Friday 28 October 2016

FBD shares plunge on fears it needs €100m capital injection

Insurance group to sell its stake in hotels

Donal O'Donovan and Colm Kelpie

Published 14/08/2015 | 02:30

FBD's La Cala golf resort situated on Spain's Costa Del Sol
FBD's La Cala golf resort situated on Spain's Costa Del Sol

Shares in insurance group FBD plunged as much as 7pc yesterday on reports the insurer may need up to €100m in fresh capital to meet new European Union solvency rules.

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FBD will sell its stake in a hotels business to its joint venture partner Farmer Business Development for €48.5m and issue bonds to meet the target, the Irish Independent understands.

The insurance group was rocked by the sudden departure of chief executive, Andrew Langford, at the end of July.

Chief financial officer Fiona Muldoon, the former head of banking and insurance supervision at the Central Bank, stepped in as interim CEO and is widely tipped to take on the top role. She joined FBD in March.

'The Farmers Journal' reported yesterday that a total capital injection of up to €100m could be required to ensure that the embattled insurer can meet tough new solvency rules due to take effect from the start of next year.

Around half of the money is likely to be raised from the sale of FBD's stake in a hotels business to its partner in the joint venture, Farmer Business Development.

Farmer Business Development - a farmers' group - is also the largest shareholder in the insurance group with a 25pc stake.

If a sale of the hotels is agreed, FBD is obliged to announce that to the market.

An issue of subordinated bonds is understood to be the preferred option to close the remaining financial gap.

A new share raising, which would potentially dilute existing shareholders, is not understood to be on the cards.

FBD is in a so called closed period, meaning the company is restricted in what it tells investors, until interim results due to be released on August 24

Shares in FBD closed down 6pc yesterday at €6.44 each and have fallen 44pc so far this year.

The shares traded at €19.30 each in January 2014.

FBD issued a number of profit warning last year on the back of increased customer payouts which the company said related to the economic recovery.

Emer Lang, an analyst at Davy Stockbrokers said the impact of a set of new Europe-wide rules for the insurance sector, known as Solvency II, is likley to be the key focus when FBD publishes its interim results at the end of the month.

"Speculation that Solvency II poses a challenge for FBD has intensified since the insurer's mid-May IMS when it reiterated that the continuing significant uncertainty in the claims environment will impact the development of booked claims reserves and profitability in 2015," Emer Lang said.

Irish Independent

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