Shares slump as FBD slashes earnings guidance

Shares in insurance company FBD Holdings slumped dramatically yesterday following the announcement that it is set to make a loss this year, its second earnings warning in six months.

Shares in the insurer plummeted by almost 25% yesterday morning following the release of its interim management statement in which it reduced its earnings per share guidance from 70-80c profit to a loss of between zero and 10c.

Shares recovered somewhat, leaving the total decrease at just over 18%.

In total, the company has taken a claims hit of €30m in addition to the €16m blow to profits announced in June, with FBD attributing the losses in yesterday’s surprise announcement to a “claims environment in recent months that has been far more challenging than expected”.

Following an internal review, a small number of medium-sized injury claims dating from 2011 and 2012 were discovered to be significantly more costly to the company due to factors such as the deterioration in claimants’ medical conditions or an increase in the probability of liability — resulting in a €13m charge.

FBD, however, insisted the developments were entirely random and that there was no reason to believe they had arisen due to a systematic failure.

A small number of large accident and liability claims — greater than €1m net of reinsurance — cost the company €7m more than expected in the four months to October.

Given the volatility in claims costs and earnings in recent months, the group is reducing the forecast result for the final quarter of the year by €10m, bringing the total hit to €30m.

Coupled with June’s €16m warning arising from motor- and weather-related claims, this year has proven extremely challenging thus far for the insurer, but it remains confident of delivering growth in the medium term.

“In 2014, FBD’s customers and the group’s profitability have been impacted by severe weather, an increase in frequency associated with economic growth, poor large claims experience, and adverse development of prior year injury claims.

“However, the growth in economic activity will have a very positive effect on FBD in the medium term, particularly given the group’s track record of outperforming the market,” the statement made to the Irish Stock Exchange reads.

A spokesperson for FBD said that premium increases for motor and home insurance were not on the cards but that personal liability premiums may rise as a result of yesterday’s announcement.

In the second half of the year, premiums across the insurer’s range of products increased by more than 4.5%, while the number of premiums fell 0.6%.

This, the company says, represents a shift in emphasis to rate-led growth that resulted in a rise in gross premium written of 4.1%.

The spokesperson added that a prudent decision to cut the profit guidance and to transfer money into the company’s reserves had been taken, with the statement adding that FBD’s priority is to ensure its claims reserves are more than adequate to meet customers’ claims at all times.

The board’s dividend policy remained unchanged due to its belief that the company is well-positioned to outperform the market in the medium term and deliver strong returns for shareholders.