Despite announcing an €85m pre-tax loss for 2015, FBD under the new leadership of Fiona Muldoon has been on a path to recovery over the last six months and expects to return to profitability by this time next year.

The losses, which had been expected, were mainly driven by the need to put €96m aside for prior-year claims, with €88m of this accounted for in the first half of the year.

Following the €70m investment from Fairfax and the €48.5m from Farmer Business Developments, taking full ownership of the hotels and property business last year to strengthen the balance sheet, the task over the last number of months has been for Muldoon to strengthen, simplify, focus and de-risk the business.

Simplify and focus

Muldoon’s strategy is simple and refocuses FBD on its core, becoming once again a general insurance company along with a newly strengthened financial solutions business.

The first step in the strategy was to exit the hotels and property joint venture, along with selling other investment properties in the UK. It is currently selling the Passage East Ferry Company in Waterford.

The second step was to focus on a single brand strategy, which means that the No Nonsense low-cost insurance brand will be phased out by the end of March.

With the new focus implemented, it was inevitable that the current board structure was unnecessary for a more streamlined FBD.

The final step will be to have simpler corporate governance and board structure, which will be implemented over the coming months.

Muldoon is clear on the task at hand: the product and service offering need to be refined, the branch network needs to be leveraged, the capital strength needs to be rebuilt and, fundamentally, the business needs to return to profitability.

This last piece will not be an easy task for FBD, as the Irish insurance market remains highly competitive and loss-making overall.

Operating performance

FBD recorded an underwriting loss of €125m during 2015. While the business made an underwriting loss of €103m for the first half of the year, the second half showed a marked improvement, where a €22m loss was recorded.

This result was achieved through significantly de-risking the insurance book over the year. For example, the loss ratio decreased during the year from 79.1% to 78.3%.

The combined operating ratio (COR), which is a measure of operating profitability, where below 100% means a profit, improved from 110% in the first half to 101.5% in the second half.

The full year result was 105.7%. FBD is forecasting that it will have a sub 100% COR in the fourth quarter this year.

Furthermore, the losses in the first half were mainly driven by the need to put €96m aside for prior-year claims, where €88m of this had been accounted for in the first half.

The second revenue stream for all insurers is investment returns. FBD investments returned 2.2% which, although less than the 3.1% recorded in 2014, is still strong given the current low return environment.

Looking at the first half of 2015, the business had investment income of €5m, while in the second half it recorded an investment income of €15m, although a sale was included in this.

While gross written premiums did not change from the €363m recorded in 2014, policy volumes actually fell 9% as FBD followed a more prudent approach in booking new business. The majority of the volume decline was in motor, as it is the most unprofitable sector.

Taking decisive rating actions to return the business to profitability, rates increased 9% on average during the year.

However, the majority of rate increases were in motor, with very slight increases on farm business, which tends to be much lower risk.

The group warned that further pricing increases are warranted, given that the overall Irish insurance market continues to remain unprofitable, which is bad news for buyers of insurance in general.

Rationalisation and de-risking

Along with cutting 120 jobs, which will bring savings of €8m by the end of the year, the group closed the pension scheme to future accrual and severed the final salary link.

This brought a once-off accounting benefit of €28m to the balance sheet and will reduce balance sheet volatility into the future.

The business will also focus on direct customer relationships, particularly the insurance needs of farmers, leveraging its 32 offices nationwide. It has been writing significantly less business with brokers, who currently account for about 10% of the business.

To support and strengthen the business, a number of key senior management appointments have been made including a new interim chief financial officer and chief risk officer, with a chief commercial officer on the way.