RBS 2012 Annual Report Download - page 90

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Business review continued
Direct Line Group continued
2012 2011 2010
£m £m £m
Gross written premium
Personal lines motor excluding broker
- own brand 1,494 1,584 1,647
- partnerships 136 137 257
Personal lines home excluding broker
- own brand 455 474 478
- partnerships 534 549 556
Personal lines rescue and other excluding broker
- own brand 177 174 178
- partnerships 176 174 159
Commercial 436 435 397
International 557 570 425
Other (1) 1 1 201
Total gross written premium 3,966 4,098 4,298
Performance ratios
Return on tangible equity (3) 11.7% 10.3% (6.8%)
Loss ratio (4) 65% 70% 91%
Commission ratio (5) 12% 10% 10%
Expense ratio (6) 23% 21% 20%
Combined operating ratio (7) 100% 101% 121%
Balance sheet
Total insurance reserves (£m) (8) 8,066 7,284 7,643
Notes:
(1) ‘Other’ predominately consists of the personal lines broker business and from 2012 businesses previously reported in Non-Core.
(2) Total in-force policies include travel and creditor policies sold through RBS Group. These comprise travel policies included in bank accounts e.g. Royalties Gold Account, and creditor policies sold
with bank products including mortgage, loan and card payment protection.
(3) Return on tangible equity is based on annualised operating profit after tax divided by average tangible equity adjusted for dividend payments.
(4) Loss ratio is based on net claims divided by net premium income.
(5) Commission ratio is based on fees and commissions divided by net premium income.
(6) Expense ratio is based on expenses divided by net premium income.
(7) Combined operating ratio is the sum of the loss, commission and expense ratios.
(8) Consists of general and life insurance liabilities, unearned premium reserves and liability adequacy reserve.
In October 2012, the Group completed the successful initial public
offering of Direct Line Group, selling 520.8 million of its existing ordinary
shares. This represented 34.7% of the issued share capital, generating
gross proceeds of £911 million.
During 2012, Direct Line Group made good progress despite competitive
market conditions. The operating profit of £441 million was down £13
million compared with the previous year driven by lower investment
returns, partially offset by an improved underwriting result.
A combined operating ratio (COR) of 100% represented an improvement
of 100 basis points compared with 2011 driven predominantly by an
improved loss ratio. The full year 2012 result included Home weather
event claims of approximately £105 million versus £20 million in 2011,
which was more than offset by £390 million of releases from reserves
held against prior year claims across the portfolio. Of these releases, £68
million related to the run-off business where the impact on the income
statement is broadly neutral. For Direct Line Group’s ongoing operations,
the current year attritional loss ratio improved by 1.6 percentage points
which reflects actions taken to improve risk selection and the
implementation of the claims transformation programme. In 2012 all
categories within Direct Line Group made an operating profit.
Direct Line Group made further progress in executing its strategic plan
with developments made in its pricing capability through the
implementation of a new pricing model and rating engine across the
Motor and Home divisions. The new claims management system
introduced during 2011 is now operational for the majority of new Motor
and Home claims. Benefits, including shorter settlement times for
customers and improved legal case management, are being realised as a
result of the improved claims process.
During 2012, a number of partnership agreements, including Nationwide
Building Society and Sainsbury’s Bank, were either renewed or extended.
In addition, Direct Line Group signed an arm’s length, five year
distribution agreement with RBS Group for the continued provision, post
divestment, of general insurance products to UK Retail customers.
Following launch on comparethemarket.com, Churchill and Privilege
motor and home products are now available on all four major price
comparison websites in the UK. This reinforces Direct Line Group’s multi-
channel distribution strategy.