AXA has confirmed the sale of its direct home and motor book to RAC.
RAC is paying £29.8m cash. RAC Financial Services currently has 140,000 motor and home policyholders under the RAC Insure brand and enjoys an 80% renewal rate. Twenty insurers, including AXA, sit on the RAC Insure broker panel.
AXA Direct provides motor and home insurance to 270,000 policyholders in the UK. RAC has acquired the exclusive rights to renew these policies, which will then be operated under the RAC Insure brand as broker and underwritten through the RAC Insure broker panel.
In the year ended 31 December 2003, RAC Financial Services earned profits before interest and tax of £4.2m on revenues of £16.1m.
RAC's share of this was 43%. In the same period AXA Direct, acting as an underwriter, received gross written premiums of £94m. RAC estimates that, had AXA Direct been a broker rather than an underwriter, this business would have earned revenues of £22.7m and incurred operating costs of £19.3m on these premiums.
Goodwill arising on the transaction of up to £42m will be written off over seven years. Before amortisation, the acquisition is expected to be earnings neutral in 2005 and earnings enhancing in 2006.
The transaction is expected to complete on 11 October 2004.
