FBD sees gross Covid-19 business interruption claims at €150m

FBD said on Friday it estimates that gross claims and expenses arising from a landmark Covid-19 business interruption pubs test case ruling earlier this month will amount to €150 million.

The figure includes claims that will ultimately be picked up by reinsurance companies that have shared the risk with FBD.

Meanwhile, the Dublin-listed insurer increased provisions for its net exposure to pubs claims to €65 million from €30 million that had been set aside last summer. The charge includes €11 million of expected payments to reinsurers to reinstate protection.

“We will not be appealing this judgement and will work with our customers to ensure claims settlements are paid as expediently as possible,” FBD said as it reported full-year results. “Gross claims costs (including legal and other expenses) are currently estimated to be approximately €150 million. Engagement continues with our reinsurers to finalise the position on reinsurance recoveries.”

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FBD posted a surprise pre-tax profit of €4.8 million for 2020, aided by the release of €23 million reserves that had been set aside for claims made in previous years and a €10 million return from its investment portfolio. The group made a €112.5 million profit in 2019.

Still, its core general insurance business was marginally loss-making, with its combined operation ratio - a key figure that compares claims, costs and expenses to premiums - of 101.4 per cent, as a result of the business interruption costs. A figure below 100 per cent indicates an insurer is writing business at a profit.

The Commercial Court found earlier this month in favour of four pub companies that had challenged the insurer’s refusal to pay out on its pubs policy as a result of closures stemming from the Covid-19 pandemic.

FBD has already started making interim payments to pubs, with more than 1,000 pubs affected by the High Court ruling.

“The Commercial Court judgement has provided more clarity on likely gross claims costs albeit with some aspects of the calculation of quantum yet to be determined,” it said.

Alan Devlin, an analyst with Shore Capital in London, said: "In our view FBD has now put the business interruption issue largely behind it and shown it can trade profitability throughout the pandemic."

While FBD had set aside €35 million at the end of 2019 for a planned shareholder dividend, it put the payout on hold last year amid uncertainty caused by the Covid-19 crisis. The group, led by chief executive Tomás O’Midheach since early January, has now decided to free up the ringfenced dividend and use it as part of its group capital calculations.

“Given the continuing uncertainty prevailing, the board continues to believe that capital preservation is paramount and therefore no dividend is being proposed at this time,” it said. “The board will however keep the matter of capital return to shareholders under continuous review.”

FBD’s gross written premium dipped 3 per cent last year to €358 million as a result of €12 million of Covid-19 pandemic related rebates offered to motor and commercial customers due a slump in activity during lockdowns. An increase in customer numbers offset a 3 per cent average premium decline across its main insurance lines.

Average private motor premiums dropped 5.7 per cent during 2020, while farm premiums dipped 1.5 per cent, and home declined 2.2 per cent. Average commercial premiums rose 2.8 per cent, but this reflected a change in the mix of activities being covered rather than rate increase, it said.

“Lower injury and motor damage claims frequency was experienced in 2020 compared with 2019, as many businesses were forced to close and traffic volumes decreased due to remote working,” FBD said. “Claim settlement activity also decreased as cases being prepared for settlement were impacted as well as actual settlement negotiation meetings and court trials.”

Goodbody Stockbrokers analyst Eamonn Hughes said the group's claims costs of €231.1 million were "much lower than expected".