Direct Line expects to increase profits after split from RBS

Direct Line is setting a target of 15.2 per cent return on tangible equity – a big jump from the 10.2 per cent level achieved in the first half of the year. Return on tangible equity is a key measure of profitability.

Direct Line, which has four core sites in Yorkshire – three in Leeds and one in Doncaster – is courting investors ahead of a planned stock market listing next month. Analysts say it could be worth £3bn, making it one of London’s biggest listings for years. The insurer, which also owns the Churchill, Green Flag and Privilege insurance brands, aims to deliver £100m in cost savings by the end of 2014. It confirmed in August these will include an unspecified number of redundancies.

Direct Line’s headline results for the six months to June were reported by RBS on August 3. Separate statutory results released yesterday showed a seven per cent increase in operating profits from ongoing operations to £224m. Pre-tax profits fell 43 per cent to £106.5m because of restructuring and other one-off costs relating to its separation from RBS.

The sale of a minority stake in Direct Line is understood to be being run by Goldman Sachs, Morgan Stanley and UBS.

Paul Geddes, chief executive of Direct Line, said: “We are now beginning to see the benefits of our transformation plan in pricing, risk, claims as well as capital management actions and operational efficiency.

“Other than some transitional services provided by RBS Group, we have essentially achieved the goal of operating as a standalone insurance company.”

The insurer employs 15,100 staff, including about 3,700 in Yorkshire. Its three Leeds sites have a total of 3,023 employees and its Doncaster site employs 723 staff.