RBS 2008 Annual Report Download - page 18

17RBS Group Annual Report and Accounts 2008
RBS remains the UK’s largest motor insurer and its second
largest home insurer. This is supported by the strength of the
Direct Line and Churchill brands which maintained their
positions as the two leading motor insurance brands. The total
number of in-force policies was 7% higher in December 2008
than 12 months earlier.
RBS Insurance made strong progress in 2008. Operating profit
after manufacturing costs rose by £99 million to a record £780
million, an increase of 15%. Excluding the impact of the 2007
floods and prior year reserve releases, operating profit grew by
6%. Direct expenses grew by 4% to £771 million. Net claims fell
by 7% to £3,733 million and by 3% if the effects of the 2007
floods and reserving review are excluded. The indicative ROE of
RBS Insurance was 38%.
During 2008, RBS Insurance continued its strategy of growing
own brand business, with income increasing 7%. Within the
partnership market, RBS Insurance continued to focus on the
more profitable opportunities which resulted in discontinuing
some of the less profitable partnership contracts. Consequently,
the number of partnership and broker policies in-force at
December 2008 was down 9% compared with a year earlier
although contribution increased by 27%.
In 2008, RBS Insurance continued to develop its synergies with
the wider Group. Excellent sales growth was achieved through
the RBS and NatWest brands, where home insurance new
business sales increased by 289%, the equivalent of one policy
every minute during branch opening hours.
The international businesses performed well, with income
up 24% and contribution up 37%. These businesses now have
more than 2.5 million customers. RBS Insurance, under the
Direct Line brand, is the largest direct motor insurer in Spain,
the second largest in Italy and the third largest in Germany.
The success of RBS Insurance in 2008 was delivered by
another strong performance from our people. This was
illustrated by the Group-wide ‘Your Feedback’ survey, which
showed that RBS Insurance improved its position in 11 out of
15 categories compared with 2007 and exceeded the global
financial services norm in 12 of the 15 categories.
Throughout 2008, RBS Insurance continued to develop and
enhance its operating model. This involved a focus on low-cost
customer acquisition through multiple distribution channels,
efficiency enhancements to our low-cost operations, and
improved underwriting risk selection and claims handling. This
has given the company a strong foundation and leaves it well
placed for future profitable growth despite the ongoing impacts
of the current economic market conditions.
Strategic review
The Group has decided to retain RBS Insurance, reflecting the
strength of its franchise as the leading UK personal lines insurer.
It provides high quality earnings, which are differentiated from
the Group’s banking businesses, providing valuable diversity and
strong returns. The business plans to pursue additional growth
through building its position in the online insurance aggregator
channel, through the bank channels and in the commercial
market. The business retains competitive advantage through its
market leading brands, low cost operating model and the
benefits of scale on its claims costs.