NIB Holdings Limited (ASX: NHF) has announced that it is spending up to $25 million to acquire a travel insurance business from QBE Insurance Group Ltd (ASX: QBE). The acquisition includes the distribution and claims capability of QBE Travel, but excludes the capital supporting the business. QBE Travel has partnerships with well-known Australian brands and has a network of more than 2,000 travel insurance agents. It has a 24-hour emergency assistance service, claims management and medical underwriting capability. One of NIB’s main aims is to grow its World Nomads Group (WNG) travel insurance business and this acquisition will…
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The acquisition includes the distribution and claims capability of QBE Travel, but excludes the capital supporting the business.
QBE Travel has partnerships with well-known Australian brands and has a network of more than 2,000 travel insurance agents. It has a 24-hour emergency assistance service, claims management and medical underwriting capability.
One of NIB’s main aims is to grow its World Nomads Group (WNG) travel insurance business and this acquisition will give the business greater scale and distribution reach. According to NIB, WNG’s annual domestic gross written premium could grow by up to 40%.
The transaction will be funded with existing available capital. However, one-off transaction costs will be around $11 million and amortisation of related identifiable intangibles will be around $2 million per year.
NIB Managing Director, Mark Fitzgibbon, said “Since acquiring WNG in mid-2015, we’ve made no secret that we like the fundamentals and growth prospects that underpin the travel market.
“Travel insurance is much closer to health insurance than most imagine given more than 60% of travel insurance claims are medically related. And of course, people travelling internationally more and more is a mega-trend. We’re benefiting from this, not only in the Australian market but also in overseas market which today account for almost half of WNG’s sales.”
Mr Fitzgibbon went on to say that it may not be too long until travel insurance, international workers and students health insurance and NZ operations make up half of all earnings.
This seems like a solid fit for NIB and is yet another divestment for QBE. NIB is facing a lot of political pressure for its role in private health insurance affordability, but that doesn’t change the overall difficulty of rising healthcare costs and a growing ageing population.
NIB is trading at 18x FY19’s estimated earnings. This isn’t a bargain price but it could be a good long-term price if private health insurance affordability doesn’t get worse.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.