Intact Financial Corporation and its subsidiary RSA have reached an agreement with Direct Line to acquire its brokered Commercial Lines operations for an initial cash consideration of £520 million.
The deal also includes the potential for up to a further £30 million contingent payment under earnout provisions relating to the financial performance of the acquired business lines.
According to Intact, the transaction has been unanimously approved by both its Boards of Directors and Direct Line’s, and is now subject to approval by Direct Line’s shareholders.
Intact said the transaction will result in the transfer of renewal rights, brands, employees, and systems to RSA.
Charles Brindamour, Chief Executive Officer, Intact Financial Corporation, commented, “This acquisition significantly strengthens our UK&I business, and is strongly aligned with our strategic and financial objectives.
“The transaction enhances our position in the UK by doubling down on lines of business where we already outperform.”
Direct Line’s brokered Commercial Lines generated written premiums of £530 million in 2022, and delivered an average combined ratio of approximately 96% across 2021 and 2022.
Ken Norgrove, Chief Executive Officer, RSA, added, “We look forward to welcoming a team of experienced, highly talented and skilled colleagues from strong brands, including NIG and FarmWeb, to further enhance RSA’s strong Commercial Lines business.”
To accelerate its outperformance ambition, Intact is also exploring strategic options in respect of RSA’s UK Personal lines business, including a possible sale.
Meanwhile, discussing Direct Lines rationale, Jon Greenwood, Acting Chief Executive Officer of the firm, said, “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.”
In addition to receiving the initial consideration and the potential earn-out, Direct Line 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 its shareholders as a Class 1 transaction.
