The 10% bounce in FBD’s share price has outlasted the denial by Protector Forsikring of Norway that its purchase of a 6.3% stake in the market is the precursor to a bid.

Protector is not one of the international insurance giants. Its market capitalisation is about three times that of FBD’s €250m, compared to Kerry, the agri-business heavyweight on the Irish exchange, which is 78 times the size, or Glanbia, 19 times the size.

But FBD is a significant player in the general (non-life) insurance business here, with an overall share in premium income of around 10%.

Three companies are bigger - Allianz, Axa and Aviva - and some others such as AIG, Liberty, RSA, and Zurich are not far behind.

Profits

Contrary to popular perception, there is significant competition in the non-life business and profitability has been cyclical.

Until COVID-19 came along, insurance industry profits had recovered from the downturn which followed the financial crash, but, over the cycle, general insurers tend to earn net profits in the low single digits when expressed as a percentage of premium income.

If your car insurance costs €500, a not-for-profit insurer would probably charge €470 or €480.

About half the industry’s premium income comes from motor, with the balance from property and liability lines.

FBD’s business is distributed across the major lines in proportions which roughly mirror the broader market.

Good and bad news

The industry has had good news and bad news recently.

The bad news is the cost of claims arising from business interruption during COVID-19.

FBD lost a High Court case last year and has provided €65m, net of reinsurance recovery, for this once-off event.

The other piece of bad news these last several years has been the poor return on financial assets that general insurers hold.

In addition to whatever they make, or lose, on the underwriting business, insurers get paid up front and earn interest on these prepayments, as well as on regulatory assets they hold.

But they typically maintain conservative and liquid portfolios, mostly bonds and deposits, on which returns have been dire.

Personal injury awards

The good news is the recent review of personal injury awards by the judicial council.

The industry had complained persistently that awards were excessive and have finally succeeded in securing new guidelines for court awards, which should result in lower claims and in less litigation, reducing legal bills.

Whether these benefits flow through to the bottom line and on to shareholders will depend on the extent of competition in the market – cost reductions can always be competed away to the benefit of policyholders instead and there is considerable political pressure to ensure that this happens.

FBD is the only listed Irish insurance company and it looks likely to remain independent for now.

But the financial services industry around Europe is in a consolidation phase, as seen in Ireland with the possible acquisition of Ulster Bank assets by AIB and of KBC assets by Bank of Ireland.

The FBD company has recruited a new shareholder, but could attract an actual acquirer in due course.