RBS was told to sell off Direct Line by European regulators as part of the 82% taxpayer-owned bank's multi-billion pound state bailout deal following the 2008 financial crisis.

The group - which includes the Direct Line, Churchill Privilege and Green Flag brands - has 4.2 million personal motor and 4.3 million home in-force policies.

It will list on the premium segment of the London Stock Exchange in an all-secondary offering of Direct Line Group shares to be sold by RBS. Eamonn Flanagan, a Shore Capital Group analyst told Bloomberg that the IPO could value the business at between £3 billion and £3.2 billion.

Bruce Van Saun, group finance director, RBS, says: "Direct Line was launched more than 25 years ago as a pioneer of direct motor insurance and it has grown to become the market leader in UK personal lines insurance. We believe it has a strong future as a standalone insurance group continuing to serve its customers well while delivering attractive returns to investors."

RBS shares were up 10.4 pence, or 3.8%, at 284.3 pence per share, in mid-morning trading.