FBD, the second largest insurer in the country, has reported a pre-tax loss of €4.5m for 2014. This compares to a pre-tax profit in 2013 of €51.5m.

This outcome is broadly in line with the group’s guidance in November, with management pointing to particularly bad weather early in 2014 and a “severe deterioration in the claims environment”.

Andrew Langford, group chief executive, said: “2014 was a very difficult year for the Irish insurance industry and for FBD. The claims environment has deteriorated significantly and at a speed which exceeded expectations.”

FBD’s shares fell 11.6% to €10.80 on Monday following the announcement of the results and are back 40% over the past 12 months.

While the bad weather experienced this time last year cost the insurer €15.2m net of reinsurance, the main reason for the poor results was an increase in the frequency of motor and liability claims, as a result of economic recovery, and the cost of these claims.

Langford said that the turn in the economy had been much faster than any observers had anticipated and, in light of the continuing uncertainty surrounding the claims environment, FBD would not be seeking to grow its consumer motor business.

While FBD’s total motor book makes up about 47% of the business, a significant element of this is accounted for by tractors, farm machinery and farm family vehicles, which are not affected by this statement.

Even though rates increased across all products during 2014, other than home, the increases applied did not impact quickly enough to match the sharp increase in claims experienced during the year.

Gross premiums written increased 3.6% to €363.7m and were mainly driven by rate increases resulting in FBD marginally increasing its market share from 13.6% to 13.7%.

Average premiums charged over the year increased by 4.5%, while the overall number of policies written fell by 1.9%. Volumes declined at a faster pace in the second half as increases in rates took effect.

While FBD has always had a prudent approach to taking on new risks, it needs to continue to take account of the recovering economy and the uncertain claims environment which it faces.

While rates are expected to increase across the entire insurance market next year, it will mainly be confined to the areas of motor and liability. FBD has indicated that premiums may reduce slightly during 2015 for home insurance.

As there is a time lag before rate increases are fully reflected in the profitability, FBD has been cautious in its outlook and is guiding 20c-40c operating earnings per share for 2015.

The board is recommending a final dividend of 34c/share, bringing the full year dividend to 51c/share, an increase of 4.1%.

This is in line with the group’s progressive dividend policy where its strategy is to have a dividend payout of 40% to 50% of operating EPS through the cycle.

The board is obviously confident in the business model and in the long-term ability of the group to return to profitability and generate capital through the insurance cycle.