Direct Line chief agrees to stay with Royal Bank

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The Independent Online

Financial Correspondent

Peter Wood, the man who created the Direct Line phone insurance success story and who was bought out by its owners Royal Bank of Scotland for pounds 21m last year, has had his contract extended with the bank for a further two years.

The Direct Line advert featuring the red telephone on wheels could soon cross the Atlantic in a new US direct insurance venture from Mr Wood, who was yesterday given Royal Bank's blessing for the project.

Royal Bank said Mr Wood "will be permitted to invest, together with a number of other associates, in a new US company which will engage in the direct selling of motor and household insurance in the USA, Canada and Mexico".

Sources close to Royal Bank said Mr Wood, who launched the Direct Line phone insurance arm and was bought out last year, approached the bank recently with his proposal to repeat this success in America. He is linking with American insurer Plymouth Rock, an East Coast company dealing in fire, accident and life insurance, and has other investors in line.

Amid the bid speculation surrounding Royal Bank, it has been suggested that a potential defence could have been the threat that Mr Wood would walk in the event of a hostile offer.

It is understood that Royal Bank, and in particular its chief executive, George Mathewson, were keen to retain Mr Wood's services, but not for that reasons. He has been the subject of intense press speculation in the last week, with suggestions that he would leave the bank if it was taken over.

He will remain a main board director of the bank and boss of Direct Line, with a new contract reflecting the time he will spend in the US. He was bought out of his original Direct Line bonus agreement by Royal Bank last year for a total of pounds 21m and given a pounds 350,000 salary.

Royal Bank is prevented from holding more than 5 per cent of the new venture's equity because it already owns a US retail bank, Citizens Financial, and US rules limit bank ownership of insurers to that figure.

This has prompted analysts to speculate that Royal Bank may sell Citizens and invest heavily in Mr Wood's pan-American venture. Royal Bank said yesterday that Citizens was not connected to Mr Wood's latest move.

This particular rumour did not affect Royal Bank's share price, however, which remained unchanged at 517p.

George Mathewson yesterday said the agreement hammered out with Mr Wood "shows he wants to stay with Royal Bank for at least another three years".