IAG announces sale of operations in Thailand, Indonesia and Vietnam
The sale agreement with Tokio Marine covers IAG’s interests in the following subsidiaries:
- 98.6% of Safety Insurance in Thailand; and
- 80% of PT Asuransi Parolamas in Indonesia.
Tokio Marine forms part of Tokio Marine Holdings, Inc., the largest property and casualty insurance group in Japan, with operations in 38 countries.
“We are pleased to accept the offer for our businesses in Thailand and Indonesia from Tokio Marine,” IAG Managing Director and CEO Peter Harmer said. “We believe Tokio Marine is an ideal owner given its experience in the region, and that this is a good outcome for the associated employees, customers and other stakeholders.”
Separate to the transactions with Tokio Marine, IAG has reached an agreement to sell its 73.07% interest in AAA Assurance Corporation, based in Vietnam.
All transactions are expected to conclude in the financial year ended 30 June 2019, subject to regulatory approvals or notifications.
An after-tax profit of at least $200 million is expected to be identified in IAG’s FY19 results from the combined transactions, after allowance for related costs and foreign currency translation reserve effects.
Treatment in financial statements
The combined profit from the sale of Thailand, Indonesia and Vietnam will be treated as an ‘unusual item’ in IAG’s FY19 results and excluded from cash earnings for dividend calculation purposes, in accordance with IAG’s normal practice.
As a result of the sale agreements, the consolidated Asian businesses in Thailand, Indonesia and Vietnam will be identified, for accounting purposes, as discontinued operations in the FY18 results, and comparative figures for FY17 and 1H18 will be restated accordingly. IAG’s interests in Malaysia and India will continue to be treated as associates.
Impact on capital position
The sale proceeds from Thailand, Indonesia and Vietnam will be a contributory factor in determining future capital management initiatives. IAG will provide more detail on its capital management intent at its next results announcement in August 2018.
Based on the capital position at 31 December 2017, the sale of Thailand, Indonesia and Vietnam is expected to add at least 13 basis points to IAG’s Common Equity Tier 1 (CET1) ratio.
On a pro forma basis, and after allowing for payment of the interim dividend which occurred in March 2018, this would result in a CET1 ratio of at least 1.2 at 31 December 2017. This compares to IAG’s target benchmark range of 0.9-1.1.
Impact on FY18 guidance measures
The exclusion of Thailand, Indonesia and Vietnam from IAG’s continuing business definition with effect from 1 July 2017 is expected to have the following effect on IAG’s key guidance measures for FY18:
- Negligible impact on GWP growth; and
- An approximately 50 basis points enhancement to reported insurance margin, owing to their lower earnings profile compared to the rest of the IAG business.
IAG will release its FY18 results on 15 August 2018.