No need to motor

10 September 2010 By George Hay Follow @gfhay

The UK bank is seeking advisers for the sale of its general insurance arm. A quick deal would satisfy regulators and get an underperforming business off its books. But pressures that have weighed on the industry’s profit may be easing. RBS could get a better price if it waits.

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Royal Bank of Scotland will select an investment bank to advise it on the divestment of its insurance arm by the end of September, according to a person familiar with the situation.

RBS Insurance, the UK's second largest insurance provider, made a 253 million pound loss in the first half of 2010, compared to a 217 million pound profit in the first half of 2009. Its Combined Operating Ratio claims and expenses as a proportion of premiums rose to 120.2 percent in the first half of 2010, from 95.2 percent in the same period of 2009.

The division's poor results were mostly due to a 320 million pound provision taken in the second quarter, of which 241 million pounds was to reserve against claims made on policies written in previous years.

The combined operating ratio for personal motor insurers rose to 121.8 percent by the end of 2009, up from 107.8 percent in 2008, according to the UK's Financial Services Authority.

The UK business of Insurance Australia Group saw its COR rise from 92 percent to 167 percent in the year to June 20, 2010, leading to a loss of A$358 million compared to a profit of A$105 million in the first half of 2009.

IAG said the deterioration had been "driven primarily by an unprecedented increase in the frequency and severity of third party property damage and small bodily injury costs".

It said the increase in bodily injury claims was driven by the "claim farming" activities of accident lawyers. The number of firms registered to offer personal injury claims services grew from 1,400 to over 2,200 between July 2008 and June 2009, according to Datamonitor.

Inflation in claims for bodily injury is running at over 10 percent per annum, according to industry research from EMB, the actuarial consultant. The frequency of the average claim is rising by 510 percent per annum and the severity of the average claim is rising by 58 percent.

The average cost of a comprehensive car insurance policy rose by 14.2 percent in the second quarter of calendar 2010, according to the Confused.com/EMB Car Insurance Price Index.

The UK's coalition government has commissioned Lord Young to tackle the growth of a "compensation culture" as part of a widerranging review of health and safety legislation.

Context News

Royal Bank of Scotland will select an investment bank to advise it on the divestment of its insurance arm by the end of September, according to a person familiar with the situation.

The combined operating ratio for personal motor insurers rose to 121.8 percent by the end of 2009, up from 107.8 percent in 2008, according to the UK's Financial Services Authority.

IAG said the deterioration had been "driven primarily by an unprecedented increase in the frequency and severity of third party property damage and small bodily injury costs".

The average cost of a comprehensive car insurance policy rose by 14.2 percent in the second quarter of calendar 2010, according to the Confused.com/EMB Car Insurance Price Index.

The UK's coalition government has commissioned Lord Young to tackle the growth of a "compensation culture" as part of a widerranging review of health and safety legislation.

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