FBD shares surge as insurer forecasts €100m profits

Shares in insurer FBD surged more than 10 per cent on Thursday after it was forced to update the market just three weeks before publication of its full-year results for 2019 with profitability expected to be “significantly ahead of market expectations”.

FBD, one of the Republic’s largest property and casualty insurers, said it will report profit before tax of at least €100 million, about €40 million ahead of what was expected by analysts.

Scrutiny

The strong results come at a time when insurers are increasingly the subject of intense political scrutiny with motorists and businesses in particular complaining over the high cost of insurance. Insurers have linked the rising cost of insurance to an increasing prevalence of claims and higher awards but the legal profession disputes that.

In any event, Goodbody analyst Eamonn Hughes wrote in a note to clients that he understands a number of large claims against FBD settled in the fourth quarter “very favourably” while “there was less occurrence of large claims from prior years and in general there was better settlement experience on normal prior year claims through the courts”.

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Meanwhile, a volatility interruption – which ensures that trading runs smoothly in a stock even in extreme market conditions – was initiated after the surge and was subsequently lifted. Shares in the company hit €9.50 just after 2pm, a rise of almost 10.5 per cent on the stock’s opening price, before falling back to close at €9.30, still up 8.14 per cent on the day.

Under market abuse regulations, a company is required to inform the market if its results are materially different to what the market anticipates and that is understood to be what led FBD to publish its unexpected trading update.

The insurer said that better than expected investment returns and exceptionally benign weather throughout the year were among the factors contributing to its outperformance.

Ratio

The company also said its solvency capital ratio – a measure of the total amount of funds insurers are required to hold to meet liabilities – will be 180 per cent for 2019, above their target but within the range of their competitors.

This, it said, is “after allowing for any potential proposed dividend in line with our existing dividend payout policy”.

“FBD’s stated dividend policy is to return 20-50 per cent of earnings, so it certainly feels like the dividend has the potential to move well through the €1 per share level from current forecast of just 65c,” Mr Hughes said.

FBD, which has 34 branches spread across the country, delivered a 50c dividend per share in 2018, a year in which it posted €50 million in profit before tax having written €372 million in gross premiums. That result compares favourably with its competitors. Allianz Ireland, for example, posted profit before tax in 2018 of €36.7 million having written €568 in gross premiums.

Full details of FBD’s financial results for 2019 will be released on February 27th.