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RBS set to spin off insurance arm
RBS must sell its interest in Direct Line Group under a European-imposed condition of its 2009 bailout
Taxpayer-backed Royal Bank of Scotland said "oh yes" to 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, which also includes the Green Flag and Privilege brands, under a European-imposed condition of its £45 billion bailout received in 2009.
Around 25% or more of Direct Line Group, 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 Direct Line Group by the end of next year, and divest of the entire company by the end of 2014. Direct Line Group, which has 4.2 million personal motor policies and 4.3 million home insurer policies in force, should be worth around £3 billion, according to analysts.
The announcement comes just over a week after Direct Line Group 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 £100 million 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.
Direct Line Group 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 £224.2 million in the first half of 2012.
Direct Line Group, which 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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