Brought to you by:

AUB eyes 'mutual benefits’ for brokers under financial lines agency purchase

AUB says its acquisition of a 70% stake in Pacific Indemnity will support its broking business as a core earnings contributor to the listed intermediary group.

“As we have seen with the rest of [our] agencies … our brokers place an increasing amount of business into agencies that become part of the family,” AUB CEO and MD Mike Emmett told an investor call yesterday after the deal was announced.

“We anticipate additional revenue growth for Pacific Indemnity as a result of mutual benefits between AUB and Pacific indemnity, and the opportunity to expand Pacific Indemnity’s offerings to Austbrokers and to leverage AUB’s distribution and operating scale.”

AUB will pay $105 million on completion of the deal, which is expected on July 1, and the balance is payable 18 months later on a sliding scale subject to Pacific Indemnity’s 2024-25 performance. It estimates the deferred contingent consideration to be about $35 million.

The intermediary group has raised $200 million via a fully underwritten institutional share placement to cover the upfront payment, with the remaining $95 million supporting its mergers and acquisition pipeline and the cost of the equity raising.

Mr Emmett says AUB has been interested in the Australian underwriting agency for some time.

Pacific Indemnity specialises in financial lines and had gross written premium of $177 million last financial year. Its expertise in areas such as professional indemnity and directors’ and officers’ liability will bolster AUB’s capability in the space.

“Pacific Indemnity gives us scale around the financial lines, particularly D&O and professional indemnity,” Mr Emmett said.

He says the agency has established a strong reputation with brokers since its establishment in 2015.

“The fact is ... if you spoke to an average broker in the market, you said to them, ‘Who are the best professional indemnity underwriters in the market?’ they would say Pacific Indemnity.”

He says Pacific Indemnity, because of its binder capacity, has “adopted a stance where they will only focus on certain broker partners because they want to ensure that they service them appropriately and ... obviously if we can expand capacity, we’ll be able to expand top line with little margin dilution.”

The Pacific Indemnity investment suits the current rate cycle, Mr Emmett says.

“We didn’t invest in this business or similar businesses two years ago. We invest in it now and that’s precisely because … we believe that the rates have largely normalised. We believe that the downside risk is much smaller than the upside opportunity we have. So, in a way, the timing is precisely to cater for [that] and that’s why we didn’t buy something three years ago to get a sort of a sugar hit.”