Changing name and going public surely point to flotation

Until now, the market has only received small reminders that RBSI is gearing up to be a standalone company, such as the appointment of certain key individuals that a group subsidiary would not need.

But the name change to Direct Line Insurance Group and the conversion to a public limited company shouts out loud that change is happening and gathering pace ahead of the planned split from The Royal Bank of Scotland in the second half of this year.

The name change filing formalises the fact that the insurance group will no longer be a part of RBS, and the public status reinforces the widely held belief that RBSI will pursue a flotation rather than a trade sale to effect the separation from its old parent.

Throughout the process, RBS and RBSI have been, and remain, adamant that they are pursuing flotation and trade sale in tandem. The status change of the RBSI legal entity does not automatically indicate flotation, just that RBSI is preparing for that eventuality. The insurance businesses themselves are currently contained in the UK Insurance Limited legal entity after the Part VII transfer completed last year.

But there are other clues that suggest a flotation. One is that RBSI gave details of how it might list, suggesting a minority offering in the second half of this year, followed by a secondary listing the following year.

Another is that it has been keen to interact with the analyst community, as evidenced by its analyst roundtable last year.

A further clue is the appointment of Neil Manser as investor relations head. Manser held a similar role at Brit before it was taken private, and is a former equity analyst covering insurance stocks, and so his expertise is more suited to listed companies. Plus, why would a non-listed company require an investor-relations function?

In addition, observers have generally been sceptical that RBSI could find a suitable trade buyer. It is of course possible that a cash-rich private equity firm desperate for a big slice of the UK personal lines market could make a play for RBSI. Such moves have already been rumoured.

This would result in a cleaner break for RBS – no messing about with stock market filings and worrying about what to do with the residual stake it would hold post listing before the 2014 deadline, when it has to divest the insurance business completely.

But there is some evidence in the market to suggest that while private equity is definitely interested in the insurance industry in general at the moment, bearers of UK-derived risks are not high on the list. Private equity consortium Achilles was keen to snap up Lloyd’s insurer Brit, but now seems keen to get rid of the UK retail book.