Insurance Australia Group Ltd. has agreed to buy British auto insurance underwriter Equity Insurance Group for $1.13 billion, its second acquisition in the UK market.
IAG is one of Australia's largest general insurer. The company will raise $472 million in an institutional share placement to help fund the acquisition.
In September, IAG paid A$350 million to buy Britain's fifth-largest car insurance broker, Hastings Insurance Services Ltd., and car insurer Advantage Insurance Co. in its first move into Europe. The two deals total about 15% of IAG's market value.
In the UK premium growth is forecast at 4% in 2007 and 8% in 2008 while the market is stagnating in Australia.
Henry Edgar, Senior Private Client Advisor with Wilson HTM said on CNBC's "Asia Market Watch" that, "IAG is definitely expanding overseas and that's their stated goal. They have made other acquisitions in the UK so perhaps you can view it as an add-on or a bolt-on acquisition. This is a fairly substantial acquisition for them."
Mr. Edgar said IAG has made other acquisitions in Thailand, Singapore and Malaysia and that Chief Executive Michael Hawker wants to source some 40% of income from overseas over the next six years.
IAG said the latest acquisitions won't add to earnings for about 18 months, but will add 10% to fiscal 2008 earnings per share. Fund managers said the UK insurance market is much more competitive and fragmented than Australia where five companies control about 80% of the market.