FBD revises down 2014 earnings expectation

FBD revises down 2014 earnings expectation

Ireland-based insurer FBD has revised its guidance for 2014 as a result of an increase in claims frequency and weather-related claims. The company said that the combined impact of the two would be about €16m. An operating profit of between 70 to 80 eurocents a share is now anticipated, form a previous estimate of €1.20 to €1.30.

Premium levels in the Irish market were beginning to benefit from the country's economic recovery. "While the market has continued to be competitive, rates have hardened for both car insurance and business insurance", the company said.

In a trading statement update, FBD reported that gross written premiums for the year to date were up 4% on the same period in 2013. This was primarily through growth in car and commercial insurance. FBD said that, of that increase, three-fifths was attributable to average premium and the rest due to policy volume. FBD also expects its share of the insurance market to have increased further in the year to date.

On the downside, increased economic activity has also led to higher claims frequency, "with more vehicles driving more miles on increasingly congested roads". FBD said that this had impacted the frequency of attritional motor claims, up sharply in recent months. FBD noted that the increase was not restricted to any one segment of its motor book.

The insurer said that it had taken "appropriate rating action" to ensure that risks were correctly priced, but that it continued to gain market share, suggesting "that most of our competitors have also been adjusting their rates similarly". Although FBD said that the growth in economic activity would have a positive effect on the insurer's performance in the medium term, in the short term the increase in claims was likely to have an impact on profitability in 2014 and the first half of next year.

Meanwhile, FBD estimated that the cost of the persistent bad weather during late 2013 and the early part of this year had increased by €4m, net of reinsurance. The total cost of weather claims last winter for FBD customers, gross of reinsurance, now stands at €44m.

On a positive note, FBD said that large claims frequency in 2014 was in line with expectations and lower than the unusually high levels experienced in 2013.

Analyst Eamonn Flanagan of Shore Capital said that Shore Capital's dividend expectations remained unchanged following a reiteration of the group’s progressive dividend policy, which was supported by "a powerful and well-capitalised balance sheet. ".

He also predicted that FBD should benefit from a stronger rating environment in terms of market share gains and profitability. "The strength of FBD’s position in the Irish agri-insurance market, together with its successful diversification both by territory and distribution outlets."

Founded in the late 1960’s by Irish Farmers, FBD is an indigenous Irish organisation.

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