In the wake of its stunning £570m acquisition of Equity. Insurance Australia Group's (IAG) financial strength rating has been affirmed at AA- by Fitch Ratings.
The purchase of Equity will be funded by equity sources, said John Miles, senior director in Fitch's financial institutions group.
IAG is sourcing A$600m via a fresh equity issue and A$225m from a share purchase plan for existing shareholders. The balance will mostly come from internal funds and subordinated debt, resulting in a slight deterioration of leverage ratios, while a small component is vendor funding. This vendor funding has been structured to retain key management within the merged group over the medium term.
Fitch has indicated Equity appears an ideal fit for IAG in terms of its approach to reserving (a probability of adequacy of at least 90%) and will complement another recent IAG acquisition, Hastings Insurance Services.
Fitch added that Australasia offered only limited growth for IAG and welcomed its expansion into the UK, although the rating agency noted that IAG has also invested in Asian countries with less developed legal, reporting and governance frameworks and it does not always have a controlling interest.
