FBD sets aside €22m to cover business interruption claims

Insurer FBD is setting aside €22 million in case it loses a test challenge in relation to its business interruption policies.

In a stock market update on Wednesday afternoon, it said its approach was to seek a test case to have “the issues resolved as quickly as possible to achieve clarity and minimise costs for all parties”.

It confirmed that litigation between it and a number of its publican customers claiming cover for business interruption as a result of Covid-19 has been scheduled for hearing in the Commercial Court this October.

“FBD remains strongly of the view that our business insurance policies do not provide cover for a pandemic of this nature. However, a precautionary reserve of €22 million has been made to cover costs that may be incurred,” it told investors.

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The insurer also said that it was scrapping its planned investor vote on its final dividend of €34.9 million, or €1 per share. FBD said that it decided not to proceed with the proposed payment taking into account a statement issued in April by the European Insurance and Occupational Pensions Authority urging the suspension of all discretionary dividend distributions and the “heightened uncertainty” resulting from the Covid-19 pandemic.

‘Continuing review’

“The board will keep the timing of the distribution of capital to shareholders under continuing review and is confident that capital can be returned when the uncertainty from Covid-19 has receded and the impact is more fully understood.

“The solvency of the group remains robust and is currently estimated at 178 per cent even while continuing to deduct the 2019 dividend, treating it as foreseeable,” the company said.

The insurer noted that gross written premiums, which started the year strongly, are being “impacted by the deterioration in the economy”. Gross written premiums fell by 3 per cent in the five months to May 31st compared with the same period last year.

“This is before accounting for Covid-19 related premium refunds to customers,” the company said. Nevertheless, policy numbers have increased by 1 per cent so far this year.

FBD is also in the process of refunding motor customers as a result of reduced car usage during the lockdown. That will cost the company €7 million. Refunds are also being offered to commercial customers whose businesses have been closed. That will amount to an extra €7 million.

Investment portfolio

“The impact of these premium refunds on profits are offset by a reduction in the frequency of motor injury, damage and liability claims experienced from mid-March to date.”

Elsewhere, the company’s investment portfolio has also taken a hit. The return so far this year is minus 1 per cent due to the fact that “investment markets have been severely impacted by Covid-19”.

FBD’s annual general meeting, which was due to take place on May 8th, has been rescheduled for July 31st.