RBS 2011 Annual Report Download - page 84

82 RBS Group 2011
RBS Insurance continued
RBS Insurance continues to make good progress ahead of its divestment
from the Group. Q4 2011 operating profit of £125 million was the fifth
successive quarter of year-on-year improvement. Operating profit of £454
million for 2011 shows a return to full year profitability and represents
close to a £750 million turnaround from 2010. These results demonstrate
the success of the first phase of management’s transformation plan - to
return to profit in 2011. The full year combined operating ratio improved
to 100% (2010 - 121%) with a full year return on equity of 10.3%
compared with a negative return of 6.8% in 2010.
The second phase of the RBS Insurance transformation plan, to build
competitive advantage, is underway and tangible benefits are already
being delivered. All new Churchill, Direct Line and Privilege motor claims,
as well as all new Churchill home claims, are now being processed
through a new claims management system. Within motor, the rollout of a
new rating engine and new pricing tools ensured more accurate and
tailored pricing with the aim of generating greater value from RBS
Insurance's multi-brand, multi-distribution strategy.
As part of the plan to build competitive advantage, the rationalisation of
occupied sites continues, with 15 site exits by the end of 2011. The
consolidation of the four UK general insurance underwriting entities within
the RBS Insurance Group was successfully completed in December
2011. All UK general insurance business is now written through one
underwriter with the aim of improving operational and capital efficiency.
Marking a significant new partnership, RBS Insurance signed a five-year
contract with Sainsbury’s Finance in 2011 to provide underwriting, sales,
service and claims management for its car insurance customers.
Following the successful launch and development of the car insurance
partnership, a further contract was signed early in 2012 to provide home
insurance for Sainsbury’s customers. Building on RBS Insurance’s
established successful relationship with Nationwide Building Society, a
deal was concluded to extend its provision of home insurance until the
end of 2015. RBS Insurance is also concluding terms with RBS Group’s
UK Retail bank on the details of a five-year agreement for the continued
provision of general insurance products post separation. The term would
commence from the point of initial divestment.
While overall gross written premium fell by 5% in 2011, it increased by
10% in Commercial, which includes NIG, the commercial broker
business, and Direct Line for Business, the direct SME insurer. A new
brand identity was unveiled for NIG and work continued to improve its
product offering and service to brokers. Direct Line for Business
continued to develop well.
RBS Insurance’s international division showed strong growth in gross
written premiums primarily in Italy, assisted by the first full year of its
sales agreements with FGA Capital, a joint venture between Fiat and
Credit Agricole. The German business also showed good growth
following improvements in the second half of 2011 to its direct and
partnership business, including strengthening its relationship with
Renault.
Ahead of the planned divestment in the second half of 2012, RBS
Insurance has begun separating its activities and operations from RBS
Group. Its corporate functions have been strengthened, arm’s length
agreements are under discussion with the Group where appropriate, a
new corporate brand, Direct Line Group was announced on 15 February
2012 and a new risk and control framework has been implemented, in
readiness for standalone status.
Overall, RBS Insurance has powerful brands, improved earnings, a
robust balance sheet and is executing the second phase of its
transformation plan to rebuild competitive advantage.
Business review continued