Direct Line Group to make 2,000 staff redundant in cost cutting measures

UK retail general insurer Direct Line Insurance Group plc announced today that it intends to continue its business transformation plan and improve its operational efficiency, with further initiatives that include cutting staff numbers by 2,000.

The group said the redundancies will affect staff at its head office and in support functions, adding that consultations with staff and their representative bodies have begun. The redundancies are expected to be mitigated through redeployment and the group added that it will also do its utmost to assist those affected in seeking new employment opportunities.

A cost savings plan was announced by Direct Line Group in August 2012, which was designed to make gross annual cost savings of GBP100m in 2014, as compared to the cost base of GBP1,134m in 2011. The plan is expected to offset other anticipated increases in expenses, with the intention of keeping the company’s the cost base broadly flat between 2011 and 2014. The cost base for 2014 is now targeted to be around GBP1,000m, reflecting over twice the gross annual cost savings that were estimated last year, as well as an expected net reduction in annual costs of approximately GBP130m in comparison with the 2011 cost base.

Direct Line Group also stated that restructuring costs for its cost reduction initiatives, which include provisions for onerous property leases, are now expected to be approximately GBP180m. Of these restructuring costs, GBP30m was recognised in 2012 and GBP150m is expected to be recognised in 2013 or in 2014, when the phasing will be finalised. The costs for migrating the Group’s IT infrastructure are expected to remain unchanged at GBP100m.

Paul Geddes, Direct Line Group’s chief executive, commented:

“This is another step in the ongoing transformation of Direct Line Group and an important part of our aim to regain competitive edge. While we continue to invest in the business with the aim of winning in a market which is changing fast, it’s clear that we need to become more efficient to deliver the good service and value our customers expect. We have not made these proposed changes lightly and understand the impact they will have on our people. As we have done in the past, we will deal fairly and carefully with those impacted, and do all we can to support them through these changes.”

 

Private equity firms in talks to acquire RBS’ Direct Line

Royal Bank of Scotland Group Plc (LON:RBS) may not get to list its unit Direct Line Insurance Plc as two consortia made up of leading private equity groups prepare to make a move on the business, the Sunday Times reported citing City sources.

RBS has been instructed by European Union regulators to sell Direct Line as compensation for its state-sponsored rescue in 2008. The UK lender is planning to float 30% of the business in September and has lined up 11 investment banks to assist with the process, with Goldman Sachs Group Inc (NYSE:GS), Morgan Stanley (NYSE:MS) and UBS AG (NYSE:UBS) assigned leading roles in the undertaking.

RBS is expected to file the required documents with the London Stock Exchange next month, the newspaper added.

However, the two private equity consortia are preparing to make their move at the end of July, potentially thwarting RBS’ plans. One of the groups comprises US private equity giants Blackstone Group LP (NYSE:BX) and Bain Capital LLC, while the rival bidding combo is made up of KKR & Co LP (NYSE:KKR) and UK-based Apax Partners Holdings Ltd and BC Partners Limited, the Sunday Times was told.

Direct Line, the company behind brands such as Churchill and Green Flag, is the number one UK car insurer in terms of policy numbers and the top home insurance provider, the article went on to add.

It has long been coveted by rival sector players and private equity groups although RBS’ attempt to offload the business in 2008 proved unsuccessful as bidders failed to match the asking price of GBP7bn (USD10.9bn/EUR8.9bn).

BC Partners also featured among the bidders then, joining forces with Apollo Global Management LLC (NYSE:APO). The auction also attracted US billionaire investor Warren Buffett and a consortium made up of CVC Capital Partners Limited and insurance group Swiss Re (PINK:SSREY).

Direct Line’s valuation has shrunk significantly since then although the company reversed its heavy 2010 losses to exit last year with profits of GBP454m, the Sunday Times said.

Insurers fined for file tampering

RBS owned insurance companies Direct Line and Churchill has been fined for tampering with files.

The files in question are customer compaint files which had been submitted to the Financial Services Authority (FSA).

They have been fined £2.17m, however the FSA have said the changes were small and would not effect customers.

The action is a major breach in rules. 

Tracey McDermott of the FSA said: “The firms failed to give clear instructions resulting in staff making inappropriate alterations with one individual even forging the signatures of colleagues.

“The firms’ management did not know what changes had been made or when [but] it is of critical importance that material provided to the FSA must reflect the picture as it is – not as they might like it to be,” she added.

The tampering occurred when insurers tried to sort out the FSA’s continuing enquires, which began three years ago, looking into the approach taken by financial firms when dealing with customer complaints.

Only a year ago RBS itself was fined for inadequately dealing with customer complaints, to the sum of £2.8m.

Direct Line and Churchill both looked into closed complaints and staff were told the complaints must pass.

When the FSA received their sample 50 files in April last year it was told that some may have been altered or “created”.

Further investigation revealed 27 out of 50 had been altered, with seven containing forged signatures.

“In this case, the alterations did not impact on the FSA’s ability to do our job,” the FSA said.