Direct Line Group’s IPO announcement is facing mounting concern in the face of tough market conditions

Just as German insurance behemoth Talanx scrapped its flotation plans because of poor market conditions, Direct Line Group (DLG) announced it would be plunging headfirst into a stock market listing. A bad omen, perhaps?

Parent company RBS is floating DLG into volatile markets. There is investor concern over a highly competitive industry trading on narrow margins, and a slew of potential regulation that could wipe out ancillary income profits.

The £3bn valuation of DLG by analysts is already looking shaky, with some saying it could drop to £1.5bn. Instead, the bank could have surely got private equity to leverage itself up to the eyeballs and pay at least £2.5bn, maybe up to £3bn, for the UK’s largest motor insurer.

Flotation is a big gamble with taxpayers’ money by bank bosses. They’re optimistic markets will pick up. They say a bird in the hand is worth two in the bush. Perhaps that should be rephrased for RBS to a bird in the hand risks a dropping on the wrist.

He’s back, and he’s Jon

Having spent a large part of his career overseas, you had to wonder if RSA’s commercial managing director Jon Hancock could hack it in the UK market. Well, he’s certainly proved he’s not afraid of making the tough decisions: RSA has announced it is pulling out of UK mid-market motor trade business. What brokers think of this exit is another matter.

The name of the game is a low expense base delivering underwriting profits, which is why it’s curious that RSA is keen to cosy up to the consolidators. This week we learned that RSA is targeting Aviva’s business with Towergate-owned Broker Network.

In the past three years, RSA has signed a series of capacity arrangements with Towergate Underwriting, while Aviva has scaled back in this sector. What does RSA see that Aviva doesn’t?