Direct Line 42 Regulatory News (12QN)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO, THE UNITED STATES, CANADA OR JAPAN.

This announcement is an advertisement and not a prospectus. Investors should not purchase or subscribe for any transferable securities referred to in this announcement except on the basis of information contained in the prospectus in its final form to be published by Direct Line Insurance Group plc in due course in connection with the admission of its ordinary shares (the "Shares") to the Official List of the UK Listing Authority (the "UKLA") and to trading on the London Stock Exchange plc's main market for listed securities (the "London Stock Exchange"). Copies of the prospectus will, following publication, be available from Direct Line Insurance Group plc's registered office.

28 September 2012

Direct Line Insurance Group plc

IPO Price Range and Publication of Approved Price Range Prospectus

Following its announcement on 14 September 2012, Direct Line Insurance Group plc ("Direct Line Group" or "the Group") today announces the price range for its planned initial public offering ("IPO"), together with the publication of its approved price range prospectus.

Highlights:

·; Price range set at 160 pence to 195 pence per share.

·; Offer of up to 500 million shares (the "Offer Shares") (prior to any exercise of the over-allotment option), comprised solely of existing shares being sold by RBS Group.

·; Expected offer size in the region of 375 million to 500 million shares, representing between 25% and 33% of the existing shares.

·; Over-allotment option of up to 15% of the aggregate number of Offer Shares (prior to exercise of the over-allotment option) granted by RBS Group.

·; The mid-point of the price range implies a market capitalisation for Direct Line Group of approximately £2,663 million.

·; The Offer will be made available to institutional investors in qualifying geographies, in the United Kingdom and elsewhere under Regulation S and to QIBs in the United States in reliance on Rule 144A. Furthermore, shares will be offered to intermediaries in the United Kingdom who will facilitate the participation of their retail investor clients.

·; Approved price range prospectus to be published today.

·; Announcement of final pricing is currently expected to be announced on or around 11 October 2012, with conditional dealings in the shares on the London Stock Exchange beginning the same day. The intermediaries offer to retail investors is expected to close on 9 October.

·; Admission and unconditional dealings in the shares are expected to commence on or around 16 October 2012.

·; Each of Direct Line Group (180 days), RBS Group (180 days) and the Directors (360 days) have committed to lock-up arrangements post Admission.

·; Overall trading in the second half of the financial year has so far been in line with the underlying trends experienced in the first half, with broadly stable gross written premium, favourable claims trends and an expectation of progress in reducing the Group expense ratio from ongoing business in the second half.

Current trading

Trading update

Overall trading to date in the second half of the financial year has been in line with the underlying trends experienced in the six months ended 30 June 2012.

While the Group's primary markets remain competitive, in-force policies and gross written premium remain broadly stable. Claims trends continue to be favourable overall, and the Group expects to make further reserve releases partly attributable to its ongoing claims transformation programme. The Group expects to make progress in reducing its expense ratio from its ongoing business in the second half of 2012. While investment yields are subject to downward pressure in the current low interest rate environment, leading to some reduction in investment income, the Group has made good progress in developing its investment strategy and has increased its investment grade fixed income investments to around its target level. The Group does not expect to see the same benefit from realised investment gains as experienced in the six months ended 30 June 2012, which arose primarily from reallocating investment portfolios as the strategy has been implemented.

Regulatory Update

Regulatory developments remain a key area of focus for the Group and the industry as a whole. The Group continues to believe that the civil litigation costs reforms that are expected to come into effect on 1 April 2013, if implemented in a coordinated manner, should have a broadly neutral effect on the results of the Group in the medium term. There is currently uncertainty arising from the Court of Appeal's decision in Simmons v. Castle in July 2012 and a subsequent hearing on 25 September 2012, following applications by the ABI to the Court of Appeal for it to reconsider its decision. The outcome of the recent hearing is pending as at the date of this announcement and, as such, the impact on cost of claims for the industry is unclear. If the Court declines to amend its July decision, and assuming its decision is handed down in the near future, the Group currently estimates that this could result in an adverse pre-tax impact in the region of approximately £30 million to £45 million to the Group's results in 2012, the majority of which may be recognised in the third quarter of 2012. If the Court reverses its original decision, this impact will not arise, although it is also possible that the Court may implement a compromise position, which would result in a lesser impact. Given the current uncertainty, the above estimates do not include mitigating actions, if any, that may be available to the Group. Even if the Court declines to amend its July decision, it is not anticipated that the outcome will impact the Board's decision in determining, in accordance with its stated dividend policy, the amount of any 2012 final dividend.

Separation update

The Group reached agreement with RBS Group in September 2012 for an arm's-length, five year distribution agreement for the continued provision of general insurance products post divestment.

The Company declared and paid a further interim dividend of £200 million to the RBS Group on 3 September 2012. This represents the final dividend prior to the Offer.

Commenting on today's announcement, Paul Geddes, Chief Executive Officer of Direct Line Group, said:

"Today's announcement reflects the level of investor interest that has been shown at this stage of the transaction, which we believe underlines the potential that exists in Direct Line Group. Our people have worked hard in recent years to transform the business in order to take advantage of our distribution, scale and market leading brands. Our work to maximise these advantages is by no means complete and we have a clear strategy that spans distribution, pricing, claims and operational efficiency.

