Natwest Group Plc · LSE:NWG
Natwest — RBS Insurance — FY2011 Earnings Presentation
28 slides from Natwest's earnings presentation, Feb 23, 2012
Slide 1: RBS Insurance update and 2011 Results
RBS Insurance update and 2011 Results Paul Geddes, CEO John Reizenstein, FD
Slide 2: Important Information
Important Information NOT FOR TRANSMISSION OR PUBLICATION IN OR INTO THE UNITED STATES, JAPAN OR AUSTRALIA This presentation has been prepared by The Royal Bank of Scotland plc (the “Group”) and consists of slides for a presentation concerning RBS Insurance. By reviewing or attending this presentati
Slide 3: Building Britain's best retail general insurer
Building Britain’s best retail general insurer Leading UK retail general insurance franchise 2010 1 2011 1 Var with powerful brands and extensive product offering GWP (£m) 4,298 4,098 (200) 2 Earnings turnaround in 2011 with RoE of Underwriting Result 307 1,035 728 10.3% (2010: -6.8%) being driv
Slide 4: Market leading retail general insurance franchise
Market leading retail general insurance franchise… Multi-brand, multi-segment strategy… …with strong positions in chosen markets Own Brands Partnerships # 1 UK personal lines insurer with 19% market share in motor and 18% in home1 UK Personal Lines UK Personal Lines represents 75% of Group premi
Slide 5: …which underperformed in previous years
…which underperformed in previous years Strong reported profitability Reserve increases Return to Historic challenges? and derisking profit Complex and geographically 1,200 5,000 Gross written fragmented claims premium (RHS) processes 4,500 1,000 Growth in segments that 4,000 proved unprofitable
Slide 6: Three phase transformation plan
Three phase transformation plan Phase 1: Return to profit Strengthen senior leadership team Strong pricing action, change business selection and exit unprofitable business Progress: Phase 2: Rebuild competitive advantage Implement a comprehensive change programme aiming to … targeting deliver
Slide 7: Management team took action from 2009...
Management team took action from 2009... …deliberately reducing high risk, unprofitable Management took rapid action… Motor business from early 2010… RBS Insurance UK Motor In Force Policies 1 Repricing: Pricing action to increase motor premiums 8 Motor Core (ex PL Broker) Personal Lines Broker (exi
Slide 8: …delivering improved financial performance
…delivering improved financial performance Highlights Earnings improvement continued Close to £750m improvement in year-on-year operating RBS Insurance operating result, £m profit following management actions as well as more 248 248 benign weather in 2011 206 206 67 58 Five successive quarters o
Slide 9: RBSI's vision
RBSI’s vision RBSI aims to be recognised as Britain’s best retail general insurer a Each of RBSI’s brands b ... when combined, this gives offers a superior the scale to deliver superior proposition to distinct performance in: target customer Pricing segments… Claims Operational efficiency c ..
Slide 10: Strong brands providing broad market coverage…
a Strong brands providing broad market coverage… RBSI has amongst the most powerful brands in the …and the ability to deploy brands across distinct market… customer segments Customer consideration of brand (brands named in top 3, %) Purchasing approach 72 71 71 67 67 66 66 Motor Self- directed Brand
Slide 11: …with an extensive product range and deep customer relationships
…with an extensive product range and deep customer a relationships Leading brands combine with extensive …to provide deeper relationships with our product offerings… customers… Home Cross product holdings1 emer- Motor Rescue Home gency Pet Travel Van SME Home customers who also have motor insurance
Slide 12: Good progress on pricing, claims and costs initiatives
b Good progress on pricing, claims and costs initiatives Initiatives Progress Improved data collection and rating model leads to better technical pricing with more granularity across more dimensions Utilising historic quote and customer data increases Pricing understanding of customer behaviour
Slide 13: Delivering superior value and sustainable RoE
c Delivering superior value and sustainable RoE Own Brand growth Leverage competitive advantage into price and proposition Drive initiatives to deepen customer relationships across Split of 2011 GWP the portfolio including increase penetration of up-sell / cross-sell Increase penetration of ag
Slide 14: Results summary – a return to profit
