Insurance company FBD Holdings has blamed an €84m loss booked in the first half of 2015 on ‘structural changes in the claims environment’. The company cited introduction of the Court of Appeal, a change in court jurisdiction limits, the introduction of the recovery benefits assistance scheme and a ruling on the discount rate used in award settlements.
“There appears to be a shift in the settlement approach of claimants' solicitors,” said interim CEO Fiona Muldoon. “This may be driven by the uncertainty created by the structural changes already mentioned.
“This shift in settlement approach has led to a slowdown in the settlement of claims which makes the estimation of technical claims provisions more difficult but will almost certainly lead to higher claims costs ultimately.”
FBD’s premium income in H1 was marginally ahead year-on-year at €159m. But provision for claims soared to €219m from €117m the year before. In order to shore up the balance sheet, the company has agreed to sell is holiday properties in Spain and three hotels in Ireland for €48.5 million to its minority shareholder, Farmer Business Developments plc.
After this reversal of fortunes at FBD – which a few years ago was distributing surplus capital to shareholders – CEO Andrew Langford (pictured) resigned his position in July after seven years at the helm.
In Association with
Claims Uncertainty
According to Muldoon, the previously signalled claims uncertainty in Ireland has continued and deteriorated further. "The existing business strategy has not delivered profitable growth and, given the significant losses reported today, the Group has reviewed its strategic direction.
“The Group has decided on a strategy that will focus on those things it does best, servicing the insurance needs of FBD's agricultural and small business customers and a single brand consumer strategy for motorists and home owners.”
FBD also announced that it recently reached agreement with its staff with regard to the future of its defined benefit pension scheme. The changes include closing the scheme to future accrual, severing the link with final salary and ceasing the advance funding for discretionary pension increases.
Muldoon added: "This is a difficult day for FBD, our shareholders and our staff. These results reflect very serious increased claims costs in our industry. We are taking decisive action now to de-risk our strategy and return to profitability by the end of 2016.
“FBD has not experienced any material changes in claim payments at this point as claims can take considerable time to settle. However, due to the challenges in the claims settlement environment, the Group has increased the reserves set aside in order to cover these projected increases in claim payments.
“The increase in reserves is a combination of an increase in FBD's expected view of future claims payments and an additional provision to protect against the current uncertainties in the claims environment.
Dysfunctional Market
“Even after the significant remedial pricing action taken to date, there remains an exceptionally difficult trading environment for the Group and the wider insurance market. FBD operates in an increasingly congested and dysfunctional market. Against this backdrop the confluence of low investment returns and claims inflation exacerbates the profitability challenges faced by the Group and the wider market.”
FBD’s investment return in H1 was €5.4m. In the corresponding period in 2014 the investment return was €12.4m. Muldoon also confirmed that the dividend for shareholders has been scrapped.
In trading today, the FBD share was marked down from 600c to 540c. The share price has now more than halved in value since the start of 2015.
