RBS sees motor premiums at least matching claims

LONDON (Reuters) - Royal Bank of Scotland (RBS.L), the country's largest motor insurer, expects premiums to rise at least as fast as the cost of paying out claims in 2008, Chris Sullivan, head of RBS Insurance, said on Thursday.

Competitive pressures and the rise of price comparison websites have battered UK motor insurers in recent years, keeping down the rates paid by drivers while the cost of claims, fuelled by higher legal, car repair and medical costs, soared.

Sullivan, who took the reins at RBS Insurance in 2006, said the rate situation had become unsustainable.

"We saw some life in the motor market at last (in 2007)," he said, on the sidelines of the British bank's 2007 earnings.

"We saw motor rates rise at the same rate as claims inflation for the first time in five years."

Sullivan said the improvement should continue into 2008, as RBS continues a strategy of targeting lower risk drivers, increasing rates and boosting profitability: "We expect price (inflation) to at least equal, if not beat, claims inflation."

Evidence from the industry suggests competitive pressures will remain into 2008 for the broader market.

Last month, the Automobile Association said the average quoted premium for annual comprehensive car insurance in Britain rose 5.9 percent in 2007, while personal injury claims are rising about 10 percent a year.

In 2007, the RBS Insurance division posted a 9 percent drop in overall operating profit to 683 million pounds, hit by 274 million pounds of losses related to the June and July floods that hit large parts of Britain. Excluding the flood impact, profit would have climbed almost 28 percent.