Paul Geddes says reserve-strengthening is over, despite COR rising to 115% in 2010

Royal Bank of Scotland Insurance (RBSI) has turned a corner after pumping in £868m of reserves over the last two years, says chief executive Paul Geddes.

Geddes, speaking after the bank-owned business posted a £295m operating loss last year, believes RBSI has finally finished the reserve-strengthening that has cushioned its losses from prior years’ bodily injury claims.

Combined operating ratio worsened from 106% in 2009 to 115% last year. Gross written premiums declined from £4.48bn in 2009 to £4.29bn.

Geddes said: “We’ve had four quarters where we’ve had an extensive amount of analysis, scrutiny of our reserves, lots of internal and external reserve reviews, participating in industry-wide studies and, net of that, we judge our reserves to be adequate and prudent.”

As well as the full-year results, RBSI also released fourth-quarter results. RBSI posted an improved operating profit, losing £9m in the fourth quarter of last year, compared to £33m in the third quarter.

Excluding the impact of weather and other one-off items, RBSI’s fourth-quarter result was a profit in the region of £75m.

RBSI, which owns Direct Line, Churchill and broker-only insurer NIG, suffered a £100m loss from the ‘big freeze’ at the end of last year.

Both AXA and RSA are intent on pushing through double-digit increases in household following two severe winters, but Geddes hinted that RBSI would not be following their lead.

Direct Line is promising to beat the price of current home insurance policies, if the policy has been held for 12 months and has three years claim-free.

Geddes said: “We are treating the two instances as one-offs, hence we’ve put them here as an adjustment. Now, there is a debate in terms of ‘is there a trend there?’.

“Those are the questions we are asking, and we haven’t come to a conclusion on that. We obviously remain competitive and overall we see a profitable business for us, which we’re seeking to grow in and I think we’re very competitive in.”

RBSI said it had cleansed its book of higher risk drivers by scaling back fleet and taxi business, and placing NIG’s personal lines book into run-off.

Geddes said: “We are starting to see the progress we are making from all the hard work and the investment, so we’re seeing benefits of that come through in the results. There’s lots still to do – and we can do even better than that – but it’s a turning point quarter for us.”