Subject to regulatory approval, ING Group has announced plans for the sale of Mercantile Mutual Insurance (Australia), Mercantile Mutual Insurance (Workers Compensation) Limited and its 50% share in the QBE Mercantile Mutual joint venture.
QBE Group has agreed to terms with ING to purchase its entire Australian general insurance stake for A$740 million, with a further $25million to be paid in February 2007 subject to the run off of pre-joint venture net insurance liabilities. The acquisition comes two years after Australia's largest car and home insurer, Insurance Australia Group purchased Aviva Plc's Australia and New Zealand general insurance arm for A$1.86 billion.
The ING-QBE Mercantile Mutual joint venture was established in 1999 and run under the Dutch bank's Australian umbrella, which consists of life insurance and funds management, investment management, retail and commercial, real estate and wholesale services.
According to ING, the decision to sell its general insurance operations was the perfect opportunity to cash in on its investment and redirect strategy towards its core industries in Australia.
"General business is no longer a core business in Australia," says Peter Smyth, regional general manager for ING Asia/Pacific. " Having secured a good price for the transaction, we're now confident this is an appropriate time to exit the business."
However, ING is not planning to depart the Australian insurance sector by any stretch. With A$40 billion in funds under management, it remains committed to growing its life insurance and funds management joint venture with ANZ. In 2003, ING's life insurance wing generated a net profit after tax of more than A$215 million, a 50% jump from the previous year.
QBE's acquisition of the Mercantile Mutual's general insurance business from ING has been in the pipeline for some time now. According to both companies, the process began when QBE approached ING in the hope of boosting premium income for the Asia-Pacific region and gaining cost reductions in its operations. Both organizations believe pricing will be beneficial to funding other projects.
"We decided last year that we needed to boost our capabilities and we knew ING wanted to focus more on its wealth management products," says Frank O'Halloran, chief executive officer of QBE Group. "It took quite of game of finding an acceptable price, but we're both happy."
Alexander Rinnooy Kan, member of the ING Group executive board and chairman of ING Asia-Pacific also believes the transaction will have benefits for its Australian operations. He says, "Our focus in Australia is on enhancing our core wealth management capabilities, including life insurance, funds management and advice; expanding our direct banking business; building our wholesale banking capabilities; and growing our already substantial real estate businesses."
O'Halloran estimates the acquisition will net QBE an additional A$650 million in premiums per year and that its Asia-Pacific general insurance arm will continue to aim for 7% to 8% growth.
The purchase of ING Australia's general insurance is not the only large-scale insurance acquisition by QBE in the last five years. In 2000, the group completed its largest ever acquisition by paying A$1.0 billion for UK insurer Limit and followed in 2001 by acquiring the ex-HIH portfolios in Australia, New Zealand and Argentina. In Asia, the group has numerous joint ventures in markets such as Malaysia and Hong Kong and in 1994 established a joint venture with PT Pool Asuransi in Indonesia.
The purchase of the ING share of Mercantile Mutual represents the 78th acquisition by QBE in the last 20 years.
According to O'Halloran, QBE will continue with its aggressive M&A strategy. "We see lots of opportunities on our plate and we're always looking to do the deals."
Formalities aside, ING and QBE expect the transactions to be completed by June 2004.