Insurer FBD Holdings said that its investment returns have been positive so far this year after the portfolio took a €100 million hit last year as the value of bonds on its books declined while central banks hiked interest rates aggressively to tackle inflation.
The company booked €10 million of direct investment losses through its income statement last year, with the remaining €90 million of paper losses booked as so-called other comprehensive income. Both lines have been positive so far this year, FBD said in a trading statement ahead of its annual general meeting (agm) in Dublin on Wednesday.
Most European insurers are sitting on unrealised losses on their bond portfolios, Moody’s said in March, as bond values move down while interest rates rise. While Moody’s does not expect these losses to crystallise – because insurers will generally be able to hold the investments until they mature, by which time the losses will have likely been reversed – they can have an effect in the meantime on solvency capital reserves, which are in place to ensure insurers can pay out claims to policyholders in the event of shock losses.
FBD capital reserves declined by 6 per cent last year to €422.8 million, mainly as a result of unrealised investment losses and a €36 million dividend payout, offset by €64.5 million of net profits.
However, its solvency capital ratio rose marginally last year to 226 per cent of the amount of cash reserves it estimates it would need to withstand a one-in-200-year loss event over the space of 12 months. That is well ahead of FBD’s target of 150-170 per cent.
FBD said on Wednesday that its capital levels have grown so far this year and that it remains “engaged with stakeholders on the return of excess capital” in the short to medium term. Chief executive Tomás Ó Midheach signalled to reporters after the agm that the company will likely outline a plan when it reports interim results in August.
Gross written premiums at FBD increased by 8 per cent so far this year from the same period in 2022, fuelled by an increase in policies being written as well as higher average premiums.
Mr Ó Midheach said FBD has been writing recently to customers whom it considers underinsured for the potential cost of rebuilding a home or shed, following a spike of labour and material costs. He said there was a “reasonable amount” of customers who had coverage amounts that were below replacement costs to some degree, with a “small percentage” significantly underinsured.
Mr Ó Midheach said the company was monitoring the implementation of personal injury guidelines, introduced in early 2021, “on an ongoing basis and continue to reflect the impact seen to date in the prices charged to customers”.
“Overall, we remain confident in the underlying profitability, future growth prospects, capital strength of the business and in our ability to continue to provide excellent service to our customers,” he said.
FBD said it expected to pay outstanding Covid-19 pub business interruption claims this year following an upcoming High Court ruling, which is now expected in mid-June, 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.
FBD said in March that it had issued €35 million by that date 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.