"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. We will continue with our aim of providing customers with excellent products and service levels, whilst seeking to deliver sustainable returns for our shareholders, targeting a 15% return on tangible equity from ongoing operations."(1)

Publication of the Price Range Prospectus:

An electronic copy of the Price Range Prospectus will be submitted to the National Storage Mechanism and should be available shortly for inspection at www.hemscott.com/nsm.do (as soon as it is uploaded by them). Hard copies of the Price Range Prospectus will also be available for collection, free of charge, during normal business hours, at the following address (as soon as they are printed and bound):

Direct Line Insurance Group plc

Churchill Court

Westmoreland Road

Bromley BR1 1DP

ENQUIRIES

Direct Line Group:

Rob Bailhache (Director of Communications) +44 (0) 20 8313 5850

Neil Manser (Head of Investor Relations) +44 (0) 20 8285 3134

Brunswick (PR Advisors to Direct Line Group): +44 (0) 20 7404 5959

Justine Mcllroy

Tom Burns

Goldman Sachs International: +44 (0) 20 7774 1000

Todd Leland

Paul Miller

Alex Watkins (Corporate broking)

Morgan Stanley & Co. International plc: +44 (0) 20 7425 8000

William Chalmers

Chris Kaladeen

Ben Grindley (Corporate broking)

UBS Limited: +44 (0) 20 7567 8000

Patrick Porritt

Simon Lyons

Christopher Smith (Equity Capital Markets)

INTERMEDIARIES OFFER ENQUIRIES

Barclays Bank PLC and Solid Solutions Associates:

Chris Madderson (Barclays Bank PLC) +44 (0) 20 7773 2500

Nigel Morris (Solid Solutions Associates) +44 (0) 207549 1613

NOTES TO EDITORS

About Direct Line Group

Direct Line Group is a retail general insurer with leading market positions in the United Kingdom, a strong presence in the direct motor channel in Italy and Germany and a focused position in UK SME commercial insurance. The Group operates under highly recognised brands such as Direct Line and Churchill and is comprised of five primary segments: motor, home, rescue and other personal lines, commercial and international.

In the UK, Direct Line Group utilises a multi-brand, multi-product and multi-distribution channel business model that covers most major customer segments for personal lines general insurance. The Group also has a focused presence in the commercial market. The Group occupies leading market positions in terms of in-force policies and has the most highly recognised brands in the UK for personal motor and home insurance including Direct Line and Churchill. Other primary Direct Line Group brands include Privilege and Green Flag; NIG, a provider of insurance solutions to UK SMEs and Direct Line For Business ("DL4B"), the Group's direct commercial brand. The Group is also a major provider of insurance through a number of strategic partnerships. In Italy and Germany the Group operates under the Direct Line brand.

Footnotes

1 Return on tangible equity adjusted to exclude Run-off operations and Restructuring and other one-off costs, and based on average tangible equity (using UK standard tax rate).

Forward looking Statements

This announcement contains ''forward-looking'' statements, beliefs or opinions, including statements with respect to the business, financial condition, results of operations and plans of Direct Line Group. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond Direct Line Group's control and all of which are based on the directors' current beliefs and expectations about future events. Forward-looking statements are sometimes identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "could", "should", "shall", "risk", "intends", "estimates", "aims", "plans", "predicts", "continues", "assumes", "targets", "positioned" or "anticipates" or the negative thereof, other variations thereon or comparable terminology or by discussions of strategy, plans, objectives, goals, future events or intentions.

These forward-looking statements include all matters that are not historical facts. Forward looking statements may and often do differ materially from actual results. They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of the directors or Direct Line Group with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Direct Line Group's business, concerning, amongst other things, the results of operations, financial condition, prospects, growth and strategies of Direct Line Group and the industry in which it operates.

These forward-looking statements and other statements contained in this announcement regarding matters that are not historical facts involve predictions. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing Direct Line Group. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed or implied in such forward-looking statements. The forward-looking statements contained in this announcement speak only as of the date of this document. The Direct Line Group, Goldman Sachs International, Morgan Stanley & Co. International plc and Morgan Stanley Securities Limited, UBS Limited, Citigroup Global Markets Limited, HSBC Bank plc, Merrill Lynch International, BNP Paribas, Commerzbank AG, Investec Bank plc, Keefe, Bruyette & Woods Limited and RBC Europe Limited and Barclays Bank PLC (together, the "Banks") and their respective affiliates expressly disclaims any obligation or undertaking to update, review or revise any forward looking statements contained in this document to reflect any change in its expectations or any change in events, conditions or circumstances on which such statements are based unless required to do so by applicable law, the Prospectus Rules, the Listing Rules or the Disclosure and Transparency Rules of the Financial Services Authority.

Disclaimer

Neither this announcement, the publication in which it is contained nor any copy of it may be made or transmitted into the United States of America (including its territories or possessions, any state of the United States of America and the District of Columbia) (the ''United States''). The securities referred to herein have not been and will not be registered under the applicable securities laws of the United States and, subject to certain exceptions, may not be offered or sold within the United States.

Neither this announcement, the publication in which it is contained nor any copy of it may be taken, transmitted or distributed, directly or indirectly, into Canada or Japan or to any persons in any of those jurisdictions or any other jurisdictions where to do so would constitute a violation of the relevant laws of such jurisdiction. The securities referred to herein have not been and will not be registered under the applicable securities laws of Canada or Japan and, subject to certain exceptions, may not be offered or sold within Canada or Japan or to any national, resident or citizen of Canada or Japan.

This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any shares or any other securities nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefore. The Offer and the distribution of this announcement and other information in connection with the listing and Offer in certain jurisdictions may be restricted by law and persons into whose possession any document or other information referred to herein comes should inform themselves about, and observe, any such restrictions.

Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. In particular, this announcement does not constitute an offer for sale of, or a solicitation to purchase or subscribe for, any securities in the United States. No securities of Direct Line Group have been, or will be, registered under the US Securities Act of 1933, as amended (the "Securities Act"), and securities of Direct Line Group may not be offered or sold in the United States absent an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.