RBS unveils Direct Line float price

Insurer Direct Line Group will be valued at between £2.4 billion and £2.9 billion when it makes its stock market debut, Royal Bank of Scotland (RBS) has revealed.

The state-owned bank said it would price shares in its Churchill and Direct Line insurance business at between 160p and 195p each when it lists next month in London's biggest flotation of the year.

At the mid-point, Direct Line will be valued at £2.66 billion - at the lower end of City estimates in what is seen as an attempt to woo investors. Up to 33% of Direct Line will be offered initially, raising up to £975 million for taxpayer-backed RBS if shares are priced at the top-end of expectations.

But controversy over pay is likely to be stoked as Direct Line is expected to offer "golden handcuff" deals to its chief executive Paul Geddes and finance boss John Reizenstein designed to lock-in senior staff following the initial public offering.

Details of the highly-anticipated flotation come just hours after the Office of Fair Trading (OFT) referred the motor insurance industry to the Competition Commission for a full investigation, which could drag on for up to two years.

Direct Line said it welcomed the OFT's decision and would work with the Competition Commission. Paul Geddes, chief executive of Direct Line Group, added: "Direct Line Group's initial public offering is another exciting step in the transformation of the business, and we look forward to welcoming new investors."

RBS must sell a majority stake in Direct Line Group by the end of next year and divest of the entire company by the end of 2014 under a European-imposed condition of its £45 billion bailout received in 2009.

Retail investors will be able to take part in the share sale, with the offer being made available to intermediaries in the UK, such as financial services group Hargreaves Lansdown.

Direct Line Group, which also includes the Green Flag and Privilege brands, has 4.2 million personal motor policies and 4.3 million home insurance policies in force. The company, which has a market share of 19% in motor and 18% in home insurance, reported a 7% rise in operating profits to £224.2 million in the first half of 2012.

It said in a brief statement on trading that premiums were "broadly stable" and claims trends positive, despite stiff competition in its markets.