RBS Insurance

RBS Insurance is the UK's second largest general insurer and the largest personal lines insurer by gross written premiums. It sells and underwrites personal lines and SME insurance over the telephone and internet, as well as through brokers, RBS Group bank branches and partnerships.

Its brands include Direct Line, which sells general insurance products direct to the customer, while the Churchill and Privilege brands sell both directly to the customer and via selected price comparison websites. In addition, NIG sells general insurance products through independent brokers and Green Flag is RBS Insurance's provider of the rescue product. Internationally, RBS Insurance sells general insurance, mainly motor, in Spain, Germany and Italy under the Direct Line brand.

RBS remains the UK's largest motor insurer and its second largest home insurer. This is supported by the strength of the Direct Line and Churchill brands which maintained their positions as the two leading motor insurance brands. The total number of in-force policies was 7% higher in December 2008 than 12 months earlier.

RBS Insurance made strong progress in 2008. Operating profit after manufacturing costs rose by £99 million to a record £780 million, an increase of 15%. Excluding the impact of the 2007 floods and prior year reserve releases, operating profit grew by 6%. Direct expenses grew by 4% to £771 million. Net claims fell by 7% to £3,733 million and by 3% if the effects of the 2007 floods and reserving review are excluded. The indicative ROE of RBS Insurance was 38%.

During 2008, RBS Insurance continued its strategy of growing own brand business, with income increasing 7%. Within the partnership market, RBS Insurance continued to focus on the more profitable opportunities which resulted in discontinuing some of the less profitable partnership contracts. Consequently, the number of partnership and broker policies in-force at December 2008 was down 9% compared with a year earlier although contribution increased by 27%.

In 2008, RBS Insurance continued to develop its synergies with the wider Group. Excellent sales growth was achieved through the RBS and NatWest brands, where home insurance new business sales increased by 289%, the equivalent of one policy every minute during branch opening hours.

The international businesses performed well, with income up 24% and contribution up 37%. These businesses now have more than 2.5 million customers. RBS Insurance, under the Direct Line brand, is the largest direct motor insurer in Spain, the second largest in Italy and the third largest in Germany.

The success of RBS Insurance in 2008 was delivered by another strong performance from our people. This was illustrated by the Group-wide 'Your Feedback' survey, which showed that RBS Insurance improved its position in 11 out of 15 categories compared with 2007 and exceeded the global financial services norm in 12 of the 15 categories.

Throughout 2008, RBS Insurance continued to develop and enhance its operating model. This involved a focus on low-cost customer acquisition through multiple distribution channels, efficiency enhancements to our low-cost operations, and improved underwriting risk selection and claims handling. This has given the company a strong foundation and leaves it well placed for future profitable growth despite the ongoing impacts of the current economic market conditions.

Strategic review

The Group has decided to retain RBS Insurance, reflecting the strength of its franchise as the leading UK personal lines insurer. It provides high quality earnings, which are differentiated from the Group's banking businesses, providing valuable diversity and strong returns. The business plans to pursue additional growth through building its position in the online insurance aggregator channel, through the bank channels and in the commercial market. The business retains competitive advantage through its market leading brands, low cost operating model and the benefits of scale on its claims costs.

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