Direct Line Flotation To Value Insurer At £2.6bn

Shares in Direct Line opened up as the insurance business is floated on the London stock market.

Royal Bank of Scotland (RBS) set the final price of stock in its insurance arm at 175p this morning, ahead of the start of conditional trading.

This values the company at £2.625bn - lower than many in the City originally expected.

RBS said it had raised £787m from the sale of 30% of the company, or 450 million shares.

Stockbrokers had reported strong demand for shares in Britain's largest motor insurer among the general public.

Richard Hunter, head of equities at Hargreaves Lansdown, said "thousands" of buyers had registered for shares since the pricing range was announced.

"The issue seems to have captured the retail investor's imagination, with a well-known brand in the midst of a turnaround story appealing.

"The additional possibility of a decent dividend yield is also an attraction given the current interest rate environment."

RBS has to sell off the entire company to receive EU approval for the £45bn bailout it received in 2009.

The 82%-taxpayer owned bank must sell a majority stake in the group by the end of next year and the rest of its shares by the end of 2014.

It has been under pressure to secure a good price for the business to reduce the loss to taxpayers.

But the Office of Fair Trading cast a shadow over the flotation when it announced it was referring the motor insurance industry to the Competition Commission over concerns it is "dysfunctional".

This raises questions over the profitability of Direct Line's motor insurance arm, which represents around 42% of its premiums.

Direct Line Group, which offers insurance on homes, cars, pets and travel, owns a number of household brands including Churchill, Green Flag and Privilege.

Unconditional trading of its shares will begin on October 16.