RACQ Bank’s insurance arm sale heralds' step towards revenue stability: report

Revenue from its insurance business has been volatile, according to Moody’s Ratings.

Members Banking Group or RACQ Bank’s decision to sell its underwriting insurance business will enhance its ability to support its banking business by possibly granting it greater revenue stability.

On 28 November 2024, the Australia-based financial group announced that the Insurance Australia Group (IAG) will acquire 90% of its existing insurance underwriting business, with the option to acquire the remaining 10% in two years’ time. This is expected to generate A$855m in proceeds for RACQ.

As of FY2024, the revenue from the insurance business contributed 72% to the group's revenue.

The move is part of RACQ’s push to replace its more volatile revenues from the insurance business.

“Revenue from RACQ's insurance business over the past three years has been volatile as a result of  climate risk claims, reinsurance costs, and risk management project spending,” Moody’s Ratings noted in a its latest ratings report on Members Banking Group, where it affirmed its stable outlook and Baa1 ratings.

“Under the partnership, RACQ will receive commissions for distributing insurance products on behalf of IAG, offering greater revenue stability. In this respect, we view this transaction as enhancing the ability of RACQ to provide ongoing support to the bank, if required,” Moody’s said.

RACQ’s capital and asset quality are expected to remain resilient.

“RACQ would retain the capacity to support the bank's capital if needed, compensating for its pressured profits,” the ratings agency said.

The bank plans to maintain its strong capital level by ensuring a balance in its credit growth over the next 12-18 months.

The availability of additional capital from its parent RACQ, when needed, is also an important support to the bank's capital base.

This support offsets the bank's improving, yet still weaker-than-peers, organic capital generation, Moody’s said.