Last week FBD Holdings plc announced a loss of €96m for the first half of 2015. This is the largest ever loss recorded by the company. To say this is disappointing, understates the sense of shock among many that this has happened to such a fine company. The principal cause of the losses is the increasing cost of claims. The €96m loss outlined above includes an additional €88m put aside to strengthen claims paying capacity and cover the future cost of historic claims. In total, FBD now has €835m set aside to pay claims.

FBD operates in a loss-making market. The latest available data shows in 2014 the Irish insurance industry paid €1.11 for every €1 it received in premium. Claims pressures are affecting all insurance companies. After a stable situation for many years, there is structural change under way. Many of these changes are beyond FBD’s direct control.

For example, the circuit court can now make awards up to €60,000 whereas previously it was limited to €40,000. Changes to how social welfare disability payments are recovered and methods used to calculate large awards by the courts in a low interest rate environment have all significantly increased costs. The time it takes to settle a claim has also slowed down. So, after many years of cost stability, we believe claims inflation is under way.

Always, the most difficult aspect of insurance is predicting how much claims will cost. The prediction must cover two things – the price that is charged to all customers up front in advance of knowing about any claims, and the amount that is set aside to pay claims before the final cost of those claims is known. We have now changed our assumptions to make explicit inflation allowances in these projections. We have also had this work validated by external experts. Essentially, we now have a revised and more prudent estimation of our outstanding claims.

Separately, regulation around the world is increasing and there is a new European regulatory standard on the way. This standard requires companies to hold more capital than previously. So FBD must raise capital levels. We have done this in three ways. First, our pension scheme, which we closed to new entrants in 2005, will now close for all staff. Second, we have agreed to sell our share of the FBD hotels in order to put regulatory acceptable liquid capital into the insurance company. Subject to shareholder approval, this business will be sold to Farmer Business Developments. In future, FBD will not have any share of the annual profits from the hotels nor will it realise any upside on the asset values of the recovering Irish and Spanish hospitality markets, but needs must. We wanted to sell because we see insurance as our primary business and we needed to have liquid assets that the regulator recognises. I believe that by selling to our biggest shareholder the future wealth to be realised from these properties is kept within the wider FBD ownership structures to the benefit of those owner shareholders. In addition, Farmer Business Developments has helped FBD when FBD needed that help and we are grateful to our founding shareholder for that. We intend to reward its faith in FBD by executing our new strategy fully and thus delivering profitability and future dividends.

These two changes together bring us to the new capital levels required. However, we are in the volatile insurance business and as we saw last year with Storm Darwin, the wind can always blow and no company should ever operate without a buffer above the minimum. So the third and final thing we are likely to do is raise a specialised regulatory bond in the international debt capital markets. When we do this and how much we pay will depend on market conditions and the strength of FBD’s story – essentially the strength of our brand and our franchise. Luckily, there we have a great story to tell.

What I have found in the six months since I started at FBD is a level of loyalty to farmers and loyalty from farmers that makes the company unique in insurance terms. I say that as someone who has worked in insurance for a long time. Of course, this loyalty cannot be taken for granted and I would argue robustly that we work hard to keep our side of the bargain.

We do it through our products and our prices but most of all through our people and our service. FBD is nothing if it is not about farming and the agri-business sector. This has always been at the heart of what we do and it always will be. FBD has over 400,000 farm and business policies throughout rural Ireland. In the last year we have added new products to the farming product suite including tractor and cattle theft products. We have resurveyed farms since Storm Darwin and helped thousands of farmers improve their insurance cover and risk management.

But big changes are still necessary as a result of all that has happened to us in the last 12 months and FBD will be a simpler business from now on, with greater focus and direction. Primarily, our focus is farming and small business customers, but FBD will also include a direct consumer business. But all of our business will be done through a single brand – the FBD brand. We are going to do fewer things and do them better.

We need to cut costs and unfortunately this will mean some job losses. We need to work hard to ensure that all claims are fairly made and fairly handled. We need to be continuously vigilant on claims fraud and claims exaggeration. We must be more efficient in what we do and we must deliver a profit to our shareholders. These are simple business rules that every farmer knows and it is no different for FBD.

The plan

We have a plan to protect all that is solid about FBD and to fix what is not working. FBD is a fine company and a fine brand. It is the only independent Irish insurer operating in our marketplace. Although investment returns are currently low, and the Irish insurance market is currently challenged, it will not always be so. FBD will come through this part of the insurance cycle and emerge more resilient, leaner and stronger. We will be conservative and a little dull ... that is just as an insurance company should be.

FBD has a franchise in the farming and agribusiness community and a relationship with our farming customers that is the envy of many of our foreign competitors. But it is FBD that has been and will be there with Irish farming in good times and bad. We have been serving Irish farmers for 40 years and I believe we will be serving them in 40 years’ time. Our partnership with rural Ireland will endure. We are proud of that partnership and we are confident of better days ahead. FBD has taken all the necessary steps to refocus and reposition so that it will return to profit. FBD will be protecting Irish farmers for many years to come.