Royal Bank of Scotland Insurance (RBSI) made an operating profit of £206m in the first half of 2011, compared with a £253m loss in the same period last year.

However, a reduction in earned premiums resulted in the firm posting a loss-making combined ratio of 103%, though this is a large improvement from the 124% RBSI reported in the first half of 2010.

RBSI’s loss ratio declined sharply to 74% from 96%. This reflects the fact that RBSI’s first half 2010 results were marred by £241m of prior-year reserve strengthening, which was not repeated in 2011. RSBI has lowered reserves in the first half of 2011. In the second quarter, they stood at £7.48bn, compared with £7.56bn at the end of 2010.

However, while total expenses dropped 4% to £422m (H1 2010: £441m), the expense ratio increased one point to 21% because of lower premium income.

RBSI reported a 5.6% drop in earned premiums to £2.1bn from £2.2bn. This brought total income down to £2bn from £2.2bn. RBSI attributed the drop to the exit from broker personal lines business and pulling out of unprofitable relationships.

Net claims paid fell 29% to £1.5bn (H1 2010: £2.1bn), resulting in an underwriting profit before expenses of £495m (H1 2010: profit of £63m) The technical result, which factors in expenses but excludes investment returns, improved to a profit of £73m from a loss of £378m.

“These results reflect significant progress towards the completion of the first phase of our strategy – recovering profitability,” said RBSI chief executive Paul Geddes in a statement. “Central to achieving these results have been the tough choices we made over the last year to de-risk and re-price the portfolio, and it is pleasing to see these benefits come through as planned. We have established a platform from which we can build competitive advantage and drive profitable growth ahead of the planned divestment of the business. Our site consolidation and improved claims process is on track.”

While RBSI has turned the corner, it still has work to do. Return on equity stood at 11.4% which, while an improvement over the negative return of 13.6% posted in the first half of 2010, is still a long way from the 20% return on equity target for 2013.

Investment income increased 6.4% to £133m (H1 2010: £125m).

RBSI H1 2011 results in £m (compared with H1 2010):

Earned premiums: 2,121 (2,248)

Net claims 1,488 (2,092)

Technical result: +73 (-378)

Operating result: +206 (-253)

Combined ratio: 103% (124%)

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