The possibility of RAC’s lucrative insurance business being sold has moved closer after industry heavyweights IAG and Allianz brought in advisers to help them pitch a deal.
The possibility of RAC’s lucrative insurance business being sold has moved closer after industry heavyweights IAG and Allianz brought in advisers to help them pitch a deal.
The Royal Automobile Club of Western Australia launched a “strategic review” of its insurance business in December, with investment bank Barrenjoey leading the process.
RAC has characterised this as a normal business review, of a kind it conducts on all its operations.
In the background, however, industry players are gearing up for a potential sale.
News service Bloomberg reported last month that IAG and Allianz were both rumoured to be evaluating a bid.
The Australian Financial Review now reports that IAG has appointed Goldman Sachs to advise on its bid, while Allianz was understood to have appointed JP Morgan.
There was no formal comment from any of the parties involved.
However, IAG and Allianz have recently shown their appetite for expansion in Australia.
IAG struck an $855 million deal with the Royal Automobile Club of Queensland (RACQ) in November, to buy its insurance underwriting business and gain a 25-year exclusive distribution agreement to sell home and car insurance in that state.
Allianz Australia struck a similar deal with the Royal Automobile Association of South Australia in December.
It has paid $642 million for RAA’s general insurance business and entered a 20-year exclusive distribution agreement for the home and motor insurance product lines of RAA.
RAC’s insurance arm would be expected to attract a similar price to the Queensland and SA deals, if not higher.
It posted a bumper net profit of $116 million in the year to June 2024, up from $63 million in the prior financial year.
It is WA’s largest general insurer, paying out 218,000 claims last financial year.
RAC chief executive Rob Slocombe described last year’s premium increases as “difficult but necessary decisions”.
“Across the 2024 financial year, high supply chain inflation compounded with previous increases to reinsurance placed significant pressure on the operating costs of our insurance business, which led to rising premiums,” he wrote in the 2024 annual report.
He highlighted an 81 per cent increase in claims expense over three years, driven in part by extreme weather events.
“As a membership organisation that owns and operates WA’s largest general insurer, we have an important responsibility to remain financially resilient and in a strong capital position to support our members when they need us,” Mr Slocombe wrote.
RAC has traditionally used profits from its insurance arm to help cover the cost of its member services.
A sale would bolster RAC’s already strong balance sheet, which has net assets of $1.1 billion.
The sale would also add to concentration in the WA market.
IAG acquired the former state government insurance business SGIO in 2000 and operated that brand until 2022, when it was replaced with the NRMA brand.
NRMA had its origins as a member-owned mutual in NSW, comparable to RAC in WA.
