RSA agrees ‘transformative’ deal to acquire DLG’s commercial lines operations

RSA Insurance and owner Intact Financial Corporation have agreed a deal with Direct Line Group (DLG) to acquire the business’ brokered commercial lines operations.

Announced late last night (6 September 2023), RSA said the transaction would see it become the UK’s third largest commercial lines insurer with an estimated 7% of total market share. Prior to this deal being agreed, RSA said it was the sixth largest commercial lines insurer in the UK market.

The purchase has been agreed for an initial fee of £520m, with potential for up to a further £30m contingent on earnout provisions related to financial performance of the acquired business lines. 

As part of the deal, renewal rights, brands, employees and systems will all be transferred to RSA. The transaction, however, is subject to the approval of DLG’s shareholders, with a vote expected to take place in October 2023. 

DLG’s brokered commercial lines business generated gross written premiums (GWP) of £530m in 2022 and delivered a combined operating ratio of approximately 96% across 2021 and 2022. 

A statement from RSA and Intact explained that the acquisition strengthened its “presence in the attractive small and medium-sized entreprise (SME) and mid-market segments of the UK market” and “improves the risk profile of [its] UK and international business”. 

RSA added that the deal would broaden its broker distribution network and expand its commercial lines product offering. 

Speaking to Insurance Times this morning (7 Septemeber 2023), Ken Norgrove, chief executive at RSA, added: “This is a unique and transformational deal for us – it really turbo boosts our existing strategy for our broker proposition and our customer proposition in commercial.  

“What we’re acquiring is DLG’s commercial lines brokerage business, 98% of which is the NIG brand and FarmWeb brand – this is significantly transformational for us complimentary to our own business.

“We’ve been very strong in the mid-market and specialty areas but what this really does is bring us into play in the sub-10,000 space and cements our proposition in the SME space.

”We look forward to welcoming a team of experienced, highly talented and skilled colleagues from strong brands, including NIG and FarmWeb, to further enhance RSA’s strong commercial lines business.” 

Strategic rationale 

RSA owner Intact also announced that to “accelerate its outperformance ambition,” it was exploring strategic options with respect to RSA’s UK personal lines business – including a potential sale.

RSA announced its exit from the UK personal lines motor market back on 28 March 2023, citing the competitive nature of the business line.

Both firms have said they will work closely together and with brokers to ensure a smooth transition process. 

Norgrove added: ”Under the terms of the deal, it is expected that new business franchise and certain operations, brands, employees, contractors, data, renewal rights and premises would transfer to RSA at a point in Q2 2024. 

The future economics of Direct Line’s brokered commercial lines portfolio will also be transferred to RSA starting from 1 October 2023 and, if approved by the court, would be followed by an insurance business transfer.

In its own statement, Direct Line said that it would remain active in direct small business commercial lines via its Direct Line and Churchill brands. 

It added that the consideration would provide a significant uplift to the group’s solvency capital ratio (SCR) equivalent to around 45 percentage points on completion of the deal.

Jon Greenwood, acting chief executive of DLG, said: “This transaction crystallises an attractive valuation for the brokered commercial insurance business and focuses the group fully on retail personal [lines] and direct small business commercial lines insurance customers.”

The DLG statement added that the deal would “restore the resilience of [its] capital position and drive the long-term value potential for its customers and shareholders”. 

Providing a strategic rationale for the sale, DLG explained that its brokered commercial lines business had seen success because of its specialist trading model in the intermediated space and was different to the rest of DLG’s insurance businesses. 

Because of this, and following the completion of an operational turnaround in the business, DLG said now was an “appropriate time to facilitate a sale and crystallise the value that has been created”.