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FBD Insurance posted a loss of €4.4m in its core insurance underwriting business for 2020 as a result of the recent High Court ruling, which stated the insurer must pay out on business interruption claims made by publicans after the COVID-19 restrictions forced the closure of their premises.
Announcing full-year results for 2020 last week, FBD said it expects the net cost of paying out on all business interruption claims made by Irish publicans to be in the region of €65m.
The High Court is yet to rule on the amount which FBD must pay to publicans under its business interruption policy, meaning FBD’s exact liability from the court ruling won’t be known for a number of months.
In the meantime, FBD said it had already begun making interim payments to pub customers.
Speaking to the Irish Farmers Journal, FBD’s newly appointed CEO Tómas Ó’Mídheach said the insurer had received almost 1,000 claims from pub customers so far.
While the full amount owed to pub customers is still to be determined, Ó’Mídheach said FBD had already made €6m in interim payments to these customers since the High Court ruling.
In saying that, the average payment to pubs looks like it could be in excess of €100,000 based on the €65m provision FBD has set aside to cover all claims
In total, FBD has roughly 1,100 pub customers that are eligible to make a claim under their business interruption insurance policy.
There is likely to be a significant range in the payout size for different pubs given the major differences in profitability and claims size by each business.
In saying that, the average payment to pubs looks like it could be in excess of €100,000 based on the €65m provision FBD has set aside to cover all claims.
Ó’Mídheach said FBD has updated the wording of its business interruption policies since August to specifically exclude COVID-19 and other global health pandemics from being covered in future.
Underlying business
Despite the reported underwriting loss of €4.4m, FBD’s full-year results for 2020 are much better than expected. Market analysts had forecast underwriting losses to be as high as €14m.
Overall, FBD said it sold €358m worth of insurance policies in 2020, which was down 3% on the previous year but includes the payment of €12m in rebates to customers to reflect reduced activity due to COVID-19.
The insurer said its net cost of claims increased almost 50% last year to just over €221m.
During the year, FBD said it gained an extra 14,400 customers thanks to strong customer retention levels
However, this includes €54m in additional costs related to business interruption claims due to COVID-19.
The insurer said the remaining €19m increase in the cost of claims was due to movement in FBD’s prior-year reserves.
During the year, FBD said it gained an extra 14,400 customers thanks to strong customer retention levels and a double-digit increase in new business volumes.
Overall, FBD said insurance premiums were down 3% on average in 2020, as lower premiums for motor (-6%), farm (-2%) and house insurance (-2%) more than offset an increase in commercial insurance (+3%) costs.
Ó Mídheach said the market for farm insurance was growing increasingly competitive, with new entrants seeking to gain market share on FBD, which is by far the market leader when it comes to farm cover.
The FBD boss said the COVID-19 pandemic appears to have contributed to an increase in farm accidents last year, with people spending more time on farms than normal due to COVID-19 restrictions.
Outside of its core insurance business, FBD made returns from its portfolio of financial investments of €10.4m, down more than 40% year on year
While Ó Mídheach did not give any outlook for farm or motor insurance prices for the coming year, the insurer did say the insurance market in Ireland remains very competitive, with insurance prices on a downward trend, particularly in motors.
Investments
Outside of its core insurance business, FBD made returns from its portfolio of financial investments of €10.4m, down more than 40% year on year.
The €10.4m return from investments allowed the insurer to post a small pre-tax profit of €4.8m for its 2020 financial year, which is down 96% on the pre-tax profit of €112m it made for 2019.
Despite the hit on profits, FBD reported a healthy balance sheet for year-end. The insurer’s solvency ratio at the end of 2020, which is a key requirement for insurance companies, stood at 197%.
This time last year, FBD committed to hold a solvency ratio of at least 150% with the Central Bank of Ireland.
Despite the better than expected performance, FBD is taking a cautious approach to 2021 given the continuing uncertainty due to COVID-19 and has said it will not be paying a dividend to shareholders for its 2020 financial year.
Ó Mídheach said the business took a hit last year and was holding back from paying a shareholder dividend for 2020, as a result. He also confirmed that FBD would not be paying the 2019 dividend to shareholders.
The insurer had hinted last August that it might pay its 2019 dividend at some point in 2021
This time last year, FBD had announced a €1/share dividend for its 2019 financial year which amounted to €35m but decided to postpone paying it to shareholders when COVID-19 hit in March.
The insurer had hinted last August that it might pay its 2019 dividend at some point in 2021 but has now confirmed that it will not pay the dividend at all in order to conserve cash.
FBD’s annual dividend is an important income stream for a number of farmer organisations. Farmer Business Developments, the largest shareholder in FBD with a 24% stake in the company, was due to receive more than €8.5m from the 2019 dividend, while FBD Trust would have received €3m and the IFA would have received about €0.5m.
While the decision not to pay a dividend is prudent given the uncertainty created by COVID-19, the loss of both the 2019 and 2020 dividend to these organisations will be keenly felt.
There’s no doubt 2020 was an unprecedented year for FBD. A major flaw in its business interruption policy was exposed in the High Court ruling last month which is going to cost the company up to €65m. Other business sectors such as the hospitality industry (restaurants, hotels, etc) are also claiming they are owed money from insurers under business interruption policies they hold. Further court proceedings between the insurance industry and businesses is a possibility, while pressure is growing on the Central Bank of Ireland to intervene as it is the regulator.
How this will play out is not yet clear but it underlines the uncertainty facing the insurance industry.
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