IAG enters UK Market with Purchase of Hastings and Advantage

September 29, 2006

Insurance Australia Group Limited (IAG) has acquired the U.K.-based broker Hastings Insurance Services Limited, the UK’s fifth largest motor insurance broker trading under the names of Hastings Direct and Peoples Choice. Australia’s largest insurer also acquired Advantage Insurance Company Limited, a direct personal lines insurer, specializing in motor insurance in the UK market.

“Hastings Insurance Services is on track to achieve around A$500 million (£200 million [US$372.3 million]) in gross written premium through its broker business this calendar year,” IAG noted. “Advantage is expected to underwrite A$250 million (£100 million [US$186 million]) in gross written premium.”

The announcement indicated that the purchase price is “1.2 times net assets for Advantage and 10.5 times anticipated calendar year 2006 earnings for Hastings.” The total cost is A$350 million (£140 million [US$260.6 million]). IAG said the acquisition “will be funded from surplus capital and term debt.” It is also subject to regulatory approval.

IAG’s CEO, Michael Hawker, characterized the acquisition of the business as a perfect entry point to the UK market and said it would continue to build the Group’s portfolio of businesses in mature and emerging markets. “Our strategy in mature markets like the UK is to target successful general insurance businesses, primarily in motor, where we can access new customers and local market expertise, while leveraging our product, underwriting and claims expertise to enhance their growth profile,” Hawker explained. “In addition, IAG will benefit from further diversification by geography and revenue stream.”

He added that the acquisition “fits that mould. Hastings is a successful, specialist insurance broker, whose brand is well-known in the market and its business model proven. Its customer base of almost one million policyholders is supported by a panel of 40 leading insurers including Advantage.”

Hawker also indicated that IAG plans no immediate changes in either Company’s management. “We think the current management team has done an excellent job in establishing Hastings as one of the UK’s leading motor insurance distributors, producing strong profits over many years,” he stated. “We believe that with our support, they can continue to grow the business including the introduction of new products. In the UK, customer segmentation and marketing is highly sophisticated which could also offer some insights for our existing markets at home and in Asia.”

He also indicate that in line with IAG’s strict investment criteria the acquisition was expected to be earnings per share positive within 18 months.

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