Strong half-year results strengthen the bank’s demand for the asking price of £7bn.
Royal Bank of Scotland is in the driver’s seat following its half-year results, and is unlikely to sell its insurance arm at a discounted price, according to a leading analyst.
Leigh Goodwin, an analyst at Fox-Pitt Kelton, believes RBS is now in a stronger capital position and can hold out for its asking price of up to £7bn for the insurance business, which includes household names Direct Line and Churchill.
He said: “Officially, the business is still for sale. I don’t think they’re going to let the process drag out because there are a lot of staff members interested in what’s going on. But these results confirm they won’t have to sell it cheaply.”
Last week RBS posted an overall pre-tax loss of £691m after credit market write-downs of £5.9bn. The loss was less than market predictions, and was in line with previous disclosure.
The bank’s insurance arm reported a £403m operating profit for the first half of 2008, up from £258m year-on-year. RBSI also showed a strong recovery in its contribution to the group, with an increase of 41% to £513m. If it had not been for the £125m impact of the June 2007 floods, the contribution would have grown by a more modest 5%.
The bank said own-brand home insurance policies that were in force grew by 23% since December, and overall in-force policies grew by 46% to £5.5m versus £3.8m in 2007.
RBSI’s insurance premium income, net of fees and commissions, dipped 3% to £2.4bn. This reflected 4% growth in its own brands offset by an 11% decline in the partnerships and broker segment.
Total income fell slightly to £2,786m, down from £2,843m. Direct expenses grew by 17% to £410m due to increased marketing investment in its own brands, including the launch of Direct Line for Business.
Net claims dropped 13% to £1.9bn thanks to better weather conditions. Excluding the impact of the 2007 floods, net claims costs fell 6%.
The UK combined operating ratio, which included manufacturing costs, but excluded floods, improved from 95.8% to 94.6%.
US insurance giant Allstate is still considered the frontrunner to buy RBSI, and is thought to have made a formal bid.
Hosted by comedian and actor Tom Allen, 34 Gold, 23 Silver and 22 Bronze awards were handed out across an amazing 34 categories recognising brilliance and innovation right across the breadth of UK general insurance.
