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Despite the company announcing yesterday (Tuesday) that storm Ophelia could hit the insurer to the tune of €4m to €6m, investors reacted positively to the news that the company continues to see “a steady improvement in our financial performance from both better risk selection and improved price adequacy”.
Shares rose to a two-year high and closed 11.5% up at €8.90 on Tuesday. Shares had dipped on the day of the storm but are still 40% higher than one year ago.
Fiona Muldoon, CEO, said that in the absence of further severe weather this year, the company is now on course to deliver “low double-digit return on equity” earlier than previously indicated.
This news gave shareholders confidence in the insurer, leading to the significant increase in the share price.
She added that if the weather is “reasonably benign” for the remainder of 2017, “this return is achievable in this financial year”.
The insurer also indicated that its new reinsurance programme provides good cover in extreme events such as that of Storm Ophelia.
It says this reinsurance will mitigate the cost of claims to FBD to €2.5m.
However, the overall net impact to the income statement from this storm is expected to cost in the range of €4m to €6m. This is after the payment of an additional reinsurance premium to reinstate its catastrophe weather limits for the balance of the year.
Storm Darwin
In 2014, Storm Darwin hit the insurer for a massive €15.2m (net of reinsurance), inclusive of reinstatement premiums.
The cost of the most recent storm is less severe and reassures investors that there is less damage and also that FBD has better management of its reinsurance contracts three years on.
In August, FBD said its target was to continue progression towards a return on equity in the low teens. However, it did not outline how or when this would be achieved.
Tuesday’s announcement provides clarity for shareholders that this looks likely in 2017.
The improving performance may see FBD return to paying a shareholder dividend earlier than previously expected.
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