Direct Line Group to sell commercial insurance business to RSA for £520m

Direct Line Insurance Group has entered into an agreement to sell its brokered commercial insurance business lines to RSA Insurance Limited, a subsidiary of Intact Financial Corporation. The transaction includes an initial consideration of £520 million, with a potential earn-out of up to £30 million contingent on financial performance. The sale is expected to significantly bolster Direct Line Group’s solvency capital ratio by approximately 45 percentage points.

The agreement also estimates that Direct Line Group will release up to £270 million of capital over time. The company expects to release approximately £170 million when the transaction gains shareholder approval as a Class 1 transaction. The improved solvency capital ratio and capital release offer long-term value potential for both customers and shareholders.

Direct Line Group will retain the back book related to policies written and earned by the Brokered Commercial Insurance Business until October 1, 2023, known as the “Risk Transfer Date.” The transaction will be executed through a combination of a reinsurance transaction and a renewal rights transfer, facilitating the transfer of all business lines and associated partnerships to RSA Insurance Limited.

The Brokered Commercial Insurance Business, under brands like “NIG,” “FarmWeb,” and “Churchill Expert,” has been a profitable venture for Direct Line Group, with a profit before tax of £43 million in 2022. The sale allows Direct Line Group to focus on its core competencies in retail, personal, and direct small business commercial lines insurance. On the other hand, RSA gains a profitable asset with extensive partnerships and technology investments.

Jon Greenwood, Acting Chief Executive Officer of Direct Line Group, commented on the sale, stating that the value created for shareholders will improve the company’s capital resilience and performance. “This transaction crystallizes an attractive valuation for our brokered commercial insurance business lines and focuses the Group fully on retail personal and direct small business commercial lines insurance customers,” Greenwood said.

The transfer of operational assets and liabilities to RSA is expected to take place in Q2 2024. This includes moving approximately 800 employees to guarantee continued support and service for customers.

Intact Financial Corporation is Canada’s largest property and casualty insurance provider and parent company of RSA. With over CAD21 billion in total annual premiums and a market capitalization of CAD34 billion, Intact is a significant player in the global insurance market. RSA operates in the United Kingdom, Ireland, and Europe, providing a variety of insurance solutions.

The deal between Direct Line Group and RSA marks a strategic shift for both companies, one that aligns with each organization’s broader business objectives and offers a promising outlook for stakeholders.