LONDON, UK: Direct Line Insurance Group plc has signed an agreement to sell its brokered commercial insurance business lines to RSA Insurance Limited, a wholly-owned subsidiary of Intact Financial Corporation, for initial consideration of £520 million.
Potential further consideration of up to £30 million, contingent upon certain earn-out provisions relating to the financial performance of the Brokered Commercial Insurance Business.
In addition to receiving the Consideration and the potential Earn-Out, the Company estimates that over time it will release capital of up to approximately £270 million of which approximately £170 million will be released when the Transaction is approved by the Company’s shareholders as a Class 1 transaction.
The Group will retain the back book in relation to business written and earned by the Brokered Commercial Insurance Business prior to 1 October 2023.
The sale of the Brokered Commercial Insurance Business facilitates the transfer of all of the Group’s brokered commercial insurance business lines and associated partnerships to RSA Insurance through a combination of a reinsurance transaction and a renewal rights transfer.
As a result, the economics in relation to the business at the Risk Transfer Date will move to RSA. The Back Book Policies will remain with the Company; however, if the Transaction is approved by the Company’s shareholders, Direct Line Group and RSA intend to enter into discussions regarding the potential transfer of the Back Book Policies to RSA.
The Group will remain active in the direct small business commercial lines insurance space, capitalising on its strong position, through its brands “Direct Line” and “Churchill”.
The Consideration after associated costs and tax together with the regulatory capital release will provide a significant uplift to the Group’s solvency capital ratio, and on day one (being receipt of the Consideration) this uplift is expected to be approximately 45 percentage points.
The Board believes that the sale crystallises an attractive valuation for the Brokered Commercial Insurance Business, allowing the Company to focus on retail, personal and direct small business commercial lines, restore the resilience of its capital position and drive the long-term value potential for its customers and shareholders.
Jon Greenwood, Acting Chief Executive Officer of the Company, commented: “This transaction crystallises 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.
Over the last ten years we have turned around the performance of the brokered commercial insurance business lines by focusing on its strong and extensive partnerships with brokers, underpinned by investment in its technology platform. However, its specialist trading model operates in a different part of the UK insurance market to the rest of the Group and therefore it is the right strategic decision to sell to RSA.
The value created for shareholders will allow the Group to improve its capital resilience and provides a platform for improved performance.”