IRISH Life's insurance business in the US will almost double in size following the $163 million (£99 million) acquisition of
Guaranteed Reserve Life Insurance Company. Based in Illinois, it specialises in providing small assurance sums for lower income groups over the age of 40. The acquisition is Irish Life's biggest since the company was privatised five years ago.
Irish Life's existing business in the US - Interstate and First Variable - currently account for 18 per cent of the group's embedded value, but the addition of Guaranteed Reserve will boost the US proportion of embedded value to 33 per cent by the end of next year.
In terms of premium income, Irish Life's US business accounts for $326 million or 27 per cent of the total, but this will rise to $408 million or 33 per cent of total premium income when the acquisition is completed.
Irish Life chief executive Mr David Kingston said the acquisition of Guaranteed Reserve would be earnings-enhancing and that it should contribute around £4 million to earnings in the nine months of next year after the acquisition is completed and up to £7 million to earnings in a full year. "We expect a return on the investment of 11 per cent from Guaranteed Reserve," he said.
Irish Life aims to complete the acquisition by the end next March and the $163 million consideration will be met through a mixture of cash and debt. The exact cash to debt mixture will be decided shortly before the completion date.
Incorporated in Indiana but based in Calumet City, an extended suburb of Chicago, Guaranteed Reserve's core business is providing insurance cover for older age groups and the average customer is aged 55. At the end of June, the family-owned company had total assets of $193.3 million.
The older age group in the US - those over 40 - are expected to reach 60 million by the year 2000 and of those with low incomes, less than 40 per cent have a life assurance policy. As well as concentrating on the older age groups, Mr Kingston said that the acquisition would allow Irish Life in the US to focus more on the middle income groups and also lower age groups.
One major attraction of Guaranteed Reserve is the group's well-developed system for, generating sales-leads, with a database of nine million names. This allows Guaranteed Reserve to feed two separate distribution channels - direct response and a sales force.
Mr Kingston said that Irish Life's other US operations wanted a similar lead-generation system and added: "Cold calling has now become too expensive; this is a better system and Interstate and First Variable can tap into the Guaranteed Reserve database."
Premium income for full-year 1995 was $81.8 million and was $46.6 million for the hall" year to the end of June.
Mr Kingston said that the acquisition fitted in perfectly with Irish Life's strategy of building up premium income in the US to $1 billion by the year 2000 and having one million customers by 2005.
Mr Kingston said that the group was not currently close to any other acquisition, but added: "We are looking for acquisitions both here and in the US. There are a lot of acquisition opportunities in the US, a lot of good medium-sized companies"
Given Irish Life's size in the Irish market, the opportunities to expand were limited. He expressed surprise at the slow pace of rationalisation in the market but added: "We expect the market to rationalise because, having a small percentage of the market is simply not viable." A viable market share was at least 5 per cent, Mr Kingston said.