Insurance Australia Group Ltd. (IAG), the Sydney-based insurer formed in 1925, has agreed to sell its U.K. business and will take a charge on the sale.
The company will sell its Equity Red Star business to private equity group Aquiline Capital Partners for 87 million pounds ($140 million), it said today in a statement to the Australian stock exchange. It will also sell its specialist commercial broking unit, Independent Commercial Brokers, to a consortium, it said, without giving a value for that sale.
Chief Executive Officer Mike Wilkins has been seeking to offload the U.K. business in order to boost profits at home and expand in Asia. IAG expects a net loss after tax of about A$240 million ($253 million) in the year ending June 30 from the U.K. business, it said today.
“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 U.K. market,” Wilkins said in the statement. “It also allows us to concentrate on our strategic priorities of accelerating profitable growth in our home territories of Australia and New Zealand.”
IAG shares fell 1.9 percent to A$4.72 as of the close of trading in Sydney, paring this year’s gain to 58 percent. That compares with a 19 percent drop in the shares of rival QBE Insurance Group Ltd. (QBE) and a 13 percent gain in the benchmark S&P/ASX 200 (AS51) index.
The sale of Equity Red Star is expected to close by the middle of next year, and the company will make another announcement about the commercial broking business, it said. It will retain pension fund liabilities related to Equity Red Star following the unit’s sale, it said.
IAG wrote off all remaining goodwill and intangible assets in its U.K. business in the year ended June 30, citing challenging economic and industry conditions there. It said in October it expected a “modest” profit in its U.K. business in fiscal 2013.
The group is investing about A$720 million in its Asian operations, almost two-thirds of that in Malaysia and Thailand, and the rest in India, China and Vietnam, it said in July. The Asian business is expected to see return on equity of more than 15 percent before costs by 2017, it said.
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