RBS 2009 Annual Report Download - page 317

315RBS Group Annual Report and Accounts 2009
Financial statements
Notes on the accounts
Frequency and severity of specific risks and sources of uncertainty
Most general insurance contracts are written on an annual basis, which
means that the Group’s liability extends for a 12 month period, after
which the Group is entitled to decline or renew or can impose renewal
terms by amending the premium, terms and conditions, or both.
The frequency and severity of claims and the sources of uncertainty for
the key classes that the Group is exposed to are as follows:
Motor insurance contracts (personal and commercial)
Claims experience is quite variable, due to a wide range of factors, but
the principal ones are age, sex and driving experience of the driver,
type and nature of vehicle, use of vehicle and area.
There are many sources of uncertainty that will affect the Group’s
experience under motor insurance, including operational risk, reserving
risk, premium rates not matching claims inflation rates, weather, the
social, economic and legislative environment and reinsurance failure risk.
Property insurance contracts (residential and commercial)
The major causes of claims for property insurance are theft, flood, escape
of water, fire, storm, subsidence and various types of accidental damage.
The major source of uncertainty in the Group’s property contracts is the
volatility of weather. Over a longer period, the strength of the economy is
also a factor.
Other commercial insurance contracts
Other commercial claims come mainly from business interruption and
loss arising from the negligence of the insured (liability insurance).
Business interruption losses come from the loss of income, revenue
and/or profit as a result of property damage claims. Liability insurance
includes employers’ liability and public/products’ liability. Liability
insurance is written on an occurrence basis, and is subject to claims
that are identified over a substantial period of time, but where the loss
event occurred during the life of the policy.
Fluctuations in the social and economic climate are a source of
uncertainty in the Group’s business interruption and general liability
accounts. Other sources of uncertainty are changes in the law, or its
interpretation, and reserving risk. Other uncertainties are significant
events (for example terrorist attacks) and any emerging new heads of
damage or types of claim that are not envisaged when the policy is
written.
The following table shows the expected maturity of insurance liabilities
up to 20 years excluding those linked directly to the financial assets
backing these contracts, £4,175 million (2008 – £4,189 million; 2007 –
£4,398 million).
Group
0-3 months 3-12 months 1-3 years 3-5 years 5-10 years 10-20 years
£m £m £m £m £m £m
2009 561 1,685 1,898 949 665 73
2008 623 1,645 1,899 903 487 53
2007 710 1,796 1,961 882 395 33