For a company struggling with the reputational damage of having wrongly denied pub customers their right to Covid-19 business interruption payouts – and a wider charge from politicians and consumer activists that the industry is fleecing households and businesses – FBD’s full-year results don’t help its case.
The country’s only remaining indigenous general insurer reported on Friday that it had made a €110 million pretax profit – equating to almost a third of its stock market value.
Its combined operating ratio – which measures costs of claims and administrative expenses relative to premiums earned – fell to 71.5 per cent from 101.4 per cent. (A figure below 100 per cent indicates that an insurer is writing business at a profit; and a result of about 90 per cent is generally seen as decent outcome).
It revealed that a bumper €35 million dividend that had been planned two years ago on an extraordinarily profitable 2019 – but called off during the Covid-19 pandemic – was back on. (It equates to an eye-watering dividend yield of 9.7 per cent – and compares with a yield of 0.57 per cent that’s currently attached to Irish 10-year Government bonds.)
Meanwhile, analysts reckon that company will have €100 million of surplus cash on its balance sheet, even after the planned handover to investors in the coming months. And Tomás Ó Midheach, chief executive of a little over a year, certainly has no plans to hoard it.
He told The Irish Times on Friday that the company “would be looking to sustain” an annual dividend over the coming years “in and around” the €35 million. Have investors really started to factor this in yet?
Reserves
Last year’s profit figure was helped by a number of factors. The biggest of these was the freeing up of €63 million of reserves that had been set aside in previous years for claims that had turned out to not be to be as expensive as feared.
Such releases have been a noisy factor in FBD's results in recent times. And, to some extent, it's the flip side of an increased cautiousness when making initial estimates on claims – ever since the group needed a €70 million bailout-bond investment from Canada's Fairfax Financial in 2015 as the entire Irish general insurance industry was dealing with large losses.
Earnings were also boosted by lower levels of accidents and relatively benign weather last year. Even Storm Barra in December only resulted in €4 million of claims costs.
The result was also helped as FBD released about €23 million of the €67 million it had previously set aside to cover its expected net costs from business-interruption claims from pubs.
You’ll remember that FBD, backed up by its own “strong” legal advice, had initially refused at the onset of Covid-19 in 2020 to acknowledge that its pubs policy, dating back three decades, covered its publican customers for losses as the pandemic forced the industry to pull down its collective shutters.
Four pub groups that challenged FBD’s decision won their case in February last year, setting a precedent for a wider group of more than 1,000 pubs and bars.
A further 200-page High Court judgment in January provided additional guidance on what is in scope when it comes to deciding final payments.
Mr Justice Denis McDonald ruled, for example, that FBD was on the hook for “partial” pub closures – including the closure of bar service counters and earlier closing hours – during the pandemic.
Assessing losses
It would be relatively straightforward to assess losses arising from early closing times – as tills give hourly reads and a comparison could be drawn with figures from 2019, before the crisis. Assessing losses from the closed bar counters has been altogether more difficult.
Much has been left by the court for FBD, the pubs and their legions of lawyers and advisers to work out. Still, the judge agreed when the case came before him again in the middle of last month that the best way to advance matters regarding quantum would be for the various sides’ experts to meet in the absence of solicitors and clients.
Ó Midheach said on Friday he hoped these experts would reach some sort of conclusion by the time all sides are due before the court again two days before St Patrick’s Day – and two years on from the start of the crisis.
While there had been speculation in some quarters at the time of the January ruling that the overall cost would go up for FBD and its reinsurers, Ó Midheach said the total figure had fallen from the last estimate – of €183 million – that was given in August. He wouldn’t say by how much, however, as that would give away how much his 17 reinsurers have agreed to shoulder.
In the meantime, pubs have had to make do with only €30 million of interim payments – and €11 million of compensation on foot of the Financial Services and Pensions Ombudsman finding last year that FBD had been dragging its heels on resolving the entire matter.
Some, in fairness to FBD, haven’t even started the process of making a claim – limiting what it has paid out.
It’s a safe bet that FBD’s shareholders will have banked the €35 million of dividends that are now coming their way long before all its pub policyholders are made whole.
