Insurance Australia sells unprofitable UK operations to buyout firm, managers

Insurance Australia Group, whose ASX-listed shares have surged 63 percent this year, is selling its unprofitable UK operations, taking a loss of about $240 million on them in the 2013 year.

The Sydney-based insurer, which runs the NZI, State and AMI insurance bands in New Zealand, will sell its Equity Red Star motor insurance business in the UK to buyout firm Aquiline Capital Partners for 87 million pounds. The sale will settle in the second half of this financial year, with IAG agreeing to retain existing pension fund liabilities.

IAG is also in talks to sell its Independent Commercial Brokers business in the UK to a group of the existing managers, with details yet to be finalised.

“The sale option delivers the best available outcome for IAG shareholders, particularly in light of the continuing challenging economic and industry conditions in the UK market,” chief executive Mike Wilkins said in a statement.

The shares last traded at A$4.81 on the ASX, valuing the company at A$10.1 billion, which is below its enterprise value of A$11.2 billion, according to Reuters data. The stock is rated ‘outperform’ based on the consensus of 15 analyst recommendations compiled by Reuters, with a price target of A$4.50.

Wilkins said IAG reviewed all possible options for maintaining the operations in the UK, including a move to focus more on auto insurance. Exiting the UK will allow the company to focus on it key markets of Australia and New Zealand, while targeting growth in Asia so that the region represents 10 percent of gross written premium by 2016, he said.

The UK operations contributed to a 17 percent drop in IAG’s profit for the year ended June 30, when their value was written down by $297 million. The UK businesses posted a loss of $13 million.

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