The Insurance Australia Group Ltd (ASX: IAG) share price is riding high on Thursday.
In morning trade, the insurance giant's shares are up 5% to a multi-year high of $8.60.
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Why is the IAG share price pushing higher?
Investors have been picking up the insurer's shares today after it announced a major long-term strategic alliance.
According to the release, IAG and RACQ will enter a 25-year exclusive strategic alliance to provide RACQ general insurance products and services for RACQ members and Queenslanders.
Under the strategic alliance, IAG will acquire 90% of RACQ's existing insurance underwriting business, with an option to acquire the remaining 10% in two years on consistent terms.
This will come at a significant cost. The release notes that the two parties have agreed a consideration of $855 million, which comprises net tangible asset value and entry into the exclusive 25-year distribution agreement.
IAG's managing director and CEO, Nick Hawkins, believes the new alliance with RACQ will build on its ability to provide leading insurance products to Queenslanders. He said:
IAG has a well-established presence in Queensland through our trusted insurance brands, and we are excited to now help protect and serve RACQ's members. The transaction is a true partnership between IAG and RACQ. It builds on our proven track record of working collaboratively with leading member motoring organisations that share our values.
RACQ will maintain brand and customer relationships, while leveraging IAG's scale and financial strength, best-in-class technology for claims, policies and pricing, customer orientated claims experience and underwriting expertise.
This sentiment was echoed by the company's Retail Insurance Australia CEO, Julie Batch. She said:
IAG will provide Queenslanders with the confidence to feel safe and well protected through our commitment to community resilience and climate action, nation-wide supply chain and global long-term reinsurance relationships. We look forward to welcoming all RACQ people and members into this exciting new partnership.
Is it a good deal?
Despite the large price tag, on paper the deal looks good, which may explain why the IAG share price is lifting today.
Management notes that on completion, the RACQ portfolio is expected to add ~$1.3 billion to IAG's Gross Written Premiums. The transaction will be funded from surplus capital and is expected to be earnings per share accretive in the first full year of ownership.
The transaction is subject to conditions including Australian Competition and Consumer Commission clearance and approval under the Financial Sector (Shareholdings) Act 1998. Subject to regulatory approvals and other conditions, IAG expects it to complete in the third quarter of 2025.
