FBD warned off deal to buy parts of Quinn Insurance
STOCKBROKERS Davy have warned FBD against buying any of embattled Quinn Insurance, describing a prospective deal as "not a risk worth taking".
The strongly-worded warning came in a Davy research note, which also saw the broker upgrade its FBD earnings forecast and predict higher dividends from 2011.
FBD had been tipped as a potential bidder for some of the up-for-auction Quinn Insurance business, but Davy's analysts say the plc should play no part in any deal.
The research note points to the known €200m solvency deficit at Quinn Insurance. "We are firmly of the opinion that FBD should not be looking to raise capital from shareholders [to cover the solvency shortfall]," the note adds.
Davy is also concerned about the potential for FBD to "jeopardise" its own solvency ratio, which stands at nearly three times the regulatory minimum, by taking on Quinn.
The analysts go on to cite "concerns" about an actuarial review recently submitted to the High Court which shows a €68m under provision for liabilities in 2009.
Aside from the pure finances, Davy says any deal could "threaten the FBD brand". "FBD adopts a different approach to Quinn with regards to claims settlement, and a merger of the two operations . . . cause a culture clash," the note adds.
The brokers are concerned about the potential for FBD's brand to be "tarnished" by the "significant layoffs" that would inevitably flow from any deal.
Davy's other arguments against any deal include the "lengthy" timescale of an administrator-led sales process.
"Ultimately . . . we think that FBD has sufficient organic growth opportunities in its current business to ignore a bid for Quinn Insurance as a whole," the report concludes, adding that the Financial Regulator was likely to favour a whole-of-business sale.
FBD boss Andrew Langford has previously said he would "certainly" look at buying parts of Quinn if a deal could "enhance shareholder value".
Noting the comments, Davy said "we would expect that FBD and many other parties that have expressed interest [in Quinn] want to see the insurer's detailed accounts, which are less available than those for its quoted peers".
An information memorandum on Quinn is expected to be circulated over the coming days. FBD has not confirmed whether it has asked for the document. A spokesman yesterday dec- lined to be drawn beyond Mr Langford's previous statement.
On more general trading, Davy said FBD's return to premium growth in the first half of the year and a "hardening" of market-wide general insurance rates was cause for "optimism".
Davy is upgrading its forecast for 2010's full-year earnings per share by 5pc.