Acquisition-hungry insurer QBE Insurance Group Ltd said it will fork out $765 million for a remaining 50 per cent stake in Mercantile Mutual from its joint venture partner, the Dutch-based ING Group.
QBE, in a deal expected to be sewn up by June 30, will take over Mercantile Mutual Insurance (Australia) Ltd, Mercantile Mutual Insurance (Workers Compensation) Ltd, and its 50 per cent stake in the QBE/Mercantile Mutual joint venture.
The joint venture was formed in 1999 and has proven extremely profitable.
ING said its exit from non-life insurance in Australia would allow it to focus on its core wealth management and direct banking business in Asia Pacific.
Wilson HTM insurance analyst Brett Le Mesurier said the Mercantile Mutual acquisition fitted nicely with QBE chief executive Frank O'Halloran's desire to increase the company's presence in Australia.
"The acquisition is positive for the company," he said.
"The concept is positive as well, having more of its operations in its home country...the Australian business has been too small a proportion of the total business."
QBE, which wrote $1.9 billion in premiums last year, said it expected to generate $650 million in gross written premium from the purchase over a full year.
Net earned premium over the same period should rise by $580 million.
Mr O'Halloran said the acquisition would be earnings per share positive from year one.
"The price paid for the acquisition reflects the quality of the insurance profitability of the joint venture and workers compensation business," he said.
With an aim to double the size of the group's Asia Pacific operations, Mr O'Halloran has presided over 14 acquisitions since 1998.
QBE said it intends to use existing funds and short term bank facilities to initially fund the purchase before replacing that with medium and long term debt.
QBE will also convert up to 70 per cent of the LYONs hybrid securities to ensure it retains a strong capital adequacy and a debt to equity ratio of less than 40 per cent.
Tollhurst Noall private client adviser Marcus Padley said the sale by ING would fuel speculation that ING was poised to make an acquisition in the Australian financial services sector.