Premium income nudges up, but not enough to offset £448m set aside for anticipated claims
RBS Insurance (RBSI) profits collapsed 90% as the bank-owned insurer set aside £448m reserves for bodily injury claims.
The largest player in the personal lines market – owner of Direct Line, Churchill, Privilege and NIG – posted a drop in net income from £584m in 2008 to £54m last year.
Chief executive Paul Geddes said that without bodily injury, as well as weather-related events and lower investment returns, performance would have been on par with 2008.
Geddes said: “There has been a lot of coverage to say this has hit the industry hard, and as the market leader, over twice as big as anybody else, when the market sneezes we catch a cold.”
RBSI has pushed through rate increases in 2009 and will continue to do so in 2010, as well as investing in its fraud detection and claims handling units to weed out fraudsters.
Geddes did not comment on specific rate rises but said: “We are pricing based our most accurate and latest view of the cost of claims, which obviously includes the higher BI [bodily injury] level.”
Despite the recession, premium income increased across the brands to £2.854bn, £104m more than 2008.
However, broker-only insurer NIG, often described as the misfit in a family of direct players, had an income decline of 10%.
Geddes said: “The decline was a deliberate choice. It was a consequence of having a firm strategy about the business we want to do. It’s a good business on good management and good customer relationships.”
Last year, the European Commission ordered The Royal Bank of Scotland to hive off its insurance arm to comply with competition regulations. Geddes said the business would not lose its focus, adding: “The favoured option is an IPO, but it may also be achieved by a trade sale. There’s no hurry to do it. We’ve got a few years to get it done and our objective is to maximise the value of either of those options.”