Geddes is upbeat about improving results despite latest £100m injection

RBS Insurance’s reserves for motor bodily injury claims are at the right level following a further £100m strengthening in the third quarter, according to chief executive Paul Geddes. “We have taken what we think we need to have taken,” he said.

Following the reserve increase, RBSI made an operating loss of £33m for the third quarter of 2010, compared with a loss of £203m for the second quarter and a profit of £11m for the same quarter last year. RBSI boosted reserves by £320m in the second quarter of 2010.

Despite Geddes’ confident assessment, he added that the company would continue to monitor its reserving position. He said: “We will do a reserve review and if our reserves aren’t adequate we will have to undertake reserve strengthening.”

The latest round of reserve strengthening was triggered by an industry-wide review conducted by the general insurance research organising committee (GIRO) working party of the Actuarial Profession on the effects of payment protection orders (PPOs), which was published on 12 October.

Geddes said:?“We were as definitive as we could be in the second quarter but we did say we were awaiting that piece of work and we would take action once we saw it.”

PPOs are essentially court orders that instruct insurers to pay injured parties over a period of time instead of a lump sum. Following RBSI’s Q2 reserve strengthening, Geddes highlighted PPOs as a potential area of concern for the company, given their potential to inflate claims.

Geddes declined to say for which years or which specific businesses within RBSI the reserve strengthening related, but said that it applied across the firm’s motor book.

Despite the third-quarter loss and the need to boost reserves further, Geddes was upbeat about the results, pointing to the fact that the reserve strengthening was much smaller than the Q2 boost. He added that the underlying performance showed that the actions the company was taking to improve pricing, underwriting, claims and capital management were starting to take effect.

“We are optimistic that the progress will continue, but there will obviously be bumps in the road because that is the nature of insurance as claims trends develop and weather events happen,” he said.