FBD shares slip after earnings forecast cut

Insurer FBD Holdings has seen its shares fall the most in more than five years after the company cut its full-year earnings forecast amid a rise in motor claims and increased estimates of bad weather costs during the winter.

In Dublin trading this morning, FBD dropped as much as 8.8 per cent, the most since March 2009, and was down 5.4 per cent at €15.53 at 12.30pm.

In a trading statement issued today, the company cut its 2014 operating earnings forecast to between 70 cents and 80 cents a share from €1.20 to €1.30 in a trading state, which it had affirmed seven weeks ago.

FBD estimates that increased motor and weather-related claims will cost it €16 million this year.

The company has increased its estimate of the cost of weather-related claims arising out of last winter’s flooding by €4 million to €44 million.

FBD also reported a 4 per cent increase in its gross written premiums so far this year, primarily through growth in car and commercial insurance.

More than 60 per cent of the increase is attributable to a rise in average premium, while the remainder is as a result of more policies being sold.

The company said recent improvements in the economy had impacted on premium levels in the Irish insurance market, as increased industrial activity leads to a higher frequency of claims with more vehicles driving more miles on increasingly congested roads.

It said retail sales of automotive fuel, a proxy for miles driven and motor insurance risk, is up 6 per cent year on year, exceeding growth in economic activity and the company’s expectations.

“This has had an impact on frequency of attritional motor claims which has risen sharply in recent months. The increase is not restricted to any one segment of our motor book. It applies equally across all customer profiles,” the company said.

The frequency of claims so far in 2014 is “in line with expectations”, the company said, reverting to normal after “unusually high levels” in 2013.

“The nature of the insurance business is that earnings will be influenced from time to time by random weather events and the fact that the industry is inherently cyclical,” the statement said.

“The Board is confident that FBD is well positioned to outperform the market and deliver strong returns for shareholders.”

“FBD’s claims-driven warning is very disappointing on the back of a solid end-April interim management statement,” said Davy analyst Emer Lang in a note to clients.

She said she plans to cut her 124.8-cent full-year EPS estimate for the company by about 50 cents.

FBD, which is almost 25 per cent owned by Farmer Business Developments Plc, a holding company belonging to Irish farmers, said it will continue to monitor claims “to ensure that risks are adequately priced and take further action if necessary”.

Additional reporting: Bloomberg