Focus on Fairfax shares deal in FBD

Focus on Fairfax shares deal in FBD

Eamon Quinn

Canadian financial services giant Fairfax looks on course to convert its bond option into shares in insurer FBD in the coming months and the possibility of some sort of other deal might yet be on the table, FBD chief executive Fiona Muldoon has said.

Fairfax recapitalised and effectively bailed out the then-troubled insurer in a €70m funding by means of a 10-year convertible bond, with a 7% annual interest rate, in a deal completed in September three years ago. With FBD’s shares having long rebounded well above the conversion rate of €8.50, the financial services firm must convert to secure a stake of around 19% in FBD by March. But analysts say there could still be talks insurer could still talk to FBD about some sort of buyout of the bond, or for Fairfax to sell or increase its stake in FBD.

“There are a number of things that could happen… We have to wait and see,” said Ms Muldoon. “There is a raft of possibilities in there. At the moment we are working on the basis that we will maintain the good relationships we have had with them and have a dialogue around what happens next.”

Ms Muldoon was talking after FBD posted a pre-tax profit of €18.4m for the six months to the end of June, up strongly from €11.9m a year earlier, even as premiums rose only slightly to over €191.9m. Helped by reinsurance protection, FBD pegged the net cost of the severe winter storms to €6.6m after paying out €11m in claims linked to the storms. “Given the poor investment return, given the difficult weather, this is a strong result for us,” she said.

She said the costs of insurance will not come down until the costs of personal injury claims fall.

The insurer gave no further update on the progress of the investigation into Ms Muldoon which was started following a complaint by a senior executive. The company first revealed the investigation in a stock market announcement last month. The shares, which traded at €10.30, were down about 0.5% in the session. They have nonetheless climbed 25% in the past year.

Asked whether she felt vindicated by the 2015 Fairfax deal, Ms Muldoon said: “We did the best deal we could. We were in a very different place as a company back then. We were much weaker, a bit distressed from what had happened to us. I think Fairfax has done very well from their investment but so have our shareholders.” She said: “Fairfax took a risk on us at a time when others wouldn’t and they have been awarded for that. Their option to convert is coming now and we have to work with Fairfax to make sure whatever happens from here works as successfully as the last three years from our perspective and theirs.”

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