RBS Confirms Direct Line Insurance Flotation
Taxpayer-backed Royal Bank of Scotland has confirmed plans to spin off its Churchill and Direct Line insurance arm in a highly-anticipated stock market flotation.
The 80% state-owned lender must sell its interest in Direct Line Group (DLG), which also includes the Green Flag and Privilege brands, under a European-imposed condition of its £45bn bailout received in 2009.
Sky News City Editor Mark Kleinman previously reported exclusive details about RBS plans to spin-off the insurance group.
Around 25% or more of DLG, whose Churchill brand is represented by the popular nodding dog, will be offered in the initial share sale with additional tranches to follow.
RBS must sell a majority stake in the group by the end of next year, and divest of the entire company by the end of 2014.
DLG, which has 4.2 million personal motor policies and 4.3 million home insurer policies in force, should be worth around £3bn, according to analysts.
In a report published by the Association of British Insurers (ABI) last September, trade body said that in 2010 premiums amounted to £10.7bn with claims of £10.3bn - including other costs the sector's underwriting loss was £1.8bn.
The ABI said: "Motor insurance is currently the most challenging product for insurers, with increasing bodily injury claims, legal costs, uninsured driving and fraud."
UK taxpayers currently sit on a loss of more than £20bn from RBS. DLG is expected to pay a dividend of £1bn to RBS.
The announcement comes just over a week after DLG announced proposals to axe nearly 900 roles and close a site in the North East.
The group, which employs some 15,000 staff in the UK, is planning the redundancies as part of plans to make £100m of cost savings by the end of 2014.
No new shares will be offered in the group, which is already acting as a standalone company.
DLG chief executive Paul Geddes said: "Our people have worked hard in recent years to transform the business in order to take advantage of our distribution, scale and market leading brands.
"Our work to maximise these advantages is by no means complete and we have a clear strategy that spans distribution, pricing, claims and operational efficiency."
The company, which has a market share of 19% in motor and 18% in home insurance, reported a 7% rise in operating profits to £224.2m in the first half of 2012.
DLG has its headquarters in Bromley, south east London, and has operations in the UK, Germany and Italy, recently secured a five-year contract with Sainsbury's Finance to provide customers with home and car insurance.
The group also introduced a new management system to deal with motor claims at Churchill, Direct Line and Privilege, as well as new home claims at Churchill, to improve efficiency.
Bruce Van Saun, group finance director of RBS, said: "Direct Line was launched more than 25 years ago as a pioneer of direct motor insurance and it has grown to become the market leader in UK personal lines insurance.
"We believe it has a strong future as a standalone insurance group continuing to serve its customers well while delivering attractive returns to investors."
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