IAG said that it planned to raise around Â£238.2 million through an institutional share placement to help fund the purchase.
The acquisition of the UK's fifth largest motor underwriter has been seen to reflect the increased competition in the Australian insurance market, making overseas takeovers more attractive.
Commenting on the deal, IAG chief executive Michael Hawker said that the takeover of Equity Insurance Group made good business sense.
"Equity is an ideal fit with our acquisition criteria in stable yet profitable markets like the UK â it's a motor-led insurance business with consistently high margins in its markets and a strong management team," he explained.
"It also has significant growth opportunities including increasing its underwriting business and expanding its distribution network at a time when the UK insurance sector is showing strong signs of hardening premiums, making this an ideal time to increase our exposure to this market."
Mr Hawker also said that he expected the acquisition to help IAG to grow by 12 to 14 per cent in the next six months, ahead of current targets.