Direct insurer Privilege is to transfer its affinity business, which forms the bulk of its portfolio, to its sister company Green Flag, the motor breakdown service.

The move is intended to take advantage of Green Flag's stronger brand identity, as well as refocus both Privilege and its other well-known sister company, Direct Line, on the private market.

Direct Line's head of corporate affairs, Chris Wermann, said: "There are already two million Green Flag partnership customers and it seemed to be the one with the greater business-to-business power. This will also ensure that Direct Line and Privilege remain distinct as direct brands."

All of Privilege's affinity deals, which make up around 60% of its business, will be transferred to the Green Flag brand, with about 300,000 Privilege customers migrating to the new account immediately. Privilege will be left to service its 240,000 existing individual policyholders.

Currently, Green Flag provides only motor breakdown insurance. Under the new deal it will also sell household, travel and pet insurance to the customers of Privilege's corporate clients.

The new operation will come under the control of Direct Line Financial Services managing director Stephen Geraghty.

Direct Line, which is part of the Royal Bank of Scotland, acquired Privilege in January 1999, followed by Green Flag in July for £220m.

The move will see Green Flag become the insurer on some of the biggest personal lines affinity deals in UK insurance.

These include partnerships with a host of UK and international big names, such as Peugeot, Citroën, Renault, American Express, Barclays, Virgin and Tesco.

Once the change has been made, 750 Privilege staff will immediately start promoting the Green Flag brand. However, as both Green Flag and Privilege are Leeds-based, no staff will have to relocate and there will be no redundancies.

Wermann claimed that the Privilege brand will continue to remain a force.

He said: "Privilege has a strong brand as a niche insurer and we will continue to market the company."

The move follows Privilege's growth as an affinity company. When it was taken over by Direct Line, just 20% of the company's business came from affinity deals. That figure has now increased by more than half.

Wermann attributes most of this growth to the company's deal with Tesco.