Buffett joins the buzz around RBS's insurance sale

Published on Friday 27 August 2010 22:18

Royal Bank of Scotland has begun a beauty parade of City advisers to help float or sell its insurance business after a flurry of interest from potential suitors said to include US billionaire Warren Buffett.

The European Commission ordered RBS, which is 83 per cent owned by the taxpayer, to offload Direct Line by 2013 as the price for the bank's government bailout.

Berkshire Hathaway, the investment vehicle owned by philanthropist Buffett, who turns 80 today, is believed to be a potential bidder for the business, as is Allstate, the US insurer.

RBS yesterday declined to comment on "pure speculation" about the names of bidders. But it confirmed talks had been held with potential advisers to the disposal of Direct Line, with the option of a possible stock market flotation by the end of 2012 still understood to remain open.

It is thought that trade buyers believe RBS may be more receptive to lower bids for the insurance arm, which also includes the Churchill brand, following losses at the division that may make it a less attractive flotation.

Direct Line paid out 2.1 billion in claims between January and June, a 36 per cent rise on the previous year, as part of an industry-wide upsurge in injury claims from road traffic accidents sparked by no-win-no-fee legal actions. That saw Direct Line slide 231 million into the red at the halfway stage, compared with a profit of 217m a year earlier.

Analysts said any bidder for Direct Line was likely to pay less than the 4.5 billion offered by private equity giant CVC in 2009 in an earlier sales process instigated and abandoned by former RBS chief executive Sir Fred Goodwin.

Berkshire Hathaway and Allstate were involved in that process.