The Insurance Australia Group Ltd (ASX: IAG) share price is on watch after announcing a potential sale and a management appointment.
IAG looking to sell interest in Malaysian business
IAG said that the Malaysian business which it holds a 49% interest in, AmGeneral Holdings Berhad (AmGeneral), has signed an implementation agreement for the proposed sale of AmGeneral’s insurance business to Liberty Insurance Berhad (Liberty).
AmGeneral is the general insurance arm of AMMB Group (AmBank), which owns the remaining 51% interest.
The deal is subject to regulatory approvals and once these conditions are met Liberty will acquire 100% of the shares in AmGeneral whilst Ambank will hold a 30% interest in the insurance operations of Liberty and AmGeneral. IAG will exit its investment in AmGeneral.
IAG’s portion of the sale proceeds will be $340 million in cash and subject to post-close adjustments.
Management expect that the deal will be completed in FY22. IAG also expects to incur a loss of around $90 million which will be included in its FY21 results as part of amortisation and impairment. The asset will be recognised as ‘held for sale’.
IAG’s new Chief Insurance and Strategy Officer
IAG also announced that it has appointed Mr Tim Plant as Chief Insurance and Strategy Officer, he is expected to join the company before the end of the year.
IAG Managing Director and CEO Nick Hawkins said: “Tim brings a considerable depth of underwriting and insurance experience, as well as a deep understanding of customer needs through his leadership roles in the Australian and New Zealand general insurance markets. Tim’s experience will further bolster IAG’s leadership and I look forward to welcoming Tim to the team.”
Final thoughts on IAG and the share price
The sale of the Malaysian business at $340 million isn’t a substantial number for IAG, however it could still be a useful amount if it redeploys the money into something more productive (or returns it to shareholders). At this stage IAG haven’t stated what it plans to do with the proceeds.
The IAG share price is down around 39% from its price in mid January 2020. It recently had the Victorian storms to pay claims on, which increased its FY21 net natural perils claim costs above its previous guidance.
IAG being an insurance company means it has to contend with the uncertainty of when a natural disaster will hit. Recessions also hit an insurance company hard as its investment portfolio (float) to pay out insurance claims is normally invested until the insurance company need more funds to pay out large claims.
Recessions and natural disasters are not things that I like to try and predict, so there are other ASX dividend shares on my radar.