* RBS says to sell 28.2 pct stake in Direct Line
* Direct Line CEO says to focus on profitability in 2014
* Direct Line says full-year net premiums earned fall 5 pct
* RBS shares close down 2.3 pct, Direct line shares up
By Richa Naidu
Feb 26 Royal Bank of Scotland said it
intends to sell almost all of its remaining stake in Direct Line
Insurance Group through a placement to institutional
The bank said it would offer 423.2 million shares,
representing 28.2 percent of Britain's largest car insurer, and
retain only 4.2 million shares to satisfy long-term incentive
plan awards granted to Direct Line executives.
RBS was ordered by European regulators to sell all of Direct
Line by the end of 2014 as a penalty for its bailout in 2008
that left it 81 percent-owned by the British government.
RBS, which spun off Direct Line in the wake of the financial
crisis, said on Wednesday the pricing of the shares it plans to
sell would be determined by a bookbuilding process that would
Direct Line's shares closed up 0.8 percent at 263.34 pence
on Wednesday, valuing the 423.2 million shares the bank plans to
sell at about 1.1 billion pounds ($1.8 billion).
Goldman Sachs International, Morgan Stanley Securities Ltd
and UBS Ltd will act as joint bookrunners in the offering, RBS
said on Wednesday.
RBS, which is due to report results on Thursday, plans to
shrink its investment banking and international operations as
part of a revamp in which the group could shed up to a quarter
of its 120,000 workforce, sources familiar with the matter said
Shares in RBS closed down 2.3 percent at 358.4 pence on the
London Stock Exchange, making the stock one of the top
percentage losers on the FTSE-100 Index.
Earlier on Wednesday, Direct Line reported a 70 percent rise
in full-year pretax profit, helped by fewer home insurance
claims. Net earned premiums fell 5 percent to 3.52 billion
The company, which also offers home, travel and pet cover,
said it would focus on profitability this year, in a market
where competition has intensified due to discounting,
price-comparison websites and market reforms introduced last
"We will price according to the value that we want to get
and according to the claims trends we see," Direct Line Chief
Executive Paul Geddes told Reuters in an interview.
The Automobile Association (AA), which has tracked car and
home insurance in Britain since 1994, said the downward trend in
motor premiums could be about to end.
The association said it expected premiums to rebound by up
to 12 percent this year as car insurers come under increasing
pressure from their directors to stop writing higher volumes at
"They won't be able to cut prices any more. They'll have to
start putting prices up," Simon Douglas, director of the AA,
told Reuters on Tuesday.
He said it would take a "bigger player" - a company such as
Direct Line, Aviva or newly listed esure Group -
to make the first move and trigger a rise in premiums.
Geddes declined to comment on whether Direct Line would
raise its premiums in 2014.
"The market is set by some players that are prepared to set
low prices," he said. "Profit will stay down while there are
enough people prepared to write at those prices."
Geddes said that Direct Line cut its motor premiums by 3-4
percent over the last year, versus a drop of 6-8 percent in the
In a bid to reduce the number of personal injury claims made
annually in Britain, the government in April banned the payment
of referral fees to solicitors, insurers and claims management
firms, driving premiums down.
Despite this, claims rose last year, the AA's Douglas said,
adding that many insurers would not have enough income to
compensate for this increase.
British motor insurers are expected to report a combined
ratio, a measure of profitability, of about 114 percent in 2014,
compared with 109.4 percent last year, according to a report by
Ernst & Young.
A ratio above 100 percent means an insurer pays out more in
claims than it earns in premiums.
The insurer said it aimed to achieve a combined ratio of
between 95 percent and 97 percent in 2014.
It said it would pay a total dividend of 20.6 pence per
share and that it was on track to meet its 1 billion pound cost
target for 2014.
"2013 earnings and adverse weather losses so far in 2014 are
better than our expectations," RBC Europe analyst Gordon Aitken
said, maintaining his "outperform" rating on the stock.
The intrinsic value of Direct Line's stock is 497.4 pence,
according to Thomson Reuters StarMine's model of how much a
stock should be worth when considering expected growth rates
over the next 15 years.