IAG share price storms to multi-year high on $855m RACQ deal

The insurance giant has struck a deal that it expects to be earnings accretive.

| More on:
Two people shaking hands in the boardroom on a merger.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Insurance Australia Group Ltd (ASX: IAG) share price is riding high on Thursday.

In morning trade, the insurance giant's shares are up 5% to a multi-year high of $8.60.

Why is the IAG share price pushing higher?

Investors have been picking up the insurer's shares today after it announced a major long-term strategic alliance.

According to the release, IAG and RACQ will enter a 25-year exclusive strategic alliance to provide RACQ general insurance products and services for RACQ members and Queenslanders.

Under the strategic alliance, IAG will acquire 90% of RACQ's existing insurance underwriting business, with an option to acquire the remaining 10% in two years on consistent terms.

This will come at a significant cost. The release notes that the two parties have agreed a consideration of $855 million, which comprises net tangible asset value and entry into the exclusive 25-year distribution agreement.

IAG's managing director and CEO, Nick Hawkins, believes the new alliance with RACQ will build on its ability to provide leading insurance products to Queenslanders. He said:

IAG has a well-established presence in Queensland through our trusted insurance brands, and we are excited to now help protect and serve RACQ's members. The transaction is a true partnership between IAG and RACQ. It builds on our proven track record of working collaboratively with leading member motoring organisations that share our values.

RACQ will maintain brand and customer relationships, while leveraging IAG's scale and financial strength, best-in-class technology for claims, policies and pricing, customer orientated claims experience and underwriting expertise.

This sentiment was echoed by the company's Retail Insurance Australia CEO, Julie Batch. She said:

IAG will provide Queenslanders with the confidence to feel safe and well protected through our commitment to community resilience and climate action, nation-wide supply chain and global long-term reinsurance relationships. We look forward to welcoming all RACQ people and members into this exciting new partnership.

Is it a good deal?

Despite the large price tag, on paper the deal looks good, which may explain why the IAG share price is lifting today.

Management notes that on completion, the RACQ portfolio is expected to add ~$1.3 billion to IAG's Gross Written Premiums. The transaction will be funded from surplus capital and is expected to be earnings per share accretive in the first full year of ownership.

The transaction is subject to conditions including Australian Competition and Consumer Commission clearance and approval under the Financial Sector (Shareholdings) Act 1998. Subject to regulatory approvals and other conditions, IAG expects it to complete in the third quarter of 2025.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Financial Shares

A young boy wearing a hat, sunnies and striped singlet looks fierce and flexes his arm in victory.
Small Cap Shares

Forget CBA shares. What about small-cap ASX financial shares?

Analysts discuss 2 small-cap ASX financial shares that are up by more than 40% in 2025.

Read more »

Shot of a young businesswoman looking stressed out while working in an office.
Financial Shares

Challenger shares fall on big APRA news

Let's see what is weighing on this stock on Friday.

Read more »

Buy and sell written on silver cubes on a stock market chart.
Broker Notes

2 buys and 2 sells in the ASX 200 financials sector: analysts

We reveal what the experts think of these ASX 200 financial shares.

Read more »

Man smiling at a laptop because of a rising share price.
Financial Shares

Macquarie tips around 40% upside for GQG Partners shares

This stock could deliver big returns.

Read more »

Three happy office workers cheer as they read about good financial news on a laptop.
Financial Shares

Macquarie tips 17% return for this ASX 200 stock

The broker is feeling bullish about this stock. Let's find out why.

Read more »

A female financial services professional with a manicured black afro hairstyle turns an ipad screen to show a client across the table a set of ASX shares figures in graph format.
Share Market News

Record CBA share price and blockbuster merger push ASX 200 financials sector to the top

ASX financial stocks led the 11 market sectors last week with a 1.95% gain.

Read more »

Man with rocket wings which have flames coming out of them.
Financial Shares

Up more than 900% in 5 years, can this ASX All Ords financials stock go higher?

The share price of this company has left others behind in the dust.

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Financial Shares

HMC Capital shares are down 50% in 2025, can they turn around?

HMC Capital shares have plunged more than 50% this year, but with solid investments in energy, private credit, and data…

Read more »