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Nine-month combined ratio edges towards break-even

RBS Insurance has followed its first-half operating profit of £206m with a third-quarter profit of £123m.

This brings total profit for the nine months to date to £329m, compared with a loss of £286m in the same period last year.

The combined ratio for the third quarter alone was a profitable 98%. The nine month 2011 companied ratio was a still-unprofitable 101%, though this is an improvement from the 103% posted at the half-year stage.

RBSI sustained heavy losses throughout 2010 because of reserve strengthening against rising bodily injury claims. This culminated in a full-year operating loss of £295m and a combined ratio of 122%. However, after pulling out of unprofitable business and revamping its claims-handling, the company has consistently posted operating profits so far in 2011.

“Overall, RBS Insurance is making good progress, has a positive momentum and is well positioned with powerful brands, coupled with a transformed claims function,” the company said in a statement. “In personal lines the business will continue to look for partners that fit with its strategy of providing a full end-to-end service, while complementing its own business and distribution channels. Elsewhere, RBS Insurance continues to develop its commercial and international divisions.”

The £123m third-quarter operating profit is 12% down on the £139m it made in the second quarter, but RBSI attributed this to seasonal trends, reduced ‘other income’ (predominantly discontinued broker personal lines business following NIG’s exit from personal lines last year) and the phasing of expenses.

Gross earned premiums for the first nine months of 2011 fell 5% to £3.2bn (9M 2010: £3.4bn). Third-quarter premiums also fell 5% to £1.06bn (9M 2010: £1.11bn).

RBSI also revealed that 1.5% of its total £9.7bn investment portfolio is directly exposed to issuers in Spain, Italy and Ireland. The company has no direct exposure to either Greece or Portugal.

RBSI is working towards a partial flotation in the second half of 2012, with a further offering planned for the following year. RBS has to divest the majority of its insurance business by 2013 and the entire business by 2014 as part of the conditions of its 2008 bail-out by the UK government.

While flotation is RBSI’s preferred option, private equity is rumoured to be interested in buying the insurer.