Results summary – a return to profit £m 2010 2011 Variance GWP 4,298 4,098 (200) (5%) A return to full year profit with operating profit of £454m and a RoE of 10.3% Underwriting contribution (31) 797 827 N/A Operating profit benefit from benign weather Other Income 337 238 (99) (29%) (£50m) and
Slide 15: Reduced premiums and lower loss ratio as a result of management actions
Reduced premiums and lower loss ratio as a result of management actions Gross written premium 2009-2011 (£m) 4,480 Extended 216 distribution 40 1 31 4,098 (328) Exited (342) - reduced volume in 2010 - change to risk mix + pricing actions FY10 Motor Home Rescue& Rescue Comm- international Commercial
Slide 16: Reduced costs despite continued investment
Reduced costs despite continued investment Total £879m Total Expense ratio stable at 20% - overall expenses reduced by 4% £846m 203 Marketing Marketing spend flat reflecting continued investment in core brands 200 costs Stable staff costs despite significant investment, transfer in of certain servic
Slide 17: Five successive quarters of year on year improvement in operating result
Five successive quarters of year on year improvement in operating result Underwriting profit (£m) 314 273 266 274 263 222 167 137 120 107 1Q 09 2Q 09 3Q 09 4Q 09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 (40) (57) Operating profit (£m) 141 139 123 125 76 67 11 1Q 09 2Q 09 3Q 09 4Q 09 1Q10 2Q10 3Q10 4Q
Slide 18: Claims development
Claims development Increased claims reserves in 2009/2010 Year-end reserving update Net reserves1 (£bn) Positive contribution from prior year 5.0 reserve releases 4.8 Commercial continues to run-off favourably 4.5 but home was affected by late reported 4.2 4.2 claims relating to the 4Q 2010 weat
Slide 19: Investment portfolio
Investment portfolio 95% cash and bonds A rated or better Stable performance in volatile markets Cash and bond credit rating 5% 2.7% 2.7% 2.6% 2.6% 2.4% 2.4% 2.2% 2.2% 60 60 62 59 57 58 54 53 A £m 42% 14 15 15 19 11 AA 7 6 44% AAA Other (8) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Invesm ent incom e
Slide 20: Capital position
Capital position Capital position at end 2011… ...strongly capitalised against regulatory minimum Solvency I capital requirements versus actual (£bn) Insurance total Group view of book £3.7bn value £4.4bn Available Required £0.7bn £1bn total capital capital (IGD)1 £0.4bn Goodwill & Group goodwill &
Slide 21: Summary of 2011 results
Summary of 2011 results RoE of 10.3%, operating result of £454m and combined ratio of 100% Improved loss ratio Modest prior year reserve release with stable A return to overall position for motor bodily injury profit with phase one of Stable operating expense ratio despite lower management’s
Slide 22: Outlook and key themes
Outlook and key themes Tough macro conditions and low interest rate environment expected to continue Market context Industry wide regulatory and legal issues continue to develop, e.g. Jackson reforms, OFT enquiry, potential referral fee ban Focus on Continue to roll-out new claims system and d
Slide 23: The RBSI story so far
The RBSI story so far 1 Leading UK retail general insurance franchise with powerful brands 2 Management actions delivering financial improvements 3 Benefits to emerge from pricing, claims and cost initiatives 4 Robust balance sheet with conservative investment strategy ROE focused business committed
Slide 24: Appendices
Appendices %* RBS 23
Slide 25: Additional income – UK motor
Additional income – UK motor £m Description 450 Additional income generated by UK Motor arises from a number of sources: 400 Sales of ‘add-on’ products 350 Other ‘insurance like’ policies which are generally purchased at the point of sale of the corresponding motor policy, e.g. motor 1 300 Premi
Slide 26: Results by segment
Results by segment 1 Rescue Commer- Internati- Other £m Motor Home RBSI & Other cial onall GWP 1,904 1,034 337 397 425 201 4,298 Underwriting contribution (421) 270 127 29 38 (73) (31) Other Income 258 37 13 19 7 3 337 Underwriting result (163) 307 140 48 45 (70) 307 FY 2010 Operating Expenses (879)
Slide 27: Divisional balance sheet
Divisional balance sheet Year ended 2011 Year ended 2010 Year ended 2009 Core Non Core Total Core Non Core Total Core Non Core Total £m £m £m £m £m £m £m £m £m Assets Investment property 70 - 70 84 - 84 78 - 78 Property and equipment 60 - 60 53 - 53 67 - 67 Intangible assets 362 - 362 280 - 280 282
Slide 28: Management team
Management team Corporate team Shared functions leadership (cont) Paul Geddes Chief Executive ▪ Former CEO of RBS UK Retail ▪ Commercial Director, then Officer ▪ Extensive retail, marketing, Rick Chief Marketing Marketing Director for Centrica Joined Officer European and multi-channel Vlemmiks ▪ Led