Insurer blames rising cost of bodily injury claims for decimated profit

RBS Insurance saw its operating profit collapse by 90% to £58m for 2009, compared to £584m in 2008.

In its results statement released this morning, the bank-owned insurer blamed the rising cost of bodily injury claims for the drastic fall.

The results will come for a blow as RBS prepares its insurance arm, home to Direct Line, Churchill and NIG, for a flotation as early as 2012.

Meanwhile income grew by 1%, with premium income stable but lower reinsurance costs. Investment income fell by 16%. UK combined operating ratio deteriorated to 105.9%, from 93.6% the previous year.

The number of policies in force grew by 3%, driven by the success of own brands, up 11%. Churchill and Privilege have benefited from deployment on selected price comparison websites, with motor policy numbers up 19% and 3% respectively, and home policies up 32% and 109% respectively, compared with prior year. Direct Line motor and home policies grew by 4% and 2%respectively.

The partnerships and broker segment declined by 10%, which the insurer said was in line with business strategy.

Expenses fell by 2% in 2009, with wage inflation, higher industry levies and professional fees offset by cost efficiencies, reduction in headcount and lower marketing expenditure.

Net claims were 20% higher than in 2008 driven by a £448 million increase in bodily injury claims as well as by adverse weather experienced in the fourth quarter.

The insurer hiked prices in the latter part of the year to mitigate the industry trend of rising claims costs.