RBS 2011 Annual Report Download - page 384

382 RBS Group 2011
24 Insurance business continued
Loss ratios
The following table shows loss ratios for each major class of business, gross and net of reinsurance.
2011 2010 2009
Earned
premiums
Claims
incurred
Loss
ratio
Earned
premiums
Loss
ratio
Earned
premiums
Loss
ratio
£m £m % £m % £m %
Residential property Gross 1,053 597 57 1,168 55 1,129 53
Net 992 599 60 1,107 58 1,065 56
Personal motor Gross 2,385 1,977 83 2,829 125 2,984 103
Net 2,230 1,880 84 2,760 125 2,901 103
Commercial property Gross 215 79 37 187 57 182 41
Net 192 78 41 169 63 166 45
Commercial motor Gross 122 130 107 120 107 136 100
Net 121 133 110 119 104 135 98
Other Gross 705 278 39 837 45 848 51
Net 701 273 39 834 44 845 51
Total Gross 4,480 3,061 68 5,141 93 5,279 82
Net 4,236 2,963 70 4,989 94 5,112 83
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 undiscounted
insurance liabilities up to 20 years, excluding those linked directly to the
financial assets backing these contracts (2011 and 2010 - nil; 2009 -
£4,175 million).
0-3 months 3-12 months 1-3 years 3-5 years 5-10 years 10-20 years
£m £m £m £m £m £m
2011 546 1,110 1,592 792 849 502
2010 724 1,503 1,821 898 734 442
2009 561 1,685 1,898 949 665 73
Notes on the consolidated accounts continued