Royal Bank of Scotland’s (RBS) insurance arms continues to struggle, with premium income down 3% to £4 billion ($6.3 billion) for the 2010 financial year ending December 31.

This compares to premium income of £4.1 billion ($6.5 billion) in 2009.

Net claims up 9% to £3.9 billion ($6.2 billion) during 2010 compared to £3.6 billion ($5.7 billion) in 2009 giving the business a £295 million ($470 million) operating loss compared to a £58 million ($92.5 million) profit in the previous year.

However, the insurance business did show some signs of improvement during the last quarter of 2010 with claims down to $906 million ($1.4 billion) compared to £949 million ($1.5 billion) in the third quarter.

This resulted in the insurance business making a £9 million ($14.3 million) reported loss in the fourth quarter compared to a loss of £33 million ($52.6 million) in the third.

The insurance bottom line was hit by injury claims of about £100 million ($159 million) in December due to the bad weather experienced in the UK. Total exceptional bad weather claims were £205 million ($327 million) for the year.

RBS Group CEO Stephen Hester says the company is working on lifting operational and financial performance of the insurance business before it is sold in the second half of next year.

“Action on pricing and rating has reduced higher risk motor customer numbers while high retention rates have been retained for preferred risks,” he said.

The company has also implemented “lean management” practices and will move its back-office operations offshore. This will see the number of operations centres being reduced from 38 to 13.

RBS Insurance will now focus on personal lines and SME commercial insurance, having dropped unprofitable lines such as fleet and taxi business and personal lines policies sold through brokers.

As a result of these changes, Mr Hester is forecasting an underlying profit of about £300 million ($478 million) for 2011.