Has anyone else wondered how the general insurance joint venture between publicly listed Insurance Australia Group and the mutually owned RACV works?

One prominent Melbourne businessman told Crikey yesterday that the RACV had sold the business too cheaply five years ago and could have made far more going it alone and launching some of their own products in NSW and around Australia.

However, a former credible RACV insider takes the alternative view, arguing that RACV has done well to extract excellent value from its 30% stake in the joint venture, Insurance Manufacturers Australia. It is telling that former RACV executive Rick Jackson is being slated as the heir apparent to IAG CEO Michael Hawker, who is well placed to run a Big Four bank one day.

We asked IAG to explain how the JV worked and this is what spindoctor Emma Foster came back with:

IMA is a ‘manufacturer’ of short tail personal lines (STPL) insurance products (car, home etc). The products are primarily sold through RACV, under the RACV brand, in Victoria, and Insurance Australia Limited, under the NRMA Insurance brand, in NSW and ACT. The manufacturing function means that IMA develops products, formulates pricing and manages claims. The risk for the STPL products is carried within IMA.

IMA is a licenced insurer, separate to IAG or IAL, and has a Board which complies with APRA’s requirements as to independence and qualification. The Board of IMA has a total of seven directors: two RACV nominated directors, two IAG nominated directors and three independent directors (one nominated by RACV and two by IAG).

As IMA is a controlled entity, it is consolidated by IAG and not carried as an investment that is subject to regular revaluation in the books of the company. IMA’s 2004-05 accounts, which have been lodged with ASIC, report Gross Written Premium (GWP) of $2 billion. IAG’s 2004-05 accounts report GWP of $6.6 billion. Therefore approximately 30% of IAG’s general insurance business was attributable to IMA.

RACV sold its struggling financial services business to HBOS for $27 million earlier this year and booked a loss of almost $4 million, but the IMA stake has clearly been far more successful, producing dividend income of almost $100 million in 2004-05.

The RACV board elections close at 5pm on Thursday so those wishing to vote need to really get their skates on. Incumbent John Rawlins is clearly very worried that he is about to be knocked off by Mrs Crikey, Paula Piccinini, because he has now written to every Victorian car club asking for their vote. Will it be enough? We’ll know by early Friday afternoon.

Crikey will be upstairs at Young & Jackson in Melbourne from 4.55pm until 5.25pm this afternoon if anyone wishes to drop by and collect a ballot paper to provide some last minute support for our tilt. It would be handy to bring your membership number.