IAG today announced the acquisition of Britain's fifth largest motor insurer, Hastings Insurance Services and a Gibraltar-based insurance underwriter, Advantage Insurance, from private seller David Gundlach.

The purchase comes one month after IAG indicated a "pipeline of potential acquisitive opportunities" in Europe as it expanded its offshore growth strategy from Asia to Europe.

IAG chief executive Michael Hawker today said the UK acquisitions were expected to contribute about three per cent of the group's gross written premium (GWP) growth target of five to 10 per cent in 2006/07.

"It's fundamentally a business which is leading edge in terms of the direction of distribution in that market – it's profitable in its own right.

"In nine of the past 11 years the UK motor insurance market has lost money, however a number of motor insurance businesses have been profitable throughout that time period.

"One of the reasons we like the European market – we also like the Scandinavian market and parts of the Benelux markets – is because in our view those markets are moving towards a different distribution model," he said.

In August, IAG reported a 6.4 per cent decline in annual profit to $759 million in 2005/06 and forecast GWP growth of five to 10 per cent for the current financial year.

"They have been very focused on motor and they've done a little bit of home but they've got the capability to write in the home market and fill that broader sense of relationship with that customer base there," Mr Hawker said.

"However, given the relationship between Hastings and Advantage, IAG should benefit from the evolution to direct distribution in the UK," Mr Coghill said.

"While owning a broker may appear odd, in our view, it is more appropriate to assess this acquisition holistically, given the upside of greater underwriting volumes through competitive premium rates based on lower `internal' commissions.

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