Tomás Ó Midheach, the chief executive of insurer FBD, may have been ahead of his time taking a gap year in the early 1990s between completing a commerce degree and taking on a masters.
But rather than travelling to the likes of Asia or South America, as is a rite of passage for many these days, he found himself in London – jumping in and out of manholes, working as a fibre optic jointer.
“The ground level of digital. I was there,” quips Ó Midheach, 54, who would one day become chief digital officer at AIB and has found himself more recently pursuing something of a technology transformation at Ireland’s only indigenous general insurer.
In the job almost two and a half years, the executive has also had to deal with the fallout from FBD’s failed court bid to protect itself from a slew of business interruption claims from Covid-19 lockdowns, the introduction of new judicial guidelines on personal injury awards, and a ban on a widespread industry practice where home and motor insurers impose loyalty penalties on long-standing customers.
Meanwhile, following two years where profits were much higher than expected even as it cut motor premiums, Ó Midheach and the rest of the FBD board are now planning to return much of the company’s almost €120 million of excess capital to shareholders over the coming years. It equates to almost a quarter of the company’s €500 million-plus market value.
...over time, the industry delivers a double-digit [profit] return, but only just. I know it’s not an answer what people like to hear, but the industry is extraordinarily cyclical— Tomás Ó Midheach, FBD chief executive
Have the high level of profits in recent years – with the exception of an underwriting loss in 2020 as a result of the business interruption issue – and prospect of large returns to shareholders been a bad look at a time when households and businesses are grappling with soaring costs across the board?
“It’s such a cyclical industry. And I know when you’re at the upper end of that cycle, you definitely can say, ‘Oh, you’re making loads of money.’ But if you look at the data – including all the [National Claims Information Database] reports the Central Bank has done in recent years – it does show, over time, the industry delivers a double-digit [profit] return, but only just,” he says, noting that average motor premiums fell more than 7 per cent last year, following an almost 13 per cent drop in 2021.
“I know it’s not an answer what people like to hear, but the industry is extraordinarily cyclical.”
Ó Midheach has learned a thing or two about the worst that business cycles can throw up in his three decades in the financial services industry.
Having started in January 1992 in the finance department of Tesco in the UK – where he would go on to prepare for accountancy exams after completing a masters in the UCD Smurfit Business School – Ó Midheach was hired two years later by the London office of Japanese convertible bonds and equity warrants trading company Cresvale.
The unit would soon be put into liquidation. “It was a surreal experience to have everyone called up to the trading floor and be told to leave the building – except for us accountants, who were told to stay on to wind the company down,” he recalls.
Ó Midheach joined what is now Citigroup in 1995 and remained with the US banking giant for 11 years, spanning periods in London and Barcelona and two stints Dublin, including six months as chief financial officer of the Irish unit in early 2006, before he was hired by AIB at the height of the Celtic Tiger.
“The initial role at AIB was a transformation one, where they wanted to centralise their finance function, introduce a new general ledger and build a data warehouse.”
It was just before the financial crisis that would ultimately result in AIB needing a €20.8 billion bailout to prevent it from going under. “It was a tough period – but the task still had to get done.”
Ó Midheach became the group’s chief digital officer in 2014 and oversaw the start of an €870 million technology and infrastructure investment programme the following year, aimed at driving more of customers’ banking on to its mobile app and online.
He was named chief operating officer in February 2016 and worked closely with then CEO Bernard Byrne the following year as teams of AIB executives marketed a €3.4 billion initial public offering (IPO) that would result in the bank rejoining the main Dublin and London stock markets.
Byrne’s decision to quit AIB in late 2018 to move to stockbrokers Davy saw Ó Midheach throw his hat into the ring. He made a shortlist of candidates for the top job but ultimately lost out to Colin Hunt. However, it didn’t take long for executive headhunters to start making discreet calls.
“People in that circumstance are usually worth engaging with. They’re seen as open to a conversation at least. It was clear that I wanted to be the CEO of an Irish company,” he says.
At the end of his fourth week in the job in January 2021, the High Court came down in the favour of the pubs in the test cases, meaning FBD was liable for payouts to more than 1,000 bars and restaurants
FBD, which had been on the hunt for a new CEO from October 2019 when Fiona Muldoon signalled she was stepping down after five years, announced the following July that it had hired Ó Midheach. The company’s reputation was taking a pounding at the time as it fought a legal battle with a group of publican customers who claimed cover for business interruption as a result of Covid-19 restrictions.
“The role felt like a challenge,” he says. “But opportunities often arise in challenging times.”
At the end of his fourth week in the job in February 2021, the High Court came down in the favour of the pubs in the test cases, meaning FBD was liable for payouts to more than 1,000 bars and restaurants.
He presided over a decision not to appeal. “My view was to accept the judgment, completely.”
FBD estimated in August 2021 that total pub business interruption claims would amount to €183 million, including losses covered by reinsurers. However, sources suggested early last year that the final amount would be lower, on foot of an additional court ruling at the time. Ó Midheach has repeatedly declined to give an update on total anticipated costs, but estimates FBD’s net cost will be €42 million.
