RBS 2011 Annual Report Download - page 382

380 RBS Group 2011
24 Insurance business continued
Outstanding claims provisions are not discounted for the time value of money except for claims, principally motor, settled by periodical payments under
the Courts Act 2003. Total reserves for claims outstanding in respect of periodical payments are £1,167 million (2010 - £1,180 million; 2009 - £92
million) gross and £835 million (2010 - £827 million; 2009 - £26 million) net of reinsurance. The corresponding undiscounted amounts are £3,857 million
(2010 - £4,321 million; 2009 - £276 million) gross and £2,405 million (2010 - £2,660 million; 2009 - £62 million) net of reinsurance. The amounts for
2011 and 2010 include a provision for estimated periodical payment orders incurred but not reported which is excluded from 2009. The rate of interest
used for the calculation of present values is 4.5% (2010 - 4.5%; 2009 - 4.1%). The average interval between the date of the last future cash flow being
discounted and the end of the financial year is 50.3 years on open and settled cases.
(ii) Provisions for unearned premiums and unexpired short-term insurance risks.
Gross
£m
Reinsurance
£m
Net
£m
At 1 January 2010 2,490 (67) 2,423
Increase in the year 2,191 (76) 2,115
Release in the year (2,393) 71 (2,322)
At 1 January 2011 2,288 (72) 2,216
Increase in the year 1,906 (66) 1,840
Release in the year (2,257) 78 (2,179)
Foreign exchange and other adjustments (5) — (5)
At 31 December 2011 1,932 (60) 1,872
The unearned premium provision is included within Accruals, deferred income and other liabilities (see Note 22).
Movement in provision for life business liabilities
Retained life
business
2011
£m
Retained life
business
2010
£m
Disposed
business
2010
£m
At 1 January 68 82 9,526
Premiums received 46 49 234
Fees and expenses (8) (14) (15)
Investment return 15 323
Actuarial adjustments 9(36) (138)
Account balances paid on surrender and other terminations in the year (23) (18) (575)
Disposal of subsidiaries —— (9,147)
Foreign exchange and other adjustments — — (208)
At 31 December 93 68 —
Insurance risk
Insurance risk is the risk of fluctuations in the timing, frequency or
severity of insured events, relative to the expectations of the Group at the
time of underwriting.
Underwriting and pricing risk
The Group manages underwriting and pricing risk through the use of
underwriting guidelines which detail the class, nature and type of
business that may be accepted; pricing policies by product line and by
brand; and centralised control of policy wordings and any subsequent
changes.
Claims management risk
The risk that claims are handled or paid inappropriately is managed using
arange of IT system controls and manual processes conducted by
experienced staff. These, together with a range of detailed policies and
procedures ensure that all claims are handled in a timely, appropriate and
accurate manner.
Reinsurance risk
Reinsurance is used to protect against the impact of major catastrophic
events or unforeseen volumes of, or adverse trends in, large individual
claims and to transfer risk that is outside the Group's current risk appetite.
Reinsurance of risks above the Group's risk appetite is only effective if
the reinsurance premium is economic and the counterparty is financially
secure. Acceptable reinsurers are rated A- or better unless specifically
authorised.
Reserving risk
Reserving risk relates to both premiums and claims. It is the risk that
reserves are assessed incorrectly such that insufficient funds have been
retained to pay or handle claims as the amounts fall due. Claims
development data provides information on the historical pattern of
reserving risk.
Notes on the consolidated accounts continued