Direct Line Insurance Group has agreed a deal to sell its brokered commercial insurance business lines to RSA Insurance, for an initial £520m consideration.

RSA, a wholly-owned subsidiary of Intact Financial Corporation, also has a potential further consideration of up to £30m, which depends on earn-out provisions relating to the financial performance of the brokered business.

As well as receiving the consideration and the potential earn-out, Direct Line has estimated that over time it will release capital of up to approximately £270m, of which approximately £170m will be released when the transaction is approved by the group’s shareholders as a class one transaction.

Direct Line will retain the back book in relation to business written and earned by the brokered commercial insurance business prior to 1 October 2023.

Transfer of the operational assets and liabilities to RSA is targeted to take place in Q2 2024 and include the movement of approximately 800 employees to guarantee ongoing support and service delivery for customers.

Acting CEO of Direct Line, Jon Greenwood, 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 10 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 consideration, after associated costs and tax together with the regulatory capital release, will provide a significant uplift to Direct Line’s solvency capital ratio, and on day one, this uplift is expected to be approximately 45 percentage points.

Direct Line’s board has suggested that the sale will allow 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.

Greenwood added: “The value created for shareholders will allow the group to improve its capital resilience and provides a platform for improved performance.”

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