high inflation and rising reinsurance costs in recent years, but those pressures have eased. 

“It’s been very challenging for our customers and members, because that’s been reflected in pricing,” he said. 

“We definitely see relief on that topic, where we’re seeing those inflationary pressures come down.” 

Both IAG and RACQ have faced action by the Australian Securities and Investments Commission over pricing promise failures in recent years. 

Mr Hawkins said IAG has invested in technology and platforms to remove complexity across its businesses in Australia and New Zealand. 

“Going forward, what the members of RACQ will be delivered from IAG will be a product suite with simplicity on a technology platform that’s allowing the full benefits ... to flow through to members.”