IAG has effectively put its loss-making UK division on the market, announcing a review of the business with a sale listed as a possible outcome.

CEO Mike Wilkins says this is “an appropriate time” for IAG to assess its future in the UK due to the improved performance of its business there, coinciding with deteriorating UK economic conditions.

Mr Wilkins recently told insuranceNEWS.com.au that expansion will be “more concentrated in Australia, New Zealand and Asia rather than the UK”.

According to UK media reports, investment banking advisory firm Evercore will conduct the review, with IAG saying this could lead to several possible outcomes including “exploring options for a potential sale of all or part of the business”.

Other possibilities include adjusting its UK strategy to create a more specialist motor offering or continuing to improve the business under its current operating model.

For the six months to December 31, the UK business reported a $5 million insurance loss, compared to a loss of $121 million for the previous corresponding period.

“One of our key strategic priorities is to return the UK to profitability,” Mr Wilkins said.

“Given the progress towards that goal in the opening half of the current financial year, we believe the time is right to consider our longer-term plans for the business, and the best way to maximise shareholder value.”

IAG will provide an update on the review when the company reports its full-year results in August.

In a note to investors, Merrill Lynch insurance analyst Andrew Kearnan says that while the timing of the review is “strange” given the UK division is still in the red, he believes “investors could see a positive in this unfortunate chapter closing”.

“Whether the review ultimately concludes in a sale of the business, the review should derive conclusions on the value of the operation,” Mr Kearnan said.

He estimates the UK business – for which IAG paid about $1.8 billion – now carries a book value of about $600 million. But its value in the current market would be “less than $400 million, which leads us to conclude that writedowns of $200 million or more are plausible”.