RBS 2011 Annual Report Download - page 85

RBS Group 2011 83
2011 compared with 2010
Operating profit rose by £749 million in 2011, principally due to the non
repeat of the bodily injury reserve strengthening in 2010, de-risking of the
motor book, exit of certain business segments and more benign weather
in 2011.
Gross written premium fell £200 million, 5%, as the business continued to
drive improved profitability through reduced volumes in unattractive
segments. This was partially offset by growth in Commercial and
International.
Total income fell £432 million, 10%, following the exit of personal lines
broker, a decline in premiums reflecting reduced motor volumes and
higher reinsurance costs to reduce the risk profile of the book.
Net claims fell £1,160 million, 30%, due to the non recurrence of bodily
injury reserve strengthening in 2010, actions taken to de-risk the book,
the exit of certain business segments and more benign weather in 2011.
Total direct expenses rose by £9 million principally driven by project
activity to support the transformation plan.
Investment income fell £12 million, 4%, reflecting decreased yields on the
portfolio in 2011, partially offset by higher realised gains.
At the end of 2011, RBS Insurance's investment portfolios comprised
primarily cash, gilts and investment grade bonds. Within the UK portfolio,
£8.9 billion, and the International portfolio, £827 million, there was no
exposure to sovereign debt issued by Portugal, Ireland, Italy, Greece or
Spain.
Total in-force policies fell 6% in the year due to planned de-risking of the
motor book and the exiting of certain other segments and partnerships,
including personal lines broker.
2010 compared with 2009
RBS Insurance has embarked on a significant programme of investment
designed to achieve a substantial lift in operational and financial
performance, ahead of the planned divestment of the business, with a
current target date of 2012. This programme encompasses the
enhancement of pricing capability, transformation of claims operations
and expense reduction, together with a range of other improvements
across the business, including a greater focus on capital management.
2010 as a whole was a disappointing profit year, impacted by significant
reserve strengthening for bodily injury claims and severe weather,
resulting in a loss of £295 million.
Income was down 2% (£70 million) against 2009, driven by a managed
reduction in the risk of the UK motor book, largely offset by significant
price increases:
xThis de-risking was achieved by a combination of rating action to
reduce the mix of higher-risk drivers, and the partial or total exit of
higher risk business lines (significantly scaling back the fleet and taxi
business and the exit of personal lines business sold through
insurance brokers). As a result in-force motor policies fell 14%
compared with 2009.
xEven with the significant reduction in the risk mix of the book,
average motor premiums were up 7% in the year, due to significant
price increases. The prices of like-for-like policies have increased by
35-40% over the last year. These increases were in addition to the
significant increases achieved in 2009.
Initiatives to grow ancillary income were also implemented during the
year resulting in revenues of £46 million in 2010 (£25 million in 2009).
Away from UK motor, overall home gross written premiums grew by 2%.
This included the exit from less profitable business in line with overall
strategy. Our underlying own brands business continues to grow
successfully, with gross written premiums increasing 4%.
The International business continued to invest in growth in 2010 with
gross written premiums of £425 million up 20% on 2009. The Italian
business successfully grew to a market share approaching 30% of the
direct insurer market. The German business grew 7% and is well
positioned to take advantage of the emerging shift to direct/internet
distribution in that market.
Several programmes to further improve the overall efficiency of the
business took effect during the year, including a reduction of six sites and
operational process improvements, which will continue to improve
efficiency.
Total in-force policies declined by 3%, driven by a fall of 14% in motor
policies. This was partly offset by higher travel policies, up 64% with new
business from a partnership with Nationwide Building Society
commencing in Q4 2010. The personal lines broker segment overall
declined by 43%, in line with business strategy.
Underwriting income declined by £63 million, with lower motor premium
income, driven by rating action. Increased fees and commissions
reflected profit sharing arrangements with UK Retail in relation to
insurance distribution to bank customers. Investment income was £28
million lower, reflecting the impact of low interest rates on returns on the
investment portfolio as well as lower gains realised on the sale of
investments.
Net claims were £326 million higher than in 2009, driven by increases to
bodily injury reserves relating to prior years, including allowance for
higher claims costs in respect of Periodic Payment Orders due to an
increased settlement rate of such claims. Although bodily injury frequency
has stabilised, severity has continued to deteriorate. Claims were also
impacted by the adverse weather experienced in the first and fourth
quarters.
Expenses were down 7%, driven by lower industry levies and marketing
costs.