Iag Cuts Its Losses And Sells British Sinkholes
Sydney Morning Herald
Friday December 19, 2008
INSURANCE Australia Group has sold the most financially stretched of its British businesses but has lost $90 million on the operation it bought two years ago.
The sale of the mass market distribution arm, which includes 91 high street retail branches in England and Northern Ireland and its motor and home insurance providers Hastings and Advantage, will come as a relief to investors, because they had been a drain on the group's profits. Hastings and Advantage are being sold to their existing management team in a #23.5 million ($53 million) buy-out while the shops are being bought by another British insurer, Swinton Group, for #50 million. That is just over half the price IAG paid in September 2006 to establish a foothold in the British market. It sought a leading position later that year with the $1.4 billion purchase of specialist motor insurance underwriter Equity Red Star. But the acquisitions, particularly those of Hastings and Advantage, took place as the British market was sliding. Despite optimistic forecasts at the time, the market did not bottom out as expected and the operations continued to drag down the British subsidiary. The severe setback to the company's $2 billion overseas expansion plan was one of the primary reasons for the departure of IAG's former chief executive Michael Hawker, who quit in May after three successive falls in annual profits. It was left to his successor, Mike Wilkins, the former head of IAG's one-time rival Promina, to untangle the resulting mess and try to restore investor confidence in the group's operations. The loss caused by yesterday's two sales will be taken into IAG's 2009 full-year accounts, but given that the group has been able to sell them rather than close them, the figure is unlikely to have as big an impact as the market expected. The deals will leave IAG with its Equity Insurance arm, which is responsible for nearly three-quarters of the #500 million gross written premium - or revenue - that the British division generates. It is by far the most profitable with a 10 per cent insurance margin. IAG's shares rose 7c yesterday to close at $4.07 on the news.
© 2008 Sydney Morning Herald
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