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RBS Group • Annual Report and Accounts 2006
Operating and financial review
RBS Insurance
2006 2005
£m £m
Earned premiums 5,713 5,641
Reinsurers’ share (212) (246)
Insurance premium income 5,501 5,395
Net fees and commissions (486) (449)
Other income 664 543
Total income 5,679 5,489
Direct expenses
– staff costs 319 316
– other 426 411
745 727
Gross claims 4,030 3,903
Reinsurers’ share (60) (76)
Net claims 3,970 3,827
Contribution 964 935
Allocation of Manufacturing costs 214 207
Operating profit 750 728
2006 2005
In-force policies (000’s)
– Core motor: UK 7,490 7,439
– Core motor: Continental Europe 2,114 1,862
– Core non-motor (including home, rescue, SMEs, pet, HR24): UK 4,920 4,799
– Partnerships (including motor, home, rescue, SMEs, pet, HR24) 7,267 7,559
General insurance reserves – total (£m) 8,068 7,776
RBS Insurance increased total income by 3% to £5,679 million,
with contribution also rising by 3% to £964 million and
operating profit by the same percentage to £750 million.
We achieved good overall policy growth of 3% in our core
businesses including excellent progress in our European
businesses. Our joint venture in Spain grew policy numbers by
14% to 1.34 million.
In the UK we have grown our core motor book by 1% whilst
focusing on more profitable customers acquired through our
direct brands, with good results achieved through the internet
channel, which accounted for half of all new own-brand motor
policies last year.
We implemented price rises in motor insurance in the second
half of the year, and average motor premium rates across the
market increased in the fourth quarter. Higher premium rates
will, however, take time to feed through into income, and
competition on prices remains strong.
Our core non-motor personal lines policies grew by 3%, with
particularly good progress in Tesco Personal Finance. SME
has also performed well with policies sold through our
intermediary business growing by 10%.
However, some of our partnership books continue to age and
we did not renew a number of other partnerships. As a result,
the number of partnership policies in force fell by 8% in motor
and by 9% in home.
Insurance premium income was up 2% to £5,501 million,
reflecting a modest overall increase in the total number of
in-force policies.
Net fees and commissions payable increased by 8% to
£486 million, whilst other income rose by 22% to £664 million,
reflecting increased investment income.
Total expenses rose by 3% to £959 million. Good cost
discipline held direct expenses to £745 million, up 2%. Staff
costs rose by 1%, reflecting improved efficiency despite
continued investment in service standards. A 4% rise in non-
staff costs included increased marketing expenditure to
support growth in continental Europe.
Net claims rose by 4% to £3,970 million. The environment for
home claims remained benign, whilst underlying increases in
average motor claims costs were partially offset by purchasing
efficiencies and improvements in risk management.
The UK combined operating ratio for 2006, including
Manufacturing costs, was 94.6%, compared with 93.4% in
2005, reflecting a higher loss ratio and the discontinuation
of some partnerships.