Iag Faces Battle Over Hastings

Sydney Morning Herald

Friday October 17, 2008

Danny John

INSURANCE Australia Group is having to temper its hopes of securing a decent price for the troubled British motor insurance broking businesses it is trying to sell in the face of the global financial turmoil.

In a rerun of the bad timing that plagued IAG when it bought its Hastings, Advantage and Equity Insurance operations two years ago amid claims that it paid too much, the credit crunch has driven many potential buyers out of the market.

The sale process is also being hampered by voracious competition among the British motor insurers who have dropped their prices to snare business as the British economy teeters on the brink of recession.

IAG put the broking businesses up for sale in July in a strategy U-turn after parting company with the original architect of the expansion, the former chief executive Michael Hawker.

They were acquired as part of a near-$2 billion spending spree in Britain as IAG sought to reduce its dependency on Australia, where it owns such brands as NRMA Insurance, CGU, SGIC and SGIO.

However, Hastings and Advantage in particular have proved to be a severe financial drag on IAG and, with the new chief executive, Mike Wilkins, seeing little prospect of the group making decent money out of them, the troubled group's board backed his recovery plan to jettison the businesses.

IAG still hopes to have sold them by February, but Mr Wilkins told a Trans-Tasman Business Circle lunch in Sydney yesterday that the current crisis gripping stock and credit markets would inevitably have an effect on the company's "overall price expectations".

Mr Wilkins, the former head of IAG's big rival Promina before that group was bought by Suncorp last year, said a number of potential buyers were still interested in the British operations and that he recognised the market conditions.

"We are realistic vendors," said Mr Wilkins, who indicated that any expansion moves abroad by IAG in the future would be focused on Asia.

The IAG boss was also confident that the company had "turned the corner" after three years of falling profits. In the latest fall the insurer posted a loss of $261 million that prompted Mr Wilkins to cut $130 million in costs and slash dividends to bolster the group's finances.

IAG's shares fell 13c to $3.67 yesterday.

© 2008 Sydney Morning Herald

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