Bodily injury claims forced company to increase motor reserves by £320m
Further reserve increases may be needed for Royal Bank of Scotland Insurance’s prior-year motor book because uncertainties remain about the development of bodily injury claims, chief executive Paul Geddes warns.
Rising bodily injury claims forced the company to boost motor reserves by £320m in the first half of the year, of which £241m was for prior years. The balance was to cover motor business written in the first half of 2010.
The reserve strengthening forced RBSI to make an operating loss of £253m for the first half of the year, compared with a profit of £217m in the same period last year. The firm’s first-half combined operating ratio was 120.2%, compared with 95.2% last year.
The use of periodic payment orders (PPOs) for large bodily injury claims could cause more losses, Geddes said, as they could cost more than paying a lump sum. The amount paid under a PPO could be inflated, for example, by the rising cost of care. “It is a number that can move around a lot,” he said.
RBSI also had taken remedial action to improve the profitability of its motor book – including price increases – and was also working to cut costs. Cuts in staff and marketing budgets led to a 14% fall in expenses in the first half of the year. Further savings were expected as a result of moving operations offshore and further staff cuts.
Geddes declined to put a figure on the rate increases, but said they were slightly more than those seen market-wide. He conceded that, as the company’s combined ratio was still 108.3% after the prior-year reserve hikes were stripped out, it would take time before the remedial work took full effect. “We don’t think that we will return to a full-year profit in 2010. We think that will be in 2011.”
Geddes denied that the loss had delayed the sale of RBSI. The unit had to be sold by 2013 as a condition of its 2008 government bail-out. “It was always our intention to sell the business towards the end of the Europe-imposed timescale because we plan to make it better and more valuable. This does not change the timetable.”