Wednesday 28 June 2017

FBD boss predicts end to run of plunging insurance premiums

Laura Noonan

Laura Noonan

THE general insurance industry's eight-year run of plunging premiums is likely to end in 2010, FBD chief executive Andrew Langford predicted yesterday.

The comments came as the plc revealed a return to premium growth in the first half of the year, amid what he said were hardening rates across the industry.

Mr Langford said that while industry-wide motor premiums might have another "5pc or 10pc to go", the market no longer needed "substantial increases" to balance the books.

The improved premium environment helped FBD confine the operating profits fall at its insurance division to just €700,000 for the half year, despite booking €12m of exceptional weather claims.

FBD also reported dramatically improved pretax losses for the half year amid lower writedowns, and the insurer upped its interim dividend by .5c to 10.5pc a share in the belief that "volatility will continue to reduce". But it wasn't all good news, with €17.7m worth of impairments largely linked to FBD's Irish hotels portfolio disappointing some observers despite FBD's overall expectation-beating results.

Mr Langford last night ruled out selling them on or doing anything "radical" to rejig them, stressing the "quality" of the portfolio.

Addressing analysts yesterday, the FBD boss highlighted the "very solid operating performance" over the period, with group-wide operating profits falling by just €1.7m.

The main contributor to the €11.3m of operating profits was the core insurance business, which accounted for €9.4m as premiums rose for the first time since 2007.

"For the last eight years in a row, industry premium has contracted," Mr Langford told analysts, citing falling rates from 2002 coupled with the more recent phenomenon of falling insurable risk, as lower levels of activity in the economy trigger lower insurance needs.

"This year it's looking likely that industry premium will be stable or growing," he added. "Now you've begun to see other players in the market putting their rates up . . . we are beginning to grow volume again."

As well as the benign premium environment, FBD is also selling more policies to businesses, while greater targeting of the Dublin market saw the capital contribute 14pc of all premiums in the first half against 11.5pc.

Mr Langford also stressed that FBD made "good progress" on its cost base, something that was "being masked by the cost of weather events".

"We believe that our underwriting business is particularly robust," he said, stressing that FBD had the opportunity to grow "geographically and in business segments".

Speaking to the Irish Independent, he declined to be drawn on FBD's potential as a buyer for embattled Quinn Insurance beyond repeating that the plc would "examine" the portfolio.

Outside insurance, FBD's leisure/property division recorded operating losses of €800,000. Mr Langford said the group's Sunset Beach resort in Spain had put in an "excellent" performance, while 24 units had been sold at fellow Spanish project La Cala, albeit at reduced prices.

"The four hotels in Ireland are all excellent products . . . they're suffering because of oversupply," he said. "That's something that needs to be addressed. Oversupply is not in anybody's interests.

The four Irish hotels were also cited as the "primary" drivers of a €17.7m write-down in FBD's assets portfolio. The exercise brings cumulative impairments across the hotels to 45pc, with individual properties written down by between 34pc and 63pc.

The performance wasn't lost on analysts, with Davy's noting the "disappointing" adjustments to hotel valuations and pointing out that the division "continues to weigh on the outlook for the group".

"There are no plans not to own them [the hotels] in the near future," Mr Langford said last night. "There's no drag on cash resources in the group; they're a quality business and they'll recover."

Irish Independent

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