Double digit premium increases on the way for FBD customers

Fiona Reddan

Loss making insurance group FBD is forecasting a return to profitability at end-2016 but it says consumers will face another year of rising insurance rates as the insurer looks to bridge the gap between claims and premiums.

Losses at the group raced to a full-year high of € 84.3 million in the twelve months to December 31st 2015, as the insurer was hit by rising claims and the cost of strengthening prior-year reserves. FBD reported a loss before tax of € 84.8 million in the twelve months to December 31st 2015, up from a € 3 million loss in 2014, after taking an exceptional charge of € 11.4 million relating to restructuring costs and an exceptional gain of € 28.3 million relating to the restructure of the defined benefit pension scheme. Excluding these items, the group made a loss of € 101.7 million, € 96.4 million of which was recorded in the first half of 2015, and € 5.3 million in the second half

The net cost of the storms of November and December was € 11.4 million, and FBD was also hit by higher than average (€ 6.8m) large claims in 2015. FBD said that the insurance sector will remain unprofitable in 2016. However the company said that business “stabilised” in the second half of the year, and it is now targeting full-year profitability for 2017.

Fiona Muldoon, group chief executive, said it was an "exceptionally difficult year" but FBD has now stabilised.

“We have delivered on the commitments made to our shareholders last summer. Our corrective pricing and risk selection actions are building momentum towards restoring profitability,” she said, “Broadly speaking we see these results as a stabilisation in the second half of the year”.

Rising rates

Rates rose an average of 9 per cent across the book during the year, but FBD also shed 9 per cent of its book; some of this it lost to cheaper competitors, but some was because the insurer didn’t want to renew the accounts from a risk perspective. This meant that gross premium written, at €363 million for the full year, remained stable.

Looking to 2016, Ms Muldoon said that rates will continue to harden in 2016.

“We will have to charge premiums that allows us to make profit for our shareholders,” she said, adding that FBD customers will likely see low double digits increases on average in their premiums in 2016, and that insurance premiums have been too low for too long.

“With the benefit of hindsight it is undoubtedly the case that the industry in Ireland was not charging enough,” she says.

It was the first set of full-year results for Ms Muldoon, having been appointed CE0 in March of 2015.

“It takes time to turn the ship,” she said, adding that, “My number one focus is on returning the business to profitability...I wouldn’t consider myself happy until we’re capital accretive again”.

FBD will also be pushing the next government for a structural reform of the claims environment.

“Society and government have choices to make; they can’t have very high court awards and legal costs and cheap insurance”.

Cost saving

FBD also gave an update on its cost saving programme, pointing to cost savings of € 8 million in 2015, as its voluntary redundancy program, leading to the loss of 124 jobs, came to an end in the second half of the year. FBD also signalled reorganisation change, with the amalgamation of the FBD Holdings and FBD Insurance boards.

“These changes reflect FBD’s focus on our general insurance company and our life and pensions intermediary,” Ms Muldoon said.

In a broker note, Shore Capital said that the results were “better than expected”.

“Whilst it remains too early to proclaim a recovery from the rooftops, there is no doubt that the group’s financial position has been stabilised and is better fit for purpose in the tough claims environment currently prevalent in Ireland”.

But John Cronin, analyst with Investec, said that despite the efforts made to restructure the company, FBD "faces challenges in its quest to return to sustainable normalised profitability (particularly due to the structurally higher level of claims costs faced by FBD)".