Update: RBS Hit by Interim Loss, Still Seeking Buyer

LONDON, Aug 08, 2008 (A. M. Best via COMTEX) -- BSLDF | Quote | Chart | News | PowerRating -- The Royal Bank of Scotland Group plc, which is trying to sell its insurance holdings, got a reminder of its need for cash in its interim results, which revealed a pretax loss of 691 million pounds (878.9 million euros).

The result, which included credit market write-downs of 5.9 billion pounds, is being described as one of the largest losses in U.K. banking history. In the first half of 2007, RBS had a pretax profit of 5.11 billion pounds.

RBS Insurance has ?performed well,? the group said in a statement, ?with contribution recovering strongly as claims fell from the high flood-affected levels recorded in 2007.?

RBS Insurance reported an increase in operating profit to 403 million pounds from 258 million pounds in the first half of 2007. Premium income fell to 2.64 billion pounds from 2.7 billion pounds. Net claims dropped to 1.86 billion pounds from 2.13 billion pounds.

The lower premium total, the bank said, reflected ?a strategy of discontinuing less profitable partnership contracts while focusing on growth in our own-brand businesses.?

RBS Insurance raised auto premiums in response to what it described as claims inflation. It also has focused on drivers it regards as being of lower risk. RBS Insurance also offered some of its brands on a ?limited number? of Web sites operated by aggregators.

The RBS group (LSE: RBS) also developed its insurance operations outside the United Kingdom, and reported a 25% increase in premiums from Spain, Italy and Germany. ?All three countries achieved strong increases in contribution,? RBS said.

Own-brand home insurance sales grew by 23%.

Encouraging performance by its partnerships and broker-supported operations points to good opportunities in the provision of third-party services.

The decision to drop some rescue contracts and to curtail some less attractive broker-related activities led to an 8% drop in income. RBS Insurance operates such high-profile U.K. brands as Direct Line, Privilege and Churchill.

Royal Bank of Scotland had announced in April that it was considering a ?whole or partial disposal? of RBS Insurance. And, in a move that has since been endorsed by 95% of the shareholders, the group said it would try to raise 12 billion pounds in a rights issue. The call for capital, Tom McKillop, RBS?s chairman, said, came at ?a difficult time for the financial services industry.? (BestWire, April 22, 2008).

RBS?s hunt for acquirers for its insurance business has not been met with an overwhelming response. U.K.-based insurer Aviva plc quickly declared its lack of interest. Andrew Moss, group chief executive, said RBS?s strong U.K. insurance profile would not add to Aviva?s already ?market-leading position? in the U.K. nonlife sector (BestWire, April 28, 2008).

In July, Zurich Financial Services Group ruled itself out of the running after what it said was ?a detailed review of the opportunities.? Speculative lists of possible suitors compiled by U.K. newspapers have, at various times, included such names Allianz of Germany and Travelers and Allstate of the United States (BestWire, July 15, 2008).

Direct Line Insurance plc has a current Best?s Financial Strength Rating of A- (Excellent, based on public data). Churchill Insurance Co. Ltd. has current a rating of B+ (Good, based on public data).

(Corrects information in the headline.)

(By Robert O'Connor, London editor)

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index