IAG sells Equity Red Star to Aquiline for £87m

IAG has agreed deals to sell its UK operations, offloading Equity Red Star to Aquiline Capital Partners and brokers Barnett & Barnett and NBJ to a management buy-out.

Private equity firm Aquiline has bought Equity for £87m. The sale is subject to regulatory approval and is expected to complete in the second half of IAG’s financial year ending 30 June 2013. The Australian insurer said in a statement that, as part of the sale agreement, the existing pension fund liabilities will remain with IAG.

IAG has also agreed an exclusive arrangement to sell specialist commercial broking business Independent Commercial Brokers (ICB), which includes Barnett & Barnett and NBJ, to a consortium led by the existing management team. “A further announcement will be made in relation to ICB in due course,” said the statement.

IAG managing director and chief executive, Mike Wilkins, said all options for the UK business had been investigated, including continuing to focus on improving the business’ performance within the current operating model and refining the business’ strategy to a more focused specialist motor offering.

He said: “We believe the sale option delivers the best available outcome for IAG shareholders, particularly in light of the continuing challenging economic and industry conditions in the UK market.

“It also allows us to concentrate on our strategic priorities of accelerating profitable growth in our home territories of Australia and New Zealand, which in the 2012 financial year represented over 90% of the group’s gross written premium (GWP), and on increasing our Asian footprint. It remains our target for Asia to represent 10% of the group’s GWP, on a proportional basis, by 2016.”

IAG said it expects to incur a net loss after tax of approximately $240m (£149m) in respect of the UK business in FY13, which is anticipated to be recognised in the following reporting periods:

• Six months to 31 December 2012 (1H13): an approximately $160m net loss, comprising the loss on disposal of the UK operations, the loss of diversification benefit upon sale and an increase in the retained existing pension fund liabilities based upon current actuarial assumptions.
• Six months to 30 June 2013 (2H13): an approximately $80m net loss, being primarily the recycling of a foreign currency loss previously included in reserves, recognised upon completion.

The UK operations will be classified as a business held for sale at 31 December 2012. There will be a modest positive impact on IAG’s regulatory capital position from the combined transactions.