IAG may face a greater challenge gaining regulatory approval for its RAC insurance acquisition than for the similar RACQ deal approved last month, Jarden equity analysts say.

The Australian Competition and Consumer Commission gave the green light to the RACQ Insurance acquisition last month, but it warned the ruling was not indicative for other deals. 

Jarden says the extent to which RAC can compete is critical, and its findings suggest the business has been a much stronger competitor in WA than RACQ has in Queensland, and that it has a track record of market share gains. 

Both motoring club insurers, as mutuals, have structural issues with capital access, but RAC probably benefits from less catastrophe risk and lower reliance on external reinsurance.

“Coupled with stronger profitability, RAC appears to be a more financially viable standalone competitor,” the analysts say.

Jarden estimates RAC has grown market share from about 35% in 2019 to 50% last year.

Spot checks indicate its pricing is broadly in line with IAG and Suncorp across key motor and home products, while WA’s geographic isolation means the state is more likely to be considered its own market.

New merger guidelines from next year requiring assessment of the cumulative impact of acquisitions may also threaten approval following rapid consolidation in the motor club sector, the analysts say.

The ACCC is expected to release its findings on an Allianz Australia deal to buy RAA’s insurance business in SA on Thursday next week.

The regulator is yet to release a time frame for the RAC transaction review. 

The decision on the Queensland deal said RACQ insurance had not been “a particularly vigorous competitor in recent times” and was losing market share. Its prices were generally higher than many alternative suppliers and it did not meaningfully compete on coverage or service in home and motor.