The extent of the troubles within FBD Holdings became clear at the end of last week with the resignation of its CEO, Andrew Langford. During his seven years at the helm, Langford delivered growth along with what seemed to be strong financial performances. However, the last 18 months will go down as the worst in FBD’s 40-year history. Profitability has evaporated, share price has collapsed and the business now requires refinancing to generate an adequate capital buffer to meet new solvency requirements.
So, what went wrong? The easy and most comfortable position would be to simply blame the market. Unfortunately, problems within FBD run much deeper and stem largely from a strategy aligned to securing the approval of short-term market investors at the expense of developing a long-term sustainable business model. The outcome:
Erosion of capital reserves through an aggressive dividend policy, even in years where profit was nonexistent.Evaporation of profitability through a relentless focus on growing beyond the core farmer businesses, despite not seeming to have a full understanding of how the wider market functioned.Lack of focus on realigning the cost base to reflect the market.Ironically, it was announced this week that FBD has become the largest insurer in the country. However, as Eoin Lowry details on pages 18 and 19, the increased market share was delivered on the back of competitors offloading high-risk business – business that was subsequently absorbed by FBD either through brokers or the No Nonsense budget brand.
While insurance is not an exact science, there is one governing principle: short-term profitability can be achieved by increasing the quantity of business being underwritten but long-term profitability is only safeguarded by underwriting and servicing increasing quantities of quality business. Clearly, the structures necessary to interrogate the quality of the business being secured by FBD were either not in place or were ignored in the drive for market share.
So, what does the future hold? As farmers, we should not stand back and let the business be taken over at a rock-bottom price by a vulture fund. Supported by farmers’ money, FBD was born out of the IFA and the Irish Farmers Journal and it has served farmers well.
Despite current difficulties, we should not give up hope on growing a thriving FBD. A range of refinancing options must be explored along with developing a strategic plan that will return the business to long-term profitability. A growth strategy aligned to providing an increased range of financial services to farmers, as opposed to casting a wider net over the insurance industry, would appear much more in line with the DNA of the business.
FBD has a proven track record of operating profitably as a niche insurer to farmers. However, the wealth destruction caused by aligning the strategy to the demands of short-term market investors could question its future as a plc.
With FBD Co-op owning a 25% share in the plc, farmers are in a strong position to regain control, but it will come at a cost. Would buying an increased share holding in the plc better serve the Co-op’s interest than increasing its exposure to the property and leisure business?
Regardless of the method of refinancing, there is a clear need to focus activity back towards underwriting core profitable business and adjusting the cost structure accordingly. Given recent performance, it is natural that concerns are being raised over the existing board’s ability to deliver on either front.
There is no doubt the spotlight will also be shone on the performance of board members across FBD Developments and Holdings. What level of oversight, transparency and accountability was demanded to ensure the interests of farmer shareholders were protected?
The extent of the troubles within FBD Holdings became clear at the end of last week with the resignation of its CEO, Andrew Langford. During his seven years at the helm, Langford delivered growth along with what seemed to be strong financial performances. However, the last 18 months will go down as the worst in FBD’s 40-year history. Profitability has evaporated, share price has collapsed and the business now requires refinancing to generate an adequate capital buffer to meet new solvency requirements.
So, what went wrong? The easy and most comfortable position would be to simply blame the market. Unfortunately, problems within FBD run much deeper and stem largely from a strategy aligned to securing the approval of short-term market investors at the expense of developing a long-term sustainable business model. The outcome:
Erosion of capital reserves through an aggressive dividend policy, even in years where profit was nonexistent.Evaporation of profitability through a relentless focus on growing beyond the core farmer businesses, despite not seeming to have a full understanding of how the wider market functioned.Lack of focus on realigning the cost base to reflect the market.Ironically, it was announced this week that FBD has become the largest insurer in the country. However, as Eoin Lowry details on pages 18 and 19, the increased market share was delivered on the back of competitors offloading high-risk business – business that was subsequently absorbed by FBD either through brokers or the No Nonsense budget brand.
While insurance is not an exact science, there is one governing principle: short-term profitability can be achieved by increasing the quantity of business being underwritten but long-term profitability is only safeguarded by underwriting and servicing increasing quantities of quality business. Clearly, the structures necessary to interrogate the quality of the business being secured by FBD were either not in place or were ignored in the drive for market share.
So, what does the future hold? As farmers, we should not stand back and let the business be taken over at a rock-bottom price by a vulture fund. Supported by farmers’ money, FBD was born out of the IFA and the Irish Farmers Journal and it has served farmers well.
Despite current difficulties, we should not give up hope on growing a thriving FBD. A range of refinancing options must be explored along with developing a strategic plan that will return the business to long-term profitability. A growth strategy aligned to providing an increased range of financial services to farmers, as opposed to casting a wider net over the insurance industry, would appear much more in line with the DNA of the business.
FBD has a proven track record of operating profitably as a niche insurer to farmers. However, the wealth destruction caused by aligning the strategy to the demands of short-term market investors could question its future as a plc.
With FBD Co-op owning a 25% share in the plc, farmers are in a strong position to regain control, but it will come at a cost. Would buying an increased share holding in the plc better serve the Co-op’s interest than increasing its exposure to the property and leisure business?
Regardless of the method of refinancing, there is a clear need to focus activity back towards underwriting core profitable business and adjusting the cost structure accordingly. Given recent performance, it is natural that concerns are being raised over the existing board’s ability to deliver on either front.
There is no doubt the spotlight will also be shone on the performance of board members across FBD Developments and Holdings. What level of oversight, transparency and accountability was demanded to ensure the interests of farmer shareholders were protected?
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