RBS 2008 Annual Report Download - page 65

RBS Group Annual Report and Accounts 200864
Business review continued
RBS Insurance
Pro forma Statutory
2008 2007 2007
£m £m £m
Earned premiums 5,520 5,607 5,607
Reinsurers’ share (227) (220) (220)
Insurance premium income 5,293 5,387 5,387
Net fees and commissions (401) (465) (465)
Other income 674 734 734
Total income 5,566 5,656 5,656
Direct expenses
– staff costs 309 297 297
– other 462 444 444
771 741 741
Gross claims 3,857 4,091 4,091
Reinsurers’ share (124) (81) (81)
Net claims 3,733 4,010 4,010
Contribution before impairment 1,062 905 905
Impairment 42 ——
Contribution 1,020 905 905
Allocation of manufacturing costs (1) 240 224 —
Operating profit 780 681 905
Note:
(1) Only for pro forma results.
In-force policies (000’s)
– Own-brand motor 6,964 6,713 6,713
– Own-brand non-motor (home, rescue, pet, HR24) 5,642 3,752 3,752
– Partnerships and broker (motor, home, rescue, SMEs, pet, HR24) 8,450 9,302 9,302
General insurance reserves – total (£m) 8,159 8,192 8,192
2008 compared with 2007 – pro forma and statutory
RBS Insurance made good progress in 2008, with operating profit rising
by £99 million to a record £780 million, an increase of 15%. Excluding
the net impact of the 2007 floods and prior year reserve releases,
operating profit grew by 6%. Total income was £90 million lower at
£5,566 million, reflecting a fall in insurance premium income following
the continuation of the strategic decision to exit less profitable
partnership contracts and the effect of financial market conditions on
investment income.
Own-brand businesses increased income by 4% and contribution
before impairments by 13%. In the UK motor market the Group
increased premium rates to offset claims inflation and continued to
target lower risk drivers, with price increases concentrated in higher risk
categories in order to improve profitability. During 2008 selected brands
were successfully deployed on a limited number of aggregator web
sites. Our international businesses in Spain, Italy and Germany
performed well, with income up 24% and contribution up 37%. Over the
last year own-brand motor policy numbers have again begun to
increase, and rose by 4% to 7.0 million.
In own-brand non-motor insurance we have continued to achieve good
sales through the RBS Group, where home insurance policies in force
have increased by 33%. In addition, Privilege and Churchill have grown
home policies by 90% and 13% respectively compared with 2007,
mainly due to an increase in online sales as a result of successful
marketing campaigns. A new commercial insurance offering, Direct Line
for Business, was launched, and has grown rapidly over the year with
particularly strong performances in Residential Property and Tradesman
policies. Overall own-brand non-motor policies in force have grown by
50% to 5.6 million, benefiting from the addition of rescue cover to RBS
and NatWest current account package customers.
Results from partnerships and broker business confirmed the Group’s
strategy of refocusing on the more profitable opportunities in this
segment, where we provide underwriting and processing services to
third parties. The Group did not renew a number of rescue contracts
and pulled back from some less profitable segments of the broker
market. As a result partnership and broker in-force policies have fallen
by 9% over the last year with a corresponding 9% reduction in income,
yet contribution grew by 27%.