FBD shares drop following UK court ruling on Covid insurance

Insurer facing higher payout in business interruption case taken by four publicans

The UK supreme court overturned a previous London high court decision last September restricting the extent to which insurers are liable. Photograph: iStock

FBD Holdings shares fell in Dublin on Friday as the insurer faces a higher-than-expected financial hit over Covid-19 business interruption if the High Court takes a similar stance to a ruling in the UK on Friday, according to analysts.

Small businesses, from restaurants to nightclubs and wedding planners to beauty parlours, on Friday won the right to insurance payouts in the UK after its supreme court ruled their policies should cover losses caused by coronavirus lockdowns. The UK Financial Conduct Authority (FCA) estimates that a combined £1.2 billion could now be paid out.

Six commercial insurers – Hiscox, RSA, QBE, Argenta, Arch and MS Amlin – had argued in vain that many business interruption policies did not cover widespread disruption after the UK's first lockdown last March.

After restrictions are lifted how do you see yourself working? Photograph: iStock

The British case, which was brought by the FCA, has been closely followed in Ireland where four publicans have brought cases challenging FBD’s refusal last year to cover losses caused by business interruption as a result of the coronavirus crisis.


The Irish High Court decided this week to defer delivering its judgment on the pubs test cases to allow lawyers make further legal submissions arising from the UK judgment. The ruling, which had been due on Friday, will now be given on February 5th.

Crucially, the UK supreme court overturned a previous London high court decision last September restricting the extent to which insurers are liable.

The lower court said the calculation of covered losses should take into consideration how Covid-19 measures such as social distancing would have impacted on trading conditions. However, the higher court decided losses should be determined with reference to more normal operating conditions.

“If a similar ruling is delivered in Ireland, the gross loss to FBD will be higher than previously expected,” said Davy analyst Diarmaid Sheridan. He added, however, that the net loss would still be “manageable” due to FBD’s risk-sharing contracts with reinsurance firms.


Mr Sheridan said that if FBD loses its case, it may delay any decision to reinstall its dividend “throughout 2021 until settlements are substantially completed”. Still, he highlighted that FBD retains a “substantial capital buffer and attractive positions in its main markets”. Shares in FBD dropped 3.4 per cent to €7.38.

At the end of last June, FBD had a solvency capital ratio of 186 per cent, even after setting aside €30 million of provisions to deal with a potential negative outcome from the pubs case, which has implications for more than 1,000 bars and restaurants insured under the company’s pubs policy.

The reserves figure also excludes €35 million ringfenced for a planned shareholder dividend payment that has been on hold since the onset of the Covid-19 crisis.

FBD has committed to holding a so-called solvency capital ratio of between 150 per cent and 170 per cent. That equates to 1.5 and 1.7 times the amount of cash reserves it estimates it would need to withstand a one-in-200-year loss event over the space of just 12 months.

Goodbody Stockbrokers analyst Eamonn Hughes estimated last October that the initial UK case ruling could lead to a €45 million to €60 million gross hit if the Irish court adopted a similar stance on the pubs cases. However, he said that the net loss would be lower, as “any adverse court judgment would obviously strengthen its case with its reinsurers”.

Cathie Shannon, director of general insurance at Brokers Ireland, said: “It has to be said the FCA moved far more quickly to deal with the matter by taking a test case, something our own [Central Bank] did not bring.”

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times