Profits at FBD slip even as premiums rise

Insurer FBD Holdings plc reported earnings for the six months to the end of June late last week which showed a profit after tax of €28m for this period, down from €33.3m in the six months to June 2023.

Despite the lower profitability, FBD announced a special dividend of €1 per share. This is in addition to the €1 dividend announced at the publication of the full-year results for 2023. With FBD’s shares trading around €13 each, this gives a dividend yield of just over 15%. FBD also paid two €1 dividends in 2023. Including the €1 per share announced with the publication of this report, FBD will have paid out more than €144m to shareholders since the start of 2023. The insurer’s solvency capital ratio – a key measure of the financial health of an insurance company – will be at around 204% after the special dividend is paid.

CEO Tomás Ó Midheach said the solvency capital ratio “demonstrates the strength of the francise.”

The company said that continued growth in insurance revenue, increasing investment returns and favourable developments with reserves helped drive performance in the first half of 2024, but that higher settlement costs, particularly in motor insurance claims which rose 10% over the last year, meant that profits were lower.

Property claims

FBD said that property claims increased substantially due to significant weather events in the first three months of the year, in particular Storm Isha.

The price of the average premium rose by 8.3%, with almost two-thirds of that increase being accounted for by customers increasing their level of cover and changing business mix. There was a small increase in policy numbers in the farmer, business and retail sectors.

Farm average premiums increased by 6.9% which FBD said was “largely as a result of increases in property sums insured as rebuild costs continue to increase”. For home insurance, there was an even larger rise in the cost of the average premium at 11.5%.

In the motor sector premiums rose by 5.6% on average, with increasing repair costs being the main driver there.

There was some good news on large injury claims (defined as those above €250,000), with the number notified to date in 2024 slightly lower than the average over the past 10 years.

In April of this year, the Supreme Court ruled that the personal injury guidelines enacted into law in 2021 are constitutional and valid. The case was taken by a woman who tripped and fell on a footpath in Waterford in 2019. She had been advised by her solicitor that her injuries could attract damages of between €18,000 and €34,000. While her claim was in the Personal Injuries Board for assessment the new guidelines came into effect. She was ultimately awarded €3,000.

Systemic importance

The presiding judge in the case, Mr Justice Peter Charleton said that the case was of “systemic importance” and “will influence thousands of cases currently awaiting judicial analysis and multiples of that into the future.”

FBD said the resolution of the issue has led to an 8% increase in settlement rates for outstanding injury cases. Many cases had been on hold until the Supreme Court decision, and that backlog is now being worked through.

In June FBD delisted its shares from the London Stock Exchange meaning that they now only trade in Dublin. The announcement of the special €1 dividend and the financial results had very little effect on FBD’s share price.

Comment

The performance of FBD for the first half of the year can be best described as steady. While there were increased costs from motor insurance claims, it is clear from the report that the insurer has been able to increase premiums for customers to cover much of this. It is also clear from the report that FBD, like other insurers, are increasingly worried about the effects of climate change. The company said that reinsurance (where an insurance company buys insurance) is becoming more expensive as the costs of climate change are felt across the industry. FBD said that some risks are being reassessed and that a delay in the transition to a greener economy could drive a further increase in insurance costs.

The key risk will be more frequent damaging storms such as Isha and more flood damage from large rain events, which will lead to more claims, which in turn will lead to higher premium costs, or even see some risks becoming uninsurable.

One of the reasons FBD gave for dropping its London listing was that its shares rarely traded on the platform. Even with the Dublin-only listing, FBD remains a company where significant amounts of share trading rarely happen. It is what is known in financial markets as a “tightly held” company. Looking at what we know about the ownership, we see that Farmer Business Developments PLC (the owner of FBD hotels) holds approximately 24% of the ordinary shares of FBD Insurance.

As we have previously reported, FBD Trust has expanded its ownership of FBD Insurance and has increased its stake to around 14% of ordinary shares. Neither Farmer Business Developments nor FBD Trust say they have any intention of reducing their shareholding.

Sretaw Private Equity Company – the investment company of waste tycoon Eamon Waters which recently appointed former FBD CEO Fiona Muldoon as chair – controls over 11% of FBD’s ordinary shares.

A significant proportion of the other 50% of FDB ordinary shares are held by farmer shareholders who have owned their stake in the insurer for many years.

Taken together, this all means that the number of shares which is available to trade are limited. Which in turns means that FBD’s share price is generally fairly stable.

This was clearly seen when the results for the first six months of the year and the special dividend were announced and there was barely any movement in the price of the company’s shares.

They are currently trading just below €13 a share, similar to the level held for the last three months.