Insurance Age - RBSI reports 9% slump in operating profit

Insurance Age - RBSI reports 9% slump in operating profit: "RBSI reports 9% slump in operating profit

RBSI reports 9% slump in operating profit

Royal Bank of Scotland Insurance this morning reported a 9% decline in operating profit to £683m on stable income of £5.6bn. The insurance group was impacted to the tune of £274m by the floods.

The UK combined operating ratio for 2007, including manufacturing costs,increased to 98.0%, reflecting a higher loss ratio and the reduction in partnership income.

Excluding the impact of the floods, the combined operating ratio was 91.9%. The insurance group has 6713 million in force own brand motor policies (2006: 6790 million); 3752 million non motor policies (2006: 3759 million) and 9302 million partnership and broker policies (2006: 11 242 million).

In a statement in continued: “Our own-brand businesses have performed well, with income rising by 1% and contribution growing by 4%. Excluding the impact of the floods, own-brand contribution grew by 24%.

“In the UK motor market we have pursued a strategy of targeting lower risk drivers and have increased premium rates to offset claims inflation, improving profitability by implementing heavier price increases in higher risk categories.

“Our international businesses performed well, with Spain delivering strong profit growth while, in line with plan, our German and Italian businesses also achieved profitability in 2007. Home insurance grew across all of our own brands in the second half, and we achieved particular success in the distribution of home policies through our bank branches, with sales up 40%.”

In its partnerships business, RBSI said it had concentrated on “more profitable opportunities” and have consequently not renewed a number of large rescue contracts. RBSI added that it had also pulled back from some less profitable segments of the broker market.

This resulted in a 17% reduction in in-force policies, but income fell by only 2%. Contribution from partnerships and brokers fell by 22% as a result of flood-related claims. Excluding the impact of the floods, contribution from partnerships and brokers increased by 18%.

RBSI concluded: “For RBS Insurance as a whole, insurance premium income, net of fees and commissions, was 2% lower at £4.9bn, reflecting modest growth in our own brands offset by a 5% decline in the partnerships and broker segment. “Other income rose by 11% to £734m, reflecting increased investment income. Total expenses were held flat at £963m. Within this, staff costs reduced by 7%, reflecting our continued focus on improving efficiency whilst maintaining service standards.

“A 5% rise in non-staff costs reflects increased marketing investment in our own brands. “Net claims rose by 1% to £4.01bn. Gross claims relating to the floods in June and July cost more than £330m, with a net impact, after allowing for profit sharing and reinsurance, of £274m.

“Excluding the impact of the floods, net claims costs were reduced by 7%. In the motor book, while average claims costs have continued to rise, this has been mitigated by improvements in risk selection and management and by continuing efficiencies in claims handling.