Direct Line Sells Overseas Businesses to Mapfre

By Stephen Morris | September 25, 2014

Direct Line Insurance Group Plc sold its German and Italian businesses to Spain’s Mapfre SA for €550 million ($700 million) as the company pares back its international operations to cut costs and pay a dividend.

The U.K.’s biggest home and auto insurer expects a pretax gain from the sale of about £160 million ($261 million) and will return “substantially all” of the net proceeds to shareholders, it said in a statement today. The sale price is about about 1.9 times 2013 net asset value, Direct Line said.

Direct Line shares rose as much as 3.1 percent. The company, which was spun off from Royal Bank of Scotland Group Plc over the past two years, is the latest British insurer to sell assets abroad as it strives to meet a cost-saving target of about £1 billion [$1.63 billion] this year.

“The sale of our international businesses to Mapfre is a good result for all of our stakeholders,” Chief Executive Officer Paul Geddes said in the statement. “Our U.K. personal and commercial lines businesses are continuing to implement the many initiatives we have under way.”

Shares of Direct Line rose to 306.1 pence [$3.89] at 8:17 a.m. in London. Mapfre, Spain’s biggest insurer, rose 0.2 percent to €2.93 [$3.72] in Madrid trading.

Direct Line shares surged on Aug. 1 after the company said it was in talks to sell the businesses. The international unit generated £13.4 million [$21.84 million] of operating profit in the half year, compared with £249.1 million [$405.9 million] for the entire group, the company said at the time.

Direct Line said today that it had a “strong” risk-based capital coverage ratio of about 149 percent as of June 30, which allows it to return most of the proceeds to shareholders. Regulatory approval for the deal is expected to take three to four months, it said.

RSA Insurance Group Plc has raised more than £600 million [$978 million] from asset sales in Eastern Europe, Canada and China this year, while Aviva Plc has reduced its markets to 17 from 28 in 2011.

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