INSURER Direct Line Group will be valued at between £2.4bn and £2.9bn when it makes its stock market debut, says its parent Royal Bank of Scotland.

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 £2.66bn 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 £975m 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.

The deal is also likely to anger the 800 workers it is making redundant to cut costs, including nearly 500 at its Stockton call centre.

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 £45bn 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.