Direct Line said this week it would buy the Italian direct motor operation of Royal & SunAlliance for £12m cash.
Royal Insurance will be sold to Direct Line's Italian subsidiary, AllState Diretto Assicurazioni Danni.
Direct Line last week launched its own Italian operation under its own name.
Fred Goodwin, chief executive of Direct Line's parent Royal Bank of Scotland group, said: "This acquisition, making us the second largest direct insurer in Italy, gives us an even stronger platform for further growth."
Analyst Mark Button, an associate at Standard & Poor's, said: "It's entirely consistent with R&SA's strategy. Italy isn't one of its core markets and at its third quarter results in November it said it was looking to release capital from underperforming or non-core businesses."