RAC plc, the motoring and vehicle services group, announces that it has agreed to buy out AXA’s interest in RAC Financial Services, which was established in 2002, and to acquire the renewal rights of AXA Direct, AXA’s personal lines direct insurance business which provides motor and home cover. The acquisition will enable RAC to control its financial services strategy and is an important step towards developing a significant presence in this area.
RAC plc, the motoring and vehicle services group, announces that it has agreed to buy out AXA’s interest in RAC Financial Services, which was established in 2002, and to acquire the renewal rights of AXA Direct, AXA’s personal lines direct insurance business which provides motor and home cover. The acquisition will enable RAC to control its financial services strategy and is an important step towards developing a significant presence in this area.
The consideration will be satisfied by a cash payment of Ł29.8 million on completion with the balance, expected to be no more than Ł10.7 million, linked to the successful renewal of the acquired policy base. The transaction is being financed from banking facilities available to RAC.
RAC Financial Services currently has 140,000 motor and home policyholders under the RAC Insure brand and enjoys an 80% renewal rate. Twenty insurers, including AXA, sit on the RAC Insure broker panel.
AXA Direct provides motor and home insurance to 270,000 policyholders in the UK. RAC has acquired the exclusive rights to renew these policies, which will then be operated under the RAC Insure brand as broker and underwritten through the RAC Insure broker panel.
In the year ended 31 December 2003, RAC Financial Services earned profits before interest and taxation of Ł4.2 million on revenues of Ł16.1 million. RAC’s share of this was 43%. In the same period AXA Direct, acting as an underwriter, received gross written premiums of Ł94 million. RAC estimates that, had AXA Direct been a broker rather than an underwriter, this business would have earned revenues of Ł22.7 million and incurred operating costs of Ł19.3 million on these premiums.*
RAC will take over some of AXA’s existing infrastructure and assets under the arrangement. Goodwill arising on the transaction of up to Ł42 million will be written off over 7 years. Before amortisation, the acquisition is expected to be earnings neutral in 2005 and earnings enhancing in 2006.
The transaction is expected to complete on 11 October 2004.
Andy Harrison, Chief Executive of RAC, commented:
"This transaction marks a significant milestone in the development of our financial services strategy, which we will now control. It simplifies our insurance business and adds scale. We look forward to continuing to work with AXA in a number of other areas throughout the group."
Peter Hubbard, Chief Executive of AXA Insurance, said:
"Earlier this year we announced a revised business strategy which resulted in AXA no longer actively promoting our personal lines direct business. This transaction is a natural evolution of this strategy, making perfect sense for our employees, customers, RAC and us. It demonstrates our commitment to being easy to do business with for our business-to- business channels and we look forward to an on-going strong relationship with RAC."
* Brokerage commission to be earned by RAC in relation to AXA Direct business and the consideration payable by RAC to AXA will depend on the level of renewals of the acquired AXA Direct policy base
For more information contact:
Richard Pennycook
Group Finance Director, 07889 309988
Niall Addison
Group Finance & Investor Relations Manager, 07764 624701
Neil Lovell
Corporate Communications Director, 07768 298636