More than three years after the test cases were filed, the hope is that a key ruling by the High Court this month, dealing in detail with various factors affecting the level of losses sustained by pubs, will pave the way for payouts against all valid claims by the year end. It’s been a frustrating wait for all.
Ó Midheach reiterated that FBD will not profit from Government subsidies paid to pub owners, which lowered the losses sustained by the sector during the pandemic.
“This is not a legal obligation. But this is something we said we would do,” he says, adding that FBD will need to engage with the Department of Finance on a mechanism and amount for reimbursement.
The challenges Ó Midheach had to grapple with on joining FBD were nothing, however, on what Muldoon faced when she took over in 2015.
One of her first tasks was to secure a €70 million rescue investment for the business from Canadian group Fairfax Financial, as the wider Irish insurance sector succumbed to a period of massive losses following a spike in claims frequency and costs after heavy pricing competition across the industry.
Her restructuring plan also involved the sale of property investments, scaling back on the use of insurance brokers, closure of the company’s defined-benefit pension plan to future accrual, and – like the rest of the industry – a series of premium increases.
While Muldoon nursed the company back to healthy profitability by the time she’d left, competitors were nibbling away its traditional core market in farm insurance. The most aggressive was French-owned Axa Insurance, which poached FBD’s head of farm and business direct, Christy Doherty, in late 2017.
Ó Midheach set his sights from the outset on winning back farmers who had moved business elsewhere.
“A farmer has multiple insurance needs. If you can get the farm, you’re likely to get five or six other policies over time. But, typically, we’re only getting three of those,” he says, adding that he has been pressing his team to focus on the wider insurance needs of farms – with the help of better collection and organisation of data and use of analytics.
While the number of farmers has been in decline in recent decades, an ongoing increase in part-timers means that the farm insurance market is continuing to grow, he says. For the time being, at least.
Ó Midheach’s focus widened last year to growing activity across business customers. Now, the company is considering what it going to do in retail, which currently makes up about one fifth of group premiums.
FBD has been among insurers offering car insurance through An Post for the past five years and set up a partnership with Bank of Ireland for home coverage last year.
Having changed its core technology system in recent years, FBD is in the process of upgrading the new platform to make ready to “plug in” digital offerings for customers. But the mantra at group headquarters in Bluebell, Dublin 12, is that it wants to be a “digitally enabled” insurer, rather than being all digital..
“There’s a fundamental difference. Obviously, a retail customer is going to want to do a lot of things digitally. But they may well like to have one meeting, with a lot of things done, and be digitally sustained after that. That’s a possible path,” he says.
FBD pretax profits for 2021 came to €110.4 million, well over double what analysts had originally pencilled in, while its €73.7 million out-turn for last year was twice what the market had expected – before the company raised guidance in both years ahead of its official results announcements.
Analysts at Goodbody Stockbrokers, a corporate broker to the insurer, see pretax profit falling back to €47 million this year and rising gradually to almost €57 million in 2025
The outcomes for both years were fuelled by unusually benign weather and releases of reserves that had been set aside in previous years for claims that did not turn out to be as costly as expected.
Analysts at Goodbody Stockbrokers, a corporate broker to the insurer, see pretax profit falling back to €47 million this year and rising gradually to almost €57 million in 2025. “We do not assume any positive prior year reserve releases within our forecasts, though such releases have a history of repeating,” said Goodbody analyst Ronan Dunphy in a note this week.
FBD paid out €36 million in dividends in each of the years and signalled in March that it is working on plans to return excess capital to shareholders in the short to medium term.
Ó Midheach signalled to reporters after the company’s recent annual general meeting that it will likely outline a capital return roadmap when it reports interim results in August.
Fall in claims
Recent motor insurance premium reductions at FBD – and across the wider industry – have occurred against the backdrop of a fall in claims costs after new personal injury guidelines were approved by the Judicial Council in early 2021. However, the impact has been partly offset of increases in motor damage costs, amid inflation for labour and car parts.
Ó Midheach said in March that acceptance rates of Personal Injury Assessment Board (PIAB) awards have now recovered to their historical average of close to 50 per cent, having dropped initially after the guidelines took effect. While direct settlement rates have also improved, he says that insurers are still trying to establish clear trends from court awards.
Laws enacted last year to strengthen PIAB’s role and being rolled on a phased basis, and legislation currently going through the Oireachtas aimed at balancing a property owner or business’s responsibilities with those of customers or the general public, are also expected ultimately to reduce costs for insurers and customers alike.
The hope is that the reforms will also reboot competition for coverage of the likes of adventure centres and events that have been struggling in recent times to get insurance at manageable rates.
Ó Midheach says he expects that the raft of overhauls in recent times – including EU insurance solvency rules introduced in 2016 and a new international accounting standard earlier this year to increase transparency on insurance contracts and use of price discounting – should ultimately ease the cyclicality of the Irish insurance sector.
“But as much as I hate to say this,” he adds, “only time will tell.”
Name: Tomás Ó Midheach
Position: CEO of insurer FBD
Lives: Bray, Co Wicklow
Family: Married to Anne, with four children aged between 17 and 25
Hobbies: Hiking, coaching a senior camogie team in Bray, and reading
Something about him that might surprise: Although his family moved to Dublin from Kerry while he was a teenager, Ó Midheach remains “mad about Kerry football”