Direct Line plots £400m bid for Legal & General unit

The company behind the Green Flag brand is lining up a £400m offer for the general insurance arm of Legal & General (LSE: LGEN.L - news) (L&G).

Sky News has learnt that Direct Line Group, the FTSE-100 insurer, has signalled its interest in buying L&G's home and contents cover division, which was put up for sale several weeks ago.

Direct Line (Other OTC: DIISD - news) 's interest is at an early stage and may not lead to a formal bid, City sources said on Wednesday.

The company is said to be closing in on the appointment of a successor to Paul Geddes, who announced during the summer that he would step down after a decade at the helm.

A number of other insurers and financial investors are understood to be examining offers for the L&G general insurance business, which is seen as non-core by Nigel Wilson, the company's chief executive.

Aviva (Other OTC: AIVAF - news) , however, which is another big player in the UK insurance market, is said to have ruled itself out of the bidding.

An acquisition by another big UK insurer such as Direct Line or RSA Insurance (LSE: RSA.L - news) would accelerate consolidation in the industry at a time when the largest players are facing a growing challenge from a new breed of insurance technology start-ups.

The auction of the L&G general insurance arm is being overseen by Fenchurch Advisory Partners, three years after a previous attempt to offload it was abandoned.

As well as home and contents cover, the business also has a small presence in the pet market following its acquisition in October 2017 of Buddies Enterprises.

The L&G general insurance arm recorded a £37m operating profit in 2017, down 29% on the year before, a performance largely dictated by higher-than-expected non-weather-related household claims.

General insurance represents a tiny part of L&G's business, which has evolved under Mr Wilson's stewardship into a diversified group with a presence in sectors such as housebuilding, infrastructure, pensions risk transfer buyouts and urban regeneration.

It also has a vast asset management operation, Legal & General Investment Management, which is in the middle of a search to replace Mark Zinkula, its chief executive.

Direct Line and L&G declined to comment.