FBD may take €50m hit from Covid pay-outs

FBD had set aside €30m to cover costs which are now likely to be considerably higher following the High Court, earlier this month, ruling that the insurer must pay out cover to four pubs for Covid-related trading losses.

FBD is expected to take a €50m earnings hit from having to pay out Covid disruption insurance to pub and restaurant policyholders.

The insurer is due to publish its 2020 annual results next week. Those figures are likely to show a breakeven position, compared to profits of over €112m in 2019. 

FBD coming out on the wrong side of an initial dispute over business interruption cover has basically wiped out those profits.

FBD had set aside €30m to cover costs in the event of losing the recent test case concerning business interruption insurance. 

Those costs are now likely to be considerably higher following the High Court, earlier this month, ruling that FBD must pay out cover to four pubs for Covid-related trading losses.

That ruling also opened the door for payments to around 1,300 publicans that have the same policy with FBD.

The overall cost to FBD will cover business interruption insurance money it has to pay out to all relevant policyholders, money it owes its own re-insurers and whatever legal costs it has to pay.

However, a dispute over legal costs has arisen between FBD and the four pubs who took the insurance test case against it.

Next week’s earnings may not show the full impact of business interruption costs, but “significant clarity” is expected to be provided.

“We would expect an additional €20m provision, bringing the full provision to €50m recognised in 2020, with re-insurance covering a substantial proportion of the gross claims,” said Davy analyst Diarmaid Sheridan.

"The conclusion of the case will enable focus to return to the underlying business and its solvency position, which we expect to remain robust," he said.

FBD is still expected to pay out €35m in shareholder dividends for 2019, but a final decision on payment is only expected to be made later this year.

It will be largely dependent on more visibility on business interruption cases yet to materialise and the overall post-Covid business climate.

Meanwhile, FBD's High Court challenge over the investigation by the Financial Services and Pensions Ombudsman of a publican's complaint over the insurer's refusal to pay out for a business interruption claim due to the pandemic has been withdrawn.

Last year FBD Insurance secured permission from the High Court to seek to have the Ombudsman's investigation of a complaint made by Phil Flannery's of Denmark Street Ltd judicially reviewed.

The matter was briefly mentioned before Mr Charles Meenan, at the High Court. 

The judge was told that the FBD case was being withdrawn and could be struck out.

The court also heard that FBD would be making contributions to the notice party and the ombudsman's costs.

In its action FBD had claimed the investigation should be discontinued because [the aforementioned] four test cases raised the same issues that were the subject of Phil Flannery's complaint.

This needless duplication would result in it incurring additional legal costs.