Shares of ASX-listed insurer Australia Group Limited (AU:IAG) surged to new multi-year highs after it signed a 25-year exclusive partnership with Australia’s RACQ (The Royal Automobile Club of Queensland). IAG announced that the two companies will work together to provide RACQ’s general insurance products and services to RACQ members and residents of Queensland. Following the news, IAG shares gained 3.5% on Thursday.
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IAG is the largest general insurance company in Australia and New Zealand. Meanwhile, RACQ is a mutual organization in Queensland, offering multiple services to its members.
IAG Teams up with RACQ
Under this deal, IAG will purchase 90% of RACQ’s current insurance underwriting business. IAG also has the option to acquire the remaining 10% in two years under the same terms. Meanwhile, the deal value of $855 million includes the net tangible asset value and the agreement to enter into an exclusive 25-year distribution deal.
Once the deal is completed, the RACQ portfolio is expected to contribute around $1.3 billion to IAG’s gross written premiums. Moreover, the transaction is expected to increase EPS (earnings per share) in the first full year of ownership. IAG further stated that it would finance the deal using its extra capital. It also aligns with IAG’s investment goals of achieving a 15% insurance margin and an ROE (return on equity) between 14% and 15% over the long term.
IAG expects the transaction to be completed in the third quarter of 2025, subject to regulatory approvals and other conditions.
Are IAG Shares a Buy?
According to TipRanks’ rating consensus, IAG stock has received a Moderate Buy rating based on three Buy and two Hold recommendations. The IAG share price target is AU$7.74, which is 9% below the current price level.
Year-to-date, IAG shares have grown over 50%.
