RACV chairman Clive Hall played down the
prospect of Australia’s most valuable mutual selling its $1 billion
insurance business at this month’s AGM, but Crikey is reliably informed
that negotiations for a sale are now under way.

Our spies north
of the river claim Insurance Australia Group is likely to shell out
cash and shares for the 30% of the Insurance Manufacturers of Australia
(IMA) joint venture that it doesn’t own.

If the deal is
consummated, it will crystallise a profit of more than $800 million for
the RACV, a sleepy but increasingly rich mutual which claims to only
have net assets of about $750 million.

Responding to my
questions, Hall told the AGM that it was important for RACV to control
distrubution of its brand in Victoria, therefore a sale was not likely.
However, there are ways that RACV can restrict how its brand is used in
Victoria as part of any deal that will lift IAG’s stake in the IMA
joint venture from 70% to 100%.

The move would be a good one for
RACV policyholders because the insurance perfect storm of low claims,
higher premiums and booming investment returns won’t continue forever.

The
highly entrenched board will be feted for its vision in securing the
joint venture six years ago and turning it into a massive windfall, but
there may well be quite a debate about what RACV should do with the
money. RACV received a dividend of $96 million from IMA in 2004-05,
suggesting its book value of $158 million is massively undervalued.

IAG
is cashed up and would cement itself as Australia’s biggest general
insurer if it can close the deal. A joint venture between a for-profit
publicly listed company and a not-for-profit mutual was always going to
be an odd arrangement over the longer term, so unscrambling the egg
while relations and profits are good would be a sensible outcome for
all concerned.