Insurer FBD Holdings plans to pay out about €36 million of dividends to shareholders for the second year in a row after reporting better-than-expected earnings, and has signalled it also aims to return tens of millions of euros of excess cash on its balance to investors.
FBD disclosed before formally reporting full-year results for both 2021 and 2022 that each set of figures would be well above expectations, saying in the middle of last month that its pretax profit for last year would be at least €70 million, which was double what analysts had been forecasting.
The final result came to €74 million, FBD said in a statement on Friday, albeit down from the exceptionally high figure of €110 million posted in 2021.
The company, which has an estimated €110 million of surplus capital on its balance sheet, according to Goodbody Stockbrokers analyst Ronan Dunphy, said it intended to “engage with stakeholders on steps to return further capital in the short and medium term”. This could be through share buybacks or extraordinary dividends.
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Chief executive Tomás Ó Midheach said the aim was to hand back excess capital “over three to four years”. He said a total figure of more than €100 million “could be in the ballpark” over the period as the company continues to generate capital through profits and maintains reserves of in excess of its target.
FBD’s official goal is to maintain a so-called solvency capital ratio of 150 per cent and 170 per cent. That equates to 1.5 and 1.7 times the amount of cash reserves it estimates it would need to withstand a one-in-200-year loss event over the space of just 12 months.
FBD’s main shareholders include Farmer Business Developments, a holding company of mainly farmer investors that owns almost 24 per cent of the business, Panda Waste founder Eamonn Waters’s Sretaw vehicle, which has built up a 12 per cent position in recent times, and Norwegian insurer Protector Forsikring, with a stake of 7.6 per cent.
The company’s profit from underwriting insurance dipped to €85.7 million last year from €95.2 million, but it continued to benefit from a lower frequency of injury claims than it had been experiencing before Covid-19, benign weather and the release of excess reserves that had been set aside to cover claims from previous years.
However, declining bond prices last year as central banks began hiking interest rates to tackle inflation – forcing market interest rates, or bond yields, to move higher – resulted in €10 million of investment losses being booked through FBD’s income statement. A further €90 million of investment losses were booked as so-called other comprehensive income.
FBD said it expected to pay outstanding Covid-19 pub business interruption claims this year, following an upcoming High Court ruling, expected at the end of April, on outstanding issues in relation to a test legal challenge mounted by a small number of pubs in 2020. The challenges forced the insurer – and reinsurers with whom it shared the risk – to accept that the pubs were eligible for payouts under its pubs policy.
It has so far issued €35 million to pub owners, mainly by way of interim payments. While FBD estimates that its own net business interruption costs will come to €42 million, the gross cost, including those borne by reinsurers that have shared the risk, is a multiple of that amount. Mr O’Midheach declined to give an estimate of the total cost.
FBD’s gross written premium rose to €382.9 million last year from €366.3 million in 2021, driven by a 2.8 per cent increase in policies taken out by customers.
The company’s average premium increased by 0.6 per cent across the portfolio, though private motor rates declined by an average of 7.2 per cent and commercial motor reduced by 1.1 per cent per cent, reflecting the reductions seen in claims costs as a result of the new personal injury guidelines, introduced in early 2021, partially offset by the impact of increases in motor damage costs.
While rival insurer Aviva had complained on Thursday that it was seeing rising levels of Personal Injuries Assessment Board (PIAB) awards being rejected and the cases subsequently going down the legal route, FBD said it was “now seeing reductions in average settlement costs feeding through in pre-litigation channels”.
Mr O’Midheach said PIAB award acceptance rates had now recovered to their historical average of close to 50 per cent, having dropped initially after the guidelines took effect in almost two years ago.
